<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1996
REGISTRATION NO. 333-4873
=============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------
U.S. GOLF AND ENTERTAINMENT INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Delaware 7999 11-3320969
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4 Henry Street
Commack, New York 11725
(516) 499-7007
(Address and telephone number of principal executive
offices and principal place of business)
------
Edward C. Ross, Chairman
U.S. Golf and Entertainment Inc.
4 Henry Street
Commack, New York 11725
(516) 499-7007
(Name, address and telephone number of agent for service)
------
Copies to:
Norman M. Friedland, Esq. Harold E. Berritt, Esq.
David R. Fishkin, Esq. Michael G. Taylor, Esq.
Ruskin, Moscou, Evans & Faltischek, P.C. Rubin Baum Levin
170 Old Country Road Constant Friedman & Bilzin
Mineola, New York 11501 200 South Biscayne Boulevard
(516) 663-6600 25th Floor
(516) 663-6641 (fax) Miami, Florida 33131
(305) 374-7580
(305) 374-7593 (fax)
------
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the Registration Statement becomes effective.
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, check the following box: [X]
------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Security (1) Price (1) Registration Fee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share(2) 1,265,000 $5.00 $ 6,325,000 $2,181.03
- -------------------------------------------------------------------------------------------------------------------------
Stock Purchase Warrants(3) ............ 110,000 $ .001 $ 110 $ .038
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share(4) ............................. 110,000 $6.50 $ 715,000 $ 246.55
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share(5) ............................. 700,000 $5.00 $ 3,500,000 $1,206.90
- -------------------------------------------------------------------------------------------------------------------------
Total Registration Fee(6) ................................................................... $3,634.52
=========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Based on the offering of 1,100,000 shares of Common Stock and 165,000
shares of Common Stock pursuant to the over-allotment.
(3) To be issued to the Underwriter; the resale thereof is also covered
hereby.
(4) Represents shares of Common Stock issuable upon the exercise of the
Stock Purchase Warrants; the resale thereof is also covered hereby.
(5) Represents shares of Common Stock held by the Selling Stockholders (the
"Additional Stock"); the resale thereof is also covered hereby.
(6) A Registration Fee of $13,141 was paid in connection with the initial
filing of the Registration Statement on May 31, 1996. A refund of
$9,506.48 is hereby requested upon the filing of this Amendment No. 1.
Also registered hereunder are an indeterminable number of shares of Common
Stock which may be issued pursuant to anti-dilution provisions of the Stock
Purchase Warrants.
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number Caption in Form SB-2 Location in Prospectus Page
------------- ------------------------------------------ -------------------------------------------- --------
<S> <C> <C> <C> <C>
1. Forepart of the Registration Statement and N/A
Outside Front Cover Page of Prospectus ..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of N/A
Prospectus.................................. Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors........ Prospectus Summary; Risk Factors 3; 6-10
4. Use of Proceeds............................. Use of Proceeds 11
5. Determination of Offering Price............. Outside Front Cover Page; Underwriting 32
6. Dilution ................................... Dilution 12
7. Selling Security Holders.................... Selling Stockholders; Plan of Distribution 29
8. Plan of Distribution........................ Outside Front Cover Page; Selling Stockholders;
Plan of Distribution; Underwriting 29; 32
9. Legal Proceedings .......................... Business - Legal Proceedings 21
10. Directors, Executive Officers, Promoters and
Control Persons............................. Management 22
11. Security Ownership of Certain Beneficial
Owners and Management ...................... Principal Stockholders 25
12. Description of Securities................... Description of Securities; Underwriting 26; 32
13. Interest of Named Experts and Counsel ...... Legal Matters 34
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ............................... Management -- Limitation of Liability and
Indemnification Matters 24
15. Organization Within Last Five Years......... Certain Transactions 26
16. Description of Business .................... Prospectus Summary; Capitalization; 3; 13;
Management's Discussion and Analysis of Financial 15-17;
Condition and Results of Operations; Business; 18-21;
Financial Statements F1-F25
17. Management's Discussion and Analysis of Plan
of Operation ............................... Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-17
18. Description of Property .................... Business - Properties 20
19. Certain Relationships and Related
Transactions .............................. Certain Transactions 26
20. Market for Common Equity and Related
Stockholder Matters ........................ Shares Eligible for Future Sale; Description of
Securities 28; 26
21. Executive Compensation ..................... Management 22-24
22. Financial Statements ....................... Financial Statements F1-F36
23. Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosures................................. Inapplicable N/A
</TABLE>
<PAGE>
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.
PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER , 1996
U.S. GOLF AND ENTERTAINMENT INC.
1,100,000 SHARES OF COMMON STOCK
As described below, the offering of up to an additional 700,000 shares of
Common Stock is being registered on behalf of certain selling stockholders
(the "Selling Stockholders") and such shares of Common Stock will not be
offered as part of the underwritten offering; however, if such shares are
sold prior to the second anniversary of the date of this Prospectus (the
"Effective Date"), the Selling Stockholders will receive a maximum of $2.90
per share in the case of 500,000 shares of Common Stock and a maximum of
$1.25 per share in the case of 200,000 shares of Common Stock, and the
proceeds from any sale of these shares of Common Stock in excess of the sale
price of $2.90 per share or $1.25 per share, as the case may be, shall inure
to the Company as working capital.
This Prospectus relates to an offering (the "Offering") of 1,100,000
shares of common stock, par value $.001 per share (the "Common Stock"), of
U.S. Golf and Entertainment Inc. (the "Company").
This Prospectus also relates to the sale of 700,000 shares of Common Stock
(the "Additional Stock") issued by the Company to certain persons (the
"Selling Stockholders"). The Additional Stock will not be offered as part of
the Offering. The Company will receive proceeds from the sale of the
Additional Stock by the Selling Stockholders in excess of $2.90 per share in
the case of 500,000 shares of Additional Stock and $1.25 per share in the
case of 200,000 shares of Additional Stock. See "Certain Transactions" and
"Selling Stockholders; Plan of Distribution."
As of September 30, 1996, the Company and its constituents had accumulated
losses of $736,517. The Company is continuing to incur losses and could incur
significant additional losses for the foreseeable future. Prior to the
Offering, there has been no market for the Securities. The offering price of
the shares of Common Stock was determined by negotiation between the Company
and the Underwriter and is not necessarily related to the Company's assets,
book value, results of operations, or other established criteria of value,
and should not be regarded as any indication of the future market price of
the Securities. See "Risk Factors," "Description of Securities" and
"Underwriting."
------
THE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. IN ADDITION,
PURCHASERS OF THE SECURITIES WILL SUFFER IMMEDIATE SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AND "DILUTION."
------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
<TABLE>
<CAPTION>
======================================================================================================
Underwriter's Discounts Proceeds to the Company
Price to the Public and Commissions (1) (2)(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock .......... $5.00 $.50 $4.50
- ------------------------------------------------------------------------------------------------------
Total Offering (3) .... $5,500,000 $550,000 $4,950,000
======================================================================================================
</TABLE>
FIRST UNITED EQUITIES CORPORATION
200 GARDEN CITY PLAZA
GARDEN CITY, NEW YORK 11530
(516) 739-4500
THE DATE OF THIS PROSPECTUS IS _________________, 1996
<PAGE>
(Continued from preceding page)
- ------
(1) See "Underwriting" for additional compensation to the Underwriter
consisting of (i) three (3%) percent of the gross proceeds of the
Offering ($165,000, or $189,750 if the Over-Allotment Option (as defined
below) is exercised in full as a non-accountable expense allowance, of
which $25,000 has been paid to date, (ii) warrants (the "Stock Purchase
Warrants") exercisable for four years, commencing one year from the
Effective Date, to purchase 110,000 shares of Common Stock at a price of
$6.50 per share, (iii) a right of first refusal regarding future public
and private offerings of the Company's securities for three years
following the Effective Date, (iv) a $108,000 financial consulting fee
pursuant to a 3-year consulting agreement, and (v) a fee of 5% of the
first $5,000,000 and 2.5% of the excess over $5,000,000 of the
consideration received or paid by the Company in connection with certain
mergers, acquisitions or joint ventures introduced by the Underwriter to
which the Company is a party for a period of three (3) years from the
Effective Date. In addition, the Company has agreed to indemnify the
Underwriter against civil liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting" for other
agreements between the Company and the Underwriter which may be
considered additional underwriting compensation.
(2) Assuming the Over-Allotment Option is not exercised, and before deducting
offering expenses payable by the Company. The Selling Stockholders will
not bear any expense related to the Offering.
(3) The Company has granted to the Underwriter a 45-day option to purchase up
to an additional 165,000 shares of Common Stock at the price to the
public less Underwriter's discounts and commissions, solely to cover over
allotments, if any (the "Over-Allotment Option"). If the Over-Allotment
Option is exercised in full the total price to the public, Underwriter's
discounts and commissions and proceeds to the Company will be $6,325,000,
$632,500 and $5,692,500, respectively. See "Underwriting".
The shares of Common Stock offered by this Prospectus are offered by the
Underwriter on a firm commitment basis subject to prior sale, when, as and if
accepted by the Underwriter and subject to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates evidencing the Common Stock will be made at the offices of the
Underwriter, 200 Garden City Plaza, Garden City, New York, 11530 on or about
, 1996.
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
A SIGNIFICANT AMOUNT OF THE COMMON STOCK TO BE SOLD IN THIS OFFERING MAY
BE SOLD TO CUSTOMERS OF THE UNDERWRITER. THIS MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S COMMON STOCK IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S COMMON STOCK, OF WHICH
THERE CAN BE NO ASSURANCE.
ALTHOUGH THE UNDERWRITER HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY
FROM TIME TO TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN
THE COMPANY'S COMMON STOCK. IF THE UNDERWRITER PARTICIPATES IN THE MARKET, IT
MAY BECOME A DOMINATING INFLUENCE IN THE MARKET FOR THE COMMON STOCK.
HOWEVER, THERE IS NO ASSURANCE THAT THE UNDERWRITER WILL BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE COMMON STOCK OFFERED HEREBY MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE OF THE UNDERWRITER'S PARTICIPATION IN
SUCH MARKET. THE UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR
FROM TIME TO TIME. SEE "RISK FACTORS -- NO PRIOR TRADING MARKET."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2, pursuant to the
Securities Act of 1933, as amended (the "Act"), with respect to the Common
Stock offered by this Prospectus. This Prospectus does not contain all the
information set forth in said Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to said Registration Statement and
exhibits which may be inspected without charge at the Commission's principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Registration Statement including the exhibits thereto, can also be
accessed through the EDGAR terminals in the Commission's Public Interest
Rooms in Washington D.C. or through the World Wide Web at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such interim reports as it deems
appropriate or as may be required by law. The Company's fiscal year ends
December 31.
The Company will provide without charge to each person who receives this
Prospectus, upon written or oral request of such person, a copy of the
Registration Statement (excluding exhibits) by contacting the Company at 4
Henry Street, Commack, New York 11725, telephone (516) 499-7007, attention:
Chief Financial Officer.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including risk factors, and the financial statements appearing
elsewhere in this Prospectus. The Common Stock offered hereby involves a high
degree of risk, including, without limitation, risks relating to the
Company's limited history of operations, operating losses which are expected
to continue, potential need for additional funds, intense competition,
dependence on key personnel, and the compensation payable to the Underwriter.
See "Risk Factors." Unless otherwise indicated, (i) all information in this
Prospectus assumes no exercise of the Underwriter's over-allotment option and
(ii) reference to the Company means the Company and its constituent entities.
THE COMPANY
U.S. Golf and Entertainment Inc. (the "Company") is seeking to become a
national owner/operator of upscale, high-volume, golf practice and
instructional centers and related recreational facilities. The Company's
facilities are intended to provide attractive and affordable practice and
teaching venues to a large and increasing golf population. The Company
currently operates the Commack Golf and Family Recreation Center, a modern
19-acre, 120-tee facility located in central Long Island (the "Commack Golf
Center"). The Commack Golf Center offers year-round facilities for driving,
pitching, putting, chipping and sand play, as well as an 18-hole miniature
golf course, a snack bar, a full-service pro shop and a golf learning center.
The Company's management believes that their business experience, marketing
skills and industry relationships will provide the Company with opportunities
to acquire and/or open other golf practice facilities and learning centers.
Over the past decade, the popularity of golf throughout the United States
and the demand for golf courses and golf driving range facilities has
experienced continued growth. According to the National Golf Foundation
("NGF"), the number of golfers in the United States increased to
approximately 25 million players in 1995 from approximately 21.2 million
players in 1987. Management believes that this trend will continue for the
foreseeable future as golf becomes an increasingly popular recreational
activity. Industry statistics of the NGF indicate that women and juniors are
learning and playing golf in increasing numbers. Management believes these
population segments will be important factors in increasing the demand for
golf practice and instructional facilities of the type the Company presently
owns and intends to open in the future.
The Commack Golf Center was opened in March, 1995, and had incurred losses
of $423,419 for the period from March 1, 1995 to December 31, 1995 and
$310,132 for the nine month period ended September 30, 1996, on revenues of
$719,374 and $710,967, respectively, for such periods.
The Company's strategy involves opening new golf practice centers and
acquiring existing well-located centers. The Company recognizes that the
fragmented state of the golf practice industry presents numerous
opportunities for the Company to acquire, upgrade and renovate golf
facilities and to realize economies of scale through efficiencies of
management, purchasing and marketing. According to the Golf Range and
Recreation Association of America, more than 90% of the approximately 1,900
stand-alone golf driving ranges in the United States are managed by
individual owner-operators, many of whom lack the experience, expertise and
financial resources to compete effectively in the industry. The Company
currently has no definitive agreements with respect to the acquisition or
development of additional golf practice centers or related recreational
facilities, except for an option to acquire, from its Senior Vice President
at fair market value, rights to operate a golf practice facility and pro shop
at Bethpage State Park, a well-known multiple golf course facility.
The Company's executive offices are located at 4 Henry Street, Commack,
New York 11725. The Company's telephone number is (516) 499-7007.
3
<PAGE>
THE OFFERING
Securities Offered by the
Company(1) .................. Common Stock -- 1,100,000 shares of Common
Stock
Offering Price .............. $5.00 per share of Common Stock
Securities Offered by the
Selling Stockholders......... The Prospectus also relates to the offer and
sale of up to 700,000 shares of Common Stock
by certain Selling Stockholders (the
"Additional Stock"). Such shares of Common
Stock will not be offered as part of the
underwritten offering. If sold within two
(2) years of the Effective Date, the Company
will receive the proceeds of the sale of
Common Stock by the Selling Stockholders in
excess of $2.90 per share in the case of
500,000 shares of Common Stock to be sold by
certain of the Selling Stockholders, or
$1.25 per share in the case of 200,000
shares of Common Stock to be sold by certain
other Selling Stockholders. All of the
Additional Stock is subject to a two-year
lock-up period from the Effective Date.
However, the Underwriter may, in its sole
discretion, release any or all of the
Additional Stock from such lock-up at any
time on or after to the Effective Date. See
"Selling Stockholders; Plan of
Distribution."
Common Stock Outstanding:
Prior to the Offering(2) .... 1,245,000 shares of Common Stock
After the Offering(2)(3) .... 2,345,000 shares of Common Stock.
Use of Proceeds.............. Repayment of Bridge Loans and certain short
term liabilities; leasing, acquisition and
opening of golf centers and related
recreational facilities; development of
additional recreational facilities at the
Commack Golf Center and working capital. See
"Use of Proceeds."
Proposed NASDAQ
Symbol (4) .............. Common Stock -- USGO
4
<PAGE>
- ------
(1) Does not include 165,000 shares of Common Stock reserved for issuance
upon the exercise of the Underwriter's Over-Allotment Option.
(2) Does not include: (i) 900,000 shares of Common Stock reserved for
issuance upon the exercise of options under the Company's 1996 Stock
Option Plan, of which options to purchase an aggregate of 650,000 have
been granted to Messrs. Stuart Goldstein, Edward Ross and Chuck Workman,
executive officers of the Company; and (ii) 100,000 shares of Common
Stock reserved for issuance upon the exercise of options under the
Company's 1996 Non-Employee Director Stock Option Plan, of which options
to purchase 5,000 shares have been granted to Mr. Garry Howatt, a
non-employee director of the Company's Board of Directors. See
"Management -- Stock Option Plans" and "Certain Transactions."
(3) Does not include: (i) up to 110,000 shares of Common Stock issuable upon
the exercise of the Stock Purchase Warrants; or (ii) up to 165,000 shares
of Common Stock issuable upon the exercise of the Underwriter's
Over-Allotment Option; or (iii) 110,000 shares of Common Stock issuable
upon the exercise of warrants issued pursuant to a private offering to
accredited investors of an aggregate of (x) 110,000 common stock purchase
warrants (the "Bridge Warrants") and (y) $836,000 of 15% promissory notes
(the "Bridge Loans"), pursuant to a Confidential Private Placement
Memorandum dated October 23, 1996 (the "PPM").
(4) The Company has applied for listing on the NASDAQ SmallCap Market. A
NASDAQ SmallCap listing provides no assurance that an active, liquid
trading market will develop or, if developed, will be sustained.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Commencement of
Operations From Nine Months
March 1, 1995 to Ended September
December 31, 30,
Statement of Operations Data 1995(1) 1996(1)
--------------------------------------------- ------------------ -----------------
(Unaudited)
<S> <C> <C>
Operating Revenue ........................... $ 719,374 $ 710,967
Operating Expenses .......................... $1,021,666 $ 906,902
Selling, General and Administrative Expenses $ 87,555 $ 93,003
Loss From Operations ........................ $ (389,847) $(288,938)
Interest Expense ............................ $ 33,572 $ 21,194
Net Loss .................................... $ (423,419) $(310,132)
Pro Forma Net Loss(2) ....................... $ (626,419) $(496,098)
Pro Forma Net Loss Per Share(2) ............. $ (.50) $ (.40)
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995(1) September 30, 1996 (Unaudited)
-------------- ----------------------------------------------
As
Actual(3) Pro Forma(3) Adjusted(4)
------------ -------------- -------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents . $ 345 $ 52,717 $ 287,592 $3,602,230
Working Capital (Deficit) . $ (999,223) $ (660,557) $(1,261,682) $3,203,931
Total Assets .............. $3,053,334 $2,972,790 $ 3,207,665 $6,436,690
Current Liabilities ....... $1,132,493 $ 757,446 $ 1,593,446 $ 442,471
Total Stockholders' Equity $1,752,581 $1,983,983 $ 1,382,858 $5,762,858
</TABLE>
- ------
(1) Represents financial data of Commack Golf and Family Recreation Center,
L.P., the only operating entity.
(2) Reference is made to Note 1 of Notes to Financial Statements of the
Company.
(3) Represents financial data of the Company.
(4) Assumes (i) net proceeds of $4,380,000 from the issuance of 1,100,000
shares of Common Stock and (ii) the repayment of debt. See "Use of
Proceeds."
5
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk, and should not be purchased by persons who cannot afford the loss of
their entire investment. Prospective investors should carefully consider the
following risk factors, in addition to other information set forth in this
Prospectus, prior to purchasing the securities.
Limited History. The Company's only golf practice and instructional
center, a 120-hitting tee facility located in central Long Island, (the
"Commack Golf Center") opened in March, 1995 and, accordingly, has only a
limited history of operations. The Commack Golf Center revenues during the
first nine months of the current calendar year were $710,967 as compared to
$719,374 for the preceding ten month period. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by a small business in a highly competitive industry.
Net Losses. Net losses for the Commack Golf Center were $423,419 for the
period from March 1, 1995 to December 31, 1995 (on revenues of $719,374), and
were $310,132 for the nine months ended September 30, 1996 (on revenues of
$710,967). The Company's operating expenses can be expected to continue to
increase as a result of the Company's proposed expansion strategy. See
"Possible Difficulties in Implementing Expansion Strategy" below.
Accordingly, although the Company has experienced increased revenues at the
Commack Golf Center in the first nine months of fiscal year 1996 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"), the Company expects to continue to incur losses until revenues
generated by expanded operations are sufficient to offset operating and
expansion costs. There can be no assurance, however, that the Company will
operate profitably in the future or that the Company will successfully
acquire or develop other profitable operating facilities. See "Business" and
"Financial Statements."
Single Location. The Commack Golf Center is the only facility currently
operated by the Company. Accordingly, a variety of factors relating to
operating at only one location could affect the ongoing viability of the
Company's business. These factors include local economic conditions, adverse
publicity, accidents that could damage or destroy the Commack Golf Center and
competition from other golf facilities.
Possible Difficulties in Implementing Expansion Strategy. The Company's
ability to significantly increase revenue and operating cash flow over time
depends in large part upon its success in operating, acquiring and opening
additional golf centers and related recreational facilities. There can be no
assurance that suitable expansion opportunities will be available, or that
the Company will be able to open or acquire facilities on satisfactory terms,
if at all. The construction of new golf practice centers is subject to all of
the delays and uncertainties associated with construction projects generally.
In addition, the Company's ability to expand will be dependent on an
availability of additional financing, and there can be no assurance that such
financing will be available or, if available, on terms acceptable to the
Company. See "--Additional Financing Requirements" below.
To successfully implement its expansion strategy, the Company must develop
administrative operating systems and procedures to manage multiple facilities
and there can be no assurance that these systems and procedures can be
developed or implemented in an efficient, cost-effective manner. If new
facilities are opened in the future, they must be integrated into the
Company's existing operations, and there can be no assurance that these
additional facilities can be easily assimilated into the Company's operating
structure. If the Company is not able to efficiently develop appropriate
operating systems and procedures or integrate acquired or newly-opened
centers with its existing operations, the Company's financial condition and
results of operations could be materially adversely affected. The Company
currently has no definitive agreements with respect to the acquisition or
opening of additional golf practice centers other than an option to acquire,
from its Senior Vice President, the rights to operate the golf practice
facility and pro shop at Bethpage State Park. There can be no assurance that
this option would be exercised prior to mid-1997, nor can there be any
assurance that such option will be exercised at all, or, if it is exercised,
that it will be on terms that are favorable to the Company.
Competition. The golf driving range business is competitive and includes
competition from golf courses as well as other forms of recreation. Certain
of the Company's competitors have considerably greater financial, marketing,
personnel and other resources than the Company, as well as greater experience
and customer recog-
6
<PAGE>
nition than the Company. In the Long Island market, the Company faces strong
competition from other freestanding golf driving ranges and from numerous
public and private golf courses which offer golf practice facilities. While
management believes that the location and the amenities associated with the
Commack Golf Center provide it with certain competitive advantages, there can
be no assurance that the Company will be able to successfully compete with
its competitors.
Seasonal Results. The Company's revenues from the Commack Golf Center for
the period from April through October are expected to account for the
greatest portion of the Company's operating revenue. Similar results are
expected for the other facilities the Company may open or acquire. This
seasonal pattern is expected to cause the Company's results of operations to
vary significantly from quarter to quarter. Accordingly, period-to-period
comparisons are not necessarily meaningful and should not be relied on as
indicative of future results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Additional Financing Requirements. Management believes that the proceeds
of the Offering and the cash flow from the Commack Golf Center operations
will be sufficient to permit the Commack Golf Center to conduct its
operations as currently contemplated for a minimum of 18 months. Although
such belief is based on management's best judgment, there can be no assurance
that the assumptions underlying this belief will prove accurate or that
circumstances beyond the Company's control will not materially adversely
affect the Company's financial condition and results of operations.
Debt Financing. The Company's expansion strategy is dependent upon the
availability of the capital to be raised in the Offering and the availability
of debt financing to cover approximately 50% of the cost of developing each
additional facility. There can be no assurance, however, that such debt
financing will be available or that the funds to be raised in this Offering
in combination with such debt financing will be sufficient to enable the
Company to acquire and/or develop additional golf and related recreational
facilities. In connection with any such debt financing, the Company may be
required to pledge its assets to a lender, may be restricted in its ability
to incur additional obligations or to make capital expenditures, and/or may
be required to abide by certain financial covenants. Moreover, if the Company
defaults on any of its obligations with respect to any such debt financing,
the lender could declare its loan to become immediately due and payable and
subject the Company's assets to foreclosure.
Dependence Upon Key Employees. The Company is heavily dependent on the
services of Stuart Goldstein, the Company's President and Chief Executive
Officer. Mr. Goldstein has entered into an employment agreement with the
Company which provides that he will work full-time for the Company. The loss
of the services of Mr. Goldstein could materially adversely affect the
Company. In addition, Messrs. Edward Ross and Chuck Workman have entered into
employment agreements with the Company that provide that Messrs. Ross and
Workman will provide services to the Company on an as-needed basis. The loss
of the services of either Messr. Ross or Workman could materially adversely
affect the Company. See "Management."
Dependence on Discretionary Consumer Spending. The amount spent by
consumers on discretionary items, such as golf and family and entertainment
activities, is dependent upon consumers' levels of discretionary income,
which may be adversely affected by general or local economic conditions. A
decrease in consumer spending on such activities will have a material adverse
effect on the Company's financial condition and results of operations.
Underwriter Compensation. In connection with the Offering, the Company
will be obligated to pay the Underwriter $715,000 of the proceeds for
commissions and expenses (not taking into account the full exercise of the
Underwriter's Over-Allotment Option that increases this amount to $822,250).
Additionally, the Company is obligated to retain the Underwriter as its
financial consultant for thirty-six (36) months at a cost of $108,000,
payable in an amount equal to $3,000 per month. These funds, therefore, will
not be available to the Company to meet its working capital needs or for
expansion purposes.
Lease. The lease for the Commack Golf Center is scheduled to expire in
April, 2010, subject to renewals to April, 2020. The lease provides the
landlord with a variety of remedies, including termination rights and
eviction, in the event the Company breaches any one of a number of covenants,
including its obligation to make timely rent payments and maintenance of
adequate insurance coverage. (See "Business-- Properties"). If this lease is
terminated, the Company will be materially adversely affected.
7
<PAGE>
Determination of Offering Price; Potential Price Volatility. The offering
price of the Common Stock has been determined by negotiation between the
Company and the Underwriter and is not necessarily related to the Company's
assets, book value, results of operations, or other established criteria of
value. There has been significant volatility in the market price of
securities of companies with small capitalizations. Period-to-period
fluctuations in the Company's revenues and financial results may have a
significant impact on the Company's business and on the market price of the
Company's securities. See "Underwriting."
Immediate and Substantial Dilution. Investors in this Offering will
experience immediate and substantial dilution of the net tangible book value
of their shares of Common Stock ($2.62 per share, or 52%). In addition, if
the Company obtains additional funds through private or public equity or debt
financings, or if the Company issues options pursuant to the Company's 1996
Stock Option Plan, or if the Company issues stock in connection with
acquisitions at prices below fair market value, the purchasers of the
Securities may experience substantial dilution as a consequence of such
future financings, option grants or acquisitions. See "Dilution," "Use of
Proceeds," "Capitalization," "Management -- Stock Option Plans" and
"Underwriting."
Uninsured Losses. The Company carries property and liability insurance in
amounts it deems adequate. While the Company will make every effort to
maintain adequate insurance by industry standards, the Company could suffer a
loss from a casualty or liability for an event not covered by insurance or in
amounts in excess of coverage. Any such loss could have a material adverse
effect on the Company.
Management's Broad Discretion in Application of Proceeds. $3,314,638 (or
74.2%), of the net proceeds of the Offering, after repayment of the Bridge
Loans and certain short-term liabilities, will be used for working capital
and for the acquisition, opening and operation of additional golf and
recreation centers. Accordingly, management will have broad discretion as to
the allocation and use of such proceeds. See "Use of Proceeds."
Environmental Regulation. Golf and recreational centers use and store
various hazardous materials. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property is
generally liable for the costs of removal or remediation of hazardous
substances that are released on its property, regardless of whether the owner
or operator knew of, or was responsible for, the release of such hazardous
materials. The Company has not been advised of any non-compliance or
violation of any environmental laws, ordinances or regulations and the
Company believes that it is in substantial compliance with all such laws,
ordinances and regulations applicable to the Commack Golf Center. The
Company, however, has not performed any environmental studies on the Commack
Golf Center and, as a result, there may be potential liabilities and/or
conditions of which the Company is not aware. If any such liabilities or
conditions arise with respect to the Commack Golf Center or any other
facility which may be constructed, acquired or operated by the Company in the
future, there could be a material adverse effect on the Company.
Limited Liability of Directors. As permitted by the Delaware General
Corporation Law, the Company's Certificate of Incorporation eliminates
personal liability of a director to the Company and its stockholders for
monetary damages for breach of fiduciary duty as a director, except in
certain circumstances. Accordingly, stockholders may have limited rights to
recover money damages against the Company's directors for breach of fiduciary
duty.
No Prior Trading Market. Prior to the Offering, there has not been a
public market for the Company's securities. There can be no assurance that
the Common Stock will be quoted on NASDAQ SmallCap Market or that an active
trading market will develop or be sustained after the Offering. The absence
of an active trading market would reduce the liquidity of an investment in
the Company's securities. The Underwriter has indicated that it intends to
act as a market maker and otherwise effect transactions in the Company's
securities. To the extent the Underwriter participates, it may be a
dominating influence in any market that might develop, and the degree of
participation by the Underwriter may significantly affect the price and
liquidity of the Company's securities. The Underwriter may discontinue such
activities at any time or from time to time.
Possible Delisting from NASDAQ System and Market Illiquidity. If the
Common Stock is initially quoted on NASDAQ SmallCap Market (as to which there
can be no assurance), then continued inclusion of such securities on NASDAQ
SmallCap Market will require that (i) the Company maintain at least
$2,000,000 in total assets and $1,000,000 in capital and surplus, (ii) the
minimum bid price for the Common Stock be at least $1.00
8
<PAGE>
per share, (iii) the public float consist of at least 100,000 shares of
Common Stock, valued in the aggregate at more than $200,000, (iv) the Common
Stock have at least two active market makers, and (v) the Common Stock be
held by at least 300 holders. If the Company is unable to satisfy NASDAQ's
maintenance requirements, the Company's securities may be delisted from
NASDAQ SmallCap Market. In such event, trading, if any, in the Common Stock
would thereafter be conducted in the over-the-counter market in the so-called
"pink sheets" or the Electronic Bulletin Board of the National Association of
Securities Dealers, Inc. (the "NASD") and it would be more difficult to
dispose of the Common Stock or to obtain as favorable a price for such
securities. Consequently, the liquidity of the Company's securities could be
impaired, not only in the number of securities that could be bought and sold
at a given price, but also through delays in the timing of transactions. In
addition, there could be a reduction in security analysts' and the news
media's coverage of the Company, which could result in lower prices for the
Company's securities than might otherwise be attained and in a larger spread
between the bid and asked prices for the Company's securities.
Adverse Consequences Associated with Shares of Common Stock Reserved for
Issuance. The Company has reserved 110,000 shares of Common Stock for
issuance upon the exercise of the Stock Purchase Warrants, an aggregate of
900,000 shares of Common Stock for issuance upon the exercise of options, of
which 650,000 have been granted to Messrs. Stuart Goldstein, Edward Ross and
Chuck Workman and 250,000 that may be granted in the future pursuant to the
Company's 1996 Stock Option Plan, and an aggregate of 100,000 shares of
Common Stock for issuance upon exercise of options, of which 5,000 have been
granted to Mr. Garry Howatt and 95,000 which may be granted in the future
under the Company's 1996 Non-Employee Director Stock Option Plan. In
addition, the Company has reserved 110,000 shares of Common Stock for
issuance upon the exercise of the Bridge Warrants. Holders of such warrants
and options are likely to exercise them when, in all likelihood, the Company
could obtain additional capital on terms more favorable than those provided
thereby. Furthermore, such warrants and options may adversely affect the
terms on which the Company could obtain additional capital. Should a
significant portion of such warrants and options be exercised, the resulting
increase in the amount of Common Stock in the public market may have the
effect of reducing the per share market price thereof. See "Management --
Stock Option Plans", "Shares Eligible for Future Sale" and "Certain
Transactions."
Underwriter's Options May Inhibit Company's Ability to Raise Capital. The
Company has reserved 110,000 shares of Common Stock for issuance upon
exercise of the Stock Purchase Warrants. The Company may find it more
difficult to raise additional equity capital if it should be needed for the
business of the Company while the Stock Purchase Warrants are outstanding. At
any time when the holder or holders of the Stock Purchase Warrants might be
expected to exercise them, the Company would probably be able to obtain
additional equity capital on terms more favorable than those provided in the
Stock Purchase Warrants.
Potential Depressive Effect on Market Price Due to Future Sales of Common
Stock. The Registration Statement also relates to 700,000 shares of Common
Stock which may be sold in the future by the Selling Stockholders, and which
are subject to a two-year lock-up. In addition, 545,000 shares of Common
Stock outstanding prior to the Offering and 110,000 shares issuable pursuant
to the exercise of the Bridge Warrants will be "restricted securities" as
that term is defined in Rule 144 promulgated under the Act (the "Restricted
Securities"). All of the Restricted Securities will be eligible for sale in
the public market pursuant to the provisions of Rule 144 or Rule 701 under
the Act at various times after the Effective Date, subject to the "lock-up"
agreements with the Underwriter described below.
The Company has adopted the 1996 Stock Option Plan pursuant to which it
has granted options to acquire 500,000, 100,000, and 50,000 shares of Common
Stock to Messrs. Stuart Goldstein, Edward Ross, and Chuck Workman,
respectively (the "Employee Options"), and may issue options to purchase up
to an additional 250,000 shares of Common Stock. The Company has also adopted
the 1996 Non-Employee Director Stock Option Plan pursuant to which it has
issued an option to purchase 5,000 shares of Common Stock (the "Director
Options") and may issue options to purchase up to an additional 95,000 shares
of Common Stock.
Holders of the Additional Stock, the Restricted Securities, Employee
Options, Director Options and Bridge Warrants have agreed that they will not,
without the Underwriter's written consent, and, in the case of the Additional
Stock, subject to the terms and conditions described below, sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any of the Additional
Stock, the Restricted Securities, the Bridge Warrants or the shares of Common
Stock issuable upon the exercise of the Employee Options or the Director
Options for a period of 24 months from the Effective Date without consent of
the Underwriter. See "Selling Stockholders; Plan of Distribution."
9
<PAGE>
Any substantial sale of the Additional Stock, the Bridge Warrants, the
Restricted Securities, or the shares of Common Stock issuable upon exercise
of the Director Options or the Employee Options pursuant to Rule 144 or
otherwise may have an adverse effect on the market price of the Company's
securities. See "Description of Securities" and "Shares Eligible for Future
Sale."
Potential Adverse Effect of Issuance of any Authorized Preferred
Stock. The Company has the right to issue shares of preferred stock in the
future without further stockholder approval and upon such terms and
conditions, and having such rights, privileges, and preferences, as the Board
of Directors of the Company may determine. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of holders of any preferred stock that may be issued in the future. In
addition, the issuance of preferred stock could have the effect of making it
more difficult for a third party to acquire control of, or of discouraging
bids for, the Company. This could limit the price that certain investors
might be willing to pay in the future for the securities offered hereby. See
"Description of Securities."
Dividends Not Likely. The Company has not paid any cash dividends on the
Common Stock. For the foreseeable future, it is anticipated that earnings, if
any, which may be generated from the Company's operations will be used to
finance the operations of the Company and that cash dividends will not be
paid to holders of Common Stock. See "Dividend Policy."
Penny Stock Regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission (the "SEC") . Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on
the NASDAQ system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver
a standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock
rules generally require that prior to a transaction in a penny stock the
broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity in the secondary market
for a stock that becomes subject to the penny stock rules. If the Securities
become subject to the penny stock rules, investors in the Offering may find
it more difficult to sell their Securities.
Lack of Experience of the Underwriter. The Underwriter, which commenced
operations in 1994, has acted as an underwriter, or a member of an
underwriting syndicate, in only two public offerings of securities. The
Underwriter's lack of experience may have an adverse impact on its ability to
market the Common Stock offered hereby as well as the development and
maintenance of a trading market for the Company's Common Stock following this
offering. The Underwriter intends to make a market in the Company's Common
Stock. The Underwriter's inexperience may result in the potential inability
of the Underwriter correctly to utilize over-allotment, stabilization and
market maintenance strategies that more experienced underwriters employ to
assist in maintaining orderly trading markets. This may adversely affect the
price of the Common Stock and the ability of purchasers in the Offering to
resell their shares of Common Stock.
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE PURCHASE
OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. ANY PERSON
CONSIDERING AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY SHOULD BE AWARE
OF THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE COMMON STOCK
SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF
THEIR INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR
INVESTMENT.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated at
approximately $4,380,000 ($5,097,750 if the Underwriter's Over-Allotment
Option is exercised in full) after deducting underwriting commissions and
discounts and the estimated expenses of the Offering. Such net proceeds are
expected to be expended approximately as follows:
Application of Proceeds: Amount Percent
------------ ---------
Repayment of Bridge Loans and short-term
debt ..................................... $1,150,975 26.3%
Acquiring and opening golf centers ........ $2,579,025 58.9%
Improvements to Commack Golf Center ....... 150,000 3.4%
Working capital ........................... 500,000 11.4%
------------ ---------
Total ........................... $4,380,000 100.0%
============ =========
- ------
(1) The Bridge Loans consist of an aggregate of $836,000 principal amount of
promissory notes accruing interest at a rate of 15% per annum. The Bridge
Loans are due on the earlier of five (5) days following the Effective
Date or October 23, 1998. Short term debt to be paid consists of (i) a
$140,000 note payable to a bank bearing interest at the rate of 10 1/4 %
per annum as of September 30, 1996, payable in December 1996,
collateralized by all of the assets of the Company and guaranteed by
certain stockholders of the Company, (ii) an $85,000 note from another
bank bearing interest at 9 3/4 % per annum as of September 30, 1996,
maturing on December 17, 1996 (extended from July 16, 1996) and
guaranteed by certain stockholders of the Company, and (iii) loans made
by certain stockholders of the Company in the aggregate amount of
approximately $89,975.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the Company's currently
contemplated operations, the Company's development plans, and current
economic and industry conditions, and is subject to reapportionment among the
categories listed above or to new categories in response to, among other
things, changes in its plans, industry conditions, and future revenues and
expenditures. The amount and timing of expenditures will vary depending on a
number of factors, including the availability and cost of sites for new golf
centers and whether such centers will be owned or leased. The Company has no
definitive agreements with respect to the acquisition or development of
additional golf practice centers or related recreational facilities, except
an option to acquire from the Company's Senior Vice President rights to
operate a golf practice facility and pro shop at Bethpage State Park.
Management believes that the net proceeds of this Offering and revenue
from operations will be sufficient to permit the Company to conduct its
existing operations for at least the next 18 months. The Company's plan of
acquiring or opening three additional golf centers over the next 12 to 18
months (which could involve the use of the Company's Common Stock to pay for
some portion of such acquisitions) is dependent upon the Company's ability to
obtain debt financing to cover approximately 50% of the cost of the new
centers. The Company will be required to raise substantial additional capital
in the future in order to meet its goal of opening at least 10 additional
golf and recreation centers over the next three to five years. There can be
no assurance that the Company will be able to obtain such capital on
favorable terms, if at all. See "Risk Factors -- Additional Financing
Requirements," "Capitalization" and "Business -- Site Location Strategy and
Planned Expansion."
The Company intends to invest the net proceeds of the Offering, until
used, in government securities and insured, short-term, interest-bearing
investments of varying maturities.
11
<PAGE>
DILUTION
At September 30, 1996, the net tangible book value per share of the Common
Stock after giving effect to the redemption by the Company of Common Stock
and warrants from the proceeds of the Bridge Loans was $0.91. The "net
tangible book value per share" represents the amount of the Company's
tangible assets, less the amount of its liabilities, divided by the number of
shares of Common Stock outstanding. The calculation of net tangible book
value as of September 30, 1996 reflects the pro forma events as set forth in
Note 1 of Notes to Financial Statements. The following table illustrates the
per share dilution:
<TABLE>
<CAPTION>
------------------
<S> <C> <C>
Public offering price per share of Common Stock(1) ........................... $5.00
Net tangible book value per share as of September 30, 1996 (unaudited) ....... $0.91
Increase per share attributable to the sale by the Company of one share of
Common Stock offered hereby ................................................. $1.47
-------
Net tangible book value per share after Offering(2) .......................... $2.38
-------
Dilution of net tangible book value per share of Common Stock to new investors $2.62
=======
</TABLE>
- ------
(1) Before deducting underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.
(2) After deducting underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.
The following table summarizes as of the date of this Prospectus, after
giving effect to (i) the Company's acquisitions of Commack Golf and Family
Recreation Center, L.P. (the "Commack Partnership") and U.S. Golf and
Entertainment Corp. and (ii) the redemption by the Company of Common Stock
and warrants from the proceeds of the Bridge Loans, and assuming completion
of the Offering, the differences between existing stockholders and the new
investors with respect to (i) the aggregate cash consideration (before
deducting issuance expenses) paid for Common Stock purchased from the
Company, and (ii) the average price per share paid for Common Stock purchased
from the Company.
<TABLE>
<CAPTION>
Percentage of Aggregate Cash Percentage of
Shares Equity Consideration Total Cash Average
Purchased Owned Paid Invested Price
----------- --------------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders 1,245,000 53.1% $2,400,000 30.4% $1.93
New investors ........ 1,100,000 46.9% $5,500,000 69.6% $5.00
----------- --------------- -------------- --------------- ---------
Total .............. 2,345,000 100.0% $7,900,000 100.0%
=========== =============== ============== ===============
</TABLE>
The above table assumes no exercise of outstanding options, the
Underwriter's Over-Allotment Option or the Underwriter's Stock Purchase
Options. If the Over-Allotment Option is exercised in full, the new investors
will have paid $6,325,000 for 1,265,000 shares of Common Stock, representing
72.4% of the total consideration paid for 50.4% of the total number of shares
of Common Stock outstanding. Accordingly, investors in this Offering will
experience an immediate dilution of $2.49 per share.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, and as adjusted to reflect the sale of the Common Stock
at an assumed offering price of $5.00 per share of Common Stock. See "Use of
Proceeds."
<TABLE>
<CAPTION>
September 30, 1996
Unaudited
-----------------------------
As
Pro Forma Adjusted(1)
------------ -------------
<S> <C> <C>
Short-term debt(2)(3) .................................. $1,465,475 $ 314,500
============ =============
Stockholders' Equity:
Preferred Stock -- $.001 par value, Authorized --
1,000,000 shares; Issued and outstanding -- None -- --
Common Stock -- $.001 par value, Authorized--
20,000,000 shares; issued and outstanding
1,245,000 shares actual; 2,345,000 shares, as
adjusted ........................................ $ 1,245 $ 2,345
Additional paid-in-capital ............................. 1,461,344 5,840,244
Deficit ................................................ (79,731) (79,731)
------------ -------------
Total stockholders' equity ............................. 1,382,858 5,762,858
------------ -------------
Total Capitalization ................................. $1,382,858 $5,762,858
============ =============
</TABLE>
- ------
(1) Adjusted to reflect (i) the sale by the Company of the Common Stock
offered hereby and (ii) the repayment of debt. See "Use of Proceeds."
(2) Inclusive of short-term debt to banks of $225,000, to stockholders of
$404,475 and $836,000 of indebtedness relating to the Bridge Loans.
(3) Assumes no exercise of Underwriter's Over-Allotment Option.
13
<PAGE>
DIVIDEND POLICY
The Company has not paid cash dividends on the Common Stock since
inception and does not anticipate paying any cash dividends to its
stockholders in the foreseeable future. The Company currently intends to
retain earnings, if any, for the development and expansion of its business.
The declaration of dividends in the future will be at the election of the
Board of Directors and will depend upon the earnings, capital requirements
and financial position of the Company, general economic conditions and other
pertinent factors.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's financial statements and related notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
From the period July For the nine months
26, 1994 (date of For the year ended ended September 30,
formation) to December 31, 1996
December 31, 1994(1) 1995(1) Unaudited(1)
-------------------- ------------------ ----------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ...................................... $ -- $ 719,374 $ 710,967
-------------------- ------------------ ----------------------
Operating expenses ............................ -- 1,021,666 906,902
Selling, general and administrative expenses .. -- 87,555 93,003
-------------------- ------------------ ----------------------
-- 1,109,221 999,905
-------------------- ------------------ ----------------------
Operating loss ................................ -- (389,847) (288,938)
Other expenses:
Interest .................................... -- 33,572 21,194
-------------------- ------------------ ----------------------
Net loss ...................................... $ -- $ (423,419) $ (310,132)
-------------------- ------------------ ----------------------
Pro forma net loss (2) ........................ $ (626,419) $ (496,098)
------------------ ----------------------
Pro forma net loss per share (2) .............. $ (.50) $ (.40)
------------------ ----------------------
Shares used in computing net loss per share (2) 1,245,000 1,245,000
================== ======================
</TABLE>
<TABLE>
<CAPTION>
September 30,
December 31, 1996
1995 Unaudited(3)
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets ........... $ 133,270 $ 96,889
Current liabilities ...... 1,132,493 757,446
Working capital deficiency (999,223) (660,557)
Total assets ............. 3,053,334 2,972,790
Shareholders' equity ..... 1,752,581 1,983,983
</TABLE>
(1) Represents financial data of Commack Golf and Family Recreation Center,
L.P., the only operating entity.
(2) See Note 1 of Notes to Financial Statements of the Company.
(3) Represents financial data of the Company.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In July, 1994, Commack Golf and Family Recreation Center, L.P. (the
"Commack Partnership") was organized to construct, develop and operate the
Commack Golf Center, which commenced operations in March, 1995. In April,
1996, United Acquisition I Corp. (which was incorporated by persons with no
affiliation to the Commack Partnership) (i) loaned $41,200 to the Commack
Partnership in anticipation of its acquisition of the Commack Partnership and
(ii) changed its name to U.S. Golf and Entertainment Corp. ("U.S. Golf
Corp."). In May, 1996, U.S. Golf Corp. raised an additional $500,000 from the
sale of common stock and warrants of which approximately $450,000 was loaned
to the Commack Partnership. In May, 1996, the Company was organized as a
vehicle by which (i) the general and limited partners of the Commack
Partnership exchanged their partnership interests for an aggregate of
1,045,000 shares of the Company's Common Stock; and (ii) the stockholders of
U.S. Golf Corp. exchanged their shares of common stock and warrants for
1,045,000 shares of the Company's Common Stock and 2,020,000 Class A
Warrants. In November, 1996 the Company (A) redeemed, for an aggregate
purchase price of $601,125, 845,000 shares of the Company's Common Stock and
all 2,020,000 Class A Warrants from persons who were formerly stockholders of
U.S. Golf Corp., (B) obtained bridge loans of $836,000 from accredited
investors (the proceeds of which were used in part for the aforesaid
redemption) (the "Bridge Loans") and (C) issued warrants to purchase a total
of 110,000 shares of the Company's Common Stock, at $.10 per share, to the
aforesaid accredited investors (the "Bridge Warrants"). See "Certain
Transactions." The following discussion assumes the Company has owned and
operated the Commack Golf Center since it first commenced operations in March
1995.
Results of Operations. The following table sets forth selected operations
data of the Company(1) expressed as a percentage of total revenues (except for
operating expenses which is expressed as a percentage of operating revenues)
for the periods indicated below:
- ------
(1) Represents financial data of Commack Golf and Family Recreation Center,
L.P., the only operating entity.
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
Fiscal Year Ended 1996
December 31, 1995 Unaudited
----------------- ----------------
<S> <C> <C>
Operating revenues ......................... 100.0% 100.0%
Operating expenses ......................... 142.0 127.6
Selling, general and administrative expenses 12.2 13.1
Loss from operations ....................... (54.2) (40.6)
Interest expense ........................... 4.7 3.0
Net loss ................................... (58.9) (43.6)
Pro forma net loss ......................... (87.1) (69.8)
</TABLE>
Year Ended December 31, 1995. During 1995, the Company had total revenues
of $719,374 and a net loss of $423,419.
Results of operations for the year ended December 31, 1995 reflect 10
months of operations of the Commack Golf Center, but do not reflect any
operations of the Commack Golf Center's miniature golf facility, children's
party room facility, snack bar or rental payments from the golf instruction
lessee.
Operating revenues consisted of driving range sales, lesson sales and
rental income from the pro shop which was opened for only five months in
1995. Although the Commack Golf Center was opened in March, 1995, a number of
related amenities (i.e., the 18-hole miniature golf course, the golf teaching
center, the pro shop, the children's party room and the snack bar) were not
completed or fully operational until the second quarter of 1996, which
negatively impacted the Company's operating revenues in 1995.
Operating expenses, consisting of land rent, depreciation and amortization
of golf driving range facilities and equipment, operating wages and employee
costs, utilities and all other facility operating costs, aggregated
$1,021,666 for 1995.
Selling, general and administrative expenses were $87,555 for the year
ended December 31, 1995. These expenses do not include the payment of any
salaries to the Company's executive officers, the anticipated costs of
recruiting and hiring additional executives and do not reflect the
anticipated expenses associated with the Company's plans to acquire or
develop additional golf and recreational centers, including marketing and
advertising costs relating to the opening of new locations.
15
<PAGE>
Interest expense (net of capitalized interest costs) was $33,572,
reflecting borrowings outstanding as a result of the debt financing related
to the construction of the Commack Golf Center which was opened in March,
1995.
Nine Months Ended September 30, 1996 (unaudited). During the period ended
September 30, 1996, the Company had total revenues of $710,967 and a net loss
of $310,132. Because the Commack Golf Center commenced operations in March,
1995, there can be no meaningful nine month comparison of the results of
operations during the period ended September 30, 1996 and the comparable 1995
period. Due to the severe weather during the first 100 days of this nine
month period, Management does not believe the results for this period are
necessarily indicative of the results for the full year ended December 31,
1996.
Operating revenues consisted of driving range sales and lesson sales. The
Company received limited rental revenue from the pro shop during this period.
Operating expenses, consisting of land rent, depreciation and amortization
of golf driving range facilities and equipment, operating wages and employee
costs, utilities and all other facility operating costs, aggregated $906,902
for this period.
Selling, general and administrative expenses were $93,003 for the period
ended September 30, 1996. These expenses do not include the payment of any
salaries to the Company's executive officers, the anticipated costs of
recruiting and hiring additional executives and do not reflect the
anticipated expenses associated with the Company's plans to acquire or
develop additional golf centers, including marketing and advertising costs
relating to the opening of new locations.
Interest expense (net of capitalized interest costs) was $21,194
reflecting borrowings outstanding as a result of the debt financing related
to the construction of the Commack Golf Center.
Liquidity and Capital Resources. The Commack Partnership's partners
provided the Commack Partnership's initial capital in 1994 through
subscriptions for limited partnership interests in the aggregate amount of
$2,190,000, general partner contributions of $10,000 and loans by certain
general and limited partners to the Commack Partnership in the aggregate
amount of $404,475 through September 30, 1996. The Commack Partnership also
borrowed an aggregate of $314,500 from its general partners through September
30, 1996.
The Commack Partnership, at December 31, 1995, had a $215,000 note payable
to a bank with an interest at the rate of 2% above the banks prime lending
rate (10 3/4 % per annum) at December 31, 1995. This note, which is payable
on demand and is collateralized by all the assets of what was the Commack
Partnership, is guaranteed by certain former general and limited partners of
the Commack Partnership. During the nine months ended September 30, 1996,
$75,000 was repaid to the bank, reducing the outstanding balance to $140,000
at September 30, 1996 and bears interest at the rate of 10 1/4 % per annum.
In addition, the Commack Partnership borrowed $110,000 from another bank.
This note bears interest at the rate of 1 1/2 % above the bank's prime
interest rate per annum (10 1/4 % at December 31, 1995. During the nine
months ended September 30, 1996, $25,000 was repaid to the bank, reducing the
outstanding balance to $85,000 at September 30, 1996. The note, as amended,
matured on September 17, 1996 and was immediately renewed for an additional
three months with an interest rate of 9 3/4 %. The obligation is guaranteed
by certain former general and limited partners.
The Commack Partnership's, outstanding indebtedness to these banks and to
its general and limited partners has been assumed by the Company.
In April, 1996, U.S. Golf Corp. (which was incorporated and received
equity investments from its founding stockholders in the amount of $54,500 in
November, 1995), loaned $41,200 to the Commack Partnership in anticipation of
the acquisition of the Commack Partnership. In May, 1996, U.S. Golf Corp.
raised an additional $500,000 from the sale of common stock and warrants to a
limited number of investors in a private financing. In May, 1996, the Company
was organized as the corporate entity through which this acquisition could
occur on a tax-free basis to the stockholders of U.S. Golf Corp. and the
general and limited partners of the Commack Partnership. In connection with
the Company's private offering of the Bridge Loans and Bridge Warrants in
November, 1996, the Company redeemed, for an aggregate purchase price of
$601,125, 845,000 shares of the Company's Common Stock and all 2,020,000
Class A Warrants from persons who were formerly stockholders of U.S. Golf
Corp. In addition, the Company obtained $234,875 in additional working
capital from the proceeds of such private offering.
16
<PAGE>
The Company anticipates making substantial additional expenditures in
connection with the opening of new golf centers. See "Use of Proceeds." These
expenditures primarily relate to projected acquisition and opening costs,
associated marketing activities and the addition of personnel. Based on the
Company's experience with its existing golf center, the Company estimates
that the average cost of opening a center will be approximately $1,000,000 to
$3,000,000 depending on size and location; however, there can be no assurance
that these costs will not exceed $3,000,000.
The Company anticipates that it will continue to generate negative cash
flows from investing activities for the acquisition and opening of new
facilities which will exceed its operating cash flows until the Company has
more golf centers in operation. The Company anticipates that its inability to
generate operating cash flow in amounts necessary to offset its anticipated
negative cash flow from investing activities will be addressed by cash flow
from financing activities, including the net proceeds of this Offering and
the 50% debt financing projected to be available for new centers as discussed
below.
The Commack Golf Center was financed with approximately 85% equity and 15%
debt. The Company believes that the net proceeds of this Offering and the
Company's operating cash flow will be sufficient to provide the Company with
the equity portion of any financing for three additional centers within the
next 12 to 18 months. The Company believes that it can finance future
projects at a 50/50 debt to equity ratio; however, there can be no assurance
that it will be able to do so. The Company will be required to raise
additional capital to meet its goal of acquiring or opening at least 10 new
facilities over the next three to five years. There can be no assurance that
the Company will be able to raise such additional financing on favorable
terms, if at all. See "Risk Factors -- Additional Financing Requirements."
The loss of the Commack Golf Center, which is the Company's only golf
center, would have a material adverse effect on the Company's financial
condition and results of operations. See "Risk Factors -- Single Location"
and "-- Lease."
Trends. The Company plans to open additional golf centers. Management
believes that over time, the Company's revenues and operating income from the
Commack Golf Center and the additional centers it intends to open should
increase due to customer awareness, programs marketing the golf centers to
various special interest groups, expanding ties to the local business and
golfing community, and the growing popularity of golf. The Company expects
that, in the near term, it will continue to experience losses from
pre-opening costs and initial operating expenses associated with new centers.
The Company's interest expenses will likely increase as a result of
borrowings to fund the opening and acquisition of new facilities.
Seasonality. The Company's revenues from the Commack Golf Center for the
period from April through October (the second and third quarters of the year)
are expected to account for a greater portion of the Company's operating
revenue than will the first and fourth quarters of the year. Similar results
are expected for the other facilities the Company may acquire or open in
climates similar to that of the northeastern United States. Although some
portions of the Commack Golf Center are protected from inclement weather,
other portions of the Commack Golf Center, such as the miniature golf course,
the putting green and related recreational amenities, are outdoors and
vulnerable to weather conditions. Moreover, golfers may be less inclined to
practice when weather conditions limit their ability to play golf on outdoor
courses. This seasonal pattern is expected to cause the Company's results of
operations to vary significantly from quarter to quarter. Accordingly,
period-to-period comparisons are not necessarily meaningful and should not be
relied on as indicative of future results.
17
<PAGE>
BUSINESS
Introduction. U.S. Golf and Entertainment Inc. (the "Company") is seeking
to become a national owner/operator of upscale, high-volume, year-round golf
practice and instructional centers and related recreational facilities. The
Company's facilities are intended to provide attractive and affordable
practice and teaching venues to a large and increasing golf population. The
Company currently operates the Commack Golf and Family Recreation Center, a
modern 19-acre, 120-tee facility located in central Long Island (the "Commack
Golf Center"). The Commack Golf Center, which commenced operations in March,
1995, offers practice opportunities for driving, pitching, putting, chipping
and sand play, as well as an 18-hole miniature golf course, a snack bar, a
full-service pro shop and a golf learning center. The Commack Golf Center
offers a comfortable year-round environment for beginner and experienced
golfers to practice and improve their game. The Company's management believes
that their business experience, marketing skills and industry relationships
will provide the Company with opportunities to acquire and/or open other golf
practice facilities and learning centers.
Industry Overview. Over the past decade, the popularity of golf
throughout the United States and the demand for golf courses and golf driving
range facilities has experienced continued growth. According to the National
Golf Foundation, the number of golfers in the United States increased to
approximately 25 million players in 1995, from approximately 21.2 million
players in 1987, and the total number of rounds played increased by a
proportionate amount. Management believes that these trends will continue for
the foreseeable future as golf becomes an increasingly popular recreational
activity. Industry statistics indicate that women and juniors comprise 55% of
all new golfers in 1995. Management believes that its strategy of
owning/operating upscale, family-oriented golf practice facilities in prime
suburban locations will exploit the opportunities presented by these
demographic trends.
According to the Golf Range and Recreation Association of America (the
"GRRA"), as of November 1, 1995, there were 1,932 freestanding golf driving
ranges in the United States, an increase of approximately 200 facilities over
the prior year's total. Management believes the following factors account for
the growth in the number of golf practice centers, and that such factors will
continue to provide demand for such facilities: steady inflow of new players;
a limited number of golf courses available for daily fee play; and flexible
time considerations for the use of golf practice facilities.
A typical golf center is owned by an individual or by a municipal
recreational agency that may lack the expertise and financial resources to
operate these centers, to market these centers with visible advertising or
promotions or to upgrade these centers. The majority of these golf centers
also do not offer the type of "brand-name" golf instruction that the Company
can offer or a full-service golf pro-shop. Within the past five years,
several companies have been organized as multi-site operators of golf
practice facilities (in a manner similar to the consolidation that has taken
place in the ownership and management of 18-hole golf courses), but to date
management believes that all of these companies own and/or manage less than
three (3) percent of the golf practice ranges throughout the United States.
The Company believes these consolidation trends will continue and that it can
take advantage of opportunities that will exist when single-site golf center
owners want to sell their centers to a professionally managed company.
The Commack Golf Center. The Commack Golf Center is a modern 19-acre
facility that features a double decker range with 120 hitting tees, 60 of
which are heated and 20 of which are situated on natural grass. The hitting
field is tree lined and covered with sodded grass, sand traps, and water
hazards. Golfers can practice a full array of golf shots by aiming at any one
of the five greens located at varying distances from the hitting tees.
In April, 1996, the Commack Golf Center opened an 18-hole miniature golf
course that is lighted for night play. The course attracts repeat customers
and creates additional traffic for the driving range by offering an
attraction for children while parents use the driving range. The Company
expects that other golf practice facilities that it acquires or opens in the
future will also have related miniature golf facilities.
The Commack Golf Center is open year-round, seven days a week. During the
spring and summer seasons, it is open from 8:00 a.m. to midnight and during
the winter and fall seasons, from 9:00 a.m. to 8:00 p.m. It is located at
Exit 52 of the Long Island Expressway, and is visible to approximately
120,000 cars per day that travel past the Commack Golf Center on that
highway.
18
<PAGE>
The Commack Golf Center's revenues are derived from selling buckets of
balls for use on the driving range, charging for rounds of miniature golf,
fees for lessons, rental payments from the pro shop, rental payments from the
golf instruction concession, and a percentage of revenues from the food and
beverages sold at the concession. The Commack Golf Center also generates
revenue by selling club memberships. For a membership fee of $1,000 a year,
members are entitled to unlimited golf balls and practice time at the range.
Additionally, club members receive a videotaped golf lesson.
The Commack Golf Center offers group lessons for players at every level,
from beginners to serious club players, using the instruction techniques
developed over many years by respected golf instruction professionals. The
Commack Golf Center instruction area is housed in an all-weather facility
that has three eleven foot high doors to allow golfers the opportunity to
drive balls on to the hitting field. This facility also includes a sand trap
and a small putting green. Lesson packages can be purchased in conjunction
with prepaid buckets of range balls. The teaching center is the ideal spot
for touring professionals to conduct clinics or golf schools.
The Commack Golf Center also offers individual golf lessons under the
supervision of Chuck Workman a respected teaching and touring professional.
In October 1996, the GRRA awarded the Commack Golf Center with "Honorable
Mention" as one of the ninety best golf ranges in the United States.
The Pro Shop. The Commack Golf Center's golf pro shop, which is leased to
Zevo Golf, offers its customers a full range of golf equipment and
accessories. This pro shop is popular with the beginning golfers who are
using the Commack Golf Center to develop their game.
Location. The Commack Golf Center is located in Commack, New York, a
central Long Island location. Commack, together with the neighboring
townships of Huntington and Smithtown total over 336,000 people with a median
income of approximately $77,000. The Commack Golf Center is visible from the
Long Island Expressway and is easily accessible at Exit 52.
The Commack Golf Center is located within a high traffic commercial
district that includes the Commack Multiplex, a 16 screen facility, which is
one of the highest grossing movie theaters in the Northeast. In August of
1995, a Costco Price Club opened directly across from the Commack Golf
Center.
Planned Expansion. The Company will seek to acquire or open new centers in
locations that have similar characteristics to that of the Commack Golf
Center -- upscale market demographics, within a high traffic commercial area
and easy access. The Company expects to (1) improve the operations of
acquired facilities with its professional management staff, (2) upgrade the
existing facility with additional amenities, including related recreational
and entertainment facilities, (3) establish professional golf training
centers, and (4) enhance such facilities' advertising and marketing
activities with strategically designed programs that will take advantage of
the Company's access to well known golf professionals. The Company
anticipates that most of the centers to be acquired or opened in the future
will have between 70-100 hitting tees, will be lighted to permit night play
and will be partially enclosed and/or heated to permit all weather play.
The Company is actively pursuing acquisition opportunities throughout the
northeast United States and currently has approximtely ten opportunities
under active review. Such opportunities are in preliminary stages of
development, and consummation of any acquisition is subject to satisfaction
of various conditions, including due diligence and negotiation of definitive
agreements. The Company is not currently involved in negotiations, nor has it
concluded any definitive agreements, with respect to any potential
acquisition or expansion opportunities, except for an option to acquire, from
its Senior Vice President at fair market value, rights to operate a golf
practice facility and pro shop at Bethpage State Park, a well-known municipal
facility which includes five golf courses, the "Black Course" of which has
been selected to host the U.S. Open Golf Championship in 2002.
Management believes that its real estate contacts and golf industry
relationships will enable it to identify acquisition, expansion and
promotional opportunities that might not otherwise be available to its
competitors. Management believes that these factors, together with the
fragmented state of the golf center industry, should provide the Company with
a large number of potential expansion or acquisition options over the next
three to five years, notwithstanding that competitors also may be seeking to
expand their existing operations.
19
<PAGE>
Management believes that the net proceeds of this Offering, debt financing
and cash flow from operations, will be sufficient to permit the Company to
acquire and open three additional golf centers over the next 12 to 18 months.
Such belief is based on certain assumptions, including assumptions as to the
availability and cost of suitable locations and the availability of debt
financing to cover at least 50% of the cost of acquiring and opening each
center. See "Risk Factors" and "Use of Proceeds."
Marketing And Advertising. Management intends to develop marketing and
advertising programs that will allow it to take advantage of its relationship
with prominent teaching and touring professionals, including its Senior Vice
President, Chuck Workman. The Company expects to advertise in local and
community newspapers, on radio and local cable television channels, use
direct mailings and have a regular series of promotions, discounts, teaching
clinics, and equipment demonstrations to increase awareness of its golf
centers. The Company also will seek to work with professional golf tour
organizers when a major golf event (such as the Long Island Northville Open
- -- one of the leading Senior Tour events) occurs near the Commack Golf Center
or one of the other golf centers the Company intends to open in the future.
Competition. The golf driving range business is competitive and includes
competition from golf courses as well as other forms of recreation. Certain
of the Company's competitors have considerably greater financial, marketing,
personnel and other resources than the Company, as well as greater experience
and customer recognition than the Company. In the Long Island market, the
Company faces strong competition from several nearby freestanding golf
driving ranges and from local public and private golf courses which offer
golf practice facilities. While management believes that the location of and
the amenities associated with the Commack Golf Center provide it with certain
competitive advantages, there can be no assurance that the Company will be
able to successfully compete with its competitors.
Within the past five years, one company, Family Golf Centers, Inc.,
headquartered in Melville, New York, has become the nation's largest owner
and operator of golf driving ranges and that company is pursuing an
aggressive development and acquisition strategy that has increased the number
of ranges (to approximately 30) under its operation as of October 1, 1996.
This company's substantial capital and track record gives it a significant
competitive advantage over the Company in acquiring or developing golf
practice facilities. The Company is aware of several other public and private
companies that are also pursuing multi-site acquisition and development
opportunities in the golf driving range and practice facility segment and
that may compete directly or indirectly with the Company. Several other large
and well-financed companies are active in the management of 18-hole golf
courses; however, none of these companies has focused on the driving range,
golf practice and learning center segments, although there can be no
assurance that they may not do so in the future.
The Company purchases golf balls and other equipment from a number of
suppliers. The Company anticipates that it will have no difficulty in
obtaining golf balls from such suppliers.
Properties. The Commack Golf Center is currently the Company's only
property. The Company occupies the site pursuant to a commercial lease with
an initial term of fifteen (15) years (until April, 2010) with two (2) five
(5) year renewal terms at the option of the Company. The rent for the
premises is $500,000 per year through April, 1998 with increases of
approximately 2.75% per year thereafter so that in year fifteen (15), the
rental is $665,000 per year. After year fifteen (15), the lease is renewable
at continuing increases of approximately 2.75% or the fair market value rent
at the time of the increase, whichever is greater. As additional rent, the
Company will pay twenty-five (25%) percent of its gross revenue from
$2,400,000 to $3,000,000 and ten (10%) percent of its gross revenue over
$3,000,000.
The lease requires the Company to observe certain covenants, in addition
to its obligation to make timely rent payments. These covenants include a
limitation on the property's use as a golf driving range, and related
recreational facilities; payment of applicable real estate taxes and
assessments; timely payment for improvements to the property so as to avoid
the creation of liens against the property; maintenance of adequate insurance
for property damage and personal injury (including worker's compensation);
and compliance with laws and ordinances. The Company is currently in full
compliance with its warranties and obligations under the lease. If the
Company fails to comply with any of these covenants, the landlord has rights
against the Company, including the right to terminate the lease and evict the
Company from the premises.
20
<PAGE>
Employees. As of October 1, 1996, the Company had five (5) full-time
employees and sixteen (16) part-time employees. The Company anticipates that
the additional golf centers it intends to open in the future will be staffed
in a manner consistent with the Commack Golf Center. None of the Company's
employees is represented by a collective bargaining agreement. The Company
has never experienced a strike or work stoppage, and considers its
relationship with its employees to be good.
Environmental Regulation. Golf and recreational centers use and store
various hazardous materials such as motor oil, gasoline, pesticides,
herbicides and paint. Under various federal, state and local laws, ordinances
and regulations, an owner or operator of real property is generally liable
for the costs of removal or remediation of hazardous substances that are
released on its property, regardless of whether the owner or operator knew
of, or was responsible for, the release of such hazardous materials. The
Company has not been advised of any non-compliance or violation of any
environmental laws, ordinances or regulations and the Company believes that
it is in substantial compliance with all such laws, ordinances and
regulations applicable to its Commack Golf Center. The Company, however, has
not performed any environmental studies on the Commack Golf Center and, as a
result, there may be potential liabilities and/or conditions of which the
Company is not aware. If any such liabilities or conditions arise with
respect to the Commack Golf Center or any other facility which may be opened,
acquired or operated by the Company in the future, there could be a material
adverse effect on the Company.
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements.
Insurance. The Company carries property and liability insurance that it
believes is adequate. While the Company will make every effort to maintain
insurance by industry standards, the Company could suffer a loss from a
casualty or liability for an event not covered by insurance or in amounts in
excess of coverage. Any such loss could have a material adverse effect on the
Company.
Legal Proceedings. The Company does not know of any material litigation
or proceeding pending, threatened or contemplated to which it is or may
become a party.
21
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their positions held
with the Company, and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---------------------- ----- ----------------------------------------------
<S> <C> <C>
Edward C. Ross ....... 52 Chairman of the Board, Chief Financial Officer and
Director
Stuart M. Goldstein .. 36 President, Chief Executive Officer and Director
Chuck Workman ........ 60 Senior Vice President and Director
Garry Howatt ......... 43 Director
Michael L. Faltischek 49 Secretary and Director -- nominee
Robert J. Schwartz ... 38 Director -- nominee
</TABLE>
The following is a brief summary of the background of each director and
executive officer of the Company:
Edward C. Ross has served as the Chairman of the Board, Chief Financial
Officer and a director of the Company since May, 1996. From March, 1994 to
May, 1996, Mr. Ross was the founding general partner of the Commack Golf and
Family Recreation Center, L.P., the entity that developed the Commack Golf
Center. Mr. Ross has been a partner in the accounting firm of Finkle, Ross &
Rost since 1975. He also has been involved as a principal in various start-up
companies as well as established operating businesses, ranging from
manufacturing to real estate to financial consulting. Mr. Ross is a Certified
Public Accountant in New York and New Jersey, and is a member of the American
Institute of Certified Public Accountants. Mr. Ross is a director of Sel-Leb
Marketing, Inc., a publicly traded company. In February, 1994, Mr. Ross was
President of Coastal Riverview Development Corp. ("Coastal"), which served as
the general partner of Coventry Shopping Plaza Associates ("Coventry"), a
limited partnership and the owner and operator of a shopping center in
Providence, Rhode Island. On February 1, 1994, Coventry filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court, Eastern District of New York. The petition was dismissed at
the debtor's request in October, 1994. Mr. Ross was also President of Coastal
when it was the general partner of Conrans Plaza Associates ("Conrans"), a
limited partnership which owned and operated a shopping center in East
Hanover, New Jersey and which filed a petition for reorganization under
Chapter 11 in the U.S. Bankruptcy Court, Eastern District of New York on July
11, 1995. Conrans successfully emerged from these proceedings in March, 1996.
Stuart M. Goldstein has served as President, Chief Executive Officer and
director of the Company since September 1996. From June 1992 through
September 1996, Mr. Goldstein was Vice President of Wharton Management Group,
Inc., a registered investment advisor specializing in the management of a
diversified core of investment portfolios valued in excess of $500 million.
From August 1989 through May 1992, Mr. Goldstein was a principal with
Constable Partners L.P., where he was active in the management of the
company's interests in mergers and acquisitions, spin-offs and special
situations. Since 1991, Mr. Goldstein has been a member of the Metropolitan
Golf Association, a governing body overseeing approximately 300 golf
facilities and clubs in the New York tri-state area, where he serves as a
member of the Public Golf and Junior Committees. Mr. Goldstein received a
B.S. in finance from Syracuse University.
Chuck Workman has served as the Senior Vice President and a director of
the Company since May, 1996. Since 1980, Mr. Workman has been the Director of
Golf for the five golf courses located at Bethpage State Park, Bethpage, New
York. As the Director of Golf at this facility, Mr. Workman operates the golf
driving range, owns and manages the Chuck Workman Pro Shop and supervises
golf instruction offered by more than five teaching professionals. Mr.
Workman also organizes various golf tournaments at Bethpage State Park. Since
1985, Mr. Workman has played in approximately 100 PGA Senior Tour Golf
Tournaments.
Garry Howatt has been a director of the Company since May, 1996. Since
1985, Mr. Howatt has been the Managing Partner and President of Mt. Freedom
Golf (in New Jersey), which operates an upscale driving range, miniature golf
course, batting range and golf pro shop. From 1972 through 1984, Mr. Howatt
was a professional hockey player with the New York Islanders (1972-1981), the
Hartford Whalers (1981-1982) and the New Jersey Devils (1982-1984).
22
<PAGE>
Michael L. Faltischek is a senior partner at the firm of Ruskin, Moscou,
Evans & Faltischek, P.C., a general practice law firm located in Mineola, New
York, where he has served as managing partner since 1976. Since September,
1995, Mr. Faltischek has served as a trustee on the Board of the Long Island
Power Authority. Mr. Faltischek was admitted to practice law in the State of
New York in 1974, having received his Juris Doctor degree, cum laude, from
Brooklyn Law School in 1973. Mr. Faltischek will be elected to the Company's
Board of Directors after the closing of the Offering.
Robert J. Schwartz has been a Vice President, Director of Marketing for
Golf Magazine Properties, a division of Times Mirror Magazines since August,
1993. From May 1984, through August 1993, Mr. Schwartz was a Senior Vice
President at NW Ayer, Inc., a major advertising agency, where he was a
management supervisor for Maxfli Golf. Mr. Schwartz received an MBA in
marketing from New York University and a B.S. in advertising from the
Newhouse School at Syracuse University. Mr. Schwartz will be elected to the
Company's Board of Directors after the closing of the Offering.
Vacancies and newly-created directorships resulting from any increase in
the number of authorized directors may be filled by a majority vote of the
directors then in office. Officers are elected by, and serve at the pleasure
of, the Board of Directors. The loss of services of Edward Ross, Stuart
Goldstein or Chuck Workman could have a material adverse effect on the
Company. See "Risk Factors -- Dependence on Key Employees." The Board of
Directors intends to establish Audit and Compensation Committees following
the completion of the Offering. Michael L. Faltischek will be appointed as
Chairman of both such committees.
The Company's employee directors do not receive any additional
compensation for their services as directors. Non-employee directors do not
receive a cash compensation for serving as such, but are reimbursed for
expenses. Pursuant to the Company's 1996 Non-Employee Director Stock Option
Plan, each non-employee director will receive options to purchase 5,000
shares of Common Stock upon initial election to the Board of Directors and
will receive 5,000 additional options upon each annual re-election.
The Underwriter has a five-year right, effective upon the Closing, to
designate one nominee to the Company's Board of Directors, which shall not
exceed seven persons during such period without the Underwriter's consent. As
of the date of this Prospectus, the Underwriter has no intention to nominate
any person for election as director.
Employment Agreements. The Company has entered into a five (5) year
employment agreement with Stuart Goldstein commencing on September 16, 1996.
Mr. Goldstein shall serve as President and Chief Executive Officer and will
devote 100% of his time to the Company. The Agreement provides for annual
compensation of $125,000 for the first year, $150,000 for the second year and
$200,000 per year for the remainder of the term, as well as options to
purchase 500,000 shares of Common Stock. In addition, Messrs. Edward Ross and
Chuck Workman have entered into five (5) year employment agreements with the
Company. In accordance with their respective contracts, each of Messrs. Ross
and Workman is entitled to annual compensation of $30,000 and $25,000,
respectively, as well as options to purchase 100,000 and 50,000 shares of
Common Stock, respectively. Each of Messrs. Ross and Workman shall devote
their respective time to the business of the Company on an as-needed basis.
Stock Option Plans. The Company maintains two stock option plans, as
amended, pursuant to which an aggregate of 1,000,000 shares of Common Stock
may be granted.
1996 Stock Option Plan. The 1996 Stock Option Plan (the "1996 Plan") was
adopted by the Board of Directors and the stockholders of the Company in May,
1996. Under the 1996 Plan, as amended, 900,000 shares of Common Stock have
been reserved for issuance upon exercise of options designated as either (i)
incentive stock options ("ISOs") under the Internal Revenue Code (the
"Code"), or (ii) non-qualified options. ISOs may be granted under the 1996
Plan to employees and officers of the Company. Non-qualified options may be
granted to consultants, directors (whether or not they are employees),
employees or officers of the Company.
The purpose of the 1996 Plan is to encourage stock ownership by certain
directors, officers and employees of the Company and certain other persons
instrumental to the success of the Company and to give them a greater
personal interest in the success of the Company. The 1996 Plan is
administered by the Board of Directors or by a stock option committee
selected by the Board. The Board or such committee, within the limitations of
the 1996 Plan, shall determine the persons to whom options will be granted,
the number of shares to be covered by each
23
<PAGE>
option, whether the options granted are intended to be ISOs, the duration and
rate of exercise of each option, the option purchase price per share and the
manner of exercise, the time, manner and form of payment upon exercise of an
option, and whether restrictions such as repurchase rights by the Company are
to be imposed on shares subject to options. ISOs granted under the 1996 Plan
may not be granted at a price less than the fair market value of the Common
Stock on the date of grant (or 110% of fair market value in the case of
persons holding 10% or more of the voting stock of the Company).
Non-qualified options granted under the 1996 Plan may not be granted at a
price less than 85% of the fair market value of the Common Stock on the date
of grant (or the fair market value in the case of persons holding 10% or more
of the voting stock of the Company). The aggregate fair market value of
shares for which ISOs granted to any person are exercisable for the first
time by such person during any calendar year (under all stock option plans of
the Company and any related corporation) may not exceed $100,000. The 1996
Plan will terminate in December, 2006. The term of each option granted under
the 1996 Plan will expire not more than ten years from the date of grant (or
five years from the date of grant in the case of persons holding 10% or more
of the voting stock of the Company). Options granted under the 1996 Plan are
not transferable during an optionee's lifetime but are transferable at death
by will or by the laws of descent and distribution. As of the date hereof,
500,000 options have been granted under the 1996 Plan to Stuart Goldstein,
the President and Chief Executive Officer of the Company; 120,000 of such
options are designated as ISOs as defined in the Code (20,000 of which vest
on December 31, 1996 and the balance of which shall vest ratably per quarter
for 20 quarters commencing on March 31, 1997). The remaining 380,000 options
are Non-Qualified Options as defined in the Code, 30,000 of which vest on
December 31, 1996 and the remainder of which shall vest ratably per quarter
for 20 quarters commencing on March 31, 1997. Mr. Goldstein has the right to
require the Company, at its expense, to register the shares issuable upon
exercise of the options after thirty-six (36) months from the Effective Date.
In addition, 100,000 options have been granted under the 1996 Plan to Edward
Ross, the Chairman of the Company and 50,000 to Chuck Workman, the Company's
Senior Vice President, all of which are ISOs. Messrs. Ross and Workman's
options shall vest ratably per quarter over a period of five (5) years
commencing December 31, 1996. All the aforementioned options granted are
exercisable at a price of $5.00 per share and expire ten years from the date
of grant.
1996 Non-Employee Director Stock Option Plan. The 1996 Non-Employee
Director Stock Option Plan (the "Directors Plan") was adopted and approved by
the Board of Directors and the stockholders of the Company in May, 1996.
Options to purchase an aggregate of 100,000 shares of Common Stock may be
issued pursuant to the Directors Plan. Pursuant to the terms of the Directors
Plan, each independent unaffiliated Director automatically shall be granted,
subject to availability, without any further action by the Board of
Directors: (i) a non-qualified option to purchase 5,000 shares of Common
Stock upon their election to the Board of Directors; and (ii) a non-qualified
option to purchase 5,000 shares of Common Stock on the date of each annual
meeting of stockholders following their election to the Board of Directors at
which they are re-elected to the Board. The exercise price of each option is
the fair market value of the Common Stock on the date of grant. Each option
expires five years from the date of grant and vests in two annual
installments of 50% each on the first and second anniversary of the date of
grant. Options granted under the Directors Plan generally are not
transferable during an optionee's lifetime but are transferable at death by
will or by the laws of descent and distribution. In the event an optionee
ceases to be a member of the Board of Directors (other than by reason of
death or disability), then the vested portion of the option may be exercised
for a period of 180 days from the date the optionee ceased to be a member of
the Board of Directors. In the event of death or permanent disability of an
optionee, all options accelerate and become immediately exercisable until the
scheduled expiration date of the option. As of the date hereof, options to
acquire 5,000 shares of Common Stock have been granted to Mr. Garry Howatt
under the Directors Plan.
Limitation of Liability and Indemnification Matters. The Company's
Certificate of Incorporation: (i) eliminates the liability of the directors
of the Company for monetary damages to the fullest extent permitted by
Delaware law; and (ii) authorizes the Company to indemnify its officers and
directors to the fullest extent permitted by Delaware law. The By-Laws of the
Company provide broad indemnification for officers and directors against
expenses (including legal fees, judgments and Company-approved settlements)
incurred in connection with any civil or criminal action which arises from
the performance of duties for the Company.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Key Man Insurance. The Company is the sole beneficiary of a $1,000,000
term life insurance policy covering Stuart Goldstein.
24
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date hereof, the ownership of
the Common Stock by (i) each person who is known by the Company to own of
record or beneficially more than 5% of the outstanding Common Stock, (ii)
each of the Company's directors, nominees for directors, and executive
officers, and (iii) all directors, nominees for directors, and executive
officers of the Company as a group. Except as otherwise indicated, the
stockholders listed in the table have the sole voting and investment power
with respect to the shares indicated.
<TABLE>
<CAPTION>
Percentage Percentage
Name and Address of Number of Shares Before After
Beneficial Owner Beneficially Owned Offering(1) Offering(1)
------------------------------ ------------------ ------------ ------------
<S> <C> <C> <C>
Edward C. Ross(2) 74,350 5.95% 3.16%
c/o the Company
4 Henry Street
Commack, NY 11725
Stuart M. Goldstein(3) 50,000 3.86% 2.09%
c/o The Company
4 Henry Street
Commack, N.Y. 11725
Chuck Workman(4) 61,302 4.91% 2.61%
c/o the Company
4 Henry Street
Commack, NY 11725
Garry Howatt(2) 53,749 4.30% 2.29%
c/o the Company
4 Henry Street
Commack, NY 11725
Edward C. Ross and 700,000 56.22% 29.85%
Stuart M. Goldstein(5)
c/o the Company
4 Henry Street
Commack, NY 11725
Robert Schwartz -- -- -- -- -- --
c/o the Company
4 Henry Street
Commack, NY 11725
Michael L. Faltischek -- -- -- -- -- --
c/o Ruskin, Moscou, Evans
& Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
All directors, nominees for 939,401 75.45% 40.06%
directors, and executive
officers of the Company as a
group (6 persons)
(1)(2)(3)(4)(5)
</TABLE>
(1) Does not include shares issued pursuant to the exercise of the
Underwriter's Over-Allotment Option.
(2) Includes 5,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(3) Includes 50,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(4) Includes 2,500 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(5) Shares owned beneficially by persons listed as Selling Stockholders but
held by Messrs. Ross and Goldstein as custodian/power of attorney for
such persons. Messrs. Ross and Goldstein disclaim beneficial ownership of
such shares. Messrs. Ross and Goldstein maintain dispositive power over,
but have no pecuniary interest in, such shares. See "Selling
Stockholders; Plan of Distribution."
25
<PAGE>
CERTAIN TRANSACTIONS
The Commack Partnership was organized in 1994 to construct, develop and
operate the Commack Golf Center. The Commack Partnership's limited partners
provided the Commack Partnership's with capital of $2,190,000 through a
private placement of limited partnership interests that was exempt from the
registration requirements of the Act pursuant to Regulation D thereunder. The
general partners contributed $10,000 of capital to the Commack Partnership.
In the latter part of 1995 and the first quarter of 1996, the Commack
Partnership borrowed a total of $404,475 from the limited partners and two
general partners in connection with the development of the Commack Golf
Center. The indebtedness from the limited partners will be repaid from the
proceeds of this Offering. The indebtedness to the general partners
($314,500) is non-interest bearing and due on demand.
In November, 1995, United Acquisition I Corp., was incorporated and
received equity investments from its founding stockholders in the amount of
$54,500. This company had no affiliation with the Commack Partnership at the
time of its formation. In April, 1996, this company (whose name was changed
to U.S. Golf and Entertainment Corp., herein referred to as "U.S. Golf
Corp.") loaned $41,200 to the Commack Partnership in anticipation of the
purchase (the "Purchase") of the partnership interests of the Commack
Partnership for its stock. In May, 1996, U.S. Golf Corp. raised an additional
$500,000 from the sale of common stock and warrants (which was a precondition
to the Purchase) of which approximately $450,000 was loaned to the Commack
Partnership in anticipation of the Purchase. The Purchase was effected
through the organization of the Company (in May, 1996) as the corporate
entity which would (i) exchange, on a tax-free basis, the partnership
interests in the Commack Partnership for 1,045,000 shares of Common Stock in
the Company; and (ii) exchange, on a tax-free basis, the stock and warrants
of U.S. Golf Corp (i.e., 1,045,000 shares and 2,020,000 warrants) for an
identical amount of Common Stock and warrants in the Company. These exchanges
were consummated on June 3, 1996. Subsequent to the Purchase, the terms of
the warrants were modified to reflect the exercise price of the Class A
Warrants offered by the Company in exchange for their registration in the
Registration Statement.
In November, 1996 the Company (A) redeemed, for an aggregate purchase
price of $601,125, 845,000 shares of the Company's Common Stock and all
2,020,000 Class A Warrants from persons who were formerly stockholders of
U.S. Golf Corp., (B) obtained Bridge Loans of $836,000 from accredited
investors (the proceeds of which were used in part for the aforesaid
redemption) and (C) issued Bridge Warrants to purchase a total of 110,000
shares of the Company's Common Stock, at $0.10 per share, to the aforesaid
accredited investors.
In , 1996, persons owning an aggregate of 700,000 shares of Common
Stock (herein listed as Selling Stockholders) entered into Custody
Agreements/Irrevocable Powers of Attorney with Edward Ross and Stuart
Goldstein. Pursuant to these Agreements/Powers of Attorney, Messrs. Ross and
Goldstein were granted the irrevocable authority to sell those shares of
Common Stock, subject to the Underwriters consent, at any time from the
Effective Date to the second anniversary of the Effective Date, with the
Selling Stockholders receiving $2.90 per share (in the case of 500,000
shares) or $1.25 per share (in the case of 200,000 shares) and the Company
receiving the proceeds of such sales in excess of such amounts. See "Selling
Stockholders; Plan of Distribution."
DESCRIPTION OF SECURITIES
The following summary descriptions are qualified in their entirety by
reference to the Company's Certificate of Incorporation, a copy of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Common Stock. The Company is authorized to issue 20,000,000 shares of
common stock, par value $.001 per share (the "Common Stock"). As of the date
of this Prospectus, there were 1,245,000 shares of Common Stock issued and
outstanding and held of record by 57 stockholders. Each stockholder is
entitled to one vote per share of Common Stock owned by such stockholder on
all matters submitted to a vote of the stockholders.
26
<PAGE>
The Common Stock is not entitled to preemptive rights and is not subject
to redemption. Subject to the dividend rights of holders of any then
outstanding preferred stock, holders of Common Stock are entitled to receive
dividends at such times and in such amounts as the Board of Directors, from
time to time, may determine. Subject to the liquidation preference of any
then outstanding preferred stock, holders of Common Stock are entitled to
receive, on a pro rata basis, all remaining assets of the Company available
for distribution to the holders of Common Stock in the event of the
liquidation, dissolution or winding up of the Company.
All outstanding shares of Common Stock are, and the shares of the Common
Stock issued pursuant to the Offering will be, validly issued, fully paid and
non-assessable.
Preferred Stock. The Board of Directors has the authority to cause the
Company to issue, without any further vote or action by the stockholders, up
to 1,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"), in one or more series, to designate the number of shares
constituting any series, and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, voting rights, rights and
terms of redemption, redemption price or prices and liquidation preferences
of such series. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders. The issuance of Preferred Stock with
voting and conversion rights may adversely effect the voting power of the
holders of Common Stock, including the loss of voting control. The Company
has no present plans to issue any shares of Preferred Stock. See "Risk
Factors -- Potential Adverse Effect of Issuance of any Authorized Preferred
Stock."
Warrants. In connection with the Company's private offering consummated in
November, 1996, the Company issued an aggregate of 110,000 Bridge Warrants,
each such warrant entitling the holder thereof to purchase one (1) share of
Common Stock at an exercise price of $0.10 per share, subject to adjustment.
The Bridge Warrants are exercisable commencing one (1) year from the date of
closing of the Private Placement until October 23, 2001.
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the Board of Directors of the Company
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the Company outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (x) by persons who are directors and also officers and (y) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such
date, the business combination is approved by the Board of directors and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include, among other things:
(i) any merger or consolidation involving the Company and the interested
stockholder; (ii) any sale, lease, exchange, mortgage, transfer, pledge or
other disposition of 10% or more of the assets of the Company involving the
interested stockholder; (iii) subject to certain exceptions, any transaction
that results in the issuance or transfer by the Company of any stock of the
Company to the interested stockholder; (iv) any transaction involving the
Company that has the effect of increasing the proportionate share of the
stock of any class or series of the Company beneficially owned by the
interested stockholder; or (v) the receipt by the interested stockholder of
the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the Company. In general, Section 203 defines
an "interested stockholder" as any entity or person beneficially owning 15%
or more of the outstanding voting stock of the Company and any entity or
person affiliated with or controlling or controlled by such entity or person.
Transfer Agent and Warrant Agent. American Stock Transfer and Trust
Company, 40 Wall Street, New York, New York 10005, has been appointed as the
transfer agent and warrant agent for the Common Stock and Class A Warrants.
27
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons who may be deemed to be
"affiliates" of the Company, as that term is defined under Rule 144, is
entitled to sell within any three-month period a number of restricted shares
beneficially owned for at least two years that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock, or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with the Securities and Exchange
Commission with respect to such sale. Sales under Rule 144 also are subject
to certain requirements as to the manner of sale, notice and the availability
of current public information about the Company. A person who is not an
affiliate of the Company any time during the 90-day period preceding such
sale and has beneficially owned such shares for at least three years is
entitled to sell such shares without regard to the volume or other
requirements pursuant to Rule 144(k).
Any employee, officer, or director of, or consultant to, the Company, who
purchased his or her shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701 under
the Act, which permits non-affiliates to sell their Rule 701 shares of Common
Stock without having to comply with the public information, holding period,
volume limitations, or notice provisions of Rule 144, and which permits
affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
Company becomes subject to the reporting requirements of Sections 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Following the Offering, 545,000 shares of Common Stock currently
outstanding as well as 110,000 common shares issuable pursuant to the
exercise of the Bridge Warrants will be "restricted securities" as that term
is defined in Rule 144 promulgated under the Act (the "Restricted
Securities"). All of such shares of Common Stock will be eligible for sale in
the public market pursuant to the provisions of Rule 144 or Rule 701 under
the Act at various times after the Effective Date, subject to the "lock-up"
agreements with the Underwriter described below.
Holders of the Additional Stock will be subject to lock-up agreements for
a period of two (2) years from the Effective Date, subject to earlier release
by the Underwriter. It is the intention of the Underwriter to release such
lock-ups as early as practicable on or after the Effective Date if in its
sole judgment, market conditions and public demand for additional shares of
the Company's Common Stock so warrant.
The Company has adopted the 1996 Stock Option Plan, as amended, pursuant
to which it has issued options to purchase 500,000, 100,000 and 50,000 shares
of Common Stock to each of Messrs. Stuart Goldstein, Edward Ross and Chuck
Workman, respectively.
The Company has adopted the 1996 Non-Employee Director Stock Option Plan
pursuant to which it has issued options to purchase 5,000 shares of Common
Stock to Mr. Garry Howatt and may issue options to purchase up to an
additional 95,000 shares of Common Stock.
Holders of the Additional Stock, the Restricted Securities, Bridge
Warrants, the Employee Options and the Director Options have agreed that they
will not, without the Underwriter's written consent, and, in the case of the
Additional Stock, subject to the terms and conditions described below, sell,
transfer, assign, pledge, hypo- thecate or otherwise dispose of any of the
Additional Stock, the Restricted Securities, the Bridge Warrants, or the
shares of Common Stock issuable upon exercise of the Employee Options or
Director Options for a period of 24 months after the Effective Date without
the consent of the Underwriter. See "Selling Stockholders; Plan of
Distribution."
Following the expiration of the lock-up period (or prior thereto if the
Underwriter should so agree) and/or restrictive periods described above, a
substantial sale of securities pursuant to Rule 144 or otherwise could occur
and might have an adverse effect on the market price of the Company's
securities.
28
<PAGE>
SELLING STOCKHOLDERS; PLAN OF DISTRIBUTION
Pursuant to the exchange agreement with the stockholders of U.S. Golf
Corp., the Company issued 1,045,000 shares of Common Stock and 2,020,000
Class A Warrants to such stockholders. In addition, pursuant to the exchange
agreement with the limited partners of the Commack Partnership, the Company
issued 1,045,000 shares of Common Stock to such limited partners. In
November, 1996, 845,000 shares of Common Stock and all 2,020,000 Class A
Warrants were repurchased from certain former U.S. Golf Corp. stockholders by
the Company. The Company has agreed to include the remaining 200,000 shares
of Common Stock held by other former U.S. Golf Corp. stockholders and a total
of 500,000 shares of Common Stock held by the limited partners of the Commack
Partnership in the Registration Statement of which this Prospectus is a part.
The 700,000 shares of Common Stock being so registered are referred to herein
as the "Additional Stock" and the holders thereof as the "Selling
Stockholders."
The following table sets forth the record ownership of the Common Stock
held by the Selling Stockholders as of the date of this Prospectus and the
number of shares of Common Stock to be sold:
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Shares of Common Stock Common Stock Percentage
Common Stock to be After After
Name of Selling Stockholder Prior to Offering Registered Offering(1) Offering(1)(2)
------------------------------------ ----------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Edward Ford(3) ..................... 19,500 15,952 3,548 *
William Pattison(4) ................ 5,000 5,000 0 *
Chuck Workman(4)(5) ................ 58,802 10,000 48,802 2.1
Donald Balbinder(4) ................ 25,000 25,000 0 0
Jonathan Halperin(4) ............... 25,000 25,000 0 0
David B. Lever(4) .................. 25,000 25,000 0 0
Peter Halperin(4) .................. 25,000 25,000 0 0
Craig W. Effron(4) ................. 50,000 50,000 0 0
Alan Koch(4) ....................... 25,000 25,000 0 0
Steve Aptecker(6) .................. 9,500 5,952 3,548 *
Pasquale J. Bagnato(6) ............. 14,250 8,932 5,318 *
Matthew Barbara(6) ................. 9,500 5,952 3,548 *
Paul E. Barbara(6) ................. 9,500 5,952 3,548 *
Howard Baron(6) .................... 9,500 5,952 3,548 *
Robert Brosnan(6) .................. 19,000 11,905 7,095 *
Eugene Bernstein(6) ................ 9,500 5,952 3,548 *
Harold Bernstein(6) ................ 9,500 5,952 3,548 *
Julius A. Binetti(6) ............... 9,500 5,952 3,548 *
David Brand(6) ..................... 9,500 5,952 3,548 *
Teri R. Costello(6) ................ 19,000 11,905 7,095 *
Joseph Duerr ....................... 19,000 11,905 7,095 *
Kevin Fee(6) ....................... 19,000 11,905 7,095 *
Edward Feinberg(6) ................. 9,500 5,952 3,548 *
Donald Feinsod(6) .................. 19,000 11,905 7,095 *
Alan Feldman(6) .................... 9,500 5,952 3,548 *
David Feldman(6) ................... 19,000 11,905 7,095 *
Alvin Finkle(6) .................... 38,000 23,808 14,192 *
Clark Gillies(6) ................... 19,000 11,905 7,095 *
Jack Herrick(6) .................... 19,000 11,905 7,095 *
Raina Herrick(6) ................... 19,000 11,905 7,095 *
Carmine Inserra(6) ................. 14,250 8,932 5,318 *
Uwe Krupp .......................... 38,000 23,808 14,192 *
Frank Lemieux(6) ................... 19,000 11,905 7,095 *
Peter Leonard(6) ................... 19,000 11,905 7,095 *
Gilbert Lerner(6) .................. 38,000 23,808 14,192 *
Harvey Lerner(6) ................... 9,500 5,952 3,548 *
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Shares of Common Stock Common Stock Percentage
Common Stock to be After After
Name of Selling Stockholder Prior to Offering Registered Offering(1) Offering(1)(2)
------------------------------------ ----------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Alvin Levine(6) .................... 47,500 29,762 17,738 *
Phyllis Lido(6) .................... 9,500 5,952 3,548 *
Marc Locker(6) ..................... 19,000 11,905 7,095 *
Douglas Lopez(6) ................... 19,000 11,905 7,095 *
Jonathan Lopez(6) .................. 9,500 5,952 3,548 *
Matthew Lopez(6) ................... 9,500 5,952 3,548 *
Gary Pezza(6) ...................... 38,000 23,808 14,192 *
Joseph D. Posillico(6) ............. 19,000 11,905 7,095 *
Mario Posillico(6) ................. 19,000 11,905 7,095 *
Carole Provenzano/Elias Rodriquez(6) 14,250 8,932 5,318 *
Audrey Reed(6) ..................... 38,000 23,808 14,192 *
Joanne M. Russell(6) ............... 9,500 5,952 3,548 *
Eros Sanchez(6) .................... 38,000 23,808 14,192 *
Daniel Saretto(6) .................. 14,250 8,931 5,319 *
Larry Sussman(6) ................... 9,500 5,952 3,548 *
Larry H. Weiss(6) .................. 9,500 5,952 3,548 *
Marcia Zimmerman(6) ................ 9,500 5,952 3,548 *
</TABLE>
- ------
(1) Assumes all shares of Common Stock registered will be sold concurrently
with the Offering.
(2) Based on the number of shares of Common Stock outstanding after the
Offering. Assumes that the Underwriter does not exercise its
Over-Allotment Option.
(3) This Selling Stockholder shall receive up to $1.25 per share in respect
of up to 10,000 shares of Common Stock sold on his behalf and up to $2.90
per share in respect of the remaining 5,952 shares of Common Stock sold
on his behalf from the Effective Date to the second anniversary of the
Effective Date. The Company shall receive the proceeds from such sales in
excess of $1.25 per share or $2.90 per shares, as the case may be.
(4) These Selling Stockholders shall receive up to $1.25 per share of Common
Stock sold on their behalf from the Effective Date to the second
anniversary of the Effective Date. The Company shall receive the proceeds
from such sales in excess of $1.25 per share.
(5) Chuck Workman, the Company's Senior Vice President, is a principal of
Chuck Workman Pro Golf, Ltd., a general partner of the Commack
Partnership.
(6) These Selling Stockholders shall receive up to $2.90 per share of Common
Stock sold on their behalf from the Effective Date to the second
anniversary of the Effective Date. The Company shall receive the proceeds
from such sales in excess of $2.90 per share.
* indicates a security ownership of less than 1%.
In . 1996, these Selling Stockholders entered into Custody
Agreements/Irrevocable Powers of Attorney with Edward C. Ross and Stuart M.
Goldstein jointly (the Chairman and President of the Company) pursuant to
which Messrs. Ross and Goldstein were granted the irrevocable authority to
sell those shares, subject to the Underwriter's consent, at any time from the
Effective Date to the second anniversary of the Effective Date. All proceeds
from the sale of Additional Stock will be proportionately distributed to all
of the Selling Stockholders (up to $2.90 per share for 500,000 shares and
$1.25 per share for 200,000 shares), with the balance of such proceeds
delivered to the Company.
The Additional Stock being offered by the Selling Stockholders pursuant to
this Prospectus may be offered and sold from time to time as market
conditions permit in the over-the-counter market, or otherwise, at prices and
terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. They may be sold by one or more of the
following methods, including, without limitation: (a) a block trade in which
30
<PAGE>
a broker or 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; and (c)
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. Such
brokers or dealers may receive commissions or discounts from the Selling
Stockholders in amounts to be negotiated. Such brokers and dealers, which may
include the Underwriter, and any other participating brokers and dealers may
be deemed to be "underwriters" within the meaning of the Act in connection
with such sales, and any profits realized or commissions received may be
deemed underwriting compensation.
All of the Additional Stock to be offered by the Selling Stockholders is
held in custody under irrevocable powers of attorney by Edward C. Ross and
Stuart M. Goldstein jointly, and any Additional Stock not sold within two (2)
years of the Effective Date will be returned to the Selling Stockholders.
The Company has agreed to indemnify the Selling Stockholders against
certain civil liabilities, including liabilities under the Act.
In the event shares of Additional Stock are sold within the two (2) year
period from the Effective Date, each Selling Stockholder will be entitled to
receive proceeds from the future sale of his, her or its respective
Additional Stock in amounts up to $2.90 per share of Additional Stock sold
with respect to the 500,000 shares of Additional Stock held by the former
limited partners of the Commack Partnership, and up to $1.25 per share of
Additional Stock sold held by certain former stockholders of U.S. Golf Corp.
Except for the costs of including the Additional Stock within the
Registration Statement, which costs are borne by the Company, the Selling
Stockholders will bear all expenses of any offering by them of such
securities, including the costs of their counsel and of any sales commissions
incurred.
Each Selling Stockholder has agreed not to sell, transfer or assign,
pledge, hypothecate or otherwise dispose of any of such Selling Stockholder's
shares of Additional Stock for a period of 24 months after the Closing of the
Offering, without the consent of the Underwriter.
The Underwriter may release the Selling Stockholders from these lock-up
agreements at any time in its sole discretion. The determination of whether
to grant such a release will be made by the Underwriter based on such
considerations as the Underwriter may deem relevant, including but not
limited to market conditions and public demand for additional shares of
Common Stock of the Company. As of the date of this Prospectus, no agreements
have been reached regarding the release of any such lock-up agreement but it
is the intention of the Underwriter to release such lock-ups as early as
practicable on or after the Effective Date if in its sole judgment, market
conditions and public demand for additional shares of the Company's Common
Stock so warrant. There are no relationships and/or affiliations between the
Selling Stockholders and any of their officers, directors, affiliates and
associates and the Underwriter and its officers, directors, principal
shareholders and affiliates.
31
<PAGE>
UNDERWRITING
The Company has entered into an underwriting agreement (the "Underwriting
Agreement") with First United Equities Corporation (the "Underwriter")
pursuant to which it will serve as the underwriter in connection with the
Offering. In accordance with Underwriting Agreement, the Underwriter has
agreed to purchase from the Company, and the Company has agreed to sell to
the Underwriter 1,100,000 shares of Common Stock on a "firm commitment"
basis.
The Underwriter is committed to purchase and pay for all of the Common
Stock offered hereby, if any Common Stock is purchased. The Common Stock is
being offered by the Underwriter subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by Underwriter's counsel and to certain other
conditions.
The Underwriter has advised the Company that it proposes to offer the
Common Stock to the public at the offering price set forth on the cover page
of this Prospectus. In addition, it may allow to certain dealers who are
members of the NASD concessions not in excess of $0.25 per share of Common
Stock of which not more than $0.125 for each share of Common Stock may be
reallowed to other dealers who are members of the NASD.
The initial public offering price of the Common Stock determined by
negotiation between the Company and the Underwriter and is not necessarily
related to the Company's assets, book value, results of operations, or other
established criteria of value, and should not be regarded as an indication of
the future market price of the Common Stock. Factors considered in
determining the offering price of the Common Stock consisted of the present
state of the Company's development, the future prospects of the Company, an
assessment of management, the general condition of the securities markets,
the demand for similar securities of companies comparable in development or
markets, and prevailing economic condition.
No member of management and no one acting at their direction is expected
to recommend, encourage or advise any investor to open brokerage accounts
with any broker-dealer that makes a market in the Common Stock. Management
also is not expected to make any recommendation to existing stockholders with
respect to the sale or purchase of the Common Stock. Officers, directors or
employees of the Company will not be permitted to purchase Common Stock in
the Offering.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities, including
liabilities under the Act.
The Company has granted to the Underwriter an option exercisable for 45
days from the date of this Prospectus, to purchase up to 165,000 additional
shares of Common Stock (the "Over-Allotment Option"). The Underwriter may
exercise this option, in whole, from time to time, solely for the purpose of
covering over-allotments, if any, made in connection with the sale of the
Securities.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds of the Offering, or $165,000
($189,750 if the Underwriter exercises the Over-Allotment Option in full) of
which $25,000 has already been paid and an additional $25,000 that may be
paid prior to the Offering. The Company has treated this payment as a
deferred offering cost. The Company has also agreed to pay all of the costs
of qualifying the Common Stock under federal and state securities laws,
together with legal and accounting fees, printing and other costs in
connection with the Offering estimated by the Company to aggregate
approximately $405,000. The Company is also required to reimburse the
Underwriter for due diligence expenses of up to $10,000.
The Company has granted to the Underwriter options to purchase 110,000
shares of Common Stock for an aggregate of $110 (the "Stock Purchase
Option"). The exercise price of the Stock Purchase Warrants are $6.50 per
share. The Stock Purchase Warrants is exercisable over a period of five years
commencing one year from the Effective Date.
The Company has entered into an agreement with the Underwriter providing
for the payment of a fee to the Underwriter in the event the Company closes a
merger, acquisition, financing or other similar transaction during the five
year period beginning on the effective date of the Registration Statement
with a party to whom the
32
<PAGE>
Company was introduced by the Underwriter. In such event, the Company shall
pay a finder's fee of 5% of the first $5,000,000 of consideration realized or
paid by the Company and 2.5% of the excess over $5,000,000. Any such finder's
fee will be paid in cash, subject to certain exceptions, at the closing of
such transaction.
The Company has agreed that, for a period of three (3) years from the
Effective Date, the Underwriter shall have a right of first refusal to act as
the Company's underwriter for any public or private offering of the Company's
securities.
The Company has entered into an agreement with the Underwriter as its
financial consultant, for a period of three years commencing on the Effective
Date, at an annual fee of $36,000 (exclusive of any accountable out-
of-pocket expenses), which fees will be payable at a rate of $3,000 per
month.
Holders of the Additional Stock, the Restricted Securities, the Bridge
Warrants, the Employee Options, and the Director Options have agreed that
they will not, without the Underwriter's consent, and in the case of the
Additional Stock, subject to the terms and conditions described above, sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any of the
Additional Stock, the Bridge Warrants, the Restricted Securities or the
shares of Common Stock issuable upon the exercise of the Employee Options or
the Director Options for a period of 24 months after the Effective Date. It
is the intention of the Underwriter to release such lock-ups with respect to
the Additional Stock as soon as practicable after the Effective Date if in
its sole judgment, market conditions and public demand for additional shares
of the Company's Common Stock so warrant.
The Underwriter has a five year right effective upon the Effective Date,
to designate either an advisor to or one nominee for director to the
Company's Board of Directors, which shall not exceed seven persons during
such period, without the Underwriter's consent. As of the date of this
Prospectus, the Underwriter has no intention to nominate any person for
election as a director.
Prior to this offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Underwriter. Among the factors considered in determining the offering price
were the Company's financial condition, prospects and management. There can
be no assurance however, that the price at which the Common Stock will sell
in any public market after the Offering will not be lower than the offering
price. It will be the responsibility of the Underwriter and any participants
in the selling group to sell the Common Stock hereby to be registered.
Neither the Underwriter nor any of the participants of the underwriting group
have a material relationship with the promoters, officers and/or directors of
the Company.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection
with the Registration Statement, including liabilities under the Act. The
Company and the Underwriter have agreed to indemnify each other against
liabilities arising out of or based upon any untrue statement or alleged
untrue statement of any material fact or omission or alleged omission of a
material fact required to be stated or necessary to make the statements made
no misleading, in each case only to the extent made in reliance upon or in
conformity with written information furnished by the respective party for use
herein. If such indemnifications are unavailable or insufficient, the Company
and the Underwriter have agreed to damage contribution arrangements between
them based upon relative benefits received from this Offering and relative
fault resulting in such damages.
While the Underwriter commenced operations in 1994, it has acted as an
underwriter in public offerings of securities in only two (2) prior
offerings. The Underwriter's lack of experience may have an adverse impact on
its ability to market the Common Stock offered hereby as well as the
development and maintenance of a trading market for the Company's securities
following this offering.
The foregoing includes a brief summary of the Underwriting Agreement, a
copy of which has been filed with the Securities and Exchange Commission as
an Exhibit to the Registration Statement.
INDEMNIFICATION AND ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides that the Company
shall, to the fullest extent permitted by the laws of the State of Delaware,
as the same may be amended and supplemented, indemnify its officers and
directors, and the indemnification provided for therein shall not be deemed
exclusive of any other rights
33
<PAGE>
to which those indemnified may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
which official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The Company will have
the power to purchase and maintain officers' and directors' liability
insurance in order to insure against the liabilities for which such officers
and directors are indemnified.
Certain provisions of the Company's Certificate of Incorporation and
By-Laws could have an anti-takeover effect, in that they could discourage
acquisition bids for the Company or could make such an acquisition more
difficult to accomplish. The provisions of the Certificate of Incorporation
which could have such an effect, in addition to the provisions which
authorize the Company to issue shares of preferred stock and additional
shares of Common Stock, include the prohibition of taking of stockholder
action by written consent without a meeting and provisions restricting to the
Board of Directors the right to fill newly created directorships and
preventing removal of directors without cause. The provisions of the By-Laws
which may have such effect include advance notice requirements for
stockholders' proposals and director nominations and, under certain
circumstances, voting requirements with respect to amendment of the By-Laws.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING
THE COMPANY PURSUANT TO THE FOREGOING PROVISION, OR OTHERWISE, THE COMPANY
HAS BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE
COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE
ACT AND IS THEREFORE UNENFORCEABLE.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New York.
Michael L. Faltischek, a partner of such law firm, will become a director of
the Company following the completion of the Offering.
Certain legal matters will be passed upon for the Underwriter by Rubin
Baum Levin Constant Friedman & Bilzin, Miami, Florida.
EXPERTS
The financial statements included in this Prospectus and Registration
Statement for the periods ended December 31, 1995 with respect to U.S. Golf
and Entertainment Corp. and Commack Golf and Family Recreation Center, L.P.,
and May 31, 1996 with respect to the Company, have been audited by Farber,
Blicht & Eyerman, L.L.P., independent certified public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, the Registration Statement on
Form SB-2 under the Act for the Common Stock offered hereby. This Prospectus,
which is a part of the Registration Statement, does not contain all of the
information contained in the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is
made to the Registration Statement, including the Exhibits thereto, which may
be inspected, without charge, at the Securities and Exchange Commission, or
copies of which may be obtained from the Securities and Exchange Commission
in Washington, D.C., and at the Northeast Regional Office at Seven World
Trade Center, New York, New York 10048, upon payment of the requisite SEC
fees. Statements contained in this Prospectus as to the content of any
contract or other document referenced are qualified by reference to the copy
of such contract or other document filed as an Exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as
management may determine to be appropriate and as may be required by law.
34
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
FINANCIAL STATEMENTS AND
AUDITORS' REPORT
MAY 31, 1996
F-1
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
-------------
<S> <C>
Report of Independent Auditors ........................................................................ F-3
Balance Sheet at May 31, 1996 and Consolidated Balance Sheets as of September 30, 1996 (unaudited) and
pro forma September 30, 1996 (unaudited) ............................................................. F-4 - F-5
Statement of Operations for the period May 17, 1996 (date of inception) to May 31, 1996 and the
Consolidated Statement of Operations for the four months ended September 30, 1996 (unaudited) ........ F-6
Statement of Shareholders Equity for the period May 17, 1996 (date of inception) to May 31, 1996 and
the Consolidated Statement of Shareholder's Equity for the four months ended September 30, 1996
(unaudited) .......................................................................................... F-7
Statement of Cash Flows for the period May 17, 1996 (date of inception) to May 31, 1996 and the
Consolidated Statement of Cash Flows for the four months ended September 30, 1996 (unaudited) ........ F-8
Notes to Financial Statements ......................................................................... F-9 - F-13
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FARBER, BLICHT & EYERMAN, LLP
- ----------------------------------------------------------------------------------------------
Certified Public Accountants 255 Executive Drive, Suite 215 Telephone: (516) 576-7040
Plainview, NY 11803-1715 Facsimile: (516) 576-1232
</TABLE>
To the Board of Directors
and Shareholders
U.S. Golf and Entertainment Inc.
We have audited the accompanying balance sheet of U.S. Golf and
Entertainment Inc. as of May 31, 1996 and the related statements of
operations, shareholder's equity and cash flows for the period May 17, 1996
(date of inception) to May 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of U.S. Golf and
Entertainment Inc. as of May 31, 1996 and the results of its operations and
its cash flows for the period May 17, 1996 (date of inception) to May 31,
1996 in conformity with generally accepted accounting principles.
Plainview, New York
July 30, 1996 (except for Notes 1, 2 and 12 through 15,
the latest of which is dated November 6, 1996)
F-3
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Note 2)
Consolidated Pro Forma
May 31, September 30, September 30,
--------- --------------- ---------------
1996 1996 1996
--------- --------------- ---------------
(unaudited) (unaudited)
--------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash .......................................... $-- $ 52,717 $ 287,592
Due from former general partner (Note 4) ...... -- 8,588 8,588
Prepaid expenses and other current assets ..... -- 35,584 35,584
--------- --------------- ---------------
Total current assets ........................ -- 96,889 331,764
--------- --------------- ---------------
Property and equipment, at cost, less accumulated
depreciation and amortization (Note 5) ........ -- 2,654,135 2,654,135
--------- --------------- ---------------
Other assets:
Deferred costs, net of accumulated amortization
of $13,844 (Note 6) ........................ -- 134,153 134,153
Deferred public offering costs (Note 7) ....... -- 85,613 85,613
Deposits ...................................... -- 2,000 2,000
--------- --------------- ---------------
-- 221,766 221,766
--------- --------------- ---------------
$-- $2,972,790 $3,207,665
========= =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Note 2)
Consolidated Pro Forma
May 31, September 30, September 30,
--------- --------------- ---------------
1996 1996 1996
--------- --------------- ---------------
(unaudited) (unaudited)
--------------- ---------------
<S> <C> <C> <C>
Current liabilities:
Notes payable -- banks (Note 8) ........... $-- $ 225,000 $ 225,000
Notes payable -- other (Note 13) .......... -- -- 836,000
Accounts payable .......................... -- 79,443 79,443
Due to former general partners (Note 9) ... -- 314,500 314,500
Due to former limited partners (Note 9) ... -- 89,975 89,975
Unearned income (Note 1(e) ................ -- 16,231 16,231
Accrued expenses .......................... -- 32,297 32,297
--------- --------------- ---------------
Total current liabilities ............... -- 757,446 1,593,446
--------- --------------- ---------------
Deferred rent costs (Note 10) ............... -- 231,361 231,361
--------- --------------- ---------------
Commitments and contingencies (Note 10)
Shareholders' equity (Notes 1, 12, 13 and
15):
Preferred stock -- par value $.001 per
share:
Authorized -- 1,000,000 shares
Issued and outstanding shares -- none .. -- -- --
Common stock -- par value $.001 per share:
Authorized -- 20,000,000 shares
Issued and outstanding shares --
2,090,000 shares
(1,245,000 shares -- pro forma) ...... -- 2,090 1,245
Additional paid-in-capital ................ -- 2,061,624 1,461,344
Deficit ................................... -- (79,731) (79,731)
--------- --------------- ---------------
-- 1,983,983 1,382,858
--------- --------------- ---------------
$-- $2,972,790 $3,207,665
========= =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Consolidated
May 17, 1996 For the
(date of four months
inception) to ended
May 31, September 30,
------------- ---------------
1996 1996
------------- ---------------
(Unaudited)
<S> <C> <C>
Revenues .................................................... $ -- $ 411,947
-------------- ---------------
Operating expenses .......................................... -- 422,598
Selling, general and administrative expenses ................ -- 60,410
-------------- ---------------
-- 483,008
-------------- ---------------
Operating loss .............................................. -- (71,061)
Interest expense ............................................ -- 8,670
-------------- ---------------
Net loss .................................................... $ -- $ (79,731)
============== ===============
Net loss per share .......................................... $ -- $ (.06)
============== ===============
Number of shares used in computing net loss per shares (Note
1) ......................................................... $ -- 1,245,000
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Paid-in
Shares Amount Capital Deficit
-------- --------- ------------ -----------
<S> <C> <C> <C> <C>
From May 17, 1996 (date of inception) to
May 31, 1996 .......................... -- $ -- $ -- $ --
Shares issued in exchange for all the
outstanding shares of US Golf and
Entertainment Corp. and the partners'
interest in Commack Golf and Family
Recreation Center, L.P. ............... 2,090,000 2,090 2,061,624 --
Consolidated net loss for the four
months ended September 30, 1996
(unaudited) ........................... -- -- -- (79,731)
----------- --------- ------------ -----------
Balance at September 30, 1996
(unaudited) ........................... 2,090,000 $2,090 $2,061,624 $(79,731)
=========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Consolidated
May 17, 1996 For the
(date of four months
inception) to ended
May 31, September 30,
------------- ---------------
1996 1996
------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................... $ -- $(79,731)
-------------- ---------------
Adjustment to reconcile net loss to net cash
provided by operations:
Depreciation and amortization .............. -- 72,574
Deferred rent costs ........................ -- 33,138
Changes in assets and liabilities:
Prepaid expenses and other current assets ..... -- 15,429
Accounts payable .............................. -- (14,357)
Accrued expenses .............................. -- (9,572)
Unearned income ............................... -- (3,037)
-------------- ---------------
-- 94,175
-------------- ---------------
Net cash provided by operations ................. -- 14,444
Cash flows used in investing activities:
Purchase of property and equipment ............ -- (5,864)
Cash flow provided by financing activities:
Cash acquired in connection with the
acquisition of subsidiaries (Note 1) ....... -- 44,137
-------------- ---------------
Net increase in cash ............................ -- 52,717
Cash, beginning of period ....................... -- --
-------------- ---------------
Cash, end of period ............................. $ -- $ 52,717
============== ===============
Supplemental disclosure of non-cash activities
and cash flow information:
Reference is made to Note 1 relating to the
exchange of shares in connection with the
acquisition of subsidiaries
Cash paid during period:
Interest ................................. $ -- $ 8,000
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF OPERATIONS AND BASIS OF PRESENTATION
On May 17, 1996, U.S. Golf and Entertainment Inc. (the "Company") was
incorporated in the State of Delaware to develop and become a national
owner/operator of upscale, high-volume, golf practice and instructional
centers and related recreational facilities. The Company is a newly formed
corporation and there have been no operations since inception through
September 30, 1996 except as discussed in the following paragraphs.
Commack Golf and Family Recreation Center, L.P., a New York limited
partnership (the "Partnership") was organized in July, 1994 to construct,
develop and operate the Commack Golf and Family Recreation Center, which
commenced operations in March, 1995. In November, 1995, United Acquisition I
Corp. (whose name was changed to U.S. Golf and Entertainment Corp. in April,
1996, ("US Golf Corp."), was incorporated and through September 30, 1996, has
basically no operations. US Golf Corp. received equity investments from its
founding shareholders in the amount of $54,500, $41,200 of which were loaned
to the Partnership in March, 1996 in anticipation of the Company's
acquisition of the Partnership. In May, 1996, US Golf Corp. raised an
additional $500,000 from the sale of its common stock and warrants, of which
approximately $450,000 was also loaned to the Partnership. In June, 1996, the
Company, entered into exchange agreements with (i) the stockholders of US
Golf Corp., whereby the stockholders of US Golf Corp. exchanged their shares
of common stock and warrants for 1,045,000 shares of common stock and
2,020,000 warrants of the Company and (ii) the general and limited partners
of the Partnership, whereby the partners exchanged their partnership
interests for an aggregate of 1,045,000 shares of common stock of the
Company. In November, 1996, 845,000 common shares of the Company and warrants
to purchase 2,020,000 common shares of the Company which was issued in
connection with the aforementioned exchange with US Golf Corp. was redeemed
by the Company in consideration of $601,125. The aforementioned exchanges
were accounted for by the Company using the purchase method of accounting,
and, accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed which, because of recent formations of
the acquired entities, represent the net book value of US Golf Corp. and the
Partnership. The operating results of these acquired entities have been
included in the consolidated statement of operations from the date of
acquisition.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company, US Golf Corp. and the Partnership as if
the acquisition had occurred at the beginning of the respective period after
giving effect to the increase in officers' compensation and interest expense
associated with the acquisition funding. The pro forma financial information
is presented for informational purposes only and is not necessarily
indicative of the results of operations as they would have been had the
transaction been effective on the assumed dates.
Pro forma
----------------------------------
Nine months
Year ended ended
December 31, September 30,
-------------- --------------
1995 1996
-------------- --------------
(unaudited) (unaudited)
Revenue $ 719,374 $ 710,967
Net loss $ (626,419) $ (496,098)
Net loss per share $ (.50) $ (.40)
Number of shares used in computing
net loss per share 1,245,000 1,245,000
B. METHOD OF DEPRECIATION
Depreciation and amortization of property and equipment has been
calculated on the straight-line method for financial reporting purposes. For
tax reporting purposes, the Company uses the straight-line or accelerated
methods of depreciation.
F-9
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(Information with respect to the nine months ended September 30, 1996 is
unaudited)
1. Summary of Significant Accounting Policies - (Continued)
Expenditures for maintenance, repairs, renewal and betterments are
reviewed by the Company and only those expenditures representing improvements
to property and equipment are capitalized. At the time property and equipment
are retired or otherwise disposed of, the cost and accumulated depreciation
are eliminated from the asset and accumulated depreciation accounts and the
gain or loss on such disposition is reflected in income.
The Company adopted Financial Accounting Standards ("FAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" for the period ended September 30, 1996. The adoption of
FAS 121 had no effect on the financial statements.
C. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted Statement of Financial Accounting Standards No.
107 which requires entities with total assets less than $150 million to
disclose the fair value of financial instruments recognized in the balance
sheet. At September 30, 1996, the carrying amounts of the Company's financial
instruments, including cash, receivables, accounts payable, and notes and non
related loans payable approximate fair value. It is not practicable to
determine the fair values of the receivable from and loans payable to certain
former general and limited partners.
E. REVENUE RECOGNITION
Revenue is recognized by the Company when its services are rendered to its
customers. Revenues from annual membership and the sale of gift certificates
are deferred as unearned income at the time of receipt and are credited to
income when earned on a straight-line basis or redeemed.
F. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet has been prepared as of September
30, 1996 to give effect to the proceeds from the sale of Units in November,
1996 for $836,000 of which $601,125 was used to redeem 845,000 common shares
and 2,020,000 warrants (Note 13).
3. INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of September 30, 1996 and for the
period then ended, are unaudited but, in the opinion of management of the
Company, reflects all adjustments (consisting of normal and recurring
adjustments) necessary for a fair presentation.
The financial position as of September 30, 1996, and the results of
operations and cash flows for the period then ended are not necessarily
indicative of the results that may be expected for the entire year.
4. DUE FROM FORMER GENERAL PARTNER
The amounts due from a former General Partner of the Partnership
aggregating $8,588, at September 30, 1996 is due on demand and is
non-interest bearing.
F-10
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(Information with respect to the nine months ended September 30, 1996 is
unaudited)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 1996:
<TABLE>
<CAPTION>
Estimated
useful
lives
-------------
<S> <C> <C>
Leasehold improvements 15 years (*) $2,872,180
Furniture and fixtures 7 years 34,798
Machinery and equipment 5 years 66,234
------------
2,973,212
Accumulated
depreciation and
amortization 319,077
------------
$2,654,135
============
</TABLE>
(*) Over life of lease (Note 10).
6. DEFERRED COSTS
Deferred costs consist substantially of costs to acquire the land lease.
These costs are being amortized on a straight-line basis over the life of the
lease (fifteen years).
7. DEFERRED PUBLIC OFFERING COSTS
Deferred public offering costs arose from certain professional fees and
other related costs in connection with the proposed public sale of the
Company's common stock. These costs have been deferred and will be charged to
shareholders' equity upon successful completion of the sale of common stock
or charged to operations if the sale is not completed.
8. NOTES PAYABLE - BANKS
The Company as of September 30, 1996 had loans outstanding to two banks
aggregating $225,000. The loans mature in December, 1996 and bear interest at
10 1/4 % or 9 3/4 % per annum. One loan of $140,000 is collateralized by all
the assets of the Partnership. All loans are guaranteed by certain former
general and limited partners.
9. DUE TO FORMER GENERAL AND LIMITED PARTNERS
The loans payable to former general and limited partners as at September
30, 1996 are non-interest bearing and are payable on demand.
10. COMMITMENTS AND CONTINGENCIES
The Company leases its land under a ground lease for an initial term of 15
years, with two successive renewal periods of five years each. The lease is
scheduled to expire in April, 2010. Future minimum rentals required as of
September 30, 1996 under the lease are as follows:
1997 $ 500,000
1998 506,000
1999 519,000
2000 533,000
2001 547,000
Thereafter 5,259,000
------------
$7,864,000
============
F-11
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(Information with respect to the nine months ended September 30, 1996 is
unaudited)
10. Commitments and Contingencies - (Continued)
The Company records a liability for deferred rent costs to the extent that
the rental commitment, amortized on a straight-line basis over the term of
the lease, exceeds actual lease payments.
Rental payments under the lease range from an initial $450,000 to $665,000
per annum. The lease also provides for rent increases based upon various
percentages over stated gross revenue of the Partnership. The Company is
responsible for all related rental expenses on the property. Rent expense
approximated $187,000 for the four months ended September 30, 1996.
11. INCOME TAXES
The Company, as of September 30, 1996, has available approximately $80,000
of net operating loss carryforwards (expiring through the year 2011) to
reduce future Federal and state income taxes. Since there is no guarantee
that the related deferred tax asset will be realized by reduction of taxes
payable on taxable income during the carryforward period, a valuation
allowance has been computed to offset in its entirety the deferred tax asset
attributable to this net operating loss in the amount of approximately
$32,000.
12. STOCK OPTION PLANS
The Company maintains two stock option plans, as amended, pursuant to
which an aggregate of 1,000,000 shares of Common Stock may be granted.
The 1996 Stock Option Plan (the "1996 Plan"), as amended, was adopted by
the Board of Directors and the stockholders of the Company on November 4,
1996. Under the 1996 Plan, as amended, 900,000 shares of Common Stock have
been reserved for issuance upon exercise of options designated as either (i)
incentive stock options ("ISOs") under the Internal Revenue Code (the
"Code"), or (ii) non-qualified options. ISOs may be granted under the 1996
Plan to employees and officers of the Company. Non-qualified options may be
granted to consultants, directors (whether or not they are employees),
employees or officers of the Company.
The 1996 Plan is administered by the Board of Directors or by a stock
option committee selected by the Board. ISOs granted under the 1996 Plan may
not be granted at a price less than the fair market value of the Common Stock
on the date of grant (or 110% of fair market value in the case of persons
holding 10% or more of the voting stock of the Company). Non-qualified
options granted under the 1996 Plan may not be granted at a price less than
85% of the fair market value of the Common Stock on the date of grant (or the
fair market value in the case of persons holding 10% or more of the voting
stock of the Company). The 1996 Plan will terminate in December, 2006. The
term of each option granted under the 1996 Plan will expire not more than ten
years from the date of grant (or five years from the date of grant in the
case of persons holding 10% or more of the voting stock of the Company). As
of the date hereof, 500,000 options have been granted under the 1996 Plan to
the Company's President; 120,000 of such options are designated as ISOs as
defined in the Code (20,000 options of which will vest on December 31, 1996
and the balance of which will vest ratably per quarter for 20 quarters
commencing on March 31, 1997). The remaining 380,000 options are Non-
Qualified Options as defined in the Code, 30,000 options of which will vest
on December 31, 1996 and the remainder of which will vest ratably per quarter
for 20 quarter commencing on March 31, 1997. In addition, 100,000 options
have been granted under the 1996 Plan to the Chairman of the Board of
Directors of the Company and 50,000 to the Company's Vice President. Their
options vest ratably per quarter over a period of five years commencing
December 31, 1996. All the aforementioned granted options are exercisable at
a price of $5.00 per share and expire in ten years from date of grant.
The 1996 Non-Employee Director Stock Option Plan (the "Directors Plan")
was adopted and approved by the Board of Directors and the stockholders of
the Company in November 4, 1996. Options to purchase an aggregate of 100,000
shares of Common Stock may be issued pursuant to the Directors Plan. Pursuant
to the terms of the Directors Plan, each independent unaffiliated Director
automatically will be granted, subject to
F-12
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(Information with respect to the nine months ended September 30, 1996 is
unaudited)
12. Stock Option Plans - (Continued)
availability, without any further action by the Board of Directors; (i) a
non-qualified option to purchase 5,000 shares of Common Stock upon their
elections to the Board of Directors; and (ii) a non-qualified option to
purchase 5,000 shares of Common Stock on the date of each annual meeting of
stockholders following their election to the Board of Directors at which they
are re-elected to the Board. The exercise price of each option is the fair
market value of the Common Stock on the date of grant. Each option expires
five years from the date of grant and vests in two annual installments of 50%
each on the first and second anniversary of the date of grant. As of
September 30, 1996, options to acquire 5,000 shares of Common Stock at an
exercise price of $5.00 per share, have been granted under the Directors
Plan.
13. PRIVATE PLACEMENT
In November, 1996, the Company obtained financing from the private sale of
eleven Units, each Unit consisting of (i) a 15% promissory note (the "Note")
of the Company in the principal amount of $76,000, and (ii) warrants to
purchase 10,000 shares of common shares of the Company (subject to
anti-dilution). The Notes are payable upon the earlier to occur of October
23, 1998 or five business days following the closing of a Public Offering of
securities of the Company. Each Warrant entitles the holder to purchase,
commencing 12 months after the effective date of the Public Offering, one
common share at an exercise price equal to $0.10 per share (subject to
anti-dilution) for a period of five years from the date of closing of the
Public Offering. The proceeds from the sale of the Units was used to redeem
845,000 common shares and warrants to purchase 2,020,000 common shares of the
Company for a total consideration of $601,125. The Company intends to use the
balance of the proceeds for working capital.
14. EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement commencing on September
16, 1996 with its President. The Agreement provides for annual base
compensation of $125,000 through the period ending December 31, 1997,
$150,000 for the year ending December 31, 1998 and $200,000 per year through
the period ending December 31, 2001, as well as options to purchase 500,000
shares of Common Stock. In addition, the Company entered into five year
employment agreements, commencing with the effective date of the proposed
public offering, with its Chairman of the Board of Directors and Vice
President. In accordance with their respective contracts, the Chairman of the
Board of Directors and Vice President are entitled to annual compensation of
$30,000 and $25,000, respectively, as well as options to purchase 100,000 and
50,000 common shares, respectively. See Note 12 for details of the options
granted the aforementioned officers. The Chairman of the Board of Directors
and the Company's President will devote their respective time to the business
of the Company on an as-needed basis.
15. PROPOSED PUBLIC OFFERING
On November 6, 1996, the Company entered into a letter of intent with an
underwriter to sell, on a firm commitment basis, 1,100,000 shares of common
stock (subject to an additional 165,000 common shares if the underwriter
exercises an over-allotment option in full). The common shares will be
offered to the public at $5.00 per share. The letter of intent also provides,
among other things, for up to an additional 700,000 common shares to be
registered on behalf of certain selling shareholders and if the common shares
are sold prior to the second anniversary of the effective date of the public
offering, such shareholders will receive $2.90 per share in the case of
500,000 common shares and $1.25 per share in the case of 200,000 common
shares. Any proceeds in excess of the $2.90 and $1.25 per share will be
retained by the Company.
F-13
<PAGE>
COMMACK GOLF AND FAMILY
RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS AND AUDITORS' REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1995 AND THE
PERIOD JULY 26, 1994 (DATE OF
FORMATION) TO DECEMBER 31, 1994
F-14
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Auditors ................................................................. F-16
Balance Sheets at December 31, 1995 and September 30, 1996 (unaudited) ........................ F-17 - F-18
Statements of Operations for the period July 26, 1994 (date of formation) to December 31, 1994,
for the year ended December 31, 1995 and the nine months ended September 30, 1995 and 1996
(unaudited) .................................................................................. F-19
Statements of Partners' Capital for the period July 26, 1994 (date of formation) to December
31, 1994, for the year ended December 31, 1995 and the nine months ended September 30, 1996
(unaudited) .................................................................................. F-20
Statements of Cash Flows for the period July 26, 1994 (date of formation) to December 31, 1994,
for the year ended December 31, 1995 and the nine months ended September 30, 1995 and 1996
(unaudited) .................................................................................. F-21 - F-23
Notes to Financial Statements ................................................................. F-24 - F-27
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FARBER, BLICHT & EYERMAN, LLP
- ----------------------------------------------------------------------------------------------
Certified Public Accountants 255 Executive Drive, Suite 215 Telephone: (516) 576-7040
Plainview, NY 11803-1715 Facsimile: (516) 576-1232
</TABLE>
To the Partners
Commack Golf and Family Recreation Center, L.P.
(A Limited Partnership)
Commack, New York
We have audited the accompanying balance sheet of Commack Golf and Family
Recreation Center, L.P. (A Limited Partnership) as of December 31, 1995, and
the related statements of operations, partners' capital and cash flows for
the year then ended and for the period July 26, 1994 (date of formation) to
December 31, 1994. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Commack Golf and Family
Recreation Center, L.P. (A Limited Partnership) at December 31, 1995 and the
results of its operations and its cash flows for the year then ended and for
the period July 26, 1994 (date of formation) to December 31, 1994, in
conformity with generally accepted accounting principles.
Plainview, New York
April 30, 1996 (except for Notes 10
and 11, the latest of which is
dated November 6, 1996)
F-16
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS (NOTE 6)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
-------------- --------------
(unaudited)
<S> <C> <C>
Current assets:
Cash .......................................................... $ 345 $ 52,396
Construction bond receivable (Note 2) ......................... 65,000 --
Due from former general partners (Note 3) ..................... 15,588 8,588
Prepaid expenses and other current assets ..................... 52,337 35,584
-------------- --------------
Total current assets ........................................ 133,270 96,568
-------------- --------------
Property and equipment, at cost, less accumulated depreciation
and amortization (Note 4) ..................................... 2,799,962 2,654,135
-------------- --------------
Other assets:
Deferred costs, net of accumulated amortization of $6,947;
$13,844 at September 30, 1996 (Note 5) ..................... 118,102 134,153
Deposits ........................................................ 2,000 2,000
-------------- --------------
120,102 136,153
-------------- --------------
$3,053,334 $2,886,856
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
December 31, September 30,
------------- ---------------
1995 1996
------------- ---------------
(unaudited)
<S> <C> <C>
Current liabilities:
Cash overdraft ...................................... $ 19,185 $ --
Notes payable -- banks (Note 6) ..................... 325,000 225,000
Accounts payable .................................... 434,427 79,443
Due to former general partners (Note 7) ............. 261,500 314,500
Due to former limited partners (Note 7) ............. 62,950 89,975
Unearned income (Note 1(e) .......................... 16,908 16,231
Accrued expenses .................................... 12,523 32,297
Loan payable -- US Golf and Entertainment Corp. (Note
8) ............................................... -- 455,600
------------- ---------------
Total current liabilities ................... 1,132,493 1,213,046
Deferred rent costs (Note 9) .......................... 168,260 231,361
Commitments and contingencies (Note 9)
Partners' capital ..................................... 1,752,581 1,442,449
------------- ---------------
$3,053,334 $2,886,856
============= ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period
July 26, 1994
(date of For the For the
formation) For the year nine months nine months
to ended ended ended
December 31, December 31, September 30, September 30,
-------------- -------------- --------------- ---------------
1994 1995 1995 1996
-------------- -------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues .................................... $ -- $ 719,374 $ 600,990 $ 710,967
-------------- -------------- --------------- ---------------
Operating expenses .......................... -- 1,021,666 772,743 906,902
Selling, general and administrative expenses -- 87,555 81,939 93,003
-------------- -------------- --------------- ---------------
-- 1,109,221 854,682 999,905
-------------- -------------- --------------- ---------------
Operating loss .............................. -- (389,847) (253,692) (288,938)
Other expenses: .............................
Interest ................................... -- 33,572 20,109 21,194
-------------- -------------- --------------- ---------------
Net loss .................................... $ -- $ (423,419) $(273,801) $(310,132)
============== ============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE PERIOD JULY 26, 1994 (DATE OF FORMATION)
TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Partners' capital contributions ................................ $2,210,000
Costs associated with capital contributions .................... (34,000)
------------
Partners' capital, December 31, 1994 ........................... 2,176,000
Net loss for the year ended December 31, 1995 .................. (423,419)
------------
Partners' capital, December 31, 1995 ........................... 1,752,581
Net loss for the nine months ended September 30, 1996
(unaudited) ................................................... (310,132)
------------
Partners' capital, September 30, 1996 (unaudited) .............. $1,442,449
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
July 26, 1994 For the For the
(date of For the year nine months nine months
formation) to ended ended ended
December 31, December 31, September 30, September 30,
-------------- -------------- --------------- ---------------
1994 1995 1995 1996
-------------- -------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................... $ -- $(423,419) $(273,801) $(310,132)
-------------- -------------- --------------- ---------------
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation and amortization .......... -- 169,845 114,530 163,076
Deferred rent costs .................... -- 168,260 139,682 63,101
Changes in assets and liabilities:
Construction bond receivable ........... -- (65,000) (65,000) 65,000
Prepaid expenses and other current
assets ............................... (69,285) 16,948 5,371 16,753
Accounts payable ....................... 406,310 28,117 121,411 (354,984)
Unearned income ........................ -- 16,908 23,940 (677)
Accrued expenses ....................... 6,868 5,655 8,004 19,774
Deposits ............................... (2,000) -- -- --
-------------- -------------- --------------- ---------------
Total adjustments ................. 341,893 340,733 347,938 (27,957)
-------------- -------------- --------------- ---------------
Net cash provided by (used in) operations ... 341,893 (82,686) 74,137 (338,089)
-------------- -------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
For the period
July 26, 1994
(date of For the For the
formation) For the year nine months nine months
to ended ended ended
December 31, December 31, September 30, September 30,
-------------- -------------- --------------- ---------------
1994 1995 1995 1996
-------------- -------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance brought forward ................... $ 341,893 $ (82,686) $ 74,137 $(338,089)
-------------- -------------- --------------- ---------------
Cash flows used in investing activities:
Purchase of property and equipment ...... (2,115,233) (747,627) (747,627) (10,352)
Deferred costs incurred ................. (108,201) (16,848) (21,847) (22,948)
-------------- -------------- --------------- ---------------
Total cash used in investing activities ... (2,223,434) (764,475) (769,474) (33,300)
-------------- -------------- --------------- ---------------
Cash flows from financing activities:
Capital contributions ................... 1,450,000 660,000 653,000 --
Short-term financing, banks ............. 300,000 215,000 25,000 --
Payments on short-term financing, banks . -- (190,000) -- (100,000)
Borrowings from former general partners . 125,000 136,500 97,000 53,000
Borrowings from former limited partners . -- 62,950 -- 27,025
Loans to former general partners ........ -- (15,588) (8,588) --
Collection of former general partners
loans ................................ -- -- -- 7,000
Cash overdraft .......................... 40,641 (21,456) (40,641) (19,185)
Costs associated with capital
contributions ........................ (34,000) -- -- --
Borrowings from US Golf and Entertainment
Corp. ................................ -- -- -- 455,600
-------------- -------------- --------------- ---------------
Net cash provided by financing activities . 1,881,641 847,406 725,771 423,440
-------------- -------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
For the period
July 26, 1994
(date of For the For the
formation) For the year nine months nine months
to ended ended ended
December 31, December 31, September 30, September 30,
-------------- -------------- --------------- ---------------
1994 1995 1995 1996
-------------- -------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net increase in cash ....................... $ 100 $ 245 $30,434 $52,051
Cash, beginning of period .................. -- 100 100 345
-------------- -------------- --------------- ---------------
Cash, end of period ........................ $ 100 $ 345 $30,534 $52,396
============== ============== =============== ===============
Supplemental disclosure of non-cash
financing activities and cash flow
information:
Subscriptions for capital contributions .. $660,000 $ -- $ -- $ --
============== ============== =============== ===============
Property and equipment contributed as
capital ............................... $100,000 $ -- $ -- $ --
============== ============== =============== ===============
Cash paid during period:
Interest ................................ $ 1,000 $37,000 $20,000 $23,000
============== ============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of operations
In July, 1994, Commack Golf and Family Recreation Center, L.P., a New York
limited partnership (the "Partnership") was organized to develop the Commack
Golf and Family Recreation Center, which commenced operations in March, 1995.
Revenues are generated from the facility which offers the public the
opportunity to practice on its driving range and to play in its miniature
golf course. The facility also rents space to a pro shop and offers private
and group golf lessons.
b. Method of depreciation
Depreciation and amortization of property and equipment has been
calculated on the straight-line method for financial reporting purposes. For
tax reporting purposes, the Partnership uses the straight-line or accelerated
methods of depreciation.
Expenditures for maintenance, repairs, renewal and betterments are
reviewed by the Partnership and only those expenditures representing
improvements to property and equipment are capitalized. At the time property
and equipment are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the asset and accumulated depreciation
accounts and the gain or loss on such disposition is reflected in income.
The Partnership adopted Financial Accounting Standards ("FAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" for the year ended December 31, 1995. The adoption of FAS
121 had no material effect on the financial statements.
c. Income taxes
The Partnership does not incur any income taxes. Its earnings and losses
are included in the personal returns of its former partners and taxed
depending on their personal tax situation. The financial statements of the
Partnership do not reflect a provision for income taxes.
d. Fair value of financial instruments
Effective for fiscal years ending after December 15, 1995, Statement of
Financial Accounting Standards No. 107 requires entities with total assets
less than $150 million to disclose the fair value of financial instruments
recognized in the balance sheet. At December 31, 1995, the carrying amounts
of the Company's financial instruments, including cash, receivables, accounts
payable, and notes and non related loans payable approximate fair value. It
is not practicable to determine the fair values of the receivable from and
loans payable to certain former general and limited partners and affiliate.
e. Revenue recognition
Revenue is recognized by the Partnership when its services are rendered to
its customers. Revenues from annual membership and the sale of gift
certificates are deferred as unearned income at the time of receipt and are
credited to income when earned on a straight-line basis or redeemed.
f. Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-24
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - (Continued)
(Information with respect to the nine months ended September 30, 1995 and
1996 is unaudited)
1. Summary of Significant Accounting Policies - (Continued)
g. Interim financial information
The accompanying financial statements as of September 30, 1996 and the
nine months ended September 30, 1995 and 1996, are unaudited but, in the
opinion of management of the Partnership, reflects all adjustments
(consisting of normal and recurring adjustments) necessary for a fair
presentation.
The financial position as of September 30, 1996, and the results of
operations and cash flows for the nine months ended September 30, 1995 and
1996 are not necessarily indicative of the results that may be expected for
the entire year.
2. CONSTRUCTION BOND RECEIVABLE
In February, 1995, the Partnership was required to post a $65,000
construction bond to insure the completion of various building improvements
necessary to attain its certificate of occupancy. The bond was refunded to
the Partnership in January, 1996.
3. DUE FROM FORMER GENERAL PARTNERS
The amounts due from the former General Partners, aggregating $15,588, at
December 31, 1995 is due on demand and non-interest bearing. During the nine
months ended September 30, 1996, $7,000 of the aforementioned balance was
collected.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
September 30, 1996:
<TABLE>
<CAPTION>
Estimated
useful
lives 1995 1996
------------- ------------ ------------
<S> <C> <C> <C>
Leasehold improvements ................. 15 years (*) $2,873,790 $2,872,180
Furniture and fixtures ................. 7 years 34,798 34,798
Machinery and equipment ................ 5 years 54,272 66,234
----------- ------------
2,962,860 2,973,212
Accumulated depreciation and
amortization .......................... 162,898 319,077
------------ ------------
$2,799,962 $2,654,135
============ ============
</TABLE>
(*) Over life of lease (Note 9).
5. DEFERRED COSTS
Deferred costs consist substantially of costs to acquire the land lease.
These costs are being amortized on a straight-line basis over the life of the
lease (fifteen years).
6. NOTES PAYABLE -- BANKS
The Partnership, at December 31, 1995 had a $215,000 note payable to a
bank bearing interest at the rate of 2% above the banks prime lending rate
(10 3/4 % per annum at December 31, 1995). The note, which is payable on
demand and collateralized by all the assets of the Partnership, is guaranteed
by certain former general and limited partners. During the nine months ended
September 30, 1996, $75,000 was repaid to the bank reducing the outstanding
balance to $140,000 at September 30, 1996. The note matures on December 3,
1996 and bears interest at the rate of 10 1/4 % per annum.
F-25
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - (Continued)
(Information with respect to the nine months ended September 30, 1995 and
1996 is unaudited)
6. Notes Payable -- Banks - (Continued)
In addition, the Partnership, at December 31, 1995, had a note payable of
$110,000 to another bank. The note bears interest at the rate of 1 1/2 %
above the bank's prime interest rate per annum (10.25% at December 31, 1995).
During the nine months ended September 30, 1996, $25,000 was repaid to the
bank, reducing the outstanding balance to $85,000 at September 30, 1996. The
note, as amended, matured on September 17, 1996 and was immediately renewed
for an additional three months with interest at the rate of 9 3/4 % per
annum. The obligation is guaranteed by certain former general and limited
partners.
7. DUE TO FORMER GENERAL AND LIMITED PARTNERS
The loans payable to the former general and limited partners as at
December 31, 1995 and September 30, 1996 are non-interest bearing and are
payable on demand.
8. LOAN PAYABLE -- U.S. GOLF AND ENTERTAINMENT CORP.
During the nine months ended September 30, 1996, the Partnership borrowed
$455,600 from U.S. Golf and Entertainment Corp. ("US Golf Corp."). The loan
is due on demand and is non-interest bearing. Reference is made to Note 10 in
connection with the acquisition of the Partners' interests in the
Partnership.
9. COMMITMENTS AND CONTINGENCIES
The Partnership leases its land under a ground lease for an initial term
of 15 years, with two successive renewal periods of five years each. The
lease is scheduled to expire in April, 2010. Future minimum rentals required
as of December 31, 1995 and September 30, 1996 under the lease are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
1996 $ 483,000 $ --
1997 500,000 500,000
1998 509,000 506,000
1999 523,000 519,000
2000 537,000 533,000
2001 -- 547,000
Thereafter 5,670,000 5,259,000
------------ ------------
$8,222,000 $7,864,000
============ ============
</TABLE>
The Partnership records a liability for deferred rent costs to the extent
that the rental commitment, amortized on a straight-line basis over the term
of the lease, exceeds actual lease payments.
Rental payments under the lease range from an initial $450,000 to $665,000
per annum. The lease also provides for rent increases based upon various
percentages over stated gross revenue of the Partnership. The Partnership is
responsible for all related rental expenses on the property. Rent expense
approximated $469,000 for the year ended December 31, 1995, and $328,000 and
$421,000 for the nine months ended September 30, 1995 and 1996, respectively.
10. MERGER AGREEMENTS
a. On June 3, 1996, U.S. Golf and Entertainment Inc. ("US Golf Inc."),
which incorporated on May 17, 1996 in the state of Delaware, entered into
exchange agreements with (i) the stockholders of US Golf Corp., a Delaware
corporation, whereby the stockholders of US Golf Corp. exchanged their shares
of common stock and
F-26
<PAGE>
COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - (Continued)
(Information with respect to the nine months ended September 30, 1995 and
1996 is unaudited)
10. Merger Agreements - (Continued)
warrants for 1,045,000 shares of common stock and 2,020,000 warrants of US
Golf, Inc. and (ii) the general and limited partners of the Partnership,
whereby the partners exchanged their partnership interests for an aggregate
of 1,045,000 shares of common stock of US Golf Inc. In November, 1996,
845,000 common shares of US Golf Inc. and warrants to purchase 2,020,000
common shares of US Golf Inc. which was issued in connection with the
exchange with US Golf Corp. was redeemed by US Golf Inc. in consideration of
$601,125. The aforementioned exchanges were accounted for by US Golf Inc.
using the purchase method of accounting, and, accordingly, the purchase price
has been allocated to the assets purchased and the liabilities assumed which,
because of recent formations of the acquired entities, represent the net book
value of the Partnership and US Golf Corp.
US Golf Corp. was originally incorporated in November, 1995 under the name
of United Acquisition I Corp.. US Golf Corp., since inception through
September 30, 1996 has basically no operations. In March, 1996, US Golf Corp.
completed a private sale of its common shares and issued 545,000 common
shares and warrants to purchase 520,000 common shares for $52,000 in cash and
for services rendered valued at $2,500. The cost of the private sale
aggregating $10,000 was charged to paid-in-capital. In addition, on May 13,
1996, US Golf Corp. completed another private placement of 500,000 units for
$500,000, each unit consisting of one share of common stock and three
warrants.
11. PROPOSED PUBLIC OFFERING
On November 6, 1996 US Golf Inc. entered into a letter of intent with an
underwriter to sell, on a firm commitment basis, 1,100,000 shares of common
stock (subject to an additional 165,000 common shares if the underwriter
exercises an over-allotment option in full). The common shares will be
offered to the public at $5.00 per share. The letter of intent also provides,
among other things, for up to an additional 700,000 common shares to be
registered on behalf of certain selling shareholders and if the common shares
are sold prior to the second anniversary of the effective date of the public
offering, such shareholders will receive $2.90 per share in the case of
500,000 common shares and $1.25 per share in the case of 200,000 common
shares. Any proceeds in excess of the $2.90 and $1.25 per share will be
retained by US Golf Inc.
F-27
<PAGE>
U.S. GOLF AND ENTERTAINMENT CORP.
FINANCIAL STATEMENTS AND
AUDITORS' REPORT
DECEMBER 31, 1995
F-28
<PAGE>
U.S. GOLF AND ENTERTAINMENT CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
-----------------
<S> <C>
Report of Independent Auditors ..................................................................... F-30
Balance Sheets at December 31, 1995 and September 30, 1996 (unaudited) ............................. F-31
Statement of Operations for the period November 21, 1995 (date of inception) to December 31, 1995
and for the nine months ended September 30, 1996 (unaudited) ...................................... F-32
Statement of Shareholders' Equity for the period November 21, 1995 (date of inception) to December
31, 1995 and for the nine months ended September 30, 1996 (unaudited) ............................. F-33
Statement of Cash Flows for the period November 21, 1995 (date of inception) to December 31, 1995
and for the nine months ended September 30, 1996 (unaudited) ...................................... F-34
Notes to Financial Statements ...................................................................... F-35 - F-36
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FARBER, BLICHT & EYERMAN, LLP
- ---------------------------------------------------------------------------------------------
Certified Public Accountants 255 Executive Drive, Suite 215 Telephone: (516) 576-7040
Plainview, NY 11803-1715 Facsimile: (516) 576-1232
</TABLE>
To the Board of Directors
and Shareholders
U.S. Golf and Entertainment Corp.
We have audited the accompanying balance sheet of U.S. Golf and
Entertainment Corp. as of December 31, 1995, and the related statements of
operations, shareholders' equity and cash flows for the period November 21,
1995 (date of inception) to December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit of the financial
statements provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of U.S. Golf and
Entertainment Corp. at December 31, 1995 and the results of its operations
and its cash flows for the period November 21, 1995 (date of inception) to
December 31, 1995, in conformity with generally accepted accounting
principles.
Plainview, New York
July 30, 1996 (Except for Notes 1 and 4,
the latest of which is dated November 6, 1996
F-30
<PAGE>
U.S. GOLF AND ENTERTAINMENT CORP.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
-------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................... $ -- $ 321
Loan receivable -- Commack Golf and Family
Recreation Center, L.P. (Note 2) ................ -- 455,600
Advances to U.S. Golf and Entertainment Inc.
(Note 3) ........................................ -- 85,613
-------------- ---------------
Total current assets ....................... $ -- $541,534
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity (Notes 1 and 4):
Preferred stock -- $.001 par value:
Authorized -- 1,000,000 shares
Issued and outstanding shares -- none ........... $ -- $ --
Common stock -- par value, $.001 per share:
Authorized -- 20,000,000 shares
Issued and outstanding -- 1,045,000 shares ...... -- 1,045
Additional paid-in-capital ...................... -- 543,455
Deficit ......................................... -- (2,966)
-------------- ---------------
$ $541,534
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
U.S. GOLF AND ENTERTAINMENT CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period
November 21,
1995 For the
(date of nine months
inception) to ended
December 31, September 30,
1995 1996
-------------- ---------------
(Unaudited)
<S> <C> <C>
Revenues ............ $-- $ --
-------------- ---------------
Operating expenses:
Consulting services -- 2,500
Miscellaneous ...... -- 466
-------------- ---------------
-- 2,966
-------------- ---------------
Net loss and deficit $-- $(2,966)
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
U.S. GOLF AND ENTERTAINMENT CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD NOVEMBER 21, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Common Shares
-----------------------
Number of Additional
Shares Paid-In
Issued Amount Capital Deficit Total
----------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
November 21, 1995 (date of
inception) to December 31, 1995 . -- $ -- $ -- $ -- $ --
Proceeds from issuances of common
shares (net of related expenses
of $10,000) ..................... 520,000 520 41,480 -- 42,000
Issuances of common shares for
services rendered ............... 25,000 25 2,475 -- 2,500
Proceeds from issuances of common
shares .......................... 500,000 500 499,500 -- 500,000
Net loss for the nine months ended
September 30, 1996 (unaudited) .. -- -- -- (2,966) (2,966)
----------- -------- ------------ ---------- ---------
Balance, September 30, 1996
(unaudited) ..................... 1,045,000 $1,045 $543,455 $(2,966) $541,534
=========== ======== ============ ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE>
U.S. GOLF AND ENTERTAINMENT CORP.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD NOVEMBER 21, 1995 (DATE OF INCEPTION) TO
DECEMBER 31, 1995 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
For the period
November 21,
1995 For the
(date of nine months
inception) to ended
December 31, September 30,
1995 1996
-------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $-- $ (2,966)
Adjustment to reconcile net loss to net cash used in
operations:
Issuances of common shares for services rendered .......... -- 2,500
-------------- ---------------
Net cash used in operations .................................... -- (466)
-------------- ---------------
Cash flows from financing activities:
Loans to Commack Golf and Family Recreation Center, L.P. ..... -- (455,600)
Advances to U.S. Golf and Entertainment Inc. ................. -- (85,613)
Proceeds from exercise of subscription agreements (net of
related expenses of $10,000) .............................. -- 542,000
-------------- ---------------
Net cash provided by financing activities ...................... -- 787
-------------- ---------------
Net increase in cash ........................................... -- 321
Cash, beginning of period ...................................... -- --
-------------- ---------------
Cash, end of period ............................................ $-- $ 321
============== ===============
Supplemental disclosure of non-cash financing activities:
Shares issued for services rendered (Note 1) ................. $-- $ 2,500
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
U.S. GOLF AND ENTERTAINMENT CORP.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of operations and basis of presentation
In November, 1995, United Acquisition I Corp. (whose name was changed to
U.S. Golf and Entertainment Corp. in April, 1996, (the "Company") was
incorporated in the state of Delaware. The Company, since inception through
September 30, 1996, has basically no operations. In March, 1996, the Company
completed a private sale of its common shares and issued 545,000 common
shares and warrants to purchase 520,000 common shares for $52,000 in cash and
for services rendered valued at $2,500. Each warrant is exercisable at $1.50
per share and expires in April, 2000. The cost of the private sale
aggregating $10,000 was charged to paid-in-capital. In addition, on May 13,
1996, the Company completed another private placement of 500,000 units for
$500,000, each unit consisting of one share of common stock and three
warrants. Each warrant is exercisable at a price of $2.50 per share.
Commack Golf and Family Recreation Center, L.P., a New York limited
partnership (the "Partnership") was organized in July, 1994, to construct,
develop and operate the Commack Golf and Family Recreation Center, which
commenced operations in March, 1995. On May 17, 1996, U.S. Golf and
Entertainment Inc. ("US Golf Inc."), was incorporated to develop and become a
national owner/operator of upscale, high-volume, golf practice and
instructional centers and related recreational facilities. On June 3, 1996,
US Golf Inc. entered into exchange agreements with (i) the stockholders of
the Company, whereby the stockholders of the Company exchanged their shares
of common stock and warrants for 1,045,000 shares of common stock and
2,020,000 warrants of US Golf Inc. and (ii) the general and limited partners
of the Partnership, whereby the partners exchanged their partnership
interests for an aggregate of 1,045,000 shares of common stock of US Golf
Inc. In November, 1996, 845,000 common shares of US Golf Inc. and warrants
to purchase 2,020,000 common shares of US Golf Inc. which was issued in
connection with the aforementioned exchange with the Company was redeemed by
US Golf Inc. in consideration of $601,125. The aforementioned exchanges were
accounted for by US Golf Inc. using the purchase method of accounting, and,
accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed which because of recent formations of the
acquired entities represent the net book value of the Company and the
Partnership.
b. Interim financial information
The accompanying financial statements as of September 30, 1996 and the
nine months then ended, are unaudited but, in the opinion of management of
the Company, reflects all adjustments (consisting of normal and recurring
adjustments) necessary for a fair presentation.
The financial position as of September 30, 1996, and the results of
operations and cash flows for the nine months then ended are not necessarily
indicative of the results that may be expected for the entire year.
2. LOAN RECEIVABLE -- COMMACK GOLF AND FAMILY RECREATION CENTER, L.P.
The Company, after its initial equity investment of $54,500 in March, 1996
and a subsequent private placement raising $500,000 in May, 1996, loaned the
Partnership $455,600. The loan is due on demand and is non- interest bearing.
3. ADVANCES TO U.S. GOLF AND ENTERTAINMENT INC.
The Company, as of September 30, 1996, paid on behalf of US Golf Inc.
$85,613 for costs associated with the proposed public offering (Note 4). The
aforementioned amount is payable on demand and is non-interest bearing.
4. PROPOSED PUBLIC OFFERING
On November 6, 1996, US Golf Inc. entered into a letter of intent with an
underwriter to sell, on a firm commitment basis, 1,100,000 shares of common
stock (subject to an additional 165,000 common shares if
F-35
<PAGE>
U.S. GOLF AND ENTERTAINMENT CORP.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(Information with respect to the nine months ended September 30, 1996 is
unaudited)
4. Proposed Public Offering - (Continued)
the underwriter exercises an over-allotment option in full). The common
shares will be offered to the public at $5.00 per share. The letter of intent
also provides, among other things, for up to an additional 700,000 common
shares to be registered on behalf of certain selling shareholders and if the
common shares are sold prior to the second anniversary of the effective date
of the public offering, such shareholders will receive $2.90 per share in the
case of 500,000 common shares and $1.25 per share in the case of 200,000
common shares. Any proceeds in excess of the $2.90 and $1.25 per share will
be retained by US Golf Inc.
F-36
<PAGE>
==============================================================================
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any of the securities offered hereby to any
person in any jurisdiction in which it is unlawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstance create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof or that there has been no change in the affairs of the Company since
such date.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary .......................................... 3
Risk Factors ................................................ 6
Use of Proceeds ............................................. 11
Dilution. ................................................... 12
Capitalization. ............................................. 13
Dividend Policy ............................................. 14
Selected Financial Data ..................................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................................. 15
Business .................................................... 18
Management .................................................. 22
Principal Stockholders ...................................... 25
Certain Transactions ........................................ 26
Description of Securities ................................... 26
Shares Eligible for Future Sale ............................. 28
Selling Stockholders; Plan of Distribution .................. 29
Underwriting ................................................ 32
Indemnification and Anti-takeover
Provisions ................................................. 33
Legal Matters ............................................... 34
Experts ..................................................... 34
Additional Information ...................................... 34
Financial Statements ........................................ F-1
</TABLE>
------
Until 25 days after the announcement of the termination of this Offering,
all dealers effecting transactions in registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
==============================================================================
<PAGE>
==============================================================================
U.S. GOLF AND ENTERTAINMENT INC.
1,100,000 Shares of Common Stock
------
PROSPECTUS
------
First United Equities Corporation
_____________, 1996
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") gives a
corporation power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he 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, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The same Section also gives a corporation
power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of
the fact that he 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, partnership,
joint venture, trust or other enterprise for expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability,
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper. Also, the Section states
that, to the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
such action, suit or proceeding, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Article Twelfth of the Registrant's Certificate of Incorporation provides
that: The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the DGCL, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased
to be a director, officer, employee, or agent and shall inure to the benefit
of the heirs, executors, and administrators of such a person."
The Registrant's by-laws provide language substantially in the following
form: (a) The Corporation 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 person who is or was a party to any threatened,
pending or completed action, suit, proceeding or claim, whether civil,
criminal, administrative or investigative, by reason of the fact that he or
she is or was or has agreed to be a trustee, director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a trustee, director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees and expenses), judgment, fines, penalties
and amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of any such action, suit, proceeding or
claim. Such indemnification shall not be exclusive of other indemnification
rights arising under any by-law, agreement, vote of directors or stockholders
or otherwise and shall inure to the benefit of the heirs and legal
representatives of such person; (b) The Corporation may purchase and maintain
insurance on any person who is or was a trustee, director, officer,
II-1
<PAGE>
employee or agent of the Corporation or is or was serving at the request of
the Corporation as a trustee, director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
any liability incurred by him in any such position or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability.
Section 102(b)(7) of the DGCL, enables corporations to adopt provisions in
their certificates of incorporation eliminating or limiting the personal
liability of directors 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 and 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. Such provision does not eliminate or limit the
liability of a director for any act or omission occurring prior to the date
when such provision became effective. Section 102(b)(7) has no effect on the
availability of equitable remedies, such as injunctions or rescission, for
breach of fiduciary duty. The registrant's Certificate of Incorporation
provides that the personal liability of the directors of the corporation is
eliminated to the fullest extent permitted by the provisions of paragraph (7)
of subsection (b) of Section 102 of the DGCL, as the same may be amended or
supplemented.
See Section 7 of the form of the Underwriting Agreement filed as Exhibit
1.1 to the Registration Statement for certain provisions relating to
indemnification of the registrant and its officers, directors and controlling
persons.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant, in connection with the sale and distribution of the securities
being registered, other than underwriting discounts and commissions. All of
the amounts shown are estimated except the Securities and Exchange Commission
registration fee, the NASDAQ listing fee, the NASD filing fee and the
Underwriter's non-accountable expense allowance.
<TABLE>
<CAPTION>
-----------
<S> <C>
SEC registration fee .......................... $ 3,634
NASDAQ listing fee ............................ 10,000
NASD filing fee ............................... 1,765
Blue Sky fees and expenses .................... 30,000
Printing and engraving expenses ............... 120,000
Legal fees and expenses ....................... 175,000
Accounting fees and expenses .................. 50,000
Underwriter commissions ....................... 550,000
Underwriter's non-accountable expense allowance 165,000
Miscellaneous ................................. 14,601
-----------
Total .................................... $1,120,000
-----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Registrant has issued securities without
registration under the Act, as follows:
1. In November, 1995, U.S. Golf Corp. issued and sold 545,000 shares of
common stock and 520,000 common stock purchase warrants to various
founding stockholders for an aggregate purchase price of $54,500.
2. In May, 1996, U.S. Golf Corp. issued and sold 500,000 shares of common
stock and 1,500,000 common stock purchase warrants to various
purchasers in connection with a private financing for an aggregate
purchase price of $500,000.
II-2
<PAGE>
3. In June, 1996, (i) the general and limited partners of the Commack
Partnership exchanged their partnership interests for an aggregate of
1,045,000 shares of Common Stock and (ii) the stockholders of U.S. Golf
Corp. exchanged their shares of common stock and warrants for 1,045,000
shares of Common Stock and 2,020,000 Class A Warrants.
4. In November 1996, the Company issued and sold to various accredited
investors for an aggregate of $836,000, an aggregate of (i) $836,000 of
15% promissory notes and (ii) warrants to acquire 110,000 shares of
Common Stock.
The issuances described above were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Act as
transactions by an issuer not involving any public offering. In addition, the
recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the certificates issued in such transactions. All
recipients had adequate access, through their relationships with the
Registrant or otherwise to information about the Registrant.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement
**3.1 Certificate of Incorporation of the Registrant
**3.2 By-Laws of the Registrant
*4.1 Form of Common Stock Certificate
4.2 Form of Representative's Warrant Agreement
*5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
10.1 1996 Stock Option Plan, as amended
**10.2 1996 Non-Employee Director Stock Option Plan
10.3 Form of Financial Advisory Agreement between the Registrant and the Underwriter
**10.4 Form of Exchange Agreement between Registrant and the partners of the Commack Golf & Family Recreation
Center, L.P.
**10.5 Form of Exchange Agreement between Registrant and the shareholders of U.S. Golf and Entertainment
Corp.
10.6 Form of Amended Employment Agreement between the Registrant and an Executive Officer (Chairman)
10.7 Form of Executive Agreement between the Registrant and an Executive Officer (President)
10.8 Form of Amended Employment Agreement between the Registrant and an Executive Officer (Senior
Vice-President)
10.9 Option Agreement between Registrant and Senior Vice President.
10.10 Form of Redemption Agreements
10.11 Form of Lock-Up Agreements
10.12 Form of Custody Agreement and Irrevocable Power of Attorney
*24.1 Consents of Farber, Blicht & Eyerman, L.L.P., Independent Certified Public Accountants
*24.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
25.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------
* To be filed by amendment
** Previously filed with the initial Registration Statement on May 31, 1996
ITEM 28. UNDERTAKINGS
(a) The undersigned Company hereby undertakes that:
(1) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
II-3
<PAGE>
(i) Include any prospectus required by section 10(a)(3) of the Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, it shall treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) It will file a post-effective amendment to remove from registration
any of the Common Stock that remains unsold at the end of the offering.
(4) It will provide to the Underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the Underwriter to permit prompt delivery to
each purchaser.
(5) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
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 Company will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in Commack, New York, on November 14, 1996.
U.S. GOLF AND ENTERTAINMENT INC.
By: /s/ EDWARD C. ROSS
-----------------------------------
Edward C. Ross, Chairman
Dated: November 14, 1996
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature appears below hereby authorizes each
of Edward C. Ross, Stuart Goldstein and Chuck Workman with full power of
substitution to execute in the name of such person and to file any amendment
or post-effective amendment to this Registration Statement (or any
Registration Statement filed pursuant to Rule 462) making such changes in
this Registration Statement as the Registrant deems appropriate and appoints
each of Edward C. Ross, Stuart M. Goldstein and Chuck Workman with full power
of substitution, attorney-in-fact to sign and to file any amendment and
post-effective amendment to this Registration Statement.
<TABLE>
<CAPTION>
Signature Title Date
-------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ EDWARD C. ROSS Chairman of the Board, Chief Financial November 14, 1996
- --------------------------- Officer and Director (Principal
Edward C. Ross Financial and Accounting Officer)
/s/ STUART M. GOLDSTEIN President, Chief Executive Officer November 14, 1996
- --------------------------- and Director
Stuart M. Goldstein
/s/ CHUCK WORKMAN Senior Vice President and Director November 14, 1996
- ---------------------------
Chuck Workman
/s/ GARRY HOWATT Director November 14, 1996
- ---------------------------
Garry Howatt
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- --------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement
**3.1 Certificate of Incorporation of the Registrant
**3.2 By-Laws of the Registrant
*4.1 Form of Common Stock Certificate
4.2 Form of Representative's Warrant Agreement
*5.1 Opinion and Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
10.1 1996 Stock Option Plan, as amended
**10.2 1996 Non-Employee Director Stock Option Plan
10.3 Form of Financial Advisory Agreement between the Registrant and the Underwriter
**10.4 Form of Exchange Agreement between Registrant and the partners of the Commack Golf &
Family Recreation Center, L.P.
**10.5 Form of Exchange Agreement between Registrant and the shareholders of U.S. Golf and
Entertainment Corp.
10.6 Form of Amended Employment Agreement between the Registrant and an Executive Officer
(Chairman)
10.7 Form of Employment Agreement between the Registrant and an Executive Officer
(President)
10.8 Form of Amended Employment Agreement between the Registrant and an Executive Officer
(Senior Vice-President)
10.9 Option Agreement between Registrant and Senior Vice-President
10.10 Form of Redemption Agreements
10.11 Form of Lock-Up Agreements
10.12 Form of Custody Agreement and Irrevocable Power of Attorney
*24.1 Consents of Farber, Blicht & Eyerman, L.L.P., Independent Certified Public Accountants
*24.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
25.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------
* To be filed by amendment
** Previously filed with the initial Registration Statement on May 31, 1996
<PAGE>
[Form of Underwriting Agreement]
Shares of Common Stock
U.S. Golf and Entertainment Inc.
UNDERWRITING AGREEMENT
Garden City, New York
, 199
First United Equities Corporation
As Representative of the
Several Underwriters listed on Schedule A hereto
200 Garden City Plaza, Suite 518
Garden City, New York 11530
Ladies and Gentlemen:
U.S. Golf and Entertainment Inc., a Delaware corporation (the
"Company"), confirms its agreement with First United Equities Corporation
("First United") and each of the underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 11 hereof), for whom First United
is acting as representative (in such capacity, First United shall hereinafter be
referred to as "you" or the "Representative"), with respect to the sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares ("Shares") of the Company's common stock,
$0.001 par value par share ("Common Stock"), set forth in Schedule A hereto are
hereinafter referred to as the "Firm Securities."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also sell to the Underwriters, acting severally and not jointly,
up to an additional 165,000 shares of Common Stock for the purpose of covering
over-allotments, if any. Such 165,000 additional shares of Common Stock are
hereinafter referred to as the "Option Securities," and together with the Firm
Securities are hereinafter referred to as the "Securities."
The Company also proposes to issue and sell to you certain warrants
(the "Representative's Warrants") pursuant to the Representative's Warrant
Agreement (the "Representative's Warrant
1
<PAGE>
Agreement") to be dated as of the Closing Date (as hereinafter defined) for the
purchase of up to an additional 110,000 shares of Common Stock, each such
Representative's Warrant entitling the registered holder thereof to purchase one
share of Common Stock. The Representatives's Warrants shall be exercisable
commencing 12 months from the effective date of the Registration Statement and
for a period of 60 months thereafter (such 6-year period hereinafter the
Representative's Warrant Period). The Representative's Warrants and the shares
of Common Stock issuable upon exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Securities." The Securities and
the Representative's Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, each
of the Underwriters as of the date hereof, and as of the Closing Date and each
Option Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333-4873), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Securities and the Representative's Securities under the Securities Act of 1933,
as amended (the "Act"), which registration statement and amendment or amendments
have been prepared by the Company in conformity with the requirements of the
Act, and the rules and regulations (the "Rules and Regulations") of the
Commission under the Act. The Company will not file any other amendment thereto
to which the Underwriters shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time such
registration statement becomes effective (including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a part thereof
or incorporated therein (including without limitation those documents or
information incorporated by reference therein) and all information deemed to be
a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Rules and Regulations), is hereinafter called the "Registration Statement," and
the form of prospectus in the form first filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations under the Act, is hereinafter called
the "Prospectus." For purposes hereof, "Rules and Regulations" mean the rules
and regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any of any Preliminary
Prospectus, the Registration Statement, or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement have been instituted or are pending or, to the best
knowledge of the Company after due inquiry, threatened. Each of the Preliminary
Prospectus, the Registration Statement, and the Prospectus at the time of filing
thereof conformed with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus, the
2
<PAGE>
Registration Statement, or the Prospectus at the time of filing thereof
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
provided, however, that this representation and warranty does not apply to
statements made or statements omitted in reliance upon and in conformity with
written information furnished to the Company with respect to the Underwriters by
or on behalf of any Underwriter expressly for use in the Preliminary Prospectus,
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Option Closing Date, if any,
and during such longer period as the Prospectus may be required to be delivered
in connection with sales by the Underwriters or a dealer, each of the
Registration Statement and the Prospectus will contain all statements that are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with information furnished to the
Company with respect to the Underwriters by or on behalf of any Underwriter
expressly for use in the Preliminary Prospectus, the Registration Statement, or
the Prospectus, or any amendment thereof or supplement thereto.
(d) Each of the Company and its subsidiary, U.S. Golf and Entertainment
Corp., a Delaware corporation ("U.S. Golf Corp.") has been duly organized and is
validly existing as a corporation in good standing under the laws of the state
of Delaware. U.S. Golf Corp. is sometimes hereinafter referred to as a
"Subsidiary." Except as set forth in the Prospectus, neither the Company nor the
Subsidiary owns an interest in any corporation, partnership, limited liability
company, trust, joint venture or other business entity. Each of the Company and
the Subsidiary is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations require such qualification or
licensing. The Company owns 100% of the outstanding capital stock of the
Subsidiary and all such shares have been validly issued, are fully paid and
non-assessable, were not issued in violation of any preemptive rights and are
owned free and clear of any liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever (collectively, "Liens"). Each of the Company and the Subsidiary has
all requisite power and authority (corporate and otherwise), and has obtained
any and all necessary authorizations, approvals, orders, licenses, certificates,
franchises, and permits of and from all governmental or regulatory authorities
(including without limitation those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; each of the Company and the Subsidiary is and has
been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all federal, state,
local and foreign laws,
3
<PAGE>
rules and regulations; and neither the Company nor the Subsidiary has received
any notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise or permit that,
if the subject of an unfavorable decision, ruling or finding, could,
individually or in the aggregate, have a Material Adverse Effect (as hereinafter
defined). The disclosures in the Registration Statement concerning the effects
of federal, state, local and foreign laws, rules and regulations on each of the
Company's and the Subsidiary's business as currently conducted and as
contemplated are correct in all material respects and do not omit to state any
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they were made. For purposes of this
Agreement, "Material Adverse Effect" means any circumstance, change in or effect
on the Company or the Subsidiary that, individually or in the aggregate with any
other circumstance, change or in effect on the Company or the Subsidiary is, or
could be, materially adverse to the condition (financial or otherwise),
earnings, position, prospects, value, operation, properties, employee
relationships, customer or supplier relationships, liabilities, business or
results of operations of the Company or of the Subsidiary.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and neither the Company nor the Subsidiary is a
party to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, warrants, options or other securities, or any
rights with respect thereto, except for this Agreement and the Representative's
Warrant Agreement and as described in the Prospectus. The Securities and the
Representative's Securities and all other securities issued or issuable by the
Company conform or, when issued and paid for, will conform, in all material
respects, to all statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding securities of the
Company and the Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable and the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities was issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by or binding upon the Company or the
Subsidiary. The Securities and the Representative's Securities are not and will
not be subject to any preemptive or other similar rights of any stockholder of
the Company or any other person, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof (and to the extent
applicable, of the Representative's Warrant Agreement), will be validly issued,
fully paid, and non-assessable and will conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken for
the authorization, issue, and sale of the Securities and the Representative's
Securities has been duly and validly taken; and the certificates evidencing the
Securities and the Representative's Securities will be in due and proper form.
Upon the issuance and delivery of the Securities and the Representative's
Securities against full payment therefor, the Underwriters or the
Representative, as the case may be, will acquire good and marketable title to
such Securities and Representative's Securities, free and clear of any Liens.
4
<PAGE>
(f) The financial statements of the Company, the Subsidiary and Commack
Golf and Family Recreation Center, L.P., a New York limited partnership (the
"Commack Partnership"), together with the related notes and schedules thereto,
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus present fairly, in all material respects, the financial position,
income, changes in cash flow, changes in stockholders' equity, and the results
of operations of the Company, the Subsidiary and the Commack Partnership at the
respective dates and for the respective periods to which they apply and such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. The pro forma financial statements and other
pro forma financial information (including the notes thereto) included in the
Registration Statement and the Prospectus (A) present fairly, in all material
respects, the information shown therein, (B) have been prepared, in all material
respects, in accordance with the applicable requirements of Item 310 of
Regulation S-B promulgated under the Act, (C) have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma financial
statements, and (D) have been properly compiled on the bases described therein,
and the assumptions used in the preparation of the pro forma financial
statements and other pro forma financial information included in the
Registration Statement and the Prospectus are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or circumstances
referred to therein. There has been no Material Adverse Effect on the Company or
the Subsidiary since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the property
(both tangible and intangible), and business of each of the Company and the
Subsidiary conform in all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information set forth in
the Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," present fairly, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(g) Each of the Company, the Subsidiary and the Commack Partnership (i)
has paid all federal, state, local, and foreign taxes for which it is liable
(other than such taxes as are being contested in good faith for which adequate
reserves have been established) including, without limitation, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has duly filed all information returns it is
required to file pursuant to the Code, (ii) has established adequate reserves
for such taxes that are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities or the Representative's Securities, (ii) the purchase by the
Underwriters of the Securities, and the purchase and exercise by the
Representative of the Representative's Warrants, the purchase of the Common
Stock issuable upon exercise of the Representative's Warrants, (iv) the
consummation by the Company of any of its obligations under this Agreement, the
Representative's Warrant Agreement
5
<PAGE>
or the Representative's Warrants, (v) the initial sale to the public of the
Securities or (vi) resales of the Securities in connection with the distribution
contemplated hereby.
(i) Each of the Company and the Subsidiary maintains insurance
policies, including without limitation, general liability and property
insurance, that insure the Company, the Subsidiary and their employees and
agents against such losses and risks as are generally insured against by
comparable businesses. Neither the Company nor the Subsidiary has failed to give
notice or present any insurance claim with respect to any matter, including
without limitation, to the Company's or the Subsidiary's business, property or
employees, under any insurance policy or surety bond in a due and timely manner
and has failed to pay any premiums due and payable thereunder. To the best
knowledge of the Company after due inquiry, there are no facts or circumstances
under any such insurance policy or surety bond that would relieve any insurer of
its obligation to satisfy in full any otherwise valid claim of the Company or
the Subsidiary.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including without
limitation those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or, to the best knowledge of the Company after due
inquiry, threatened against (or circumstances that may give rise to the same),
or involving the properties or business of, the Company or the Subsidiary that
(i) questions the validity of the capital stock of the Company or the
Subsidiary, this Agreement, the Representative's Warrant Agreement or the
Representative's Warrants, or any action taken or to be taken by the Company or
the Subsidiary pursuant to or in connection with this Agreement, the
Representative's Warrant Agreement or the Representative's Warrants, (ii) is
required to be disclosed in the Registration Statement that is not so disclosed
(and such proceedings, if any, as are summarized in the Registration Statement
are accurately summarized in all respects) or (iii), could, if adversely
determined, have a Material Adverse Effect.
(k) The Company has full legal right, power, and authority to
authorize, issue, deliver, and sell the Securities and the Representative's
Securities, and to enter into this Agreement, the Representative's Warrant
Agreement and the Representative's Warrants, and to consummate the transactions
provided for in such agreements; and this Agreement has been duly and properly
authorized, executed and delivered by the Company; and the Representative's
Warrant Agreement and the Representative's Warrants have been duly authorized by
the Company and will be duly executed and delivered by the Company at the
Closing. This Agreement constitutes, and each of the Representative's Warrant
Agreement and the Representative's Warrants, when delivered at the Closing will
constitute, a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms; and none of the Company's
issue and sale of the Securities or the Representative's Securities, its
execution or delivery of this Agreement, the Representative's Warrant Agreement
or the Representative's Warrants, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, or the conduct
of its business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto, conflicts with or will conflict with, or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or
6
<PAGE>
result in the creation or imposition of any Lien of any kind whatsoever upon,
any property or assets (tangible or intangible) of the Company or the Subsidiary
pursuant to the terms of (i) the certificate of incorporation or by-laws, in
each case as amended to date, of the Company or the Subsidiary, (ii) any
license, contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement, or any other agreement
or instrument to which the Company or the Subsidiary is a party or by which
either of them is bound or to which any of their properties or assets (tangible
or intangible) is or may be subject, or any indebtedness, or (iii) any statute,
judgment, decree, order, rule or regulation, applicable to the Company or the
Subsidiary, of any arbitrator, court, regulatory body, or administrative agency
or other governmental agency or body (including without limitation those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or the Subsidiary or any of their activities or
properties.
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court or governmental or
regulatory authority, domestic or foreign, or any other person or entity, is
required for the issuance of the Securities and the Representative's Securities
pursuant to the Prospectus and the Registration Statement, the performance of
the Company's obligations under this Agreement, the Representative's Warrant
Agreement and the Representative's Warrants, and the transactions contemplated
hereby and thereby, including without limitation any waiver of any preemptive,
first refusal or other rights that any person or entity may have for the issue
and/or sale of any of the Securities or the Representative's Securities, except
such as have been or may be obtained under the Act or may be required under the
state securities or blue sky laws ("Blue Sky laws"), in connection with the
Underwriters' purchase and distribution of the Securities and the purchase of
the Representative's Securities to be sold by the Company under the
Representative's Warrant Agreement and the Representative's Warrants.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company or the Subsidiary is party or by
which either of them may be bound or to which any of their assets, properties,
or business may be subject, have been duly and validly authorized, executed and
delivered by the Company or the Subsidiary and constitute the legal, valid and
binding agreements of the Company or the Subsidiary, and to the best knowledge
of the Company after due inquiry, the other parties thereto, enforceable against
the Company or the Subsidiary, as the case may be, and to the best knowledge of
the Company after due inquiry, the other parties thereto, in accordance with
their respective terms. The descriptions in the Registration Statement of
agreements, contracts and other documents are accurate and fairly present the
information required to be shown with respect thereto by Form SB-2, and there
are no contracts, agreements or other documents that are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statement that are not described or filed as required, and the
exhibits that have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated
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herein or therein, neither the Company nor the Subsidiary has (i) issued any
securities or incurred any liability or obligation, direct or contingent, for
borrowed money, (ii) entered into any transaction other than in the ordinary
course of business consistent with past practice, or (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital stock of
any class, and, since such respective dates, there has not been (i) any change
in the capital stock, in the debt (long or short term) or in the liabilities of
the Company or the Subsidiary or (ii) a Material Adverse Effect.
(o) No breach or default by or of the Company or the Subsidiary or, to
the best knowledge of the Company after due inquiry, any other party exists in
the due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement,
partnership agreement, note, loan or credit agreement, purchase order, or any
other material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which the Company or the
Subsidiary is a party or by which it may be bound or to which the property or
assets (tangible or intangible) of the Company or the Subsidiary is subject or
affected.
(p) Each of the Company and the Subsidiary has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
material compliance with all federal, state, local and foreign laws and
regulations respecting employment and employment practices, terms and conditions
of employment, and wages and hours. There are no pending investigations
involving the Company by the U.S. Department of Labor, or any other governmental
agency responsible for the enforcement of such federal, state, local, or foreign
laws and regulations. There is no unfair labor practice charge or complaint
against the Company or the Subsidiary pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or, to the best knowledge of the Company after due inquiry, threatened
against or involving the Company or the Subsidiary, or any predecessor entity,
and none has ever occurred. No representation question exists respecting the
employees of the Company or the Subsidiary, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company
or the Subsidiary. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or the
Subsidiary. No labor dispute with the employees of the Company or the Subsidiary
exists or, to the best knowledge of the Company after due inquiry, is imminent.
(q) Except as described in the Prospectus, neither the Company nor the
Subsidiary maintains, sponsors or contributes to any program or arrangement that
is an "employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). Neither the Company nor the Subsidiary maintains or
contributes (and has not previously maintained or contributed) to a "defined
benefit plan," as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Code, that could subject the
Company or the Subsidiary to any tax penalty on prohibited
8
<PAGE>
transactions and that has not adequately been corrected. Each ERISA Plan is in
compliance with all material reporting, disclosure, and other requirements of
the Code and ERISA as they relate to any such ERISA Plan. Determination or
opinion letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that the form of such ERISA Plan and the attendant trust are qualified
thereunder. Neither the Company nor the Subsidiary has ever completely or
partially withdrawn from a "multiemployer plan."
(r) Neither of the Company, the Subsidiary, nor any of their respective
employees, directors, stockholders, partners, or affiliates (within the meaning
of the Rules and Regulations) has taken or will take, directly or indirectly,
any action designed to, or that has constituted or might be expected to cause or
result in (under the Exchange Act or otherwise), stabilization or manipulation
of the price of any security of the Company, whether to facilitate the sale or
resale of the Securities or otherwise; and neither the Company nor the
Subsidiary shall take, or permit any such person to take, any such action.
(s) Except as disclosed in the Prospectus, none of the patents, patent
applications, trademarks, service marks, trade names, copyrights, technology,
and know-how, and none of the license or rights to the foregoing, presently
owned or held by the Company and the Subsidiary or used in or necessary to the
conduct of their respective businesses as now conducted or proposed to be
conducted (all of the foregoing, collectively, its "Intellectual Properties"),
are in dispute or are in any conflict with the right of any other person or
entity. To the best of knowledge of the Company after due inquiry, each of the
Company and the Subsidiary (i) owns or has the right to use all of its
Intellectual Properties, free and clear of all Liens of any kind whatsoever,
without infringing upon or otherwise acting adversely to the right or claimed
right of any person or other entity under or with respect to any of the
foregoing and (ii) except as set forth in the Prospectus, is not obligated or
under any liability whatsoever to make any payment by way of royalties, fees, or
otherwise to any owner or licensee of, or other claimant to, any Intellectual
Properties with respect to the use thereof or in connection with the conduct of
its business or otherwise as described in the Prospectus.
(t) Except as disclosed in the Prospectus, each of the Company and the
Subsidiary owns and has the unrestricted right to use all trade secrets,
know-how (including all unpatented and/or unpatentable proprietary or
confidential information, systems, and procedures), inventions, designs,
processes, works of authorship, computer programs, and technical data and
information that are material to the development, manufacture, operation and
sale of all products and services sold or proposed to be sold by the Company or
the Subsidiary, free and clear of and without violating any right, Lien or claim
of others, including without limitation former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company or the Subsidiary or their respective
employees or agents, could have developed trade secrets or items of technical
information similar or identical to those of the Company and the Subsidiary. The
Company is not aware of any such development of similar or identical trade
secrets or technical information by others.
9
<PAGE>
(u) Each of the Company and the Subsidiary has taken reasonable
security measures to protect the secrecy, confidentiality, and value of all of
its Intellectual Properties in all material respects.
(v) Each of the Company and the Subsidiary has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it free and
clear of all Liens of any kind whatsoever, other than (i) those referred to in
the Prospectus and (ii) Liens for taxes not yet due and payable.
(w) Farber, Blicht & Eyerman, L.L.P., whose report is filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(x) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors, stockholders, and all holders of securities, warrants, options or
other rights exchangeable or exercisable for, convertible into, or evidencing
any right to purchase or subscribe for, shares of Common Stock, has agreed that,
without the prior written consent of the Representative, such person or entity
will not directly or indirectly offer to sell, sell, grant any option for the
sale of, assign, transfer, pledge, hypothecate, or otherwise encumber or dispose
of any legal or beneficial interest in any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for a period of not less than 24 months following
the effective date of the Registration Statement. The Company will cause the
Transfer Agent, as defined below, to mark an appropriate legend on the face of
stock certificates representing all of such securities and to place "stop
transfer" orders with respect thereto on the Company's stock ledgers.
(y) There are no agreements, claims, payments, issuances, arrangements
or understandings, whether oral or written, for services in the nature of a
finder's, consulting or origination fee with respect to the sale of the
Securities or the Representative's Securities or any other agreements, claims,
payments, issuances, arrangements or understandings with respect to the Company,
the Subsidiary or any of their respective officers, directors, stockholders,
partners, employees, or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(z) The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market.
(aa) Neither the Company nor the Subsidiary nor any of their respective
officers, employees or agents, nor any other person acting on behalf of the
Company or the Subsidiary has, directly or indirectly, given or agreed to give
any money, gift, or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any customer, supplier,
10
<PAGE>
employee, or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company or the Subsidiary (or assist the Company or
the Subsidiary in connection with any actual or proposed transaction) that (a)
might subject the Company or the Subsidiary or any other such person to any
damage or penalty in any civil, criminal, or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, could have had a
Material Adverse Effect on the Company or the Subsidiary, or (c) if not
continued in the future, could have a Material Adverse Effect on the Company or
the Subsidiary. The Company's and the Subsidiary's internal accounting controls
are sufficient to cause the Company or the Subsidiary to comply with the Foreign
Corrupt Practices Act of 1977, as amended.
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company or the Subsidiary, nor any "affiliate" or "associate"
(as these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities, has or has had, either
directly or indirectly, (i) an interest in any person or entity that (A)
furnishes or sells services or products that are furnished or sold or are
proposed to be furnished or sold by the Company or the Subsidiary, or (B)
purchases from or sells or furnishes to the Company or the Subsidiary any goods
or services, or (ii) a beneficial interest in any contract or agreement to which
the Company or the Subsidiary is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing or proposed agreements, arrangements, understandings, or
transactions between or among the Company or the Subsidiary and any officer,
director, or principal stockholder of the Company or the Subsidiary, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(cc) Any certificate signed by any officer of the Company or Subsidiary
and delivered to the Underwriters or to Underwriters' Counsel (as defined
herein) shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(dd) Each of the minute books of the Company and the Subsidiary have
been made available to the Representative and contains a complete summary of all
meetings and actions of the directors and stockholders of the Company and the
Subsidiary since the time of its incorporation, and reflects accurately in all
material respects all transactions referred to in such minutes.
(ee) No holders of any securities of the Company or of any options,
warrants, or other convertible or exchangeable securities of the Company or the
Subsidiary (i) have the right to include any securities issued by the Company or
the Subsidiary in the Registration Statement or (ii) except and to the extent
described in the Prospectus, have the right to include any securities issued by
the Company or the Subsidiary in any registration statement to be filed by the
Company or the Subsidiary or to require the Company or the Subsidiary to file a
registration statement under the Act; and, except and to the extent described in
the Prospectus, no person or entity holds any anti-dilution rights with respect
to any securities of the Company or the Subsidiary.
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<PAGE>
(ff) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Edward C. Ross,
Stuart M. Goldstein and Chuck Workman in the forms filed as Exhibits 10.6, 10.7
and 10.8, respectively, to the Registration Statement, and (ii) purchased term
key-man insurance on the life of Stuart M. Goldstein in the amount of at least
$1,000,000, which policy names the Company as the sole beneficiary thereof.
2. Purchase, Sale, and Delivery of the Securities and Representative's
Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$__________ (90% of the public offering price) per Share, those numbers of
Shares set forth in Schedule A opposite the name of such Underwriter, subject to
such adjustment as the Representative in its sole discretion shall make to
eliminate any sales or purchases of fractional shares, plus any additional
number of Firm Securities that such Underwriter may become obligated to purchase
pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 165,000 shares of Common of Stock at a price of $_____ (90% of the
public offering price) per share. The option granted hereby will expire 45 days
after (i) the date the Registration Statement becomes effective, if the Company
has elected not to rely on Rule 430A under the Rules and Regulations, or (ii)
the date of this Agreement if the Company has elected to rely upon Rule 430A
under the Rules and Regulations, and may be exercised in whole or in part from
time to time only for the purpose of covering over-allotments that may be made
in connection with the offering and distribution of the Firm Securities upon
notice by the Representative to the Company setting forth the respective numbers
of Option Securities as to which the several Underwriters are then exercising
the option and the time and date of payment and delivery for any such Option
Securities. Any such time and date of delivery (an "Option Closing Date") shall
be determined by the Representative, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Date, as hereinafter defined, unless otherwise agreed upon by the
Representative and the Company. Nothing herein contained shall obligate the
Underwriters to make any over-allotments. No Option Securities shall be
delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and the delivery of certificates
for, the Firm Securities shall be made at the offices of the Representative at
200 Garden City Plaza, Suite 518, Garden City, New York 11530, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on
__________________, 199 or at such other time and date as shall be agreed upon
by the Representative and the Company, but not less than three nor more than
fifteen full business days after the effective date of the Registration
Statement (such time and date of payment and delivery
12
<PAGE>
being herein called "Closing Date"). In addition, in the event that any or all
of the Option Securities are purchased by the Underwriters, payment of the
purchase price for, and delivery of certificates for, such Option Securities
shall be made at the above-mentioned office of the Representative or at such
other place as shall be agreed upon by the Representative and the Company on
each Option Closing Date as specified in the notice from the Representative to
the Company. Delivery of the certificates for the Firm Securities and the Option
Securities, if any, shall be made to the Underwriters against payment by the
Underwriters, severally and not jointly, of the purchase price for the Firm
Securities and the Option Securities, if any, to the order of the Company, by
New York Clearing House funds. If such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Securities then being purchased that the number of
Firm Securities set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Firm Securities, subject in each case
to such adjustments as the Representative in its discretion shall make to
eliminate any sales or purchases of fractional shares. Certificates for the Firm
Securities and the Option Securities, if any, shall be in the definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative the Representative's Warrants for an aggregate purchase price of
$110, which warrants shall entitle the holders thereof to purchase up to an
aggregate of 110,000 shares of Common Stock. The Representative's Warrants shall
be exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at an exercise price per share
purchased thereunder equal to one hundred thirty percent (130%) of the initial
public offering price of the Shares. The Representative's Warrant Agreement and
form of Warrant Certificate shall be substantially in the form attached hereto
as Exhibit A. Payment for the Representative's Warrants shall be made on the
Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Shares is required and
has not become effective) at the price and upon the other terms set forth in the
Prospectus. The Representative may from time to time increase or decrease the
public offering price of the Shares after distribution thereof has been
completed to such extent as the Representative, in its sole discretion, deems
advisable. The Underwriters may enter into one or more agreements as the
Underwriters, in each of their sole discretion, deem advisable with one or more
broker-dealers who shall act as dealers in connection with such public offering.
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<PAGE>
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and shall not at any time, whether before or after the effective
date of the Registration Statement, file any amendment to the Registration
Statement or supplement to the Prospectus or file any document under the Act or
the Exchange Act before termination of the offering of the Shares by the
Underwriters of which the Representative shall not previously have been advised
and furnished with a copy, or to which the Representative shall have objected or
which is not in compliance with the Act, the Exchange Act and the Rules and
Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company shall advise the Representative and confirm the notice in writing, (i)
when the Registration Statement, as amended, becomes effective, or if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission or authority of any proceedings
for the suspension of the qualification of any of the Securities or the
Representative's Securities for offering or sale in any jurisdiction or of the
initiation or threatening of any proceeding for that purpose, (iv) of the
receipt of any comments from the Commission, and (v) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. If the Commission or
any state securities commission or authority shall enter a stop order or suspend
such qualification at any time, the Company shall use its best efforts to obtain
promptly the lifting of such order or suspension.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
second business day following the execution and delivery of this Agreement.
(d) The Company will give the Representative notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus that the Company proposes for use by the
Underwriters in connection with the offering of the Securities that differs from
the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such
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<PAGE>
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representative or its counsel ("Underwriters' Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities and the Representative's Securities for
offering and sale under the securities laws of such jurisdictions as the
Representative may designate to permit the continuance of sales and dealings
therein for as long as may be necessary to complete the distribution, and shall
make such applications, file such documents and furnish such information as may
be required for such purpose; provided, however, the Company shall not be
required to qualify as a foreign corporation or file a general or limited
consent to service of process in any such jurisdiction. In each jurisdiction
where such qualification shall be effected, the Company shall, unless the
Representative agrees that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such statements or
reports at such times as are or may reasonably be required by the laws of such
jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities and the Representative's Securities in accordance with the
provisions hereof and the Prospectus, or any amendments or supplements thereto.
If at any time when a prospectus relating to the Securities or the
Representative's Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company shall notify the Representative promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
satisfactory to Underwriters' Counsel, and the Company shall furnish to the
Underwriters copies of such amendment or supplement as soon as available and in
such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the twelve-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representative, an earnings
statement that will be in the detail required by, and otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations, which statement need not be audited unless required by the Act,
covering a period of at least twelve consecutive months after the effective date
of the Registration Statement.
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(h) The Company shall, for so long as the Shares are registered under
the Exchange Act, hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and, within 150 days after the end of the Company's fiscal years, will provide
the Company's stockholders with the audited financial statements of the Company
as of the end of the fiscal year just completed prior thereto. Such financial
statements shall be those required by Rule 14a-3 under the Exchange Act and
shall be included in an annual report pursuant to the requirements of such Rule.
(i) During a period of seven years after the date hereof, the Company
shall furnish to its stockholders, as soon as practicable but no later than the
end of the period specified in the immediately preceding paragraph, if
applicable, annual reports (including financial statements audited by
independent public accountants) and unaudited quarterly reports of earnings, and
shall deliver to the Representative:
i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company and the Subsidiary
for each quarter in the form furnished to the Company's stockholders
and certified by the Company's principal financial or accounting
officer;
ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company and the Subsidiary as at
the end of the preceding fiscal year, together with statements of
operations, stockholders' equity, and cash flows of the Company and the
Subsidiary for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
v) every press release and every material news item or article
of interest to the financial community in respect of the Company, the
Subsidiary or their respective affairs that was released or prepared by
or on behalf of the Company or the Subsidiary; and
vi) any additional information of a public nature concerning
the Company or the Subsidiary (and any future subsidiaries) or any of
their businesses that the Representative may reasonably request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements shall be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are consolidated,
and shall be accompanied by similar financial statements for any significant
subsidiary that is not so consolidated.
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(j) The Company shall maintain a transfer agent, and if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(k) The Company shall furnish or cause to be furnished to the
Representative or on the Representative's order, without charge, at such place
as the Representative may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (one of which copies shall be manually signed and shall include all
financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Representative may request.
(l) The Company has provided the Representative with true copies of
duly executed, legally binding and enforceable agreements (collectively, the
"Lock-Up Agreements") pursuant to which, for a period of twenty-four (24) months
after the effective date of the Registration Statement, each of the Company's
officers, directors, stockholders and all holders of securities convertible
into, exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock has agreed that, without the prior
written consent of the Representative, such person or entity (each, a
"Restricted Party") shall not directly or indirectly offer to sell, sell, grant
any option for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock (either pursuant to Rule 144 of the
Rules and Regulations or otherwise) or dispose of any beneficial interest
therein in accordance with the Rules and Regulations (all of the foregoing being
referred to collectively as "Restricted Securities"). Notwithstanding the
foregoing, a Restricted Party may transfer any or all of the Restricted
Securities, either during the Restricted Party's lifetime or on the Restricted
Party's death, by grant of a bona fide gift to any person, by will or intestate
succession to the Restricted Party's immediate family or to a trust the
beneficiaries of which are exclusively the Restricted Party's and/or a member or
members of the Restricted Party's immediate family, or to any affiliate (within
the meaning of the Rules and Regulations), associate, shareholders, employee or
partner of the Restricted Party; provided, however, that in any such case it
shall be a condition to the transfer that the transferee is receiving and
holding the Restricted Securities subject to the provision of the LockUp
Agreement, and there shall be no further transfer of such Restricted Securities
except in accordance with such Lock-Up Agreement. In addition, during the 12
month period commencing with the effective date of the Registration Statement,
the Company shall not, without the prior written consent of the Representative,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for shares of Common
Stock (other than upon the exercise or conversion of currently outstanding
options, warrants, convertible securities and other rights to acquire shares of
Common Stock (including the Representative's Warrants)). On or before the
Closing Date, the Company shall deliver instructions to the transfer agent
authorizing it to place appropriate legends on the certificates representing the
securities subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Company's ledgers.
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(m) Neither the Company nor the Subsidiary shall take, or permit any of
their respective officers, directors, or stockholders, or any of their
respective affiliates (within the meaning of the Rules and Regulations) to take,
directly or indirectly, any action designed to, or that might in the future
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any securities of the Company or the Subsidiary.
(n) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company or the
Subsidiary.
(o) The Company shall timely file all such reports, forms and other
documents as may be required (including without limitation a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed shall comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(p) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date, and each Option
Closing Date, if any, but no later than two full business days prior thereto, a
copy of the latest available unaudited interim financial statements of the
Company (which in no event shall be as of a date more than 30 days prior to the
date of the Registration Statement) which have been read by the Company's
independent public accountants, as stated in their letters to be furnished
pursuant to Sections 6(m) and (n) hereof.
(q) Unless otherwise agreed by the Company and the Representative, the
Company shall cause the Common Stock to be quoted on the Nasdaq SmallCap Market,
and for a period of seven years from the date hereof, shall use its best efforts
to maintain the Nasdaq SmallCap Market quotation.
(r) For a period of five years from the Closing Date, the Company shall
furnish to the Representative, as and to the extent requested by the
Representative, at the Company's sole expense, (i) daily consolidated transfer
sheets relating to the Company's securities, (ii) the list of holders of all of
the Company's securities, and (iii) a Blue Sky "Trading Survey" for secondary
sales of the Company's securities prepared by counsel to the Company.
(s) The Company has filed a Form 8-A with the Commission providing for
the registration under the Exchange Act of the Common Stock, and has requested
that such filing be declared effective at the same time as the Registration
Statement becomes effective, and as soon as practicable hereafter but in no
event more than 30 days from the effective date of the Registration Statement,
shall take all necessary and appropriate actions for the Common Stock to be
included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual
and to continue such inclusion for a period of not less than seven years.
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(t) The Company hereby agrees that it will not for a period of 24
months from the effective date of the Registration Statement, adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting (i) the grant, issue, sale or
entry into any agreement to grant, issue or sell any option, warrant or other
contract right (x) at an exercise price that is less than the greater of the
public offering price of the Shares set forth herein and the fair market value
on the date of grant or sale or (y) to any of its executive officers or
directors or to any holder of 5% or more of the Common Stock; (ii) the maximum
number of shares of Common Stock or other securities of the Company purchasable
at any time pursuant to options or warrants issued by the Company to exceed
______ shares; (iii) the payment for such securities with any form of
consideration other than cash; or (iv) the existence of stock appreciation
rights, phantom options or similar arrangements.
(u) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(v) Until after the earlier of (i) seven years from the date hereof,
and (ii) the sale to the public of all of the Representative's Securities, the
Company shall not take any action or actions that might prevent or disqualify
the Company's use of Form SB-2 (or other appropriate form) for the registration
under the Act of the Representative's Securities.
(w) For a period of five years after the effective date of the
Registration Statement, (i) the Company shall notify the Representative of each
meeting of the Board of Directors of the Company (the "Board"), and (ii) one
individual selected by the Representative (who may be a director, officer, agent
or affiliate of the Representative) shall be permitted to attend all meetings of
the Board and to receive all notices and other correspondence and communications
sent by the Company to the members of the Board. Such individual shall be
reimbursed for all reasonable out-of-pocket expenses incurred in connection with
such person's attendance at meetings of the Board of Directors.
(x) The Company shall use its best efforts to keep the Registration
Statement current for at lease until the expiration of the Representative's
Warrants and shall bear all of the costs associated with the filing of a new
registration statement in the event the Representative's Warrants are exercised.
(y) The Company shall, upon written request by a majority of holders of
the Representative's Warrants after 12 months from the effective date of the
Registration Statement and within the Representative's Warrant Period, one time
only, cause the securities underlying the Representative's Warrants to be
subject to a registration statement, as may be appropriate under the Act, so as
to enable the Representative or the Representative's assigns to offer publicly
the securities underlying the Representative's Warrants. All costs incurred in
the preparation of
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such registration statement shall be paid by the Company with the exception of
fees and expenses of counsel for the holders of the Representative's Warrants
and selling commissions to be paid to any underwriter with respect to such
securities.
(z) If, at any time or times during a period of five (5) years from the
effective date of the Registration Statement, the Company shall register any
primary or secondary offering of any debt or equity security issued or to be
issued by it pursuant to a registration statement under the Act, the Company
shall in each such event notify the Representative in writing not less than 30
days prior to filing such registration statement with the Commission, and the
Representative or the Representative's assigns shall have the right to register
the securities underlying the Representative's Warrants by notifying the Company
in writing, within 15 days of receipt of the Company's notice, requesting
registration of such securities and setting forth the intended method of
distribution and such other data or information as the Company or its counsel
shall reasonably require. Such registration shall be without cost to the
Representative except for sales commissions incurred if the securities
underlying the Representative's Warrants are sold, and fees and expenses of
counsel for the holders of the Representative's Warrants.
(aa) The Company hereby grants to First United, for a period of three
years after the effective date of the Registration Statement, a right of first
refusal on the terms and subject to the conditions set forth herein, should the
Company or any of its affiliates desire to sell any securities (including,
without limitation, any Securities) of the Company. The Company (or such
affiliate) shall consult with First United with regard to such sale and shall
offer to First United the opportunity, on terms not more or less favorable to
the Company (or such affiliate) than the Company (or such affiliate) can receive
elsewhere, to purchase or sell any such securities. If First United fails to
accept in writing such proposal made by the Company (or such affiliate) by the
end of the tenth business day following the date of receipt of a written notice
containing such proposal, then First United shall have no further claims or
rights with regard to the proposal contained in such notice, provided that the
Company (or such affiliate) consummates a sale of such securities on the same
terms and conditions within 90 days thereafter. If, thereafter, such proposal is
modified or such sale is not consummated with such 90-day period, the Company
(or such affiliate) shall again consult with First United with respect to any
sale of such securities (including with respect to the original proposal), any
modified proposal or any new proposal.
5. Payment of Expenses.
(a) The Company hereby agrees to pay, on each of the Closing Date and
each Option Closing Date (to the extent not paid at the Closing Date), all
expenses and fees (other than fees and expenses of Underwriters' Counsel, except
as provided in clause (iv) below) incident to the performance of the obligations
of the Company under this Agreement and the Representative's Warrant Agreement,
including without limitation (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing (including mailing and handling charges),
filing, delivery, and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the
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<PAGE>
Prospectus and any amendments and supplements thereto and the printing, mailing
(including the payment of postage with respect thereto), and delivery of this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreements, and
related documents, including the cost of all copies thereof and of the
Preliminary Prospectuses and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Securities, including, but not
limited to (x) the purchase by the Underwriters of the Securities and the
purchase by the Representative of the Representative's Warrants from the
Company, and (y) the consummation by the Company of any of its obligations under
this Agreement and the Representative's Warrant Agreement, and (z) resale of the
Securities by the Underwriters in connection with the distribution contemplated
hereby, (iv) the qualification of the Securities and the Representative's
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum," and the "Legal Investment
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, and costs and expenses in connection with
bound volumes and prospectus memorabilia and "tomb-stone" advertisement
expenses, (vi) costs and expenses in connection with Company counsel's due
diligence investigations, including without limitation the fees of any
independent counsel or consultant retained, (vii) fees and expenses of the
transfer agent and registrar for the Common Stock, (viii) the fees payable to
the Commission and the NASD, and (ix) the fees and expenses incurred in
connection with the listing or quotation, as the case may be, of the Securities
on the Nasdaq SmallCap Market and any other exchange or market system.
(b) The Company further agrees that, in addition to the expenses
payable pursuant to Section 5(a), it shall pay to the Representative on the
Closing Date by certified or bank cashier's check or, at the election of the
Representative, by deduction from the proceeds of the offering contemplated
herein, a non-accountable expense allowance equal to three (3) percent of the
gross proceeds received by the Company from the sale of the Firm Securities,
$25,000 of which has been paid to date. If the Representative elects to exercise
the over-allotment option described in Section 2(b) hereof, the Company agrees
to pay to the Representative on each Option Closing Date (by certified or bank
cashier's check or, at the Representative's election, by deduction from the
proceeds of the offering) a non-accountable expense allowance equal to three (3)
percent of the gross proceeds from the sale of the Option Securities sold on
such Option Closing Date.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof and the performance by the Company on and as of the Closing Date and each
Option Closing Date, if any, of its covenants and obligations hereunder and to
the following further conditions:
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<PAGE>
(a) The Registration Statement shall have become effective not later
than 12:00 A.M., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representative, and at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Securities and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact that, in the Representative's opinion, is material, or omits to state a
fact that, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact that, in the Representative's opinion, is material, or omits to state a
fact that, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date or Option Closing Date, as the case
may be, the Representative shall have received from Underwriters' Counsel, such
opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Representative's Warrants, the Registration
Statement, the Prospectus, and other related matters as the Representative may
request and Underwriters' Counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
(d) On the Closing Date, the Underwriters shall have received the
favorable opinion of Ruskin, Moscou, Evans & Faltischek, P.C., counsel to the
Company and the Subsidiary, dated the Closing Date, addressed to the
Underwriters, and in form and substance satisfactory to Underwriters ("Company
Counsel"), to the effect that:
i) Each of the Company and the Subsidiary (A) has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the state of its incorporation, (B) is duly qualified
and licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing,
(C) has all requisite power and authority (corporate and other), and
has obtained all material authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
22
<PAGE>
regulatory authorities (including without limitation those having
jurisdiction over environmental or similar matters), to own or lease
its properties and conduct its business as described in the Prospectus;
to the best knowledge of such Counsel, each of the Company and the
Subsidiary is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises
and permits and all applicable federal, state and local laws, rules and
regulations; and to the best knowledge of such Counsel, neither the
Company nor the Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit that,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect. The
disclosures in the Registration Statement concerning the effects of
federal, state, and local laws, rules and regulations on the Company's
and Subsidiary's business as currently conducted and as contemplated by
the Prospectus are correct in all material respects and do not omit to
state a fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made;
ii) the Company owns 100% of the outstanding capital stock of
the Subsidiary, and, to the best knowledge of such Counsel, neither the
Company nor the Subsidiary owns an interest in any corporation,
partnership, joint venture, trust or other business entity (other than
the Company's interest in the Subsidiary);
iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization," and will have the adjusted
capitalization set forth therein on the Closing Date and each Option
Closing Date, if any, based upon the assumptions set forth therein
(except that the effects of the exercise of the Underwriters'
over-allotment option are not reflected therein), and, to the best
knowledge of such Counsel, neither the Company nor the Subsidiary is a
party to or bound by any instrument, agreement, or other arrangement
providing for it to issue any capital stock, warrants, options, or
other securities, or rights with respect thereto, except for this
Agreement and the Representative's Warrant Agreement and as described
in the Prospectus. The terms and provisions of the Securities and the
Representative's Securities, and the other securities issued or
issuable by the Company or the Subsidiary, conform in all material
respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of each of the Company and the Subsidiary have been duly
authorized and validly issued and the shares of Common Stock issued and
outstanding immediately prior to the Closing Date are fully paid and
non-assessable and the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities of the
Company was issued in violation of the preemptive rights of any person
or entity. The Securities and the Representative's Securities to be
sold by the Company hereunder and under the Representative's Warrant
Agreement (i) are not and will not be subject to any preemptive or
other similar rights of any stockholder or any other person or entity,
(ii) have been duly authorized and, when issued, paid for, and
delivered in
23
<PAGE>
accordance with the terms hereof and thereof, will be validly issued,
fully paid, and non-assessable and will conform to the description
thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the
Securities and the Representative's Securities has been duly and
validly taken; and the certificates representing the Securities are in
due and proper form. The Representative's Warrants constitute legal,
valid and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor pursuant to the terms thereof,
the numbers and types of securities of the Company called for thereby.
Upon the issuance and delivery pursuant to this Agreement of the
Securities and the Representative's Securities to be sold by the
Company, and assuming that the Underwriters acquire such Securities,
and the holders of the Representative's Securities acquire such
Representative's Securities, in good faith and without notice of any
adverse claim, then the Underwriters will acquire good and marketable
title to the Securities, and the holders of the Representative's
Securities will acquire good and marketable title to the
Representative's Securities, free and clear of any Lien of any kind
whatsoever, except as the Underwriters and the Representative, or any
of them, may have granted. No transfer tax is payable by or on behalf
of the Underwriters in connection with (A) the issuance by the Company
of the Securities or the Representative's Securities, (B) the purchase
by the Underwriters of the Securities and the purchase and exercise by
the Representative of the Representative's Warrants, (C) the
consummation by the Company of any of its obligations under this
Agreement, the Representative's Warrant Agreement or the
Representative's Warrants, or (D) the initial sale to the public of the
Securities in connection with the distribution contemplated hereby;
iv) such Counsel has been orally advised by the Commission
that the Registration Statement was declared effective under the Act,
and, if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, that such Counsel has
been advised by the Commission that no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any part of any thereof, or suspending the effectiveness
of the Registration Statement has been issued, and to the best
knowledge of such Counsel, no proceedings for that purpose have been
instituted or are pending or threatened or contemplated under the Act;
v) each of the Preliminary Prospectus, the Registration
Statement and the Prospectus and any amendments or supplements thereto
(other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered) complies as to form in all material respects with the
requirements of the Act and the Rules and Regulations. Such Counsel
shall state that such Counsel has participated in conferences with
officers and other representatives of the Company and the Subsidiary
and representatives of the independent public accountants for the
Company and the Subsidiary, at which conferences such Counsel made
inquiries of such officers, representatives and accountants, and
discussed the contents of the Preliminary Prospectus, the Registration
Statement and the Prospectus and at which related matters were
discussed and, although such
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<PAGE>
Counsel is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Preliminary Prospectus, the Registration Statement and Prospectus,
on the basis of the foregoing, no facts have come to the attention of
such Counsel that lead them to believe that either the Registration
Statement or any amendment thereto, at the time such Registration
Statement or amendment became effective, or the Preliminary Prospectus
or Prospectus or amendment or supplement thereto, as of the date of
such opinion, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made (it being understood that such
Counsel need express no opinion with respect to the financial
statements and schedules and other financial and statistical data
included in the Preliminary Prospectus, the Registration Statement or
the Prospectus);
vi) to the best of such Counsel's knowledge, (A) there are no
agreements, contracts, or other documents required by the Act to be
described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in
the Registration Statement (or required to be filed under the Exchange
Act if upon such filing they would be incorporated, in whole or in
part, by reference therein) and the Prospectus and filed as exhibits
thereto, and the exhibits that have been filed are correct copies of
the documents of which they purport to be copies; (B) the descriptions
in the Registration Statement and the Prospectus and any supplement or
amendment thereto, of contracts and other documents to which the
Company and the Subsidiary is party or by which it is bound, including
any such document incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate and fairly represent, in
all material respects, the information required to be shown by Form
SB-2; (C) there is not pending or threatened against the Company or the
Subsidiary any action, arbitration, suit, proceeding, inquiry,
investigation, litigation, or governmental or other proceeding
(including without limitation those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or
threatened against (or circumstances that may give rise to the same),
or involving the properties or business of either of the Company or the
Subsidiary that (x) is required to be disclosed in the Registration
Statement and is not so disclosed (and such proceedings as are
summarized in the Registration Statement, if any, are accurately
summarized in all material respects), or (y) questions the validity of
the capital stock of the Company or the Subsidiary or this Agreement,
the Representative's Warrant Agreement or the Representative's
Warrants, or of any action taken or to be taken by the Company or the
Subsidiary pursuant to or in connection with any of the foregoing; (D)
no statute or regulation or legal or governmental proceeding required
to be described in the Prospectus is not described as required; and (E)
there is no action, suit or proceeding pending or threatened against or
affecting the Company or the Subsidiary before any court or arbitrator
or governmental or regulatory authority in which there is a reasonable
possibility of an adverse decision that could result in a Material
Adverse Effect, that could adversely affect the present or prospective
ability of the Company to perform its obligations under this Agreement,
the Representative's Warrant Agreement or the Representative's Warrants
or
25
<PAGE>
which in any manner draws into question the validity or enforceability
of this Agreement, the Representative's Warrant Agreement or the
Representative's Warrants;
vii) the Company has full legal right, power and authority to
enter into each of this Agreement, the Representative's Warrant
Agreement and the Representative's Warrants and to consummate the
transactions provided for herein and therein; and each of this
Agreement and the Representative's Warrant Agreement has been, and the
Representative's Warrants, upon due execution and delivery against
payment therefor in accordance with the terms of the Representative's
Warrant Agreement, will be, duly authorized, executed and delivered by
the Company. Each of this Agreement, the Representative's Warrant
Agreement and the Representative's Warrants, assuming due
authorization, execution and delivery by each other party thereto,
constitutes, a legal, valid, and binding agreement of the Company
enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law); and none of the Company's execution or
delivery of this Agreement, the Representative's Warrant Agreement or
the Representative's Warrants, its performance hereunder or thereunder,
or its consummation of the transactions contemplated herein or therein,
conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the
creation or imposition of any Lien of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company or the
Subsidiary pursuant to the terms of (A) the certificate of
incorporation or bylaws of the Company or of the Subsidiary, each as
amended and in effect as of the date of such opinion, (B) to the best
knowledge of such Counsel, any license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement, or any other agreement or instrument to which
the Company or the Subsidiary is party or by which they are or may be
bound or to which any of their respective properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or
(C) any statute, judgment, decree, order, rule or regulation applicable
to the Company or the Subsidiary of any arbitrator, court, or
governmental or regulatory authority (including without limitation
those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or the
Subsidiary or any of their respective activities or properties;
viii) except as described in the Prospectus, no consent,
approval, authorization or order of, and no filing with, any court,
regulatory body, governmental or regulatory authority or any other
person or entity (other than such as may be required under Blue Sky
laws, as to which no opinion need be rendered) is required in
connection with the issuance of the Securities pursuant to the
Prospectus, the issuance and the exercise the Representative's
Warrants, the performance of this Agreement, the Representative's
Warrant Agreement and the Representative's Warrants, and the
transactions contemplated hereby and thereby;
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<PAGE>
ix) to the best knowledge of such Counsel, the properties and
business of each of the Company and the Subsidiary conform to the
description thereof contained in the Registration Statement and the
Prospectus;
x) to the best knowledge of such Counsel, neither the Company
nor the Subsidiary is in breach of, or in default under, any term or
provision of any material license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, or other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company or the Subsidiary is a party or by which they are or
may be bound or to which any of their respective properties or assets
(tangible or intangible) are or may be subject or affected; and neither
the Company nor the Subsidiary is in violation of any term or provision
of its certificate of incorporation or bylaws, each as amended and in
effect as of the date of such opinion, or, to the best knowledge of
such Counsel, in violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation;
xi) the statements in the Prospectus under "THE COMPANY,"
"BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," "SHARES ELIGIBLE FOR FUTURE
SALE" and "SELLING STOCKHOLDERS; PLAN OF DISTRIBUTION" have been
reviewed by such Counsel, and insofar as they refer to statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
xii) the Company has been advised that the Common Stock has
been approved for quotation on the Nasdaq SmallCap Market;
xiii) to the best knowledge of such Counsel, the persons
listed under the caption "PRINCIPAL STOCKHOLDERS" and "SELLING
STOCKHOLDERS; PLAN OF DISTRIBUTION" in the Prospectus are the
respective "beneficial owners" (as such phrase is defined in Rule 13d-3
of the Rules and Regulations), of the securities set forth opposite
their respective names thereunder as and to the extent set forth
therein;
xiv) to the best knowledge of such Counsel, no person,
corporation, trust, partnership, association or other entity has the
right (x) to include and/or register any securities of the Company in
the Registration Statement or (y) except as described in the
Prospectus, to require the Company to file any registration statement
or, if any registration statement (other than the Registration
Statement) is filed, to include any security in such registration
statement;
xv) to the best knowledge of such Counsel, except as described
in the Prospectus, there are no claims, payments, issuances or other
agreements, understandings or arrangements for services in the nature
of a finder's or origination fee with respect to the sale
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of the Securities or the Representative's Securities hereunder or
financial consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the Underwriters'
compensation, as determined by the NASD;
xvi) assuming due execution by the parties thereto other than
the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in accordance
with its terms;
xvii) to the best knowledge of such Counsel, except as
described in the Prospectus, neither the Company nor any Subsidiary (A)
maintains, sponsors or contributes to any ERISA Plans, (B) maintains or
contributes, now or at any time previously, to a defined benefit plan,
as defined in Section 3(35) of ERISA, and (C) has ever completely or
partially withdrawn from a "multiemployer plan"; and
xviii) the Company is not an "investment company" required to
be registered or regulated under the Investment Company Act of 1940, as
amended.
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent they deem proper, on certificates and written
statements of responsible officers of the Company or the Subsidiary and
certificates or other written statements of officers of, departments of
various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company or the Subsidiary,
provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel.
(e) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Company Counsel dated the Option Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, confirming as of each Option Closing Date the statements
made by such counsel in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in Section 6(c), or
in order to evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties or conditions of the Company and the Subsidiaries,
or herein contained.
(g) Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no Material Adverse Effect on the Company or the
Subsidiary; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company or the Subsidiary, from the
latest date as of which the financial condition of the Company or the Subsidiary
is set forth in the Registration Statement and Prospectus that is materially
adverse to the Company or the Subsidiary; (iii) neither the Company nor the
Subsidiary shall be in material breach or material
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default under any provision of any instrument relating to any outstanding
indebtedness; (iv) neither the Company nor the Subsidiary shall have issued any
securities (other than as described in the Registration Statement and other than
the Securities and the Representative's Securities) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
and there shall not have been any change in the capital stock or any material
change in the debt (long or short term) or liabilities or obligations of the
Company or the Subsidiary (contingent or otherwise); (v) no material amount of
the assets of the Company or the Subsidiary shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been pending
or threatened (or circumstances giving rise to same) against the Company or the
Subsidiary, or involving or affecting their respective business or properties,
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding could
have a Material Adverse Effect on the Company or the Subsidiary, except as set
forth in the Registration Statement and Prospectus; and (vii) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company, signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus, and this Agreement, and that:
i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or such Option Closing Date, as the case may be, and the Company
has complied, in all material respects, with all agreements and
covenants and satisfied, in all material respects, all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to
the best of each of such person's knowledge after due inquiry, are
contemplated or threatened under the Act;
iii) the Registration Statement and the Prospectus and each
amendment and each supplement thereto, if any, contain all statements
and information required to be included therein, and none of the
Registration Statement, the Prospectus, or any amendment or supplement
thereto, includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading and neither the Preliminary Prospectus
or any supplement thereto included any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made,
29
<PAGE>
not misleading; except that such certification may expressly exclude
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company with respect to the
Underwriters by or on behalf of the Underwriters expressly for use in
such Preliminary Prospectus, Registration Statement or Prospectus; and
iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (a) neither
the Company nor the Subsidiary shall have incurred, up to and including
the Closing Date or the Option Closing Date, as the case may be, other
than in the ordinary course of its business consistent with past
practice, any material liabilities or obligations, direct or
contingent; (b) neither the Company nor the Subsidiary shall have paid
or declared any dividends or other distributions on its capital stock;
(c) neither the Company nor the Subsidiary shall have entered into any
transactions not in the ordinary course of business consistent with
past practice; (d) there shall not have been any change in the capital
stock or long-term debt or any increase in the short-term borrowings
(other than any increase in the short-term borrowings in the ordinary
course of business consistent with past practice) of the Company or the
Subsidiary; (e) neither the Company nor the Subsidiary shall have
sustained any material loss or material damage to their respective
property or assets, whether or not insured; (f) there shall be no
litigation which is pending or threatened (or circumstances giving rise
to same) against the Company or the Subsidiary or any affiliated party
that is required to be set forth in an amended or supplemented
Prospectus and that has not been so set forth; and (g) there shall not
have occurred any event required to be set forth in an amended or
supplemented Prospectus that shall not have been set forth.
References to the Registration Statement and the Prospectus in this subsection
(h) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters shall have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated the date hereof, addressed to the Underwriters in form
and substance satisfactory (including as to the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Underwriters and Underwriters' Counsel, from Farber, Blicht & Eyerman,
L.L.P.;
i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of
the Act and the applicable Rules and Regulations;
ii) stating that it is their opinion that the financial statements
and supporting schedules of the Company, the Subsidiary and
the Commack Partnership included in the Registration Statement
comply as to form, in all material respects, with the
applicable accounting requirements of the Act and the Rules
and Regulations
30
<PAGE>
thereunder and that the Representative may rely upon the
opinion of Farber, Blicht & Eyerman, L.L.P. with respect to
the financial statements and supporting schedules included in
the Registration Statement;
iii) stating that, on the basis of a limited review that included a
reading of the latest available unaudited interim consolidated
financial statements of the Company and the Subsidiary (with
an indication of the date of the latest available unaudited
interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors
and the various committees of the boards of directors of the
Company and the Subsidiary, consultations with officers and
other employees of the Company and the Subsidiary responsible
for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention
that would lead them to believe that (A) the pro forma
financial information contained in the Registration Statement
and Prospectus does not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations or is not fairly presented
in conformity with generally accepted accounting principles
applied on a basis consistent with that of the audited
consolidated financial statements of the Company or the
unaudited pro forma financial information included in the
Registration Statement, (B) the unaudited financial statements
and supporting schedules of the Company, the Subsidiary and
the Commack Partnership included in the Registration Statement
do not comply as to form, in all material respects, with the
applicable accounting requirements of the Act and the Rules
and Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited consolidated
financial statements of the Company, the Subsidiary and the
Commack Partnership included in the Registration Statement, or
(C) at a specified date not more than five days prior to the
effective date of the Registration Statement, there has been
any change in the capital stock or long-term debt of the
Company and the Subsidiary, or any decrease in the
stockholders' equity or net current assets or net assets of
the Company as compared with amounts shown in the balance
sheet included in the Registration Statement, other than as
set forth in or contemplated by the Registration Statement,
or, if there was any change or decrease, setting forth the
amount of such change or decrease, and (D) during the period
from September 30, 1996 to a specified date not more than five
days prior to the effective date of the Registration
Statement, there was any increase or decrease in net revenues,
net earnings or increase in net earnings per common share of
the Company and the Subsidiary, in each case as compared with
the corresponding period in the preceding year other than as
set forth in or contemplated by the Registration Statement,
or, if there was any such decrease or increase, setting forth
the amount of such decrease or increase;
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<PAGE>
iv) setting forth at a date not later than five days prior to the
date of the Registration Statement, the amount of liabilities
of the Company and the Subsidiary (including a break-down of
commercial paper and notes payable to banks);
v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the
Company, the Subsidiary and the Commack Partnership set forth
in the Prospectus, in each case to the extent that such
amounts, numbers, percentages, statements and information may
be derived from the general accounting records, including work
sheets, of the Company, the Subsidiary and the Commack
Partnership and, excluding any questions requiring an
interpretation by legal counsel, with the results obtained
from the application of specified readings, inquiries and
other appropriate procedures (which procedures do not
constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, found
them to be in agreement;
vi) stating that they have not during the immediately preceding
five-year period brought to the attention of any of the
Company's or the Subsidiary's management any "weakness," as
defined in Statement of Auditing Standard No. 60
"Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's or the
Subsidiary's internal controls;
vii) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect
to certain pro forma financial information which is included
in the Registration Statement and the Prospectus and that
nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro
forma financial information does not comply in form in all
respects with the applicable accounting requirements of Item
301 of Regulation S-B or that the pro forma adjustments have
not been properly applied to the historical amounts in the
compilation of that information; and
viii) statements as to such other matters incident to the
transaction contemplated hereby as the Representative may
request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from Farber, Blicht & Eyerman, L.L.P. a letter,
dated as of the Closing Date or such Option Closing Date, as the case may be, to
the effect that they reaffirm that the statements made in the letter furnished
pursuant to subsection (j) of this Section, except that the specified date
referred to therein as of which the examination made by them as described
therein shall have been made shall be a date not more that five days prior to
Closing Date or such Option Closing Date, as the case may be, and if the Company
has elected to rely on Rule 430A of the Rules and Regulations, to the further
effect that they have carried out procedures as specified in clause (v) of
subsection (j) of this Section with respect to certain amounts, percentages and
financial information as specified by the
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<PAGE>
Representative and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (v).
(l) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Representative for its account and
the several Underwriters' accounts, certificates representing the appropriate
numbers and types of Representative's Securities and Securities, as the case may
be, against payment therefor as provided herein.
(m) No order suspending the sale of the Securities or the
Representative's Securities in any jurisdiction designated by the Representative
pursuant to subsection (e) of Section 4 hereof shall have been issued on either
the Closing Date or the Option Closing Date, if any, and no proceedings for that
purpose shall have been instituted or shall be contemplated.
(n) On or before the Closing Date, the Company shall have executed and
delivered to the Representative, (i) the Representative's Warrant Agreement, in
the form attached hereto as Exhibit A, and (ii) the Representative's Warrants,
in such denominations and to such designees (who must be officers of the
Representative) as shall have been requested by the Representative.
(o) On or before Closing Date, the Common Stock shall have been duly
approved for quotation on the Nasdaq SmallCap Market, subject to official notice
of issuance.
(p) On or before Closing Date, there shall have been delivered to the
Representative all of the Lock-Up Agreements, in form and substance satisfactory
to Underwriters' Counsel.
If any representation or warranty of the Company herein shall not be
true and correct, or if any other material condition to the Underwriters'
obligations hereunder to be fulfilled prior to or at the Closing Date or the
relevant Option Closing Date, as the case may be, is not so fulfilled, the
Representative may terminate this Agreement or, if the Representative so elects,
it may waive any such conditions that have not been fulfilled or extend the time
for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7, "Underwriter" shall include the
officers, directors, stockholders, partners, employees, agents, and counsel of
each Underwriter, including specifically each person who may be substituted for
an Underwriter as provided in Section 11 hereof), and each person, if any, who
controls such Underwriter (each, a "controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any
and all losses, claims, damages, expenses, or liabilities, joint or several (and
actions, proceedings, investigations and inquiries in respect thereof),
whatsoever (including but not limited to any and all expenses whatsoever
incurred in investigating, preparing or defending against any litigation
commenced or threatened, or any claim whatsoever) (collectively, "Losses"), as
such are incurred, to which the Underwriter or such
33
<PAGE>
controlling person may become subject under the Act, the Exchange Act, or any
other statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in any Preliminary Prospectus, the
Registration Statement, or the Prospectus (as from time to time amended and
supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement or prospectus in which is included securities of the
Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this Section
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, or the Nasdaq Stock Market, or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made
exclusively in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement, or Prospectus, or any amendment thereof or supplement thereto, or in
any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability that the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, and each other person, if
any, who controls the Company within the meaning of the Act, to the same extent
as the foregoing indemnity from the Company to the Underwriters, but only with
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement, or Prospectus or any amendment thereof or supplement
thereto or in any application, in reliance upon, and in strict conformity with,
written information furnished to the Company with respect to any Underwriter by
such Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement, or Prospectus or any amendment thereof or supplement
thereto or in any such application, provided that such written information or
omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement, or Prospectus directly relating to the transactions
effected by the Underwriters in connection with this offering. The Company
acknowledges that the statements with respect to the public offering of the
Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus or the Registration
Statement.
The indemnity agreement in this subsection (b) shall be in addition to
any liability that the several Underwriters may have at common law or otherwise.
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<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section, except to the extent that it has
been prejudiced in any material respect by such failure or from any liability
that it may have otherwise). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable period of time after notice of commencement of the
action, (iii) such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them that are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties) or (iv)
counsel to the indemnifying parties shall have concluded that a conflict exists
between the indemnified party or parties and the indemnifying parties, in any of
which events such fees and expenses of additional counsel shall be borne by the
indemnifying parties. Anything in this Section to the contrary notwithstanding,
an indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent unless such consent was unreasonably
withheld or delayed.
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes a claim for indemnification pursuant to
this Section, but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case, notwithstanding the fact that the express
provisions of this Section provide for indemnification in such case, or (ii)
contribution under the Act may be required on the part of any indemnified party,
then each indemnifying party shall contribute to the amount paid as a result of
such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) (A) in such proportion as is appropriate to reflect the relative
benefits received by each of the contributing parties, on the one hand, and the
party to be indemnified on the other hand, from the offering of the Securities,
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such Losses, as well as any other relevant equitable
considerations. In any case where the Company
35
<PAGE>
is a contributing party and the Underwriters are the indemnified parties, the
relative benefits received by the Company on the one hand, and the Underwriters,
on the other, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses) bear to
the total underwriting discounts received by the Underwriters hereunder, in each
case as set forth in the table on the cover page of the Prospectus. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriters, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
Losses (or actions in respect thereof) referred to above in this subdivision (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subdivision (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section, each person, if any, who controls the Company within the meaning of the
Act, each officer of the Company who has signed the Registration Statement, and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to this subparagraph (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subparagraph (d), or to
the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to any
liabilities that any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Company submitted
pursuant hereto, shall be deemed to be representations, warranties and
agreements at the Closing Date and the applicable Option Closing Date, as the
case may be, and such representations, warranties and agreements of the Company
and the respective indemnity agreements contained in Section 7 hereof, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any Underwriter, the Company, or any controlling person
of any Underwriter or the Company, and shall survive termination of this
Agreement and the issuance and delivery of the Securities to the Underwriters
and the Representative's Securities to the Representative, as the case may be.
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<PAGE>
9. Effective Date.
This Agreement shall become effective at 10:00 a.m., New York City
time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for the sale to
the public; provided, however, that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such Securities for offering or the release by the
Representative for publication of the first newspaper advertisement that is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section, the Representative shall
have the right to terminate this Agreement by providing written notice thereof
to the Company at any time prior to the delivery of any payment for the
Securities if prior to such time any of the following occurs: (i) any domestic
or international event or act or occurrence has disrupted, or in the
Representative's opinion will in the immediate future disrupt, the financial
markets; or (ii) any material adverse change in the financial markets shall have
occurred; or (iii) trading on the New York Stock Exchange, the American Stock
Exchange or in the over-the-counter market shall have been suspended, or minimum
or maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required on the over-the-counter market by
the NASD or by order of the Commission or any other governmental or regulatory
authority having jurisdiction; or (iv) the United States shall have become
involved in a war or major hostilities, or there shall have been an escalation
in an existing war or major hostilities or a national emergency shall have been
declared in the United States; or (v) a banking moratorium shall have been
declared by a state or federal governmental or regulatory authority; or (vi) a
moratorium in foreign exchange trading shall have been declared; or (vii) the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
delivery of the Securities; or (viii) there shall have been a Material Adverse
Effect, or such material adverse change in the general market, political or
economic conditions, in the United States or elsewhere, as in the
Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities; or (ix) if _____________ no
longer serves the Company in his/her present capacity.
(b) If this Agreement is terminated by the Representative in accordance
with the provisions of Section 10(a), the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(b) above). Notwithstanding any
contrary provision contained in this Agreement, if this Agreement shall not be
carried out within the time specified herein, or any extension thereof granted
to the Representative,
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by reason of any failure on the part of the Company to perform any undertaking
or satisfy any condition of this Agreement by it to be performed or satisfied
(including, without limitation, pursuant to Section 6 or Section 12 hereof) then
the Company shall promptly reimburse and indemnify the Representative for all of
its actual out-of-pocket expenses, including the fees and disbursements of
counsel for the Underwriters (less amounts previously paid pursuant to Section
5(b) above). In addition, the Company shall remain liable for all Blue Sky
counsel fees and expenses and Blue Sky filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement and whether or not this Agreement is otherwise carried out,
the provisions of Section 5 and Section 7 shall not be in any way affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
11. Substitution of the Underwriters.
If one or more of the Underwriters shall fail (otherwise than for a
reason sufficient to justify the termination of this Agreement under the
provisions of Section 6, Section 10 or Section 12 hereof) to purchase the
Securities which it or they are obligated to purchase on such date under this
Agreement (the "Defaulted Securities"), the Representative shall have the right,
within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representative shall not
have completed such arrangements within such 24-hour period, then:
(a) If the anticipated net proceeds to the Company from the
Defaulted Securities does not exceed 10% of the total anticipated net
proceeds to the Company from the Firm Securities to be purchased on
such date, the non-defaulting Underwriters shall be obligated to
purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the anticipated net proceeds to the Company from the
Defaulted Securities exceeds 10% of the total anticipated net proceeds
to the Company from the Firm Securities to be purchased on such date,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriters or the Company.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default that does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
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12. Default by the Company.
If the Company shall fail at the Closing Date or any Option Closing
Date, as applicable, to sell and deliver the respective numbers and types of
Securities that it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option Securities
from the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Sections 5, 7 and 10 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
13. Notices.
All notices and communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given if mailed by certified or registered mail, return receipt requested, sent
via an established, reputable overnight courier service, or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be
directed to the Representative at 200 Garden City Plaza, Suite 518, Garden City,
New York 11530, Attn: ____________ with a copy to Rubin Baum Levin Constant
Friedman & Bilzin, 200 South Biscayne Boulevard, Suite 2500, Miami, Florida
33131, Attn: Harold E. Berritt, Esq. Notices to the Company shall be directed to
U.S. Golf and Entertainment Inc., 4 Henry Street, Commack, New York 11725, Attn:
Edward C. Ross, Chairman, with a copy to Ruskin Moscou Evans & Faltischek, P.C.,
170 Old Country Road, Mineola, New York 11501, Attn: Norman M. Friedland, Esq.
14. Parties.
This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 6 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
15. Construction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to its
choice of law or conflict of laws principles.
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16. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which taken together shall
be deemed to be one and the same instrument.
17. Entire Agreement; Amendments.
This Agreement and the Representative's Warrant Agreement constitute
the entire agreement of the parties hereto and supersede all prior written or
oral agreements, understandings, and negotiations with respect to the subject
matter hereof, including without limitation a letter of intent dated
___________________. This Agreement may not be amended except in a writing
signed by the Representative and the Company.
18. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement. The parties agree, however, that in the event any
provision of this Agreement shall be declared invalid or unenforceable, the
parties shall negotiate a new provision achieving to the extent possible the
purpose of the invalid provision.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Company and each of the several Underwriters.
Very truly yours,
U.S. GOLF AND ENTERTAINMENT INC.
By__________________________________
Name:
Title:
Confirmed and accepted as
of the date first above
written:
FIRST UNITED EQUITIES CORPORATION
For itself and as Representative
of the several Underwriters listed
in the attached Schedule A
By_______________________________
Name:
Title:
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SCHEDULE A
Number of Firm
Securities to
Name of Underwriter Be Purchased
TOTAL
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U.S. GOLF AND ENTERTAINMENT INC.
AND
FIRST UNITED EQUITIES CORPORATION
-----------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of _______________
-----------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT, dated as of __________, 199_ (this
"Agreement"), between U.S. GOLF AND ENTERTAINMENT INC., a Delaware corporation
(the "Company"), and FIRST UNITED EQUITIES CORPORATION (the "Representative").
W I T N E S E T H:
WHEREAS, the Company proposes to issue to the Representative 110,000
warrants ("Representative's Warrants"), each Representative's Warrant entitling
the registered holder thereof to purchase one share of common stock, $0.001 par
value, of the Company ("Common Stock"); and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement"), dated ____________, 199_, between the
Representative and the Company to act as the representative of the Underwriters
listed in the Underwriting Agreement (the "Underwriters") in connection with the
Company's proposed public offering of 1,100,000 shares of Common Stock at a
public offering price of $5.00 per share; and
WHEREAS, the Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-4873) (the "Registration
Statement"), for the registration of the Common Stock to be sold as part of the
Public Offering, the Representative's Warrants and the Common Stock issuable
upon exercise of the Representative's Warrants under the Securities Act of 1933,
as amended (the "Securities Act"). Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the time
such registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including without limitation those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) under the Securities Act), is hereinafter called the "Registration
Statement"; and
WHEREAS, the Representative's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Representative in consideration
for, and as part of the Representative's compensation in connection with the
Representative acting as the Representative pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate of One Hundred Ten Dollars ($110),
the agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Grant. The Holder (as defined in Section 3.1 below) is hereby
granted 110,000 Representative's Warrants, each Representative's Warrant
entitling the Holder the right to purchase,
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at any time from __________, 199_ until 5:00 P.M., New York time, on __________,
200_ (the "Exercise Period"), one share of Common Stock at an initial exercise
price of $6.50 per share of Common Stock (subject to adjustment as provided in
Section 8 hereof), subject to the terms and conditions of this Agreement. Except
as expressly set forth herein, the shares of Common Stock issuable upon exercise
of the Representative's Warrants are in all respects identical to the shares of
Common Stock being purchased by the Underwriters for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates evidencing the
Representative's Warrants (the "Warrant Certificates") delivered pursuant to
this Agreement shall be in the form set forth in Exhibit A attached hereto and
made a part hereof, with such appropriate insertions, omissions, substitutions
and other variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Representative's Warrants initially are
exercisable during the Exercise Period at an initial exercise price (subject to
adjustment as provided in Section 8 hereof) per share of Common Stock set forth
in Section 6 hereof, payable to the Company by certified or official bank check
in New York Clearing House funds. Upon surrender during the Exercise Period of a
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased, at the Company's principal offices in the
United States (presently located at 4 Henry Street, Commack, New York 11725) the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased. The purchase rights represented by each Warrant Certificate are
exercisable, at the option of the Holder thereof, in whole or in part (but not
as to fractional shares of the Common Stock). In the case of the purchase of
less than all the shares of Common Stock under any Warrant Certificate (whether
pursuant to this Section 3.1 or Section 3.2 hereof), the Company shall cancel
such Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock purchasable thereunder.
3.2 Exercise by Surrender of Representative's Warrant. In addition to
the method of payment set forth in Section 3.1 hereof and in lieu of any cash
payment required thereunder, the Holder(s) of the Representative's Warrants
shall have the right at any time and from time to time to exercise the
Representative's Warrants in full or in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 hereof in exchange for the
number of shares of Common Stock equal to the product of (x) the number of
shares of Common Stock as to which the Representative's Warrants are being
exercised, multiplied by (y) a fraction, the numerator of which is the Market
Price (as defined below) of the Common Stock less the Exercise Price therefor,
and the denominator of which is such Market Price. Solely for the purposes of
this paragraph, Market Price of each security shall be calculated either (i) on
the date on which the form of election attached hereto is deemed to have been
sent to the Company pursuant to Section 13 hereof (the "Notice Date") or (ii)
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<PAGE>
as the average of the Market Prices for such security for each of the five
trading days immediately preceding the Notice Date, whichever of (i) or (ii) is
greater.
3.3 Definition of Market Price. As used herein with respect to the
Common Stock, the phrase "Market Price" at any date shall be deemed to be the
last reported sale price of the Common Stock, or if no such reported sale takes
place on such day, the average of the last reported sale prices for the last
three (3) trading days, in either case as officially reported by the principal
securities exchange on which the Common Stock is listed or admitted to trading
or by NASDAQ, or if such security is not listed or admitted to trading on any
such securities exchange or quoted by NASDAQ, the average closing bid price as
furnished by the National Quotation Bureau or a similar organization if NASDAQ
is no longer reporting such information, or if such information is no longer
being provided with respect to the Common Stock, then as determined in good
faith by written resolution of the Board of Directors of the Company, based on
the best information available to it.
4. Issuance of Certificates. Upon the exercise of the Representative's
Warrants, the issuance of certificates for shares of Common Stock or other
securities, property or rights underlying such Representative's Warrants, shall
be made forthwith (and in any event within three (3) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax that
may be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Sections 5 and 7 hereof) be issued in the name of,
or in such names as may be directed by, the Holder thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock (and other securities, property or rights issuable upon the
exercise of the Representative's Warrants) shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. Warrant Certificates and certificates representing the shares of
Common Stock shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Representative's Warrants. The Holder of
a Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Representative's Warrants are being acquired as an investment and not with a
view to the distribution thereof; that the Representative's Warrants may not be
sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or
in part, for a period of one (1) year after the date hereof, except to (i)
officers (who are also stockholders or employees) of the Representative; (ii)
any successor firm or
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<PAGE>
corporation of the Representative; or (iii) in the case of an individual,
pursuant to such individual's last will and testament or the laws of descent and
distribution.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Representative's Warrant
shall be $6.50 per share of Common Stock purchased thereunder. The adjusted
exercise price of the Common Stock shall be the price that results from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
(a) The Representative's Warrants have been registered under the
Securities Act. If the registration statement under which the shares of Common
Stock underlying the Representative's Warrants and any of the other securities
issued or issuable upon exercise of the Representative's Warrants (collectively,
the "Warrant Securities") are registered ceases to be effective or the
prospectus contained in such registration statement ceases to be current, then
upon exercise, in part or in whole, the Warrant Securities shall bear the
following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), and
may not be offered or sold except pursuant to (i) an effective
registration statement under the Securities Act, (ii) to the extent
applicable, Rule 144 under the Securities Act (or any similar rule
under such Securities Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Securities Act is available.
(b) The Company shall use its best efforts to keep current the
Registration Statement covering the Warrant Securities for so long as any
Representative's Warrants shall remain outstanding. In furtherance of and
without limiting the foregoing, the Company shall prepare and file with the
Commission such post-effective amendment or amendments to the Registration
Statement as may be necessary, in the opinion of counsel to the Representative
or the Holders, so as to permit a public offering and sale of the Warrant
Securities by the Representative and any other Holders of such securities and
use its best efforts to cause such post-effective amendment or amendments to
become effective on or prior to the time that the Representative's Warrants
first become exercisable and shall prepare and file with the Commission such
amendments and supplements to the Registration Statement, as so amended, and the
prospectus used in connection
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<PAGE>
therewith, as may be necessary to keep the Registration Statement, as so
amended, effective and the prospectus contained therein current, and to comply
with the provisions of the Securities Act with respect to the disposition of all
Warrant Securities covered by such registration statement, for the period
referred to in the immediately preceding sentence.
7.2 Piggyback Registration. Without limitation to Section 7.1(b) above,
if at any time during the five (5) year period following the date hereof the
Company proposes to register any of its securities under the Securities Act
(other than in connection with a merger or acquisition registered on Form S-4
(or a similar special-purpose form) or with an employee benefit plan or similar
plan registered on Form S-8 (or a similar special purpose form) or any dividend
reinvestment plan), it will give written notice by registered mail, at least 30
days prior to the filing of each such registration statement, to the
Representative and to all other Holders of Representative's Warrants and/or
other Warrant Securities of its intention to do so. If the Representative or
other Holders of Representative's Warrants and/or other Warrant Securities
notify the Company within 15 days after receipt of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Representative and such Holders
of the Representative's Warrants and/or other Warrant Securities the opportunity
to have any such Warrant Securities registered under such registration
statement.
7.3 Demand Registration. Without limitation to Section 7.1(b) above:
(a) At any time, the Holders of the Representative's Warrants and/or
other Warrant Securities representing a "Majority" (as hereinafter defined) of
such securities shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Representative and Holders, in order to comply with the
provisions of the Securities Act, so as to permit a public offering and sale of
their respective Warrant Securities for nine (9) consecutive months (or such
shorter period which shall terminate when all of the Warrant Securities covered
by such registration statement have been sold pursuant thereto) by such Holders
and any other Holders of the Representative's Warrants and/or other Warrant
Securities who notify the Company within 10 days after receiving notice from the
Company of such request; provided, however, that, the Company shall not be
obligated to file any such registration statement pursuant to this Section
7.3(a) so long as the Registration Statement (as it may hereafter be amended)
remains effective and the prospectus contained therein remains current, provided
such Registration Statement (as it may hereafter be amended) covers the public
offering and sale of all of the Warrant Securities by the Representative and the
other Holders, if any, of the Representative's Warrants and/or other Warrant
Securities.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of Representative's Warrants and/or other Warrant
Securities within 10 days from the date of the receipt of any such registration
request.
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(c) In addition to the registration rights under Section 7.2 hereof and
subsection (a) of this Section 7.3, at any time, any Holders of Representative's
Warrants and/or other Warrant Securities representing a Majority of such
securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months (or such shorter period which shall terminate when all of the
Warrant Securities covered by such registration statement have been sold
pursuant thereto) by any such Holder of its Warrant Securities; provided,
however, that the provisions of Section 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within 45 days of receipt of any demand therefor, shall use its best
efforts to have any registration statements declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Warrant Securities
such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses and blue sky fees and expenses. The
Holder(s) shall pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(c) hereof. If the Company
shall fail to comply with its obligations under Section 7.4(a), the Holder(s)
shall be entitled to seek equitable or other relief available to the Holder(s).
(c) The Company shall take all necessary action that may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify and hold harmless the Holder(s) of the
Warrant Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holder(s) within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever including,
without limitation, the fees and expenses of legal counsel) to which any of them
may become subject under the Securities Act, the Exchange Act or otherwise,
arising from such registration statement, but only to the same extent and
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<PAGE>
with the same effect as the provisions contained in Section 7(a) of the
Underwriting Agreement pursuant to which the Company has agreed to indemnify
each of the Underwriters.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company and its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, from and against any and
all loss, claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever
including, without limitation, the fees and expenses of legal counsel) to which
they may become subject under the Securities Act, the Exchange Act or otherwise,
arising from information furnished in writing by or on behalf of such Holders or
their successors or assigns, specifically for inclusion in such registration
statement, but only to the same extent and with the same effect as the provision
pursuant to which the Underwriters have agreed to indemnify the Company
contained in Section 7(b) of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Representative's Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof or permit any other registration statement to be
or remain effective during the effectiveness of the registration statement filed
pursuant to Section 7.3 hereof without the prior written consent of the Holders
of the Representative's Warrants and the other Warrant Securities representing a
Majority of such securities.
(h) The Company shall cause to be furnished to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(or if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holders" (within the meaning of Rule
158 under the Securities Act) an earnings statement (which
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need not be audited) complying with Section 11(a) of the Securities Act and
covering a period of at least 12 consecutive months beginning after the
effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing underwriters, copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) With respect to a registration under Section 7.3 hereof, the
Company shall enter into an underwriting agreement with the underwriters
selected for such underwriting by the Holders of a Majority of the Warrant
Securities requesting such registration, which may be the Representative. Such
agreement shall be reasonably satisfactory in form and substance to the Company,
each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms
and conditions as are customarily contained in agreements of the type used by
the managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Securities and may,
at their option, require that any or all the representations, warranties and
covenants of the Company to or for the benefit of such underwriters shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and their
intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) or issuable
upon conversion or exercise or in exchange for securities held by such Holder(s)
as of the date of filing of such registration statement.
(m) For purposes of this Agreement, the term "Majority" or "66-2/3%" in
reference to the Holders of Representative's Warrants and/or other Warrant
Securities, shall mean in excess of 50%, in the former case, and 66-2/3%, in the
latter case, of the shares of Common Stock issued or issuable upon exercise of
all then outstanding Representative's Warrants and/or Warrant Securities
(assuming the exercise of all of the Representative's Warrants) that (i) are not
held by the Company, an affiliate, officer, creditor, employee, or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith, and (ii) have not been resold to the
public.
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7.5 Underwriters. In connection with an underwritten offering pursuant
to Section 7.2, the Company shall (together with all Holders, directors,
officers and other stockholders proposing to distribute their securities (the
"Other Stockholders")) enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected for such
underwriting by a majority in interest of the Holders and reasonably acceptable
to the Company. If the managing underwriter of such underwritten offering
advises the Company, the Holders and the Other Stockholders in writing that the
inclusion of the Warrant Securities would materially adversely effect the
proposed offering, the number of securities that may be included in such a
registration shall be allocated among all security holders who wish to include
their securities in such registration in proportion, as nearly as practicable,
to the respective amounts of securities which would otherwise be included in
such registration held by such security holders at the time of the filing of the
related registration statement.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of a subdivision or
increased in the case of a combination.
8.2 Stock Dividends and Distributions. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased. An adjustment made pursuant
to this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price per shares of Common Stock purchasable hereunder pursuant to the
provisions of this Section 8, the respective numbers of shares of Common Stock
issuable upon the exercise of each Representative's Warrant shall be adjusted to
the nearest full amount by multiplying a number equal to the Exercise Price per
share of Common Stock purchasable hereunder in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon exercise of the
Representative's Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price per share of Common Stock
purchasable hereunder.
8.4 Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as may be amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such shares of Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the share of Common Stock
outstanding as of the date hereof, a Holder, at its option, may receive upon
exercise of any Representative's Warrant either shares of Common Stock or a like
number of such securities with greater or superior voting rights.
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8.5 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger that does not result
in any reclassification or change of the outstanding share of Common Stock), the
corporation formed by such consolidation or surviving such merger shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
Holder of each Representative's Warrant outstanding immediately prior to the
effective time of such consolidation or merger shall have the right thereafter
(until the expiration of such Representative's Warrant) to receive, upon
exercise of such Representative's Warrant, the kind and amount of shares of
stock and other securities and property receivable upon such consolidation or
merger, by a Holder of the number of shares of Common Stock of the Company for
which such Representative's Warrant might have been exercised immediately prior
to such consolidation or merger. Such supplemental warrant agreement shall
provide for adjustments that shall be identical to the adjustments provided in
Section 8. The above provision of this subsection shall similarly apply to
successive consolidations or mergers.
8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of
the Exercise Price shall be made:
(a) Upon the issuance or sale of shares of Common Stock sold in
connection with the public offering and shares of Common Stock issued and sold
upon exercise of the Representative's Warrants;
(b) Upon the issuance or sale of shares of Common Stock issuable upon
the exercise or conversion of any security issued and outstanding on the date
hereof; or
(c) If the amount of said adjustment shall be less than two cents
($.02) per Warrant Security, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
two cents ($.02) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate or Warrant Certificates of like tenor and date representing
in the aggregate the right to purchase the same number of shares of Common Stock
in such denominations as shall be designated by the Holder thereof at the time
of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Representative's
10
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Warrants, if mutilated, the Company shall execute and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Representative's Warrants, but instead shall pay cash
in lieu of fractional interests, based on the market value of a share of Common
Stock.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Representative's
Warrants, such number of shares of Common Stock or other securities, property or
rights as shall be issuable upon the exercise thereof. The Company covenants and
agrees that, upon exercise of the Representative's Warrants in the manner
provided herein and therein and payment of the Exercise Price herein and/or the
exercise price therein, as the case may be, all shares of Common Stock and other
securities issuable upon the exercise of the Representative's Warrants shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder or other person or entity. As long as the
Representative's Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Representative's Warrants to be listed (subject to official notice of issuance)
on all securities exchanges and/or quoted in such inter-dealer quotation systems
on which the Common Stock issued to the public in connection with the Public
Offering may then be listed and/or quoted.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Representative's Warrants and their exercise, any
of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of earned surplus,
as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
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(c) a dissolution, liquidation or winding-up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least 15 days prior to the date fixed as a record date or the
date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding-up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding-up or
sale.
13. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of Representative's Warrants,
to the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
14. Supplements and Amendments. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein that may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and that the Company and
the Representative deem shall not adversely affect the interests of the Holders
of Warrant Certificates; provided, however, that this Agreement shall not
otherwise be modified, supplemented or altered in any respect (including,
without limitation, any decrease in the number or any change in the nature of
the securities purchasable upon the exercise of any Representative's Warrant, or
any increase in the Exercise Price therefor, other than such changes as are
prescribed in this Agreement as originally executed) except with the consent in
writing of the registered Holders representing no less than 66- 2/3% of the
Warrant Securities (as defined in Section 7.4(m) hereof).
15. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
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16. Termination. This Agreement shall terminate at 5:00 p.m. New York
time on the close of business on _____________, 200_. Notwithstanding the
foregoing, the indemnification provisions of Section 7 hereof shall survive such
termination until the close of business on __________, 200_.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company and the Representative hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or of the United States of America for the Eastern District of New York, and
irrevocably submit to such jurisdiction, which jurisdiction shall be exclusive.
The Company and the Representative hereby irrevocably waive any objection to
such exclusive jurisdiction or inconvenient forum.
Any such process or summons to be served upon the Company or the
Representative (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 13 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company and the Representative agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except as provided in
Section 15 hereof.
19. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement. The parties agree, however, that
in the event any provision of this Agreement shall be declared invalid or
unenforceable, the parties shall negotiate a new provision achieving to the
extent possible the purpose of the invalid provision.
20. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered
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<PAGE>
Holder(s) of the Warrant Certificates or Warrant Securities any legal or
equitable right, remedy or claim under this Agreement.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
U.S. GOLF AND ENTERTAINMENT INC.
By:______________________________
Name:
Title:
FIRST UNITED EQUITIES CORPORATION
By:______________________________
Name:
Title:
[SEAL]
Attest:
- ------------------------------
Secretary
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<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE SECURITIES
ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (III) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER
SUCH SECURITIES ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, __________, 200_
(SUBJECT TO EXTENSION AS DESCRIBED HEREIN)
No. W- 110,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that First United Equities
Corporation or registered assigns, is the registered holder of __________
warrants (collectively, the "Representative's Warrants") to purchase initially,
at any time from ___________, 199_ until 5:00 p.m. New York time on
_______________, 200_ (__ ______________________________________________) (the
"Expiration Date"), up to 110,000 fully-paid and non-assessable shares of common
stock, $0.001 par value ("Common Stock"), of U.S. Golf and Entertainment Inc., a
Delaware corporation (the "Company"), upon surrender of this Warrant Certificate
and payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein and in the Representative's Warrant
Agreement dated as of __________, 199_ between the Company and First United
Equities Corporation (the "Warrant Agreement"). Payment of the Exercise Price
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company or by surrender of this Warrant
Certificate in the manner provided in the Warrant Agreement.
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<PAGE>
No Representative's Warrant may be exercised after 5:00 p.m., New
York time, on the Expiration Date, at which time all Representative's Warrants
evidenced hereby, unless exercised prior thereto, shall thereafter be void.
The Representative's Warrants evidenced by this Warrant
Certificate are part of a duly authorized issue of Representative's Warrants
issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Representative's Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable hereunder may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the
Representative's Warrants; provided, however, that the failure of the holder to
request or the Company to issue such new Warrant Certificates shall not in any
way change, alter, or otherwise impair, the rights of the holder as set forth in
the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Representative's Warrants shall be issued to the transferee(s) in exchange
for this Warrant Certificate, subject to the limitations provided herein and in
the Warrant Agreement, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Representative's
Warrants evidenced by this Certificate, the Company shall forthwith issue to the
holder hereof a new Warrant Certificate representing such number of unexercised
Representative's Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement unless otherwise defined herein.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ____________________, 199_
[SEAL]
U.S. GOLF AND ENTERTAINMENT INC.
By:
---------------------------------
Name:
Title:
Attest:
- ------------------------------
Secretary
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<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________________
shares of Common Stock and herewith tenders in payment for such securities a
certified or official bank check payable in New York Clearing House Funds to the
order of U.S. GOLF AND ENTERTAINMENT INC. (the "Company") in the amount of
$________________, all in accordance with the terms of Section 3.1 of the
Representative's Warrant Agreement dated as of ____________________, 199_
between the Company and FIRST UNITED EQUITIES CORPORATION. The undersigned
requests that a certificate or certificates for such securities be registered in
the name of ____________________ whose address is ____________ and whose social
security or taxpayer identification number is
____________________________________________ and that such certificate or
certificates be delivered to ________________________ whose address is
_______________________.
Dated: Signature _________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-----------------------------------------
(Insert Social Security or Other Identifying Number
of Holder)
18
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________________
shares of Common Stock in accordance with the terms of Section 3.2 of the
Representative's Warrant Agreement dated as of ____________________, 199_
between U.S. GOLF AND ENTERTAINMENT INC. and FIRST UNITED EQUITIES CORPORATION.
The undersigned requests that a certificate or certificates for such securities
be registered in the name of________________________ whose address is
_________________________________ and whose social security or taxpayer
identification number is __________________________, and that such certificate
or certificates be delivered to ________________________, whose address is
_______________________.
Dated: Signature _________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-------------------------------------------
(Insert Social Security or Other Identifying Number
of Holder)
19
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED __________________________ hereby sells,
assigns and transfers unto
- ----------------------------------------------------------------
(Please print name and address of transferee)
______________________________ Representative's Warrants represented by this
Warrant Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _________________________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: Signature _________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-----------------------------------------
(Insert Social Security or Other Identifying Number
of Assignee)
20
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U.S. GOLF AND ENTERTAINMENT INC.
1996 STOCK OPTION PLAN
1. Purpose of the Plan. The purposes of this 1996 Stock Option
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions
shall apply:
(a) "Administrator" means the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the
Company.
(c) "Code" means the Internal Revenue Code of 1986,
as amended.
(d) "Committee" means the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the
Company.
(f) "Company" means U.S. Golf and Entertainment
Inc., a Delaware corporation.
(g) "Consultant" means any person, including an
advisor, who is engaged by the Company or any Parent or Subsidiary to render
services and is compensated for such services, and any director of the Company
whether compensated for such services or not, provided that if and in the event
the Company registers any class of any equity security pursuant to the Exchange
Act, the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant"
means the absence of any interruption or termination of service as an Employee
or Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or their respective successors. For
purposes of this Plan, a change in status from an Employee to a Consultant or
from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
(i) "Employee" means any person, including officers
and directors, employed by the Company or any Parent or Subsidiary of the
Company, with the status of employment determined
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based upon such minimum number of hours or periods worked as shall be determined
by the Administrator in its discretion, subject to any requirements of the Code.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(j) "Exchange Act" means the securities Exchange Act
of 1934, as amended.
(k) "Fair Market Value" means, as of any date, the
fair market value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system including, without
limitation, the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock for the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the
Nasdaq System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock for the last market trading day prior to the time of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established
market for the Common Stock, the Fair Market Value thereof shall be determined
in good faith by the Administrator.
(l) "Incentive Stock Option"means an Option intended
to qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(m) "Nonstatutory Stock Option"means an Option not
intended to qualify as an Incentive Stock Option, as designated in the
applicable written option agreement.
(n) "Option" means a stock option granted pursuant
to the Plan.
(o) "Optioned Stock" means the Common Stock subject
to an Option.
(p) "Optionee" means an Employee or Consultant who
receives an Option.
(q) "Parent" means a "parent corporation", whether
now or hereafter existing, as defined in Section 424(e) of the Code, or any
successor provision.
(r) "Plan" means this 1996 Stock Option Plan.
(s) "Reporting Person" means an officer, director or
greater than ten percent stockholder of the Company within the meaning of Rule
16a-2 under the Exchange Act, who is required to file reports pursuant to Rule
16a-3 under the Exchange Act.
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<PAGE>
(t) "Rule 16b-3" means Rule 16b-3 promulgated under
the Exchange Act, as the same may be amended from time to time, or any successor
provision.
(u) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 12 of the Plan.
(v) "Stock Exchange" means any stock exchange or
consolidated stock price reporting system on which prices for the Common Stock
are quoted at any given time.
(w) "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code, or
any successor provision.
3. Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of Shares that may be
optioned and sold under the Plan is 900,000 shares of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased Shares that were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock which are retained by the Company upon
exercise of an Option in order to satisfy the exercise or purchase price for
such Option or any withholding taxes due with respect to such exercise shall be
treated as not issued and shall continue to be available under the Plan.
4. Administration of the Plan.
(a) Plan Procedure. The Plan shall be administered
by the Board or a committee appointed by the Board, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(b) Powers of the Administrator. Subject to the
provisions of the Plan and in case of a Committee, the specific duties delegated
by the Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any Stock Exchange, the
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of
the Common Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees
to whom Options may from time to time be granted hereunder;
(iii) to determine whether and to what
extent Options are granted hereunder;
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<PAGE>
(iv) to determine the number of shares of
Common Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use
under the Plan;
(vi) to determine the terms and conditions,
not inconsistent with the terms of the Plan, of any award granted hereunder,
(vii) to determine whether and under what
circumstances an Option may be settled in cash under Section 9(f) instead of
Common Stock;
(viii) to reduce the exercise price of any
Option to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option shall have declined since the date the
Option was granted;
(ix) to construe and interpret the terms of
the Plan and awards granted pursuant to the Plan;
(x) in order to fulfill the purposes of the
Plan and without amending the Plan, to modify grants of Options to participants
who are foreign nationals or employed outside of the United States in order to
recognize differences in local law, tax policies or customs.
(c) Effect of Administrator's Decision. All
decisions, determinations and interpretations of the Administrator shall be
final and binding on all holders of Options.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options
may be granted to Employees and Consultants. Incentive Stock Options may be
granted only to Employees. An Employee or Consultant who has been granted an
Option may, if he or she is otherwise eligible, be granted additional Options.
(b) Type of Option. Each Option shall be designated
in the written option agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option. However, notwithstanding such designations, to the
extent that the aggregate Fair Market Value of Shares with respect to which
Options designated as Incentive Stock Options are exercisable for the first time
by any Optionee during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) The Plan shall not confer upon any Optionee any
right with respect to continuation of employment or consulting relationship with
the Company, nor shall it interfere in any way with such Optionee's right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
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6. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the stockholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that the term shall be no
more than ten (10) years from the date of grant thereof or such shorter term as
may be provided in the Option Agreement and provided further that, in the case
of an Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the written option agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is determined
by the Board and set forth in the applicable agreement, but shall be subject to
the following:
(i) In the case of an Incentive Stock Option
that is:
(A) granted to an Employee
who, at the time of the grant of such Incentive Stock Option, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of
grant.
(B) granted to any other
Employee, the per Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock
Option that is:
(A) granted to a person
who, at the time of the grant of such Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of the grant.
(B) granted to any person,
the per Share exercise price shall be no less than 85% of the Fair Market Value
per Share on the date of grant.
(b) The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock Option,
shall be determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value
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on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised, (6) assignment of the proceeds of a
sale or loan with respect to some or all of the Shares being acquired upon the
exercise of the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System) (a "Cashless
Exercise"), (7) by such other consideration as may be approved by the
Administrator from time to time, or (8) any combination of the foregoing methods
of payment. In making its determinations as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration may
be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise: Rights as a Stockholder.
Any Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, and reflected in the written
option agreement, which may include vesting requirements and/or performance
criteria with respect to the Company and/or the Optionee; provided that such
Option shall become exercisable at the rate of at least twenty percent (20%) per
year over five (5) years from the date of the Option is granted.
An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the Option and
the Company has received full payment for the Shares with respect to which the
Option is exercised. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall
result in a decrease in the number of Shares that thereafter may be available,
both for purposes of the Plan and for sales under the Option, by the number of
Shares as to which the Option is exercised.
(b) Termination of Employment of Consulting
Relationship. Subject to Section 9(c), in the event of termination of an
Optionee's Continuous Status as an Employee or Consultant with the Company, such
Optionee may, but only within three (3) months (or such other period of time not
less than thirty (30) days as is determined by the Administrator, which such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding three (3) months) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercises his or her Option to the
extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of such termination, or if Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate. No
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termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) Disability of Optionee.
(i) Notwithstanding Section 9(b) above, in
the event of ermination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (within the
meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(ii) In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of a
disability which does not fall within the meaning of total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six (6) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. However, to the extent that such
Optionee fails to exercise an Option which is an Incentive Stock Option ("ISO")
(within the meaning of Section 422 of the Code) within three (3) months of the
date of such termination, the Option will not qualify for ISO treatment under
the Code. To the extent that Optionee was not entitled to exercise the Option at
the date of termination, or if Optionee does not exercise such Option to the
extent so entitled within six (6) months from the date of termination, the
Option shall terminate.
(d) Death of Optionee. In the event of the death of
an Optionee during the period of Continuous Status as an Employee or Consultant,
or within thirty (30) days following the termination of the Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
the Optionee was entitled to exercise the Option at the date of death or, if
earlier, the date of termination of the Continuous Status as an Employee or
Consultant. To the extent that Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons
shall comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
for Plan transactions.
(f) Buyout Provisions. The Administrator may at any
time offer to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall establish
and communicate to the Optionee at the time that such offer is made.
10. Stock Withholding to Satisfy Withholding Tax Obligations.
At the discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When
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an Optionee incurs tax liability in connection with an Option, which tax
liability is subject to tax withholding under applicable tax laws, and the
Optionee is obligated to pay the Company an amount required to be withheld under
applicable tax laws, the Optionee may satisfy the withholding tax obligation by
one or some combination of the following methods: (a) by cash payment, or (b)
out of Optionee's current compensation, (c) if permitted by the Administrator,
in its discretion, by surrendering to the Company Shares that (i) in the case of
Shares previously acquired from the Company, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (ii) have a fair market
value on the date of surrender equal to or less than Optionee's marginal tax
rate times the ordinary income recognized, or (d) by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option that
number of Shares having a fair market value equal to the amount required to be
withheld. For this purpose, the fair market value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
Any surrender by a Reporting Person of previously
owned Shares to satisfy tax withholding obligations arising upon exercise of
this Option must comply with the applicable provisions of Rule 16b-3 and shall
be subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld
to satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the
applicable Tax Date;
(b) once made, the election shall be irrevocable as
to the particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator;
(d) if the Optionee is a Reporting Person, the
election must comply with the applicable provisions of Rule 16b-3 and shall be
subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
In the event the election to have Shares
withheld is made by an Optionee and the Tax Date is deferred under Section 83 of
the Code because no election is filed under Section 83(b) of the Code, the
Optionee shall receive the full number of Shares with respect to which the
Option is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
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11. Adjustments Upon Changes in Capitalization, Merger or
Certain Other Transactions.
(a) Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options have yet been granted or that have been returned to the Plan
upon cancellation or expiration of an Option as well as the price per share of
Common Stock covered by each such outstanding Option shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Board shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option will terminate immediately
prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a
proposed sale of all or substantially all of the Company's assets or a merger of
the Company with or into another corporation where the successor corporation
issues its securities to the Company's stockholders, each outstanding Option
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the Option or to
substitute an equivalent option, in which case such Option shall terminate upon
the consummation of the merger or sale of assets.
(d) Certain Distributions. In the event of any
distribution to the Company's stockholders of securities of any other entity or
other assets (other than dividends payable in cash or stock of the Company)
without receipt of consideration by the Company, the Administrator may, in its
discretion, appropriately adjust the price per share of Common Stock covered by
each outstanding Option to reflect the effect of such distribution.
12. Non-Transferability of Options. Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised or
purchased during the lifetime of the Optionee only by the Optionee.
13. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option or such other date as is determined by the
Board. Notice of the determination shall be given to each Employee or Consultant
to whom an Option is so granted within a reasonable time after the date of such
grant.
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14. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. The Board may
at any time amend, alter, suspend or discontinue the Plan, but no amendment,
alteration, suspension or discontinuation shall be made that would impair the
rights of any Optionee under any grant theretofore made, without his or her
consent. In addition, to the extent necessary or desirable to comply with Rule
16b-3 or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of any Stock Exchange), the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. No amendment
or termination of the Plan shall adversely affect Options already granted,
unless mutually agreed otherwise between the Optionee and the Board, which
agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any Stock Exchange. As a condition to the
exercise of an Option, the Company may require the person exercising such Option
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by law.
16. Reservation of Shares. The Company, during the term of
this Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written
agreements in such form as the Administrator shall approve from time to time.
18. Stockholder Approval. Continuance of the Plan shall be
subject to approval by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under applicable state and federal
law and the rules of any Stock Exchange upon which the Common Stock is listed.
All Options issued under the Plan shall become void in the event such approval
is not obtained.
19. Information to Optionees and Purchasers. The Company shall
provide financial statements at least annually to each Optionee and to each
individual who acquired Shares Pursuant to the Plan, during the period such
Optionee or purchaser has one or more Options outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
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FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of ____________, 199_,
between First United Equities Corporation ("First United") and U.S. Golf and
Entertainment Inc., a Delaware corporation, (the "Company").
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Company hereby engages First United for the term specified in
Paragraph 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters upon the
terms and conditions set forth herein.
2. Except as otherwise specified in Paragraph 7 hereof, this Agreement
shall be effective for a period of three years, commencing as of the
date hereof.
3. During the term of this Agreement, First United shall provide the
Company with such regular and customary consulting advice as is
reasonably requested by the Company, provided that First United shall
not be required to undertake duties not reasonably within the scope of
the financial advisory services contemplated by this Agreement. It is
understood and acknowledged by the parties that the value of First
United's advice is not readily quantifiable, and that First United
shall be obligated to render advice upon the request of the Company, in
good faith, but shall not be obligated to spend any specific amount of
time in so doing. First United's duties may include, but will not
necessarily be limited to, providing recommendations concerning the
following financial and related matters:
A. Disseminating information about the Company to the investment
community at large;
B. Rendering advice and assistance in connection with the
preparation of annual and interim reports and press releases;
C. Assisting in the Company's financial public relations;
D. Arranging, on behalf of the Company, at appropriate times,
meetings with securities analysts of major regional investment
banking firms;
E. Rendering advice with regard to internal operations,
including:
1. the formation of corporate goals and their
implementation;
2. the Company's financial structure and its divisions
or subsidiaries;
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3. securing, when and if necessary and possible,
additional financing through banks and/or insurance
companies; and
4. corporate organization and personnel; and
F. Rendering advice with regard to any of the following corporate
finance matters:
1. changes in the capitalization of the Company;
2. changes in the Company's corporate structure;
3. redistribution of shareholdings of the Company's
stock;
4. offerings of securities in public transactions;
5. sales of securities in private transactions;
6. alternative uses of corporate assets;
7. structure and use of debt; and
8. sales of stock by insiders pursuant to Rule 144
under the Securities Act of 1933, as amended, or
otherwise.
In addition to the foregoing, First United agrees to furnish advice to
the Company in connection with (i) the acquisition and/or merger of or
with other companies, divestiture or any other similar transaction, or
the sale of the Company itself (or any significant percentage, assets,
subsidiaries or affiliates thereof), and (ii) bank financings or any
other financing from financial institutions (including but not limited
to lines of credit, letters of credit, loans or other financings not
provided for in Paragraph 5 hereof).
4. First United shall render such other financial advisory and investment
and/or investment banking services as may from time to time be agreed
upon by First United and the Company.
5. In consideration for the services rendered by First United to the
Company pursuant to this Agreement (and in addition to the expenses
provided for in Paragraph 8 hereof), the Company shall compensate First
United as follows:
(a) A retainer fee of $3,000 per month for 36 months, payable
monthly no later than the fifth day of each month.
(b) An additional transaction fee with respect to any actual
or proposed transaction arising from this engagement as follows:
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Consideration Fee
------------- ---
$ -0- to $ 5,000,000 5% of Consideration
$ 5,000,001 or more $250,000 plus 2 1/2% of the
Consideration in excess of
$5,000,000
If the Company identifies the other party to such a transaction during
the term of this Agreement, the Company shall pay fees to First United
to be mutually agreed upon, but in any event not less than $25,000.
For the purposes of this Agreement, "Consideration" shall mean the
total market value on the day of closing of stock, cash, assets and all
other property (real or personal) exchanged or received, directly or
indirectly by the Company or any of its security holders in connection
with any transaction, including without limitation any amounts paid by
the Company or any person or entity to holders of warrants, stock
purchase rights, straight or convertible securities of the Company,
whether or not vested, and to holders of any other securities of any
kind whatsoever of the Company, or pursuant to any employment
agreement, consulting agreement, covenant not to compete, earn-out or
contingent payment right or similar arrangement, agreement or
understanding, whether oral or written. Any co-broker retained by First
United shall be paid by First United.
In the event First United originates a line of credit with an
institutional lender, the Company and First United will mutually agree
on a satisfactory fee and the terms of payment of such fee; provided,
however, that in the event the Company is introduced to a corporate
partner in connection with a merger, acquisition or financing and a
credit line develops directly as a result of the introduction, the
appropriate fee shall be the amount set forth in the schedule above. In
the event First United introduces the Company to a joint venture
partner or customer and sales develop as a result of the introduction,
the Company agrees to pay a fee of five percent (5%) of total sales
generated directly from this introduction during the first two years
following the date of the first sale. Total sales shall mean cash
receipts less any applicable refunds, returns, allowances, credits and
shipping charges and monies paid by the Company by way of settlement or
judgment arising out of claims made or threatened against the Company.
Commission payments shall be paid on the 15th day of each month
following the receipt of customer's payment. In the event any
adjustments are made to the total sales after the commission has been
paid, the Company shall be entitled to an appropriate refund or credit
against future payments due under this Agreement.
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<PAGE>
6. Fees and expenses payable to First United with regard to fairness
opinions and valuations, will be determined by mutual agreement at such
time as the nature and terms of such financing are affirmed.
7. All fees to be paid pursuant to this Agreement, with the exception of
the retainer specified in Paragraph 5(a) above, are due and payable to
First United in cash at the closing or closings of any transaction
specified in Paragraph 5 or 6 hereof. In the event that this Agreement
shall not be renewed or if terminated for any reason notwithstanding
any such renewal or termination, First United shall be entitled to a
full fee as provided under Paragraphs 5 and 6 hereof, for any
transaction for which the discussions were initiated during the term of
this Agreement and which is consummated within a period of 12 months
after non-renewal or termination of this Agreement.
8. In addition to the fees payable hereunder, and regardless whether any
transaction set forth in Paragraphs 5 or 6 hereof is proposed or
consummated, the Company shall reimburse First United for all fees and
disbursements of First United's counsel and First United's travel and
out-of-pocket expenses incurred in connection with the services
performed by First United pursuant to this Agreement, including without
limitation, hotel, food and associated expenses and long-distance
telephone calls.
9. In the event that the Company fails to pay the retainer set forth in
Paragraph 5(a) hereof of any month by the end of the fifth day of such
month, First United may at any time prior to the payment in full of any
such monthly payment, demand payment of all or any portion of the past
due monthly retainers in Common Stock of the Company valued at one-half
(1/2) times the fair market value thereof determined on the date such
demand is made by First United on the Company. Fair market value shall
be determined as follows: (i) if the Common Stock is quoted on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the fair market value shall be the closing inside bid price
of the Common Stock as quoted on NASDAQ; (ii) if the Common Stock is
traded in the over the counter market, but not quoted on NASDAQ, the
fair market value shall be the average closing bid price of the Common
Stock; (iii) if the Common Stock is publicly traded in any market other
than NASDAQ, the fair market value shall be the closing bid
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<PAGE>
price of the Common Stock; (iv) if the Common Stock is not publicly
traded, but the Company has concluded a private placement of shares of
Common Stock within the past 24 months, the fair market value shall be
based upon the gross sales price of shares of Common Stock in the last
such private placement. In the event that First United makes such a
demand for payment in Common Stock, then the Company shall either make
all past due payments to First United within five (5) days of receipt
of such notice or promptly shall deliver restricted shares of its
Common Stock to First United in payment of such retainer obligations.
First United agrees that any Common Stock so received will be purchased
for investment purposes only and not with a view to distribution.
10. (a) The Company acknowledges that all opinions and advice (written or
oral) given by First United to the Company in connection with First
United's engagement are intended solely for the benefit and use of the
Company in considering the transaction to which they relate, and the
Company agrees that no person or entity other than the Company shall be
entitled to make use of or rely upon the advice of First United to be
given hereunder, and no such opinion or advice shall be used for any
other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose, nor may the Company make any
public references to First United, or use First United's name in any
annual reports or any other reports or releases of the Company without
First United's prior written consent.
(b) The Company acknowledges that First United makes no commitment to
make a market in the Company's securities and that none of First
United's affiliates makes any commitment whatsoever as to making a
market in the Company's securities or to recommending or advising its
clients to purchase the Company's securities. Research reports or
corporate finance reports that may be prepared by First United will,
when and if prepared, be done solely on the merits or judgment of
analysts of First United or any senior corporate finance personnel of
First United.
11. The Company acknowledges that First United and its affiliates are in
the business of providing financial services and consulting advice to
others. Nothing herein contained shall be construed to limit or
restrict First United in conducting such business with respect to
others, or in rendering such advice to others.
12. The Company recognizes and confirms that, in advising the Company and
in fulfilling its engagement hereunder, First United will use and rely
on data, material and other information furnished to First United by
the Company. The Company acknowledges and agrees that in performing its
services under this engagement, First United may rely upon the data,
material and other information supplied by the Company without
independently verifying the accuracy, completeness or veracity of same.
13. Since First United will be acting on behalf of the Company in
connection with its engagement hereunder, the Company and First United
have entered into a separate
5
<PAGE>
indemnification agreement substantially in the form attached hereto as
Schedule A and dated the date hereof, providing for the indemnification
of First United by the Company. First United has entered into this
Agreement in reliance on the indemnities set forth in such
indemnification agreement.
14. First United shall perform its services hereunder as an independent
contractor and not as an employee of the Company or an affiliate
thereof. Any duties of First United arising out of its engagement
hereunder shall be owed solely to the Company. It is expressly
understood and agreed to by the parties hereto that First United shall
have no authority to act for, represent or bind the Company or any
affiliate thereof in any manner, except as may be agreed to expressly
by the Company in writing from time to time.
15. (a) This Agreement and the Exhibit attached hereto constitute the
entire agreement and understanding of the parties hereto, and supersede
any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth
herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand-delivered
or sent (i) postage prepaid by registered mail, return receipt
requested, or (ii) by facsimile, to the respective parties as set forth
below, or to such other address as either party may notify the other of
in writing;
If to the Company, to: U.S. Golf and Entertainment Inc.
4 Henry Street
Commack, New York 11725
Attn: Edward C. Ross, Chairman
with a copy to: Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11725
Attn: Norman M. Friedland, Esq.
If to First United, to: First United Securities, Inc.
200 Garden City Plaza, Suite 518
Garden City, New York 11530
Attn: _____________________
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of counterparts, each
of which together shall continue one and the same original document.
6
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(e) No provision of this Agreement may be amended, modified or
waived, except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and governed
by the laws of the State of New York, without giving effect to its
conflict of law principles. The parties hereby agree that any dispute
which may arise between them arising out of or in connection with this
Agreement shall be adjudicated before a court located in New York City,
and they hereby submit to the exclusive jurisdiction of the courts of
the State of New York located in New York, New York and of the federal
courts in the Southern District of New York with respect to any action
or legal proceeding commenced by any party, and irrevocably waive any
objection they now or hereafter may have respecting the venue of any
such action or proceeding brought in such a court or respecting the
fact that such court is an inconvenient forum, relating to or arising
out of this Agreement, and consent to the service of process in any
such action or legal proceeding by means of registered or certified
mail, return receipt requested, in care of the address set forth in
Paragraph 15(b) hereof.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT.
FIRST UNITED EQUITIES CORPORATION
By:
----------------------------
Name:
Title:
U.S. GOLF AND ENTERTAINMENT INC.
By:
----------------------------
Name:
Title:
7
<PAGE>
Schedule A
First United Equities, Inc.
200 Garden City Plaza, Suite 518
Garden City, New York 11530
Attn: _____________________
Ladies and Gentlemen:
In connection with our engagement of First United Equities Corporation
("First United") as our financial advisor and investment banker, we hereby agree
to indemnify and hold harmless First United and its affiliates, and the
respective directors, officers, shareholders, agents and employees of First
United and its affiliates (collectively the "Indemnified Persons"), from and
against any and all claims, actions, suits, proceedings (including those of
stockholders), damages, liabilities, costs and expenses as incurred by any of
them (including the fees and expenses of counsel) which are (A) related to or
arise out of (i) any actions taken or omitted to be taken (including any untrue
statements made or any statements omitted to be made) by the Company, or (ii)
any actions taken or omitted to be taken by any Indemnified Person in connection
with our engagement of First United, or (B) otherwise relate to or arise out of
First United's activities on our behalf under First United's engagement, and we
shall reimburse any Indemnified Person for all costs and expenses (including the
fees and expenses of counsel) as incurred by such Indemnified Person in
connection with investigating, preparing or defending any such claim, action,
suit or proceeding (collectively a "Claim"), whether or not in connection with
pending or threatened litigation in which any Indemnified Person is a party. We
will not, however, be responsible for any Claim to the extent that it is finally
judicially determined by a court of competent jurisdiction to have resulted from
the gross negligence, bad faith or willful misconduct of any person seeking
indemnification hereunder. We further agree that no Indemnified Person shall
have any liability to us for or in connection with our engagement of First
United except to the extent any Claim is determined in a final judgment by a
court of competent jurisdiction to have directly resulted from any Indemnified
Person's gross negligence, bad faith or willful misconduct.
We further agree that we will not, without the prior written consent of
First United, settle, compromise or consent to the entry of any judgment in any
pending or threatened Claim in respect of which indemnification may be sought
hereunder (whether or not any Indemnified Person is an actual or potential party
to such Claim), unless such settlement, compromise or consent includes an
unconditional, irrevocable release of each Indemnified Person hereunder from any
and all liability arising out of such Claim.
Promptly upon receipt by an Indemnified Person of notice of any
complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution,
8
<PAGE>
but failure to so notify us shall not relieve us from any obligation we may have
hereunder, unless and only to the extent such failure results in the forfeiture
by us of substantial rights and defenses, and will not in any event relieve us
from any other obligation or liability we may have to any Indemnified Person
otherwise than under this Agreement. If we so elect or are requested by such
Indemnified Person, we will assume the defense of such Claim, including the
employment of counsel reasonably satisfactory to such Indemnified Person and the
payment of the fees and expenses of such counsel. In the event, however, that
such Indemnified Person reasonably determines in its sole judgment that having
common counsel would present such counsel with a conflict of interest or if the
defendant in, or target of, any such Claim, includes an Indemnified Person and
us, and such Indemnified Person reasonably concludes that there may be legal
defenses available to it or other Indemnified Persons different from or in
addition to those available to us, then such Indemnified Person may employ its
own separate counsel to represent or defend it in any such Claim and we shall
pay the fees and expenses of such counsel. Notwithstanding anything herein to
the contrary, if we fail timely or diligently to defend, contest, or otherwise
protect against any Claim, the relevant Indemnified Person shall have the right,
but not the obligation, to defend, contest, compromise, settle, assert
crossclaims, or counterclaims or otherwise protect against the same, and shall
be fully indemnified by us therefor, including without limitation, for the fees
and expenses of its counsel and all amounts paid as a result of such Claim or
the compromise or settlement thereof. In any Claim in which we assume the
defense, the Indemnified Person shall have the right to participate in such
Claim and to retain its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then (whether or
not First United is the Indemnified Person), we and First United shall
contribute to the Claim for which such indemnity is held unavailable in such
proportion as is appropriate to reflect (i) the relative benefits to us, on the
one hand, and First United on the other, in connection with First United's
engagement referred to above or (ii) if (but only if) the allocation provided
for in clause (i) is for any reason held unenforceable, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of us, on the one hand, and First United, on the
other, as well as any other relevant equitable considerations, subject to the
limitation that in no event shall the amount of First United's contribution to
such Claim exceed the amount of fees actually received by First United from us
pursuant to First United's engagement. We hereby agree that the relative
benefits to us, on the one hand, and First United on the other, with respect to
First United's engagement shall be deemed to be in the same proportion as (a)
the total value paid or proposed to be paid or received by us or our
stockholders as the case may be, pursuant to the transaction (whether or not
consummated) for which you are engaged to render services bears to (b) the fee
paid or proposed to be paid to First United in connection with such engagement.
Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that any Indemnified Party may have at law or at
equity.
9
<PAGE>
Should First United or its personnel be required or requested by us to
provide documentary evidence or testimony in connection with any proceeding
arising from or relating to First United's engagement, we agree to pay all
reasonable expenses (including fees incurred for legal counsel) in complying
therewith and $5,000 per day for sworn testimony or preparation therefor,
payable in advance.
We hereby consent to personal jurisdiction and service of process and
venue in any court in which any claim for indemnity is brought by any
Indemnified Person.
It is understood that, in connection with First United's engagement,
First United may be engaged to act in one or more additional capacities and that
the terms of the original engagement or any such additional engagement may be
embodied in one or more separate written agreements. The provisions of this
Agreement shall apply to the original engagement, any such additional engagement
and any modification of the original engagement or such additional engagement
and shall remain in full force and effect following the completion or
termination of First United's engagement(s).
Very truly yours,
U.S. GOLF AND ENTERTAINMENT INC.
By:
----------------------------
Name:
Title:
Confirmed and agreed to:
FIRST UNITED EQUITIES CORPORATION
By: _________________________________
Name:
Title:
10
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT by and between U.S. Golf and Entertainment Inc., a Delaware
Corporation with its principal office at 4 Henry Street, Commack, New York 11725
(hereinafter the "Company") and Edward Ross (hereinafter the "Employee"), dated
as of the effective date of the Company's initial public offering.
W I T N E S S E T H
WHEREAS, the Company is engaged in the business of acquiring,
developing and operating up-scale, high volume, year-round golf driving ranges
and related recreational and entertainment facilities; and
WHEREAS, the Company and Executive wish to enter into an employment
agreement in order to assure the employment of the Executive by the Company for
the period provided herein; and
WHEREAS, the Executive is willing to serve in the part-time employ of
the Company for said period, and upon such other terms and conditions
hereinafter provided.
NOW, THEREFORE, the Company and the Executive, intending to be legally
bound, agree as follows:
1. Term. The Executive shall be employed to serve as Chairman and Chief
Executive Officer of the Company for the term commencing on the date hereof (the
"Commencement Date") and terminating on the fifth anniversary of the
Commencement Date or sooner as herein provided (the "Term").
2. Extent of Services. The Executive shall devote his time, attention
and energies to his position on an as-needed basis and may, during the Term, be
engaged in other business activities, provided that such business activities do
not compete with the business of the Company or diminish his ability to provide
his services to the Company. The Executive also agrees to serve, without
additional compensation, as a member of the Company's Board of Directors.
Services required to be performed for the Company hereunder shall also include
any of its subsidiaries.
3. Compensation.
A. Base Salary. As full compensation for all services to be
rendered by the Executive to the Company hereunder (including services on the
Board of Directors of the Company and any subsidiary), the Company will pay, or
cause to be paid, to Executive an annual base salary of $30,000 (the "Base
Salary"). The Base Salary will be paid in equal monthly installments or such
other normal periodic payment schedule as the Company may establish for its
employees. Within ninety (90) days following the end of the Company's fiscal
year, the Board of Directors (or a compensation committee thereof) shall review
the Executive's
<PAGE>
performance hereunder and make any increases in the Executive's Base Salary as
it shall deem appropriate (and such adjusted amount shall be deemed to be the
Base Salary), taking into consideration such factors, without limitation, as the
performance of the Company and the quality and extent of Executive's services.
B. Stock Options. In addition to Base Salary as provided for
in Section 3.A. herein, Executive shall be entitled to stock option grants
pursuant to the Company's 1996 Stock Option Plan in accordance with Schedule 1
hereto.
C. Cost of Living Increase. In addition to the increases in
the Base Salary provided for in Section 3.A. above, beginning on the first
anniversary of the Commencement Date and for each year of the Term thereafter,
the Company shall increase the Base Salary then in effect to reflect increases
in the cost of living. The amount thereof shall be determined by multiplying the
Base Salary then in effect by the percentage increase, if any, of the United
States Department of Labor Consumer Price Index-New York Metropolitan Area-all
items (the "CPI") between January 1 of the year in which the calculation is made
and January 1 of the prior year.
D. Benefits. The Executive will be eligible to participate, on
the same basis as other executives of the Company, in its employee benefit
programs, if any, including without limitation, group life, health, accident,
hospitalization and disability insurance programs.
E. Reimbursement of Expenses. The Company shall reimburse or
cause to be reimbursed to the Executive, all reasonable out-of-pocket expenses
incurred by him in the performance of his duties hereunder or in furtherance of
the business and/or interests of the Company; provided that Executive shall
furnish to the Company a satisfactory itemized account thereof.
4. Indemnification. The Company shall, to the extent permitted by law,
indemnify and hold Executive harmless from and against all claims, damages,
losses and expenses, including reasonable attorneys' fees and disbursements
arising out of the performance by the Executive of his duties pursuant to this
Agreement, in furtherance of the Company's business and within the scope of his
employment.
5. Termination.
A. If the Executive becomes disabled during the Term, his Base
Salary and all other rights under this Agreement shall terminate at the end of
the month during which disability occurs. For purposes of this Agreement, the
Executive shall be deemed "disabled" if he has been unable to perform his duties
for six (6)
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<PAGE>
consecutive months or an aggregate of nine (9) months in any consecutive twelve
(12) month period, all as determined in good faith by the Board of Directors of
the Company.
B. If the Executive dies during the Term, the Corporation
shall pay to his estate, the Executive's then current Base Salary for a period
of one year from the date of death.
C. The Company shall, in the manner described in the last
paragraph of this Section 5.C, have the right to terminate the employment of the
Executive under this Agreement for "cause" and the Executive shall forfeit the
right to receive any and all further payments hereunder, other than the right to
receive any compensation then due and payable to the Executive pursuant to
Section 3 hereof through the date of termination. "Cause" shall be deemed to be
the commission of any of the following acts by the Executive:
(i) The Executive shall have committed any material
breach of any of the provisions or covenants of this Agreement;
(ii) The Executive shall have committed any act of
gross negligence in the performance of his duties or obligations hereunder, or,
without proper cause, shall have wilfully refused or habitually neglected to
perform his duties or obligations under this Agreement;
(iii) The Executive shall have committed any material
act of willful misconduct, dishonesty or breach of trust which directly or
indirectly causes the Company or any of its subsidiaries to suffer any loss,
fine, civil penalty, judgment, claim, damage or expense; or
(iv) The Executive shall have been convicted of, or
shall have plead guilty or nolo contendere to, a felony or indictable offense
(unless committed in the reasonable, good faith belief that the Executive's
actions were in the best interests of the Company and its stockholders and would
not violate criminal law).
If the Company elects to terminate the Executive's employment
for cause as set forth above, it shall deliver written notice (the "Termination
Notice") thereof to the Executive, describing with reasonable detail the "cause"
giving rise to termination, and thereupon no further payments of any type shall
be made or shall be due or payable to Executive hereunder, except as provided in
the first sentence of this Section 5.C; provided, however, that with respect to
any act of default set forth in clauses (i) and (ii) of this Section 5.C, prior
to termination by the Company, the Executive shall have thirty (30) days
following the Termination Notice to cure or remedy the act of default giving
rise to such termination.
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<PAGE>
D. If the Company terminates the Executive's employment during
the Term for any reason other than for cause pursuant to Section 5.C herein, it
shall pay to the Executive an amount equal to the sum of (i) the portion of
Executive's then current Base Salary and benefits accrued through the date of
termination; and (ii) a severance payment in an amount equal to one (1) year's
Base Salary. Executive's employment hereunder shall be deemed to be terminated
for a reason other than for cause if Executive fails to become elected to the
Company's Board of Directors for any reason during the term.
6. Restrictive Covenants.
A. Covenant not to Disclose; Confidential Information. The
Executive covenants and agrees that he will not at any time during or after the
termination of his employment hereunder reveal, divulge, or make known to any
person, firm, corporation or other business organization (other than the Company
or its subsidiaries), or use for his own account any customer lists, trade
secrets, or any secret or confidential information of any kind used by the
Company during his employment, and made known (whether or not with the knowledge
and permission of the Company, whether or not developed, devised, or otherwise
created in whole or in part by the efforts of the Executive, and whether or not
a matter of public knowledge unless as a result of authorized disclosure) to the
Executive by reason of his employment by the Company. The Executive further
covenants and agrees that the knowledge and information which he has acquired or
hereafter shall acquire during his employment respecting such customer lists,
trade secrets, and secret or confidential information shall be held by him in
trust for the sole benefit of the Company, its successors and assigns.
B. Covenant Not to Compete. The Executive covenants and agrees
that, during the Term hereof and for two (2) years thereafter, he will not,
without the prior written consent of the Company, directly or indirectly, and
whether as principal, agent, officer, director, employee, consultant, or
otherwise, alone or in association with any other person, firm, corporation, or
other business organization, carry on, or be engaged, concerned, or take part
in, or render services to, or own, share in the earnings of, or invest in the
stock, bonds, or other securities of any person, firm, corporation, or other
business organization (other than the Company) engaged in a business in the
United States which is similar to or in competition with any of the businesses
carried on by the Company (a "Similar Business") except in the course of his
employment hereunder; provided, however, that the Executive may invest in stock,
bonds, or other securities of any Similar Business (but without otherwise
participating in the activities of such Similar Business) if (i) such stock,
bonds, or other securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934; and (ii) his investment does not exceed, in the case of any
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<PAGE>
class of the capital stock of any one issuer, 5% of the issued and outstanding
shares, or in the case of bonds or other securities, 5% of the aggregate
principal amount thereof issued and outstanding.
C. Covenant of Non-Interference. The Executive covenants and
agrees that during the Term hereof and for two (2) years thereafter he will not,
whether for his own account or for the account of any other person, firm,
corporation or other business organization, interfere with the Company's
relationship with, or endeavor to entice away from the Company, any person,
firm, corporation or other business organization who or which at any time during
the term of the Executive's employment with the Company was an employee,
consultant, agent, supplier, or a customer of, or in the habit of dealing with,
the Company.
D. Covenant Modification. If any provision of this Section 6
is held by any court of competent jurisdiction to be unenforceable because of
the scope, duration or area of applicability, such provision shall be deemed
modified to the extent such court modifies the scope, duration or area of
applicability of such provision to make it enforceable.
E. Documents and Records. All written materials, records and
documents made by the Executive or coming into his possession during the Term
concerning the business or affairs of the Company shall be the sole property of
the Company and, upon expiration of the Term or upon the request of the Company
during the Term, the Executive shall promptly deliver the same to the Company.
The Executive agrees to render to the Company such reports of the activities
undertaken by the Executive or conducted under the Executive's direction
pursuant hereto during the Term as the Company may request.
7. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement may cause irreparable harm and damage to
the Company, the monetary amount of which may be virtually impossible to
ascertain. As a result, the Executive recognizes and acknowledges that the
Company shall be entitled to an injunction, without posting any bond or security
in connection therewith, from any court of competent jurisdiction enjoining and
restraining any breach or violation of any of the restrictive covenants
contained in Section 6 hereof by the Executive or his associates, partners or
agents, either directly or indirectly, and that such right to injunction shall
be cumulative and in addition to whatever other rights or remedies the Company
may possess. Nothing contained in this Section 7 shall be construed to prevent
the Company from seeking and recovering from the Executive damages sustained as
a result of any breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement, and that in the event of any such
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<PAGE>
breach, the Company shall avail itself of all remedies available both at law
and in equity.
8. Executive's Representations. Executive represents to the Company
that to the best of his knowledge he is under no obligation to any employer or
third party which would preclude the full, complete and unfettered discharge of
his duties under this Agreement.
9. Notices. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
mailed by first class certified or registered mail, return receipt requested,
addressed to the parties at the following addresses (or at such other address as
any such person may specify by notice to all other such persons given as
aforesaid):
U.S. Golf and Entertainment Inc.
4 Henry Street
Commack, New York 11725
Attention: Chuck Workman
With a copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Michael L. Faltischek, Esq.
If to Executive:
Mr. Edward Ross
c/o Finkle, Ross & Rost
100 Ring Road
Garden City, New York 11530
10. Amendment. This Agreement may be amended only in writing signed by
both parties hereto.
11. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company, its successors and assigns. Executive may
not assign, transfer, pledge or hypothecate any of his rights or obligations
hereunder, or money to which he may be entitled hereunder.
12. Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in a writing signed by both parties.
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<PAGE>
13. Severability. The invalidity or unenforceability of any other
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
14. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties, and supersedes all existing agreements between them with
respect to the subject matter hereof. It may only be changed or terminated by an
instrument in writing signed by both parties.
15. Governing Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New York.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Paragraph Headings. Paragraph headings are inserted herein for
convenience only and are not intended to modify, limit or alter the meaning of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
U.S. GOLF AND ENTERTAINMENT INC.
By:
-----------------------------
Stuart M. Goldstein, President
---------------------------
Edward Ross
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<PAGE>
SCHEDULE 1
100,000 options to be issued as Incentive Stock Options as
follows:
An option to purchase 5,000 shares, such option to be "vested" on
December 31, 1996 and 20 options, each to purchase an aggregate of
5,000 shares, the first such option to vest on March 31, 1997 and the
remaining 19 options to vest on the next succeeding June 30, September
30, December 31 and March 31.
The exercise price of such options shall be $5.00 per share. The
exercise period shall be 10 years following the date of vesting, subject to the
requirements of law.
Upon termination of Executive's employment, options which have not been
"vested" as of the date of termination will expire, and Executive shall not be
entitled to receive such options.
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 16th day of September, 1996 by and between
U.S. Golf and Entertainment Inc., a Delaware Corporation with its principal
office at 4 Henry Street, Commack, New York 11725 (hereinafter the "Company")
and Stuart M. Goldstein (hereinafter the "Executive").
W I T N E S S E T H
WHEREAS, the Company is engaged in the business of acquiring,
developing and operating up-scale, high volume, year-round golf driving ranges
and related recreational and entertainment facilities; and
WHEREAS, the Company and Executive wish to enter into an employment
agreement in order to assure the employment of the Executive by the Company for
the period provided herein; and
WHEREAS, the Executive is willing to serve in the employ of the Company
for said period, and upon such other terms and conditions hereinafter provided.
NOW, THEREFORE, the Company and the Executive, intending to be legally
bound, agree as follows:
1. Term. The Executive shall be employed to serve as
President and Chief Executive Officer for the term commencing on
the date hereof (the "Commencement Date") and terminating on
December 31, 2001 or sooner as herein provided (the "Term").
2. Extent of Services. The Executive shall devote his full business
time, attention and energies to his position, but may, during the Term, be
engaged in other activities, provided that such activities do not compete with
the business of the Company or which diminish his ability to provide his
services to the Company. The Executive also agrees to serve, without additional
compensation, as a member of the Company's Board of Directors. Services required
to be performed for the Company hereunder shall also include any of its
subsidiaries.
3. Compensation.
A. Base Salary. As full compensation for all services to be
rendered by the Executive to the Company hereunder (including services on the
Board of Directors of the Company and any subsidiary), the Company will pay to
Executive an annual base salary of $125,000 for the period through December 31,
1997, $150,000 for the period through December 31, 1998 and $200,000 through
December 31, 2001 (the "Base Salary") each year from January 1, 1999. The Base
Salary will be paid in equal monthly installments or such other normal periodic
payment schedule as the
1
<PAGE>
Company may establish for its employees. Within ninety (90) days following the
end of the Company's fiscal year, the Board of Directors (or a compensation
committee thereof) shall review the Executive's performance hereunder and make
any increases in the Executive's Base Salary as it shall deem appropriate (and
such adjusted amount shall be deemed to be the Base Salary), taking into
consideration such factors, without limitation, as the performance of the
Company and the quality and extent of Executive's services and Board developed
bonus programs.
B. Stock Options. In addition to Base Salary as provided for
in Section 3.A. herein, Executive shall be entitled to stock option grants
pursuant to the Company's 1996 Stock Option Plan in accordance with Schedule 1
hereto.
C. Cost of Living Increase. In addition to the increases in
the Base Salary provided for in Section 3.A. above, beginning on January 1, 1998
and for each year of the Term thereafter, the Company shall increase the Base
Salary then in effect to reflect increases in the cost of living. The amount
thereof shall be determined by multiplying the Base Salary then in effect by the
percentage increase, if any, of the United States Department of Labor Consumer
Price Index-New York Metropolitan Area-all items (the "CPI") between January 1
of the year in which the calculation is made and January 1 of the prior year.
D. Benefits; Vacation. The Executive will receive the benefits
of group life, health, accident, hospitalization and disability insurance as set
forth on Schedule 2 hereto. The Executive shall also be provided with a leased
automobile and shall be reimbursed for the maintenance, parking and insurance
costs associated therewith. The Executive shall be entitled to take three (3)
weeks of paid vacation in any consecutive twelve (12) month period.
E. Reimbursement of Expenses. The Company shall reimburse or
cause to be reimbursed to the Executive, all reasonable out-of-pocket expenses
incurred by him in the performance of his duties hereunder or in furtherance of
the business and/or interests of the Company; provided that Executive shall
furnish to the Company a satisfactory itemized account thereof.
4. Indemnification. The Company shall, to the extent permitted by law,
indemnify and hold Executive harmless from and against all claims, damages,
losses and expenses, including reasonable attorneys' fees and disbursements
arising out of the performance by the Executive of his duties pursuant to this
Agreement, in furtherance of the Company's business and within the scope of his
employment.
2
<PAGE>
5. Termination.
A. If the Executive becomes disabled during the Term, his Base
Salary and all other rights under this Agreement shall terminate at the end of
the month during which disability occurs. For purposes of this Agreement, the
Executive shall be deemed "disabled" if he has been unable to perform his duties
for twelve (12) consecutive months or an aggregate of eighteen (18) months in
any consecutive twenty-four (24) month period, all as determined in good faith
by the Board of Directors of the Company and upon at least thirty (30) days
prior notice to Executive.
B. If the Executive dies during the Term, the Corporation
shall pay to his estate, the Executive's then current Base Salary for a period
of one year from the date of death.
C. The Board shall, in the manner described in the last
paragraph of this Section 5.C, have the right to terminate the employment of the
Executive under this Agreement for "cause" and the Executive shall forfeit the
right to receive any and all further payments hereunder, other than the right to
receive any compensation then due and payable to the Executive pursuant to
Section 3 hereof through the date of termination. "Cause" shall be deemed to be
the commission of any of the following acts by the Executive:
(i) The Executive shall have committed any material
breach of any covenants of this Agreement;
(ii) The Executive shall have committed any act of
gross negligence in the performance of his duties or obligations hereunder, or,
without proper cause, shall have wilfully refused or habitually neglected to
perform his duties or obligations under this Agreement;
(iii) The Executive shall have committed any
material act of willful misconduct, dishonesty or breach of trust which directly
or indirectly causes the Company or any of its subsidiaries to suffer any
material loss, fine, civil penalty, judgment, claim, damage or expense; or
(iv) The Executive shall have been convicted of, or
shall have plead guilty or nolo contendere to, a felony or indictable offense
(unless committed in the reasonable, good faith belief that the Executive's
actions were in the best interests of the Company and its stockholders and would
not violate criminal law).
If the Board elects to terminate the Executive's employment
for cause as set forth above, it shall deliver written notice (the "Termination
Notice") thereof to the Executive, describing with reasonable detail the "cause"
giving rise to
3
<PAGE>
termination, and thereupon no further payments of any type shall be made or
shall be due or payable to Executive hereunder, except as provided in the first
sentence of this Section 5.C; provided, however, that with respect to any act of
default set forth in clauses (i) and (ii) of this Section 5.C, prior to
termination by the Company, the Executive shall have (i) the right to meet with
the Board within ten (10) days of its determination to discuss (with Executive's
legal counsel) the decision of the Board and (ii) thirty (30) days following the
Termination Notice to cure or remedy the act of default giving rise to such
termination.
D. If the Board terminates the Executive's employment during
the Term for any reason other than for cause pursuant to Section 5.C herein, it
shall pay to the Executive an amount equal to the sum of (i) the portion of
Executive's then current Base Salary and benefits accrued through the date of
termination; and (ii) a severance payment in an amount equal to one (1) year's
Base Salary. Executive's employment hereunder shall be deemed to be terminated
for a reason other than for cause if Executive fails to become elected to the
Company's Board of Directors for any reason during the Term.
6. Restrictive Covenants.
A. Covenant not to Disclose; Confidential Information. The
Executive covenants and agrees that he will not at any time during or after the
termination of his employment hereunder reveal, divulge, or make known to any
person, firm, corporation or other business organization (other than the Company
or its subsidiaries), or use for his own account any customer lists, trade
secrets, or any secret or confidential information of any kind used by the
Company during his employment, and made known (whether or not with the knowledge
and permission of the Company, whether or not developed, devised, or otherwise
created in whole or in part by the efforts of the Executive, and whether or not
a matter of public knowledge unless as a result of authorized disclosure) to the
Executive by reason of his employment by the Company. The Executive further
covenants and agrees that the knowledge and information which he has acquired or
hereafter shall acquire during his employment respecting such customer lists,
trade secrets, and secret or confidential information shall be held by him in
trust for the sole benefit of the Company, its successors and assigns.
B. Covenant Not to Compete. The Executive covenants and agrees
that, during the Term hereof and (a) for two (2) years thereafter in the event
Executive is terminated for cause or if Executive terminates his employment
under circumstances in which the Company has not defaulted on its obligations
hereunder or (b) for one (1) year if Executive is terminated without cause, he
will not, without the prior written consent of the Company, directly or
indirectly, and whether as principal, agent, officer, director, employee,
consultant, or otherwise, alone or in association with
4
<PAGE>
any other person, firm, corporation, or other business organization, carry on,
or be engaged, concerned, or take part in, or render services to, or own, share
in the earnings of, or invest in the stock, bonds, or other securities of any
person, firm, corporation, or other business organization (other than the
Company) engaged in a business in the United States which is similar to or in
competition with any of the businesses carried on by the Company (a "Similar
Business") except in the course of his employment hereunder; provided, however,
that the Executive may invest in stock, bonds, or other securities of any
Similar Business (but without otherwise participating in the activities of such
Similar Business) if (i) such stock, bonds, or other securities are listed on
any national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934; and (ii) his investment
does not exceed, in the case of any class of the capital stock of any one
issuer, 5% of the issued and outstanding shares, or in the case of bonds or
other securities, 5% of the aggregate principal amount thereof issued and
outstanding.
C. Covenant of Non-Interference. The Executive covenants and
agrees that during the Term hereof and for two (2) years thereafter he will not,
whether for his own account or for the account of any other person, firm,
corporation or other business organization, interfere with the Company's
relationship with, or endeavor to entice away from the Company, any person,
firm, corporation or other business organization who or which at any time during
the term of the Executive's employment with the Company was an employee,
consultant, agent, supplier, or a customer of, or in the habit of dealing with,
the Company.
D. Covenant Modification. If any provision of this
Section 6 is held by any court of competent jurisdiction to be
unenforceable because of the scope, duration or area of
applicability, such provision shall be deemed modified to the
extent such court modifies the scope, duration or area of
applicability of such provision to make it enforceable.
E. Documents and Records. All written materials, records and
documents made by the Executive or coming into his possession during the Term
concerning the business or affairs of the Company shall be the sole property of
the Company and, upon expiration of the Term or upon the request of the Company
during the Term, the Executive shall promptly deliver the same to the Company.
The Executive agrees to render to the Company such reports of the activities
undertaken by the Executive or conducted under the Executive's direction
pursuant hereto during the Term as the Company may reasonably request in a
timely manner.
7. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of the covenants or
agreements contained in this Agreement may cause irreparable harm and damage to
the Company, the monetary amount of
5
<PAGE>
which may be virtually impossible to ascertain. As a result, the Executive
recognizes and acknowledges that the Company shall be entitled to an injunction,
without posting any bond or security in connection therewith, from any court of
competent jurisdiction enjoining and restraining any breach or violation of any
of the restrictive covenants contained in Section 6 hereof by the Executive or
his associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other rights
or remedies the Company may possess. Nothing contained in this Section 7 shall
be construed to prevent the Company from seeking and recovering from the
Executive damages sustained as a result of any breach or violation by the
Executive of any of the covenants or agreements contained in this Agreement, and
that in the event of any such breach, the Company shall avail itself of all
remedies available both at law and in equity. The Company agrees that if the
Executive is not liable to the Company for any breach of his obligations, the
same court which makes such finding shall also be entitled to assess the Company
for reimbursement of the Executive's reasonable legal fees and expenses incurred
in such action.
8. Executive's Representations. Executive represents to the
Company that to the best of his knowledge he is under no obligation
to any employer or third party which would preclude the full,
complete and unfettered discharge of his duties under this
Agreement.
9. Notices. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
mailed by first class certified or registered mail, return receipt requested,
addressed to the parties at the following addresses (or at such other address as
any such person may specify by notice to all other such persons given as
aforesaid):
U.S. Golf and Entertainment Inc.
4 Henry Street
Commack, New York 11725
Attention: Edward Ross
With a copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Michael L. Faltischek, Esq.
6
<PAGE>
If to Executive:
Mr. Stuart M. Goldstein
215 West 95th Street
Apartment 11H
New York, New York 10025
with a copy to such counsel as the Executive may
designate.
10. Amendment. This Agreement may be amended only in writing signed by
both parties hereto.
11. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company, its successors and assigns. Executive may
not assign, transfer, pledge or hypothecate any of his rights or obligations
hereunder, or money to which he may be entitled hereunder.
12. Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in a writing signed by both parties.
13. Severability. The invalidity or unenforceability of any other
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
14. Entire Agreement. This Agreement (including Schedules 1 and 2
attached hereto) constitutes the entire Agreement between the parties, and
supersedes all existing agreements between them with respect to the subject
matter hereof. It may only be changed or terminated by an instrument in writing
signed by both parties.
15. Governing Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New York without taking
into account conflict-of-law provisions.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Paragraph Headings. Paragraph headings are inserted herein for
convenience only and are not intended to modify, limit or alter the meaning of
any provision of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
U.S. GOLF AND ENTERTAINMENT INC.
By:
-----------------------------
Edward C. Ross, Chairman,
Board of Directors
---------------------------
Stuart M. Goldstein
8
<PAGE>
SCHEDULE 1
120,000 options to be issued as Incentive Stock Options as
follows:
An option to purchase 20,000 shares, such option to be "vested" on
December 31, 1996 and 20 options, each to purchase an aggregate of
5,000 shares, the first such option to vest on March 31, 1997 and the
remaining 19 options to vest on the next succeeding June 30, September
30, December 31 and March 31.
380,000 options to be issued as non-qualified stock options as
follows:
An option to purchase 30,000 shares, such option to be "vested" on
December 31, 1996 and 20 options, each to purchase an aggregate of
17,500 shares, the first such option to vest on March 31, 1997 and the
remaining 19 options to vest on the next succeeding June 30, September
30, December 31 and March 31.
The exercise price of such options shall be $5.00 per share. The
exercise period shall be 10 years following the date of vesting, subject to the
requirements of law.
Upon termination of Executive's employment, options which have not been
"vested" as of the date of termination will expire, and Executive shall not be
entitled to receive such options.
9
<PAGE>
SCHEDULE 2
Life
Health
Accident
Hospitalization
Disability, long term, short term
Dental
10
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT by and between U.S. Golf and Entertainment Inc., a Delaware
Corporation with its principal office at 4 Henry Street, Commack, New York 11725
(hereinafter the "Company") and Chuck Workman (hereinafter the "Executive"),
dated as of the effective date of the Company's initial public offering.
W I T N E S S E T H
WHEREAS, the Company is engaged in the business of acquiring,
developing and operating up-scale, high volume, year-round golf driving ranges
and related recreational and entertainment facilities; and
WHEREAS, the Company and Executive wish to enter into an employment
agreement in order to assure the employment of the Executive by the Company for
the period provided herein; and
WHEREAS, the Executive is willing to serve in the part-time employ of
the Company for said period, and upon such other terms and conditions
hereinafter provided.
NOW, THEREFORE, the Company and the Executive, intending to be legally
bound, agree as follows:
1. Term. The Executive shall be employed to serve as Senior Vice
President and Secretary of the Company for the term commencing on the date
hereof (the "Commencement Date") and terminating on the fifth anniversary of the
Commencement Date or sooner as herein provided (the "Term").
2. Extent of Services. The Executive shall devote his time, attention
and energies to his position on an as-needed basis and may, during the Term, be
engaged in other business activities, provided that such business activities do
not compete with the business of the Company or diminish his ability to provide
his services to the Company. The Executive also agrees to serve, without
additional compensation, as a member of the Company's Board of Directors.
Services required to be performed for the Company hereunder shall also include
any of its subsidiaries.
3. Compensation.
A. Base Salary. As full compensation for all services to be
rendered by the Executive to the Company hereunder (including services on the
Board of Directors of the Company and any subsidiary), the Company will pay, or
cause to be paid, to Executive an annual base salary of $25,000 (the "Base
Salary"). The Base Salary will be paid in equal monthly installments or such
other normal periodic payment schedule as the Company may establish for its
employees. Within ninety (90) days following the end of the Company's fiscal
year, the Board of Directors (or a compensation committee thereof) shall review
the Executive's
<PAGE>
performance hereunder and make any increases in the Executive's Base Salary as
it shall deem appropriate (and such adjusted amount shall be deemed to be the
Base Salary), taking into consideration such factors, without limitation, as the
performance of the Company and the quality and extent of Executive's services.
B. Stock Options. In addition to Base Salary as provided for
in Section 3.A. herein, Executive shall be entitled to stock option grants
pursuant to the Company's 1996 Stock Option Plan in accordance with Schedule 1
hereto.
C. Cost of Living Increase. In addition to the increases in
the Base Salary provided for in Section 3.A. above, beginning on the first
anniversary of the Commencement Date and for each year of the Term thereafter,
the Company shall increase the Base Salary then in effect to reflect increases
in the cost of living. The amount thereof shall be determined by multiplying the
Base Salary then in effect by the percentage increase, if any, of the United
States Department of Labor Consumer Price Index-New York Metropolitan Area-all
items (the "CPI") between January 1 of the year in which the calculation is made
and January 1 of the prior year.
D. Benefits. The Executive will be eligible to participate, on
the same basis as other executives of the Company, in its employee benefit
programs, if any, including without limitation, group life, health, accident,
hospitalization and disability insurance programs.
E. Reimbursement of Expenses. The Company shall reimburse or
cause to be reimbursed to the Executive, all reasonable out-of-pocket expenses
incurred by him in the performance of his duties hereunder or in furtherance of
the business and/or interests of the Company; provided that Executive shall
furnish to the Company a satisfactory itemized account thereof.
4. Indemnification. The Company shall, to the extent permitted by law,
indemnify and hold Executive harmless from and against all claims, damages,
losses and expenses, including reasonable attorneys' fees and disbursements
arising out of the performance by the Executive of his duties pursuant to this
Agreement, in furtherance of the Company's business and within the scope of his
employment.
5. Termination.
A. If the Executive becomes disabled during the Term, his Base
Salary and all other rights under this Agreement shall terminate at the end of
the month during which disability occurs. For purposes of this Agreement, the
Executive shall be deemed "disabled" if he has been unable to perform his duties
for six (6)
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<PAGE>
consecutive months or an aggregate of nine (9) months in any consecutive twelve
(12) month period, all as determined in good faith by the Board of Directors of
the Company.
B. If the Executive dies during the Term, the Corporation
shall pay to his estate, the Executive's then current Base Salary for a period
of one year from the date of death.
C. The Company shall, in the manner described in the last
paragraph of this Section 5.C, have the right to terminate the employment of the
Executive under this Agreement for "cause" and the Executive shall forfeit the
right to receive any and all further payments hereunder, other than the right to
receive any compensation then due and payable to the Executive pursuant to
Section 3 hereof through the date of termination. "Cause" shall be deemed to be
the commission of any of the following acts by the Executive:
(i) The Executive shall have committed any material
breach of any of the provisions or covenants of this Agreement;
(ii) The Executive shall have committed any act of
gross negligence in the performance of his duties or obligations hereunder, or,
without proper cause, shall have wilfully refused or habitually neglected to
perform his duties or obligations under this Agreement;
(iii) The Executive shall have committed any material
act of willful misconduct, dishonesty or breach of trust which directly or
indirectly causes the Company or any of its subsidiaries to suffer any loss,
fine, civil penalty, judgment, claim, damage or expense; or
(iv) The Executive shall have been convicted of, or
shall have plead guilty or nolo contendere to, a felony or indictable offense
(unless committed in the reasonable, good faith belief that the Executive's
actions were in the best interests of the Company and its stockholders and would
not violate criminal law).
If the Company elects to terminate the Executive's employment
for cause as set forth above, it shall deliver written notice (the "Termination
Notice") thereof to the Executive, describing with reasonable detail the "cause"
giving rise to termination, and thereupon no further payments of any type shall
be made or shall be due or payable to Executive hereunder, except as provided in
the first sentence of this Section 5.C; provided, however, that with respect to
any act of default set forth in clauses (i) and (ii) of this Section 5.C, prior
to termination by the Company, the Executive shall have thirty (30) days
following the Termination Notice to cure or remedy the act of default giving
rise to such termination.
-3-
<PAGE>
D. If the Company terminates the Executive's employment during
the Term for any reason other than for cause pursuant to Section 5.C herein, it
shall pay to the Executive an amount equal to the sum of (i) the portion of
Executive's then current Base Salary and benefits accrued through the date of
termination; and (ii) a severance payment in an amount equal to one (1) year's
Base Salary. Executive's employment hereunder shall be deemed to be terminated
for a reason other than for cause if Executive fails to become elected to the
Company's Board of Directors for any reason during the Term.
6. Restrictive Covenants.
A. Covenant not to Disclose; Confidential Information. The
Executive covenants and agrees that he will not at any time during or after the
termination of his employment hereunder reveal, divulge, or make known to any
person, firm, corporation or other business organization (other than the Company
or its subsidiaries), or use for his own account any customer lists, trade
secrets, or any secret or confidential information of any kind used by the
Company during his employment, and made known (whether or not with the knowledge
and permission of the Company, whether or not developed, devised, or otherwise
created in whole or in part by the efforts of the Executive, and whether or not
a matter of public knowledge unless as a result of authorized disclosure) to the
Executive by reason of his employment by the Company. The Executive further
covenants and agrees that the knowledge and information which he has acquired or
hereafter shall acquire during his employment respecting such customer lists,
trade secrets, and secret or confidential information shall be held by him in
trust for the sole benefit of the Company, its successors and assigns.
B. Covenant Modification. If any provision of this Section 6
is held by any court of competent jurisdiction to be unenforceable because of
the scope, duration or area of applicability, such provision shall be deemed
modified to the extent such court modifies the scope, duration or area of
applicability of such provision to make it enforceable.
C. Documents and Records. All written materials, records and
documents made by the Executive or coming into his possession during the Term
concerning the business or affairs of the Company shall be the sole property of
the Company and, upon expiration of the Term or upon the request of the Company
during the Term, the Executive shall promptly deliver the same to the Company.
The Executive agrees to render to the Company such reports of the activities
undertaken by the Executive or conducted under the Executive's direction
pursuant hereto during the Term as the Company may request.
7. Injunction. It is recognized and hereby acknowledged by the
Executive that a breach or violation by the Executive of any of
-4-
<PAGE>
the covenants or agreements contained in this Agreement may cause irreparable
harm and damage to the Company, the monetary amount of which may be virtually
impossible to ascertain. As a result, the Executive recognizes and acknowledges
that the Company shall be entitled to an injunction, without posting any bond or
security in connection therewith, from any court of competent jurisdiction
enjoining and restraining any breach or violation of any of the restrictive
covenants contained in Section 6 hereof by the Executive or his associates,
partners or agents, either directly or indirectly, and that such right to
injunction shall be cumulative and in addition to whatever other rights or
remedies the Company may possess. Nothing contained in this Section 7 shall be
construed to prevent the Company from seeking and recovering from the Executive
damages sustained as a result of any breach or violation by the Executive of any
of the covenants or agreements contained in this Agreement, and that in the
event of any such breach, the Company shall avail itself of all remedies
available both at law and in equity.
8. Executive's Representations. Executive represents to the Company
that to the best of his knowledge he is under no obligation to any employer or
third party which would preclude the full, complete and unfettered discharge of
his duties under this Agreement.
9. Notices. Any and all notices or other communications required or
permitted to be given under any of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered or
mailed by first class certified or registered mail, return receipt requested,
addressed to the parties at the following addresses (or at such other address as
any such person may specify by notice to all other such persons given as
aforesaid):
U.S. Golf and Entertainment Inc.
4 Henry Street
Commack, New York 11725
Attention: Edward Ross
With a copy to:
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
Attention: Michael L. Faltischek, Esq.
If to Executive:
Mr. Chuck Workman
Bethpage Pro Shop
Bethpage State Park
Farmingdale, New York 11735
-5-
<PAGE>
10. Amendment. This Agreement may be amended only in writing signed by
both parties hereto.
11. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company, its successors and assigns. Executive may
not assign, transfer, pledge or hypothecate any of his rights or obligations
hereunder, or money to which he may be entitled hereunder.
12. Waiver of Breach. The failure of a party to insist on strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver hereto must be
in a writing signed by both parties.
13. Severability. The invalidity or unenforceability of any other
provision hereof shall in no way affect the validity or enforceability of any
other provision hereof.
14. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties, and supersedes all existing agreements between them with
respect to the subject matter hereof. It may only be changed or terminated by an
instrument in writing signed by both parties.
15. Governing Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of New York.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Paragraph Headings. Paragraph headings are inserted herein for
convenience only and are not intended to modify, limit or alter the meaning of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
U.S. GOLF AND ENTERTAINMENT INC.
By:
-----------------------------
Stuart M. Goldstein, President
---------------------------
Chuck Workman
-6-
<PAGE>
SCHEDULE 1
50,000 options to be issued as Incentive Stock Options as
follows:
An option to purchase 2,500 shares, such option to be "vested" on
December 31, 1996 and 20 options, each to purchase an aggregate of
2,500 shares, the first such option to vest on March 31, 1997 and the
remaining 19 options to vest on the next succeeding June 30, September
30, December 31 and March 31.
The exercise price of such options shall be $5.00 per share. The
exercise period shall be 10 years following the date of vesting, subject to the
requirements of law.
Upon termination of Executive's employment, options which have not been
"vested" as of the date of termination will expire, and Executive shall not be
entitled to receive such options.
-7-
<PAGE>
AGREEMENT, dated October 1, 1996 by and between U.S. Golf and
Entertainment Inc., a Delaware corporation, having its principal office at 4
Henry Street, Commack, New York 11725 (the "Company") and Chuck Workman,
[through an entity called [_____________________], residing at
__________________________________ ("Workman").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of acquiring and
opening golf practice and instructional centers; and
WHEREAS, Workman, pursuant to an agreement with ____________________
(the "Agency") has the right (the "Rights") to operate and manage a golf
practice facility and golf pro shop (the "Facility") located at Bethpage State
Park, New York, through __________________, 199__ (the "Initial Term"); and
WHEREAS, Workman intends to seek an extension of his Rights to operate
and manage the Facility through a period of at least ________ years following
the Initial Term (the "New Term"); and
WHEREAS, Workman desires to grant an option to the Company to acquire
the Rights through the Initial Term and/or the New Term upon the terms and
conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Grant of Option. Workman hereby grants to the Company for full and
valuable consideration, the receipt of which is acknowledged, an option (the
"Option") to acquire the Rights to operate/manage the Facility during the
Initial Term or during the New Term (including rights to receive any and all
revenues in connection therewith) for consideration of the "Fair Market Value"
of the Rights.
2. Term of Option. The term of the option shall commence as of the date
hereof, and shall expire on December 31, 1999 (the "Term").
3. The Rights. The parties recognize that the Rights may be subject to
restrictions and/or limitations on their transfer and/or assignment by the
Agency and that it may be necessary to accomplish the Company's acquisition of
the Rights via a purchase of Chuck Workman's ownership interests in
_________________ or that it may be necessary to obtain the consent or approval
of the Agency.
4. Fair Market Value. The determination of the Fair Market Value for
the Rights shall be made by an independent appraiser selected by Workman and the
Company, whose written appraisal shall take into account the following matters:
revenues and earnings, fixture investments by Workman, length of contract and
payments/fees to Agency.
1
<PAGE>
5. Representation of Workman. Workman represents and warrants, as of
the date hereof and throughout the Term, that he is not a party to any agreement
that in any way limits or restricts his ability to sell or assign the Rights to
the Company.
6. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
U.S. GOLF AND ENTERTAINMENT
INC.
By:
----------------------------------
Stuart Goldstein, President
[Entity]
By:
----------------------------------
Chuck Workman
2
<PAGE>
STOCK AND WARRANT PURCHASE AGREEMENT, POWER OF TRANSFER AND MUTUAL RELEASE
1. __________ the record owner (the "Securityholder") of_______ shares
of Common Stock (the "Shares") and ___________3 common stock purchase warrants
(the "Warrants" and together with the Shares, the "Securities") of U.S. GOLF AND
ENTERTAINMENT INC. (the "Company"), hereby sells, transfers and delivers the
Securities and powers of transfer with full powers of substitution therein to
the Company for a purchase price (the "Purchase Price") of $______________,
receipt of which is hereby acknowledged.
2. For full and valuable consideration, receipt of which is hereby
acknowledged, the Company hereby fully and unconditionally releases and
discharges the Securityholder and each officer, director, partner, member,
shareholder, employee or consultant of the Securityholder, as applicable, and
each of the Securityholder's successors and assigns, from all actions, causes of
action, suits, promises, claims and demands whatsoever, in law or equity,
whether contingent or otherwise, whether known or unknown, direct or indirect,
which against such individuals or entities the Company ever had, now have or
hereafter can, shall or may have, or by reason of any matter, cause or thing
whatsoever relating to the Securityholder's ownership of the Securities from the
beginning of the world to the day of the date of this Agreement.
3. For full and valuable consideration, receipt of which is hereby
acknowledged, the Securityholder hereby (A) fully and unconditionally releases
and discharges the Company and all predecessors or affiliated entities, and each
officer, director, partner, member, shareholder, employee or consultant of such
entities, and each of their successors and assigns, from all actions, causes of
action, suits, promises, claims and demands whatsoever, in law or equity,
whether contingent or otherwise, whether known or unknown, direct or indirect,
which against the Company or any predecessor or affiliated entities the
Securityholder ever had, now has or hereafter can, shall or may have, or by
reason of any matter, cause or thing whatsoever relating to the Securityholder's
ownership of the Securities from the beginning of the world to the day of the
date of this Agreement; and (B) waives and relinquishes any and all rights,
options, warrants or interests to acquire any additional securities of the
Company to receive any other property, right or asset of the Company, or to
share in the proceeds of any revenue or income received by the Company, or to
have the Company register any of the Securities at any time.
4. The Company specifically acknowledges that it shall have no right to
rescind the sale of the Securities contemplated hereby or have any claim against
the Securityholder under any circumstances.
5. The Securityholder specifically acknowledges that he, she or it (i)
shall have no right to rescind the sale of the Securities contemplated hereby or
have any claim against the Company and/or any predecessor or affiliated entities
in the event the value of the Securities, at any time in the future, is greater
than the Purchase Price or in the event that any common stock or warrants of the
Company held by any other stockholder of the Company is repurchased by the
Company at any time for a price per share or warrant greater than the purchase
price per Share or Warrant contemplated herein; (ii) fully understands that the
Company is presently consummating an initial public offering of its common stock
and that the price per share of common stock to be offered to the public in such
offering will be significantly higher than the purchase price per Share
contemplated herein; and (iii) has consulted with an attorney and has been
advised of the consequences of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
5th day of November, 1996.
U.S. GOLF AND ENTERTAINMENT INC.
By: /S/ Stuart M. Goldstein, President
---------------------------------------
Stuart M. Goldstein, President
---------------------------------------
<PAGE>
WARRANT PURCHASE AGREEMENT, POWER OF TRANSFER AND MUTUAL RELEASE
1. __________, the record owner (the "Securityholder") of ____________
shares of Common Stock (the "Shares") and ________________ common stock purchase
warrants (the "Warrants" and together with the Shares, the "Securities") of U.S.
GOLF AND ENTERTAINMENT INC. (the "Company"), hereby sells, transfers and
delivers the Warrants and powers of transfer with full powers of substitution
therein to the Company in consideration of (i) a purchase price (the "Purchase
Price") of $_______________, and (ii) registration of the Shares by the Company
under the Securities Act of 1933, as amended, in connection with the Company's
initial public offering of its equity securities, receipt of which is hereby
acknowledged.
2. For full and valuable consideration, receipt of which is hereby
acknowledged, the Company hereby fully and unconditionally releases and
discharges the Securityholder and each officer, director, partner, member,
shareholder, employee or consultant of the Securityholder, as applicable, and
each of the Securityholder's successors and assigns, from all actions, causes of
action, suits, promises, claims and demands whatsoever, in law or equity,
whether contingent or otherwise, whether known or unknown, direct or indirect,
which against such individuals or entities the Company ever had, now have or
hereafter can, shall or may have, or by reason of any matter, cause or thing
whatsoever relating to the Securityholder's ownership of the Securities from the
beginning of the world to the day of the date of this Agreement.
3. For full and valuable consideration, receipt of which is hereby
acknowledged, the Securityholder hereby (A) fully and unconditionally releases
and discharges the Company and all predecessors or affiliated entities, and each
officer, director, partner, member, shareholder, employee or consultant of such
entities, and each of their successors and assigns, from all actions, causes of
action, suits, promises, claims and demands whatsoever, in law or equity,
whether contingent or otherwise, whether known or unknown, direct or indirect,
which against the Company or any predecessor or affiliated entities the
Securityholder ever had, now has or hereafter can, shall or may have, or by
reason of any matter, cause or thing whatsoever relating to the Securityholder's
ownership of the Securities from the beginning of the world to the day of the
date of this Agreement; and (B) waives and relinquishes any and all rights,
options, warrants or interests to acquire any additional securities of the
Company to receive any other property, right or asset of the Company, or to
share in the proceeds of any revenue or income received by the Company, or to
have the Company register any of the Securities at any time.
4. The Company specifically acknowledges that it shall have no right to
rescind the sale of the Warrants contemplated hereby or have any claim against
the Securityholder under any circumstances.
5. The Securityholder specifically acknowledges that he, she or it (i)
shall have no right to rescind the sale of the Warrants contemplated hereby or
have any claim against the Company and/or any predecessor or affiliated entities
in the event the value of the Securities, at any time in the future, is greater
than the Purchase Price or in the event that any common stock or warrants of the
Company held by any other stockholder of the Company is repurchased by the
Company at any time for a price per share or warrant greater than the purchase
price per Share or Warrant contemplated herein; (ii) hereby agrees that
notwithstanding the Exchange Agreement by and among the Company and various
stockholders of the Company, including the Securityholder, dated June 3, 1996,
in the event of any conflict as between such Exchange Agreement and this
Agreement, the provisions set forth in this Agreement shall be controlling in
each and every instance; (iii) fully understands that the Company is presently
consummating an initial public offering of its common stock and that the price
per share of common stock to be offered to the public in such offering will be
significantly higher than the purchase price per Share contemplated herein; and
(iv) has consulted with an attorney and has been advised of the consequences of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
5th day of November, 1996.
U.S. GOLF AND ENTERTAINMENT INC.
By:
----------------------------------------
Stuart M. Goldstein, President
----------------------------------------
<PAGE>
___________, 1996
First United Equities Corporation
As Representative of the
Several Underwriters
200 Garden City Plaza, Suite 518
Garden City, N.Y. 11530
Gentlemen:
In order to induce First United Equities Corporation (the
"Representative") to enter into an underwriting agreement (the "Underwriting
Agreement") with U.S. Golf and Entertainment Inc., a Delaware corporation (the
"Company"), pursuant to which the Representative and other underwriters will
purchase, severally but not jointly, Common Stock, par value $.001 per share, of
the Company ("Common Stock"), the undersigned hereby agrees that for a period
(the "Restricted Period") of 24 months following the effective date of the
Company's registration statement on Form SB-2 filed in connection with the
Company's initial public offering of the Common Stock (the "Effective Date"),
the undersigned will not directly or indirectly offer to sell, sell, grant an
option for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of (either pursuant to Rule 144 of the regulations under the
Securities Act of 1933, as amended, or otherwise) any Common Stock or any other
securities issued by the Company ("Company Securities") registered in the
undersigned's name or beneficially owned by the undersigned or dispose of any
beneficial interest therein without the prior written consent of the
Representative. Notwithstanding the foregoing, no prior written consent shall be
required as to any (i) offer to sell, sale, assignment, transfer or other
disposition of Company Securities to any affiliate, associate, shareholder,
employee or partner of the undersigned or (ii) grant of a bona fide gift to any
person, provided that in the case of (i) or (ii) above the person acquiring the
Company Securities enters into a letter agreement in substantially the same form
and content as this letter agreement.
In order to enable you to enforce the aforesaid agreement, the
undersigned hereby consents to the placing of legends on, and stop-transfer
orders with the transfer agent of the Company's Securities with respect to, any
of the Company Securities registered in the undersigned's name or beneficially
owned by the undersigned, and the undersigned further agrees to deliver or cause
to be delivered to the Representative prior to the Effective Date all such
Company Securities. The Representative may retain custody of such Company
Securities until the earlier of (a) the expiration of the Restricted Period or
(b) the Representative's giving of its written consent to the release of such
Company Securities from the terms of this agreement, whereupon said Company
Securities shall be delivered to the undersigned.
<PAGE>
This Agreement shall be binding on the undersigned and his,
her or its respective heirs, personal representatives, successors and assigns.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of law principles.
------------------------------
Signature
------------------------------
Print Name of Shareholder
------------------------------
Print Address
<PAGE>
_______________, 1996
First United Equities Corporation
As Representative of the
Several Underwriters
200 Garden City Plaza, Suite 518
Garden City, N.Y. 11530
Gentlemen:
In order to induce First United Equities Corporation (the
"Representative")to enter into an underwriting agreement (the "Underwriting
Agreement") with U.S. Golf and Entertainment Inc., a Delaware corporation (the
"Company"), pursuant to which the Representative and other underwriters will
purchase, severally but not jointly, Common Stock, par value $.001 per share, of
the Company ("Common Stock"), the undersigned hereby agrees that for a period
(the "Restricted Period") of 24 months following the effective date of the
Company's registration statement on Form SB-2 filed in connection with the
Company's initial public offering of the Common Stock (the "Effective Date"),
the undersigned will not directly or indirectly offer to sell, sell, grant an
option for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of (either pursuant to Rule 144 of the regulations under the
Securities Act of 1933, as amended, or otherwise) any shares ("Shares") of
Common Stock of the Company registered in the undersigned's name or beneficially
owned by the undersigned or dispose of any beneficial interest therein without
the prior written consent of the Representative. Notwithstanding the foregoing,
no prior written consent shall be required as to any (i) offer to sell, sale,
assignment, transfer or other disposition of Shares to any affiliate, associate,
shareholder, employee or partner of the undersigned or (ii) grant of a bona fide
gift to any person, provided that in the case of (i) or (ii) above the person
acquiring the Shares enters into a letter agreement in substantially the same
form and content as this letter agreement.
In order to enable you to enforce the aforesaid agreement, the
undersigned hereby consents to the placing of legends on, and stop-transfer
orders with the transfer agent of the Company's Common Stock with respect to,
all of the Shares registered in the undersigned's name or beneficially owned by
the undersigned, and the undersigned further agrees to deliver or cause to be
delivered prior to the Effective Date (a) to Edward C. Ross and Stuart M.
Goldstein _____ Shares pursuant to the Custody
<PAGE>
Agreement and Irrevocable Power of Attorney attached hereto, and (b) to the
Representative _____ Shares, which the Representative may retain in its custody
until the earlier of (a) the expiration of the Restricted Period or (b) the
Representative's giving of its written consent to the release of such Shares
from the terms of this agreement, whereupon said Shares shall be delivered to
the undersigned.
This Agreement shall be binding on the undersigned and his,
her or its respective heirs, personal representatives, successors and assigns.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of law principles.
------------------------------
Signature
------------------------------
Print Name of Shareholder
------------------------------
Print Address
<PAGE>
___________, 1996
First United Equities Corporation
As Representative of the
Several Underwriters
200 Garden City Plaza, Suite 518
Garden City, N.Y. 11530
Gentlemen:
In order to induce First United Equities Corporation (the
"Representative") to enter into an underwriting agreement (the "Underwriting
Agreement") with U.S. Golf and Entertainment Inc., a Delaware corporation (the
"Company"), pursuant to which the Representative and other underwriters will
purchase, severally but not jointly, Common Stock, par value $.001 per share, of
the Company ("Common Stock"), the undersigned hereby agrees that for a period
(the "Restricted Period") of 24 months following the effective date of the
Company's registration statement on Form SB-2 filed in connection with the
Company's initial public offering of the Common Stock (the "Effective Date"),
the undersigned will not directly or indirectly offer to sell, sell, grant an
option for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of (either pursuant to Rule 144 of the regulations under the
Securities Act of 1933, as amended, or otherwise) any Common Stock or any other
securities issued by the Company ("Company Securities") registered in the
undersigned's name or beneficially owned by the undersigned or dispose of any
beneficial interest therein without the prior written consent of the
Representative. Notwithstanding the foregoing, no prior written consent shall be
required as to any (i) offer to sell, sale, assignment, transfer or other
disposition of Company Securities to any affiliate, associate, shareholder,
employee or partner of the undersigned or (ii) grant of a bona fide gift to any
person, provided that in the case of (i) or (ii) above the person acquiring the
Company Securities enters into a letter agreement in substantially the same form
and content as this letter agreement.
In order to enable you to enforce the aforesaid agreement, the
undersigned hereby consents to the placing of legends on, and stop-transfer
orders with the transfer agent of the Company's Securities with respect to, any
of the Company Securities registered in the undersigned's name or beneficially
owned by the undersigned.
<PAGE>
This Agreement shall be binding on the undersigned and his,
her or its respective heirs, personal representatives, successors and assigns.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of law principles.
------------------------------
Signature
------------------------------
Print Name of Shareholder
------------------------------
Print Address
<PAGE>
CUSTODY AGREEMENT AND IRREVOCABLE POWER OF ATTORNEY
Edward C. Ross/Stuart M. Goldstein
4 Henry Street
Commack, New York 11725
Gentlemen:
U.S. Golf & Entertainment Inc., a Delaware corporation (the "Company"),
has filed a Registration Statement with the Securities and Exchange Commission
("SEC") to register for sale (the "IPO") to the public under the Securities Act
of 1933, as amended (the "Offering"), up to 1,265,000 shares of Common Stock
owned by the Company and up to 700,000 shares of the Company's Common Stock (the
"Common Stock"), to be issued by the undersigned and the other persons listed on
Annex A hereto.
I. Appointment As Custodian.
There are delivered herewith to you as Custodian a certificate or
certificates for _____________ shares of the Company's Common Stock, $.01 par
value per share (the "Shares"). Each such certificate so delivered is in
negotiable and proper deliverable form accompanied by a duly executed stock
power or powers (which may be in the form of Annex B attached hereto), bearing
the signature of the undersigned endorsed thereon and guaranteed by a commercial
bank or trust company or by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. These
certificates are hereby deposited with you to be held by you as Custodian for
the account of the undersigned and are to be disposed of by you in accordance
with this Custody Agreement/Irrevocable Power of Attorney.
Simultaneously with my execution of this Agreement, persons owning a
total of __________ shares of Common Stock ("Other Selling Stockholders") are
signing identical agreements (all such agreements called "Agreements").
At your expense, the undersigned agrees to deliver to you such
additional documentation as you or the Company (or any broker) may reasonably
request to effectuate or confirm compliance with any of the provisions hereof.
If the Shares have not been sold prior to a date which is the second
anniversary of the effective date of the Registration Statement relating to the
IPO (the "Termination Date") then, upon the written request of the undersigned
to you on or after that date, you are to return to the undersigned the
certificates for the Shares deposited with you for the purposes of this Custody
Agreement, together with any stock powers delivered with the certificates, as
the case may be.
II. Irrevocable Appointment as Attorneys; Powers
The undersigned hereby irrevocably constitutes and appoints Edward C.
Ross and Stuart M. Goldstein, acting jointly, the true and lawful
attorneys-in-fact (the "Attorneys") of the undersigned up to and through the
Termination Date, with full power in the name of, for and on behalf of the
undersigned with respect to all matters arising in connection with the sale of
the Shares by the undersigned including, but not limited to, the power and
authority to take any and all of the following actions:
1
<PAGE>
(1) To sell, assign, transfer and deliver up to the number of
Shares set forth herein at a sale price which provides the undersigned with net
proceeds of $2.90 per Share and which provides for proceeds in excess of $2.90
per Share to be delivered to the Company;
(2) For the purpose of effecting such sale, to negotiate, enter
into, execute, deliver such agreements and perform such actions and to determine
when, how many and which of the Shares shall be sold;
(3) To endorse, transfer and deliver the certificates for the
Shares to the Company's transfer agent or to any broker involved in effecting
the sale of the Shares and to give such orders and instructions with respect to
(i) the transfer on the books of the Company of the Shares in order to effect
such sale (including the names in which new certificates are to be issued and
the denominations thereof), (ii) the delivery of the certificates for the Shares
against receipt by you of the purchase price to be paid therefor, (iii) the
return to you, on behalf of the undersigned, of new certificates representing
the number of shares of Common Stock, if any, represented by certificates
deposited with you which are in excess of the number of Shares sold, (iv) the
deposit by you of the proceeds of $2.90 per Share in a non-interest bearing
escrow account and the distribution of all monies deposited therein pursuant to
the Agreements on a periodic basis of at least every 90 days to the undersigned
and to all of the Other Selling Stockholders, such distribution to be
proportional to the undersigned and the Other Selling Stockholders based upon
the percentage obtained by dividing the shares of Common Stock deposited with
you by each person with total number of Shares deposited with you by the
undersigned and the Other Selling Stockholders, it being the intention that each
person depositing Shares with you will receive their equitable proportion of the
total proceeds received from the sale of all Shares, up to a maximum of $2.90
per share, regardless of whether their particular shares are sold pursuant to
the Agreements, and (v) the delivery to the Company of the proceeds in excess of
$2.90 per share from the sale of the Shares.
(4) To make the representations and warranties and enter into the
agreements on behalf of the undersigned and to execute such certificate or
certificates on behalf of the undersigned as may be required in order to confirm
the accuracy of the representations and warranties contained herein;
(5) To pay the undersigned's proportionate share of any necessary
and appropriate expenses in connection with the sale of the Shares (the source
of payment of such expenses being funds from the proceeds of the sale of the
Shares);
(6) To give any necessary approvals on behalf of the undersigned
to the Registration Statement and any amendments thereto or the Prospectus and,
if applicable, to advise the SEC on behalf of the undersigned that such person
is aware (i) that the SEC's staff has made summary, cursory or no review of the
Registration Statement, as applicable; and (ii) that such review or lack thereof
may not be relied upon in any degree to indicate that the Registration Statement
is true, complete or accurate;
(7) To retain legal counsel to represent the undersigned in
connection with any and all matters referred to herein which counsel shall be
Ruskin, Moscou, Evans & Faltischek, P.C.;
(8) To make, execute, acknowledge and deliver all such other
contracts, stock powers, waivers, orders, receipts, notices, requests,
instructions, certificates, letters and other writings, including, without
limitation, requests for the acceleration of the effectiveness of the
Registration Statement and other communications to the SEC and other regulatory
authorities, and in general to do all things and to take all actions which you
may consider necessary or proper in connection with or to carry out the
aforesaid sale of Shares, collection of Funds and distribution of Funds as fully
as could the undersigned if personally present and acting;
2
<PAGE>
(9) To make, acknowledge, verify and file on behalf of the
undersigned applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners or
officers administering state securities laws; and
(10) If necessary, to endorse (in blank or otherwise) on behalf
of the undersigned the certificate or certificates representing the Shares, or a
stock power and powers attached to such certificate or certificates.
The Attorneys are hereby empowered to determine in their sole discretion
the time or times at which, and purpose for and manner in which, any power
herein conferred upon them shall be exercised, and the conditions, provisions or
covenants of any instrument or document which may be executed by them pursuant
hereto.
All representations, warranties and agreements of the undersigned set
forth herein are true and correct and will survive the delivery of and payment
for the Shares.
Under the terms of the Power of Attorney, the authority conferred hereby
is an agency coupled with an interest and is irrevocable and not subject to
termination by the undersigned or by operation of law, whether by the death or
incapacity of the undersigned, the termination of any trust or estate, the death
or incapacity of one or more trustees, guardians, executors or administrators
under such trust or estate, the dissolution or liquidation of any corporation or
partnership or the occurrence of any other event. The obligations of the
undersigned will remain in full force and effect until the Termination Date and,
to the extent provided herein, after such date. Accordingly, the certificates
deposited with you hereunder and your authority hereunder are irrevocable and
are not subject to termination by the undersigned or by operation of law,
whether by the death or incapacity of the undersigned, the termination of any
trust or estate, the death or incapacity of one or more trustees, guardians,
executors or administrators under such trust or estate, the dissolution or
liquidation of any corporation or partnership or the occurrence of any other
event. If such death, incapacity, termination, dissolution, liquidation or other
event should occur before the delivery of the Shares to be sold by the
undersigned, certificates for such Shares shall be delivered by you on behalf of
the undersigned and action taken by you pursuant to this Agreement shall be as
valid as if such death or incapacity, termination, dissolution, liquidation or
other event had not occurred, regardless of whether or not you shall have
received notice of it.
Until payment of the purchase price for the Shares to be sold has been
made to you, the undersigned shall remain the owner of such Shares and shall
have the right to vote the Shares represented by the certificates deposited with
you hereunder and to receive all dividends and distributions thereon.
You shall be entitled to rely and shall be protected in acting or
refraining from acting upon any statement, request, notice or instructions
respecting this Agreement given to you on behalf of the undersigned.
It is understood that you assume no responsibility or liability to any
person other than to deal with the certificate(s) deposited with you hereunder
and the proceeds from the sale of all or a portion of the Shares represented
thereby in accordance with the provisions of this Agreement, and the undersigned
agrees to indemnify and hold you harmless with respect to anything done by you
in good faith in accordance with the foregoing instructions.
3
<PAGE>
III. Representations, Warranties and Agreements
(a) The undersigned hereby represents, warrants and agrees with the
Company and Ruskin, Moscou, Evans & Faltischek, P.C., counsel to the Company,
and the Other Selling Stockholders that:
(i) I am the lawful owner of the Shares and has and will have, on
the date such Shares are sold, good title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests and
claims whatsoever.
(ii) Upon delivery of and payment to you of at least $2.90 for
each Share, good title to such Shares will pass to the purchaser, free
of all restrictions on transfer, liens, encumbrances, security interests
and claims whatsoever.
(iii) I have, and on the date the Shares are sold by you, I will
have, full legal right, power and authority to sell, assign, transfer
and deliver such Shares, in the manner provided herein and therein, this
Agreement has been duly authorized, executed and delivered by me and is
my valid and binding agreement enforceable in accordance with its terms.
(iv) I have not taken, and will not take, directly or indirectly,
any action designed to, or which might reasonably be expected to, cause
or result in stabilization or manipulation of the price of any security
of the Company.
(v) Such parts of the Registration Statement, comprised of the
table and notes thereto under the caption "Principal and Selling
Stockholders" which specifically relate to me do not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of circumstances under which they were made, not misleading.
(b) I have carefully reviewed the preliminary prospectus in the form
contained in the Registration Statement (the "Preliminary Prospectus") and will
carefully review the final Registration Statement and the related prospectus
upon receipt thereof from the Company and will promptly advise the Company in
writing if:
(i) The name and/or address of the undersigned (if required
to be disclosed) is not properly set forth in such documents;
(ii) In addition to the matters set forth in the Preliminary
Prospectus, (A) either the undersigned or any associate of the
undersigned has an interest adverse to the Company in any pending legal
proceeding, (B) either the undersigned or any associate of the
undersigned is a party to any contract, arrangement or understanding
with the Company, except a contract which has been disclosed and the
material terms of which have been fully and accurately described in the
Preliminary Prospectus, (C) the undersigned has any information
pertaining to underwriting compensation and arrangements or any dealings
between any "underwriter or related persons", "member" of the National
Association of Securities Dealers, Incorporated ("NASD") or a "person
associated with a member" and the Company or any controlling stockholder
thereof since the beginning of the Company's last fiscal year, other
than information relating to the proposed Underwriting Agreement, or (D)
the undersigned is a member of the NASD, a person associated with a
member of the NASD or an underwriter or related person with respect to
the proposed offering;
4
<PAGE>
(iii) The undersigned knows of or becomes aware of any reason due
to which the undersigned cannot represent and warrant that all
information relating to the undersigned in the Registration Statement or
the Prospectus or any Preliminary Prospectus or amendment thereto is
true and complete, except that these representations and warranties do
not apply to statements or omissions in the Preliminary Prospectus and
the Prospectus or any amendments or supplements thereto based upon
information furnished to the Company in writing by any of the
Underwriters specifically for use therein; or
(iv) In addition to arrangements described in the Preliminary
Prospectus, the undersigned knows of or discovers any arrangements made
or to be made by any person, or of any transaction already effected, (A)
to limit or restrict the sale of shares of the Company's Common Stock
during the period of the public distribution, (B) to stabilize the
market for the Common Stock of the Company, or (C) to withhold
commissions, or otherwise to hold the Underwriters or anyone else
responsible for the distribution of his participation.
The Attorneys may consider that there has not been any such development
unless advised to the contrary.
(c) Except as set forth below, neither the undersigned nor, to the
knowledge of the undersigned, any associate of the undersigned, is affiliated
with any firm directly or indirectly engaged in the securities business as a
broker or dealer or underwriter, as an employee acting in any capacity including
that of an officer or registered representative, as a director or partner, or as
an equity investor or debt investor, other than debt arising as a result of
trading activities. (One need not include or disclose investments in publicly
held corporations which in turn have investments in firms in the securities
business if one's investment in the publicly held corporation is of the same
class of security as is publicly held, and does not exceed 5% of such class.)
(d) The undersigned will furnish to the Representatives a properly
completed and executed Form W-9 prior to the First Closing Date.
It is understood that you will act as custodian and exercise your Power
of Attorney without compensation.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever, (i) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby, and (ii) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
The Attorneys, and any of them, shall be entitled to rely, and shall be
protected in acting or refraining from acting, upon any representation,
warranty, agreement, statement, request, notice or instruction respecting this
Power of Attorney given by the undersigned, not only as to the authorization,
validity and effectiveness thereof, but also as to the truth and acceptability
of any information therein contained.
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The foregoing representations, warranties and agreements are made for
the benefit of, and may be relied upon by, Ruskin, Moscou, Evans & Faltischek,
P.C. for purposes of the opinions.
It is understood that the Attorneys assume no responsibility or
liability to any person other than to deal with the certificate(s) representing
the undersigned's Shares deposited with the Custodian pursuant to the Custody
Agreement and the proceeds from the sale of the Shares in accordance with the
provisions hereof. The Attorneys (in such capacity) make no representations with
respect to, and shall have no responsibility for, the Registration Statement or
the Prospectus nor, except as herein expressly provided, for any aspect of the
offering of Common Stock, and the Attorneys shall not be liable for any error of
judgment or for any act done or omitted or for any mistake of fact or law except
for the Attorneys' own gross negligence, bad faith or willful misconduct. The
undersigned agrees to indemnify the Attorneys for and to hold the Attorneys,
jointly and severally, free from and harmless against any and all loss, claim,
damage, liability or expense incurred by or on behalf of the Attorneys, or any
of them, arising out of or in connection with acting as Attorneys under this
Power of Attorney, as well as the cost and expense of defending against any
claim of liability hereunder, and not due to the Attorneys' own gross
negligence, bad faith or willful misconduct. The undersigned agrees that the
Attorneys may consult with counsel of their choice (which may but need not be
counsel for the Company) and the Attorneys shall have full and complete
authorization and protection for any action taken or suffered by the Attorneys,
or any of them hereunder, in good faith and in accordance with the opinion of
such counsel.
This Agreement shall be governed by the laws of the State of New York.
Dated: ____________, 1996
Very truly yours,
Name:
-------------------------------------
Address:
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<PAGE>
Instruction: Indicate how you wish to receive payment for the Shares sold:
MANNER OF PAYMENT
The undersigned requests that payment for the Shares to be sold by the
undersigned pursuant to the Underwriting Agreement be made in the following
manner (CHECK ONE):
BANK CHECK in next day funds made payable to the
order of:
-------------------------------
to be sent to the following
address:
-------------------------------
-------------------------------
Telephone #:(___) _____________
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ANNEX B
Instruction: Date, execute and have your signature guaranteed.
* DO NOT fill in the number of Shares.
STOCK POWER
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________________, _______________________ (___________)
shares of Common Stock, $.01 par value, of U.S. Golf & Entertainment Inc., a
Delaware corporation, and does hereby irrevocably constitute and appoint Edward
C. Ross and Stuart M. Goldstein, acting jointly, his Attorneys-in-
Fact to transfer said shares on the books of said corporation.
Dated: ____________, 1996
------------------------------
Name
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