<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1997
REGISTRATION NO. 333-4873
==============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 5
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>
<CAPTION>
<S> <C> <C>
Delaware 7999 11-3320969
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
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)........................... 1,460,500 $6.75 $9,858,375 $3,399.44
- --------------------------------------------------------------------------------------------------------------------
Stock Purchase Warrants(3) ............ 127,000 $ .001 $ 127 $ .044
- --------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share(4) ............................. 127,000 $8.45 $1,073,150 $ 370.05
- --------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share(5) ............................. 700,000 $6.75 $4,725,000 $1,629.31
- --------------------------------------------------------------------------------------------------------------------
Total Registration Fee(6) ................................................................... $5,525.84
====================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Based on the offering of 1,270,000 shares of Common Stock and 190,500
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.
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
- ----------- -------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus ........................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus ............................................ Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors .................. Prospectus Summary; Risk Factors
4. Use of Proceeds ....................................... Use of Proceeds
5. Determination of Offering Price........................ Outside Front Cover Page; Underwriting
6. Dilution .............................................. Dilution
7. Selling Security Holders .............................. Selling Stockholders; Plan of Distribution
8. Plan of Distribution................................... Outside Front Cover Page; Selling Stockholders; Plan
of Distribution; Underwriting
9. Legal Proceedings...................................... Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons ....................................... Management
11. Security Ownership of Certain Beneficial Owners
and Management ....................................... Principal Stockholders
12. Description of Securities.............................. Description of Securities; Underwriting
13. Interest of Named Experts and Counsel.................. Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities......... Management -- Limitation of Liability and
Indemnification Matters
15. Organization Within Last Five Years.................... Certain Transactions
16. Description of Business ............................... Prospectus Summary; Capitalization; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Financial Statements
17. Management's Discussion and Analysis of Plan of
Operation ............................................. Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property ............................... Business - Properties
19. Certain Relationships and Related Transactions......... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters................................................ Shares Eligible for Future Sale; Description of
Securities
21. Executive Compensation................................. Management
22. Financial Statements................................... Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures................... Inapplicable
</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 APRIL 11, 1997
U.S. GOLF AND ENTERTAINMENT INC.
1,270,000 SHARES OF COMMON STOCK
This Prospectus relates to an offering (the "Offering") of 1,270,000
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 resale of up to an additional 700,000
shares of Common Stock (the "Additional Stock") on behalf of certain selling
stockholders (the "Selling Stockholders"), which shares of Common Stock will
not be offered as part of the underwritten offering; however, if such shares
are sold prior to eighteen (18) months after 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 Additional 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. See "Certain Transactions" and
"Selling Stockholders; Plan of Distribution."
As of December 31, 1996, the Company and its constituents had accumulated
losses of $1,360,586. 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 Common Stock. It
is currently estimated that the initial public offering price of the Common
Stock will be between $6.25 and $6.75 per share. The offering price of the
shares of Common Stock 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" ON PAGES 6-11
OF THIS PROSPECTUS 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............ $ $ $
- --------------------------------------------------------------------------------------------------------
Total Offering (3) .... $ $ $
========================================================================================================
</TABLE>
FIRST UNITED EQUITIES CORPORATION
200 GARDEN CITY PLAZA
GARDEN CITY, NEW YORK 11530
(516) 739-4500
THE DATE OF THIS PROSPECTUS IS APRIL __, 1997
<PAGE>
(Continued from preceding page)
- ------
(1) See "Underwriting" for additional compensation to the Underwriter
(assuming an initial public offering price of $6.50 per share) consisting
of (i) three (3%) percent of the gross proceeds of the Offering
($247,650, or $284,798 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 127,000 shares of Common Stock at a price of
$8.45 per share, (iii) a $108,000 financial consulting fee pursuant to a
3-year consulting agreement, and (iv) 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 190,500 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
$9,493,250, $1,234,123 and $7,855,277, 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
April , 1997.
------
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 is developing, and expects to open in early 1998, an upscale golf
driving range and teaching center on 7.5 acres in Englewood, New Jersey (the
"Englewood Facility"), and is a limited partner (with a 50% ownership
interest) in a newly-organized partnership (the "Monticello Partnership")
that is developing an 18-hole daily fee public golf course, driving range and
instructional center in Monticello, New York (the "Monticello Facility"). The
Company's management believes that their business experience, marketing
skills and industry relationships will provide the Company with opportunities
to acquire, develop 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
$937,167 for the year ended December 31, 1996, on revenues of $719,374 and
$818,211, 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 (according to the Golf Range
and Recreation Association of America, more than 90% of the approximately
2,000 stand-alone golf driving ranges in the United States are managed by
individual owner-operators) 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. The
Company's management team, which includes Chuck Workman who has more than 25
years experience in operating and managing golf facilities, believes that it
has the necessary industry experience and, upon consummation of the Offering,
will have the financial resources to effectively implement its strategy. 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 the Englewood Facility, the Monticello
Facility and 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
"Bethpage Facility").
3
<PAGE>
The Company's executive offices are located at 4 Henry Street, Commack,
New York 11725. The Company's telephone number is (516) 499-7007.
THE OFFERING
Securities Offered by the
Company(1) .................. Common Stock -- 1,270,000 shares of Common
Stock
Offering Price ............. $ per share of Common Stock
Securities Offered by the
Selling Stockholders......... The Prospectus also relates to the offer and
resale 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
eighteen (18) months 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 an
eighteen (18) month 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) .... 1,265,000 shares of Common Stock
After the Offering(2)(3) .... 2,535,000 shares of Common Stock.
Use of Proceeds.............. Repayment of Bridge Loans and certain short
term liabilities; development of the
Englewood Facility; capital contribution to
the partnership which is developing the
Monticello Facility; 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 190,500 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 127,000 shares of Common Stock issuable upon
the exercise of the Stock Purchase Warrants; or (ii) up to 190,500 shares
of Common Stock issuable upon the exercise of the Underwriter's
Over-Allotment Option; or (iii) 150,000 shares of Common Stock issuable
upon the exercise of warrants issued pursuant to a private offering to
accredited investors of an aggregate of 150,000 common stock purchase
warrants (the "Bridge Warrants") and (y) $1,140,000 of 15% promissory
notes (the "Bridge Loans"), pursuant to a Confidential Private Placement
Memorandum dated October 23, 1996 (the "PPM"), as amended.
(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>
For the Years Ended
December 31,
------------------------------
Statement of Operations Data 1995(4) 1996
---------------------------- ------------- --------------
<S> <C> <C>
Operating Revenue ................................ $ 719,374 $ 818,211
Operating Expenses ............................... $1,021,666 $ 1,275,666
Selling, General and Administrative Expenses ..... $ 87,555 $ 173,150
Loss From Operations ............................. $ (389,847) $ (630,605)
Amortization of Discounts attributable to Warrants $ -- $ 226,000
Interest Expense ................................. $ 33,572 $ 80,562
Net Loss ......................................... $ (423,419) $ (937,167)
Pro Forma Net Loss(1) ............................ $ (919,419) $(1,495,267)
Pro Forma Net Loss Per Share(1) .................. $ (.73) $ (1.18)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------
As
Actual Pro Forma(2) Adjusted(3)
-------------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents . $ 149,965 $ 453,965 $5,950,827
Working Capital (Deficit) . $(1,112,741) $ (824,741) $5,273,096
Total Assets .............. $ 3,096,160 $3,400,160 $8,723,185
Current Liabilities ....... $ 1,298,533 $1,314,533 $ 713,558
Total Stockholders' Equity $ 1,550,789 $1,838,789 $7,762,789
</TABLE>
- ------
(1) Reference is made to Note (1) of Notes to Financial Statements of the
Company.
(2) Reference is made to Note (2) of Notes to Financial Statements of the
Company.
(3) Assumes (i) net proceeds of $6,778,000 from the issuance of 1,270,000
shares of Common Stock at an estimated price of $6.50 per share and (ii)
the repayment of debt. See "Use of Proceeds."
(4) Operations commenced March 1, 1995.
5
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information in this Prospectus, in connection with
investments in the shares of Common Stock offered hereby. This Prospectus
contains forward-looking statements which involve risks and uncertainties.
The Company's actual results could differ materially from those anticipated
in the forward-looking statements as a result of certain factors, including
those set forth below and elsewhere in this Prospectus. An investment in the
securities offered hereby involves a high degree of risk.
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 1996
were $818,211 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 Since Inception. Net losses for the Company were $423,419 for
the period from March 1, 1995 to December 31, 1995 (on revenues of $719,374),
and were $937,167 for the year ended December 31, 1996 (on revenues of
$818,211). Management believes it incurred net losses at the Commack Golf
Center for several reasons, which include one-time start-up expenses; an
unusually harsh winter season that extended through April, 1996; the fact
that the miniature golf course and related recreation amenities were not
operational until the summer of 1996; the unforseen delay in implementing a
well-publicized golf instruction program (including group and private
lessons); and the construction activity which was occurring on a neighboring
parcel, which impacted on the Commack Golf Center's upscale image. 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
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."
Dependence on Single Location. The Commack Golf Center is the only
facility currently operated by the Company, and there can be no assurance
that the Englewood Facility or the Monticello Facility will be opened as
scheduled. 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 developing and opening the
Englewood Facility and the Monticello Facility and operating, acquiring and
opening additional golf centers and related recreational facilities. There
can be no assurance that additional suitable expansion opportunities will be
available, or that the Company will be able to open or acquire additional
facilities on satisfactory terms, if at all. The development and opening of
the Englewood Facility and the Monticello Facility as well as the
construction of new golf practice centers are subject to all of the delays
and uncertainties associated with construction projects generally. In
addition, the Company's ability to expand beyond the Englewood Facility and
the Monticello Facility 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. Except for the
Englewood Facility, the Monticello Facility and an option to acquire, from
its
6
<PAGE>
Senior Vice President, the rights to operate the golf practice facility and
pro shop at Bethpage State Park, the Company currently has no definitive
agreements with respect to the acquisition or opening of additional golf
practice centers. There can be no assurance that the option for the Bethpage
Facility 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.
Significant 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 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 April through October from
the Commack Golf Center and from other facilities the Company may open or
acquire are expected to account for the greatest portion of the Company's
operating revenue. 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, to fund the
development of the Englewood Facility and to fund its capital contribution to
the Monticello Partnership. 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, requiring the Company to seek additional capital.
Possible Inability to Obtain Debt Financing. The Company's expansion
strategy for the Englewood Facility and for certain other potential
acquisitions 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. 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. Each of Messrs.
Goldstein, Ross and Workman is subject to a covenant not to compete with the
Company which prohibits each of them from competing with the Company during
the terms of their respective employment agreements and for a period of two
(2) years thereafter in the United States. The loss of the services of either
Messr. Goldstein, Ross or Workman could materially adversely affect the
Company. In addition, other than Messr. Workman, the Company lacks
significant managerial experience in the golf industry. The inability to
secure additional experienced executives/officers may materially adversely
affect the Company. See "Management."
Prior Business Bankruptcy Filings Involving Company Executive. Two real
estate investment partnerships in which Edward C. Ross, the Company's
Chairman, serves as the chief executive of the corporate general partner,
Coastal Riverview Development Corp. ("Coastal") and Conrans Plaza Associates
("Conrans"), have experienced financial difficulties. In February, 1994, Mr.
Ross was President of Coastal, which served as the general partner of
Coventry Shopping Plaza Associates ("Coventry"), a limited partnership and
the owner and
7
<PAGE>
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, 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.
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 $1,073,150 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 $1,234,123,
in each case assuming a offering price of $6.50 per share). 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.
Termination Provisions of Commack Golf Center Lease and the Englewood
Facility. 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.
Arbitrary Determination of Offering Price; Potential Price Volatility. The
offering price of the Common Stock will be determined by negotiation between
the Company and the Underwriter and will not necessarily related to the
Company's assets, book value, results of operations, or other established
criteria of value. As of December 31, 1996, the Common Stock had an actual
loss per share of $.74. 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 ($3.50 per share, or 54%). 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."
Adverse Effect of 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. $5,323,025 (or
79%), 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. $1,454,975 (or 21%) of the net
proceeds of the Offering will be used to repay short-term debt, which will
benefit certain affiliates of the Company. See "Use of Proceeds."
Possible Adverse Consequences of 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 sub-
8
<PAGE>
stances 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. The Company expects to perform
preliminary environmental testing at the site for the Englewood Facility, and
environmental testing has occurred at the site for the Monticello Facility.
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 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. Recently, a proposal
has been made to increase the criteria for continued listing on the Nasdaq
SmallCap Market. If implemented as proposed, stricter criteria for continued
listing on The Nasdaq SmallCap Market would be imposed, including the
implementation of a $2,000,000 net tangible assets test, higher public float
and market value of public float criteria and the implementation of new
corporate governance rules. No assurance can be given that such proposal will
be adopted or if adopted, that it will be adopted in its current form.
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
9
<PAGE>
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.
If the Common Stock does not qualify for quotation on the NASDAQ SmallCap
Market, or if it qualifies and is later delisted from such Market and has a
price of less than $5.00 per share, then unless another exemption is
available, the Common Stock would be subject to the penny stock rules. 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.
Adverse Consequences Associated with Shares of Common Stock Reserved for
Issuance. The Company has reserved 127,000 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 150,000 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 127,000 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 the resale of 700,000
shares of Common Stock which may be sold in the future by the Selling
Stockholders, and which are subject to an eighteen (18) month lock-up period,
which lock-up can be released by the Underwriter in its sole discretion at
any time after the Effective Date. In addition, 545,000 shares of Common
Stock outstanding prior to the Offering and 150,000 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 18
10
<PAGE>
months from the Effective Date in the case of the Additional Stock and 24
months from the Effective Date in the case of the other aforementioned
securities. At the request of NASDAQ, the Underwriter has agreed not to
release the Bridge Warrants or the shares of common stock issuable upon
exercise thereof from the lock-up sooner than one (1) year from the Effective
Date. See "Selling Stockholders; Plan of Distribution."
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."
Stockholders' Inability to Vote on or Review Transactions. As is customary
under the Delaware General Corporation Law, the Board of Directors, not the
stockholders, of the Company have authority to review prospective business
transactions and approve or disapprove of the same. As such, the stockholders
of the Company will neither have the opportunity to review the terms of any
prospective transactions, including any golf- related acquisitions, nor
review the financial statements of any entities relating to any such
transactions.
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 (2) 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, perform its due diligence functions,
review this Prospectus, price the Offering, and develop and maintain a
trading market for the Company's Common Stock following the 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.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering (assuming an initial
public offering price of $6.50 per share) are estimated at approximately
$6,778,000 ($7,855,277 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:
<TABLE>
<CAPTION>
Application of Proceeds: Amount Percent
------------ ---------
<S> <C> <C>
Repayment of Bridge Loans and short-term debt ..................... $1,454,975 21.4%
Acquiring and opening golf centers, including the Englewood
Facility ......................................................... $3,573,025 52.7%
Capital contribution to Monticello Partnership .................... $1,000,000 14.8%
Improvements to Commack Golf Center ............................... 250,000 3.7%
Working capital ................................................... $ 500,000 7.4%
---------- ---------
Total ................................................... $6,778,000 100.0%
=========== =========
</TABLE>
- ------
(1) The Bridge Loans consist of an aggregate of $1,140,000 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. An aggregate of $601,125 of the
proceeds from the Bridge Loans have been used to redeem 845,000 shares of
the Company's Common Stock and 2,020,000 Class A Warrants (See "Certain
Transactions"), and the remaining $538,875 of such proceeds have been and
will be used by the Company for working capital and to pay ongoing legal
and accounting fees. 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 December 31, 1996, payable on May 4, 1997, collateralized
by all of the assets of the Company and guaranteed by Edward C. Ross,
(ii) an $85,000 note from another bank bearing interest at 9 3/4 % per
annum as of December 31, 1996, maturing on May 19, 1997 and guaranteed by
Edward C. Ross, and (iii) loans made by 28 stockholders of the Company
who were formerly limited partners of the Commack Partnership in the
aggregate amount of approximately $89,975. Proceeds from short-term debt
were used for working capital.
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
opening the Englewood Facility, the Monticello Facility and two 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.
12
<PAGE>
DILUTION
At December 31, 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 $1.19. 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 December 31, 1996 reflects the pro forma events as set forth in
Note 2 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) ........................... $6.50
Net tangible book value per share as of December 31, 1996 .................... $1.19
Increase per share attributable to the sale by the Company of one share of
Common Stock offered hereby (at any assumed initial public offering price of
$6.50 per share), net of discounts of $854,000 attributable to the warrants
issued in connection with the bridge loans which will be repaid from the
proceeds of the public offering. ............................................ $1.81
-------
Net tangible book value per share after Offering(2) .......................... $3.00
-------
Dilution of net tangible book value per share of Common Stock to new investors $3.50
=======
</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 at an assumed initial public offering price of $6.50 per
share, 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 1,265,000 49.9% $ 2,150,875 20.7% $1.70
New investors ........ 1,270,000 50.1% $ 8,255,000 79.3% $6.50
----------- --------------- -------------- ---------------
Total .............. 2,535,000 100.0% $10,405,875 100.0%
=========== =============== ============== ===============
</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 $9,493,250 for 1,460,500 shares of Common Stock, representing
81.5% of the total consideration paid for 53.6% of the total number of shares
of Common Stock outstanding. Accordingly, investors in this Offering, on a
fully diluted basis, will experience an immediate dilution of $3.19 per
share.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996, and as adjusted to reflect the sale of the Common Stock at
an assumed offering price of $6.50 per share of Common Stock. See "Use of
Proceeds."
<TABLE>
<CAPTION>
December 31, 1996 (UNAUDITED)
------------------------------
As
Pro Forma(1) Adjusted(2)
------------- -------------
<S> <C> <C>
Short-term debt(3)(4) .................................. $ 1,781,975 $ 327,000
============= =============
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
1,265,000 shares actual; 2,535,000 shares, as
adjusted ........................................ $ 1,265 $ 2,535
Additional paid-in-capital ............................. 3,198,110 9,974,840
Deficit ................................................ (1,360,586) (1,360,586)
------------- -------------
Total stockholders' equity ............................. 1,838,789 8,616,789
------------- -------------
Total Capitalization ................................. $ 1,838,789 $ 8,616,789
============= =============
</TABLE>
- ------
(1) Reference is made to Note (2) of Notes to Financial Statements of the
Company
(2) Adjusted to reflect (i) the sale by the Company of the Common Stock
offered hereby at an assumed initial public offering price of $6.50 per
share and (ii) the repayment of debt. See "Use of Proceeds."
(3) Inclusive of short-term debt to banks of $225,000, to stockholders of
$404,475 and $1,140,000 of indebtedness relating to the Bridge Loans, and
other debt of $12,500.
(4) Assumes no exercise of Underwriter's Over-Allotment Option.
14
<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>
For the years ended December 31,
--------------------------------
1995 1996
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ........................................ $ 719,374 $ 818,211
------------- --------------
Operating expenses .............................. 1,021,666 1,275,666
Selling, general and administrative expenses .... 87,555 173,150
------------- --------------
1,109,221 1,448,816
------------- --------------
Operating loss .................................. (389,847) (630,605)
Other expenses:
Amortization of discounts attributable to
warrants ................................... - 226,000
Interest ...................................... 33,572 80,562
------------- --------------
Net loss ........................................ $ (423,419) $ (937,167)
------------- --------------
Pro forma net loss (1) .......................... $ (919,419) $ (1,495,267)
------------- --------------
Pro forma net loss per share (1) ................ $ (.73) $ (1.18)
------------- --------------
Shares used in computing net loss per share (1) . 1,265,000 1,265,000
============= ==============
December 31,
-------------
1996
BALANCE SHEET DATA:
Current assets .................................................. $ 185,792
Current liabilities ............................................. 1,298,533
Working capital deficiency........................................ (1,112,740)
Total assets .................................................... 3,096,160
Shareholders' equity ............................................ 1,550,789
</TABLE>
(1) See Note 1 of Notes to Financial Statements of the Company.
15
<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., and issued 20,000 shares of the Company's Common Stock to
one (1) U.S. Golf Corp. stockholder as additional consideration for the
surrender of his warrants. (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"). In
March 1997, the Company obtained additional Bridge Loans of $380,000 from,
and issued Bridge Warrants to purchase an additional 50,000 shares of Common
Stock to, accredited investors, the proceeds of which were used to redeem
$76,000 of Bridge Loans and 10,000 Bridge Warrants from an investor in the
November, 1996 private offering, and for working capital and preliminary
expenses in connection with the Englewood Facility. 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 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:
For the Years Ended
December 31,
-----------------------
1995(1) 1996
--------- ---------
Operating revenues ............................... 100.0% 100.0%
Operating expenses ............................... 142.0 155.9
Selling, general and administrative expenses ..... 12.2 21.2
Loss from operations ............................. (54.2) (77.1)
Amortization of discounts attributable to warrants -- 27.6
Interest expense ................................. 4.7 9.8
Net loss ......................................... (58.9) (114.5)
Pro forma net loss ............................... (127.8) (182.7)
- ------
(1) Operations commenced March 1, 1995
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.
16
<PAGE>
Selling, general and administrative expenses were $87,555 for the year
ended December 31, 1995, consisting of approximately $49,000 in advertising
expenses, approximately $11,000 in sales promotion and commission expenses,
approximately $15,600 in general office expenses, and the remainder in
miscellaneous expenses. 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.
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.
Year Ended December 31, 1996. During the year ended December 31, 1996, the
Company had total revenues of $818,211 and a net loss of $937,167. Because
the Commack Golf Center commenced operations in March, 1995, there can be no
meaningful comparison of the results of operations during the year ended
December 31, 1996 and the comparable 1995 period. The results for this period
reflect the effect of unusually severe weather during the first 100 days of
1996.
Operating revenues consisted of driving range sales, mini-golf 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
$1,275,666 for this period.
Selling, general and administrative expenses were $173,150 for the year
ended December 31, 1996, which included $9,900 in amortization expenses,
$33,000 in professional fees, $36,700 in advertising expenses, $17,300 in
commissions/promotion expenses, $6,300 in telephone expenses, $17,600 in
office expenses, 36,000 as salary to the president of the Company and the
remainder in miscellaneous expenses. These expenses do not include the
payment of any salaries to the other 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 $80,562
reflecting borrowings outstanding as a result of the debt financing related
to the construction of the Commack Golf Center. Amortization of discounts
attributable to warrants associated with the cost of funding the redemption
of shares of Common Stock amounted to $226,000 (reference is made to Note 13
in the Notes to the Financial Statements).
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 December 31, 1996.
The Company has taken a number of steps to improve the operations of the
Commack Golf Center which include opening the miniature golf course in April,
1996, increasing the advertising and marketing of the Commack Golf Center
within the community (including establishing a summer golf camp and high
school golf team practice program), insuring the operation of a fully-stocked
golf pro shop at the Commack Golf Center, and implementing a well-publicized
golf instruction program for group and individual instructions.
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 year ended December 31, 1996, $75,000 was
repaid to the bank, reducing the outstanding balance to $140,000 at December
31, 1996, bearing interest at the rate of 10 1/4% per annum, and maturing,
as amended on May 4, 1997.
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 year
17
<PAGE>
ended December 31, 1996, $25,000 was repaid to the bank, reducing the
outstanding balance to $85,000 at December 31, 1996. The note, as amended,
matures on May 19, 1997 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. and issued 20,000 shares of the Company's Common Stock to one (1) U.S.
Golf Corp. stockholder as additional consideration for the surrender of his
warrants. In addition, the Company obtained $234,875 in additional working
capital from the proceeds of such private offering. In March 1997, the
Company obtained additional Bridge Loans of $380,000 from, and issued Bridge
Warrants to purchase an additional 50,000 shares of Common Stock to,
accredited investors, the proceeds of which were used to redeem $76,000 of
Bridge Loans and 10,000 Bridge Warrants from an investor in the November,
1996 private offering, and for working capital and preliminary expenses in
connection with the Englewood Facility.
The Company anticipates making substantial additional expenditures in
connection with the opening of new golf centers, including the Englewood
Facility and the Monticello Facility. See "Use of Proceeds." These
expenditures primarily relate to projected acquisition, development 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 financial resources to develop and open the Englewood Facility, fund its
capital contribution to the Monticello Partnership, and finance two
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.
18
<PAGE>
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.
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 is developing, and
expects to open in early 1998, an upscale golf driving range and teaching
center on 7.5 acres in Englewood, New Jersey (the "Englewood Facility"), and
is a limited partner (with a 50% ownership interest) in a newly-organized
partnership (the "Monticello Partnership") that is developing an 18-hole
daily fee public golf course, driving range and instructional center in
Monticello, New York (the "Monticello Facility"). The Company's management
believes that their business experience, marketing skills and industry
relationships will provide the Company with opportunities to acquire, develop
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 December 1996, there were a reported 2,052 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 neither offers the type of "brand-name" golf
instruction that the Company can offer nor 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)
19
<PAGE>
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 7:00 a.m. to midnight and during
the winter and fall seasons, from 8:00 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.
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 Commack Golf Center's golf pro shop 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.
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 household
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
Commack Golf Center 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 50-100 hitting tees, will be lighted to permit night play
and will be partially enclosed and/or heated to permit all weather play.
20
<PAGE>
The Company is currently negotiating a lease to operate the Englewood
Facility, the term of which is expected to be 25 years (with an additional 10
year renewal option) for approximately 7.5 acres. Construction of the
Englewood facility, which is subject to zoning and environmental reviews, is
expected to commence in the fourth quarter of 1997, with a planned opening in
early 1998. The Englewood Facility is located adjacent to a popular 18-hole
municipal golf course in an upscale suburban area (approximately 160,000
persons living within a 3 mile radius with a median household income of
approximately $62,000). The Englewood Facility is accessible from a major
highway and is less than 10 miles from Manhattan. The Company estimates total
construction for the multilevel 45-50 tee facility, complete with a miniature
golf course, pro shop, a golf instruction facility and a food and beverage
area, will cost approximately $2 million.
The Monticello Partnership, in which the Company has acquired a 50%
limited partnership interest, is developing the Island Glen County Club, on
approximately 200 acres. Access to the property is from a major road, 7 miles
from the New York State Thruway. The Monticello Partnership plans an 18 hole
golf course with a full service clubhouse, a 50 tee golf driving range and
practice facility (including putting green and short game area), golf pro
shop and golf instruction center. Construction of the Monticello Facility is
expected to commence by September, 1997, with portions of the facility
expected to open in mid-1998. The overall projected cost of the Monticello
Facility is approximately $2 million, with the Company contributing a total
of $1 million in two installments. Island Glen County Club is expected to
attract local residents and area visitors with affordable memberships and
daily rates. The Monticello Partnership currently intends to sell a portion
of the property (approximately 20 acres) to one or more developers, who would
subdivide and develop this area for residential homesites.
The Company is actively pursuing acquisition opportunities throughout the
northeast United States and, in addition to the Englewood Facility and the
Monticello Facility, currently has approximtely five 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 has not concluded any definitive terms with respect to any
potential acquisition or expansion opportunities, except for the Englewood
Facility and the Monticello Facility and an exclusive option to acquire, from
its Senior Vice President at fair market value (as determined by an
independent appraiser), rights to operate a 20 tee 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. The Company acquired the option
from its Senior Vice President for nominal consideration. The term of such
option is for a period commencing on October 1, 1996 and terminating on
December 31, 1999 and is contingent upon any necessary approvals of the New
York State Department of Parks. The Company will only consider exercising
this option in the event the current lease for these facilities, which
expires in 1998, is extended by the New York State Department of Parks.
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.
Management believes that the net proceeds of the Offering, debt financing
and cash flow from operations, will be sufficient to permit the Company to
acquire and open the Englewood Facility and to contribute its required
capital to the Monticello Partnership and open two 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."
Golf School. The Company owns and operates the Chuck Workman Tour Players
School (the "Golf School"). The Golf School offers golf instruction to
individuals of all ages and abilities at a flat rate of $99 for six (6)
months of unlimited instruction. In addition, the Company plans to expand the
Golf School to include multi-day and weekly golf instructional programs at
the Monticello Facility.
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
21
<PAGE>
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 38) under its operation as of January 15, 1997.
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 the only facility currently
operated by the Company, and there can be no assurance that the Englewood
Facility and the Monticello Facility will be opened as scheduled. The Company
occupies the site for the Commack Golf Center 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 Company is currently negotiating a lease in connection with the
Englewood Facility. The principal terms of the lease are expected to include
an initial term of twenty-five (25) years, with a ten (10) year renewal term
at the option of the Company, and annual rent for the premises at the higher
of (i) $200,000 or (ii) twenty- five (25%) percent of the gross revenue of
the Englewood Facility. The lease is subject to all necessary zoning and
regulatory approvals.
These leases require 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 for the
Commack Golf Center. 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.
22
<PAGE>
Employees. As of March 31, 1997, the Company had five (5) full-time
employees and fifteen (15) 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's obligations under the lease for the Englewood Facility are
subject to the Company obtaining appropriate zoning, environmental and
construction permits and the development of the Monticello Facility is
subject to the issuance of construction permits. While the Company does not
anticipate any difficulties in obtaining these permits and approvals,
unforeseen circumstances could occur to delay and increase the anticipated
costs of opening these facilities.
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.
23
<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:
Name Age Position
---- ----- --------
Edward C. Ross ....... 53 Chairman of the Board, Chief Financial Officer
and Director
Stuart M. Goldstein .. 37 President, Chief Executive Officer and Director
Chuck Workman ........ 60 Senior Vice President, Secretary and Director
Garry Howatt ......... 43 Director
Michael L. Faltischek.. 49 Director -- nominee
Robert J. Schwartz ... 38 Director -- nominee
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).
24
<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 through the period ending December 31, 1997,
$150,000 for the year ending December 31, 1998 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. Each of Messrs. Goldstein, Ross and
Workman is subject to a covenant not to compete with the Company which
prohibits each of them from competing with the Company during the terms of
their respective employment agreements and for a period of two (2) years
thereafter in the United States.
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
25
<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 vested
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 vested 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.
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<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)(5) 779,350 61.13% 30.62%
c/o the Company
4 Henry Street
Commack, NY 11725
Stuart M. Goldstein(3)(5) 776,500 58.06% 29.78%
c/o The Company
4 Henry Street
Commack, N.Y. 11725
Chuck Workman(4) 63,802 5.02% 2.51%
c/o the Company
4 Henry Street
Commack, NY 11725
Garry Howatt(2) 53,749 4.22% 2.11%
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 969,401 76.33% 38.17%
directors, and executive
officers of the Company as
a group (6 persons)
(1)(2)(3)(4)(5)(6)
</TABLE>
(1) Does not include shares issued pursuant to the exercise of the
Underwriter's Over-Allotment Option.
(2) Includes 10,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(3) Includes 72,500 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(4) Includes 5,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(5) Includes 700,000 shares owned beneficially by persons listed as Selling
Stockholders but held by Messrs. Ross and Goldstein as custodian/limited
power of attorney for such persons. Messrs. Ross and Goldstein disclaim
beneficial ownership of such shares. Messrs. Ross and Goldstein have
limited dispositive power over, but have no pecuniary interest in, such
shares. Until such shares of stock are sold, the holders thereof, and not
Messrs. Ross and Goldstein, retain all voting rights in connection with
such stock. See "Selling Stockholders; Plan of Distribution."
(6) These numbers reflect the 700,000 shares discussed in (5) above only
once.
27
<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 (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. and issued 20,000 shares of the Company's Common Stock to one
(1) U.S. Golf Corp. stockholder as additional consideration for the surrender
of his warrants (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. The aggregate purchase price of $601,125 described in
(A) above was allocated as follows: 325,000 shares of the Company's Common
Stock plus 975,000 warrants were redeemed for $1.00 per unit, 520,000 shares
of Common Stock plus 520,000 warrants were redeemed for $0.53 per unit
($275,600) and the remaining 525,000 warrants were redeemed for a total of
$525. The business principle underlying these redemption prices was the
agreement between the Company and the securityholders that such amounts
provided each securityholder with a full return of his invested amount, and,
in the case of certain securityholders who had provided investment capital at
an earlier date, a return on their investment that reflected the risk
associated with the investment at the time it was made.
In April, 1997, 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 up to the earlier of 18 months after the Effective Date or
such time as all of the Additional Stock (as hereinafter defined) is released
from lock-up by the Underwriter, 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."
In March, 1997, the Company obtained additional Bridge Loans of $380,000
from, and issued Bridge Warrants to purchase an additional 50,000 shares of
Common Stock to, accredited investors, the proceeds of which were used to
redeem $76,000 of Bridge Loans and 10,000 Bridge Warrants from an investor in
the November, 1996 private offering, and for working capital and preliminary
expenses in connection with the Englewood Facility.
28
<PAGE>
In March, 1997, the Company entered into a Limited Partnership Agreement
of the Island Glen County Club, L.P., with the Island Glen County Club, Inc.,
as general partner, and the Company and International Business Advisory Group
Inc., as limited partners, for the operation of the Monticello Facility. The
Company will contribute $25,000 to the Monticello Partnership and has agreed
to commit (i) $475,000 within five (5) days after completion of the Offering
and (ii) $500,000 no later than July 1, 1997. The terms of the Limited
Partnership Agreement include profit and loss sharing in accordance with
respective percentage ownership interests, limited liability for limited
partners not to exceed their respective capital interests, and limitation on
transfer of ownership interests.
The Company believes that all of the foregoing transactions and
arrangements were fair and reasonable to the Company and were on terms no
less favorable than could have been obtained from unaffiliated third parties.
There can be no assurance, however, that future transactions or arrangements
between the Company and affiliates will continue to be advantageous to the
Company, that conflicts of interest will not arise with respect thereto, or
that if conflicts do arise, they will be resolved in a manner favorable to
the Company. Any such future transactions will be on terms no less favorable
to the Company than could be obtained from unaffiliated parties and, where
deemed appropriate by the Board of Directors, will be approved by a majority
of the independent and disinterested members of the Board of Directors,
outside the presence of any interested directors and, to the extent deemed
appropriate by the Board of Directors, the Company will obtain shareholder
approval of fairness opinions in connection with any such transaction.
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 1,265,000 shares of Common Stock issued and
outstanding and held of record by 56 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.
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 and March 1997, the Company issued an aggregate of 150,000
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 Effective Date until October 23, 2001.
29
<PAGE>
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.
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 one year 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 two 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 150,000 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.
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<PAGE>
Holders of the Additional Stock will be subject to lock-up agreements for
a period of eighteen (18) months 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, hypothecate 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 18 months from the Effective Date in the
case of the Additional Stock and 24 months from the Effective Date in the
case of the other aforementioned securities. At the request of NASDAQ, the
Underwriter has agreed not to release the Bridge Warrants or the shares of
common stock issuable upon exercise thereof from the lock-up sooner than one
(1) year from the Effective Date. 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.
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 Percentage
Common Stock Common Stock After After
Name of Selling Stockholder Prior to Offering to be 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 1.9
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) ................. 70,000 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 *
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Number of
Number of Number of Shares of
Shares of Shares of Common Stock Percentage
Common Stock Common Stock After After
Name of Selling Stockholder Prior to Offering to be Registered Offering(1) Offering(1)(2)
--------------------------- ----------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
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 *
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) ................... 38,000 23,810 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 *
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.
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<PAGE>
(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 April, 1997, these Selling Stockholders entered into Custody
Agreements/Limited 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 limited
irrevocable authority to sell those shares, subject to the Underwriter's
consent, at any time from the Effective Date up to the earlier of 18 months
after the Effective Date or such time as all of the Additional Stock is
released from lock-up by the Underwriter. 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. Until the Additional Stock is sold, the holders thereof retain all
voting rights in connection with such stock.
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
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
eighteen (18) months 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 eighteen (18)
month 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 18 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
33
<PAGE>
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.
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 1,270,000 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. In addition, the Underwriter does not intend to sell any of the
Common Stock to individuals or accounts over which it exercises discretionary
authority.
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 190,500 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 $247,650
($284,798 if the Underwriter exercises the Over-Allotment Option in full,
assuming an initial offering price of $6.50 per share) 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 127,000
shares of Common Stock for an aggregate of $127 (the "Stock Purchase
Option"). The exercise price of the Stock Purchase Warrants are $8.45 per
share. The Stock Purchase Warrants is exercisable over a period of five years
commencing one year from the Effective Date.
34
<PAGE>
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 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 also entered
into an agreement with the Underwriter to act 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. This fee, as
distinguished from the finder's fee to be paid in connection with mergers,
financings and other similar transactions arranged by the Underwriter, covers
such regular and customary consulting services such as disseminating
information about the Company to the investment community, assisting in the
preparation of annual and interim reports and press releases, arranging
meetings with securities analysts, and rendering advice on a host of other
financial and operational matters.
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 18 months from the Effective Date in the
case of the Additional Stock and 24 months from the Effective Date in the
case of the other aforementioned securities. At the request of NASDAQ, the
Underwriter has agreed not to release the Bridge Warrants or the shares of
common stock issuable upon exercise thereof from the lock-up sooner than one
(1) year from 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 three (3) 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.
35
<PAGE>
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 offi- cers and
directors, and the indemnification provided for therein shall not be deemed
exclusive of any other rights 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 years ended December 31, 1995 and December 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
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
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
36
<PAGE>
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.
37
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
FINANCIAL STATEMENTS
AND AUDITORS' REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 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 December 31, 1996 .................................................. F-4 - F-5
Statements of Operations for the years ended December 31, 1995 and 1996 ............. F-6
Statements of Shareholders' Equity for the years ended December 31, 1995 and 1996 ... F-7
Statements of Cash Flows for the years ended December 31, 1995 and 1996 ............. F-8
Notes to Financial Statements ....................................................... F-9 - F-15
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <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
U.S. Golf and Entertainment Inc.
Commack, New York
We have audited the accompanying balance sheet of U.S. Golf and
Entertainment Inc. as of December 31, 1996, and the related statements of
operations, shareholders' equity and cash flows for each of the two years
then ended. 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 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 U.S. Golf and
Entertainment Inc. at December 31, 1996 and the results of its operations and
its cash flows for each of the two years then ended, in conformity with
generally accepted accounting principles.
Plainview, New York
March 14, 1997 (except for Note 15,
which is dated April , 1997)
F-3
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
BALANCE SHEETS
ASSETS (NOTE 6)
<TABLE>
<CAPTION>
(Note 2)
Pro forma
December 31, December 31,
-------------- --------------
1996 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents (Notes 1(b) and 1(g) ............... $ 149,965 $ 453,965
Due from shareholder (Note 3) ................................ 8,588 8,588
Prepaid expenses ............................................. 27,239 27,239
-------------- --------------
Total current assets .................................... 185,792 489,792
-------------- --------------
Property and equipment, at cost, less accumulated depreciation and
amortization (Note 4) ........................................... 2,603,348 2,603,348
-------------- --------------
Other assets:
Deferred costs, net of accumulated amortization of $16,814
(Note 5) ................................................... 131,183 131,183
Deferred public offering costs (Note 5) ...................... 173,837 173,837
Deposits ..................................................... 2,000 2,000
-------------- --------------
307,020 307,020
-------------- --------------
$3,096,160 $3,400,160
============== ==============
</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)
Pro forma
December 31, December 31,
-------------- --------------
1996 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable -- banks (Note 6) .......................... $ 225,000 $ 225,000
Notes payable -- other (net of discounts of $566,000;
$854,000 -- Pro Forma) (Note 13) ....................... 270,000 286,000
Accounts payable ......................................... 178,117 178,117
Due to shareholders (Note 7) ............................. 404,475 404,475
Unearned income (Note 1(e) ............................... 8,449 8,449
Loan payable (Note 8) .................................... 12,500 12,500
Accrued expenses and other current liabilities (Note 9) .. 199,992 199,992
-------------- --------------
Total current liabilities ........................... 1,298,533 1,314,533
-------------- --------------
Deferred rent costs (Note 10) ................................. 246,838 246,838
-------------- --------------
Commitments and contingencies (Note 10)
Shareholders' equity (Notes 1, 2, 12, 13, 14, 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 -- 1,265,000 shares .......... 1,265 1,265
Additional paid-in-capital .................................... 2,910,110 3,198,110
Deficit ....................................................... (1,360,586) (1,360,586)
-------------- --------------
1,550,789 1,838,789
-------------- --------------
$ 3,096,160 $ 3,400,160
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Revenues ................................................... $ 719,374 $ 818,211
------------ ------------
Operating expenses ......................................... 1,021,666 1,275,666
Selling, general and administrative expenses ............... 87,555 173,150
------------ ------------
1,109,221 1,448,816
------------ ------------
Operating loss ............................................. (389,847) (630,605)
Other expenses:
Amortization of discounts attributable to warrants
(Note 13) ........................................... -- (226,000)
Interest .............................................. (33,572) (80,562)
------------ ------------
Net loss ................................................... $ (423,419) $ (937,167)
============ ============
Net loss per share ......................................... $ (.33) $ (.74)
============ ============
Number of shares used in computing net loss per share ...... 1,265,000 1,265,000
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
Common Shares
-----------------------
Number of Additional
Shares Paid-In
Issued Amount Capital Deficit Total
----------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1995 ........... 1,045,000 $1,045 $2,174,955 $ -- $2,176,000
Net loss for the year ended
December 31, 1995 ................ -- -- -- (423,419) (423,419)
=========== ======== ============ ============== ============
Balance, December 31, 1995 ........ 1,045,000 1,045 2,174,955 (423,419) 1,752,581
Proceeds from the issuance of
common shares (net of related
expenses of $10,000) ............. 1,045,000 1,045 543,455 -- 544,500
Redemption of common shares and
warrants ......................... (845,000) (845) (470,280) -- (471,125)
Common shares issued in
connection with redemption
of warrants ...................... 20,000 20 (130,020) -- (130,000)
Value attributed to warrants issued
in connection with redemption of
Common Shares and Warrants ....... -- -- 792,000 -- 792,000
Net loss for the year ended
December 31, 1996 ................ -- -- -- (937,167) (937,167)
=========== ======== ============ ============== ============
Balance, December 31, 1996 ........ 1,265,000 $1,265 $2,910,110 $(1,360,586) $1,550,789
=========== ======== ============ ============== ============
</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
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $(423,419) $(937,167)
------------ ------------
Adjustments to reconcile net loss to net cash used in
operations:
Depreciation and amortization ............................ 169,845 218,402
Deferred rent costs ...................................... 168,260 78,578
Amortization of discounts attributable to warrants ....... -- 226,000
Issuances of common shares for services rendered ......... -- 2,500
Changes in assets and liabilities:
Construction bond receivable ............................. (65,000) 65,000
Prepaid expenses ......................................... 16,948 25,098
Accounts payable ......................................... 28,117 (256,310)
Unearned income .......................................... 16,908 (8,459)
Accrued expenses and other current liabilities ........... 5,655 187,469
------------ ------------
Total adjustments ................................... 340,733 538,278
------------ ------------
Net cash used in operations ................................... (82,686) (398,889)
------------ ------------
Cash flows used in investing activities:
Purchase of property and equipment ....................... (747,627) (11,921)
Deferred public offering costs ........................... -- (173,837)
Other deferred costs incurred ............................ (16,848) (22,948)
------------ ------------
Net cash used in investing activities ......................... (764,475) (208,706)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common shares .................. 660,000 552,000
Short-term financing, bank ............................... 215,000 --
Payments on short-term financing, bank ................... (190,000) (100,000)
Borrowings from shareholders ............................. 199,450 80,025
Loans to shareholders .................................... (15,588) --
Other short-term borrowings .............................. -- 12,500
Collection of shareholder loans .......................... -- 7,000
Cash overdraft ........................................... (21,456) (19,185)
Proceeds from private placement .......................... -- 836,000
Redemption of common shares .............................. -- (601,125)
Costs associated with the issuances of common shares ..... -- (10,000)
------------ ------------
Net cash provided by financing activities ..................... 847,406 757,215
------------ ------------
Net increase in cash .......................................... 245 149,620
Cash, beginning of year ....................................... 100 345
------------ ------------
Cash, end of year ............................................. $ 345 $ 149,965
============ ============
Supplemental disclosure of cash flow information:
Cash paid during year:
Interest .................................................. $ 37,000 $ 28,000
============ ============
</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
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of operations and basis of preparation
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 has had no
operations since inception through December 31, 1996 except as discussed in
the following paragraph.
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 December 31, 1996,
basically has had no operations. US Golf Corp. was not affiliated with the
Partnership when incorporated. 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 shares 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 shareholders of US
Golf Corp., whereby the shareholders of US Golf Corp. exchanged their common
shares and warrants for 1,045,000 common shares 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 common shares 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 were issued in connection with the aforementioned exchange with
US Golf Corp. was redeemed by the Company in consideration of $601,125 (Note
13). The aforementioned exchanges were accounted for as a reverse
acquisition, since the transaction was in effect, equivalent to the issuance
of common shares by the Partnership for the net monetary assets of the
aforementioned other entities, accompanied by a recapitalization where no
goodwill or other intangible was recorded. The financial statements of the
Company at December 31, 1996 represent the combined financials of all the
aforementioned entities.
The following unaudited pro forma summary combines the results of
operations of the entities from the commencement of operations, after giving
effect to the increase in officer's compensation based upon employment
agreements (Note 14), the interest expense associated with the acquisition
funding and the amortization of the discount attributable to the value of the
warrants issued in connection with the November, 1996 Private placement (Note
13). 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 transactions been effective on the assumed
dates.
Pro forma
---------------------------------
Years ended December 31,
---------------------------------
1995 1996
------------ --------------
(unaudited) (unaudited)
Revenue .............................. $ 719,374 $ 818,211
Net loss ............................. $ (919,419) $(1,495,267)
Net loss per share ................... $ (.73) $ (1.18)
Number of shares used in computing net
loss per share ...................... 1,265,000 1,265,000
b. Cash equivalents
The Company considers time deposits with an original maturity of less than
three months when purchased to be cash equivalents. At December 31, 1996, the
Company had $152,000 on deposit in a money market account, the value of which
approximated market.
F-9
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 - (Continued)
1. Summary of Significant Accounting Policies - (Continued)
c. 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.
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.
In 1995, 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". The adoption of FAS 121 had no material effect on
the financial statements.
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, 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 shareholders.
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.
The most significant estimates made are for the recoverability of property
and equipment and deferred costs. Actual results could differ from those
estimates.
g. Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of periodic temporary
investments of excess cash. The Company places its excess cash in high
quality, short-term and uninsured money market instruments through one
financial institution. In addition, the Company maintains its daily cash
balances with financial institutions insured by the FDIC. At times, such cash
balances may be in excess of the FDIC insurance limit.
h. Loss per share
Loss per share is computed based on the weighted average number of common
shares outstanding. In computing loss per share, common share equivalents are
omitted because they are antidilutive. The loss per share was computed giving
effect to 2,090,000 shares issued in connection with the exchange agreements
Note 1(a) and the Company's redemption of 825,000 common shares (Note 13).
2. UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet has been prepared as of December 31,
1996 to give effect to the (i) private sale of five Units in March, 1997
aggregating $380,000, of which $76,000 was used to repay one of the lenders
in connection with the private sale of Units in November, 1996 (Note 13) and
(ii) the discount of $288,000 attributable to the value of the warrants
issued in connection with the aforementioned sale of the Units.
F-10
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 - (Continued)
3. DUE FROM SHAREHOLDER
Amounts due from a shareholder aggregating $8,588 at December 31, 1996, is
due on demand and is non- interest bearing.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Estimated
useful December 31,
lives 1996
------------- --------------
Leasehold improvements .................. 15 years (*) $2,873,387
Furniture and fixtures .................. 7 years 34,798
Machinery and equipment ................. 5 years 66,596
--------------
2,974,781
Accumulated depreciation and amortization 371,433
--------------
$2,603,348
==============
(*) Over life of lease (Note 10)
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).
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 shares (Note 15). These costs have been deferred and will be
charged to shareholders' equity upon successful completion of the sale of
common shares or charged to operations if the sale is not completed.
6. NOTES PAYABLE -- BANK
The Company, at December 31, 1996 has a $140,000 note payable to a bank
bearing interest at the rate of 2% above the banks prime lending rate (10.25%
per annum at December 31, 1996). The note, as amended, is payable on demand
and collateralized by all the assets of the Company. The note is guaranteed
by certain shareholders and matures on May 4, 1997.
In addition, the Company, at December 31, 1996, has a note payable of
$85,000 to another bank. The note bears interest at the rate of 1 1/2% above
the bank's prime interest rate per annum (9.75% at December 31, 1996). The
note, as amended, matures on May 19, 1997 with interest at the rate of 9 3/4%
per annum. The obligation is guaranteed by certain shareholders of the
Company.
7. DUE TO SHAREHOLDERS
The amounts payable to shareholders as at December 31, 1996 are
non-interest bearing and are payable on demand.
8. LOAN PAYABLE
As at December 31, 1996, the Company is obligated under a non-interest
bearing demand loan in the amount of $12,500.
F-11
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 - (Continued)
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses at December 31, 1996 are comprised of the following:
Payroll .......................................................... $ 33,000
Interest ......................................................... 55,000
Professional fees ................................................ 30,000
Balance of obligation relating to the Company's redemption of
common shares and warrants (Note 13) ............................ 64,000
Sundry ........................................................... 17,992
---------
$199,992
=========
10. COMMITMENTS AND CONTINGENCIES
a. 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
December 31, 1996 under the lease are as follows:
1997 ................................................. $ 500,000
1998 ................................................. 509,000
1999 ................................................. 523,000
2000 ................................................. 537,000
2001 ................................................. 550,000
Thereafter ........................................... 5,120,000
----------
$7,739,000
==========
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 Company. The Company is
responsible for all related rental expenses on the property. Rent expense for
the years ended December 31, 1995 and 1996 approximated $469,000 and
$562,000, respectively.
b. The Company is subject to a broad range of various federal, state and
local laws, ordinances and regulations, that as an owner or operator of real
property, may involve general liability for the costs of removal or
remediation of hazardous substances. The Company has not been advised of any
non-compliance or violation of any environmental laws or regulations and the
Company believes that it is in substantial compliance with all such laws 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, said
liabilities and remedial cost could be material.
11. INCOME TAXES
The Company, as of December 31, 1996, has available approximately $700,000
of net operating loss carry forwards (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 carry forward period, a valuation
allowance has been computed to offset in its entirety the deferred
F-12
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 - (Continued)
11. Income Taxes - (Continued)
tax asset attributable to this net operating loss in the amount of
approximately $283,000. Prior to the exchanges (Note 1), losses incurred by
the Partnership were included in the personal returns of the former partners.
The Partnership does not pay any income taxes.
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") 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 of which will 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 will vest on December 31, 1996 and the
remainder of which shall vest ratably per quarter for 20 quarters 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 $6.50 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 on 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 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 the December 31, 1996, options to
acquire 5,000 shares of Common Stock at an exercise price of $6.50 per share,
have been granted under the Directors Plan.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standard No 123, "Accounting for Stock-Based
Compensation ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized for the stock option plans for the year ended December 31, 1996.
Had compensation cost for
F-13
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 - (Continued)
12. Stock Option Plans - (Continued)
the Company's two stock option plans been determined based on the fair value
at the vesting date for awards in 1996 consistent with the provisions of SFAS
No. 123, the Company's net losses and loss per share would have been
increased to the pro forma amounts indicated below:
For the year
ended
December 31,
--------------
1996
--------------
Net Loss -- as reported ........................... $ (937,167)
Net Loss -- pro forma (unaudited) ................. $ (1,136,194)
Loss per share -- as reported ..................... $ (.74)
Loss per share -- pro forma
(unaudited) ...................................... $ (.90)
The fair values of each option granted is estimated on the vesting date
using the Black-Scholes option- pricing model with the following
weighted-average assumptions used for grants in 1996: dividend yield of 0%,
expected volatility of 30.00%, risk-free interest rate of 6.7% and expected
lives of 10 years.
13. PRIVATE PLACEMENTS
On November 8, 1996, the Company obtained bridge financing of $836,000
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 provisions). Each Warrant entitles the
holder to purchase, commencing 12 months after the effective date of the
Proposed Public Offering (Note 15), one common share at an exercise price
equal to $0.10 per share (subject to anti-dilution provisions) for a period
of five years from the date of closing of the proposed public offering. The
notes are payable upon the earlier to occur of October 23, 1998 or five
business days following the closing of the proposed public offering of the
securities of the Company. The proceeds from the sale of these Units were
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 (Note 1).
The Company used the balance of the proceeds for working capital.
In connection with the redemption of the aforementioned common shares and
warrants, the Company issued 20,000 common shares to one of the Company's
shareholders as additional consideration for the surrender of 150,000 of his
warrants. The Company has attributed a value of $792,000 to the warrants as a
discount associated with the cost of selling the Units and is amortizing such
costs over the period the related debt is contemplated to be outstanding.
Amortization for the year ended December 31, 1996 amounted to $226,000. The
unamortized portion of these costs as of December 31, 1996, aggregating
$566,000 has been offset against the related note payable of $836,000.
In March, 1997, the Company obtained additional financing of $380,000 from
the private sale of another five Units, with the same terms as the original
private sale in November, 1996.
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 (Note 15), 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 Senior Vice President will devote
their respective time to the business of the Company on an as-needed basis.
F-14
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 - (Continued)
15. PROPOSED PUBLIC OFFERING
On November 6, 1996, (as amended on _______), the Company entered into a
letter of intent with an underwriter to sell, on a firm commitment basis,
1,270,000 shares of common stock (subject to an additional 190,500 common
shares if the underwriter exercises an over-allotment option in full). It is
currently estimated that the initial public offering price of the Common
Stock will be between $6.25 and $6.75 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.
16. LIMITED PARTNERSHIP AGREEMENT
On March 14, 1997, the Company entered into a Limited Partnership Agreement
(the "Agreement"), to develop an 18-hole public golf course, driving range and
instructional center in Monticello, New York. The Company will contribute
$25,000 and pursuant to the Agreement, agreed to commit another $475,000 within
five days after completion of the proposed public offering (Note 15). The
Company will also contribute $500,000 no later than July 1, 1997. The terms of
the Agreement include profit and loss sharing in accordance with respective
percentage ownership interests, limited liability for limited partners and
limitation on transfer of ownership interests.
F-15
<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
Page
--------
Prospectus Summary ........................... 3
Risk Factors ................................. 6
Use of Proceeds .............................. 12
Dilution. .................................... 13
Capitalization. .............................. 14
Dividend Policy .............................. 15
Selected Financial Data ...................... 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Business ..................................... 19
Management ................................... 24
Principal Stockholders ....................... 27
Certain Transactions ......................... 28
Description of Securities .................... 29
Shares Eligible for Future Sale .............. 30
Selling Stockholders; Plan of Distribution ... 31
Underwriting ................................. 34
Indemnification and Anti-takeover
Provisions .................................. 36
Legal Matters ................................ 36
Experts ...................................... 36
Additional Information ....................... 36
Financial Statements ......................... F-1
------
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.
1,270,000 Shares of Common Stock
------
PROSPECTUS
------
First United Equities Corporation
__, 1997
===============================================================================
<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.
SEC registration fee .......................... $ 13,141
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 ....................... 825,500
Underwriter's non-accountable expense allowance 247,650
Miscellaneous ................................. 3,944
===========
Total .................................... $1,477,000
===========
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.
5. In November, 1996, the Company issued 20,000 shares of Common Stock to
a former stockholder of U.S. Golf Corp. in exchange for the surrender
of his Class A Warrants.
6. In March, 1997, the Company issued and sold to various accredited
investors for an aggregate of $380,000, an aggregate of (i) $380,000 of
15% promissory notes and (ii) warrants to acquire 50,000 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 Amended Underwriting Agreement
10.13 Form of Lease Agreement with Murray L. Beer
10.24 Limited Partnership Agreement of The Island Glen Country Club, L.P.
24.1 Consent of Farber, Blicht & Eyerman, LLP, Independent Certified Public Accountants
24.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
25.1 Power of Attorney (included on signature page)
</TABLE>
II-3
<PAGE>
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:
(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 April 11, 1997.
U.S. GOLF AND ENTERTAINMENT INC.
By: /s/ EDWARD C. ROSS
---------------------------------
Edward C. Ross, Chairman
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 April 11, 1997
- --------------------------- Officer and Director (Principal
Edward C. Ross Financial and Accounting Officer)
/s/ STUART M. GOLDSTEIN President, Chief Executive Officer and April 11, 1997
- --------------------------- Director
Stuart M. Goldstein
/s/ CHUCK WORKMAN Senior Vice President and Director April 11, 1997
- ---------------------------
Chuck Workman
/s/ GARRY HOWATT Director April 11, 1997
- ---------------------------
Garry Howatt
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
1.1 Form of Amended Underwriting Agreement
10.13 Form of Lease Agreement with Murray L. Beer
10.24 Limited Partnership Agreement of The Island Glen Country Club, L.P.
24.1 Consent of Farber, Blicht & Eyerman, LLP, Independent Certified Public Accountants
24.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
25.1 Power of Attorney (included on signature page)
</TABLE>
<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 190,500 shares of Common Stock for the purpose of covering
over-allotments, if any. Such 190,500 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
<PAGE>
Agreement (the "Representative's Warrant Agreement") to be dated as of the
Closing Date (as hereinafter defined) for the purchase of up to an additional
127,000 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 48 months
thereafter (such 5-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 Registration Statement, or the
Prospectus at the time of filing thereof contained any untrue statement
2
<PAGE>
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, 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,
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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.
(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
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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 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.
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(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 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
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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 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.
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(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 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."
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<PAGE>
(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.
(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.
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(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,
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
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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.
(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
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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 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
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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
$127, which warrants shall entitle the holders thereof to purchase up to an
aggregate of 127,000 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.
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.
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(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 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
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<PAGE>
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.
(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:
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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.
(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
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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.
(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
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<PAGE>
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.
(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
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<PAGE>
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 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.
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(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 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
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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:
(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
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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 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
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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 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
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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 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
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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 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
25
<PAGE>
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;
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
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<PAGE>
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 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
27
<PAGE>
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 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:
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<PAGE>
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, 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.
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<PAGE>
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 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
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<PAGE>
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;
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
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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 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
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<PAGE>
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 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
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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.
(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
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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 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.
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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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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, by reason of any failure on the part of the Company to
perform any undertaking or satisfy any
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<PAGE>
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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FULLY NET LEASE
THIS IS AN AGREEMENT OF LEASE, made this ________ day of ______________________,
1997, between MURRAY L. BEER, being located at Suite 401, Two University Plaza,
Hackensack, New Jersey, 07601, Party of the First Part (hereinafter referred to
as "LANDLORD"), and U.S. GOLF AND ENTERTAINMENT, INC., a New Jersey Corporation,
being located at 134 Route 4 East, Englewood, New Jersey, 07631, Party of the
Second Part (hereinafter referred to as "TENANT").
W I T N E S S E T H:
Landlord, in consideration of the rents, covenants and agreements
hereinafter reserved, mentioned and contained on the part of Tenant, its
successors and assigns, to be paid, kept and performed, has leased, rented, let
and demised unto Tenant, and Tenant does hereby lease, take and rent, subject to
the conditions hereinafter expressed, the premises known as Tax Lot 2, Block
2601, Route 4 East, Englewood, New Jersey, and more particularly described on
Schedule "A" annexed hereto and made a part hereof (hereinafter referred to as
"The Premises"). This is a Fully Net Lease. The Landlord will pay no charges and
assume no burdens regarding these premises. Premises are leased subject to the
following:
a. Municipal Ordinance and Regulations, and Zoning Ordinances and
Regulations of the City of Englewood;
b. All covenants, reservations, restrictions, agreements and
easements, whether of record or not;
c. The liens of real estate taxes, municipal assessments, water rates,
water meter charges, ground lease, water courses, tideland claims, sewer
taxes, utilities and charges, accrued or unaccrued, fixed or not fixed,
known or unknown;
d. Any state of facts an accurate survey and title search of the
premises may disclose.
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TO HAVE AND TO HOLD The Premises unto Tenant, its successors and assigns,
for a term of twenty-five (25) years, to commence on the 1st day of May, 1997,
and to expire at midnight on the 30th day of April, 2022, or until said term
shall sooner cease and expire under the provisions hereof.
This Lease and Agreement is made on the following additional covenants,
agreements, terms, provisions, conditions and limitations, all of which Landlord
and Tenant covenant and agree to perform and observe:
ARTICLE 1
RENT AND PERCENTAGE RENT
1.01 Tenant covenants and agrees to pay to Landlord by a good and
sufficient check at the address of Landlord herein specified, or at such address
as Landlord may furnish as herein provided during the aforesaid term or any
renewal term thereof, a minimum net rental (hereinafter sometimes referred to as
the "Minimum Rent", "Net Rent", "Base Rent", or "Annual Rent") in equal monthly
installments, each payable in advance on the first day of each month during the
term hereof and any renewal term. Said minimum rent shall be paid to Landlord
without notice or demand and without abatement, deduction or set-off. The total
minimum rent for the term of the Lease, not including the Option, is
$5,775,000.00. The rent payable for the years one (1) and two (2) shall be
$200,000.00 per year payable at a monthly rate of $16,666.66. The rental for the
years three (3) and four (4) shall be $210,000.00 per year payable at the rate
of $17,500.00 per month. In like manner, the rent will increase by $10,000.00
every two years through the term of the Lease, and the Option, should it be
exercised by the Tenant. The Lease shall expire on April 30, 2022. The Tenant
will enter into occupancy of The Premises on May 1, 1997, and the first month's
rent shall be due on May 1, 1997. The rent is as follows:
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MONTHLY
YEARS YEARLY RENT RENT BEGINNING
5/1/97 thru 4/30/1999 $200,000.00 $16,666.66 5/1/97
5/1/99 thru 4/30/2001 $210,000.00 $17,500.00 5/1/99
5/1/2001 thru 4/30/2003 $220,000.00 $18,333.33 5/1/2001
5/1/2003 thru 4/30/2005 $230,000.00 $19,166.66 5/1/2003
5/1/2005 thru 4/30/2007 $240,000.00 $20,000.00 5/1/2005
5/1/2007 thru 4/30/2009 $250,000.00 $20,833.33 5/1/2007
5/1/2009 thru 4/30/2011 $260,000.00 $21,666.66 5/1/2009
5/1/2011 thru 4/30/2013 $270,000.00 $22,500.00 5/1/2011
5/1/2013 thru 4/30/2015 $280,000.00 $23,333.33 5/1/2013
5/1/2015 thru 4/30/2017 $290,000.00 $24,166.66 5/1/2015
5/1/2017 thru 4/30/2019 $300,000.00 $25,000.00 5/1/2017
5/1/2019 thru 4/30/2021 $310,000.00 $25,833.33 5/1/2019
5/1/2021 thru 4/30/2022 $315,000.00 $26,250.00 5/1/2021
LEASE ENDS
OPTION, IF EXERCISED
5/1/2022 thru 4/30/2023 $320,000.00 $26,666.66 5/1/2022
5/1/2023 thru 4/30/2025 $330,000.00 $27,500.00 5/1/2023
5/1/2025 thru 4/30/2027 $340,000.00 $28,333.33 5/1/2025
5/1/2027 thru 4/30/2029 $350,000.00 $29,166.66 5/1/2027
5/1/2029 thru 4/30/2031 $360,000.00 $30,000.00 5/1/2029
5/1/2031 thru 4/30/2032 $365,000.00 $30,416.66 5/1/2031
1.02 Notwithstanding the minimum rent reserved in Paragraph 1.01 of this
Lease, the parties agree that there are other sums that will become due that
will be deemed rent, but which will not be applied against the rents reserved in
Paragraph 1.01. The minimum rent will be the higher of either the amount stated
as due under Paragraph 1.01, or twenty-five (25%) percent of the gross income
attributable to The Premises. That is to say, the Tenant shall pay to the
Landlord a sum equal to twenty-five (25%) percent of the gross income
attributable to The Premises, or the minimum rent set forth in the above
schedule whichever is more. For example, if 25% of the gross income for the
lease year from 5/1/1997 to 4/30/98 is $250,000.00, and the Tenant has paid
$200,000.00 for that lease year, then the Tenant will pay an additional sum of
$50,000.00 within the time provided below. Each year of the lease will be
subject to the same calculations, to determine if the percentage of gross rent
provision is applicable.
1.03 Gross income shall be defined as all income derived from
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The Premises and any business thereon, including sales receipts and other money
earned by the Tenant or any other entity which is attributable to The Premises.
Each lease year shall be considered as an independent accounting period for the
purpose of computing the gross income attributable to The Premises. The Lease
year runs from May 1st through April 30th of each year.
1.04 The gross income shall be determined within thirty (30) days after the
last day of each lease year during the term of the Lease. The gross income shall
be determined, and the calculation of 25% thereof shall be made, and if that sum
is more than the current annual rent for that year, the Tenant shall forthwith
pay to the Landlord the additional sum due. If 25% of the gross income is less
than the Tenant's then current annual rent, there will be no reduction in rent,
for it is intended that the rent set forth in the schedule in Paragraph 1.01
shall be the minimum rent to be received by the Landlord.
1.05 In the event that the gross income for any year after the 3rd year of
this Lease is less than $1,000,000.00, the Landlord may, at his option, by
giving Tenant at least ninety (90) days written notice, terminate this Lease, by
which date the Tenant will vacate The Premises in accordance with the terms of
this Lease.
1.06 The term "gross income" as used herein, shall be construed to include
the entire amount charged by Tenant or related entity and any sub-tenant, on all
sales, rentals, sales of goods or merchandise, services rendered in, at, from,
or attributable to the Demised Premises, and sales wherever made, of services
and merchandise stored on the Demised Premises, or any business conducted from
the Demised Premises, whether on a cash basis, or on credit, paid or unpaid,
collected or uncollected, including deposits not refunded to customers and the
amount of any orders received at, or solicited from the Demised Premises,
although such services may be provided elsewhere. No deduction may be taken from
gross income, including for ATM charges or debit cards. Said term shall not
include:
(a) Any sales or excise tax imposed by any governmental authority, and
added to the price of a sale or service, and collectible from the customer,
and in turn payable by Tenant to
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such governmental authority.
1.07 Tenant shall prepare and keep, for a period of not less than four (4)
years following the end of each lease year, adequate books and records including
but not limited to inventories, purchases, and receipts of sales and
merchandise, and all sales and other transactions by Tenant. Tenant shall record
at the time of sale each receipt from sales or other transactions, whether for
cash or on credit, in a sealed cash register or registers having a cumulative
total. Tenant shall keep, for at least four (4) years following the end of each
lease year, all pertinent original sales records, which records shall include
(a) cash register tapes; (b) serially numbered sales slips; (c) mail orders; (d)
telephone orders; (e) transactions with sub-tenants; (f) rental receipts; (g)
receipts or other records of merchandise taken off premises; (h) such other
records which would normally be examined and required to be kept by an
independent accountant pursuant to generally accepted auditing standards in
performing an audit of Tenant's gross income; and (i) all income, sales, use and
occupation tax returns.
1.08 Tenant shall submit to Landlord on or before the 15th day following
the end of each month during the term hereof a written statement signed by
Tenant and certified by it to be true and correct showing the amount of gross
income during the preceding month. Tenant shall submit to Landlord on or before
the 30th day following the end of each lease year, payment for additional
percentage rents due, along with a written statement signed by Tenant and
certified by it to be true and correct, setting forth the amount of gross income
during the preceding percentage year, which statement shall also be duly
certified by an independent certified public accountant. The statements referred
to herein shall be in such form and style and contain such details and
breakdowns as Landlord may reasonably require. If the Tenant does not deliver
such reports as required by this paragraph, Tenant shall pay to the Landlord, as
additional rent, a late charge of $100.00 per day, for each day until the same
is received by the Landlord, for all such failures to submit sales reports as
due. The date of submission or delivery is deemed to be the date the document is
received by the Landlord. In addition, Landlord shall
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be entitled to all other remedies provided in this Lease, including
injunctive relief.
1.09 The acceptance by Landlord of payments of percentage rent, or reports
thereon, shall be without prejudice and shall in no case constitute a waiver of
Landlord's right to examination of Tenant's books and records of its gross
income and inventories, nor a waiver of tenants duty to remain fully staffed and
open for calendar seven (7) days per week.
1.10 Landlord shall have the right to cause, upon five (5)days notice to
Tenant, a complete audit to be made of Tenant's entire business affairs and of
all records including those specified in the preceding paragraphs, and Tenant
shall make all such records available for said examination at the Demised
Premises. If the results of such audit shall show that Tenant's statement of
gross income as required for any period has been understated then Tenant shall
pay Landlord the cost of such audit, and Landlord's reasonable legal fees
related thereto, in addition to any deficiency payment required. A report of the
findings of Landlord's accountant shall be binding and conclusive upon Landlord
and Tenant. The furnishing by Tenant of any statement that is inaccurate by
seven (7%) percent shall constitute a breach of, and an event of default of,
this Lease.
ARTICLE 2
ADDITIONAL RENT
2.01 Tenant shall, during the term, as additional rent (hereinafter
sometimes referred to as the "additional rent") discharge, as the same shall
become due and payable (or, if the bills therefore are directed to Landlord
rather than Tenant, within ten (10) days after Tenant's receipt of such bills
from Landlord), all charges and costs related to the premises of any and every
type whatsoever, including all real property taxes, assessments, ground lease
payments, water rents, utility bills, rates and charges, sewer rents and other
governmental impositions and charges of every kind and nature whatsoever,
extraordinary as well as ordinary, known or unknown, and each and every
installment thereof, and all fees and charges of private, public or governmental
authorities for
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construction, maintenance, occupation or use during the term, of The Premises or
of the water and sewer pipes or connections thereto, or for any sidewalk or
street on or adjacent to The Premises, which shall or may during the term be
charged, laid, levied, assessed, imposed, become due and payable, or liens upon
or for The Premises or any part thereof, or any buildings, appurtenances or
equipment thereon or therein or any part thereof, or the sidewalks or streets in
front of or adjoining The Premises, and Tenant shall pay all taxes charged,
laid, levied, assessed or imposed in lieu of the foregoing, together with all
interest and penalties thereon, under or by virtue of all present or future
laws, ordinances, requirements, orders, directions, rules or regulations of the
Federal, State, County and City governments and of all other governmental
authorities whatsoever, and of all public utility companies which may service
The Premises. To the extent that the same may be permitted by law, Tenant shall
pay all charges aforesaid immediately when they are due and payable, without
converting those charges to periodic payments and Tenant shall pay and discharge
punctually said sums as they shall become due and payable during the term; and
Tenant shall pay all water, gas, electric and sewer charges in full without
proration or delay; and such prior payment shall be a condition of exercise of
Tenant's Option to extend this Lease.
2.02 Tenant shall also pay, within ten (10) days after the same shall
become due and payable, all charges for taxes, assessments, ground lease,
municipal improvements, water, steam heat, gas, hot water, electricity, light
and power, garbage collection, and any other service or services furnished to
The Premises or the occupants thereof during the term of this lease. Tenant
shall be deemed to have complied with the covenants of this Article if payment
of such tax, assessment, ground lease payment, water rent, rate or charge, sewer
rent or other governmental imposition or charge shall have been made, either
within any grace period allowed by law or by the governmental authority imposing
the same during which payment is permitted without penalty or interest
(provided, however, that the loss of an available discount shall not be deemed
to constitute a penalty or interest charge) or before the same
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shall become a lien upon The Premises, whichever is earlier, and Tenant shall,
within twenty (20) days after the time above provided for the payment by Tenant
as enumerated above, produce and exhibit to Landlord receipted bills or
sufficient and adequate copies of same, as proof of such payment.
2.03 Tenant shall have the right to contest or review by legal proceedings,
or in such other manner as it may deem suitable (which, if instituted, Tenant
shall conduct promptly at its own expense and free of any expense to Landlord),
any tax assessment, water rent, rate or charge, sewer rent or other private,
public or governmental imposition, fee or charge assessed against The Premises,
provided that such contesting or review will not subject Landlord to civil or
criminal penalties of any nature and, upon condition that before instituting any
such proceedings, if the contested items shall not have been paid, Tenant shall
furnish to Landlord a surety company bond, sufficient to cover the amount of the
contested items with interest and penalties for the period which such
proceedings may reasonably be expected to take, securing payment of such
contested items, interest and penalties and all costs in connection therewith,
and upon the furnishing of such bond, if available as aforesaid, Tenant shall
not be deemed to be in default in the payment of such contested items.
Notwithstanding the provisions of the foregoing sentence or the furnishing of
any such bond, Tenant shall promptly pay all such items if at any time The
Premises or any part thereof shall be in danger of being forfeited or lost by
reason of such nonpayment, and upon such payment any such bond may be canceled
and discharged. The legal proceedings herein referred to shall include
appropriate certiorari proceedings and appeals from orders therein and appeals
from any judgments, decrees or orders, but all such proceedings shall be begun
as soon as is reasonably possible after the imposition or assessment of any
contested item and shall be prosecuted to final adjudication with reasonable
dispatch. If the Landlord in his discretion should intervene in, or review such
proceedings the Tenant shall reimburse Landlord for any reasonable legal fees
and expenses incurred by Landlord in connection therewith. In the event of any
reduction, cancellation or discharge of any such
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contested item, Tenant shall pay the amount finally levied or assessed against
The Premises or adjudicated to be due and payable on any such contested item;
and upon such payment any such bond may be canceled and discharged, and if there
shall be any refund with respect thereto Tenant shall be entitled to the same.
2.04 Notwithstanding anything to the contrary contained in Article, upon
Tenant's lawful assignment of this Lease in accordance with the consent of the
Landlord, which consent may be unreasonably withheld, the Tenant shall
thereafter, in all instances, be required to post a surety company bond, cash
deposit or other security reasonably satisfactory to Landlord, securing payment
of such contested items, interest and penalties, in the event it desires to
contest or review any such tax, assessment, water rent, rate or charge, etc.
2.05 Nothing herein contained shall require or be construed to require
Tenant to pay any inheritance, estate, succession, transfer, gift, franchise,
capital levy, income or profit tax, any corporate income or gross receipts tax
(except any gross receipts tax measured by the rent payable hereunder), that is
or may be imposed upon Landlord, its successors or assigns, unless such taxes
shall be levied upon the rent reserved herein instead and in lieu of real estate
taxes upon the real property hereby demised, nor shall Tenant be required to pay
any judgments or liens against The Premises created or suffered by Landlord, or
principal, interest or other charges in respect of any fee or leasehold mortgage
covering The Premises.
ARTICLE 3
REPAIR and REPLACEMENT
3.01 Any and all buildings and improvements which may be erected or placed
upon The Premises at any time during said term shall be kept, outside and
inside, structural or otherwise, including sidewalks, parking areas, driving
range, nets, miniature golf course, or grounds or streets in front or
appurtenant to the same, in good and substantial order and repair by Tenant at
its sole cost and expense, and Tenant shall comply with all laws, ordinances,
orders, regulations, rules and requirements of every kind and nature, and
whether the same or any of them relate to any
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ordinary or extraordinary structural or non-structural changes or requirements
to or in and about the premises or any buildings thereon, including sewage,
water, water courses, sidewalks, parking areas or streets, or to changes or
requirements incident to or the result of any use or occupation thereof, or due
to the widening of or change in any street, road, avenue, or water course on
which the premises may abut. All buildings, improvements and facilities shall be
repaired and replaced in whole or in part, as required for proper upkeep, and
this includes but is not limited to, the repaving of parking lots and
replacement of roofs and HVAC.
3.02 Tenant shall comply with all orders of the Municipal, County, State
and Federal authorities, and each of them, their bureaus and departments, and
the appropriate Board of Fire Underwriters or any other Board or Fire Exchange
for standard fire insurance policies having jurisdiction over or relating to the
premises and the buildings and improvements thereon, and shall pay any and all
costs and expenses incident to such compliance, and shall indemnify and save
harmless Landlord of and from all costs, expenses, claims and damages by reason
of any notices, orders, rules, regulations, requirements, violations or
penalties filed against or imposed upon the premises, or any part thereof, or
against Landlord as owner thereof because of the failure of Tenant to comply
with this covenant.
3.03 Tenant shall have the right to contest or review any notice, order,
rule, regulation, requirement, violation or penalty issued against The Premises
by legal proceedings, or in such other manner as it deems suitable, provided
that such action will not subject Landlord to civil or criminal penalties of any
nature, and may have, if able, any such notice, order, rule, regulation,
requirement, violation or penalty canceled, removed or revoked without actual
compliance with the same, and if such actions or proceedings are instituted,
they shall be conducted promptly at the expense of Tenant and free of expense to
Landlord; and Tenant shall reimburse Landlord for any reasonable legal fees and
expenses incurred by Landlord in connection therewith; and if as a result of any
such actions or proceedings any notice, order, rule, regulation, requirement,
violation or penalty is modified or
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partially revoked or canceled, Tenant shall then be obligated to comply only
with that part thereof which shall remain in force and effect. The legal
proceedings herein referred to shall include appropriate appeals from any
judgments, decrees or orders.
3.04 All such legal proceedings and appeals instituted by Tenant shall be
begun as soon as possible after the filing of any such notice, order, rule,
regulation, requirement, violation or penalty, and shall be prosecuted to final
adjudication with all promptness and dispatch. If and when ever any such notice,
order, rule, regulation, requirement, violation or penalty shall become absolute
against Tenant and The Premises, or against Landlord, Tenant shall then comply
with the same with due diligence and if Tenant, within thirty (30) days thereof,
shall not comply with the same, Landlord may comply therewith and the cost and
expense of so doing will be paid by the Tenant to the Landlord, and the
provisions contained in Article 8 of this lease shall apply. Tenant shall be
required to comply with any recommendations of the appropriate Board of Fire
Underwriters or any other Fire Exchange for standard fire insurance policies
having Jurisdiction over or related to The Premises. Landlord and its agents and
other representatives shall have the right to enter into and upon The Premises
or any part thereof, at all reasonable hours, for the purpose of examining the
same.
3.05 Landlord and its agents and other representatives shall also have the
right to enter into and upon The Premises or any part thereof, for the purpose
of making such emergency repairs therein as may be necessary to prevent imminent
loss or damage to The Premises provided that Tenant shall have not have
commenced making such repairs. Landlord, however, is not under any obligation to
make any repairs, alterations or improvements of any kind whatsoever, structural
or otherwise, but Tenant shall make all such repairs, alterations, replacements
and improvements at its own cost and expense. However, in case of the neglect or
default of Tenant in making the same, Landlord may do so, and all the cost and
expenses attendant thereto, with interest thereon, shall be immediately paid by
Tenant to Landlord. It is the intention of the parties that the Landlord shall
receive the premises at the end of
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the term in the highest good order of repair and condition.
ARTICLE 4
INDEMNIFICATION OF LANDLORD
4.01 Tenant shall hold Landlord harmless against any and all claims,
damages, suits or causes of action for damages arising after the commencement of
and during the term hereof, or any renewal term hereof, and any lawsuits,
claims, orders, decrees or judgments which may be entered therein, brought for
damages or alleged damages resulting from any injury to person or property or
from loss of life sustained in or about The Premises and the buildings and
improvements thereon, or in or upon the sidewalks, streets, walkways, golf
driving ranges, miniature golf courses, or facilities on the Demised Premises,
or in front of or appurtenant thereto, by any person or persons whatsoever,
except if caused as a result of the willful and malicious acts of Landlord, its
agents or employees.
4.02 The Landlord shall not be liable for any personal injuries or damage
to Tenant, its agents or employees, or to any other persons or to any occupant
of any part of The Premises, or for any injury or damage to any goods, wares,
merchandise, equipment or property of Tenant, or of any occupant of any part of
The Premises, irrespective of how the same may be caused, whether from action of
the elements or acts of negligence of the owner or occupants of the adjacent
properties.
4.03 Tenant shall and will indemnify and save harmless Landlord of and from
any and all liability, loss, damage or expense, cause of action, suits, claims
and judgments, including reasonable legal expenses in connection with defending
against such action, suit or claim, arising from injury to persons or property
of any and every nature and for any matter or thing growing out of the
occupation of The Premises, or any part thereof, or arising or growing out of
the use, occupation, management or possession of The Premises, or of any
building thereon, or any part thereof, or of the property adjacent thereto,
occasioned by Tenant, its agents, employees or occupants of any part of The
Premises, or by their agents or employees, respectively, or which may be
occasioned by any person or thing whatsoever. Tenant shall indemnify and save
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harmless the Landlord from all liability caused by the actions of the City of
Englewood or County of Bergen, or any of the departments, bureaus, etc., in
construction of any public work, or of any other matter, at any time during the
term hereof.
ARTICLE 5
INSURANCE
5.01 Tenant shall, throughout the term of this lease at its own cost and
expense, provide and keep in force for the benefit of Landlord, all risk
insurance against loss or damage or injury or destruction of any building or
buildings hereafter erected on The Premises resulting from fire, or from any
hazard, and as a minimum, Tenant shall produce all risk casualty insurance,
liability insurance, the extended coverage endorsement, including plate glass
insurance, sprinkler leakage, collapse and vandalism and malicious mischief, and
"All Risks of Physical Loss" coverage, in such company or companies as may be
reasonably acceptable to Landlord, and if more than one company is used, with
such distribution of the amount thereof among such companies as may be approved
by Landlord. In addition to the foregoing, Tenant shall, at its own cost and
expense, provide and keep in force for the benefit of Landlord, insurance
against loss or damage or injury or destruction of any building or buildings
hereafter erected on the premises resulting from water and flood damage.
5.02 Tenant shall provide and keep in force all such insurance in an amount
equal to the full replacement cost of the buildings, including the fixtures and
equipment therein, and Landlord shall, from time to time, increase the insurance
coverage, including liability coverage, to compensate for increases in the
Consumer Price Index over the base year of 1997. If at any time Landlord and
Tenant cannot agree as to the full replacement cost of the building, and the
fixtures and equipment, or regarding the amount of liability insurance coverage,
the value of same shall be determined by the insurance company with whom the
policy or policies of insurance are being maintained by, and the amount of
insurance so determined shall be the amount of insurance to be carried. Such
insurance policies to be provided for and kept in
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force by Tenant shall provide that the loss, if any, be payable to Landlord and
Tenant as their respective interests may appear. Where reference is made
hereinabove to fixtures and equipment, the parties hereto intend that the same
be fixtures and equipment used on or in connection with the premises, or used in
connection with the operation of the buildings or structures located on The
premises. Landlord may require that the interest of any mortgagee under a
mortgage to which this lease is subordinate, be protected by proper endorsements
to any such policies or certificates of insurance, and that the originals of
such policies or certificates of insurance be delivered either to such mortgagee
or to Landlord; provided, however, that all proceeds of such insurance shall be
made available for application as in this lease provided.
5.03 Tenant shall provide and maintain insurance for loss or damage by
explosion of steam boilers, pressure vessels or similar apparatus hereafter
installed on The Premises. Said insurance shall be on a Boiler and Machinery
Broad Form Policy of not less than $250,000 on a repair and replacement basis,
plus Bodily Injury coverage.
5.04 Tenant shall provide and maintain general liability insurance
(including personal injury and property damage) in the usual form, in the single
limit amount of $3,000,000, and such insurance shall name both Landlord and
Tenant as insured thereon; and Tenant shall pay the premium on all said policies
as they are due; and Tenant shall promptly deliver to Landlord certificates for
said policies. Tenant will, without notice or demand, have the Landlord named as
party insured under said policies, entitled to the full benefits and protection
afforded by the provisions of said policies. The liability insurance coverage
shall be increased from year to year in accordance with the Consumer Price Index
increases, over the base year of 1997. That is to say, if there is a 3% increase
in the consumer price index over the base year of 1997, the amount of liability
insurance coverage will be increased by 3%, and likewise the consumer price
increase shall be calculated each year and the insurance adjusted in the same
fashion each year.
5.05 Tenant shall provide and maintain insurance against loss of rental,
under a rental value insurance policy
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covering risk of loss due to the occurrence of any of the hazards described in
Article 5, in an amount equal to the sum of one (1) years annual rent as
provided for herein, as the same may be increased from time to time, plus the
amount of any real estate taxes for the period of twelve (12) months next
following the occurrence of the insured casualty, which policies shall be
payable to Landlord and Tenant as their interest may appear. Said policies of
insurance shall be deposited with Landlord, and Tenant does hereby assign to
Landlord the proceeds of such insurance, if, as and when collected, and said
proceeds shall be held in trust and applied by Landlord on account of the annual
rent or any increased annual rent or any additional rent accruing under the
terms of this Lease, the balance, if any, to be paid to Tenant. Tenant shall pay
the premium on all said policies. It is agreed that the annual rent or the
increased annual rent payable hereunder shall abate to the extent of the
proceeds of such insurance policies as may be received by Landlord, but that
Tenant shall remain fully responsible for such rents which exceed the amount of
the proceeds of such insurance.
5.06 Each such policy or certificate therefor issued by the insurer shall,
to the extent obtainable, contain an agreement by the insurer that such policy
shall not be materially changed or canceled without the Landlords consent, and
without at least twenty (20) days prior written notice to Landlord and to any
such mortgagee named as loss payee thereunder.
5.07 Upon the failure at any time on the part of Tenant to procure and
deliver to Landlord any of the policies of insurance or certificates as
hereinabove provided, at least twenty (20) days before the expiration of the
prior insurance policies, if any, or to pay the premiums therefor, Landlord
shall be at liberty from time to time, but shall not be required, to obtain such
insurance and to furnish Landlord with certificates for such insurance, and to
procure such insurance for a term not exceeding one (1) year and to pay the
premiums therefor, and any sums paid for insurance by Landlord shall be and
become and are hereby declared to be rent under this Lease forthwith due and
payable.
5.08 Tenant shall procure an appropriate clause in, or
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endorsement on, any fire or exceeded coverage insurance policy covering The
Premises and the buildings and personal property, fixtures and equipment located
thereon or therein pursuant to which the insurance companies waive subrogation
or consent to a waiver of right of recovery, and having obtained such clauses
and/or endorsements of waiver of subrogation or consent to a waiver of right of
recovery, the Tenant agrees that it will not make any claim against, or seek to
recover from the Landlord for any loss or damage to its property or the property
of others resulting from fire or any other perils whether or not covered by such
fire and extended coverage insurance.
ARTICLE 6
DESTRUCTION AND DAMAGE
6.01 If during the term of this Lease, the buildings, and improvements
erected thereon or therein, shall be destroyed or damaged in whole or in part by
fire or any other cause, Tenant shall give to Landlord prompt notice thereof,
and Tenant, at its own cost and expense, shall, promptly repair, replace and
rebuild the same with a structure of substantially the same character and
condition as existed immediately prior to such occurrence, and Landlord shall,
in no event, be called upon to repair, replace or rebuild any such buildings,
improvements or equipment, nor to pay any of the cost or expenses thereof, and
the Tenant shall not be entitled to an abatement of rent by reason of the damage
or destruction to The Premises.
6.02 For the purpose of paying towards the cost of such repairs,
replacement or rebuilding, in the event of a loss in excess of $25,000.00,
Landlord and Tenant shall deposit the proceeds of insurance with the Landlord as
trustee and such trustee shall make available and pay from time to time, but in
no event more frequently than once in each month, all net sums received under
insurance policies covering such loss or losses as provided for herein, at the
request of or at the direction of Tenant to the parties whom Tenant may employ
to repair, replace or rebuild the same, as such repairs, replacements or
rebuildings shall progress or to Tenant, if Tenant shall make or pay for such
repairs, re-
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placement or rebuilding, in reimbursement for work and materials actually
incorporated in The Premises. Such payment shall be made by such trustee upon
written request from an officer of Tenant, or in the event that an architect has
been retained to supervise said work, then said payments by said trustee shall
be made upon appropriate requisition certificates of the architect in charge of
such work; provided, however, that in each instance of requisition prior to the
completion of such work, said officer of Tenant or the architect, if any, shall
also certify to the trustee and Landlord, and, at Landlord's request, to the
holder of any mortgage to which this lease is subordinate, that the cost of the
then remaining work necessary for completion thereof does not exceed ninety
(90%) percent of the balance of said insurance proceeds as will remain after
payment over the sum so requisitioned, and that such work has been prosecuted in
accordance with the plans and specifications therefor.
6.03 If in the course of such work any mechanic's, construction, or other
lien, or order for the payment of money, shall be filed against The Premises or
against Landlord or Tenant or any contractor of Tenant, or if Tenant shall be in
default in the payment of any rent or additional rent then due and payable, or
if there is any existing and unremedied default on the part of Tenant under the
agreements, terms, covenants and conditions of this lease as to which Landlord
has served notice upon Tenant and with respect to which Tenant has failed to
cure within the time provided for herein, such trustee shall not make any
payment of such insurance proceeds until and unless such lien or order shall
have been fully bonded, satisfied, canceled, discharged of record or complied
with, and/or until such default shall have been cured. In the event of a loss
less than $25,000.00, such proceeds of insurance shall be assigned or paid
directly to Tenant, to be applied by it in accordance with the provisions of
this Article headed "DESTRUCTION AND DAMAGE".
6.04 If the net amount of such insurance proceeds shall be insufficient for
the proper and effective repair, replacement or rebuilding of such damaged or
destroyed buildings, improvements or equipment, Tenant shall pay the additional
sums required, and if
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the amount of such insurance proceeds shall be in excess of the cost thereof,
the excess shall be paid to and retained by Tenant.
6.05 The repairs, replacement or rebuilding to be performed by Tenant shall
not be delayed by Tenant because of failure to receive the insurance proceeds or
by reason of Tenant's inability to adjust the amount of insurance to be paid.
Tenant shall proceed to repair, replace or rebuild the structures, improvements
and equipment promptly, and, in the event that such work shall not be commenced
within ten (10) days from the date of loss and shall not be expeditiously
prosecuted to completion, Landlord shall have the right to cancel and terminate
this lease by giving to Tenant not less than fifteen (15) days notice of
intention to do so, and, if upon the expiration of the time fixed in such
notice, such work shall not have been commenced and the other agreements, terms,
covenants and conditions herein complied with, or, if after commencement
thereof, the work shall not have been expeditiously prosecuted, as the case may
be, this lease and the term hereof may be terminated by the Landlord, and all
such insurance proceeds shall belong to and shall be retained by Landlord, and
Tenant shall remain liable for all of its obligations under this Lease.
6.06 Such work and the performance thereof shall be subject to and shall be
performed in accordance with the provisions of the Article of this Lease headed
"ALTERATIONS, IMPROVEMENTS AND ADDITIONS".
6.07 The fifteen (15) day period mentioned in Article 6 shall be extended
by such period as Tenant may be delayed by strikes, labor or material shortages,
embargoes, governmental restrictions or priorities, or other causes beyond
Tenant's reasonable control; provided, however, that lack of required monetary
funds shall not be deemed to be a cause beyond Tenant's reasonable control.
6.08 If, at any time during the last one (1) year of the original term, or
during the last one (1) year of any renewal term, of this Lease, the buildings
and improvements on The Premises shall be so destroyed or damaged by fire or any
other cause that the cost of the restoration exceeds fifty (50%) percent of the
full replacement cost of such buildings, improvements or equipment immediately
prior to such destruction or damage, either party may,
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within the period of ten (10) days after the date on which such destruction or
damage occurs, give notice to the other of its election to terminate this lease,
and this lease and the term of this Lease shall cease and expire on the date of
expiration of the period of ten (10) days after the date on which such notice is
given with the same force and effect as if such date were the date originally
set forth in this lease for the expiration of this Lease and the term of this
Lease, and, in such event, Tenant shall have no obligation to repair, replace or
rebuild such buildings, improvements or equipment and the proceeds of insurance
referred to in Article 6 shall be paid to and belong to Landlord.
ARTICLE 7
WAIVER OF REDEMPTION
7.01 It being clearly understood by Tenant that Landlord is unwilling to
enter into any lease of The Premises unless any statutory rights of redemption
after a dispossess proceeding shall be waived by Tenant and Tenant being willing
to waive all such rights of redemption in order that it may secure a long term
lease, Tenant covenants and agrees that in the event of an action of ejectment,
or any other action or proceeding to dispossess, terminating this lease, the
right of redemption, if any, provided or permitted by any statute, law or
decision, now or hereafter in force, shall be and hereby is expressly waived.
ARTICLE 8
PAYMENT TO LANDLORD
8.01 In case Landlord shall pay or be compelled to pay any sum of money or
do any act which shall require the expenditure or payment of any sum by reason
of the failure of Tenant to perform any one or more of the covenants herein
contained, Tenant shall immediately pay the same to Landlord upon demand, with
interest thereon at ten (10%) percent per annum, and in default thereof, the sum
or sums so paid or to be incurred by Landlord, together with all interest, costs
and damages, shall be additional rent becoming due immediately, and shall for
all purposes whatsoever be deemed to be rent due and payable immediately, or on
any subsequent day, as
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Landlord may, at Landlord's option, elect, and shall be payable as such, but it
is expressly covenanted and agreed hereby that payment by Landlord of any such
sums of money or the doing of any such acts shall not be deemed to waive or
release the default in the payment or doing thereof by Tenant, or the right of
Landlord to recover possession, at Landlord's election, of The Premises by
reason of Tenant's default with respect to any such payment or act. The
Landlord may demand and receive payment from the Tenant in advance of the date
that the Landlord elects to make payment.
ARTICLE 9
LIENS
9.01 If any mechanic's or other lien or order for the payment of money
shall be filed against The Premises or any building or improvement thereon by
reason of any change or alteration to The Premises or any addition or new
building located thereon, or the cost or expense thereof, or any contract
relating to the same, or against Landlord as owner thereof, as a result of or
arising out of any labor or material furnished, or alleged to have been
furnished, or to be furnished, to or for Tenant, or anyone claiming by, through
or under Tenant, at The Premises, Tenant shall, within thirty (30) days after
notice to Tenant of the filing thereof, cause the same to be canceled and
discharged of record by bond or court order, at the election of Tenant, but in a
manner to the reasonable satisfaction of Landlord, and shall also defend for
Landlord, at Tenant's sole cost and expense, any action, suit or proceeding
which may be brought thereon or for the enforcement of the same, and will pay
any damages and satisfy and discharge any judgment entered therein and save
harmless Landlord from any liability, claim or damage resulting therefrom.
9.02 Tenant shall have the right to contest or review by legal proceedings,
or in such other manner as it may deem suitable (which, if instituted, Tenant
shall conduct promptly at its own expense and free of any expense to Landlord),
any such lien filed against The Premises upon condition that before instituting
any such proceedings, if the contested item or items shall not have been paid
and are in the aggregate in excess of $25,000.00, Tenant
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shall furnish to Landlord a surety company bond, sufficient to cover the amount
of such contested items, with interest and penalties for the period which such
proceedings may reasonably be expected to take, securing payment of such
contested items, interest and penalties, and all costs in connection therewith,
and upon the furnishing of such bond, Tenant shall not be deemed to be in
default in the payment of such contested items. Notwithstanding the provisions
of the foregoing, or the furnishing of any such bond, Tenant shall promptly pay
all such items if at any time The Premises or any part thereof shall be in
danger of being forfeited or lost by reason of such nonpayment, and upon such
payment any such bond may be canceled and discharged. The legal proceedings
herein referred to shall include appropriate appeals from any judgments, decrees
or orders, but all such proceedings shall be begun as soon as is reasonably
possible after the imposition or assessment of any contested item, and shall be
prosecuted to final adjudication with reasonable dispatch. In the event of any
reduction, cancellation or discharge of any such contested item, Tenant shall
pay the amount finally levied against The Premises or adjudicated to be due and
payable on any such contested item, and upon such payment any such bond may be
canceled and discharged, and if there shall be any refund with respect thereto,
Tenant shall be entitled to the same.
ARTICLE 10
HOLDOVER BY TENANT
10.01 In the event that the Tenant shall holdover and remain in possession
of the leased property after the expiration of this Lease, or at such sooner
date as the Lease may be terminated by reason of the provisions thereof, without
the Landlord's consent, it shall not be deemed or construed to be a renewal or
extension of this Lease, but it shall operate to create a holdover tenancy, at
which time the rent shall accrue at double the amount of the rent then due and
owing.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
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11.01 Tenant may not assign this Lease. Tenant may not sublet The Premises,
except to a wholly owned subsidiary, after having obtained the written consent
of the Landlord, and provided that U.S. GOLF AND ENTERTAINMENT, INC. shall
remain fully and primarily liable under the terms of this Lease.
11.02 Tenant may not sublet The Premises without the prior written consent
of Landlord, which consent may not be unreasonably withheld; provided, however,
in connection with any sublet of The Premises, Tenant shall comply with the
following:
(a) At the time of any sublet, this Lease must be in full force and
effect without any uncured or continuing Event of Default hereunder on the
part of Tenant;
(b) The sub-tenant shall assume, by written instrument in form
reasonably satisfactory to Landlord, the due performance of the Tenant's
obligations under this Lease;
(c) A copy of any sub-lease, both in form and content reasonably
satisfactory to Landlord, fully executed and acknowledged by the
sub-tenant, together with a certified copy of a properly executed corporate
resolution (if the sub-tenant be a corporation) authorizing such sub-lease,
shall be delivered to Landlord prior to the effective date of such
sub-lease for the Landlord's review; and
(d) The use of the premises shall continue to be the same as that
presently authorized by the lease; and
(e) The Tenant shall pay the Landlord's attorney's fees and expenses
regarding this matter, including the review and approval of the sub-lease.
11.03 If Tenant is a corporation, then the sale, issuance or transfer of
any voting capital stock of Tenant which shall result in a change in the voting
control of Tenant shall be deemed to be a prohibited assignment of this Lease
within the meaning of this Paragraph.
ARTICLE 12
ARBITRATION
12.01 Neither the Landlord nor the Tenant shall be required to arbitrate
any disputes under this Lease.
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ARTICLE 13
ALTERATIONS, IMPROVEMENTS AND ADDITIONS
13.01 Subject to the compliance with and observance of all of the terms,
conditions, covenants and agreements provided for in this lease, Tenant shall
have the right, to be exercised at Tenant's option at any time during the term
of this Lease, to make alterations, improvements and/or additions, structural or
otherwise, in and to The Premises; provided, however that: (a) such alteration,
improvement and/or addition does not materially impair the value of The Premises
or change the character of The Premises so as to be in violation of the
provisions of the Article of this Lease headed "USE OF PROPERTY", (b) Tenant
notifies Landlord of its intention to make such alterations, improvements and/or
additions in writing prior to the commencement of any such work, (c) if the cost
of the proposed alteration, improvement and/or addition is in excess of
$25,000.00, furnish Landlord with a copy of the plans and specifications for
such work, and, (d) Tenant shall obtain the prior written consent of Landlord
and the holder of any mortgage to which this Lease is subordinate, which consent
shall not be unreasonably withheld so long as Tenant delivers adequate security
that it will restore The Premises on termination of this Lease, and (e) On
termination of this Lease, the Tenant will, at the option of the Landlord,
restore The Premises to the condition it was prior to the improvement,
alteration or addition.
13.02 In connection with such work, Tenant shall be required to procure and
deliver to Landlord a performance and payment bond in an amount equal to the
estimated cost of construction of such alteration, improvement and/or addition,
in the event any of the following shall occur' (a) The cost of the proposed
alteration, improvement and/or addition is in excess of $25,000.00 or involves a
permanent structure, or a change to a structure on The Premises.
13.03 In the event Tenant is required to post a performance and payment
bond in accordance with Article 13.02 above, such bond shall be executed by a
surety company or companies reasonably satisfactory to Landlord and shall be in
a form approved by Landlord guaranteeing that Tenant shall and will:
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(a) Make, erect and complete the proposed improvement in accordance
with such plans and specifications therefor, and in compliance with the
building code and all laws, ordinances, rules, regulations and orders of
any governmental bureau, body or officer having competent authority to make
the same and which may be applicable to the erection or construction of
said improvement;
(b) Complete said improvement within the time to be therein specified
(except if delayed by strikes, labor or material shortages, embargoes,
governmental restrictions or priorities or other causes beyond Tenant's
reasonable control) and fully pay for the same at the times and in the
manner as fixed by contracts therefor; and
(c) Perform any and all duties which are or may be legally imposed on
Landlord as owner of The Premises in connection with the construction, and
obtain any necessary certificates of occupancy therefor.
13.04 During the period of such work, Tenant shall pay all items of rent,
percentage rent, and additional rent which Tenant is obligated to pay under any
other provision of this Lease. Wherever in this Lease rent is required to be
paid by Tenant, it shall mean all rent, without exception, including net rent,
base rent, percentage rent, additional rent, and all other Tenant's impositions.
It is mutually understood and agreed that the liability of the surety or
sureties on said bond or bonds may, from time to time, be reduced so that the
amount therefor at any time in force shall be equal to the estimated cost of
completion of the balance of the improvement, but that said liability, as the
same may from time to time be reduced as aforesaid, shall continue for the
benefit of Landlord until the completion of said improvement and the expiration
of four (4) months next succeeding the date of such completion, or until
satisfactory proof has been submitted to Landlord that said improvement has been
fully paid for and The Premises are free of any mechanic's or other liens or
claims for which a lien may be filed in connection with such work. Tenant
further agrees that at all times during construction, Tenant will indemnify and
keep indemnified Landlord against loss on account of
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injuries to person or property, and against loss by way of penalties or
otherwise on account of the failure of Tenant to perform or fulfill any duty
imposed upon Landlord in, or arising out of, or connected with the intended
construction, either by appropriate endorsement on the policy or policies of
general liability insurance referred to in this lease, or by obtaining policies
of insurance with the same limitations of coverage to cover Landlord and Tenant
during such construction. Landlord shall, upon request of Tenant, but at
Tenant's sole cost and expense, join in Tenant's application for any building
permit or license required in connection with such alteration, improvement
and/or addition, and only upon Landlord's prior written consent, which shall not
be unreasonably withheld, grant such underground utility easements as may be
required in connection therewith.
13.05 Any such alteration, improvement and/or addition to The Premises
shall immediately be and become the property of Landlord.
ARTICLE 14
USE OF PROPERTY
14.01 Tenant will not do, cause or knowingly permit to be caused, any waste
or damage, disfigurement or injury to The Premises or any part thereof, nor
shall Tenant use or knowingly allow The Premises or any part thereof, to be used
or occupied for: (a) any unlawful purpose, or (b) in a manner that would, in any
way, violate any certificate of occupancy affecting the premises, or (c) in any
way which may make void or voidable any insurance then in force with respect to
the premises, or (d) in a manner that will cause, or be likely to cause,
structural injury to the premises, or (e) in a manner that would constitute a
private or public nuisance, or (f) in a manner to violate Environmental
Protection Laws or Regulations, or any other Federal, State or Municipal
governmental rule or regulation.
14.02 Tenant, without the express written consent of Landlord, may only use
The Premises: (a) for an upscale family oriented recreation facility limited to
a two-level heated golf driving range; (b) an 18-hole miniature golf course; and
(c) a related club house. No other uses are permitted.
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14.03 Nothing contained in this Article headed "USE OF PROPERTY" and no
action or inaction by Landlord hereunder shall be deemed or construed to mean
that Landlord has granted to Tenant any right, power or permission to do any act
or make any agreement that may create, give rise to, or be the foundation for
any right, title, interest, charge or other encumbrance upon the estate of
Landlord in The Premises.
14.04 Tenant, throughout the term of this lease, shall comply with all of
the terms, provisions and conditions of all documents of record subject to which
Landlord acquired title to The Premises.
14.05 Tenant acknowledges that Tenant has heretofore consulted with the
Building Inspector of the City of Englewood, and has received assurances to
Tenant's satisfaction that Tenant's proposed use and occupancy of the Demised
Premises is permitted under the zoning and other ordinances of said City. Tenant
further acknowledges that the execution and delivery of this Lease is based upon
Tenant's independent investigation as to permitted uses and not upon any
representation by or actions of the Landlord with respect thereto, and Tenant
assumes all liability with respect to Tenant's use and occupancy of the Demised
Premises as being a permitted use.
ARTICLE 15
SALE AND INSPECTION BY LANDLORD
15.01 Tenant shall permit Landlord or the agents of Landlord to show The
Premises for sale or lease between the hours of nine o'clock in the forenoon and
six o'clock in the afternoon on business days.
ARTICLE 16
MEMORANDUM OF LEASE
16.01 Upon request of either party to this Lease, Landlord and Tenant agree
to execute and deliver a memorandum of this Lease, and a memorandum of any
modification of this Lease, in recordable form.
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ARTICLE 17
TENANT'S RECORDS
17.01 Tenant agrees that throughout the term of this lease and during any
renewal term, if this lease is renewed, to furnish Landlord, without demand,
with copies of its published annual and interim financial reports to
shareholders and public filings with the Securities and Exchange Commission.
ARTICLE 18
QUIET ENJOYMENT
18.01 Tenant, upon payment of the rent and all sums herein reserved, and
upon the due performance of all terms, covenants, conditions and agreements
herein contained on Tenant's part to be kept and performed, shall at all times
during the term hereby granted quiet enjoyment of The Premises from the actions
of the Landlord, subject, however, to the terms of this lease. Any failure by
Landlord to comply with the foregoing covenant which arises as a result of a
claim of paramount title, or is otherwise outside of Landlord's control, shall
not give Tenant any right to cancel or terminate this Lease, or to abate, reduce
or make deductions from or offset any rent or other sums payable in accordance
with the provisions of this Lease, or to fail to perform or observe any other
covenant, agreement or obligation of Tenant hereunder. The Tenant covenants that
it has made a title search of The Premises, and has obtained the requisite
Certificate of Occupancy, and that the Tenant has accepted title and possession
"as is".
ARTICLE 19
SUBORDINATION AND NON-DISTURBANCE
19.01 This lease, and all rights of Tenant hereunder, are and shall be
subject and subordinate in all respects to all fee and leasehold mortgages which
may now, or hereafter affect all or any portions of The Premises, to each and
every new mortgage or advance made or hereafter to be made under such mortgages,
and to all renewals, modifications, replacements and extension of such mortgages
and spreaders and consolidations of such mortgages,
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provided that as to any mortgages that become liens of record after the date of
this lease: (a) the mortgagees thereunder shall each enter into a
non-disturbance agreement, in favor of Tenant, to provide that in the event its
said mortgage shall be foreclosed and provided that there is no Event of Default
continuing hereunder, this lease shall not terminate on account thereof so long
as Tenant continues to pay the rents reserved in this Lease and otherwise
performs and observes all of the terms, covenants, conditions and provisions of
this Lease to be performed and observed by or on behalf of Tenant hereunder,
provided that the lien of any mortgages shall cover any structures installed by
the Tenant on The Premises. The provisions of this Article 19 shall be
self-operative and no further instrument of subordination shall be required. In
confirmation of such subordination, Tenant shall promptly execute and deliver,
within 5 days of request, any instruments that Landlord, or the holder of any
mortgage, or any of their respective successors in interest, may reasonably
request to evidence such subordination.
19.02 In the event of any act or omission of Landlord which would give
Tenant the right, immediately or after lapse of a period of time, to cancel or
terminate this lease, or to claim a partial or total eviction, Tenant shall not
exercise such right until it has given written notice to the Landlord, if there
is a mortgagee, to the mortgagee, of such act or omission, and if it is one
which is not capable of being remedied by Landlord or any mortgagee within a
reasonable amount of time, until a reasonable period for remedying such act or
omission shall have elapsed following the giving of such notice and following
the time when all such mortgagees shall have become entitled under such
mortgages to remedy the same (which reasonable period shall in no event be less
than the period to which Landlord would be entitled under this lease or
otherwise, after similar notice, to effect such remedy), provided any such
mortgagee shall, with due diligence, give Tenant written notice of intention to,
and shall commence and continue to, remedy such act or omission, but nothing
herein contained shall obligate any mortgagee to do so unless it so elects.
19.03 If a mortgagee shall succeed to the rights of Landlord
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under this lease, whether through possession or foreclosure action or delivery
of a new lease or deed, then, at the request of such Party so succeeding to
Landlord's rights (herein sometimes called the "Successor Landlord") and upon
such Successor Landlord's written agreement to accept Tenant's attornment which
such Successor Landlord shall agree to accept if so requested by Tenant, Tenant
shall attorn to and recognize such Successor Landlord as Tenant's landlord under
this Lease, and shall promptly execute and deliver any instrument that such
Successor Landlord may reasonably request to evidence such attornment. Upon such
attornment, this Lease shall continue in full force and effect as if it were a
direct lease between the Successor Landlord and Tenant upon all of the terms,
covenants and conditions set forth in this Lease, and all such terms, covenants
and conditions shall be applicable after such attornment except that the
Successor Landlord shall: (a) Not be liable for any previous act or omission of
Landlord under this Lease; (b) Not be subject to any offset, not expressly
provided for in this Lease, which shall have theretofore accrued or which may
thereafter accrue to Tenant against Landlord; and (c) Not be bound by any
previous modification of this Lease, not expressly provided for in this lease,
other than a modification of this lease executed by Landlord and Tenant prior to
the notice of the execution of any mortgage, or by any previous prepayment of
more than one month's annual rental, unless, if such modification or prepayment
shall have been made by Tenant after its' receipt of notice of the existence of
such mortgage(s), such modification or prepayment shall have been expressly
approved in writing by the mortgagee through or by reason of which the Successor
Landlord shall have succeeded to the rights of Landlord under this Lease.
ARTICLE 20
RENEWAL OPTION
20.01 If this Lease shall not have been terminated as herein provided
during the original term, Tenant, provided no Event of Default is continuing
hereunder, is hereby granted an option to
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extend the term of this Lease for one ten (10) year period. Tenant shall notify
Landlord in writing not less than one (1) year prior to the expiration of the
then current term, time being of the essence, that Tenant elects to extend the
term of this Lease and upon the giving of such notice as herein provided, this
Lease shall be automatically renewed for such renewal term without the necessity
of the execution of any further instruments. The renewal term shall be upon the
terms, covenants and conditions applicable to the original term, except that:
(a) the rent reserved for the term shall be as specified in the rent schedule of
Paragraph 1.01; (b) the minimum rent during such renewal term shall be increased
by the CPI increase (but not decrease) calculated as the difference (reduced to
a percentage) between the N.Y. Metropolitan Index (or similar index) for the
month of February 1997, and the index for the month of February 2022. For
example, if there is an increase in the CPI index, the minimum rent will be
$350,000.00 as shown in the rent schedule, plus the CPI increase calculation,
which together shall be the total new minimum rent for that year, with a similar
calculation thereafter. The gross income provision of the lease as well as all
other clauses, remain applicable to the extended term.
20.02 If the Tenant shall fail to exercise its option to extend this Lease
for the renewal term as provided in Article 20, TIME BEING OF THE ESSENCE, then
the renewal term shall automatically lapse, and be void and of no effect, and
the Lease will terminate on April 30. 2022.
ARTICLE 21
BROKERAGE
21.01 The parties mutually represent to each other that the Tenant was
introduced to The Premises by Marcus Associates, and the Tenant represents that
Marcus Associates is the sole broker who negotiated and consummated the within
transaction, for the Landlord, shall be responsible to pay the brokerage
commission to Marcus Associates only.
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ARTICLE 22
DEFAULT
22.01 Each of the following shall be an "Event of Default"
(a) Failure of Tenant to pay any installment of rent or any part thereof
(including, but not limited to, failure to make any deposit required hereunder)
or any other payments of money, costs or expenses herein agreed to be paid by
Tenant after the same shall become due and payable, and the continuance of such
failure for a period of five (5) days.
(b) Failure of Tenant to observe or perform one or more of the other terms,
conditions, covenants or agreements of this Lease and the continuance of such
failure for a period of twenty (20) days after written notice by Landlord
specifying such failure (unless such failure requires work to be performed, acts
to be done or conditions to be removed which cannot, by their nature, reasonably
be performed, done or removed, as the case may be, within such 20-day period, in
which case no Event of Default shall be deemed to exist so long as Tenant shall
have commenced curing the same within such 20-day period and shall diligently
and continuously prosecute the same to completion);
(c) Failure of Tenant to observe or perform one or more of the terms,
conditions, covenants or agreements contained in the documents and agreements of
records subject to which Landlord acquired title to The Premises and, provided
same does not result in a forfeiture or reversion of title, the continuance of
such failure for a period of twenty (20) days after written notice by Landlord
specifying such failure.
(d) The filing or execution or occurrence of;
(i) a petition in bankruptcy by or against Tenant, sub-tenant, or to
an assignee;
(ii) a petition or answer by or against Tenant seeking a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or any relief under a provision of the Bankruptcy Act;
(iii) adjudication of Tenant as a bankrupt or insolvent;
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(iv) an assignment by Tenant for the benefit of creditors, whether by
trust, mortgage or otherwise;
(v) a petition or other proceeding by or against Tenant for, or the
appointment of, a trustee, receiver, guardian, conservator or liquidator of
Tenant with respect to all or substantially all of its property;
(vi) a petition or other proceeding by or against Tenant for its
dissolution or judicial liquidation, or the taking of possession of the
property of Tenant by a governmental authority in connection with
dissolution or liquidation;
(e) The entry of a final order, judgment or decree by any court of
competent jurisdiction granting any prayer of demand contained in any petition
under (d) (i), (ii), (iii), (iv),(v) or (vi) above.
(f) Failure of the Tenant to remain open for business seven (7) calendar
days per week during normal golf driving range business hours, including
mornings, and evenings until 10:00 p.m., Friday and Saturday evenings until
12:00 p.m.
22.02 If an Event of Default shall occur under this Lease, Landlord, at any
time thereafter, may, at its option, give written notice to Tenant stating that
this lease and the term hereby demised shall expire and terminate on the date
specified in such notice (which shall be no earlier than five (5) days after the
mailing of said notice), and, upon the date specified in such notice, this lease
and the term hereby demised, and all rights of the Tenant hereunder, shall
expire and terminate as if that date were the date herein definitely fixed for
the termination of the term of this lease, and the Tenant hereof shall quit and
surrender The Premises, but Tenant shall remain liable on all terms of the Lease
as hereinafter provided for it is agreed that in the event the Lease is so
terminated, the Tenant shall remain liable for all obligations under the Lease.
22.03 In the event of the termination of this Lease either by operation of
law, by issuance of a dispossessory warrant, by termination as provided above or
otherwise, or if an Event of Default shall occur, Landlord may, without notice,
reenter and repossess The Premises, using such force for that purpose as may be
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necessary without being liable to indictment, prosecution or damages therefor,
and Tenant shall nevertheless remain and continue liable to Landlord for a sum
equal to all rent and other payments and charges reserved herein, for the
remainder of the term, which sum shall be immediately due and payable. The term
of the Lease shall run to April 30, 2022, or if the option is executed, to April
30, 2032. If Landlord shall so re-enter, Landlord may, at its option, repair and
alter The Premises in such manner as to Landlord may seem necessary or
advisable, and/or let or relet The Premises or any parts thereof for the whole
or any part of the remainder of the term hereof or for a longer period, for such
amounts as the Landlord may elect, whether for a lesser sum or a greater sum
than the amount due by the Tenant, in Landlord's name or as agent of Tenant, and
out of any rent collected or received as a result of such letting or reletting
Landlord shall first, pay to itself the cost and expense of retaking and
repossessing The Premises, and the cost and expenses of removing all persons and
property therefrom, including reasonable legal fees and expenses; second, pay to
itself the cost and expense sustained in securing any new tenants, and if
Landlord shall maintain and operate The Premises, the cost and expense of
operating and maintaining The Premises; and third, pay to itself any balance
remaining on account of the liability of Tenant to Landlord for the sum equal to
all rent and other payments and charges reserved herein and unpaid by Tenant for
the remainder of the term hereof. In the event that the rent received by the
Landlord shall be greater than that due from the Tenant, the Tenant shall
receive no excess sum, but that sum be retained by the Landlord. No re-entry by
Landlord, whether had or taken under summary proceedings or otherwise, shall
absolve or discharge Tenant from liability hereunder. Landlord shall in no way
be responsible or liable for any failure to relet The Premises or any part
thereof, or for any failure to collect any rent due on any such reletting, and
Landlord shall not have the duty to mitigate damages. The Landlord may offer to
lease and lease The Premises for a greater or lesser sum than that due from the
Tenant. Should any rent to be collected by Landlord after the aforementioned
payments be insufficient fully to pay Landlord a sum equal to all
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such rent and other payments and charges reserved herein, the deficiency shall
be paid by Tenant, or if there shall be an excess of rent collected by Landlord
over and above that to be paid by the Tenant, the Landlord shall be entitled to
retain any surplus; and Tenant hereby expressly waives any defense that might be
predicated upon the issuance of such dispossessory warrant or other termination
hereof.
22.04 Upon the occurrence of any of the circumstances hereinabove mentioned
in which Landlord shall have the right to hold Tenant liable under this Lease,
Landlord may forth-with recover against Tenant as damages for loss of the
bargain and not as a penalty, in addition to any other damages becoming due
hereunder, an aggregate sum which, at the time of such termination of this Lease
or of such recovery of possession of The Premises by Landlord, as the case may
be, represents the aggregate of the rent and all other payments and charges
payable by Tenant hereunder that would have accrued for the balance of the term,
such sum to be computed on the basis of a Tenant paying not only the minimum
rent, percentage rent, and additional rent, to Landlord for the use and
occupation of The Premises, but also the taxes, insurance, impositions,
additional rent and all other payments and charges as are required to be paid by
Tenant under the terms of this Lease for the balance of such term.
22.05 Suit or suits for the recovery of such deficiency or damages, or for
a sum equal to any installments of rent, taxes, insurance and other charges
hereunder, may be brought by Landlord, from time to time at Landlord's election,
and nothing herein contained shall be deemed to require Landlord to await the
date whereon this Lease or the term hereof would have expired had there been no
such default by Tenant or termination.
22.06 Nothing herein contained shall limit or prejudice the right of
Landlord to prove and obtain as liquidated damages in any bankruptcy,
insolvency, receivership, reorganization or dissolution proceeding an amount
equal to the maximum allowed by a statute or rule of law governing such
proceeding and in effect at the time when such damages are to be proved, whether
or not such amount be greater, equal to or less than the amount of the damages
referred
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to in any of the preceding Articles hereof.
22.07 No receipt of monies by Landlord from Tenant or any other person
after termination of this Lease, or after the giving of any notice of
termination of this Lease, shall reinstate, continue or extend the term of this
Lease or affect any notice theretofore given to Tenant, or operate as a waiver
of the right of Landlord to enforce the payment of rent or other sum or sums of
money and other charges herein reserved and agreed to be paid by Tenant then due
or thereafter falling due, or operate as a waiver of the right of Landlord to
recover possession of The Premises by proper remedy, it being agreed that after
the service of notice to terminate this lease or the commencement of suit or
summary proceedings, or after final order or judgment for the possession of The
Premises, Landlord may demand, receive and collect any monies due or thereafter
falling due without in any manner affecting such notice, proceeding, order, suit
or judgment, except as herein otherwise specifically provided, all such monies
collected being deemed payments on account of the use and occupation of The
Premises or, by reason of economic necessity, at the election of Landlord, on
account of Tenant's liability hereunder.
22.08 Tenant hereby expressly waives the service of any notice of intention
to re-enter provided for in any statute, or of the institution of legal
proceedings to that end. The terms "enter", "re-enter", "entry" or "re-entry" as
used in this Lease are not restricted to their technical legal meaning.
22.09 Each and every covenant contained herein shall be deemed separate and
independent and not dependent upon other provisions of this Lease.
22.10 In the event of any breach or threatened breach by Tenant of any of
the covenants, agreements terms or conditions contained in this Lease, the
Landlord shall be entitled to enjoin such breach or threatened breach and shall
have the right to invoke any right and remedy allowed at law or in equity or by
statute or otherwise.
22.11 Each right and remedy provided for in this Lease shall be cumulative
and shall be in addition to every other right or remedy provided for in this
Lease or now or hereafter
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existing at law or in equity or by statute or otherwise, and the exercise or
beginning of the exercise of any one or more of the rights or remedies provided
for in this lease or now or hereafter existing at law or in equity or by statute
or otherwise, shall not preclude the simultaneous or later exercise of any or
all other rights or remedies.
22.12 If the Landlord shall be made a party to any action or proceeding by
reason of the act or omission of the Tenant or its agents or employees, the
Tenant pay all costs and expenses, including, but not limited to, reasonable
attorneys fees, incurred by the Landlord. In the event Landlord incurs any costs
or expenses in enforcing any of the covenants and provisions of this lease, all
such costs and expenses, including, but not limited to, reasonable attorneys'
fees, shall be paid by the Tenant, and shall be deemed to be additional rent
hereunder.
22.13 In the event of any action or proceeding brought by Tenant against
the Landlord, all costs, expenses and attorneys' fees incurred by Landlord in
connection therewith shall be payable by the Tenant if the Landlord prevails and
may be included in and form part of any judgment entered in any such action or
proceeding. All such amounts due under this Article shall be paid within ten
(10) days of the rendition of a bill or statement therefor.
22.14 In the event of a termination of this lease by reason of the
occurrence of an Event of Default or breach by Tenant hereunder, all unexpired
insurance premiums, all deposits theretofore made by Tenant with utility
companies, all rights of Tenant under all insurance policies, any claims for
refund of any impositions, any pending claims for insurance proceeds or
condemnation awards, all monies and securities of Tenant then held by Landlord
and all fuel and supplies on The Premises, shall be deemed to be and are hereby
assigned to and transferred to Landlord.
22.15 The rent hereunder and each and every installment thereof, and all
costs, reasonable attorneys' fees or other expenses which may be incurred by
Landlord in enforcing the provisions of this lease, or on account of any
delinquency of Tenant in carrying out the provisions of this Lease, shall be and
they hereby are declared to constitute a valid lien upon the
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interest of Tenant in this Lease, and shall be deemed additional rent under this
Lease.
22.16 No failure by Landlord or Tenant to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof, and no acceptance
of full or partial rent during the continuance of any such breach, shall
constitute a waiver of any such breach or of such covenant, agreement, term of
condition. No covenant, agreement, term or condition of this lease to be
performed or complied with by Landlord or Tenant, and no breach thereof, shall
be waived, altered or modified except by a written instrument executed by
Landlord or Tenant, as the case may be. No waiver of any breach shall affect or
alter this lease, but each and every covenant, agreement, term and condition of
this lease shall continue in full force and effect with respect to any other
then existing or subsequent breach thereof.
22.17 This Lease shall survive the termination of the Landlord/Tenant
relationship for the purposes of payment of rent and all other sums due to the
end of the term. Thus, the Tenant shall remain liable for the sums accruing
after the termination of the Landlord/Tenant relationship. The Landlord has no
duty to mitigate damages, and nothing that the Landlord does will constitute a
waiver thereof.
ARTICLE 23
DISTRAINT
23.01 The Landlord and Tenant specifically agree, in consideration of the
Lease herein, that in the event Tenant defaults in the performance of any of the
conditions and covenants herein contained, that the Landlord, in addition to any
other remedies herein contained or permitted by law, shall have the right and
power under the terms of this Lease to cause a Distraint to be placed upon the
goods and chattels of Tenant so that Tenant's rent, and all other charges, which
are in default, may be paid. For purposes hereof, Landlord shall follow the
following procedure:
(a) Cause a constable or private person, such as Landlord, manager, agent
or auctioneer, to make the Distraint by
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posting a notice on The Premises that the Distraint has been made.
(b) Advise the Tenant, by certified mail, return receipt requested,
addressed to Tenant's address as herein set forth, that the Distraint has been
made.
(c) The said constable or private person as described above shall advertise
in a newspaper having a circulation in the community within three (3) days of
the notice of Distraint that a public sale will take place on a date set, which
date shall be within ten (10) days, but not less than seven (7) days from the
date of said Distraint.
(d) Tenant shall be notified, by certified mail, return receipt requested,
addressed to Tenant's address as herein set forth, of the date of said sale.
(e) On the date and at the time set for the said sale, the constable or
other private person as described above shall then sell the goods and chattel of
Tenant to the highest bidder for the unpaid rent. Said sale shall be for
separate items or the goods and chattel under a single bid in the discretion of
the constable or private person. Landlord shall have the right to bid for said
goods and chattel on his own behalf. The monies realized from the said bid shall
be applied, first, to the cost of these proceedings and sale, including
constable or private person and reasonable legal fees of the Landlord, and the
balance thereof shall be applied to the unpaid rent. In the event Landlord bids
on his own behalf, an affidavit of reasonable value of the goods and chattels
sold by the constable or private person shall be mailed to Tenant by certified
mail, return receipt requested, together with an accounting of all the monies
received.
23.02 The parties hereto agree to this fully, knowing the present state of
law with respect to the Distraint Statute as it is presently enacted in the
State of New Jersey, and intend this to be a procedure agreed to between the
parties as a consideration of the making of this Lease.
23.03 Proceeding under this Paragraph shall not validate the continuance of
the Lease and shall not limit Landlord with respect to any other remedies under
this lease, or at law or in equity.
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ARTICLE 24
LANDLORD'S REMEDIES ON TENANT'S
DEFAULT RE ITEMS OF ADDITIONAL COST
24.01 Upon default in the payment of any item of additional rent as herein
provided, with all accrued interest and penalties thereon, shall or may be added
as additional rent due immediately to the Landlord, or at Landlord's option, may
be added to the next installment of rent becoming due on the next rent day, or
on any subsequent rent day fixed by this lease, and shall for all purposes
whatsoever be deemed to be rent due and payable on such rent day or on any
subsequent rent day as Landlord may, at Landlord's option, elect, and in default
of the payment of the same, Landlord shall have all the rights and remedies to
enforce the payment of the same, including summary proceedings for non-payment
of rent, as Landlord would have were the said payments for the rent due. Nothing
herein contained shall, however, be deemed to waive the right of Landlord to sue
for and recover by action at law or equity any sums of money which it may have
paid out, or any indebtedness which it may have incurred on account of the
failure of Tenant to comply with or perform any terms, conditions, covenants or
agreements of this Lease. No cause of action brought by Landlord to dispossess,
evict or terminate the Tenant shall be dismissed because the notice periods
provided for in this Lease shall not have been followed.
ARTICLE 25
SURRENDER
25.01 Tenant shall and will on the last day of the term hereof, or upon any
earlier termination of this lease, or upon any re-entry by Landlord upon The
Premises pursuant to the provisions of this lease, well and truly surrender and
deliver up into the possession and use of Landlord, without fraud or delay, the
entire premises in good order and repair. Upon surrender, the premises,and also
all buildings, structures, golf driving ranges, golf courses, facilities, pipes,
plumbing, electric wires, boilers and heating plant shall be in good repair,
order and condition, and the property shall be broom clean and free and clear of
all liens and
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encumbrances other than those, if any, created by Landlord. To which end Tenant
specifically contracts, under penalty of termination and damages, that Tenant
will at all times not only keep all structures, buildings, golf driving ranges,
and golf courses, sidewalks, parking areas, grounds and streets of the premises,
together with all fixtures, in good repair, inside and outside, and will, from
time to time, renew the same to the end that delivery of The Premises,
including, but not limited to, buildings, structures, miniature golf courses,
golf driving range, sidewalks, parking areas, grounds and streets and all pipes,
plumbing, electric wires, fixtures and equipment thereof shall be at the
expiration of this Lease in good repair and condition. The Tenant shall keep the
premises freshly painted from time to time as proper maintenance will warrant,
both inside and out, and the roof free of leaks, and the HVAC in proper working
order. Repaving of the parking area, and replacement of the roofs and HVAC will
be made as required. Furniture, trade fixtures and personal property shall, at
Landlord's option, be removed by Tenant at or prior to the termination of this
Lease, and all of Tenant's signs shall, if requested by Landlord, be removed by
Tenant prior to the termination hereof. Any injury to the buildings or Premises,
or other injury which necessitates fundamental changes in or repairs to the
buildings or structures caused by such removal shall be repaired by Tenant. Any
personal property of Tenant which shall remain on The Premises after the
termination of this lease and/or the removal of Tenant from the building may, at
the option of Landlord, be deemed to have been abandoned by Tenant and either
may be retained by Landlord as the property of Landlord or be disposed of, at
Tenant's expense, if Tenant does not remove same within seven (7) days after
Landlord's notice to Tenant, without accountability, and in such manner as
Landlord sees fit.
ARTICLE 26
SECURITY DEPOSIT
26.01 The Tenant shall deposit with the Landlord the sum of $100,000.00,
without interest, as security for the faithful performance and observance by
Tenant of the terms, provisions and
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conditions of this lease, such deposit to be delivered to Landlord to be held by
him as he so desires, without interest, for the uses and purposes herein
contained. In the event Tenant defaults in respect of any of the terms,
provisions and conditions of this Lease, including, but not limited to, the
payment of rent and additional rent, Landlord may use, apply or retain the whole
or part of the security so deposited to the extent required for the payment of
any rent or additional rent or any other sum as to which Tenant is in default,
or for any sum which Landlord may expend or may be required to expend by reason
of Tenants' default in respect of any of the terms, covenants and conditions of
this lease, including, but not limited to, any damages or deficiency accruing
before or after summary proceedings or other re-entry by Landlord and any
application of security shall not serve to cure the default.
26.02 In the event Tenant shall fully and faithfully comply with all of the
terms, provisions, covenants and conditions of this Lease, the security deposit
deposited hereunder, without interest, shall be returned to Tenant within a
reasonable time after the termination date as set forth herein. In the event of
a sale of The Premises, Landlord shall have the right to transfer the security
to the vendee and Landlord shall thereupon be released by Tenant from all
liability for the return of such security, and Tenant agrees to look to the new
landlord solely for the return of said security; and it is agreed that the
provisions hereof shall apply to every transfer made of the security to a new
landlord.
ARTICLE 27
CONDEMNATION
27.01 Any award or payment to which Landlord or Tenant may be or become
entitled by reason of any taking of The Premises, or part thereof, in or by
condemnation or other eminent domain proceedings pursuant to any law, general or
special, or by reason of the temporary reacquisition of the use or occupancy of
The Premises, or part thereof, by any governmental authority, civil or military,
shall be paid to Landlord.
27.02 If: (a) a portion of The Premises shall be taken in or
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by condemnation or other eminent domain proceedings pursuant to any law, general
or special, and this lease shall not be terminated and the Tenant's obligation
shall continue as stated herein, or (b) the use or occupancy of The Premises, or
part thereof, shall be temporarily requisitioned by any governmental authority,
civil or military, then this lease shall continue in full force and effect
without any abatement of rent.
27.03 In case of any such partial taking as referred to in Article 27.02(a)
above, the Landlord and Tenant shall deposit the net award in an interest
bearing account with the Landlord as trustee and such trustee shall make
available and pay from time to time, but in no event more frequently than once
in each month, such net award at the request of or at the direction of Tenant to
the parties whom Tenant may employ to repair, replace or rebuild the same, as
such repairs, replacements or rebuildings shall progress. Such payment shall be
made by such trustee upon written request from an officer of Tenant, or in the
event that an architect has been retained to supervise said work, then said
payments by said trustee shall be made upon appropriate requisition certificates
of the architect in charge of such work; provided, however, that in each
instance of requisition prior to the completion of such work, said officer of
Tenant or the architect, if any, shall also certify to the trustee and Landlord,
and at Landlord's request, to the holder of any mortgage to which this lease is
subordinate, that the cost of the then remaining work necessary for completion
thereof does not exceed ninety (90%) Percent of the balance of said award as
will remain after payment over the sum so requisitioned, and that such work has
been prosecuted in accordance with the plans and specifications therefor. If the
cost of restoration required to be made by Tenant pursuant to this Article shall
exceed the amount of the net award, the deficiency shall be paid by Tenant. If
the amount of such net award shall exceed the cost of restoration, such excess
shall belong to and shall be paid to Landlord.
27.04 If the whole of the demised premises shall be taken by eminent domain
for any public use then this lease shall, upon full payment by the authority to
the Landlord, and title vesting, cease and terminate.
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27.05 Tenant shall have the right, in any eminent domain proceeding, to
file and prosecute separate claims, independent of Landlord, with the condemning
authority for damages of loss of Tenant's trade fixtures and moving expenses,
provided same does not reduce Landlord's award.
ARTICLE 28
SIGNS
28.01 The Tenant shall secure the prior written approval of the Landlord
before placing any identifying sign on the premises. If such approval is given,
the Tenant shall be solely responsible for the upkeep and maintenance of such
signs, and for any injury, damage or claims that may be made by reason thereof.
ARTICLE 29
ESCROW DEPOSITS
29.01 In the event of the occurrence of an Event of Default as defined in
this Lease, whether or not such default shall have been waived by Landlord,
Landlord shall have the option during the term hereof, and any renewal term
hereof, of requiring Tenant to pay to Landlord, together with and in addition to
the rent reserved herein, any installment of the taxes and assessments levied or
to be levied against The Premises and of the insurance premiums required under
this Lease. Such installments shall be equal to 1/12th of the annual taxes and
assessments and insurance premiums as estimated by Landlord. Landlord shall hold
such monthly payments in escrow to apply the same against such taxes and
assessments and insurance premiums when due.
29.02 If the total of the payments made by Tenant for taxes and assessments
and insurance premiums shall exceed the amount of payments actually made by
Landlord for such charges, such excess shall be credited by Landlord on
subsequent payments of the same nature made by Tenant. If, however, said monthly
payments made by Tenant shall not be sufficient to pay such taxes and
assessments and insurance premiums when the same shall become due and payable
then Tenant shall pay to Landlord any amount necessary to make up the
deficiency, on or before the date when payment of
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such taxes and assessments and insurance premiums shall be due.
ARTICLE 30
CERTIFICATES
30.01 The Tenant shall, without charge, at any time and from time to time,
within ten (10) days after request by the Landlord, certify by written
instrument, duly executed, acknowledged and delivered to the Landlord, or to any
mortgagee or proposed mortgagee, or any purchaser or proposed purchaser:
(a) Whether or not such Tenant or Landlord is in default in any way, in the
performance of any of the covenants, conditions and agreements to be performed
by such party in accordance with this Lease and if there is any such default,
specifying the nature of same.
(b) What the amount of rent is pursuant to the terms of this Lease.
(c) That this Lease is unmodified and in full force and effect, or in the
event that there have been modifications, that the same is in full force and
effect as modified, and setting forth the modifications.
(d) Whether or not there are then existing any claims, set-offs or defenses
against the enforcement of any of the agreements, terms, covenants or conditions
hereof upon the part of such other party to be performed or complied with, and
if so, specifying the same.
30.02 The failure of the Tenant to deliver this certificate shall be deemed
tantamount to the delivery of the certificate by the Tenant to the party
requesting such certificate to the effect that this lease is valid and
subsisting and in full force and effect and that the Landlord at the time, is
not in default under any of the terms of this Lease.
ARTICLE 31
JURY WAIVER
31.01 It is mutually agreed by and between Landlord and Tenant, that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim
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brought by either of the parties hereto against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of The Premises
and/or any claim of injury or damage and any emergency statute or any other
statutory remedy.
ARTICLE 32
SUPPLY OF SERVICES
32.01 Landlord shall not be required to furnish any services or facilities
or to make any repairs or alterations in or to The Premises. Tenant hereby
assumes the full and sole responsibility for the condition, operation, repair,
replacement, maintenance and management of The Premises and accepts same "as is"
in its present condition.
ARTICLE 33
ACCEPTANCE OF PREMISES
33.01 Tenant has examined the premises and accepts The Premises in its
present condition and without any representation or warranty by Landlord as to
the condition of said buildings or as to the use or occupancy which may be made
thereof, and Landlord shall not be responsible for any latent defect or change
of condition in The Premises, or the structures to be built thereon, and the
rent hereunder shall in no case be withheld or diminished on account of any
defect in The Premises, or the title thereto, nor for any change in their
condition, nor for any damage occurring thereto, nor because of the existence of
any violations of State or Local Laws or Regulations. The approval of Landlord
of any plans or specifications shall not constitute a representation that those
plans and specifications comply with the laws, orders, ordinances and
regulations of the public authorities, or that the use or occupancy indicated in
said plans or specifications is legal. The Landlord makes no representation
regarding access to the premises or the availability of water, sewer, electrical
or other services to The Premises, for the Tenant has satisfied itself in this
regard.
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ARTICLE 34
AMENDMENT
34.01 None of the covenants, terms, agreements and conditions of this Lease
shall in any manner be altered, waived, changed or abandoned, nor shall the term
hereof or any part thereof be surrendered, except by a written instrument duly
executed and delivered by the parties hereto. This Lease contains the entire
agreement between the parties and any executory agreement hereafter made shall
be ineffective to change, modify or discharge it in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification or discharge is sought.
34.02 This Lease will not be construed against the drafter. Both Landlord
and Tenant have examined the same, and therefore the Lease will not be construed
against the drafter.
ARTICLE 35
NOTICES
35.01 Any notices required or permitted to be given under this lease,
either by Landlord to Tenant or by Tenant to Landlord, shall be in writing,
enclosed in an envelope with the Proper postage prepaid thereon, and mailed by
registered or certified in a post office or in any branch post office of the
United States, addressed to the respective party as set forth herein or to such
other address as either party shall hereafter furnish to the other for that
purpose, and the same shall be given and shall be deemed to have been served and
given when each has received the notice. In the event that the Tenant cannot be
located, service upon the Tenant's attorney is sufficient.
ARTICLE 36
INVALIDITY OF PARTICULAR PROVISIONS
36.01 If any term or provision of this Lease or the application thereof to
any person or circumstances shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
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unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
law.
ARTICLE 37
EXCULPATION
37.01 Landlord shall not be personally liable, under any expressed or
implied covenant of this Lease, for any damages to Tenant, and Tenant agrees to
look solely to the equity of Landlord in The Premises, for the satisfaction of
the remedies by Tenant in the event of a breach by Landlord of any of the
covenants or conditions hereof.
ARTICLE 38
NO HAZARDOUS USE OF PREMISES
38.01 The Tenant covenants and agrees that it will not use the premises for
any use which creates an extra hazard or fire or other danger or casualty or
which will increase the risk of damage to The Premises, nor will the Tenant
utilize, store, manufacture, or otherwise place upon The Premises any objects,
chemicals, substances, or other matters which are deemed to be hazardous
chemicals or substances pursuant to New Jersey or Federal Law or Regulation.
ARTICLE 39
ISRA REQUIREMENTS
39.01 The Landlord will not obtain an ISRA Certificate of
Non-Applicability, or any other similar certificate. Should such a certificate
be required for any reason, the Tenant will assume the Landlord's duty to obtain
that certificate. In the event that during the term of this Lease, there shall
result in a determination that DEP, or ISRA, or similar compliance is required,
the Tenant shall immediately undertake the compliance and cure and thereafter
apply to ISRA, or any similar agency, for a Letter of Non-Applicability or other
determination that the ISRA requirements have been satisfied, and the Tenant
will complete all requirements at its own expense. At the termination of this
Lease, the Tenant
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shall forthwith obtain a determination from ISRA or any similar or replacement
requirement, that all matters regarding ISRA or any substitute statute or rule
or regulation, whether State or Federal, which may take the place of ISRA or
which may otherwise be applicable at that time, whether contemplated or not,
have been complied with by the Tenant and the Tenant will cure and repair any
defect, damage or other default found, whether or not caused by reason of
Tenant's operation or use of The Premises, for it is the intention of the
parties that the Landlord shall not be subject to any risk, liability, cost or
expense by reason thereof.
ARTICLE 40
OPERATION OF BUSINESS
40.01 Tenant shall at all times during the term hereof (a) conduct its
business on the entire Demised Premises; (b) remain open for business seven (7)
calendar days per week during normal business hours for a golf driving range as
referenced in a previous article of this Lease; (c) adequately staff its
business with sufficient employees to handle the maximum business and carry
sufficient merchandise of such character and quality to accomplish the same; (d)
if the Tenant closes early or does not remain open, or does not open, in
accordance with the above paragraphs, Tenant shall pay to the Landlord, as
additional rent, in addition to the minimum rent and other impositions,
liquidated damages in the sum of $1,000.00 per day or fraction thereof, for all
such failures to maintain and/or conduct its business during such times, and
Landlord shall be entitled to all other remedies at law or equity, including
injunctive relief.
ARTICLE 41
STATEMENT OF ACCEPTANCE
41.01 Upon the Tenant's entering possession of The Premises, the Tenant
covenants and agrees that it will furnish to the Landlord a statement that it
accepts The Premises by the payment of the first month's rent, the Tenant does
hereby covenant and agree that it has accepted the lease premises by the payment
of the first month's rent.
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ARTICLE 42
LATE PAYMENT AND INTEREST
42.01 The Tenant agrees that as a material inducement to the Landlord to
enter into this Lease, it will pay the rent and other charges as herein provided
promptly on the first day of each and every month or as otherwise provided in
this Lease, and that the Tenant understands that the Landlord will incur
expenses in the event that the rent is not paid on time. Therefore without
waiving any of the Landlord's other remedies for failure to pay rent or
additional rent as in this Lease contained, the Tenant hereby agrees that if any
rent payment or any other charge or expense is not paid by the Tenant within
five (5) days after the same shall be due, the Tenant shall pay immediately, and
without demand, a late charge of five (5%) percent of each payment required,
which payment shall be deemed additional rent. This late charge is deemed to be
a reasonable charge by the Tenant. Failure to demand or collect the late charge
is not a waiver thereof. In addition to the late charge aforesaid, the Tenant
shall pay interest upon any sum that has not been paid by the Tenant to the
Landlord more than thirty (30) days after the same is due, at the highest rate
of interest allowed by law in the State of New Jersey, which sum shall be in
addition to the late charge herein imposed.
ARTICLE 43
NO PARTNERSHIP
43.01 Landlord shall in no event be construed, held or become in any way or
for any purpose a partner, associate or joint venturer of Tenant, or any party
associated with Tenant, in the conduct of its business or otherwise.
ARTICLE 44
COMPLIANCE WITN LAWS
44.01 Tenant shall, at its own cost and expense:
(a) Comply with all governmental laws, ordinances orders and regulations
affecting the Demised Premises now in force or which hereafter may be in force;
(b) Comply with and execute all rules, requirements and
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regulations of the Board of Fire Underwriters, Landlord's insurance company, and
other organizations establishing insurance rates;
(c) Not suffer, permit or commit any waste or nuisance;
(d) Not conduct any auction, distress, fire or bankruptcy sale;
(e) Install fire extinguishers in accordance with law and insurance
requirements; and
(f) Obtain all necessary environmental and operating permits.
44.02 Tenant acknowledges the existence of environmental laws, rules and
regulations, including but limited to the provisions of ISRA, as hereinafter
defined. Tenant shall comply with any and all such laws, rules and regulations.
Tenant represents to Landlord that Tenant's Standard Industrial Classifications
Manual prepared by the Office of Management and Budget in the Executive Office
of the President of the United States will not subject the Demised Premises to
ISRA applicability.
ARTICLE 45
ATTORNEY-IN-FACT
45.01 If Tenant shall fail, within ten (10) days after written request from
the Landlord, to execute and deliver to Landlord such instruments as are
required by this Lease, the Tenant hereby irrevocably appoints Landlord as
attorney-in-fact for Tenant with full power and authority to execute and deliver
such instruments for and in the name of Tenant. If Tenant shall not have
executed and delivered such instruments as aforesaid, and Tenant's actual
execution is required by the party requesting the instrument, Landlord may
cancel this Lease.
ARTICLE 46
FORCE MAJEURE
46.01 Landlord shall be excused for the period of any delay in the
performance of any obligations hereunder, when prevented from so doing by cause
or causes beyond Landlord's control which shall include, without limitation, all
labor disputes, civil commotion, war, war-like operations, invasion, rebellion,
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hostilities.
ARTICLE 47
NO REPRESENTATIONS BY LANDLORD
47.01 The Landlord does not make any representations regarding the
condition, title, use or occupancy of The Premises, and the Landlord is
unwilling to make any representations regarding the condition, title, use and
occupancy of The Premises, or regarding the nature of The Premises whatsoever.
The Tenant has made its final inspection of The Premises and is satisfied
therewith.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed, sealed
and executed this Lease on the day and year first above written.
ATTEST: U.S. GOLF AND ENTERTAINMENT, INC.
BY:
- ---------------------------------- ---------------------------------
Tenant
---------------------------------
MURRAY L. BEER, Landlord
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LIMITED PARTNERSHIP AGREEMENT
OF
THE ISLAND GLEN COUNTRY CLUB, L.P.
LIMITED PARTNERSHIP
This Limited Partnership Agreement, made and entered into as of the day of
March 14, 1997, by and among the following General Partners:
Island Glen Country Club, Inc. (G.P.)
and the following Limited Partners
United States Golf and Entertainment Inc. (USGO)
International Business Advisory Group Inc. (IBAG)
In consideration of the mutual covenants herein, the Parties hereby form a
Limited Partnership upon the following conditions:
ARTICLE I
BASIC STRUCTURE
1.1 Formation. The Parties hereby form a Limited Partnership pursuant to
the Limited Partnership ACT of she state of New York
1.2 Partnership Name. The business of the Partnership shall be conducted
under the name of THE ISLAND GLEN COUNTRY CLUB LIMITED PARTNERSHIP.
<PAGE>
1.3 Business and Purpose. The business and purpose of the Partnership shall
be to engage in any lawful act or activity in which a partnership may engage,
including, but without limitation, to engage generally in any and all phases of
the business of owning, holding, managing, controlling, acquiring, purchasing,
disposing of or otherwise dealing in or with any interests or rights in any real
or personal property, directly or through one or more other partnerships or
other entities or arrangements.
1.4. Principal Place of Business. The principal place of business of the
Partnership shall be at 104 Wetherill Road, Nassau County, State of New York, or
at such other place as the General Partners may from time to time designate.
1.5. Term. The Partnership shall commence on the date first above written
and shall continue for 25 years, unless sooner terminated by law or as herein
provided.
ARTICLE II
FINANCIAL ARRANGEMENTS
2.1 Initial Capital Contributions.
The initial capital contributions shall be as follows:
G.P. shall contribute $10
USGO shall contribute $25,000 upon signing and $475,000 within 5 days
after completion of their public offering but no later than June
1, 1997. (IBAG) shall contribute $100,000 plus the property known
as Island Glen Country, Club described in the attached deed which
is subject to a first mortgage of $1.0 million (interest only)
for a term of 10 years, interest payable monthly at 6% starting
January 1, 1999.
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The percentage share of profit and loss shall be:
G.P. 31%
USGO 20%
IBAG 49%
The monetary value of each partners capital account shall be:
G.P. $10
USGO $500,000
$BAG $1.00
USGO is however required to make an additional capital contribution no
later than July 1, 1997 of $500,000. Upon receipt of such capital
contribution, the percentage share of profit and loss shall be:
G.P.1%
USGO 50%
IBAG 49%
The monetary value of each partners capital account shall be:
G.P. $10
USGO $1,000,000
BAG $1.00
If USGO fails to make the entire second $500,000 capital contribution,
the G.P. may take any action it deems appropriate at the time with the
consent of at least 51% of partnership profit and loss interest to
either continue or discontinue the operations including but not
limited to borrowing funds or admitting additional partners.
2.2. Additional Capital Contributions. There shall be no additional capital
contributions to the capital of the Partnership unless otherwise specified in
2.1 or agreed to in writing by all of the Partners. A Partner may assign his or
her interest to others but only as herein provided.
2.3. Return of Capital Contribution. Each Partner irrevocably waives any
statutory, equitable or other rights he or she may have to withdraw or demand
the return of his or her capital contribution except as provided herein.
2.4. No Interest on Capital Contributions. Capital contributions to the
Partnership shall not bear interest.
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2.5. Nature of Interests. All property owned by the Partnership, whether
real or personal, tangible or intangible, shall be deemed to be owned by the
Partnership as an entity. No Partner shall have any direct ownership of any
Partnership property.
2.6. Partners' Share of the Profits and Losses. Each Partner shall share in
the profits and losses of the Partnership according to their respective
percentage share as specified in 2.1.
2.7. Limitation on Liability for Limited Partners. No Limited Partner shall
personally be liable for any of the debts or losses of the Partnership beyond
such Partner's capital interest in the Partnership.
2.8. Rights of Priority. Except as herein provided, the individual Partners
shall have no right to any priority over each other as to the return of capital
contributions.
2.9. Distribution of Profits. Distributions to the Partners of net
operating profits of the Partnership shall be made at least annually except that
earnings may be retained by the Partnership and transferred to Partnership
capital for the reasonable needs of the business as determined in the sole
discretion of the General Partners. Distributions as made shall be made to the
Partners simultaneously.
Net operating profit for any accounting period shall mean the gross
receipts of the Partnership for such period, less the sum of all cash expenses
of operation of the Partnership, and such sums as may be necessary to establish
a reserve for operating expenses.
2.10. Salary to General Partners. Annually, including year of termination,
the General Partners shall receive a salary for services rendered to the
Partnership equal to 6% of the gross receipts as determined by the partnerships
accountants for the year (or part year) ending Dec. 31st which shall be in
addition to their respective share of Partnership profits. The compensation for
the General Partners shall be reviewed periodically and adjusted appropriately.
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ARTICLE III
ACCOUNTING FOR THE PARTNERSHIP
3.1. Capital Accounts. Separate capital accounts shall be maintained for
each Partner. The capital interest of each Partner shall consist of all such
Partner's contributions to the capital of the Partnership as specified in 2.1
(for initial capital contribution) plus such Partner's share of Partnership
profits transferred to capital, less distributions to such Partner in reduction
of such Partner's Partnership capital, and less such Partner's share of
Partnership losses if transferred from such Partner's drawing account.
3.2. Drawing Accounts. An individual drawing account shall be maintained
for each Partner. All withdrawals, other than salaries, made by a Partner shall
be charged to such Partner's drawing account. Each Partner's share of profits
and losses shall be credited or charged to such Partner's drawing account.
A credit balance of a Partner's drawing account shall constitute a
Partnership liability to that Partner, it shall not constitute a part of such
Partner's capital account or such Partner's interest in the capital of the
Partnership. If, after the net profit or the net loss of the Partnership for the
fiscal year has been determined, a Partner's drawing account showing a deficit
(a debit balance), whether occasioned by drawings in excess of such Partner's
share of Partnership profits or by charging such Partner for such Partner's
share of a Partnership loss, the deficit shall constitute an obligation of that
Partner to the Partnership to the extent of the Partner's capital account.
However, in no event shall any Limited Partner be liable for any amount beyond
the balance in such Partner's capital account.
Payment of any amount owing to the Partnership shall be made in a manner
and time
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determined by the General Partners. Such obligations shall not be made payable
on demand nor shall interest he charged thereon above the prime interest rate
plus 3 percentage points.
3:3. Accounting Year. The Partnership's fiscal year shall commence on
January 1st of each year and shall end on December 31st of each year.
3.4. Method of Accounting. The Partnership shall maintain its accounting
records in accordance with generally accepted accounting principles and shall
report for income tax purposes on the cash basis.
3.5. Books and Records. The General Partners shall maintain the books and
records of the Partnership at the principal place of business. Each Partner
shall have access to such books and records and shall be entitled to examine
them at any time during the Partnership's ordinary business hours, provided
Partnership is given 7 days advance notice.
3.6. Annual Statements. At the end of the year, the general Partners shall
cause the Partnership's accountant to prepare a balance sheet setting forth the
financial position of the Partnership as of the end of that year and a statement
of operations (income and expenses) for that year. A copy of the balance sheet
and statement of operations shall be delivered to each Partner as soon as it is
available. Copies of all income tax returns filed by the Partnership also shall
be furnished to all Partners.
Each Partner shall he deemed to have waived all objections to any
transaction or other facts about the operation of the Partnership disclosed in
the balance sheet, statement of operations and income tax returns unless he or
she shall have notified the General Partners in writing of his or her objections
within thirty (30) days of the date on which each such document is mailed. In
the event any limited partnership shall request a certified audit be performed,
the limted partnership shall bear the full cost.
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ARTICLE IV
ADMINISTRATIVE PROVISIONS
4.1. Management. The business of the Partnership shall be under the
exclusive control of the General Partners who shall act by a majority vote of
the general partners(s) in all business affairs. For these purposes each General
Partner shall have one vote. The Limited Partners shall not participate in the
management of the business of the Partnership.
4.2. Time Devoted by General Partners. The General Partners are required to
devote to the business of the Partnership such time as is reasonable and
prudent.
4.3. Conflicts of Interest. Partners may engage in or possess interests in
other business ventures of every kind and description for their own accounts.
Neither the Partnership nor any of the Partners shall have any rights by virtue
of this Agreement in such independent business ventures or to the income or
profits derived therefrom.
4.4. Powers of the General Partners. The General Partners shall have the
authority to exercise the powers reasonably necessary in order to pursue the
Partnership's purposes including, but not limited to, the following:
a. To obtain, sell, convey, mortgage, encumber, lease, exchange, pledge,
partition, plat, subdivide, improve, repair, surrender, abandon or otherwise
deal with or dispose of any and all real property of whatsoever character and
wheresoever situated at such time or times and in such manner and upon such
terms as the General Partners deem expedient and proper. To give options
therefore, to execute deeds, transfers, leases, pledges, mortgages, and other
instruments of any kind. Any, leases and contracts may
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extend beyond the term of the Partnership.
b. To acquire any personal property for the use of the Partnership.
c. To purchase, invest in, or otherwise acquire, and to retain, any
and all stocks, bonds, notes, or other securities, or any variety of real
or personal property, including stocks or interests in investment trusts
and common trust funds operated and managed by a corporate trustee.
d. To sell, transfer, assign, convey, lease, exchange, or otherwise
dispose of any or all of the assets of the Partnership upon such terms and
conditions as the General Partners deem advisable, including a deferred
payment sale or an exchange for other assets of any kind.
e. To place record title to, or the right to use, Partnership assets
in the name of a General Partner or the name of a nominee for any purpose
convenient or beneficial to the Partnership.
f. To open and to close checking accounts. savings accounts and safety
deposit boxes in banks or similar financial institutions, with or without
indication of any fiduciary capacity. To deposit cash in and withdraw cash
from such accounts and boxes, with or without any indication of any
fiduciary capacity. To hold such accounts and securities in bearer form, or
in the name of a General Partner or in the name of a nominee, with or
without indication of any fiduciary capacity.
g. To borrow money upon terms acceptable to the General Partners from
any person or entity, to pledge or mortgage any property as security,
therefore and to renew any indebtedness incurred by the General Partners.
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h. To employ brokers, consultants, attorneys, accountants, architects,
engineers, property managers, leasing agents and other agents, persons or
entities deemed appropriate to the conduct of the Partnership business,
including, without limitation, a General Partner, any persons or entities
related to a General Partner, or in which a General Partner has an
interest.
i. To adjust, arbitrate, compromise, sue, defend, settle, abandon or
otherwise deal with any and all claims in favor of or against the
Partnership.
j. To acquire and enter into any contract of insurance which the
General Partners deem necessary and proper for the protection of the
Partnership, for the conservation or its assets, or for any purpose
convenient or beneficial to the Partnership.
k. To execute and deliver on behalf of the Partnership such documents
or instruments as the General Partners deem appropriate in the conduct of
the Partnership business. No person, firm or corporation dealing with the
Partnership shall be required to inquire into the authority of the General
Partners to take any action or make any decisions.
1. To make employment contracts, to pay pensions and to establish
pension and other incentive plans of any or all of its employees.
m. To establish, invest and maintain reserves for the benefit of the
Partnership in such amounts as the General Partners, in their sole
discretion, shall determine, and to expend such reserves in such amounts
and for such purposes as the General Partners shall determine.
4.4A (See attached)
4.5. Restrictions on Powers. No Partner, without the consent of all the
other
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4.4A USGO and IBAG hereby irrevocably constitutes and appoints G.P. as its
true and lawful attorney, in its name, place and stead to make execute,
acknowledge and file:
a). any certificate of limited partnership or other instrument which
may be required to be executed or filed by the partnership or which the GP
shall deem advisable to execute or file as a consequence of USGO failing to
contribute all of the additional $500,000 of capital, and
b). any and all amendments or modifications to the limited partnership
including but not limited to a decrease in USGO's equity or percentage
interest in the profits and loss partnersjip which, in the sole opinion of
the general partner, is required as a consequence of USGO's failure to make
the additional $500,000 capital contribution.
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Partners, shall:
a. Do any act in contravention of this Agreement.
b. Do any act which would make it impossible to carry on the ordinary
business of the Partnership.
c. Confess judgment against the Partnership.
d. Possess Partnership property, or assign his or her interest or
rights in specific Partnership property for other than a Partnership
purpose.
4.6. Expulsion of a Limited Partner. The General Partners may terminate the
interest of a Limited Partner and expel such Partner for any of the following
reasons:
a. For interfering in the management of the Limited Partnership
affairs or by holding themselves out to others as having the power to act
for or bind the Partnership.
b. For engaging in conduct which could result in the Partnership
losing its tax status as a partnership.
c. For engaging in conduct which tends to bring the Partnership into
disrepute or such Partners interest becomes subject to attachment,
garnishment, or similar legal proceedings.
d. For failing to meet any commitment to a General Partner in
accordance with any written undertaking.
In each of the foregoing events, the termination shall not result in a
forfeiture to the Limited Partner of the value of his or her interest in the
Partnership at the time of termination.
4.7. Removal of a General Partner. A General partner may be removed upon
the written consent or affirmative vote of Limited Partners owning 51% of the
then outstanding
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Partnership interests. However, if the General Partner that was voted to be
removed is the only remaining General Partner, then before such removal is
effective and simultaneously with such removal, a successor General Partner must
be elected by the Limited Partners owning 89% of the then outstanding
Partnership interests.
4.8. Liability. No Partner shall incur any liability for any mistakes or
errors in judgment made in good faith and in the exercise of due care in
connection with the Partnership business. No Partner shall be deemed to have
violated any of the provisions of this partnership Agreement for any such
mistakes or errors in judgment.
4.9. Indemnification of Partners. The Partnership shall promptly indemnify
each Partner for payments reasonably made and personal liabilities reasonably
incurred by such Partner in the ordinary conduct of Partnership business or for
the preservation of its business or property.
4.10. Indemnification in General. The Partnership shall indemnify, to the
full extent permitted by law, any person who is made, or threatened to be made,
a party to any action, suit or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that such person, or his
or her legal or personal representative, is or was a General Partner, employee
or agent of the partnership or serves or served any other enterprise at the
request of the Partnership.
4.11. Divorce. The Partnership shall not be terminated by the divorce of a
Partner.
4.12. Lawsuits. The Partnership shall not be terminated by a lawsuit
against the Partnership or a Partner.
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ARTICLE V
MEETINGS OF PARTNERS
5. l. Annual Meetings of Partners. Annual meetings of Partners, if actually
held, shall be held on such date and at such time as shall be designated from
time to time by the General Partners and stated in the written notice of the
meeting. At the meeting, the Partners shall transact such other business as may
properly be brought before the meeting.
5.2. Special Meetings of Partners. Special meetings of the Partners, for
any purpose or purposes, may be held by waiver of notice and consent and shall
be called by the General Partners at the written request of Partners owning not
less than ten percent (10%) of the entire capital or profit interest of the
Partnership. Such request shall state the purpose or purposes of the proposed
meeting.
Business transacted at a special meeting of the Partners shall be limited
to the purposes stated in the written notice unless all of the Partners agree to
do otherwise.
5.3. Voting at Annual and Special Meetings. All Partners shall have the
right to vote at the annual meeting and any special meetings concerning business
which may properly be brought before the meeting according to their respective
percentage share of capital interest. Except as otherwise set forth herein, a
majority of profit and loss percentage shall control.
5.4. No Meeting or Vote Required if Written Consent. Whenever the vote of
the Partners at a meeting is required or permitted to be taken, the meeting and
vote of the Partners may be dispensed with if the written consent to such action
is obtained from Partners having no less than the minimum percentage of the vote
required of such action.
5.5.General Partner Meetings. The General Partners may hold meetings, both
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regular and special, either within or without the state of the Partnership's
principal place of business. Regular meetings of the General Partners may be
held without notice at such time and at such place as shall from time to time be
determined by the General Partners. Special meetings of the General Partner may
be called by a General Partner on one (1) day's notice to each General Partner,
either personally or by mail or by telegram.
At all meetings of the General Partners, a majority of the General Partner
shall constitute a quorum for the transaction of business and the act of a
majority of the General Partners present at any meeting at which there is a
quorum, shall be the act of the General Partners. Any action, required or
permitted to be taken at any meeting of the General Partners, may be taken
without a meeting if the General Partners who have the necessary votes to take
such action consent in writing.
5.6. Telephone Conference. Partners may participate in a meeting by means
of telephone conference or similar communications equipment. All persons
participating in a meeting pursuant to such equipment shall constitute presence
in person at such meeting.
ARTICLE VI
TRANSFER OF PARTNERSHIP INTEREST
6.1. Transfers. The Partners shall not sell, assign, pledge, or otherwise
transfer or encumber in any manner or by any means whatever, their share in all
or any part of their interests of the partnership now owned or after acquired to
a non-partner, without having first obtained the consent of or offered such
share to the other Partners and to the Partnership in accordance with the terms
and conditions of this Agreement.
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6.2. Joint Ownership. It is understood and agreed to by the parties hereto
that the interest owned by a Partner may be owned jointly by said Partner and
his or her spouse. The Partners agree that the spouses of the respective
Partners shall in all respects be bound by this Agreement and that in the event
that a Partner is required to sell his or her interest pursuant to this
Agreement, the respective spouse must comply with this Agreement and shall
execute any and all documents required as a result thereof.
6.3. Transfers to Living Trust. Any Partner may transfer his or her
interest to his or her own revocable Living Trust. Upon such transfer, legal
title shall rest in such Living Trust, but such interest shall be subject to the
same events and circumstances as if the transferring partner continued to own
such interest. Further, said transferring Partner shall continue to exercise all
rights and be liable for all duties imposed by this Agreement.
6.4. Sale. A Partner may sell his or her Partnership interest, but only
after such Partner has first offered it to the Partnership and the other
Partners as follows:
a. The Partner shall give written notice to the Partnership that such
Partner desires to sell his or her interest. The Partner shall attach to
that notice the written offer of a prospective purchaser to buy the
interest. This offer shall be complete in all details including the
purchase price and terms of payment. The Partner shall certify that the
offer is genuine and in all respects what it purports to be.
b. For one hundred twenty (120) days from receipt of the written
notice from the Partner, the Partnership shall have the option to retire
the interest of the Partner at the price and on the terms contained in the
offer submitted by the Partner.
c. If the Partnership does not retire the interest of the Partner,
then the other
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Partner shall have the option to acquire such Partner's interests at the
price and on the terms contained in the offer submitted by the Partner. The
Partners who exercise this option may acquire such Partner's interest in
proportion to their respective capital interests, unless they otherwise
agree to a different percentage, within sixty (60) days after the
termination of the Partnership's option to buy.
d. If neither the Partnership nor any of the Partners exercise the
option to acquire such Partner's interest, the Partner shall be free to
sell his or her Partnership interest to the said prospective purchaser of
the price, and on the terms contained in the certified offer submitted by
the Partner.
6.5. Assignment. Except as herein provided, a Partner shall not assign his
or her Partnership interest. However, a Partner may assign his or her
Partnership interest to other Partners without the consent of any other Partner.
6.6. Transfer of General Partner Interest. The transferee of a general
partnership interest shall acquire such interest in the capacity of a Limited
Partner.
6.7. Death or Incompetency of a Limited Partner. Upon the death or legal
incompetency of an individual Limited Partner, such Partner's authorized
representative shall have all of the rights of a Limited Partner for the purpose
of settling or managing such Partner's estate. The authorized representative
shall have such power as the decedent or incompetent possessed to assign such
Limited Partner's interest in the Partnership to an assignee and to join with
such assignee in making application to substitute such assignee as a Limited
Partner.
6.8. Cessation of a Legal Entity. Upon the bankruptcy, insolvency,
dissolution or other cessation to exist as a legal entity, of a Limited Partner
not an individual, the authorized
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representative of such entity shall have all the rights of a Limited Partner for
the purpose of effecting the orderly winding up and disposition of the business
of such entity. The authorized representative shall have such power as such
entity possessed to assign such interest of the entity in the Partnership to an
assignee and to join with such assignee in making application to substitute such
assignee as a Limited Partner.
6.9. Restriction on Transfer because of Tax Effect. No Limited Partner or
other person who has become the holder of interest in this Partnership shall
transfer, assign or encumber all or any portion of such interest in the
Partnership during any fiscal year if such transfer, assignment or encumbrance
would, in the sole discretion of the General Partners, result in the termination
of the Partnership for purposes of the then applicable provisions of the
Internal Revenue Code of 1986, as amended.
6.10. Restriction on Transfer because of Securities Laws. No Limited
Partner (or other person) who has become the holder of interest in the
Partnership, shall transfer, assign, or encumber all or any portion of such
interest in the Partnership unless such Partner has obtained the prior written
consent of the Director of the Securities Commission, if required under the
Commission's rules, and the written opinion of counsel for the Partnership that
the transfer will not violate any federal or state securities laws.
ARTICLE V11
SUBSTITUTED LIMITED PARTNER
7.1. Conditions. No assignee (or transferee) of the whole or any portion of
a Limited Partner's interest in the Limited Partnership shall have the right to
become a substituted
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Limited Partner in place of such Partner's assignor unless all of the following
conditions are satisfied:
a. The General Partners, in their sole and absolute discretion, have
consented in writing to the admission of the assignee as a substituted
Limited Partner.
b. The fully executed and acknowledged written instrument of
assignment sets forth the intention of the assignor that the assignee
become a substituted Limited Partner and the assignment has been filed with
the Limited Partnership.
c. The Limited Partnership interest being acquired by the assignee
consists of all of the assigning Limited Partner's interest.
d. The assignor and assignee execute and acknowledge such other
instruments as the General Partners may deem necessary or desirable to
effect such admission, including the written acceptance and adoption by the
assignee of the provisions of this Agreement and such assignee's execution,
acknowledgment and delivery to the General Partners of a Power of Attorney,
the form and content of which shall be provided by the General Partners.
e. A reasonable transfer fee, not exceeding fifteen percent (15%) of
the present value of the transferred Partnership interest, has been paid by
the assignee to the Partnership.
7.2. Amendment Only Required Quarterly. The General Partners will be
required to amend the Agreement of Limited Partnership only quarterly to reflect
the substitution of Limited Partners. Until the Agreement of Limited Partnership
is so amended, an assignee shall not become a substituted Limited Partner.
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7.3. Consent Not Required. No consent of any of the Limited Partners is
required to effect the substitution of a Limited Partner, except that a Limited
Partner who assigns his or her interest must evidence his or her intention that
the assignee be admitted as a substituted Limited Partner in such Partner's
place and he or she must execute all necessary instruments.
7.4. Voting Interests. In the event a vote of the Limited Partners shall be
taken pursuant to this Agreement for any reason, a Limited Partner shall, solely
for the purpose of determining the number of Partnership interests held by such
Partner in weighing such Partner's vote, be deemed the holder of any Partnership
interests assigned by such Partner in respect of which the assignee has not
become a substituted Limited Partner. Provided that under no circumstances shall
an assignee have such voting rights.
ARTICLE VIII
DISSOLUTION
8.1. Dissolution of Limited Partnership. The Limited Partnership shall be
dissolved only upon the occurrence of any of the following events:
a. The expiration of the term of the Partnership.
b. Voluntary dissolution of the Partnership by agreement of all of the
Partners.
c. The Written consent or affirmative vote to dissolve the Limited
Partnership of Limited Partners owning more than 51% of the then
outstanding Partnership interests.
d. The failure to elect a successor General Partner simultaneously
with the removal of the only remaining General Partner as required herein.
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e. The bankruptcy or dissolution of a Corporate General Partner
(except by way of merger, consolidation or corporate organization or
reorganization) or the death, incapacity or bankruptcy of an individual
General Partner when no other General Partners remain or succeed. Provided,
that the Limited Partners owning more than 51% of the then outstanding
Partnership interests may determine to re-form the Partnership and elect a
new General Partner and continue the Partnership's business. In such event,
the Partnership shall be dissolved and all of its assets and liabilities
shall be contributed to a new Limited Partnership which shall be formed and
all the remaining parties to this Agreement and such new General Partner
shall become parties to such new Limited Partnership.
For purposes of obtaining the required vote to reform the Partnership,
Limited Partners owning 10% or more of the then outstanding partnership
interests may cause to be sent to Limited Partners of record a written
notice setting forth the date and purpose of the meeting. Expenses incurred
in the reformation, or attempted reformation. of the Partnership shall be
deemed expenses of the Limited Partnership. For the purposes of this
Section, an individual General Partner shall be deemed to be incapacitated
if he or she is disabled and unable to take an active part in the
management of the partnership business for a continuous period of at least
six (6) months.
f. The entry of a dissolution decree or judicial order by a court of
competent jurisdiction or by operation of law.
8.2. Non-Termination of Partnership. The Limited Partnership shall not be
terminated by the death, insanity, bankruptcy, withdrawal or expulsion of any
Limited Partner,
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by the assignment of any Limited Partner of such Partner's interest, or by the
admission of a new Partner.
8.3. Liquidation of Assets. In the event of dissolution and final
Termination, the General Partners shall wind up the affairs of the Partnership
and shall sell all the Partnership assets as promptly as it consistent with
obtaining, insofar as possible, the fair value thereof.
8.4. Winding Up the Partnership. Upon dissolution of the Partnership, the
General Partners shall immediately commence to wind up and liquidate the
Partnership business. The Partners shall continue to share profits and losses
during the period of liquidation in the same proportions as before dissolution.
In liquidating the Partnership business, the General Partners may either sell
all or part of the Partnership assets and distribute the proceeds or may make
distributions completely or partially in kind pro rata or non-pro rata as to
specific assets. Such assets or proceeds therefrom, to the extent sufficient,
shall be applied and distributed in the following order:
a. Payment to creditors of the Partnership, other than Partners, in
the order of priority provided by law.
b. Payment to Partners for unpaid salaries and for the credit balances
in their drawing accounts.
c. Payment to the Partners of credit balances in their capital
accounts.
8.5. Gains or Losses in Process of Liquidation. Any gain or loss on
disposition of Partnership properties in liquidation shall be credited or
charged to the Partners in proportion to their interest in profits or losses of
the Partnership. Any property distributed in kind in liquidation shall be valued
and treated as though the property were sold and the cash proceeds
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were distributed. The difference between the value of property distributed in
kind and its book value shall be treated as a gain or loss on sale of the
property and shall be credited or charged to the Partners in proportion to their
interests in profits and losses of the Partnership.
8.6. Right to Demand Property. No Partner shall have the right to demand
and receive property in kind of his or her distribution.
ARTICLE IX
POWER OF ATTORNEY
9.1. Documents. Each Partner hereby irrevocably constitutes and appoints
each General Partner as his or her true and lawful attorney, in his or her name,
place and stead, to make, execute, acknowledge and file:
a. Any certificate of Limited Partnership or other instrument which
may be required to be executed or filed by the Partnership or which the
General Partners shall deem advisable to execute or file.
b. Any and all amendments or modifications to the instruments
described herein.
c. All documents which may be required to effectuate the dissolution
and termination of the Partnership.
9.2. Property and Claims. Each Partner does hereby appoint the first named
General Partner as his or her true and lawful attorney, in his or her name,
place and stead, to do the following:
a. To purchase, deal with property and to mange the same including,
without
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limitation, to sign, deliver or record all deeds, contracts of sale or
other instruments conveying title to the property, either in the names of
the Partners or in the name of the Partnership.
b. To establish bank accounts for the Partnership and to deposit and
withdraw funds therefrom, solely upon his or her signature.
c. To demand, sue for, levy or recover all sums of money, debts, rents
or other demands or claims of any nature whatsoever which are or shall be
due the Partnership in such manner as a General Partner shall determine to
be advisable.
9.3. Powers Coupled with an Interest. Each Partner expressly agrees and
intends that the foregoing powers of attorney are coupled with an interest.
9.4. Assignment. The foregoing powers of attorney shall survive the
delivery of an assignment by any of the partners of the whole or any portion
of his or her Partnership interests.
9.5 Notice. From time to time, the General Partners may, at their sole
discretion, send notice to the Partners of actions taken. If objection is not
received by the General Partners within thirty (30) days of said notice. then
said action shall be binding upon all of the partners.
ARTICLE X
MISCELLANEOUS
10.1 Execution in Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if all Parties had all signed the
same document. All counterparts shall be construed together and shall constitute
one agreement. Each Party shall become bound by the agreement immediately upon
affixing his or her signature hereto.
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independently of the signature of any other Party.
10.2 Sole Agreement. This Agreement and the exhibits hereto constitute the
entire understanding of the Parties with respect to the subject matter hereof
and supersede all prior agreements and understandings pertaining thereto.
10.3 Choice of Law. This Agreement and all rights and liabilities of the
Partners, assignees, substituted limited partners, the Partnership and the
assets of the Partnership shall be subject to and governed by the internal laws
of the state of New York -- not the laws pertaining to choice or conflict of
laws.
10.4 Severability. If any provision of this Agreement, or the application
thereof, shall, of any reason and to any extent, be invalid or unenforceable,
the remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby. but rather shall be
enforced to the maximum extent permissible under applicable law.
10.5 Agreement Binding. This agreement shall be binding upon the parties
hereto and upon their heirs, executors, administrators, successors or assigns,
and the parties hereto agree for themselves and their heirs, executors,
administrators, successors and assigns to execute any and all instruments in
written, which are or may become necessary or proper to carry out the purpose
and intent of this Agreement.
10.6 Titles and Subtitles. Titles of the articles, paragraphs and
subparagraphs are placed herein for convenient reference only and shall not to
any extent have the effect of modifying, amending or changing the express terms
and provisions of the Partnership Agreement.
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10.7 Words and Gender or Number. As used herein, unless the context clearly
indicates the contrary, the singular number shall include the plural, the plural
the singular, and the use of any gender shall be applicable to all genders.
10.8 Partner. Unless the context requires otherwise, any reference to a
General Partner shall include all General Partners and any reference to the
General Partners shall mean any General Partner. Any reference to Partner shall
include both General Partners and Limited Partners.
10.9 Partnership Interest. Unless the content requires otherwise, any
reference to an interest in the Partnership shall mean the capital interest in
the Partnership.
10.10 Amendments. Except with respect to vested rights of the Partners,
this Partnership Agreement may be amended at any time by an 51% vote as measured
by the interest in the sharing of profits and losses. A copy of any amendment
shall be promptly mailed or delivered to each Partner at such Partner's last
known address.
10.11 Opinion of Counsel. The doing of any act or the failure to do any act
by any Partner (the effect of which may cause or result in loss or damage to the
Partnership) if pursuant to opinion of legal counsel employed by the General
Partners on behalf of the Partnership, shall not subject such Partner to any
liability.
Further, the General Partners shall not be liable for any error in judgment
or any mistake of law or fact or any act done in good faith in the exercise of
powers and authority conferred upon them, but shall be liable only for gross
negligence or willful default.
10.12 Notice. Any and all notices provided for herein shall be given in
writing by first class mail. The notice shall be addressed to the last address
known to the sender or
24
<PAGE>
delivered to the recipient in person. Notice of a meeting shall be mailed not
less than ten (10) nor more than sixty (60) days before the date of the meeting
and shall state the place, date and hour of the meeting and the purpose or
purposes of the proposed meeting.
10.13 Waiver in General. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement, or condition of this Agreement, or
to exercise any right or remedy consequent upon a breach thereof, shall
constitute a waiver of any such breach or any other covenant, duty, agreement,
or condition.
10.14 Waiver of Action for Partition. Each of the Parties hereto
irrevocably waives any statutory, equitable or other rights that he or she may
have to maintain any action for partition with respect to the Partnership
property.
10.15 Arbitration. Any controversy or claim arising out of or relating to
this Agreement shall only be settled by arbitration in accordance with the rules
of the American Arbitration Association, by one Arbitrator, and shall be
enforceable in any court having competent jurisdiction.
10.16 Validity. If any portions of this Agreement shall be held invalid or
inoperative, then, insofar as it is reasonable and possible,
(a) the remainder of this Agreement shall be considered valid and
operative,
and
(b) Effect shall be given to the intent manifested by the portion held
invalid or inoperative.
GENERAL PARTNERS:
25
<PAGE>
10.17 Benefit. Except as herein otherwise provided to the contrary, this
Agreement shall be binding upon and inure to the benefit of the parties
signatory hereto, their personal representatives, and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
ISLAND GLEN COUNTRY CLUB, L.P.
GENERAL PARTNER:
CORPORATION
/s/ [illegible]
--------------------------------
ISLAND GLEN COUNTRY CLUB INC.
LIMITED PARTNERS:
/s/ [illegible]
- -------------------------------------------
US GOLD & ENTERTAINMENT INC.
/s/ [illegible]
- -------------------------------------------
INTERNATIONAL BUSINESS ADVISORY GROUP, INC.
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <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>
EXHIBIT 24.1
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors of
U.S. Golf and Entertainment Inc.
Commack, New York
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated March 14, 1997,
(except for Note 15, which is dated April __, 1997) on the financial
statements of U.S. Golf and Entertainment Inc. as of December 31, 1996 and
for each of the two years then ended which appear in such Prospectus. We also
consent to the reference to our firm under the caption "Experts" in such
Prospectus.
Plainview, New York
April 11, 1997
<PAGE>
EXHIBIT 24.2
[LETTERHEAD OF RUSKIN, MOSCOU, EVANS & FALTISCHEK, P.C.]
U.S. Golf and Entertainment Inc.
Commack, New York
Gentlemen:
We hereby consent to the use of our name under the heading "Legal Matters"
in the Registration Statement on Form SB-2 and related Prospectus of U.S.
Golf and Entertainment Inc.
Very truly yours,
RUSKIN, MOSCOU, EVANS & FALTISCHEK, P.C.
Dated: Mineola, New York
April 11, 1997
