<PAGE>
As filed with the Securities and Exchange Commission on July 31, 1997
Registration No. 333-4873
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 9
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. Alan I. Annex, Esq.
David R. Fishkin, Esq. Camhy Karlinsky & Stein LLP
Ruskin, Moscou, Evans & Faltischek, P.C. 1740 Broadway
170 Old Country Road New York, New York 10019
Mineola, New York 11501 (212) 977-6600
(516) 663-6600 (212) 977-8389 (fax)
(516) 663-6641 (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]
===============================================================================
<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>
Units, each consisting of one share
of Common Stock, $.001 par
value, and one Redeemable
Warrant to purchase one share
of Common Stock(2) ..................... 1,265,000 $ 6.10 $7,716,500 $2,338.33
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share
issuable upon exercise of
Representatives' Warrants(4) ........... 1,265,000 $ 7.20 $9,108,000 $2,760.00
- --------------------------------------------------------------------------------------------------------------------------
Representative Warrants(3) ............ 110,000 $ .0001 $ 11 $ --
- --------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the
Representatives' Warrants ............. 110,000 $ 7.93 $ 872,300 $ 264.33
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share
underlying the Redeemable Warrants
included in the Representatives'
Warrants(6)............................. 110,000 $ 7.80 $ 858,000 $ 260.00
- --------------------------------------------------------------------------------------------------------------------------
Total Registration Fee(7) ........................................................................... $5,662.66
</TABLE>
================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
(2) Based on the offering of 1,100,000 Units and 165,000 Units pursuant to the
over-allotment.
(3) No Fee is required pursuant to Rule 457(g) under the Securities Act.
(4) Issuable upon the exercise of Redeemable Warrants to be offered to the
public pursuant to Rule 416 under the Securities Act, this Registration
Statement covers any additional shares of Common Stock which may become
issuable by virtue of the anti-dilution provisions of such Redeemable
Warrants.
(5) These Units are identical to the Units offered to the public. Pursuant to
Rule 416 under the Securities Act, this Registration Statement also covers
any additional Units which may become issuable by virtue of the anti-
dilution provisions of the Representatives' Warrants.
(6) Issuable upon the exercise of the Redeemable Warrants included in the
Representatives' Warrants. Pursuant to Rule 416 under the Securities Act,
this Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilution provision of
the Redeemable Warrants.
(7) A Registration Fee of $13,141 was paid in connection with the initial
filing of the Registration Statement on May 31, 1996.
---------------------
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>
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 JULY 31, 1997
U.S. GOLF AND ENTERTAINMENT INC.
1,100,000 Units
Each Unit consisting of One Share of Common Stock and
One Redeemable Common Stock Purchase Warrant
U.S. Golf & Entertainment Inc (the "Company") is hereby offering (the
"Offering") 1,100,000 units (the "Units"), each unit consisting of one share of
Common Stock (the "Common Stock"), $.001 par value per share, and one Redeemable
Common Stock Purchase Warrant (the "Warrants"). The Units, the Common Stock and
the Warrants are sometimes referred to as the "Securities." The Common Stock and
the Warrants included in the Units may not be separately traded until February ,
1998, unless earlier separated upon three days' prior written notice from
Westport Resources Investment Services, Inc. and National Securities Corporation
(the "Representatives") to the Company at the discretion of the Representatives.
Each Warrant entitles the holder thereof to purchase one share of Common Stock
(a "Warrant Share") at an exercise price of 120% of the offering price per Unit
at any time commencing on August , 1998 until August , 2002, unless earlier
redeemed. The Warrants are subject to redemption by the Company at a price of
$0.05 per Warrant at any time commencing August , 1998, on thirty days prior
written notice, provided that the closing price per share for the Common Stock
has equaled or exceeded $12.25 for twenty consecutive trading days within the
thirty-day period immediately preceeding such notice. See "Description of
Securities" and "Underwriting."
As of March 31, 1997, the Company and its constituents had accumulated
losses of $1,871,996. The Company is continuing to incur losses and could incur
significant additional losses for the foreseeable future.
Prior to the Offering, there has been no market for the Securities and
there can be no assurance that an active trading market will develop or be
maintained. It is currently estimated that the initial public offering price of
the Units will be $6.10 per Unit. The offering price of the Units 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" COMMENCING ON PAGE 6 OF THIS PROSPECTUS AND
"DILUTION" ON PAGE 13.
---------------------
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.
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
Underwriting Discounts Proceeds to the Company
Price to the Public and Commissions (1) (2)(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit ............... $ $ $
- ---------------------------------------------------------------------------------------------------------
Total Offering (3) ...... $ $ $
=========================================================================================================
</TABLE>
(1) Does not include additional compensation payable to the Representatives of
the several underwriters (the "Underwriters") consisting of (i) two and
one-half (2.5%) percent of the gross proceeds of the Offering and (ii)
warrants (the "Representative Warrants") exercisable for four years,
commencing one year from the Effective Date, to purchase 110,000 Units at
130% of the initial public offering price per Unit. In addition, the Company
has agreed to indemnify the Underwriters against civil liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting" for other agreements between the Company and the Underwriters
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.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an additional 165,000 Units 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, Underwriters' discounts, commissions and
expenses and proceeds to the Company will be $7,716,500, $964,563 and
$6,201,937, respectively. See "Underwriting".
The Securities offered by this Prospectus are offered by the Underwriters
on a firm commitment basis subject to prior sale, when, as and if accepted by
the Underwriters and subject to certain other conditions. The Underwriters
reserve 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 Securities will be made against payment at the offices of the
Representative in Seattle, Washington on or about August , 1997.
------------
WESTPORT RESOURCES NATIONAL SECURITIES
INVESTMENT SERVICES, INC. CORPORATION
The date of this Prospectus is August __, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING PURCHASES OF THE SECURITIES TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN THE SECURITIES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
A SIGNIFICANT AMOUNT OF THE SECURITIES TO BE SOLD IN THIS OFFERING MAY BE
SOLD TO CUSTOMERS OF THE REPRESENTATIVE. THIS MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, OF WHICH THERE
CAN BE NO ASSURANCE.
ALTHOUGH THE REPRESENTATIVE HAS NO OBLIGATION TO DO SO, THE REPRESENTATIVE
MAY FROM TIME TO TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS
IN THE COMPANY'S SECURITIES. IF THE REPRESENTATIVE PARTICIPATES IN THE MARKET,
IT MAY BECOME A DOMINATING INFLUENCE IN THE MARKET FOR THE SECURITIES. HOWEVER,
THERE IS NO ASSURANCE THAT THE REPRESENTATIVE WILL BE A DOMINATING INFLUENCE.
THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREBY MAY BE SIGNIFICANTLY
AFFECTED BY THE DEGREE OF THE REPRESENTATIVE'S PARTICIPATION IN SUCH MARKET.
THE REPRESENTATIVE 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 Units 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 Units 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 Units offered hereby involve 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 Representatives. See "Risk
Factors." Unless otherwise indicated, (i) all information in this Prospectus
assumes no exercise of the 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 and pitching, as well as an 18-hole miniature
golf course, a snack bar, 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 planning to develop 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 incurred losses of
$423,419 for the period from March 1, 1995 to December 31, 1995 on revenues of
$719,374, $937,167 for the year ended December 31, 1996 on revenues of
$818,211, and $511,410 for the three (3) month period ended March 31, 1997 on
revenues of $125,087 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").
The Company was incorporated in the State of Delaware on May 17, 1996. The
Company's executive offices are located at 4 Henry Street, Commack, New York
11725. The Company's telephone number is (516) 499-7007.
3
<PAGE>
The Offering
Securities Offered by the
Company ............... 1,100,000 Units, each Unit consisting of one share
of Common Stock and one Warrant, each Warrant
entitling the holder to purchase one share of Common
Stock at a price of 120% per Unit exercisable on
August , 1998 until August , 2002, unless earlier
redeemed.
Warrants ............... Each Warrant will entitle the holder thereof to
purchase one share of Common Stock. The Warrants are
exercisable commencing on August , 1998 until
August , 2002, unless earlier redeemed, for one
share of Common Stock each, at an exercise price of
120% of the offering price per Unit in this
Offering. The Warrants may not be separately traded
until February , 1998, unless earlier separated
upon three days prior written notice by National
Securities Corporation (the "Representative") to the
Company at the discretion of the Representative. The
Warrants are redeemable by the Company at $0.05 per
Warrant at any time commencing February , 1998, on
thirty days prior written notice, provided that the
closing sale price per share for the Common Stock
has equaled or exceeded $12.25 for twenty
consecutive trading days within the thirty-day
period immediately preceding such notice. See
"Description of Securities."
Offering Price ...... $6.10 per Unit
Common Stock Outstanding:
Prior to the Offering(1) 1,265,000 shares of Common Stock
After the
Offering(1)(2) ...... 2,365,000 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; development of
additional recreational facilities at the Commack
Golf Center and working capital. See "Use of
Proceeds."
Proposed NASDAQ
Symbol (3) ........ USGO
- ------------
(1) 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, each at exercise prices per share of $5.00; 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."
(2) Does not include: (i) 1,100,000 shares of Common Stock issuable upon
exercise of the Warrants; (ii) 220,000 shares of Common Stock issuable
upon the exercise of the Representative Warrants; (iii) up to 330,000
shares of Common Stock issuable upon the exercise of the Underwriter's
Over-Allotment Option; or (iv) 150,000 shares of Common Stock issuable
upon the exercise of warrants issued pursuant to a private offering to
accredited investors of (x) 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, as amended.
(3) The Company has been approved 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.
4
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
For the Years Ended For the Three Months
December 31, Ended March 31,
---------------------------------- ----------------------------
Statement of Operations Data 1995(3) 1996 1996 1997
---------------------------- --------------- ---------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating Revenue ........................... $ 719,374 $ 818,211 $ 123,112 $ 125,087
Operating Expenses ........................... $ 1,021,666 $ 1,275,666 $ 274,910 $ 287,467
Selling, General and Administrative Expenses . $ 87,555 $ 173,150 $ 6,855 $ 37,282
Loss From Operations ........................ $ (389,847) $ (630,605) $ (158,653) $ (199,662)
Amortization of Discounts attributable to
Warrants .................................... $ -- $ 226,000 $ -- $ 272,000
Interest Expense ........................... $ 33,572 $ 80,562 $ 8,397 $ 39,748
Net Loss .................................... $ (423,419) $ (937,167) $ (167,050) $ (511,410)
Pro Forma Net Loss(1) ........................ $ (929,419) $ (1,416,667) $ -- $ --
Pro Forma Net Loss Per Share(1) ............... $ (.73) $ (1.12) $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 March 31, 1997 (unaudited)
---------------- ----------------------------------
Actual Actual As Adjusted(2)
---------------- ---------------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents ...... $ 149,965 $ 118,998 $4,179,110
Working Capital (Deficit) ...... $ (1,112,741) $ (1,267,330) $3,645,757
Total Assets ..................... $ 3,096,160 $ 3,026,634 $6,912,909
Current Liabilities ............ $ 1,298,533 $ 1,436,938 $ 583,963
Total Stockholders' Equity ...... $ 1,550,789 $ 1,327,379 $6,066,629
</TABLE>
- ------------
(1) See Note (1) of Notes to Financial Statements of the Company.
(2) Assumes (i) net proceeds of $5,321,250 from the issuance of 1,100,000 Units
at an estimated price of $6.10 per Unit and (ii) the repayment of debt.
See "Use of Proceeds."
(3) 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 Securities 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.
Revenues for the quarter ended March 31, 1997 were $125,087 as compared to
$123,112 for the quarter ended March 31, 1996. 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),
($937,167) for the year ended December 31, 1996 (on revenues of $818,211), and
($511,410) for the three (3) months ended March 31, 1997 (on revenues of
$125,087). 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
affected 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
6
<PAGE>
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 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 late 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 and Quarterly Fluctuations in Operating 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."
Management's Broad Discretion in Application of Proceeds. After giving
effect to the prepayment of certain expenses in connection with the Offering
totalling $173,837, $4,060,112 (or 73.9%), of the net proceeds of the Offering,
after repayment of the Bridge Loans and certain short-term liabilities, will be
used for working capital and for the acquisition, opening and operation of
additional golf and recreation centers. Accordingly, management will have broad
discretion as to the allocation and use of such proceeds. See "Use of
Proceeds."
Offering Proceeds to Benefit Affiliated Parties. $1,434,975 (or 26.1%) 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."
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. This belief is principally founded in the assumption that improved
advertising and marketing in connection with the Commack Golf Center will
substantially improve the operating income of the Company. 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. The Company has not generated positive cash flow in the
last two (2) fiscal years. The Company's losses from operations for the years
ended December 31, 1995 and December 31, 1996 and for the three (3) months
ended March 31, 1997 were ($389,847), ($630,605) and ($199,662), respectively.
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 the 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
7
<PAGE>
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
for a term expiring December 31, 2001, 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 and Ross is subject to a covenant not to compete with
the Company which prohibits each of them from competing with the Company in the
United States during the terms of their respective employment agreements and for
a period of two (2) years thereafter. The loss of the services of either Messr.
Goldstein, Ross or Workman could materially adversely affect the Company. In
addition, other than Mr. 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, have experienced
financial difficulties. 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.
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.
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, at the Company's sole option, to April, 2020.
The lease for the Englewood Facility is scheduled to expire on April 30, 2022,
subject to renewals, at the Company's sole option, to 2031. Both leases provide
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 either of these
leases is terminated, the Company will be materially adversely affected.
Arbitrary Determination of Offering Price; Potential Price Volatility. The
offering price of the Units has been determined by negotiation between the
Company and the Representatives and does not necessarily relate 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 the Offering will
experience immediate and substantial dilution of the net tangible book value of
their shares of Common Stock ($3.61 per share, or 60.2%). 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
8
<PAGE>
connection with acquisitions at prices below fair market value, the purchasers
of the Common Stock may experience substantial dilution as a consequence of
such future financings, the exercise of such options, 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.
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 substances that are released on its property, regardless of whether
the owner or operator knew of, or was responsible for, the release of such
hazardous materials. The Company has not been advised of any non-compliance or
violation of any environmental laws, ordinances or regulations and the Company
believes that it is in substantial compliance with all such laws, ordinances
and regulations applicable to the Commack Golf Center. The Company, however,
has not performed any environmental studies on the Commack Golf Center and, as
a result, there may be potential liabilities and/or conditions of which the
Company is not aware. 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 Units. There can be no assurance that an active trading
market on the NASDAQ SmallCap 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 Representatives have indicated
that they intend to act as market makers and otherwise effect transactions in
the Company's securities. To the extent the Representatives participate, they
may be dominating influences in any market that might develop, and the degree of
participation by the Representatives may significantly affect the price and
liquidity of the Units and the underlying shares of Common Stock. The
Representatives may discontinue such activities at any time or from time to
time.
Possible Delisting from NASDAQ System and Market Illiquidity. If the Units
are initially quoted on the NASDAQ SmallCap Market (as to which there can be no
assurance), then continued inclusion of such securities on the 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 Units 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 Units have at least two active market makers, and (v) the
Units 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 Units 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 Units 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
9
<PAGE>
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 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 Units
do 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
Unit, then unless another exemption is available, the Units and the underlying
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 1,100,000 shares of Common Stock for issuance
upon exercise of the Warrants, 330,000 shares of Common Stock for issuance upon
exercise of the Over-Allotment Options, 220,000 shares of Common Stock for
issuance upon the exercise of the Representative 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."
Representative Warrants May Inhibit Company's Ability to Raise
Capital. The Company has reserved 220,000 shares of Common Stock for issuance
upon exercise of the Representative 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 Representative Warrants are outstanding. At
any time when the holder or holders of the Representative 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
Representative Warrants.
Potential Depressive Effect on Market Price Due to Future Sales of Common
Stock. 1,265,000 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 Representative 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.
10
<PAGE>
Holders of all outstanding securities of the Company have agreed that they
will not, without the Representatives' written consent, sell, transfer, assign,
pledge, hypothecate or otherwise dispose of any shares of Common Stock or other
capital stock of the Company, or any securities convertible into, or
exercisable or exchangable for, any shares of Common Stock or other capital
stock of the Company, for periods of 3 months with respect to 125,000 shares of
Common Stock, 4 months with respect to 35,000 shares of Common Stock, 6 months
with respect to 35,000 shares of Common Stock and 13 months with respect to the
remaining shares of outstanding Common Stock, respectively, from the Effective
Date. At the request of NASDAQ, the Representatives have 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.
Any substantial sale of 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 Redemption of Warrants. The Warrants are
subject to redemption by the Company at a price of $.05 per Warrant under
certain conditions at any time commencing twelve months after the date of this
Prospectus on at least 30 days prior written notice. If the Warrants are
redeemed, Warrant holders will lose their right to exercise the Warrants except
during such 30-day redemption period. Upon receipt of a notice of redemption,
Warrant holders would be required to: (i) exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so, (ii)
sell the Warrants at the then market price, if any, when they might otherwise
wish to hold the Warrants, or (iii) accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. See "Description of Securities -- Warrants."
Warrants to Representatives. Upon completion of the Offering, the Company
will sell to the Representatives, for nominal consideration, Representative
Warrants to purchase 110,000 Units. To the extent that the Representative
Warrants are exercised, they would have a dilutive effect on the percentage of
outstanding shares held by stockholders purchasing Units in the Offering. The
exercise of the Representative Warrants is likely to occur at a time when the
Company could probably obtain additional equity capital on terms more favorable
than those provided by the Representative Warrants. See "Underwriting."
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 Units and underlying shares 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.
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 the Offering (assuming an initial
public offering price of $6.10 per Unit) are estimated at approximately
$5,321,250 ($6,201,937 if the 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) ...... $1,434,975 27.0%
Acquiring and opening the Englewood Facility ......... $2,136,275 40.1%
Capital contribution to Monticello Partnership ......... $1,000,000 18.8%
Improvements to Commack Golf Center .................. 250,000 4.7%
Working capital ....................................... $ 500,000 9.4%
----------- ------
Total ............................................. $5,321,250 100.0%
=========== ======
</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 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 $120,000 note payable to a bank bearing
interest at the rate of 10.5% per annum as of March 31, 1997, maturing in
August 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 10% per annum as of March 31, 1997, maturing in August
1997 and guaranteed by Edward C. Ross, and (iii) loans made by
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 the 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 the Offering and revenue from
operations will be sufficient to permit the Company to conduct its existing
operations for at least the next 12 months. The Company's plan of opening the
Englewood Facility and the Monticello Facility 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 debt financing and/or 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 March 31, 1997, the unaudited 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 $.78. 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
March 31, 1997 reflects operations through March 31, 1997 as set forth in the
Financial Statements. The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------
Public offering price per share of Common Stock(1) .............................. $6.00
Net tangible book value per share as of March 31, 1997 (unaudited) ............ $ .78
Increase per share attributable to the sale by the Company of one share of Com-
mon Stock offered hereby (at an assumed initial public offering price of $6.00
per share) (2) .................................................................. $1.71
------
Net tangible book value per share after Offering .............................. $2.49
-----
Dilution of net tangible book value per share of Common Stock to new investors . $3.51
=====
</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 net of discounts of $582,000
attributable to the warrants issued in connection with the Bridge Loans.
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 $6.00 per share of
Common Stock, the differences between existing stockholders and the new
investors with respect to (x) the aggregate cash consideration (before
deducting issuance expenses) paid for Common Stock purchased from the Company,
and (y) 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 53.5% $2,150,875 24.6% $1.70
New investors ............... 1,100,000 46.5% $6,600,000 75.4% $6.00
---------- ------ ---------- ------
Total ..................... 2,365,000 100.0% $8,750,875 100.0%
========== ====== ========== ======
</TABLE>
The above table assumes no exercise of outstanding options, the
Over-Allotment Option, or the Stock Purchase Warrants. If the Over-Allotment
Option is exercised in full, the new investors will have paid $7,590,000 for
1,265,000 shares of Common Stock, representing 77.9% of the net consideration
paid for 50% of the net number of shares of Common Stock outstanding.
Accordingly, investors in the Offering, on a fully diluted basis, will
experience an immediate dilution of $3.32 per share.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997, and as adjusted to reflect the sale of the Units at an assumed
offering price of $6.10 per Unit of Common Stock. See "Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1997 (UNAUDITED)
---------------------------------------
Actual As Adjusted(1)
--------------- ---------------------
<S> <C> <C>
Short-term debt(2)(3) ....................................... $ 1,743,975 $ 309,000
=========== ==============
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;
2,365,000 shares, as adjusted ........................... $ 1,265 $ 2,365
Additional paid-in-capital ................................. 3,198,110 10,047,010
Deficit ................................................... (1,871,996) (2,453,996)(4)
----------- --------------
Total stockholders' equity ................................. 1,327,379 7,595,379
----------- --------------
Total Capitalization .................................... $ 1,327,379 $ 7,595,379
=========== ==============
</TABLE>
- ------------
(1) Adjusted to reflect (i) the sale by the Company of the Units offered hereby
at an assumed initial public offering price of $6.10 per Unit and (ii) the
repayment of debt. See "Use of Proceeds" and "Certain Transactions."
(2) Inclusive of short-term debt to banks of $205,000, to stockholders of
$386,475 and $1,140,000 of indebtedness relating to the Bridge Loans, and
other debt of $12,500.
(3) Assumes no exercise of the Over-Allotment Option.
(4) Adjusted to reflect the amortization of the discounts attributable to
warrants issued in connection with the Bridge Loans, which are to be
repaid.
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 For the Three Months
ended December 31, Ended March 31,
-------------------------------- ----------------------------
1995 1996 1996 1997
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ....................................... $ 719,374 $ 818,211 $ 123,112 $ 125,087
----------- ------------ ---------- ----------
Operating expenses ........................... 1,021,666 1,275,666 274,910 287,467
Selling, general and administrative expenses . 87,555 173,150 6,855 37,282
----------- ------------ ---------- ----------
1,109,221 1,448,816 281,765 324,749
----------- ------------ ---------- ----------
Operating loss ................................. (389,847) (630,605) (158,653) (199,662)
Other expenses:
Amortization of discounts attributable to
warrants .................................... -- 226,000 -- 272,000
Interest .................................... 33,572 80,562 8,397 39,748
----------- ------------ ---------- ----------
Net loss ....................................... $ (423,419) $ (937,167) $ (167,050) $(511,410)
----------- ------------ ---------- ----------
Pro forma net loss (1) ........................ $ (929,419) $ (1,416,667) $ -- $ --
----------- ------------ ---------- ----------
Pro forma net loss per share (1) ............... $ (.73) $ (1.12) $ -- $ --
----------- ------------ ---------- ----------
Shares used in computing net loss per share (1) 1,265,000 1,265,000 -- --
=========== ============ ========== ==========
</TABLE>
December 31, March 31,
-------------- ---------------
1996 1997
(unaudited)
BALANCE SHEET DATA:
Current assets .................. $ 185,792 $ 169,608
Current liabilities ............ 1,298,533 1,436,938
Working capital deficiency ...... (1,112,740) (1,267,330)
Total assets ..................... 3,096,160 3,026,634
Shareholders' equity ............ 1,550,789 1,327,379
(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:
<TABLE>
<CAPTION>
For the Three For the Three
For the Years Ended Months Ended Months Ended
December 31, March 31, March 31,
---------------------- --------------- --------------
1995(1) 1996 1996 1997
--------- ---------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenues ................................. 100.0% 100.0% 100.0% 100.0%
Operating expenses ................................. 142.0 155.9 223.3 229.8
Selling, general and administrative expenses ...... 12.2 21.2 5.6 29.8
Loss from operations .............................. (54.2) (77.1) (128.9) (159.6)
Amortization of discounts attributable to warrants. -- 27.6 0 217.4
Interest expense ................................. 4.7 9.8 6.8 31.8
Net loss .......................................... (58.9) (114.5) (135.7) (408.8)
Pro forma net loss .............................. (129.2) (173.1) -- --
</TABLE>
- ------------
(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 children's party room and the snack bar) were not completed or fully
operational until the second quarter of 1996, which negatively affected the
Company's operating revenues in 1995.
16
<PAGE>
Operating expenses, consisting of land rent, depreciation and amortization
of golf driving range facilities and equipment, operating wages and employee
costs, utilities and all other facility operating costs, aggregated $1,021,666
for 1995.
Selling, general and administrative expenses were $87,555 for the year
ended December 31, 1995, 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 or 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 related marketing and advertising costs.
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 (See Note 12 in the Notes to the
Financial Statements).
Three Months Ended March 31, 1996. During the three (3) months ended March
31, 1996, the Company had total revenues of $123,112 and a net loss of
($167,050).
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 $274,910
for this period.
Selling, general and administrative expenses were $6,855 for the three (3)
months ended March 31, 1996, which included amortization expenses, professional
fees, advertising expenses, telephone expenses, and miscellaneous expenses.
These expenses do not include the payment of any salaries to the Company's
executive officers or 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
related marketing and advertising costs.
Interest expense (net of capitalized interest costs) was $8,397 reflecting
borrowings outstanding as a result of the debt financing related to the
construction of the Commack Golf Center.
17
<PAGE>
Three Months Ended March 31, 1997. During the three (3) months ended March
31, 1997, the Company had total revenues of $125,087 and a net loss of
$511,410.
Operating revenues consisted of driving range sales, mini-golf sales and
lesson sales. 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 $287,467 for this period.
Selling, general and administrative expenses were $37,282 for the three
(3) months ended March 31, 1997, which included amortization expenses,
professional fees, advertising expenses, commissions/promotion expenses,
telephone expenses, office expenses, salary to the President of the Company and
miscellaneous expenses. These expenses do not include the payment of any
salaries to the other Company's executive officers or 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 $39,748
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 $272,000 (See Note 12 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 aggregating $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), and implementing a well-publicized golf
instruction program for group and individual instructions.
The Commack Partnership had a $215,000 note payable to a bank with an
interest at the rate of 2% above the bank's 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. During the three (3) months
ended March 31, 1997, $20,000 was repaid to the bank. The note, as amended,
matures in August 1997 and bears interest at the rate of 10.5% per annum.
In addition, the Commack Partnership borrowed $110,000 from another bank.
This note bears interest at the rate of 1 1/2% above the bank's prime interest
rate per annum (10 1/4% at December 31, 1995). During the year ended December
31, 1996, $25,000 was repaid to the bank, reducing the outstanding balance to
$85,000 at December 31, 1996 and March 31, 1997. The note, as amended, matures
in August 1997 with an interest rate of 9 3/4% and 10% at December 31, 1996 and
March 31, 1997, respectively. 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
18
<PAGE>
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 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 the 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 and fund its
capital contribution to the Monticello Partnership within the next 12 to 18
months. The Company believes that it can finance future projects at a 50/50
debt to equity ratio; however, there can be no assurance that it will be able
to do so. The Company will be required to raise additional capital to meet its
goal of acquiring or opening at least 10 new facilities over the next three to
five years. There can be no assurance that the Company will be able to raise
such additional financing on favorable terms, if at all. See "Risk Factors --
Additional Financing Requirements."
The loss of the Commack Golf Center, which is the Company's only golf
center, would have a material adverse effect on the Company's financial
condition and results of operations. See "Risk Factors -- Single Location" and
"-- Lease."
Trends. The Company plans to open additional golf centers. Management
believes that over time, the Company's revenues and operating income from the
Commack Golf Center and the additional centers it intends to open should
increase due to customer awareness, programs marketing the golf centers to
various special interest groups, expanding ties to the local business and
golfing community, and the growing popularity of golf. The Company expects
that, in the near term, it will continue to experience losses from pre-opening
costs and initial operating expenses associated with new centers.
The Company's interest expenses will likely increase as a result of
borrowings to fund the opening and acquisition of new facilities.
Seasonality. The Company's revenues from the Commack Golf Center for the
period from April through October (the second and third quarters of the year)
are expected to account for a greater portion of the Company's operating
revenue than will the first and fourth quarters of the year. Similar results
are expected for the other facilities the Company may acquire or open in
climates similar to that of the northeastern United States. Although some
portions of the Commack Golf Center are protected from inclement weather, other
portions of the Commack Golf Center, such as the miniature golf course, the
putting green and related recreational amenities, are outdoors and vulnerable
to weather conditions. Moreover, golfers may be less inclined to practice when
weather conditions limit their ability to play golf on outdoor courses. This
seasonal pattern is expected to cause the Company's results of operations to
vary significantly from quarter to quarter. Accordingly, period-to-period
comparisons are not necessarily meaningful and should not be relied on as
indicative of future results.
19
<PAGE>
BUSINESS
Introduction. U.S. Golf and Entertainment Inc. (the "Company") is seeking
to become a national owner/operator of upscale, high-volume, year-round golf
practice and instructional centers and related recreational facilities. The
Company's facilities are intended to provide attractive and affordable practice
and teaching venues to a large and increasing golf population. The Company
currently operates the Commack Golf and Family Recreation Center, a modern
19-acre, 120-tee facility located in central Long Island (the "Commack Golf
Center"). The Commack Golf Center, which commenced operations in March, 1995,
offers practice opportunities for driving and pitching, as well as an 18-hole
miniature golf course, a snack bar, 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 its 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 comprised 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) 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 miniature golf course offers 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.
20
<PAGE>
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 in Commack, New York, a central Long Island
location, and is conveniently located near that highway. Commack, together with
the neighboring townships of Huntington and Smithtown, has a population of more
than 304,000 people with a median household income of nearly $77,000.
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 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. 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 Company anticipates using a portion of the proceeds in connection with
improving the Commack Golf Center to open a golf pro shop. The golf pro shop
will be located at the Commack Golf Center and will offer its customers a full
range of golf equipment and accessories.
The Commack Golf Center is located within a high traffic commercial
district that includes the Commack Multiplex, a 16-screen facility. 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, 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 and 100 hitting tees,
will be lighted to permit night play and will be partially enclosed and/or
heated to permit all weather play.
The Company is 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. 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
21
<PAGE>
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 approximately 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 (to be 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 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. There can be no
assurance that the Company can obtain such debt financing. 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 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.
22
<PAGE>
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 or at all. 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 has entered into a lease in connection with the Englewood
Facility. The principal terms of the lease 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.
Employees. As of July 15, 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.
23
<PAGE>
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.
24
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company, their positions held
with the Company, and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- ----- --------
<S> <C> <C>
Edward C. Ross ............ 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
</TABLE>
The following is a brief summary of the background of each director and
executive officer of the Company:
Edward C. Ross has served as the Chairman of the Board, Chief Financial
Officer and a director of the Company since May, 1996. From March, 1994 to May,
1996, Mr. Ross was the founding general partner of the Commack Golf and Family
Recreation Center, L.P., the entity that developed the Commack Golf Center. Mr.
Ross has been a partner in the accounting firm of Finkle, Ross & Rost since
1975. He also has been involved as a principal in various start-up companies as
well as established operating businesses, ranging from manufacturing to real
estate to financial consulting. Mr. Ross is a Certified Public Accountant in New
York and New Jersey, and is a member of the American Institute of Certified
Public Accountants. Mr. Ross is a director of Sel-Leb Marketing, Inc., a
publicly traded company. In February, 1994, Mr. Ross was President of Coastal
Riverview Development Corp. ("Coastal"), which served as the general partner of
Coventry Shopping Plaza Associates ("Coventry"), a limited partnership and the
owner and operator of a shopping center in Providence, Rhode Island. On February
1, 1994, Coventry filed a petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code in the U.S. Bankruptcy Court, Eastern District of New York.
The petition was dismissed at the debtor's request in October, 1994. Mr. Ross
was also President of Coastal when it was the general partner of Conrans Plaza
Associates ("Conrans"), a limited partnership which owned and operated a
shopping center in East Hanover, New Jersey and which filed a petition for
reorganization under Chapter 11 in the U.S. Bankruptcy Court, Eastern District
of New York on July 11, 1995. Conrans 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).
25
<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 Representative has a five-year right, effective upon the closing of
the Offering, to designate one nominee to the Company's Board of Directors. As
of the date of this Prospectus, the Representative has not yet determined who
it will nominate.
Employment Agreements. The Company has entered into a five (5) year
employment agreement with Stuart M. Goldstein commencing on September 16, 1996.
Mr. Goldstein shall serve as President and Chief Executive Officer and will
devote his full-time services 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 at exercise prices per
share of $5.00. 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 and Ross is subject to a covenant not to compete with the Company
which prohibits each of them from competing with the Company in the United
States during the terms of their respective employment agreements and for a
period of two (2) years thereafter.
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
26
<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 will vest ratably per
quarter for 20 quarters commencing on March 31, 1997). The remaining 380,000
options are Non-Qualified Options as defined in the Code, 30,000 of which
vested on December 31, 1996 and the remainder of which will 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 will 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
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 successive annual meeting of
stockholders following election to the Board of Directors at which such
directors 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 M. Goldstein.
27
<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) 84,350 6.59% 3.54%
c/o the Company
4 Henry Street
Commack, NY 11725
Stuart M. Goldstein(3) 95,000 6.99% 3.86%
c/o the Company
4 Henry Street
Commack, N.Y. 11725
Chuck Workman(4) 66,302 5.21% 2.79%
c/o the Company
4 Henry Street
Commack, NY 11725
Garry Howatt(5) 53,749 4.23% 2.27%
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 299,401 21.58% 12.04%
directors, and executive
officers of the Company as a
group (6 persons) (1)(2)(3)(4)(5)
</TABLE>
(1) Does not include shares issued pursuant to the exercise of the
Over-Allotment Option.
(2) Includes 15,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(3) Includes 95,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(4) Includes 7,500 shares of Common Stock issuable upon the exercise of options
within 60 days of the date of this Prospectus.
(5) Includes 5,000 shares of Common Stock issuable upon the exercise of options
within 60 days of the date of this Prospectus.
28
<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 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
the 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 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.
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 $475,000 within five (5) days after completion of the Offering. 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.
29
<PAGE>
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, 1,265,000 shares of Common Stock were 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. The Warrants sold in this Offering will be issued pursuant to a
warrant agreement (the "Warrant Agreement") among the Company, the
Representatives and American Stock Transfer and Trust Company (the "Warrant
Agent"), and will be evidenced by warrant certificates in registered form. The
following summary is qualified in its entirety by the text of the Warrant
Agreement.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at a price of $7.20, subject to adjustment, at any time from
the date of this Prospectus until the close of business on the fifth
anniversary date of this Prospectus, unless previously redeemed. The Warrants
comprising part of the Units will not be transferable separately from the Units
until six (6) months from the Effective Date unless separated earlier at the
sole discretion of the Representatives.
The Warrants are subject to redemption by the Company, beginning twelve
months after the Effective Date, at $0.05 per Warrant, upon 30 day's prior
written notice if either (i) the last sale price (or highest closing bid
30
<PAGE>
price) of the Common Stock as reported by NASDAQ (or on such exchange on which
the Common Stock is then traded), exceeds $12.25 per share for 20 consecutive
trading days ending within 15 days prior to the date of notice of redemption,
or (ii) the Company shall have obtained written consent of the Underwriter to
call the Warrants for redemption.
The exercise price of the Warrants and the number of shares of Common
Stock or other securities issuable upon the exercise thereof are subject to
adjustment in certain circumstances, including, but not limited to, any stock
dividend on the Common Stock, any subdivision, combination or reclassification
of the Common Stock, any distribution to all stockholders of rights, warrants
or options to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock), or any distribution to all stockholders of
assets or evidence of indebtedness of the Company. An adjustment also would be
made upon a merger or consolidation where the Company is not the surviving
entity, or the sale of all or substantially all of the assets of the Company,
so as to enable warrantholders to purchase the kind and number of shares of
stock or other securities or property (including cash) receivable in such event
by a holder of the number of shares of Common Stock that might otherwise have
been purchased upon exercise of such Warrant.
The exercise price of the Warrants bears no relation to any objective
criteria of value and should not be regarded as an indication of the future
market price of the Securities offered hereby.
The Warrants do not confer upon the holder any voting or any rights of a
stockholder of the Company. Upon written notice to the warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
Bridge Warrants. In connection with the Company's private offerings
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.
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 for the Common Stock.
31
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Securities.
No prediction can be made of the effect, if any, that future market sales of
the Securities, or the availability of such Securities, will have on the
prevailing market price of the Securities following the Offering. Nevertheless,
sales of substantial amounts of such Securities in the open market following
the Offering could adversely affect the prevailing market price of the
Securities.
The Company will have issued and outstanding following the completion of
the Offering 1,100,000 Units. The Securities sold in the Offering and,
commencing twelve months after the date of this Prospectus, up to 1,100,000
shares of Common Stock issuable upon execise of the Warrants, subject to any
applicable state law registrations and secondary trading, will be freely
tradeable without restriction under the Securities Act, except that any shares
purchased by an "affiliate" of the Company (as that term is defined in Rule 144
under the Securities Act) will be subject to the resale limitations of Rule 144.
The remaining 1,265,000 shares of Common Stock outstanding upon completion
of the Offering, as well as 150,000 shares of Common Stock issuable pursuant to
the exercise of the Bridge Warrants will be "restricted securities" as that
term is defined in Rule 144 promulgated under the Securities Act (the
"Restricted Securities"). As described below, Rule 144 permits resales of
restricted securities subject to certain restrictions. As of the date of this
Prospectus, 1,245,000 of such 1,265,000 shares will be eligible for sale under
Rule 144 and the remaining 20,000 shares will be eligible for sale under Rule
144 on November 1, 1997, subject to the "lock-up" agreements with the
Representatives described below.
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, 1,265,000 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
Representative described below.
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 all outstanding securities of the Company have agreed that they
will not, without the Representatives' written consent, sell, transfer, assign,
pledge, hypothecate or otherwise dispose of any shares of Common Stock or other
capital stock of the Company, or any securities convertible into, or
exercisable or exchangable for, any shares of Common Stock or other capital
stock of the Company, for periods of 3 months with respect to 125,000 shares of
Common Stock, 4 months with respect to 35,000 shares of Common Stock, 6 months
with respect to 35,000 shares of Common Stock and 13 months with respect to the
remaining shares of outstanding Common Stock, respectively, from the Effective
Date. At the request of NASDAQ, the Representatives have 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.
Following the expiration of the lock-up period (or prior thereto if the
Representative 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.
32
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Westport
Resources Investment Services, Inc. and National Securities Corporation are
acting as representatives (in such capacity, the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement between the Company and the Underwriters (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of Units set
forth opposite their names:
Underwriter Number of Shares
------------ -----------------
Westport Resources Investment Services, Inc. .....
National Securities Corporation ..................
Total .......................................... 1,100,000
==========
The Underwriters are committed to purchase all of the Units offered
hereby, if any of such Units are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to conditions
precedent specified therein.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Units to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Unit. Such
dealers may re-allow a concession not in excess of $ per Unit to certain
other dealers. After the commencement of the Offering, the public offering
price concession and reallowance may be changed by the Representative.
In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, warrants to purchase from the
Company up to 110,000 Units (the "Representative Warrants"). The Representative
Warrants are initially exercisable at a price of $7.80 per Unit for a period of
four years commencing at the beginning of the second year after their issuance
and sale. The Representative Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the date of this Prospectus, except
to officers and directors of the Representative, Underwriters, or members of
the selling group. The Representative Warrants provide for adjustments in the
number of shares of Common Stock and Warrants and in the exercise price of the
Representative Warrants as a result of certain events, including subdivisions
and combinations of the securities. The Representative Warrants grant to the
holders thereof certain rights of registration for the Common Stock and
Warrants issuable upon exercise of the Representative Warrants.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Units. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which, such person may bid for or
purchase Units for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Units in connection with the Offering than they
are committed to purchase from the Company, and in such case may purchase Units
in the open market following completion of the Offering to cover all or a
portion of such short position. The Underwriters may also cover all or a
portion of such short position by exercising the Over-Allotment Option referred
to above. In addition, the Representatives, on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the Underwriters
whereby they may reclaim from an Underwriter (or dealer participating in the
Offering) for the account of other Underwriters, the selling concession with
respect to Units that are distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may stabilize or maintain the price of
the Units at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The initial public offering price of the Units has been determined by
negotiation between the Company and the Representatives 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 Units. Factors considered in determining the
offering price of the Units 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.
33
<PAGE>
The Company has granted to the Representatives an option exercisable for 45
days from the date of this Prospectus, to purchase up to 165,000 Units at the
initial public offering price per Unit offered hereby, less underwriting
discounts and commissions, if any (the "Over-Allotment Option"). The
Representatives may exercise this option, in whole or in part, from time to
time, solely for the purpose of covering over-allotments, if any, made in
connection with the sale of the Units. To the extent the Over-Allotment Option
is exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of Units proportionate to
its initial commitment.
The Company has agreed to pay to the Representatives a non-accountable
expense allowance equal to 2.5% of the gross proceeds of 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 Unit under federal and
state securities laws, together with legal and accounting fees, printing and
other costs in connection with the Offering.
Holders of all outstanding securities of the Company have agreed that they
will not, without the Representatives' consent sell, transfer, assign, pledge,
hypothecate or otherwise dispose of any shares of Common Stock or other capital
stock of the Company, or any securities convertible into, or exercisable or
exchangable for, any shares of Common Stock or other capital stock of the
Company, for periods of 3 months with respect to 125,000 shares of Common
Stock, 4 months with respect to 35,000 shares of Common Stock, 6 months with
respect to 35,000 shares of Common Stock and 13 months with respect to the
remaining shares of outstanding Common Stock, respectively, from the Effective
Date. At the request of NASDAQ, the Representatives have 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.
The Company has agreed that, for a period of five (5) years after the date
of this Prospectus, the Company shall use its best efforts to cause an
individual designated by the Representatives to be elected as a member of the
Board of Directors of the Company. Such person may be a director, officer,
employee or affiliate of the Representatives. In the event that the
Representatives elect not to designate a person to serve on the Board of
Directors of the Company, the Representatives shall have the right to designate
one person to attend meetings of the Board of Directors of the Company. Such
person shall be entitled to attend all such meetings and to receive all notices
and other correspondence and communications sent by the Company to members of
its Board of Directors. The Company has agreed to reimburse the designee of the
Representatives for such designee's out-of-pocket expenses incurred in
connection with such designee's attendance of meetings of the Company's Board
of Directors.
Prior to the Offering, there has been no public trading market for the
Units. Consequently, the initial public offering price of the Units has been
determined by negotiations between the Company and the Representatives. 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 Units will sell in any public market after
the Offering will not be lower than the offering price. Neither the
Representatives 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 Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Act.
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.
34
<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 Underwriters by Camhy Karlinsky & Stein LLP, New
York, New York.
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.
35
<PAGE>
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 Units offered hereby. This Prospectus, which is a
part of the Registration Statement, does not contain all of the information
contained in the Registration Statement. For further information with respect
to the Company and the Securities offered hereby, reference is made to the
Registration Statement, including the Exhibits thereto, which may be inspected,
without charge, at the Securities and Exchange Commission, or copies of which
may be obtained from the Securities and Exchange Commission in Washington,
D.C., and at the Northeast Regional Office at Seven World Trade Center, New
York, New York 10048, upon payment of the requisite SEC fees. Statements
contained in this Prospectus as to the content of any contract or other
document referenced are qualified by reference to the copy of such contract or
other document filed as an Exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as
management may determine to be appropriate and as may be required by law.
36
<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 Sheets at December 31, 1996 and March 31, 1997 (unaudited) ..................... F-4 - F-5
Statements of Operations for the years ended December 31, 1995 and 1996 and the three
months ended March 31, 1996 and 1997 (unaudited) ....................................... F-6
Statements of Shareholders' Equity for the years ended December 31, 1995 and 1996 and the
three months ended March 31, 1997 (unaudited) .......................................... F-7
Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the three
months ended March 31, 1996 and 1997 (unaudited) ....................................... F-8 - F-9
Notes to Financial Statements ......................................................... F-10 - F-16
</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 Notes 5 and 14,
the latest of which is dated July 28, 1997)
F-3
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
BALANCE SHEETS
ASSETS (Note 5)
<TABLE>
<CAPTION>
December 31, March 31,
-------------- ------------
1996 1997
-------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents (Notes 1(b)) ........................ $ 149,965 $ 118,998
Due from shareholder (Note 2) ................................. 8,588 8,588
Prepaid expenses ............................................. 27,239 42,022
----------- -----------
Total current assets ....................................... 185,792 169,608
----------- -----------
Property and equipment, at cost, less accumulated depreciation and
amortization (Note 3) .......................................... 2,603,348 2,552,472
----------- -----------
Other assets:
Deferred costs, net of accumulated amortization of $16,814;
$19,280 at March 31, 1997 (Note 4) ........................... 131,183 128,717
Deferred public offering costs (Note 4) ........................ 173,837 173,837
Deposits ...................................................... 2,000 2,000
----------- -----------
307,020 304,554
----------- -----------
$3,096,160 $3,026,634
=========== ===========
</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>
December 31, March 31,
-------------- ---------------
1996 1997
-------------- ---------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable -- banks (Note 5) .................................... $ 225,000 $ 205,000
Notes payable -- other, net of discounts of $566,000;
$582,000 at March 31, 1997 (Note 12) .............................. 270,000 558,000
Accounts payable ................................................... 178,117 141,688
Due to shareholders (Note 6) ....................................... 404,475 386,475
Unearned income (Note 1(e)) ....................................... 8,449 15,003
Loan payable (Note 7) ............................................. 12,500 12,500
Accrued expenses and other current liabilities (Note 8) ............ 199,992 118,272
----------- -----------
Total current liabilities ....................................... 1,298,533 1,436,938
----------- -----------
Deferred rent costs (Note 9) .......................................... 246,838 262,317
----------- -----------
Commitments and contingencies (Note 9)
Shareholders' equity (Notes 1 and 11 through 14):
Preferred stock -- par value $.001 per share: Authorized --
1,000,000 shares; issued and outstanding -- 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) (1,871,996)
----------- -----------
1,550,789 1,327,379
----------- -----------
$ 3,096,160 $ 3,026,634
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the For the For the
year year three months three months
ended ended ended ended
December 31, December 31, March 31, March 31,
-------------- -------------- -------------- -------------
1995 1996 1996 1997
-------------- -------------- -------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues ........................... $ 719,374 $ 818,211 $ 123,112 $ 125,087
----------- ----------- ----------- -----------
Operating expenses .................. 1,021,666 1,275,666 274,910 287,467
Selling, general and administrative
expenses ........................... 87,555 173,150 6,855 37,282
----------- ----------- ----------- -----------
1,109,221 1,448,816 281,765 324,749
----------- ----------- ----------- -----------
Operating loss ..................... (389,847) (630,605) (158,653) (199,662)
Other expenses:
Amortization of discounts
attributable to warrants issued
(Note 12) ........................ -- (226,000) -- (272,000)
Interest ........................... (33,572) (80,562) (8,397) (39,748)
----------- ----------- ----------- -----------
Net loss ........................... $ (423,419) $ (937,167) $ (167,050) $ (511,410)
=========== =========== =========== ===========
Net loss per share .................. $ (.33) $ (.74) $ (.13) $ (.40)
=========== =========== =========== ===========
Number of shares used in
computing net loss per share ...... 1,265,000 1,265,000 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 and
THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<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
Value attributed to warrants issued
in connection with redemption of
common shares and warrants ...... -- -- 288,000 -- 288,000
Net loss for the three months ended
March 31, 1997 (unaudited) ...... -- -- -- (511,410) (511,410)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1997
(unaudited) ..................... 1,265,000 $1,265 $ 3,198,110 $ (1,871,996) $1,327,379
========= ======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the three For the three
year ended year ended months ended months ended
December 31, December 31, March 31, March 31,
-------------- -------------- --------------- --------------
1995 1996 1996 1997
-------------- -------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................... $ (423,419) $ (937,167) $ (167,050) $ (511,410)
---------- ---------- ---------- ----------
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization ............... 169,845 218,402 54,060 54,929
Deferred rent costs ........................ 168,260 78,578 27,975 15,479
Amortization of discounts attributable to
warrants issued ........................... -- 226,000 -- 272,000
Issuances of common shares for services
rendered ................................. -- 2,500 -- --
Changes in assets and liabilities:
Construction bond receivable ............... (65,000) 65,000 65,000 --
Prepaid expenses ........................... 16,948 25,098 (1,899) (14,783)
Accounts payable ........................... 28,117 (256,310) (119,509) (36,429)
Unearned income ........................... 16,908 (8,459) 2,773 6,554
Accrued expenses and other current
liabilities .............................. 5,655 187,469 73,099 (81,726)
---------- ---------- ---------- ----------
Total adjustments ........................ 340,733 538,278 101,499 216,024
---------- ---------- ---------- ----------
Net cash used in operations .................. (82,686) (398,889) (65,551) (295,386)
---------- ---------- ---------- ----------
Cash flows used in investing activities:
Purchase of property and equipment ......... (747,627) (11,921) (7,418) (1,581)
Deferred public offering costs ............ -- (173,837) -- --
Other deferred costs incurred ............... (16,848) (22,948) -- --
---------- ---------- ---------- ----------
Total cash used in investing activities ...... (764,475) (208,706) (7,418) (1,581)
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the For the For the three For the three
year ended year ended months ended months ended
December 31, December 31, March 31, March 31,
-------------- -------------- --------------- --------------
1995 1996 1996 1997
-------------- -------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance brought forward ........................ $ (847,161) $ (607,595) $ (72,969) $ (296,967)
---------- ---------- ---------- ----------
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) -- (20,000)
Borrowings from shareholders .................. 199,450 80,025 -- --
Loans to shareholders and collections
thereof .................................... (15,588) -- 76,625 (18,000)
Other short-term borrowings .................. -- 12,500 41,200 --
Collection of shareholder loans ............... -- 7,000 -- --
Cash overdraft .............................. (21,456) (19,185) (19,185) --
Net proceeds from private placement ......... -- 836,000 -- 304,000
Redemption of common shares and
warrants .................................... -- (601,125) -- --
Costs associated with the issuance of
common shares .............................. -- (10,000) -- --
---------- ---------- ---------- ----------
Net cash provided by financing activities ...... 847,406 757,215 98,640 266,000
---------- ---------- ---------- ----------
Net increase (decrease) in cash ............... 245 149,620 25,671 (30,967)
Cash, beginning of period ..................... 100 345 345 149,965
---------- ---------- ---------- ----------
Cash, end of period ........................... $ 345 $ 149,965 $ 26,016 $ 118,998
========== ========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during period:
Interest .................................... $ 37,000 $ 28,000 $ 8,000 $ 5,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited)
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 March 31, 1997 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 March 31, 1997,
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 12). 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 and
March 31, 1997 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 13), 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 private placement (Note 12). 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.
<TABLE>
<CAPTION>
Pro forma (unaudited)
Years ended
December 31,
----------------------------------
1995 1996
--------------- ----------------
<S> <C> <C>
Revenue ................................................... $ 719,374 $ 818,211
Net loss ................................................... $ (929,419) $ (1,416,667)
Net loss per share .......................................... $ (.73) $ (1.12)
Number of shares used in computing net loss per share ...... 1,265,000 1,265,000
</TABLE>
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 and
March 31, 1997, the Company had $152,000 and $77,000, respectively, on deposit
in a money market account, the value of which approximated market.
F-10
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (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 1a) and the Company's net redemption of 825,000 common shares (Note 12).
F-11
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
1. Summary of Significant Accounting Policies -- (Continued)
i. Interim financial information
The accompanying financial statements as of March 31, 1997 and the three
months ended March 31, 1996 and 1997, are unaudited but, in the opinion of
management of the Company, reflects all adjustments (consisting of normal and
recurring adjustments) necessary for a fair presentation.
The financial position as of March 31, 1997, and the results of operations
and cash flows for the three months ended March 31, 1996 and 1997 are not
necessarily indicative of the results that may be expected for the entire year.
2. Due From Shareholder
The amount due from a shareholder of $8,588 at December 31, 1996 and March
31, 1997 is due on demand and is non-interest bearing.
3. Property and Equipment
Property and equipment consists of the following at December 31, 1996 and
March 31, 1997:
Estimated
useful
lives 1996 1997
------------- ------------ -----------
Leasehold improvements ...... 15 years(*) $2,873,387 $2,873,387
Furniture and fixtures ...... 7 years 34,798 34,798
Machinery and equipment ...... 5 years 66,596 68,177
----------- -----------
2,974,781 2,976,362
Accumulated depreciation and
amortization ............... 371,433 423,890
----------- -----------
$2,603,348 $2,552,472
=========== ===========
(*) Over life of lease (Note 9)
4. 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 the incurrence of certain
professional fees and other related costs in connection with the proposed
public sale of the Company's common shares (Note 14). These costs have been
deferred and will be charged to shareholders' equity upon successful completion
of the sale of the Company's common shares or charged to operations if the sale
is not completed.
5. Notes Payable - Banks
The Company, at December 31, 1996 had 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, which is payable on demand and
collateralized by all the assets of the Company, is guaranteed by certain
shareholders. During the three months ended March 31, 1997, $20,000 was repaid
to the bank. The note, as amended, matures in August, 1997 and bears interest
at the rate of 10.50% per annum.
F-12
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
5. Notes Payable - Banks -- (Continued)
In addition, the Company, at December 31, 1996 and March 31, 1997 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% and 10% at
December 31, 1996 and March 31, 1997, respectively). The note, as amended,
matures in August, 1997 and is guaranteed by certain shareholders of the
Company.
6. Due to Shareholders
The amounts payable to shareholders as at December 31, 1996 and March 31,
1997 are non-interest bearing and are payable on demand.
7. Loan Payable
As at December 31, 1996 and March 31, 1997, the Company is obligated under
a non-interest bearing demand loan in the amount of $12,500.
8. Accrued Expenses and Other Current Liabilities
Accrued expenses at December 31, 1996 and March 31, 1997, are comprised of
the following:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Payroll ................................................... $ 33,000 7,000
Interest ................................................... 55,000 90,000
Professional fees .......................................... 30,000 10,000
Balance of obligation relating to the Company's redemption of
common shares and warrants (Note 12) ..................... 64,000 --
Sundry ...................................................... 17,992 11,272
--------- ---------
$199,992 $118,272
========= =========
</TABLE>
9. 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 annual rentals required as
of December 31, 1996 and March 31, 1997 under the lease are as follows:
1996 1997
------------ -----------
1997 ............ $ 500,000 $ --
1998 ............ 509,000 500,000
1999 ............ 523,000 513,000
2000 ............ 537,000 526,000
2001 ............ 550,000 540,000
2002 ............ -- 553,000
Thereafter ...... 5,120,000 4,982,000
----------- -----------
$7,739,000 $7,614,000
=========== ===========
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 Com-
F-13
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
9. Commitments and Contingencies -- (Continued)
pany 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, and was $141,000 and $140,000, for the three months
ended March 31, 1996 and 1997, 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.
10. Income Taxes
The Company, as of March 31, 1997, has available approximately $1,218,000
of net operating loss carry forwards (expiring through the year 2012) 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 tax asset attributable to this
net operating loss in the amount of approximately $487,000. 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.
11. 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 was vested on December 31, 1996 and the balance of which
will vest ratably per quarter for 20 quarters commencing on March 31, 1997).
The remaining 380,000 options are Non-Qualified Options as defined in the Code,
30,000 of which was vested on December 31, 1996 and the remainder of which will
vest ratably per
F-14
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
11. Stock Option Plans -- (Continued)
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 December 31, 1996 and March 31, 1997, 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 and the three months
ended March 31, 1997. Had compensation cost for the Company's two stock option
plans been determined based on the fair value at the vesting date for awards in
1996 and 1997 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:
<TABLE>
<CAPTION>
For the year For the three
ended months ended
December 31, March 31,
----------------- --------------
1996 1997
----------------- --------------
<S> <C> <C>
Net Loss - as reported ..................... $ (937,167) $ (511,410)
Net Loss - pro forma (unaudited) ............ $ (1,136,194) $ (833,834)
Loss per share - as reported ............... $ (.74) $ (.40)
Loss per share - pro forma (unaudited) ...... $ (.90) $ (.66)
</TABLE>
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 and 1997: dividend yield of
0%, expected volatility of 30.00%, risk-free interest rate of 6.7% and expected
lives of 10 years.
12. 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 14), one common share at an exercise price equal to $0.10 per share
(subject to anti-dilution provisions) through the period ending October 23,
2001. 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
F-15
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
12. Private Placements -- (Continued)
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.
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, the proceeds of which were used to redeem one unit from an
investor in the November, 1996 bridge financing and working capital. The
Company has attributed a value of $288,000 to these warrants as a discount
associated with the cost of selling the units.
The Company is amortizing all of the aforementioned costs over the period
the related debt is contemplated to be outstanding. Amortization expense
approximated $226,000 for the year ended December 31, 1996 and $272,000 for the
three months ended March 31, 1997. The unamortized portion of these costs as of
December 31, 1996 and March 31, 1997, aggregated $566,000 and $582,000,
respectively, and have been offset against the related notes payable.
13. 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 14), 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 11 for details of the options granted the
aforementioned officers. The Chairman of the Board of Directors and the
Company's President will devote their respective time to the business of the
Company on an as-needed basis.
14. Proposed Public Offering
The Company entered into a letter of intent, the terms of which were
amended on July 28, 1997, with a managing underwriter to sell, on a firm
commitment basis, 1,100,000 units (each unit consisting of one share of Common
Stock of the Company and one (1) redeemable Common Stock purchase warrant) at
6.10 per unit subject to an additional 165,000 units if the underwriter
exercises its over-allotment option in full. The warrants are exercisable at
7.20 per share and expire in five years. Reference is made to "Underwriting" in
the Registration Statement for further details of the Underwriting Agreement.
15. 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. The
Company will also contribute $500,000 no later than July 1, 1997, at which time
the Company's percentage share of the profits and losses in the Limited
Partnership will be 50%.
F-16
<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 .............................. 20
Management ........................... 25
Principal Stockholders ............... 28
Certain Transactions .................. 29
Description of Securities ............ 30
Shares Eligible for Future Sale ...... 32
Underwriting ........................... 33
Indemnification and Anti-takeover
Provisions ........................ 35
Legal Matters ........................ 35
Experts .............................. 35
Additional Information ............... 36
Financial Statements .................. F-1
-----------------------------------
Until 25 days after the date of this Prospectus, all dealers effecting
transactions in registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
U.S. GOLF AND ENTERTAINMENT INC.
1,100,000 Units
Each Unit Consisting of
One Share of Common Stock
and One Warrant
----------
PROSPECTUS
----------
Westport Resources
Investment Services, Inc.
National Securities Corporation
August , 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 ........................ 215,000
Legal fees and expenses ................................. 225,000
Accounting fees and expenses ........................... 50,000
Miscellaneous .......................................... 5,094
---------
Total ................................................ $550,000
=========
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>
<S> <C>
1.1 Form of Amended Underwriting Agreement
*3.1 Certificate of Incorporation of Registrant
*3.2 By-Laws of Registrant
*4.1 Form of Common Stock Certificate
4.2 Form of Amended Representative's Warrant Agreement
4.3 Form of Redeemable Warrant Agreement
*5.1 Opinion of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 1996 Stock Option Plan, as amended
*10.2 1996 Non-Employee Director Stock Option Plan
*10.4 Form of Exchange Agreement (U.S. Golf Corp.)
*10.5 Form of Exchange Agreement (U.S. Golf Corp.)
*10.6 Form of Amended Employment Agreement (Chairman)
*10.7 Form of Employment Agreement (President)
*10.8 Form of Amended Employment Agreement (Vice President)
*10.9 Option Agreement between Registrant and Senior Vice President
*10.11 Form of Lock-Up Agreement
*10.13 Form of Lease Agreement with Murray L. Beer
*10.14 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)
*27.1 Financial Data Schedule
</TABLE>
- ------------
*Previously filed with the Registrant's Registration Statement and/or
Amendments thereto.
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 July 30, 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 July 30, 1997
- --------------------------- Financial Officer and Director
Edward C. Ross (Principal Financial and
Accounting Officer)
/s/ STUART M. GOLDSTEIN President, Chief Executive Officer July 30, 1997
- --------------------------- and Director
Stuart M. Goldstein
/s/ CHUCK WORKMAN Senior Vice President and Director July 30, 1997
- ---------------------------
Chuck Workman
/s/ GARRY HOWATT Director July 30, 1997
- ---------------------------
Garry Howatt
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- ---------
<S> <C>
1.1 Form of Amended Underwriting Agreement
*3.1 Certificate of Incorporation of Registrant
*3.2 By-Laws of Registrant
*4.1 Form of Common Stock Certificate
4.2 Form of Amended Representative's Warrant Agreement
4.3 Form of Redeemable Warrant Agreement
*5.1 Opinion of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 1996 Stock Option Plan, as amended
*10.2 1996 Non-Employee Director Stock Option Plan
*10.4 Form of Exchange Agreement (U.S. Golf Corp.)
*10.5 Form of Exchange Agreement (U.S. Golf Corp.)
*10.6 Form of Amended Employment Agreement (Chairman)
*10.7 Form of Employment Agreement (President)
*10.8 Form of Amended Employment Agreement (Vice President)
*10.9 Option Agreement between Registrant and Senior Vice President
*10.11 Form of Lock-Up Agreement
*10.13 Form of Lease Agreement with Murray L. Beer
*10.14 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)
*27.1 Financial Data Schedule
</TABLE>
- ------------
*Previously filed with the Registrant's Registration Statement and/or
Amendments thereto.
<PAGE>
Exhibit 1.1
1,100,000 Units, Each Unit Consisting
of One Share of Common Stock and
One Redeemable Warrant
U.S. GOLF AND ENTERTAINMENT INC.
UNDERWRITING AGREEMENT
Commack, New York
August __, 1997
Westport Resources Investment Services, Inc.
National Securities Corporation
As Representatives of the Several Underwriters
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154
Ladies and Gentlemen:
U.S. Golf and Entertainment Inc., a Delaware corporation (the
"Company"), hereby agrees with Westport Resources Investment Services, Inc.
("Westport") and National Securities Corporation ("National") 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), for whom Westport and National are acting as representatives (in
such capacity, Wesport and National shall hereinafter be referred to as "you" or
the "Representatives") with respect to the sale by the Company and the purchase
by the Underwriters, acting severally and not jointly, of the respective amount
of units (the "Units") set forth in said Schedule A, consisting of one (1) share
of the Company's Common Stock, par value .001 per share share (the "Common
Stock"), and one (1) warrant (the "Warrants") to purchase one (1) share of
Common Stock at an exercise price of $7.20 and exercisable at any time over a
sixty (60) month period commencing one (1) year from the date of the Prospectus,
pursuant to a Warrant Agreement, as defined herein, to be entered into at the
Closing, which aggregate to 1,100,000 Units (collectively, the "Shares"). The
Warrant and Common Stock will not be separately tradeable for a period of six
(6) months from the effective date or such sooner time as the Representatives
may determine in their sole discretion. The Warrants will be redeemable by the
Company commencing twelve (12) months after the date of the Prospectus, with the
prior written consent of the Representative, at $0.05 per Warrant on thirty (30)
days' prior written notice if the closing bid price of the Common Stock as
reported on the Nasdaq SmallCap Market averages an amount equal to $12.25 per
share of Common Stock for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth trading day prior to the
notice of redemption. Upon your request, as provided in Section 2(b) of this
Agreement, the Company shall also issue and sell to the Underwriters, acting
severally and not jointly, up to an additional aggregate of
<PAGE>
165,000 Units for the purpose of covering over-allotments, if any. Such Units
are hereinafter referred to as the "Option Shares." The Company also proposes to
issue and sell to you warrants (the "Representative's Warrants") pursuant to the
Representative's Warrant Agreement (the "Representative's Warrant Agreement")
for the purchase of an additional 110,000 Units. The Units, and the shares of
Common Stock and the Warrants underlying such Units, and the shares of Common
Stock underlying the Warrants issuable upon exercise of the Representative's
Warrants are hereinafter referred to as the "Representative's Shares." The
Shares, Option Shares, the Representative's Warrants, and the Representative's
Shares 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 the Option Closing Date, 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 (the "Preliminary Prospectus"), for the
registration of the Shares, the Option Shares, the Representative's Warrants,
and the Representative's Shares (collectively, hereinafter referred to as the
"Registered 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
Regulations (as defined below) 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 the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the 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 Regulations, is hereinafter called the
"Prospectus." For purposes hereof, "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
Preliminary Prospectus, the Registration Statement or the Prospectus and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement have been instituted, or, to the Company's knowledge, are threatened.
Each of the Preliminary Prospectus, the Registration Statement and the
Prospectus at the time of filing thereof conformed in all material respects with
the requirements of the Act and Regulations, and none of the Preliminary
Prospectus, the Registration Statement or the Prospectus at the time of filing
thereof contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein and necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
-2-
<PAGE>
statements 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.
(c) When the Registration Statement becomes effective
and at all times subsequent thereto up to the Closing Date (as defined in
Section 2(c) hereof) and each Option Closing Date (as defined in Section 2(b)
hereof), 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, the
Registration Statement and the Prospectus, as amended or supplemented as
required, will contain all statements which are required to be stated therein in
accordance with the Act and the Regulations, and will conform in all material
respects to the requirements of the Act and the 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 in writing by or on behalf
of any Underwriter expressly for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries have
been duly organized and are validly existing as corporations in good standing
under the laws of the respective states of their incorporation. The Company does
not own or control, directly or indirectly, any corporation, partnership, trust,
joint venture or other business entity other than the subsidiaries listed in
Exhibit 21 of the Registration Statement. Each of the Company and its
subsidiaries 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 (except these jurisdictions in which the failure to not qualify will
not, in the aggregate, have a material adverse effect on the Company). Each of
the Company and its subsidiaries has all requisite power and authority
(corporate and other), and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (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; the Company and each of its subsidiaries have 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 any of its subsidiaries
have received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the business affairs, operations,
properties, or results of operations of the Company and its subsidiaries, taken
as a whole. The disclosures in the Registration Statement concerning the effects
of federal, state, local, and foreign laws, rules and regulations on the
-3-
<PAGE>
Company's business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made.
(e) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Registered 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 shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or arrangements
and the options or other rights granted and exercised thereunder as set forth in
the Prospectus conforms in all material respects with the requirements of the
Act. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, 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 were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company.
(f) The Registered Securities are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and will conform in all
material respects 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 Registered Securities has been duly and validly taken; and the certificates
representing the Registered Securities will be in due and proper form. Upon the
issuance and delivery pursuant to the terms hereof of the Registered Securities
to be sold by the Company hereunder, the Underwriters or the Representative, as
the case may be, will acquire good and marketable title to such Registered
Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect, or other restriction or equity of any kind
whatsoever. No stockholder of the Company has any right which has not been
waived in writing to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering
-4-
<PAGE>
contemplated by this Agreement. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Shares, the Option Shares and the Representative's
Warrants to be sold by the Company as contemplated herein.
(g) The financial statements of the Company, together
with the related notes and schedules thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly present the
financial position, changes in stockholders' equity and the results of
operations of the Company 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 Regulations,
consistently applied throughout the periods involved. There has been no material
adverse change or development involving a material prospective change in the
condition, financial or otherwise, or in the business, affairs, operations,
properties, or results of operation of the Company and its subsidiaries taken as
a whole whether or not arising in the ordinary course of business 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 the business of the Company and its subsidiaries taken as a whole conform in
all material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information set forth in the Prospectus
under the headings "Prospectus Summary - Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, 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.
(h) The Company (i) has paid all federal, state,
local, franchise, and foreign taxes for which it is liable, including, but not
limited to, withholding taxes and amounts payable under Chapters 21 through 24
of the Internal Revenue Code of 1986, as amended (the "Code"), and has furnished
all information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
(i) 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 Registered Securities, (ii) the purchase by the
Underwriters of the Registered Securities from the Company and the purchase by
the Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Registered Securities in connection with the distribution
contemplated hereby.
(j) There is no action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation or governmental 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
-5-
<PAGE>
businesses of, the Company which (i) questions the validity of the capital stock
of the Company, this Agreement or the Representative's Warrant Agreement, or of
any action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Representative's Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the business, affairs,
position, stockholders' equity, operation, properties, or results of operations
of the Company and its subsidiaries taken as a whole.
(k) The Company has the corporate power and authority
to authorize, issue, deliver, and sell the Registered Securities and to enter
into this Agreement and the Representative's Warrant Agreement, and to
consummate the transactions provided for in such agreements; and this Agreement
and the Representative's Warrant Agreement have each been duly and properly
authorized, executed, and delivered by the Company. Each of this Agreement and
the Representative's Warrant Agreement constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms (except as the enforceability thereof 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 issue and sale of the Registered Securities, execution by
the Company, delivery or performance of this Agreement and the Representative's
Warrant Agreement, the consummation by the Company of the transactions
contemplated herein and therein, or the conduct of the Company's businesses 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, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of (i)
the articles of incorporation or by-laws of the Company, as amended and
restated, (ii) any license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument to which the Company is a party or by which it is
or may be bound or to which its 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 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 of
any of their activities or properties.
(l) No consent, approval, authorization or order of,
and no filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Registered Securities
pursuant to the Prospectus and the Registration Statement, the performance of
-6-
<PAGE>
this Agreement, the Representative's Warrant Agreement, and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Registered Securities, except such as have
been or may be obtained under the Act or may be required under state securities
or Blue Sky laws in connection with the Underwriters' purchase and distribution
of the Registered Securities to be sold by the Company hereunder.
(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 is a party or by
which it may be bound or to which its assets, properties or businesses may be
subject have been duly and validly authorized, executed and delivered by the
Company and constitute the legal, valid and binding agreements of the Company
enforceable against the Company in accordance with their respective 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). The descriptions in
the Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form 1, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
(n) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, and except as
described in or specifically contemplated by the Prospectus (i) the Company has
not incurred any material liabilities or obligations, indirect, direct or
contingent, or entered into any material verbal or written agreement or other
transaction which is not in the ordinary course of business or which could
result in a material reduction in the future earnings of the Company; (ii) the
Company has not sustained any material loss or interference with its business or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock, and the
Company is not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock (other than upon the sale of the Shares, the Option Shares and the
Representative's Shares hereunder and upon the exercise of options and warrants
described in the Registration Statement) of, or indebtedness material to, the
Company (other than in the ordinary course of business); (v) the Company has not
issued any securities or incurred any liability or obligation, primary or
contingent, for borrowed money; and (vi) there has not been any material adverse
change in the condition (financial or otherwise), business, properties, results
of operations, or prospects of the Company.
-7-
<PAGE>
(o) Except as disclosed in or specifically
contemplated by the Prospectus, (i) the Company has sufficient trademarks, trade
names, patent rights, copyrights, licenses, approvals and governmental
authorizations to conduct its business as now conducted; (ii) the expiration of
any trademarks, trade names, patent rights, copyrights, licenses, approvals or
governmental authorizations would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company; (iii) the Company has no knowledge of any infringement by it or
its subsidiaries of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and (iv) there is no
claim being made against the Company regarding trademark, trade name, patent,
copyright, license, trade secret or other infringement which could have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company.
(p) No default exists in the due performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement other
than as a result of defaults in the borrowing arrangements with NBD Bank, or any
other material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which the Company is a
party or by which the Company may be bound or to which the property or assets
(tangible or intangible) of the Company is subject or affected.
(q) To the Company's knowledge, 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 pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or to its knowledge threatened against or involving the Company. No
representation question exists respecting the employees of the Company. No
collective bargaining agreement, or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists or to its knowledge is
imminent.
(r) Except as described in the Prospectus, the
Company does not maintain, sponsor or contribute 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"). The Company does not maintain or contribute
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, which
could subject the Company to any tax penalty on prohibited transactions and
which has not adequately been corrected. Each ERISA Plan is in compliance with
-8-
<PAGE>
all material reporting, disclosure and other requirements of the Code and ERISA
as they relate to any such ERISA Plan. Determination 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 such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(s) None of the Company, nor any of its employees,
directors, stockholders, or affiliates (within the meaning of the Regulations)
of any of the foregoing has taken or will take directly or indirectly, any
action designed to or which has constituted or which might be expected to cause
or result in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Registered Securities.
(t) The Company 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, charges, claims, encumbrances, pledges, security interests, or other
restrictions or equities of any kind whatsoever other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(u) Farber, Blicht & Eyerman, L.L.P. ("Farber,
Blicht"), 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 Regulations.
(v) The Company has caused to be duly executed
legally binding and enforceable agreements pursuant to which all persons or
entities that directly or beneficially own Common Stock, as of the effective
date of the Registration Statement, have agreed not to, directly or indirectly,
offer, offer to sell, sell, grant any option for the sale of, transfer, assign,
pledge, hypothecate or otherwise encumber or dispose of any shares of Common
Stock or securities convertible into Common Stock, 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 Regulations or otherwise) or dispose
of any interest therein for a period from the date of the Prospectus until at
least three (3) months following the date that the Registration Statement
becomes effective, without the prior written consent of National (the "Lock-up
Agreements"). The Company will cause the Transfer Agent (as defined herein) to
place "stop transfer" orders on the Company's stock ledgers in order to effect
the Lock-up Agreements.
(w) There are no claims, payments, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Registered
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company or any of its officers,
directors, stockholders, employees or affiliates that may affect the
Underwriters' compensation as determined by the Commission and the National
Association of Securities Dealers, Inc. (the "NASD").
-9-
<PAGE>
(x) The Registered Securities have been approved for
quotation on the NASDAQ SmallCap Market.
(y) Neither the Company nor any of its officers,
employees, agents or any other person acting on behalf of the Company 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 assist the Company in connection with any actual or proposed
transaction) which might subject the Company or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign). The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.
(z) Except as set forth in the Prospectus, no
officer, director or stockholder of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the
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 which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficiary
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus there
are no existing agreements, arrangements, understandings or transactions, or
proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, principal shareholder (as such
term is used in the Prospectus) of the Company, or any affiliate or associate of
any of the foregoing persons or entities.
(aa) The Company is not, and does not intend to
conduct its business in a manner in which it would become an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(bb) Any certificate signed by any officer of the
Company and delivered to the Underwriters or to the Underwriters' Counsel (as
defined in Section 4(d) herein) shall be deemed a representation and warranty by
the Company to the Underwriters as to the matters covered thereby.
(cc) The minute books of the Company have been made
available to the Underwriters and contain a complete summary of all meetings and
actions of the directors and stockholders of the Company, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
-10-
<PAGE>
(dd) The Company has not distributed and will not
distribute prior to the Closing Date any offering material in connection with
the offering and sale of the Shares in this offering other than the Prospectus,
the Registration Statement and the other materials permitted by the Act. Except
as described in the Prospectus, no holders of any securities of the Company or
of any options, warrants or other convertible or exchangeable securities of the
Company have the right to include any securities issued by the Company as part
of the Registration Statement or to require the Company to file a registration
statement under the Act and no person or entity holds any anti-dilution rights
with respect to any securities of the Company.
(ee) Each of the Company and its subsidiaries
maintains insurance by insurers of recognized financial responsibility of the
types and in the amounts as are prudent, customary and adequate for the business
in which it is engaged, including, but not limited to, insurance covering real
and personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
The Company has no reason to believe that it will not be able to renew existing
insurance coverage with respect to the Company as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business, in either case, at a cost that would not have a material
adverse effect on the financial condition, operations, business, assets or
properties of the Company. The Company has not failed to file any claims, has no
material disputes with its insurance company regarding any claims submitted
under its insurance policies, and has complied with all material provisions
contained in its insurance policies.
(ff) The Company has entered into a warrant agreement
(the "Warrant Agreement") substantially in the form filed as Exhibit 4.4 to the
Registration Statement with Continental Stock Transfer & Trust Company, in form
and substance satisfactory to the Representative, with respect to the Warrants
providing for the payment of commissions contemplated by Section 4(y), hereof.
The Warrant Agreement has been duly and validly authorized by the Company and,
assuming due execution by the parties thereto other than the Company,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification provision may be limited under the federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
2. Purchase, Sale and Delivery of the Registered Securities.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter, and
each Underwriter, severally and not jointly agrees to purchase from the Company,
at a price equal to $________ per share, that number of Shares set forth in
-11-
<PAGE>
Schedule A opposite the name of such Underwriter, subject to such adjustment as
the Representative in its discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional numbers of Shares which 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 the
Option Shares at a price equal to $______. 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 Regulations, or
(ii) the date of this Agreement if the Company has elected to rely upon Rule
430A under the Regulations, and may be exercised in whole or in part from time
to time (but not on more than two (2) occasions) only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Shares upon notice by the Representative to the Company
setting forth the number of Option Shares as to which the several Underwriters
are then exercising the option and the time and date of payment and delivery for
any such Option Shares. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Representative, but shall not be later than
three 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 exercise the over-allotment option described above. No
Option Shares shall be delivered unless the Shares shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery
of certificates for, the Shares shall be made at the offices of National, at
1001 Fourth Avenue, Suite 2200, Seattle, Washington, or at such other place as
shall be agreed upon by the Representative and the Company. Such delivery and
payment shall be made at 11:00 a.m. (New York time) on August ___, 1997, or at
such other time and date as shall be agreed upon by the Representative and the
Company, but no more than four (4) business days after the date hereof (such
time and date of payment and delivery being herein called the "Closing Date").
In addition, in the event that any or all of the Option Shares are purchased by
the Underwriters, payment of the purchase price for, and delivery of
certificates for, such Option Shares shall be made at the above mentioned office
of National 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 Shares and
the Option Shares, if any, shall be made to the Underwriters against payment by
the Underwriters, of the purchase price for the Shares and the Option Shares, if
any, by wire transfer to the Company. In the event such option is exercised,
each of the Underwriters, acting severally and not jointly, shall purchase that
proportion of the total number of Option Shares then being purchased which the
number of Shares set forth in Schedule A hereto opposite the name of such
Underwriter bears to the total number of Shares, subject in each case to such
adjustments as the Representative in their discretion shall make to eliminate
any sales or purchases of fractional shares. Certificates for
-12-
<PAGE>
the Shares and the Option Shares, if any, shall be in 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 three (3) business days prior to Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Shares and the
Option Shares, 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
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 Representative's Warrants at a purchase price of
$0.0001 per warrant, which warrants shall entitle the holders thereof to
purchase an aggregate of 110,000 Units. The Representative's Warrants shall
expire five (5) years after the effective date of the Registration Statement and
shall be exercisable for a period of four (4) years commencing one (1) year from
the effective date of the Registration Statement at a price equaling 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 filed as Exhibit ____ to the Registration Statement.
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 after distribution of the Shares 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 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 will 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 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 or the
Regulations.
-13-
<PAGE>
(b) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise the Representative and confirm the
notice in writing, (i) when the Registration Statement, as amended, becomes
effective, 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 of any
proceedings for the suspension of the qualification of any of the Registered
Securities for offering or sale in any jurisdiction or of the initiation, or the
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 authority shall enter a stop order or suspend such
qualification at any time, the Company will use its best efforts to obtain
promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form
and substance satisfactory to the Representative) in accordance with the
requirements of the Act.
(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 which the Company proposes for use
by the Underwriters in connection with the offering of the Registered Securities
which 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 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 amendment or supplement to which the
Representative or Camhy Karlinsky & Stein LLP ("Underwriters' Counsel") shall
reasonably 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 Registered Securities for offering
and sale under the securities laws of such jurisdictions as the Representative
may reasonably 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 become subject to service of process in
any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
-14-
<PAGE>
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, as now and hereafter
amended, and by the Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in the Registered
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 Registered 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 or supplement
the Prospectus to comply with the Act, the Company will 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 will 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 12-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 Regulations, and to the Representative, an earnings statement
which will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of five (5) years after the date
hereof, the Company will furnish to its stockholders, as soon as practicable,
annual reports (including financial statements audited by independent public
accountants) and will make available to its stockholders unaudited quarterly
reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such
quarterly reports to its stockholders, statements of income of
the Company for each quarter in the form furnished to the
Company's stockholders;
(ii) concurrently with furnishing such
annual reports to its stockholders, a balance sheet of the
Company as at the end of the preceding fiscal
-15-
<PAGE>
year, together with statements of operations, stockholders'
equity, and cash flows of the Company 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 Nasdaq National Market 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 or its affairs which was released or
prepared by or on behalf of the Company; and
(vi) any additional information of a public
nature concerning the Company (and any future subsidiaries) or
its businesses which the Representative may reasonably
request.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent (the
"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 the Units Common Stock Warrants and the Representative's Warrants.
(j) The Company will furnish to the Representative or
on the Represen- tative'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 (two of which copies will be signed and will include all financial
statements and exhibits), each Preliminary Prospectus, 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 reasonably request.
(k) On or before the effective date of the
Registration Statement, the Company shall provide the Representative with true
copies of duly executed, legally binding and enforceable Lock-up Agreements. On
or before the Closing Date, the Company shall deliver instructions to the
Transfer Agent authorizing it to place appropriate stop transfer orders on the
Company's ledgers.
-16-
<PAGE>
(l) The Company shall use its best efforts to cause
its officers, directors, stockholders or affiliates (within the meaning of the
Regulations) not to take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the
sale of the Registered Securities substantially in the manner, and subject to
the conditions, set forth under "Use of Proceeds" in the Prospectus.
(n) The Company shall timely file all such reports,
forms or other documents as may be required (including, but not limited to, 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 Regulations, and all such
reports, forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Regulations.
(o) The Company shall cause the Registered Securities
to be quoted on the NASDAQ SmallCap Market, and for a period of two (2) years
from the date hereof shall use its best efforts to maintain the quotation of the
Registered Securities to the extent outstanding.
(p) For a period of two (2) years from the Closing
Date, the Company shall furnish to the Representative, at the Company's sole
expense, daily consolidated transfer sheets relating to the Common Stock.
(q) For a period of five (5) years after the
effective date of the Registration Statement the Company shall, at the Company's
sole expense, take all necessary and appropriate actions to further qualify the
Company's securities in all jurisdictions of the United States in order to
permit secondary sales of such securities pursuant to the Blue Sky laws of those
jurisdictions which do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
(r) The Company (i) prior to the effective date of
the Registration Statement, has filed a Form 8-A with the Commission providing
for the registration of the Common Stock under the Exchange Act and (ii) as soon
as practicable, will use its best efforts to take all necessary and appropriate
actions 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
five (5) years.
(s) The Company agrees that for a period of thirteen
(13) months following the effective date of the Registration Statement it will
not, without the prior written consent of National, offer, issue, sell, contract
to sell, grant any option for the sale of or otherwise dispose of any Units, or
securities convertible into Common Stock, except for the issuance of the Option
Shares, the Representative's Warrants, and shares of Common Stock issued upon
-17-
<PAGE>
the exercise of currently outstanding warrants or options issued under any stock
option plan in effect on the Closing Date, shares of Common Stock automatically
granted pursuant to any stock option plan in effect on the Closing Date, or
shares of Common Stock issued pursuant to any employee stock purchase plan in
effect on the Closing Date.
(t) Until the completion of the distribution of the
Registered Securities, the Company shall not without the prior written consent
of National or Underwriters' Counsel, issue, directly or indirectly any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5)
years from the date hereof, and (ii) the sale to the public of the
Representative's Shares, the Company will not take any action or actions which
may prevent or disqualify the Company's use of SB-2 (or other appropriate form)
for the registration under the Act of the Representative's Shares.
(v) The Company agrees that upon the request of
National it shall use its best efforts, which shall include, but shall not be
limited to, the solicitation of proxies, to elect one (1) designee of National
to the Company's Board of Directors for a period of five (5) years following the
Closing, provided that such designee is reasonably acceptable to the Company. In
the event National does not exercise its right to designate a member of the
Board of Directors, then it shall have the right to designate one person to
attend all meetings of the Board of Directors of the Company, and all committees
thereof, as an observer. Such observer shall be entitled to receive notices of
all such meetings, and all correspondence and communications sent by the Company
to members of its Board of Directors, and to attend all such meetings. The
Company shall reimburse the designee of National for his out-of-pocket expenses
incurred in connection with their attendance at such meetings.
(w) The Company agrees that within forty-five (45)
days after the Closing it shall retain a public relations firm which is
acceptable to National. The Company shall keep such public relations firm, or
any replacement, for a period of three (3) years from the Closing. Any
replacement public relations firm shall be retained only with the consent of
National.
(x) The Company agrees that any and all future
transactions between the Company and its officers, directors, principal
stockholders and the affiliates of the foregoing persons will be on terms no
less favorable to the Company than could reasonably be obtained in arm's length
transactions with independent third parties, and that any such transactions also
be approved by a majority of the Company's outside independent directors
disinterested in the transaction.
-18-
<PAGE>
(y) The Company shall prepare and deliver, at the
Company's sole expense, to National within the one hundred and twenty (120) day
period after the later of the effective date of the Registration Statement or
the latest Option Closing Date, as the case may be, one bound volume containing
all correspondence with regulatory officials, agreements, documents and all
other materials in connection with the offering as requested by the
Underwriters' Counsel.
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 previously paid)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement, the Warrant 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, 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 duplication, mailing (including the payment of postage with
respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreements, the Powers of Attorney, 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 certificates representing the
Registered Securities, (iv) the qualification of the Registered 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 "Legal Investments Survey," if any, and reasonable disbursements
and fees of counsel in connection therewith, (v) advertising costs and expenses,
including but not limited to the costs and expenses incurred by the Company and
the Representative in connection with the "road show," information meetings and
presentations, bound volumes and prospectus memorabilia and "tombstone"
advertisement expenses, (vi) experts, (vii) fees and expenses of the transfer
agent and registrar, (viii) the fees payable to the Commission and the NASD,
(ix) issue and transfer taxes, if any (x) the fees and expenses incurred in
connection with the listing of the Common Stock on the Nasdaq National Market or
any other market or exchange, (xi) costs and expenses in connection with due
diligence investigations, including but not limited to the fees of any
independent counsel or consultant retained and (xii) applications for
assignments of a rating of the Securities by qualified rating agencies.
(b) If this Agreement is terminated by the
Underwriters in accordance with the provisions of Section 6, Section 10(a) or
Section 12, the Company shall reimburse and indemnify the Representative for all
of its actual out-of-pocket expenses on an accountable basis,
-19-
<PAGE>
including the fees and disbursements of Underwriters' Counsel, less any amounts
already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to
the expenses payable pursuant to subsection (a) of this Section 5, it will 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 two
and one-half percent (2 1/2%) of the gross proceeds received by the Company from
the sale of the Shares. In the event the Representative elects to exercise the
over-allotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Representative on the 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 two and
one-half percent (2 1/2%) of the gross proceeds received by the Company from the
sale of the Option Shares.
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 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 5:00 p.m., New York City 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 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 Regulations, the price of the Shares 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 Regulations within the
prescribed time period, and prior to 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 Regulations.
(b) The Representative shall not have advised the
Company that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which,
-20-
<PAGE>
in the Representative's opinion, is material, or omits to state a fact which, in
the Representative's opinion, is material and is required to be stated therein
or is necessary to make the statements therein not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Representative's reasonable opinion, is material, or omits to
state a fact which, in the Representative's reasonable 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, the Underwriters
shall have received from Underwriters' Counsel such opinion or opinions with
respect to the organization of the Company, the validity of the Registered
Securities, the Registration Statement, the Prospectus and other related matters
as the Representative may request and Underwriters' Counsel shall have received
from the Company such papers and information as they request to enable them to
pass upon such matters.
(d) At Closing Date, the Underwriters shall have
received the favorable opinion of Ruskin, Moscou, Evans & Faltischek ("Ruskin,
Moscou"), counsel to the Company, dated the Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel, to
the effect that:
(i) the Company (A) has been duly organized
and is validly existing as a corporation in good
standing under the laws of its jurisdiction of
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, and (C) to
the best of such counsel's knowledge, has all
requisite corporate power and authority and has
obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or
regulatory officials and bodies (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.
(ii) except as described in the Prospectus,
and to the best of such counsel's knowledge after
reasonable investigation, the Company does not own an
interest in any corporation, limited liability
company, partnership, joint venture, trust or other
business entity;
(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 "Description of
Capital Stock," and to the knowledge of such counsel,
the Company is not a party
-21-
<PAGE>
to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities,
except for this Agreement, the Representative's
Warrant Agreement, and as described in the
Prospectus. The Registered Securities and all other
securities issued or issuable by the Company conform
in all material respects to the statements with
respect thereto contained in the Registration
Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and
nonassessable; the holders thereof are not subject to
personal liability by reason of being such holders;
and none of such securities were issued in violation
of the preemptive rights of any holders of any
security of the Company. The Registered Securities to
be sold by the Company hereunder and under the
Representative's Warrant Agreement are not and will
not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in
accordance with their terms, will be validly issued,
fully paid and nonassessable and will conform in all
material respects 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
Registered Securities has been duly and validly
taken; and the certificates representing the
Registered Securities are in due and proper form. The
Representative's Warrants constitute valid and
binding obligations of the Company to issue and sell,
upon exercise thereof and payment therefor, the
number and type of securities of the Company called
for thereby (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). Upon the issuance and
delivery pursuant to this Agreement of the Registered
Securities to be sold by the Company, the Company
will convey, against payment therefor as provided
herein, to the Underwriters and the Representative,
respectively, good and marketable title to the
Registered Securities free and clear of all liens and
other encumbrances;
(iv) the Registration Statement is effective
under the Act, and, if applicable, filing of all
pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of
any thereof or suspending the effectiveness of the
Registration Statement has been issued and no
proceedings for that purpose have been
-22-
<PAGE>
instituted or are pending or, to the best of such
counsel's knowledge, 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) comply as to form in all
material respects with the requirements of the Act
and the Regulations. Such counsel shall state that
such counsel has participated in conferences with
officers and other representatives of the Company and
the Representative and representatives of the
independent public accountants for the Company, at
which conferences the contents of the Preliminary
Prospectus, the Registration Statement, the
Prospectus, and any amendments or supplements thereto
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, and any
amendments or supplements thereto, on the basis of
the foregoing, no facts have come to the attention of
such counsel which 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 (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 Prospectus,
and any amendments or supplements thereto);
(vi) to the best of such counsel's knowledge
after reasonable investigation, (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 and the Prospectus and
filed as exhibits thereto; (B) the descriptions in
the Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and
other documents to which the Company is a party or by
which it is bound are accurate in all material
respects and fairly represent the information
required to be shown by Form SB-2; (C) there is not
pending or threatened against the Company any action,
arbitration, suit, proceeding, litigation,
governmental or other proceeding (including, without
limitation, those having jurisdiction over
environmental or similar matters), domestic or
-23-
<PAGE>
foreign, pending or threatened against the Company
which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and
such proceedings as are summarized in the
Registration Statement are accurately summarized in
all material respects), (y) questions the validity of
the capital stock of the Company or this Agreement,
or the Representative's Warrant Agreement, or of any
action taken or to be taken by the Company pursuant
to or in connection with any of the foregoing; and
(D) there is no action, suit or proceeding pending or
threatened against the Company before any court or
arbitrator or governmental body, agency or official
in which there is a reasonable possibility of an
adverse decision which may result in a material
adverse change in the financial condition, business,
affairs, stockholders' equity, operations,
properties, business or results of operations of the
Company, which could adversely affect the present or
prospective ability of the Company to perform its
obligations under this Agreement, the Warrant
Agreement or the Representative's Warrant Agreement
or which in any manner draws into question the
validity or enforceability of this Agreement, the
Warrant Agreement or the Representative's Warrant
Agreement;
(vii) the Company has the corporate power
and authority to enter into each of this Agreement,
the Warrant Agreement and the Representative's
Warrant Agreement and to consummate the transactions
provided for therein; and each of this Agreement, the
Warrant Agreement and the Representative's Warrant
Agreement has been duly authorized, executed and
delivered by the Company. Each of this Agreement, the
Warrant Agreement and the Representative's Warrant
Agreement, assuming due authorization, execution and
delivery by each other party thereto, constitutes a
legal, valid and binding obligation of the Company
enforceable against the Company in accordance with
its terms (except as the enforceability thereof 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, delivery or performance of this Agreement,
the Warrant Agreement and the Representative's
Warrant Agreement, the consummation by the Company of
the transactions contemplated herein or therein, or
the conduct of the Company's business as described in
the Registration Statement, the Prospectus, and any
amendments or supplements thereto conflicts with or
results in any breach or violation of any of the
terms or provisions of, or constitutes a default
under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of
any kind whatsoever upon,
-24-
<PAGE>
any property or assets (tangible or intangible) of
the Company pursuant to the terms of (A) the articles
of incorporation or by-laws of the Company, as
amended, (B) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument known
to such counsel to which the Company is a party or by
which it is bound, or (C) any federal, state or local
statute, rule or regulation applicable to the Company
or any judgment, decree or order known to such
counsel 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 any of its activities or properties;
(viii) no consent, approval, authorization
or order, and no filing with, any court, regulatory
body, government agency or other body (other than
such as may be required under Blue Sky laws, as to
which no opinion need be rendered or under federal
securities laws, as to which no opinion need be
rendered pursuant to this subsection (viii) is
required in connection with the issuance of the
Registered Securities pursuant to the Prospectus, and
the Registration Statement, the performance of this
Agreement, the Warrant Agreement and the
Representative's Warrant Agreement, and the
transactions contemplated hereby and thereby;
(ix) to the best of such counsel's knowledge
after reasonable investigation, the properties and
business of the Company conform in all material
respects to the description thereof contained in the
Registration Statement and the Prospectus;
(x) to the best knowledge of such counsel,
and except as disclosed in Registration Statement and
the Prospectus, the Company is not in breach of, or
in default under, any term or provision of any
license, contract, indenture, mortgage, installment
sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is
a party or by which the Company is bound or to which
the property or assets (tangible or intangible) of
the Company is subject; and the Company is not in
violation of any term or provision of its articles of
incorporation or by-laws, as amended, and to the best
of such counsel's knowledge after reasonable
investigation, not in violation of any franchise,
license, permit, judgment, decree, order, statute,
rule or regulation;
-25-
<PAGE>
(xi) the statements in the Prospectus under
"Dividend Policy," "Description of Capital Stock,"
and "Shares Eligible for Future Sale" have been
reviewed by such counsel, and insofar as they refer
to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions,
are correct in all material respects;
(xii) the Units, the Common Stock and the
Warrants have been accepted for quotation on the
NASDAQ SmallCap Market;
(xiii) to the best of such counsel's
knowledge and based upon a review of the outstanding
securities and the contracts furnished to such
counsel by the Company, no person, corporation,
trust, partnership, association or other entity has
the right to include and/or register any securities
of the Company in the Registration Statement, require
the Company to file any registration statement or, if
filed, to include any security in such registration
statement;
(xiv) assuming due execution by the parties
thereto other than the Company, each Lock-up
Agreement is a legal, valid and binding obligation of
the party thereto, enforceable against the party and
any subsequent holder of the securities subject
thereto 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);
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws, rules and
regulations of the United States and the laws, rules and regulations of the
State of Delaware, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form and
substance satisfactory to Underwriters' Counsel) of other counsel acceptable to
Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested. The opinion of such counsel shall state that
knowledge shall not include the knowledge of a director or officer of the
Company who is affiliated with such firm in his or her capacity as an officer or
director of the Company. The opinion of such counsel for the Company shall state
that the opinion of any such other counsel is in form satisfactory to such
counsel.
-26-
<PAGE>
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Ruskin, Moscou, counsel to the Company,
dated the Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel confirming as of such Option
Closing Date the statements made by Ruskin, Moscou in their opinion delivered on
the Closing Date.
(e) On or prior to each of the Closing Date and the
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
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company or herein contained.
(f) Prior to each of the Closing Date and each Option
Closing Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company, from the latest date as of
which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is adverse to the Company; (iii) the Company
shall not be in default under any provision of any instrument relating to any
outstanding indebtedness which default has not been waived; (iv) the Company
shall not have issued any securities (other than the Registered Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there has not been any change in the capital stock, or
any material increase in the debt (long or short term) or liabilities or
obligations of the Company (contingent or otherwise); (v) no material amount of
the assets of the Company 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 affecting any of its
respective properties or businesses before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, 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.
(g) At each of the Closing Date and each Option
Closing Date, if any, the Underwriters shall have received a certificate of the
Company signed on behalf of the Company by the principal executive officer of
the Company, dated the Closing Date or Option Closing Date, as the case may be,
to the effect that such executive has carefully examined the Registration
Statement, the Prospectus and this Agreement, and that:
-27-
<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 the
Option Closing Date, as the case may be, and the
Company has complied with all agreements and
covenants and satisfied 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, if any, each amendment and each
supplement thereto, contain all statements and
information required by the Act to be included
therein, and none of the Registration Statement, the
Prospectus nor 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 not misleading and neither the Preliminary
Prospectus or any supplement, as of their respective
dates, 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; and
(iv) Subsequent to the respective dates as
of which information is given in the Registration
Statement and the Prospectus, (a) the Company has not
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, any material
liabilities or obligations, direct or contingent; (b)
the Company has not paid or declared any dividends or
other distributions on its capital stock; (c) the
Company has not entered into any transactions not in
the ordinary course of business; (d) there has not
been any change in the capital stock or material
increase in 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) of the Company, (e) the Company has not
sustained any loss or damage to its property or
assets, whether or not insured, (f) there is no
litigation which is pending or threatened (or
circumstances giving rise to same) against the
Company or any affiliated party of any of the
foregoing which is required to be set forth in an
amended or supplemented Prospectus which has not been
set forth, and (g) there has occurred no event
required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
-28-
<PAGE>
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriters.
(i) At the time this Agreement is executed, the
Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory in all respects (including the
non-material nature of the changes or decreases, if any, referred to in clause
(iii) below) to the Underwriters and Underwriters' Counsel, from Farber, Blicht:
(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 included in the Registration Statement
comply as to form in all material respects with the
applicable accounting requirements of the Act and the
Regulations thereunder and that the Representative
may rely upon the opinion of Farber, Blicht with
respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) stating that, on the basis of a
limited review which included a reading of the latest
available unaudited interim financial statements of
the Company (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 board of directors
of the Company, consultations with officers and other
employees of the Company responsible for financial
and accounting matters and other specified procedures
and inquiries, nothing has come to their attention
which would lead them to believe that (A) the
unaudited financial statements and supporting
schedules of the Company included in the Registration
Statement, if any, do not comply as to form in all
material respects with the applicable accounting
requirements of the Act and the Regulations or are
not fairly presented in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with that of the audited
financial statements of the Company included in the
Registration Statement, or (B) at a specified date
not more than five (5) days prior to the effective
date of the Registration Statement, there has been
any change in the capital stock or material increase
in long-term debt of the Company, or any material
decrease in the stockholders' equity or net
-29-
<PAGE>
current assets or net assets of the Company as
compared with amounts shown in the March 31, 1997
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.
(iv) 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
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 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 and found them to
be in agreement; and
(v) statements as to such other material
matters incident to the transaction contemplated
hereby as the Representative may reasonably request.
(j) At the Closing Date and each Option Closing Date,
if any, the Underwriters shall have received from Farber, Blicht a letter, dated
as of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (i) of this Section 6, except that the specified date referred to
shall be a date not more than five (5) days prior to Closing Date or the 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 (iv) of Subsection (i) of this
Section 6 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 (iv).
(k) On each of Closing Date and Option Closing Date,
if any, there shall have been duly tendered to the Representative for the
several Underwriters' accounts the appropriate number of Registered Securities.
(l) No order suspending the sale of the Registered
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.
-30-
<PAGE>
(m) On or before the Closing Date, the Company shall
have executed and delivered to the Representative, (i) the Representative's
Warrant Agreement, substantially in the form filed as Exhibit 4(b), to the
Registration Statement, in final form and substance satisfactory to the
Representative, and (ii) the Representative's Warrants in such denominations and
to such designees as shall have been provided to the Company.
(n) On or before Closing Date, the Common Stock shall
have been duly approved for quotation on the NASDAQ SmallCap Market.
(o) On or before Closing Date, there shall have been
delivered to the Representative all of the Lock-up Agreements in final form and
substance satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or the relevant Option
Closing Date, as the case may be, is not so fulfilled, the Representative may
terminate this Agreement or, if the Representative so elect, they may waive any
such conditions which 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 "Underwriters" shall
include the officers, directors, partners, employees, agents and counsel of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof), and each person, if any, who
controls the Underwriter ("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
loss, liability, claim, damage, and expense whatsoever (including, but not
limited to, reasonable attorneys' fees and any and all reasonable expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Registered Securities under the securities
laws thereof or filed with the Commission, any state securities commission or
agency, The Nasdaq Stock Market, Inc. or any securities exchange; or any
omission or alleged omission to state 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 in
-31-
<PAGE>
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; or (ii) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement. The
indemnity agreement in this subsection (a) shall be in addition to any liability
which 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, agents and counsel of the Company 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 made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to any Underwriter by such
Underwriter or the Representative 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 Registered 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 or the Representative for inclusion
in the Prospectus.
(c) Promptly after receipt by an indemnified party
under this Section 7 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 7, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure to so notify an indemnifying party shall
not relieve it from any liability which it may have otherwise or which it may
have under this Section 7, except to the extent that it has been prejudiced in
any material respect by such failure). 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
-32-
<PAGE>
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 time after notice
of commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which 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), in any of which events the reasonable fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7 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 Registered 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, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In any case
where the Company is a contributing party and the Underwriters are the
indemnified party, 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 Registered
Securities (before deducting expenses other than underwriting discounts and
commissions) 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
-33-
<PAGE>
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (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 Registered Securities
purchased by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(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 7, 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 which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity and contribution 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, any controlling person of either
the Underwriter or the Company, and shall survive termination of this Agreement
or the issuance and delivery of the Registered Securities to the Underwriters
and the Representative, as the case may be.
9. Effective Date.
(a) This Agreement shall become effective at 10:00
a.m., New York City time, on the date hereof. For purposes of this Section 9,
the Registered 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 shares for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Registered Securities.
-34-
<PAGE>
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Representative's reasonable 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) if 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
government authority having jurisdiction; or (iv) if the United States shall
have become involved in a war or major hostilities, or if 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) if a banking moratorium
has been declared by a state or federal authority; or (vi) if 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 Registered Securities; or (viii) if there shall have been such a material
adverse change in the prospects or conditions of the Company, 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 Registered
Securities.
(b) If this Agreement is terminated by the
Representative in accordance with any of the provisions of Section 6, Section
10(a) or Section 12, the Company shall promptly reimburse and indemnify the
Underwriters pursuant to Section 5(b) hereof. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11
and 12 hereof), 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 Registered 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 arrangement 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:
-35-
<PAGE>
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Shares 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 number of Defaulted Securities exceeds 10%
of the total number of Shares to be purchased on such date, this Agreement shall
terminate without liability on the part of any nondefaulting Underwriters.
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 which 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.
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
number of Registered Securities which 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 Shares 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 Shares from the Company on such date) without any liability on
the part of any non-defaulting party other than pursuant to Section 5, Section 7
and Section 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 or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative, c/o National Securities Corporation, 1001 Fourth Avenue, Suite
2200, Seattle, Washington 98154, Attention: Steven A. Rothstein, with a copy,
which shall not constitute notice, to Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, Attention: Alan I. Annex, Esq.
Notices to the Company shall be directed to the Company at U.S. Golf and
Entertainment Inc., 4 Henry Street, Commack, New York 11725, Attention: Edward
C. Ross, with a copy, which shall not constitute notice, to Ruskin, Moscou,
Evans & Faltischek, P.C., 170 Old Country Road, Mineola, New York 11501,
Attention: 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 7 hereof and their
respective successors, legal representatives and assigns,
-36-
<PAGE>
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 Registered 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 the choice of law or conflict of laws principles.
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. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
-37-
<PAGE>
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 us.
Very truly yours,
U.S. GOLF AND ENTERTAINMENT INC.
By:______________________________
Name: Edward C. Ross
Title: Chairman
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
By:____________________________
Name:
Title:
NATIONAL SECURITIES CORPORATION
By:____________________________
Name: Steven A. Rothstein
Title: Chairman
For itself and as Representative of the Underwriters named in Schedule A hereto.
<PAGE>
SCHEDULE A
Number of Shares
Name of Underwriters to be Purchased
- -------------------- ----------------
Westport Resources Investment
Services, Inc.
National Securities Corporation
---------
TOTAL 1,100,000
SCH. A-1
<PAGE>
--------------------------------------
U.S. GOLF AND ENTERTAINMENT INC.
AND
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
AND
NATIONAL SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of August ___, 1997
--------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of August , 1997,
between U.S. GOLF AND ENTERTAINMENT INC., a Delaware corporation (the
"Company"), WESTPORT RESOURCES INVESTMENT SERVICES, INC. ("Westport") and
NATIONAL SECURITIES CORPORATION ("National") and its assignees or designees
(Westport and National are hereinafter referred to variously as "Holders" or
"Representatives").
W I T N E S S E T H :
WHEREAS, the Representatives have agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") between the
Representatives and the Company, to act as the representatives of the several
underwriters listed therein (the "Underwriters") in connection with the
Company's proposed public offering of 1,100,000 units (the "Units"), consisting
of one (1) share of common stock (the "Common Stock") and one (1) warrant (the
"Warrant") to purchase one (1) share of Common Stock at an exercise price of
$7.20, at a public offering price of $6,125 per Unit (the "Public Offering").
WHEREAS, pursuant to the Underwriting Agreement, the Company
proposes to issue warrants to the Representatives to purchase up to an aggregate
of 110,000 units (the "Representatives' Warrants").
WHEREAS, the Representatives' Warrants to be issued pursuant
to this Agreement will be issued on the Closing Date (as such term is defined in
the Underwriting Agreement) by the Company to the Representatives in
consideration for, and as part of the Underwriters' compensation in connection
with, the Representatives acting as the representatives pursuant to the
Underwriting Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate of Eleven dollars
($11.00), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Grant. The Representative is hereby collectively granted
the right to purchase, at any time from August , 1998 until 5:30 p.m., New York
time, on August , 2002 (5 years from the Effective Date of the registration
statement and any supplement thereto, on Form SB-2, No. 333-4873), at which time
the Representative's Warrants expire, up to an aggregate 110,000 Units (subject
to adjustment as provided in Section 8 hereof) each Unit consisting of one (1)
share of common stock, par value $.001 per share, of the Company (the "Common
Stock") and one (1) Warrant to purchase one (1) share of Common Stock, at an
initial exercise price (subject to adjustment as provided in Section 11 hereof)
of $____ (130% of the Public Offering price) (the "Exercise Price").
2. Representative's Warrant Certificates. The Representative's
warrant certificates (the "Warrant Certificates") delivered and to be delivered
pursuant to this Agreement shall be in the form set forth in Exhibit A, attached
hereto and made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this Agreement.
3. Registration of Warrant. The Representative's Warrants
shall be numbered and shall be registered on the books of the Company when
issued.
-2-
<PAGE>
4. Exercise of Representative's Warrant.
4.1 Method of Exercise. The Representative's Warrants
initially are exercisable at the Exercise Price (subject to adjustment as
provided in Section 11 hereof) per Representative's Warrant set forth in Section
8 hereof payable by certified or official bank check in New York Clearing House
funds. Upon surrender of a Representative's Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price for the shares of Common Stock purchased at the Company's
principal offices in New York (presently located at 4 Henry Street, Commack, New
York 11725) the registered holder of a Representative's Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Representative's Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
Units underlying the Representative's Warrants). In the case of the purchase of
less than all of the Units purchasable under any Representative's Warrant
Certificate, the Company shall cancel said Representative's Warrant Certificate
upon the surrender thereof and shall execute and deliver a new Representative's
Warrant Certificate of like tenor for the balance of the shares of the Units
purchasable thereunder.
4.2 Exercise by Surrender of Representative's
Warrant. In addition to the method of payment set forth in Section 4.1 and in
lieu of any cash payment required thereunder, the Holder(s) of the
Representative's Warrants shall have the right at any time and from time to time
to exercise the Representative's Warrants in full or in part by surrendering the
Warrant Certificate in the manner specified in Section 4.1 in exchange for the
number of shares of Common Stock equal to the product of (x) the number of
-3-
<PAGE>
shares of Common Stock as to which the Representative's Warrants are being
exercised, multiplied by (y) a fraction, the numerator of which is the Market
Price (as defined in Section 9.3 (e) hereof) of the shares of Common Stock minus
the Exercise Price of the shares of Common Stock and the denominator of which is
the Market Price per share of Common Stock. Solely for the purposes of this
Section 4.2, Market Price shall be calculated either (i) on the date on which
the form of election attached hereto is deemed to have been sent to the Company
pursuant to Section 15 hereof ("Notice Date") or (ii) as the average of the
Market Price for each of the five trading days immediately preceding the Notice
Date, whichever of (i) or (ii) results in a greater Market Price.
5. Issuance of Certificates. Upon the exercise of the
Representative's Warrant, the issuance of certificates for Units or other
securities, properties or rights underlying such Representative's Warrant shall
be made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax,
other than income taxes, which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 7
and 9 hereof) be issued in the name of, or in such names as may be directed by,
the Holder thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
-4-
<PAGE>
The Representative's Warrant Certificates and the certificates
representing the Units or other securities, property or rights issued upon
exercise of the Representative's Warrant shall be executed on behalf of the
Company by the manual or facsimile signature of the then present President or
any Vice President of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the then present Secretary
or any Assistant Secretary of the Company. Representative's Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
6. Transfer of Representative's Warrant. The Representative's
Warrant shall be transferable only on the books of the Company maintained at its
principal office, where its principal office may then be located, upon delivery
thereof duly endorsed by the Holder or by its duly authorized attorney or
representative accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration transfer, the Company shall execute
and deliver the new Representative's Warrant to the person entitled thereto.
7. Restriction On Transfer of Representative's Warrant. The
Holder of a Representative's Warrant Certificate, by its acceptance thereof,
covenants and agrees that the Representative's Warrant is being acquired as an
investment and not with a view to the distribution thereof, and that the
Representative's Warrant may not be sold, transferred, assigned, hypothecated or
otherwise disposed of, in whole or in part, for the term of the Representative's
Warrant, except to officers or partners of the Underwriters, or by operation of
law.
-5-
<PAGE>
8. Exercise Price and Number of Securities. Except as
otherwise provided in Section 10 hereof, each Representative's Warrant is
exercisable to purchase one Unit at an initial exercise price equal to the
Exercise Price. The Exercise Price and the number of Units for which the
Representative's Warrant may be exercised shall be the price and the number of
Units which shall result from time to time from any and all adjustments in
accordance with the provisions of Section 11 hereof.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933.
Each Representative's Warrant Certificate and each certificate representing
Units and any of the other securities issuable upon exercise of the
Representative's Warrant (collectively, the "Warrant Shares") shall bear the
following legend unless (i) such Representative's Warrant or Warrant Shares are
distributed to the public or sold to the underwriters for distribution to the
public pursuant to Section 9 hereof or otherwise pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Act"), or
(ii) the Company has received an opinion of counsel, in form and substance
reasonably satisfactory to counsel for the Company, that such legend is
unnecessary for any such certificate:
THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS CERTIFICATE
AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii)
TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION
-6-
<PAGE>
SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S WARRANT
REPRESENTED BY THE CERTIFICATE IS RESTRICTED IN ACCORDANCE
WITH THE REPRESENTATIVE'S WARRANT AGREEMENT REFERRED TO
HEREIN.
9.2 Piggyback Registration. If, at any time
commencing after the effective date of the Registration Statement and expiring
five (5) years thereafter, the Company proposes to register any of its
securities under the Act (other than in connection with a merger or pursuant to
Form S-4 or Form S-8 or successor form thereto) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Holders of the Warrant Shares of its intention to
do so. If any of the Holders of the Warrant Shares notify the Company within
twenty (20) days after mailing of any such notice of its or their desire to
include any such securities in such proposed registration statement, the Company
shall afford such Holders of the Warrant Shares the opportunity to have any such
Warrant Shares registered under such registration statement. In the event that
the managing underwriter for said offering advises the Company in writing that
in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
causing a diminution in the offering price or otherwise adversely affecting the
offering, the Company will include in such registration (a) first, the
securities the Company proposes to sell, (b) second, the securities held by the
entities that made the demand for registration, (d) third, the Warrant Shares
requested to be included in such registration which in the opinion of such
-7-
<PAGE>
underwriter can be sold, pro rata among the Holders of Warrant Shares on the
basis of the number of Representative's Warrant Shares requested to be
registered by such Holders, and (e) fourth, other securities requested to be
included in such registration.
Notwithstanding the provisions of this Section 9.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 9.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement or to withdraw the same after the
filing but prior to the effective date thereof.
9.3 Demand Registration.
(a) At any time commencing one (1) year
after the effective date of the Registration Statement and expiring five (5)
years from the effective date of the Registration Statement, the Holders of the
Representative's Warrants and/or Warrant Shares representing a "Majority" (as
hereinafter defined) of the Representative's Warrants and/or Warrant Shares
shall have the right (which right is in addition to the registration rights
under Section 9.2 hereof), exercisable by written notice to the Company, to have
the Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale by such
Holders and any other Holders of the Representative's Warrant and/or Warrant
Shares who notify the Company within fifteen (15) days after the Company mails
-8-
<PAGE>
notice of such request pursuant to Section 9.3(b) hereof (collectively, the
"Requesting Holders") of their respective Warrant Shares for the earlier of (i)
six (6) consecutive months or (ii) until the sale of all of the Warrant Shares
requested to be registered by the Requesting Holders.
(b) The Company covenants and agrees to give
written notice of any registration request under this Section 9.3 by any Holder
or Holders representing a Majority of the Representative's Warrants and/or
Warrant Shares to all other registered Holders of the Representative's Warrants
and the Warrant Shares within ten (10) days from the date of the receipt of any
such registration request.
(c) In addition to the registration rights
under Section 9.2 and subsection (a) of this Section 9.3, at any time commencing
one (1) year after the effective date of the Registration Statement and expiring
five (5) years from the effective date of the Registration Statement, the
Holders of a Majority of the Representative's Warrants and/or Warrant Shares
shall have the right on one occasion, exercisable by written request to the
Company, to have the Company prepare and file with the Commission a registration
statement so as to permit a public offering and sale by such Holders of their
respective Warrant Shares for the earlier of (i) six (6) consecutive months or
(ii) until the sale of all of the Warrant Shares requested to be registered by
such Holders; provided, however, that the provisions of Section 9.4(b) hereof
shall not apply to any such registration request and registration and all costs
incident thereto shall be at the expense of the Holder or Holders making such
request. If the Holders have exercised their rights under Section 9.3(a) then
-9-
<PAGE>
the Holders may not exercise their rights under Section 9.3(c) for a period of
six (6) months following the effective date of any registration statement filed
pursuant to Section 9.3(a).
(d) Notwithstanding anything to the contrary
contained herein, if the Company shall not have filed a registration statement
for the Warrant Shares within the time period specified in Section 9.4(a) hereof
pursuant to the written notice specified in Section 9.3(a) of the Holders of a
Majority of the Representative's Warrants and/or Warrant Shares, the Company, at
its option, may repurchase (i) any and all Warrant Shares at the higher of the
Market Price (as defined in Section 9.3(e)) per share of Common Stock on (x) the
date of the notice sent pursuant to Section 9.3(a) or (y) the expiration of the
period specified in Section 9.4(a) and (ii) any and all Representative's Warrant
at such Market Price less the Exercise Price of such Representative's Warrant.
Such repurchase shall be in immediately available funds and shall close within
two (2) days after the later of (i) the expiration of the period specified in
Section 9.4(a) or (ii) the delivery of the written notice of election specified
in this Section 9.3(d).
(e) Definition of Market Price. As used
herein, the phrase "Market Price" at any date shall be deemed to be the last
reported sale price, or, in case no such reported sale takes place on such day,
the average of the last reported sale prices for the last three (3) trading
days, in either case as officially reported by the principal securities exchange
on which the Common Stock is listed or admitted to trading, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the average closing sale price as furnished by the NASD through The Nasdaq Stock
Market, Inc. ("Nasdaq") or similar organization if Nasdaq is no longer reporting
-10-
<PAGE>
such information, or if the Common Stock is not quoted on Nasdaq, as determined
in good faith by resolution of the Board of Directors of the Company, based on
the best information available to it.
9.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Sections 9.2 or 9.3
hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts
to file a registration statement within ninety (90) days of receipt of any
demand therefor, and to have any registration statements declared effective at
the earliest possible time, and shall furnish each Holder desiring to sell
Warrant Shares such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs
(excluding fees and expenses of Holder(s)' counsel and any underwriting or
selling commissions, and excluding roadshow expenses if the only shares to be
registered in such Registration Statement are Warrant Shares), fees and expenses
in connection with all registration statements filed pursuant to Sections 9.2
and 9.3(a) hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses. The Holder(s)
will pay all costs, fees and expenses (including those of the Company) in
connection with the registration statement filed pursuant to Section 9.3(c).
(c) The Company will take all necessary
action which may be required in qualifying or registering the Warrant Shares
included in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to execute or file any general
-11-
<PAGE>
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the
Holder(s) of the Warrant Shares to be sold pursuant to any registration
statement and each person, if any, who controls such Holders within the meaning
of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify each of the
Underwriters contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to
be sold pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement to
-12-
<PAGE>
the same extent and with the same effect as the provisions contained in Section
7 of the Underwriting Agreement pursuant to which the Underwriters have agreed
to indemnify the Company.
(f) Nothing contained in this Agreement
shall be construed as requiring the Holder(s) to exercise their Representative's
Warrant prior to the initial filing of any registration statement or the
effectiveness thereof.
(g) The Company shall not permit the
inclusion of any securities other than the Warrant Shares to be included in any
registration statement filed pursuant to Section 9.3 hereof, or permit any other
registration statement to be or remain effective during the effectiveness of a
registration statement filed pursuant to Section 9.3 hereof (other than
registration statements filed prior to an exercise of registration rights by a
Holder of Representatives Warrants and/or Warrant Shares pursuant to Section 9.2
hereof), without the prior written consent of National Securities Corporation or
as otherwise required by the terms of any existing registration rights granted
prior to the date of this Agreement by the Company to the holders of any of the
Company's securities.
(h) The Company shall furnish to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
-13-
<PAGE>
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable
after the effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall enter into an
underwriting agreement with the managing underwriters (in the case of
registration rights exercised pursuant to Section 9.3 hereof, selected for such
underwriting by Holders holding a Majority of the Warrant Shares requested to be
included in such underwriting, which may be the Representative). Such agreement
shall be satisfactory in form and substance to the Company, each Holder and such
managing underwriters, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter. The Holders shall be
parties to any underwriting agreement relating to an underwritten sale of their
-14-
<PAGE>
Warrant Shares and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term
"Majority" in reference to the Representative's Warrants or Warrant Shares,
shall mean in excess of fifty percent (50%) of the then outstanding
Representative's Warrants or Warrant Shares that (i) are not held by the
Company, an affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting as nominees
or in conjunction therewith or (ii) have not been resold to the public pursuant
to a registration statement filed with the Commission under the Act.
10. Obligations of Holders. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to Section 9
hereof that each of the selling Holders shall:
(a) Furnish to the Company such information
regarding themselves, the Warrant Shares held by them, the intended method of
sale or other disposition of such securities, the identity of and compensation
to be paid to any underwriters proposed to be employed in connection with such
sale or other disposition, and such other information as may reasonably be
required to effect the registration of their Warrant Shares.
(b) Notify the Company, at any time when a
prospectus relating to the Warrant Shares covered by a registration statement is
required to be delivered under the Act, of the happening of any event with
-15-
<PAGE>
respect to such selling Holder as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.
11. Adjustments to Exercise Price and Number of Securities.
The Exercise Price in effect at any time and the number and kind of securities
purchased upon the exercise of the Representative's Warrant shall be subject to
adjustment from time to time only upon the happening of the following events:
11.1 Stock Dividend, Subdivision and Combination. In
case the Company shall (i) declare a dividend or make a distribution on its
outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or
reclassify its outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
-16-
<PAGE>
11.2 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 11,
the number of Warrant Shares issuable upon the exercise at the adjusted Exercise
Price of each Representative's Warrant shall be adjusted to the nearest number
of whole shares of Common Stock by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of the Representative's Warrant immediately prior
to such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
11.3 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Articles of Incorporation of the Company as
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
11.4 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the Holder of each
Representative's Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Representative's Warrant) to
receive, upon exercise of such Representative's Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
-17-
<PAGE>
consolidation or merger by a holder of the number of shares of Common Stock for
which such Representative's Warrant might have been exercised immediately prior
to such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 11. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
11.5 No Adjustment of Exercise Price in Certain
Cases. No adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the
Representative's Warrant or the Warrant Shares;
(b) Upon the issuance or sale of Common
Stock (or any other security convertible, exercisable, or exchangeable into
shares of Common Stock) upon the direct or indirect conversion, exercise, or
exchange of any options, rights, warrants, or other securities or indebtedness
of the Company outstanding as of the date of this Agreement or granted pursuant
to any stock option plan of the Company in existence as of the date of this
Agreement, pursuant to the terms thereof; or
(c) If the amount of said adjustment shall
be less than two cents ($.02) per share, provided, however, that in such case
any adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least two cents ($.02) per Representative's Warrant.
-18-
<PAGE>
11.6 Exchange and Replacement of Representative's
Warrant Certificates. Each Representative's Warrant Certificate is exchangeable,
without expense, upon the surrender thereof by the registered Holder at the
principal executive office of the Company for a new Representative's Warrant
Certificate of like tenor and date representing in the aggregate the right
to purchase the same number of Warrant Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Representative's Warrant Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Representative's Warrant, if mutilated,
the Company will make and deliver a new Warrant Certificate of like tenor, in
lieu thereof.
12. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Representative's Warrant, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or other securities, properties or rights.
13. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the
-19-
<PAGE>
Representative's Warrant, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
Every transfer agent ("Transfer Agent") for the Common Stock and other
securities of the Company issuable upon the exercise of the Representative's
Warrant will be irrevocably authorized and directed at all times to reserve such
number of authorized shares of Common Stock and other securities as shall be
requisite for such purpose. The Company will keep a copy of this Agreement on
file with every Transfer Agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Representative's Warrant. The Company
will supply every such Transfer Agent with duly executed stock and other
certificates, as appropriate, for such purpose. The Company covenants and agrees
that, upon exercise of the Representative's Warrant and payment of the Exercise
Price therefor, all shares of Common Stock and other securities issuable upon
such exercise shall be duly and validly issued, fully paid, non-assessable and
not subject to the preemptive rights of any stockholder. As long as the
Representative's Warrant shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Representative's Warrant to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted on Nasdaq SmallCap Market.
14. Notices to Representative's Warrant Holders. Nothing
contained in this Agreement shall be construed as conferring upon the Holders
the right to vote or to consent or to receive notice as a stockholder in respect
of any meetings of stockholders for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company. If,
-20-
<PAGE>
however, at any time prior to the expiration of the Representative's Warrants
and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the
holders of its shares of Common Stock for the purpose of entitling them to
receive a dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the
holders of its Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up
of the Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business as an
entirety shall be proposed;
then in any one or more of said events, the Company shall give written notice of
such event at least fifteen (15) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
-21-
<PAGE>
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
15. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made and sent when delivered, or mailed by registered or certified mail,
return receipt requested:
(a) if to the registered Holder of the
Representative's Warrant, to the address of such Holder as shown on the books of
the Company; or
(b) if to the Company, to the address set
forth in Section 4 hereof or to such other address as the Company may designate
by notice to the Holders.
16. Supplements; Amendments; Entire Agreement. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties hereto
with respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought. The Company and the Representative may from
time to time supplement or amend this Agreement without the approval of any
holders of Representative's Warrant Certificates (other than the Representative)
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
-22-
<PAGE>
which the Company and the Representative may deem necessary or desirable and
which the Company and the Representative deem shall not adversely affect the
interests of the Holders of Representative's Warrant Certificates.
17. Successors. All of the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
18. Survival of Representations and Warranties. All statements
in any schedule, exhibit or certificate or other instrument delivered by or on
behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
19. Governing Law. This Agreement and each Representative's
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
20. 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.
-23-
<PAGE>
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the
Representative's Warrant Certificates or Warrant Shares any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for the
sole and exclusive benefit of the Company and the Underwriters and any other
Holder(s) of the Representative's Warrant Certificates or Warrant Shares.
-24-
<PAGE>
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
ATTEST: U.S. GOLF AND ENTERTAINMENT INC.
___________________ By:______________________________________________
Charles Workman Name: Stuart M. Goldstein
Secretary Title: Chief Executive Officer
WESPORT RESOURCES
INVESTMENT SERVICES, INC.
By:_______________________________
Name:
Title:
NATIONAL SECURITIES CORPORATION
By:_______________________________
Name: Steven A. Rothstein
Title: Chairman
-25-
<PAGE>
EXHIBIT A
[FORM OF REPRESENTATIVES' WARRANT CERTIFICATE]
THE REPRESENTATIVES' WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE REPRESENTATIVE'S WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, _________________, 2002
Representatives' Warrant No. ___
____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________________, or registered
assigns, is the registered holder of Warrants to purchase initially, at any time
from ________________, 1998 until 5:30 p.m., New York time on ____________, 2002
("Expiration Date"), up to ____ shares of fully-paid and nonassessable common
stock, par value $.001 ("Common Stock") of U.S. Golf and Entertainment Inc., a
[___________] corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events, of $_______________ per Share (the
"Exercise Price") upon surrender of this Representatives' Warrant Certificate
and payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein and in the Representatives' Warrant
Agreement dated as of _________________, 1997 between the Company and National
Securities Corporation (the "Warrant Agreement"). Payment of the Exercise Price
shall be made by certified or official bank check in New York Clearing House
funds payable to the order of the Company, or by such other means as are
permitted by the terms of the Warrant Agreement.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Representative's Warrant evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Representative's Warrant evidenced by this Warrant Certificate is part
of a duly authorized issue of Representative's Warrants issued pursuant to the
Warrant Agreement, which Warrant Agreement is hereby incorporated by reference
in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
EXH A-1
<PAGE>
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the
Representative's Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Representative's
Warrant; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Representative's Warrants shall be issued to the transferee(s) in exchange
for this Warrant Certificate, subject to the limitations provided herein and in
the Warrant Agreement, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Representative's Warrant
evidenced by this Certificate, the Company shall forthwith issue to the holder
hereof a new Warrant Certificate representing such numbered unexercised
Representative's Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
This Warrant Certificate does not entitle any holder thereof to any of the
rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ________________, 1997.
ATTEST: U.S. GOLF AND ENTERTAINMENT INC.
By:____________________________
Name: Stuart M. Goldstein
Title: Chief Executive Officer
EXH A-2
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____ shares of Common Stock
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of U.S. Golf and
Entertainment Inc. (the "Company") in the amount of $_____, all in accordance
with the terms of Section 4.1 of the Representative's Warrant Agreement dated as
of ________ __, 1997 between the Company and National Securities Corporation.
The undersigned requests that a certificate for such securities be registered in
the name of ________________________, whose address is ________________________
and that such certificate be delivered to ________________________, whose
address is ________________________, and if said number of shares shall not be
all the shares purchasable hereunder, that a new Warrant Certificate for the
balance of the shares purchasable under the within Warrant Certificate be
registered in the name of the undersigned warrantholder or his assignee as below
indicated and delivered to the address stated below.
Dated: ___________________
Signature:________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
Address:
(Insert Social Security or
Other Identifying Number
of Holder)
Signature Guaranteed:
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 4.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____ shares all in
accordance with the terms of Section 4.2 of the Representative's Warrant
Agreement dated as of ________ __, 1997 between U.S. Golf and Entertainment Inc.
and National Securities Corporation. The undersigned requests that a certificate
for such securities be registered in the name of ________________________, whose
address is ________________________ and that such certificate be delivered to
________________________, whose address is ________________________.
Dated: ___________________
Signature:________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
Address:
(Insert Social Security or
Other Identifying Number
of Holder)
Signature Guaranteed:
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-4
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________ here sells, assigns and transfers unto
[NAME OF TRANSFEREE] this Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
_____________________ Attorney, to transfer the within Warrant Certificate on
the books of the within-named Company, with full power of substitution.
Dated: ___________________
Signature:_________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
Address:
(Insert Social Security or
Other Identifying Number
of Holder)
Signature Guaranteed:
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
EXH A-5
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
AND
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
AND
NATIONAL SECURITIES CORPORATION
-----------------------
WARRANT AGREEMENT
Dated as of August , 1997
<PAGE>
AGREEMENT, dated this ____ day of August, 1997, among U.S.
GOLF AND ENTERTAINMENT INC., a Delaware corporation (the "Company"), AMERICAN
STOCK TRANSFER AND TRUST COMPANY, a New York banking corporation, as Warrant
Agent (the "Warrant Agent"), Westport Resources Investment Services, Inc
("Westport") and NATIONAL SECURITIES CORPORATION, its successors and assigns
("National"; Westport and National are collectively referred to herein as the
"Representatives").
W I T N E S S E T H:
WHEREAS, in connection with (i) the Company's offering to the
public of 1,100,000 units (the "Units") each Unit consisting of one share of the
Company's Common Stock (as defined in Section 1), and one redeemable warrant
(the "Warrants") each redeemable warrant entitling the holder thereof to
purchase one share of Common Stock; (ii) the over-allotment option to purchase
up to an additional 165,000 Units (the "Over-allotment Option"); and (iii) the
sale to the Representatives of warrants (the "Representatives' Warrants") to
purchase up to 110,000 Units of Common Stock, the Company will issue up to
1,375,000 Warrants (subject to increase as provided in the Representative's
Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the exercise
of the Warrants and the rights of the holders thereof.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the Company,
National, the holders of certificates representing the Warrants and the Warrant
Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as
amended.
(b) "Common Stock" shall mean the authorized stock of
the Company of any class, whether now or hereafter authorized, which has the
right to participate in the
1
<PAGE>
voting and in the distribution of earnings and assets of the Company without
limit as to amount or percentage which at the date hereof consists of 20,000,000
shares of Common Stock, no par value per share.
(c) "Commission" shall mean the Securities and
Exchange Commission.
(d) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its business in
New York, New York, shall be administered, which office is located on the date
hereof c/o American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005.
(e) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(f) "Exercise Date" shall mean, subject to the
provisions of Section 5(b) hereof, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder hereof or his attorney duly authorized in writing, and (ii) payment in
cash or by official bank or certified check made payable to the Warrant Agent
for the account of the Company, of the amount in lawful money of the United
States of America equal to the applicable Exercise Price (as hereinafter
defined) in good funds.
(g) "Exercise Price" shall mean, subject to
modification and adjustment as provided in Section 8, $_____ per share and
further subject to the Company's right, in its sole discretion, to decrease the
Exercise Price for a period of not less than 30 days on not less than 30 days'
prior written notice to the Registered Holders and National.
(h) "Initial Warrant Exercise Date" shall mean August
__, 1997.
(i) "Initial Warrant Redemption Date" shall mean
August __, 1998.
(j) "Market Price" shall mean the last reported sale
price, or, in case no such reported sale takes place on such day, the average of
the last reported sales prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by the Nasdaq Stock Market, or,
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted by the Nasdaq, the average closing bid price as
furnished by the Nasdaq through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, as determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
2
<PAGE>
(k) "Nasdaq" shall mean the National Association of
Securities Dealers, Inc.
(l) "Nasdaq" shall mean the Nasdaq Stock Market.
(m) "Redemption Date" shall mean the date (which may
not occur before the Initial Warrant Redemption Date) fixed for the redemption
of the Warrants in accordance with the terms hereof.
(n) "Redemption Price" shall mean the price at which
the Company may, at its option, redeem the Warrants, in accordance with the
terms hereof, which price shall be $0.05 per Warrant, subject to adjustment from
time to time pursuant to the provisions of Section 9 hereof.
(o) "Registered Holder" shall mean the person in
whose name any certificate representing the Warrants shall be registered on the
books maintained by the Warrant Agent pursuant to Section 6.
(p) "Transfer Agent" shall mean American Stock
Transfer and Trust Company, or its authorized successor.
(q) "Underwriting Agreement" shall mean the
underwriting agreement dated August __, 1997 between the Company and the several
underwriters listed therein relating to the purchase for resale to the public of
the 1,100,000 Units.
(r) "Representative's Warrant Agreement" shall mean
the agreement dated as of August __, 1997 between the Company and National
relating to and governing the terms and provisions of the Representative's
Warrants.
(s) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(t) "Warrant Expiration Date" shall mean, unless the
Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:00
p.m. (New York time), on August __, 2002, or the Redemption Date as defined
herein, whichever date is earlier; provided that if such date shall in the State
of New York be a holiday or a day on which banks are authorized to close, then
5:00 p.m. (New York time) on the next following day which, in the State of New
York, is not a holiday or a day on which banks are authorized to close. Upon
five business days' prior written notice to the Registered Holders, the Company
shall have the right to extend the Warrant Expiration Date.
3
<PAGE>
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the
Registered Holder of the Warrant Certificate representing such Warrant to
purchase at the Exercise Price therefor from the Initial Warrant Exercise Date
until the Warrant Expiration Date one share of Common Stock upon the exercise
thereof in accordance with the terms hereof, subject to modification and
adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing the number of Warrants sold pursuant to the
Underwriting Agreement (subject to modification and adjustment as provided in
Section 8) shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Representative's Warrants as
provided therein, Warrant Certificates representing all or a portion of 110,000
Warrants to purchase up to an aggregate of 110,000 shares of Common Stock,
Warrants or any combination thereof (subject to modification and adjustment as
provided in Section 8 hereof and in the Representative's Warrant Agreement),
shall be countersigned, issued and delivered by the Warrant Agent upon written
order of the Company signed by its Chairman of the Board, Chief Executive
Officer, President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary.
(d) From time to time, up to the Warrant Expiration
Date or the Redemption Date, whichever date is earlier, the Warrant Agent shall
countersign and deliver Warrant Certificates in required denominations of one or
whole number multiples thereof to the person entitled thereto in connection with
any transfer or exchange permitted under this Agreement. Except as provided
herein, no Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder and those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants held by the
exercising Registered Holder, (ii) Warrant Certificates issued upon any transfer
or exchange of Warrants, (iii) Warrant Certificates issued in replacement of
lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7,
(iv) Warrant Certificates issued pursuant to the Representative's Warrant
Agreement, and (v) at the option of the Company, Warrant Certificates in such
form as may be approved by its Board of Directors, to reflect any adjustment or
change in the Exercise Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or
4
<PAGE>
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage. The Warrant Certificates
shall be dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter "W" on the Warrants.
(b) Warrant Certificates shall be executed on behalf
of the Company by its Chairman of the Board, Chief Executive Officer, President
or any Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
any case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates, nevertheless,
may be countersigned by the Warrant Agent, issued and delivered with the same
force and effect as though the person who signed such Warrant Certificates had
not ceased to be such officer of the Company. After countersignature by the
Warrant Agent, Warrant Certificates shall be delivered by the Warrant Agent to
the Registered Holder promptly and without further action by the Company, except
as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number
multiples thereof may be exercised by the Registered Holder thereof commencing
at any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder, upon exercise thereof,
as of the close of business on the Exercise Date. If Warrants in denominations
other than whole number multiples thereof shall be exercised at one time by the
same Registered Holder, the number of full shares of Common Stock which shall be
issuable upon exercise thereof shall be computed on the basis of the aggregate
number of full shares of Common Stock issuable upon such exercise. As soon as
practicable on or after the Exercise Date and in any event within five business
days after such date, if one or more Warrants have been exercised, the Warrant
Agent on behalf of the Company shall cause to be issued to the person or persons
entitled to receive the same a Common Stock certificate or certificates for the
shares of Common Stock deliverable upon such exercise, and the Warrant Agent
shall deliver the same to the person or persons entitled thereto.
5
<PAGE>
Upon the exercise of any one or more Warrants, the Warrant Agent shall promptly
notify the Company in writing of such fact and of the number of securities
delivered upon such exercise and, subject to subsection (b) below, shall cause
all payments of an amount in cash or by check made payable to the order of the
Company, equal to the Exercise Price, to be deposited promptly in the Company's
bank account.
(b) The Company shall engage National as a Warrant
solicitation agent, and, at any time upon the exercise of any Warrants after one
year from the date hereof, the Company shall instruct the Warrant Agent to, and
the Warrant Agent shall, on a daily basis, within two business days after such
exercise, notify National of the exercise of any such Warrants and shall, on a
weekly basis (subject to collection of funds constituting the tendered Exercise
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), remit to National an amount
equal to five percent (5%) of the Exercise Price of such Warrants then being
exercised unless National shall have notified the Warrant Agent that the payment
of such amount with respect to such Warrant is violative of the General Rules
and Regulations promulgated under the Exchange Act, or the rules and regulations
of the Nasdaq or applicable state securities or "blue sky" laws, or the Warrants
are those underlying the Representative's Warrants in which event, the Warrant
Agent shall have to pay such amount to the Company; provided, that, the Warrant
Agent shall not be obligated to pay any amounts pursuant to this Section 4(b)
during any week that such amounts payable are less than $1,000 and the Warrant
Agent's obligation to make such payments shall be suspended until the amount
payable aggregates $1,000, and provided further, that, in any event, any such
payment (regardless of amount) shall be made not less frequently than monthly.
Notwithstanding the foregoing, National shall be entitled to receive the
commission contemplated by this Section 4(b) as Warrant solicitation agent only
if: (i) National has provided actual services in connection with the
solicitation of the exercise of a Warrant by a Registered Holder and (ii) the
Registered Holder exercising a Warrant affirmatively designates in writing on
the exercise form on the reverse side of the Warrant Certificate that the
exercise of such Registered Holder's Warrant was solicited by National.
(c) The Company shall not be required to issue
fractional shares on the exercise of Warrants. Warrants may only be exercised in
such multiples as are required to permit the issuance by the Company of one or
more whole shares. If one or more Warrants shall be presented for exercise in
full at the same time by the same Registered Holder, the number of whole shares
which shall be issuable upon such exercise thereof shall be computed on the
basis of the aggregate number of shares purchasable on exercise of the Warrants
presented. If any fraction of a share would, except for the provisions provided
herein, be issuable on the exercise of any Warrant (or specified portion
thereof), the Company shall pay an amount in cash equal to such fraction
multiplied by the then current market value of a share of Common Stock,
determined as follows:
6
<PAGE>
(1) If the Common Stock is listed, or admitted to
unlisted trading privileges on a national securities exchange, or is traded on
Nasdaq, the current market value of a share of Common Stock shall be the closing
sale price of the Common Stock at the end of the regular trading session on the
last business day prior to the date of exercise of the Warrants on whichever of
such exchanges or Nasdaq had the highest average daily trading volume for the
Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to
unlisted trading privileges on any national securities exchange, or listed,
quoted or reported for trading on Nasdaq, but is traded in the over-the-counter
market, the current market value of a share of Common Stock shall be the average
of the last reported bid and asked prices of the Common Stock reported by the
National Quotation Bureau, Inc. on the last business day prior to the date of
exercise of the Warrants; or
(3) If the Common Stock is not listed, admitted to
unlisted trading privileges on any national securities exchange, or listed,
quoted or reported for trading on Nasdaq, and bid and asked prices of the Common
Stock are not reported by the National Quotation Bureau, Inc., the current
market value of a share of Common Stock shall be an amount, not less than the
book value thereof as of the end of the most recently completed fiscal quarter
of the Company ending prior to the date of exercise, determined by the members
of the Board of Directors of the Company exercising good faith and using
customary valuation methods.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery thereof, be duly
and validly issued and fully paid and nonassessable and free from all preemptive
or similar rights, taxes, liens and charges with respect to the issue thereof,
and that upon issuance such shares shall be listed on each securities exchange,
if any, on which the other shares of outstanding Common Stock of the Company are
then listed.
(b) The Company covenants that if any securities to
be reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered upon
such exercise, then the Company will file a registration statement under the
federal securities laws or a post-effective amendment, use its best efforts to
cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Act, to the
7
<PAGE>
Registered Holder exercising the Warrant (except, if in the opinion of counsel
to the Company, such registration is not required under the federal securities
law or if the Company receives a letter from the staff of the Commission stating
that it would not take any enforcement action if such registration is not
effected). The Company will use its best efforts to obtain appropriate approvals
or registrations under state "blue sky" securities laws with respect to any such
securities. However, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Warrants; provided, however, that if shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably
authorized as the Transfer Agent to requisition from time to time certificates
representing shares of Common Stock or other securities required upon exercise
of the Warrants, and the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and, upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at its office,
books in which, subject to such reasonable regulations as it may prescribe, it
shall register Warrant Certificates and the transfer thereof in accordance with
customary practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates
presented for registration of transfer, or for exchange or exercise, the
subscription or exercise form, as the case may be, on the reverse thereof shall
be duly endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the Warrant
8
<PAGE>
Agent, duly executed by the Registered Holder thereof or his attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise
or for exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement.
(f) Prior to due presentment for registration of
transfer thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof and
of each Warrant represented thereby (notwithstanding any notations of ownership
or writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of any Warrant Certificate and (in the
case of loss, theft or destruction) of indemnity satisfactory to them, and (in
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or the Warrant Agent that a new Warrant Certificate has been acquired by a
bona fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
SECTION 8. Adjustment of Exercise Price and Number of Shares
of Common Stock Deliverable.
(a) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof and during
the term of the Warrants, issue or sell any shares of Common Stock for a
consideration per share less than the Exercise Price or issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Exercise Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent
9
<PAGE>
to the nearest cent) determined by dividing (i) the sum of (a) the total number
of shares of Common Stock outstanding immediately prior to such Change of
Shares, multiplied by the Exercise Price in effect immediately prior to such
Change of Shares and (b) the consideration, if any, received by the Company upon
such sale, issuance, subdivision or combination, by (ii) the total number of
shares of Common Stock outstanding immediately after such Change of Shares;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in
accordance with this Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of
shares of Common Stock (or of other securities deemed hereunder to involve the
issuance or sale of shares of Common Stock) for a consideration part or all of
which shall be cash, the amount of the cash portion of the consideration
therefor deemed to have been received by the Company shall be (i) the
subscription price, if shares of Common Stock are offered by the Company for
subscription, or (ii) the public offering price (before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith), if such securities are sold to
underwriters or dealers for public offering without a subscription offering, or
(iii) the gross amount of cash actually received by the Company for such
securities, in any other case.
(B) In case of the issuance or sale
(otherwise than as a dividend or other distribution on any stock of the Company,
and otherwise than on the exercise of options, rights or warrants or the
conversion or exchange of convertible or exchangeable securities) of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which shall
be other than cash, the amount of the consideration therefor other than cash
deemed to have been received by the Company shall be the value of such
consideration as determined in good faith by the Board of Directors of the
Company, using customary valuation methods and on the basis of prevailing market
values for similar property or services.
(C) Shares of Common Stock issuable by way
of dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of
the Company other than shares of Common Stock into securities including shares
of Common Stock shall be deemed to
10
<PAGE>
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at
any one time outstanding shall be deemed to include the aggregate maximum number
of shares issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of options, rights or warrants and upon the conversion or
exchange of convertible or exchangeable securities.
(b) Upon each adjustment of the Exercise Price
pursuant to this Section 8, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment by the Exercise Price in effect prior to such adjustment and dividing
the product so obtained by the applicable adjusted Exercise Price.
(c) In case the Company shall at any time after the
date hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Sections
8(a) and 8(b) and as provided below) less than the Exercise Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or without consideration (including the
issuance of any such securities by way or dividend or other distribution), the
Exercise Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to the issuance of such options, rights
or warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making the computation in accordance
with the provisions of Sections 8(a) and 8(b) hereof, provided that:
(A) The aggregate maximum number of shares
of Common Stock, as the case may be, issuable or that may become issuable under
such options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (A) (and for the purposes of subsection (E) of
Section 8(a) hereof) shall be reduced by the number of shares as to which
options, warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Exercise Price
then in effect shall forthwith be readjusted and thereafter be the price that it
would have been had adjustment been made on the basis of the issuance only of
the shares
11
<PAGE>
actually issued plus the shares remaining issuable upon the exercise of those
options, rights or warrants as to which the exercise rights shall not have
expired or terminated unexercised.
(B) The aggregate maximum number of shares
of Common Stock issuable or that may become issuable upon conversion or exchange
of any convertible or exchangeable securities (assuming conversion or exchange
in full even if not then currently convertible or exchangeable in full) shall be
deemed to be issued and outstanding at the time of issuance of such securities,
for a consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Exercise Price then in
effect shall forthwith be readjusted and thereafter be the price that it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued plus the shares remaining issuable upon conversion or
exchange of those convertible or exchangeable securities as to which the
conversion or exchange rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price
per share provided for in any of the options, rights or warrants referred to in
subsection (A) of this Section 8(c), or in the price per share or ratio at which
the securities referred to in subsection (B) of this Section 8(c) are
convertible or exchangeable, such options, rights or warrants or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
(d) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of a subdivision or combination), or in case
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a Subsidiary in which merger the Company is the
continuing corporation) and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale
12
<PAGE>
or conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Warrant then outstanding shall have the right thereafter to
receive on exercise of such Warrant the kind and amount of securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of securities issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file at the
Corporate Office of the Warrant Agent a statement signed by its Chief Executive
Officer, President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Sections
8(a), (b) and (c). The above provisions of this Section 8(d) shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the
Exercise Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(e) hereof, continue to express the Exercise
Price per share and the number of shares purchasable thereunder as the Exercise
Price per share and the number of shares purchasable thereunder were expressed
in the Warrant Certificates when the same were originally issued.
(f) After each adjustment of the Exercise Price
pursuant to this Section 8, the Company will promptly prepare a certificate
signed by the Chairman, Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Exercise Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each Warrant,
after such adjustment, and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each Registered Holder at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the Company
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated herein.
(g) No adjustment of the Exercise Price shall be made
as a result of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof and on the terms described in the final prospectus relating to the public
offering contemplated by the Underwriting Agreement; (B) the issuance or sale of
shares
13
<PAGE>
of Common Stock if the amount of said adjustment shall be less than $.10,
provided, however, that in such case, any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least $.10; (C) the issuance or
sale of shares of Common Stock upon the exercise of any "incentive stock
options" (as such term is defined in the Internal Revenue Code of 1986, as
amended) or non-qualified stock options under the Company's existing stock
option plans described in the final prospectus relating to the public offering
contemplated by the Underwriting Agreement provided the exercise price of such
options was not less than ten percent (10%) of the Market Price on the date of
grant; (D) the issuance or sale of shares of Common Stock in an underwritten
public offering on behalf of the Company at a discount to the Market Price of
not more than seven percent (7%) per share; or (E) the issuance or sale of
shares of Common Stock for a bona fide business purpose of the Company in an
arm's length transaction with an unaffiliated party involving a strategic
alliance, joint venture or licensing arrangement provided (i) the number of
shares so issued or sold do not exceed, individually or in the aggregate at any
time during the term of Warrants, more than twenty percent (20%) of the then
outstanding shares of Common Stock; and (ii) such shares are issued or sold in
exchange for consideration valued by the Company's Board of Directors at not
less than ten percent (10%) of the Market Price on the date of issuance and/or
sale. In addition, Registered Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption
Date, the Company may, on 30 days' prior written notice, redeem all the Warrants
at ten cents ($.10) per Warrant, provided, however, that before any such call
for redemption of Warrants can take place, the average closing bid price for the
Common Stock as reported by Nasdaq, if the Common Stock is then traded on the
Small Cap Market (or the average closing sale price, if the Common Stock is then
traded on the Nasdaq National Market or on a national securities exchange) shall
have equalled or exceeded $____ per share for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the date on which the notice contemplated by (b) and (c)
below is given (subject to adjustment in the event of any stock splits or other
similar events as provided in Section 8 hereof) and if National gives its prior
written consent to the giving of the notice of redemption and the proposed
redemption.
(b) In case the Company shall exercise its right to
redeem all of the Warrants, it shall give or cause to be given notice to the
Registered Holders of the Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address as
shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provide herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
(5) business days prior to the mailing to the Registered Holders of the Warrants
of the notice of redemption, the Company
14
<PAGE>
shall deliver or cause to be delivered to National a similar notice
telephonically and confirmed in writing, and if National is engaged as a Warrant
solicitation agent, the Company shall also deliver to cause to be delivered to
National a list of the Registered Holders (including their respective addresses
and number of Warrants beneficially owned) to whom such notice of redemption has
been or will be given.
(c) The notice of redemption shall specify (i) the
redemption price, (ii) the Redemption Date, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificate shall be delivered and the redemption price shall be
paid, (iv) that National shall receive the commission contemplated by Section
4(b) hereof, and (v) that the right to exercise the Warrant shall terminate at
5:00 p.m. (New York time) on the business day immediately preceding the date
fixed for redemption. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity of the proceedings for such
redemption except as to a holder (a) to whom notice was not mailed or (b) whose
notice was defective. An affidavit of the Warrant Agent or the Secretary or
Assistant Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate
at 5:00 p.m. (New York time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the Registered Holders shall be
mailed to such persons at their addresses of record.
(e) If National acts as the Warrant solicitation
agent for the Company, the Company shall indemnify National and each person, if
any, who controls National within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from the
registration statement or prospectus referred to in Section 5(b) hereof to the
same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the Company has agreed to
indemnify National contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date,
the Company shall furnish to National, as Warrant solicitation agent, (i) an
opinion of counsel to the Company, dated such date and addressed to National,
and (ii) a "cold comfort" letter dated such date addressed to National, signed
by the independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of
15
<PAGE>
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in
a ministerial capacity for the Company and National, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under
any duty or responsibility to any holder of Warrant Certificates to make or
cause to be made any adjustment of the Exercise Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustments, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in reliance
on any Warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the Company
to comply with any of its covenants and obligations contained in this Agreement
or in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence, bad faith or
willful misconduct.
(c) The Warrant Agent may at any time consult with
counsel satisfactory to it (who may be counsel for the Company or for National)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request,
direction, order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Chief Executive
Officer, Chief Financial Officer, President or any Vice President (unless other
evidence in respect thereof is herein specifically prescribed). The Warrant
Agent shall not be liable for any action taken, suffered or omitted by it in
accordance with such notice, statement, instruction, request, direction, order
or demand reasonably believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Warrant Agent and save it harmless
16
<PAGE>
from and against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence,
bad faith or willful conduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except liabilities
resulting as a result of the Warrant Agent's own gross negligence or willful
misconduct), after giving 30 days' prior written notice to the Company. At least
15 days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of 15 days after it
has been notified in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or
any new warrant agent may be converted or merged, any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and
affiliates, and any of its or their officers or directors, may buy and hold or
sell Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and
17
<PAGE>
with like effect as though it were not Warrant Agent. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.
(i) The Warrant Agent shall retain for a period of
two years from the date of exercise any Warrant Certificate received by it upon
such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement (i) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or (ii)
that they may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Warrant Certificates; provided, however, that
this Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders
representing not less than 66-2/3% of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or to increase the Exercise Price therefor or
to accelerate of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are presenting specifically prescribed by
this Agreement as originally executed. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of National,
other than to cure any ambiguity or to correct any provision which is
inconsistent with any other provision of this Agreement or to make any such
change that is necessary or desirable and which shall not adversely affect the
interests of National and except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class registered or certified mail, postage prepaid,
as follows: if to the Registered Holder of a Warrant Certificate, at the address
of such holder as shown on the registry books maintained by the Warrant Agent;
if to the Company at 4 Henry Street, Commack, New York 11725, Attention: Stu
Goldstein, or at such other address as may have been furnished to the Warrant
Agent in writing by the Company; and if to the Warrant Agent, at [Address].
Copies of any notice delivered pursuant to this Agreement shall also be
delivered to National Securities Corporation, 1001 Fourth Avenue, Suite 2200,
Seattle, Washington 98154-1100, Attention: General Counsel, or at such other
address as may have been furnished to the Company and the Warrant Agent in
writing.
18
<PAGE>
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit
of the Company, National, the Warrant Agent and their respective successors and
assigns and the holders from time to time of Warrant Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer upon
any other person any right, remedy or claim, in equity or at law, or to impose
upon any other person any duty, liability or obligation.
SECTION 15. Termination.
This Agreement shall terminate at the close of business on the
Expiration Date of all of the Warrants or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 10
hereof shall survive such termination.
SECTION 16. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the first date first above written.
ATTEST: U.S GOLF AND ENTERTAINMENT INC.
By:__________________________ By:_______________________
Name: Name:
Title: Title:
WESTPORT RESOURCES
INVESTMENT SERVICES, INC.
By:_______________________
Name:
Title:
NATIONAL SECURITIES
CORPORATION, INC.
By:_______________________
Name: Steven A. Rothstein
Title: Chairman
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:_______________________
Name:
Title:
20
<PAGE>
EXHIBIT A
No. W _______ VOID AFTER August __, 2002
________ WARRANTS
REDEEMABLE [Series 1] [Series 2] WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
U.S. GOLF AND ENTERTAINMENT INC.
CUSIP #__________________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or its registered assigns (the "Registered Holder") is the owner of the number
of Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, no par value,
of U.S. Golf and Entertainment Inc., a Delaware corporation (the "Company"), at
any time between August __, 1997 (the "Initial Warrant Exercise Date"), and the
Expiration Date (as hereinafter defined) upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of [American Stock Transfer and Trust
Company,] as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $______ per share, subject to adjustment (the "Exercise Price'),
in lawful money of the United States of America in cash or by check made payable
to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
August __, 1997, by and between the Company, Westport Resources Investment
Services, Inc. ("Westport") National Securities Corporation ("National";
Westport and National are herein collectively referred to as the
"Representatives") and the Warrant Agent.
In the event of certain contingencies provided for in the
Warrant Agreement, the Exercise Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional interests will be issued. In the
case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates
1
<PAGE>
of like tenor, which the Warrant Agent shall countersign, for the balance of
such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York
time) on the date which is five (5) years after the Initial Warrant Exercise
Date. If each such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration statement under
the Securities Act of 1933, as amended (the "Act'), with respect to such
securities is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this
Warrant may be redeemed at the option of the Company, at a redemption price of
$.05 per Warrant, at any time commencing after August __, 1998, provided that
the average closing bid price for the Common Stock as reported by the Nasdaq
SmallCap Market, if the Common Stock is then traded on the Nasdaq SmallCap
Market (or the average closing sale price, if the Common Stock is then traded on
the Nasdaq National Market or a national securities exchange), shall have
equalled or exceeded $_____ per share for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth trading day
prior to the Notice of Redemption, as defined below (subject to adjustment in
the event of any stock splits or other similar events) and
2
<PAGE>
National has given its prior written consent to such redemption. Notice of
redemption (the "Notice of Redemption") shall be given not later than the
thirtieth day before the date fixed for redemption, or as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to the Warrants except to receive the
$.05 per Warrant upon surrender of this Warrant Certificate.
Upon certain circumstances, National may be entitled to
receive an aggregate of five percent (5%) of the Exercise Price of the Warrants
represented hereby, if it is engaged as a Warrant solicitation agent by the
Company.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary, except as
provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated: August __, 1997
[SEAL] U.S. GOLF AND ENTERTAINMENT INC.
By:_____________________________
Name:
Title:
By:_____________________________
COUNTERSIGNED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
as Warrant Agent
By:_________________________________________
Authorized Officer
4
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
________________________________________
________________________________________
________________________________________
(please print or type name and address)
and be delivered to
________________________________________
________________________________________
________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
5
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING
1. The exercise of this Warrant was solicited by:
______________________________________. [ ]
2. The exercise of this Warrant was not solicited. [ ]
Dated: __________________ __________________________________
__________________________________
__________________________________
Address
_________________________________
Social Security or Taxpayer Identification
Number
_________________________________
Signature Guaranteed
_________________________________
6
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _____________________, hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
________________________________________
________________________________________
________________________________________
________________________________________
(please print or type name and address)
______________________________________ of the Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints
__________________________ Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: _____________________
__________________________________
Signatured Guaranteed
__________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
7
<PAGE>
Exhibit 5
July 30, 1997
U.S. Golf and Entertainment Inc.
4 Henry Street
Commack, New York 11725
Re: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
You have requested our opinion in connection with the above-captioned
Registration Statement on Form SB-2 to be filed by U.S. Golf and Entertainment
Inc., a Delaware corporation (the "Company"), with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations promulgated thereunder (the "Rules"). The Registration
Statement relates to the offering of up to 1,265,000 units ("Units"), each Unit
consisting of one share of common stock, par value $.001 per share (the "Common
Stock") and one redeemable warrant to purchase our share of Common Stock
("Warrants"); 1,265,000 shares of Common Stock underlying the Warrants; 110,000
Units issued pursuant to the Representative's Warrant, and 110,000 shares of
Common Stock issuable upon exercise of warrants issuable upon exercise of the
Representative's Warrant.
We have examined such records and documents and have made such examination
of law as we considered necessary to form a basis for the opinions set forth
herein. In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with the originals of all documents submitted to us as copies
thereof.
Based upon such examination, it is our opinion that when the Underwriting
Agreement, a form of which will be filed as an exhibit to the Registration
Statement, is duly and validly executed and delivered, the Units, Common Stock
and Warrants, when issued, delivered and paid for in the manner described in
such Underwriting Agreement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or under the Rules.
Very truly yours,
/s/ RUSKIN, MOSCOU, EVANS & FALTISCHEK, P.C.
------------------------------------------------
Ruskin, Moscou, Evans & Faltischek, P.C.
<PAGE>
EXHIBIT 24.1
<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>
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 Notes 5 and 14, the latest of which is dated July 28, 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.
/s/ Farber, Blicht & Eyerman, LLP
---------------------------------
Plainview, New York
July 30, 1997
