As filed with the Securities and Exchange Commission on January 20, 1998
Registration No. 333-39929
================================================================================
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
Antigua Enterprises Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
British Columbia 2329 75-2290165
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer Identification No.
Classification Code Number) Classification Code Number)
</TABLE>
9319 North 94th Way
Scottsdale, Arizona 85258
(602) 860-1444
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
-------------------
L. Steven Haynes
Chief Executive Officer
Antigua Enterprises Inc.
9319 North 94th Way
Scottsdale, Arizona 85258
(602) 860-1444
(Name, address, including zip code and telephone number,
including area code, of agent for service)
-------------------
Copies to:
<TABLE>
<S> <C> <C>
P. Robert Moya, Esq. John Anderson Paul Hurdlow, Esq.
Quarles & Brady Stikeman, Elliott Gray Cary Ware & Freidenrich
One East Camelback Suite 1700, Park Place 4365 Executive Drive
Suite 400 666 Burrard Street Suite 1600
Phoenix, Arizona 85012 Vancouver, British Columbia V6C 2X8 San Diego, California 92121
(602) 230-5500 (604) 631-1300 (619) 677-1400
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If 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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------
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.
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<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.
SUBJECT TO COMPLETION, DATED JANUARY , 1998
PROSPECTUS
3,000,000 Shares
ANTIGUA ENTERPRISES INC.
[***LOGO***]
Common Shares
---------------------
All of the Common Shares offered hereby are being sold by Antigua
Enterprises Inc. ("Antigua" or the "Company"), other than those shares subject
to the Underwriters' over-allotment option which, if exercised, will be sold by
the Company and by certain executive officers and Directors of the Company (the
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholders.
The Company's Common Shares are listed on The Vancouver Stock Exchange
under the symbol "ANE." The Company has applied for quotation of its Common
Shares on the Nasdaq National Market under the symbol "ANTGF." On January 15,
1998, the reported closing price of the Common Shares on The Vancouver Stock
Exchange was C$6.60 , or approximately $4.59 based on the Noon Buying Rate (as
herein defined) on such date. See "Price Range of Common Shares." See
"Underwriting" for a discussion of the factors to be considered in determining
the public offering price. After completion of this offering, the executive
officer and Directors of the Company will beneficially own approximately 32% of
the outstanding Common Shares.
---------------------
See "Risk Factors" beginning on page 8 for information
prospective investors should consider.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting Discounts and Proceeds to
Price to Public Commisions(1) Company(2)
Per share ...... $ $ $
Total(3) ...... $ $ $
================================================================================
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Act"). See "Underwriting." The
Company has also agreed to sell to the Representatives of the Underwriters
warrants to purchase up to 300,000 Common Shares exercisable at 120% of
the public offering price per share (the "Representatives' Warrants"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1.1 million,
including the Representatives' non-accountable expense allowance.
(3) The Company and the Selling Shareholders have granted to the Underwriters a
45-day option to purchase up to 450,000 additional Common Shares solely to
cover over-allotments, if any. If this option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Shareholders will be $ , $ , $
and $ , respectively. See "Underwriting."
The Common Shares are offered by the several Underwriters, when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject any orders in whole or in part. It
is expected that delivery of share certificates will be made against payment
therefor at the offices of Cruttenden Roth Incorporated in Irvine, California,
or through the facilities of the Depository Trust Company, on or about ,
1998.
CRUTTENDEN ROTH FERRIS, BAKER WATTS
INCORPORATED INCORPORATED
The date of this prospectus is , 1998
<PAGE>
THIS PROSPECTUS DOES NOT QUALIFY THE COMMON SHARES OF THE COMPANY OFFERED
HEREBY FOR SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR
TERRITORY OF CANADA AND DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF
AN OFFER TO BUY ANY OF THESE SECURITIES IN CANADA.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON SHARES
ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
Antigua-, Antigua Sport-, Antech-, AII Apparel-, and the Kachina and Antigua
Sport logos are registered trademarks of Antigua Enterprises Inc. This
prospectus also contains trademarks of other companies.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus. Unless otherwise indicated, the information contained in this
prospectus reflects (i) a one-for-five reverse split of the Company's Common
Shares effected on June 13, 1997 and (ii) assumes no exercise of the
Underwriters' over-allotment option, options granted or reserved for by the
Company prior to the date hereof or warrants or other securities exercisable
for or convertible into Common Shares. See "Certain Relationships and Related
Transactions," "Description of Securities" and "Underwriting."
Unless otherwise indicated, all dollar amounts are stated in United States
dollars with Canadian dollars designated as "C$." The Company conducts its
business in United States dollars. The noon buying rate in New York City for
cable transfers in Canadian dollars, as certified for customs purposes by the
Federal Reserve Bank of New York, is referred to herein as the "Noon Buying
Rate."
See "Risk Factors" for a discussion of important factors that should be
considered by prospective investors.
THE COMPANY
Antigua designs, sources, embroiders, and markets men's and women's
lifestyle apparel and casual sportswear under the distinctive Antigua label.
The Company develops innovative seasonal and year round collections of apparel
for the premium 18-80 year old men's and women's markets. The Company has
developed a strong reputation by offering high quality, fashion apparel with
custom embroidery, screen printing and generous fit. In addition, the Company
believes it holds a competitive advantage with its reputation for having the
necessary capacity to respond quickly to "hot markets" (such as event-related
garments) and corporate impulse orders, so called "at once" business.
The Company sells its products through three distribution channels: golf;
licensed products; and corporate identity apparel. Antigua designs all of its
apparel to appeal to each of these channels. By selecting styles and color
stories which can be marketed to golf, licensed product and corporate
purchasers, the Company believes that it increases its sales potential and
reduces the risk of obsolescence of any particular stockkeeping unit. The
Company also believes that servicing three distribution channels from one
inventory provides the Company with the additional competitive advantage of
being able to respond quickly to shifting demand in its three distribution
channels with fewer stockkeeping units.
Antigua offers its golf apparel in premium and mid-price market golf
professional shops, country clubs and resorts through a network of independent
sales representatives throughout the United States. Antigua supplies apparel to
more than 40 PGA, LPGA and Senior Tour tournaments, including the Ryder Cup,
Professional Golfers Association of America ("PGA") Championship, Buick
Invitational, Motorola Western Open, Greater Hartford Open, GTE Suncoast
Classic, Bob Hope Chrysler Classic, the Shell Houston Open, Walt Disney
Oldsmobile Classic and Standard Register PING. Antigua golf shirts are worn by
sportscasters during televised NBC Sports golf programs and by a number of top
Tour players.
The Company also offers licensed sportswear of the National Football
League ("NFL"), the National Basketball Association ("NBA") and Major League
Baseball ("MLB"). The Company also offers official apparel under licenses
granted by the National Hockey League ("NHL"), the National Collegiate Athletic
Association ("NCAA"), Notre Dame and numerous other colleges and universities.
The Company also produces Ryder Cup merchandise and PGA Championship
merchandise through licensing agreements with the PGA.
Antigua markets embroidered and screen printed apparel to corporations for
promotional material and has entered into licensing agreements with several
companies, such as the Cadillac Motor Division of General Motors, to sell
apparel bearing the names and logos of these companies and preferred supplier
agreements with other companies, such as Mercedes Benz, that the Company
believes enjoy high consumer awareness.
3
<PAGE>
BUSINESS STRATEGY
The Company's strategic goals focus on growth in brand identity and sales
in all three of its distribution channels. The Antigua corporate strategic
goals are as follows:
* Three Channel Products: Antigua's products must be viable in the three
channels of distribution: golf, licensed product and corporate identity.
The Company can be responsive to fluctuating demand because it has one
inventory for three distribution channels, rather than one separate
inventory for each of the three channels.
* Product Mix: Antigua strives to maintain a product mix of 60% Essentials
(i.e., solid color shirts, sweaters, jackets, windshirts, fleece, slacks
and shorts) and 40% All Seasons Collections and the Spring and Fall
Collections (i.e., seasonal designs which reflect a trending or fashion
forward appearance). The Company believes that this product mix gives
Antigua a competitive advantage by positioning the Company to serve "at
once" business and "hot markets" as well as prebooked fashion collection
business. This reduces the Company's inventory risk because Essentials
generally have longer life spans in each of the Company's three
distribution channels.
* Small and Large Customer Mix: Antigua strives to serve an even balance of
large and small customers and has over 15,000 open accounts (customers
whose credit has been approved and who have purchased Company products on
at least one occasion) to reduce the risk from concentration of accounts.
* All Seasons Products and Competitive Pricing Model: The All Seasons
Collection allows Antigua to offer apparel that is designed to have
greater longevity than the products of its competitors, allowing the
Company essentially to "prebook" business which is ordered later by
customers as "at once" goods. Because of this longevity, Antigua can buy
large quantities and reduce its per item cost. The Company believes that
with this price advantage, Antigua brings its All Seasons Collection
products to market below many competitors' prices.
* Sales Expansion in Three Channels: The Company intends to pursue a
strategy of simultaneously increasing sales in all three distribution
channels.
Golf: Antigua will look to grow its golf business by renewing business
relationships with inactive accounts, refining and providing additional
training for its sales force, capitalizing on its strategic alliances
with golf facility management companies and offering additional product
categories (outerwear, women's and special event products).
Licensed Products: Antigua plans to increase its licensed products
sales by increasing the range of licensed products offered through key
national and regional retailers. The Company believes that it currently
holds a competitive advantage in this channel because of its product
design mix, the depth of its portfolio of licensed logos and its
position as one of the higher end providers of licensed apparel.
Corporate Identity: The Company believes that corporate identity
products provide an important growth opportunity for the Company.
Antigua seeks to add to its corporate identity business by
substantially increasing its sales force and expanding its direct mail
activities. The increasing trend of casual dress in the workplace will
increase opportunities for the Company as consumers wear more lifestyle
apparel, embroidered and screen printed identity apparel.
4
<PAGE>
COMPANY HISTORY
Antigua Enterprises Inc. ("AEI") was incorporated under the laws of the
province of British Columbia on December 9, 1986 as Fair Harbour Mining
Corporation and changed its name to Fair Resources Group Inc. on December 17,
1991. On August 12, 1992, Fair Resources Group Inc. acquired Southhampton
Enterprises, Inc., a Texas corporation ("SEI") in a transaction which left the
former shareholders of SEI with approximately 75% of the issued and outstanding
share capital of the Company. To reflect the change of ownership and the shift
in the business of the Company (see "Business"), the Company changed its name
to Southhampton Enterprises Corp. ("Southhampton") on December 2, 1992, and the
Common Shares began trading on the Vancouver Stock Exchange (the "VSE") under
the symbol "SOH." Southhampton, through SEI, has operated a screen printing
business in Dallas, Texas since 1993. On June 13, 1997, Southhampton effected a
consolidation, or reverse split, of its Common Shares (pursuant to which
shareholders received one share for every five shares) and changed its name to
Antigua Enterprises Inc. On June 16, 1997, Southhampton, through SEI, acquired
(the "Acquisition") The Antigua Group, Inc. ("AGI"). In connection with the
Acquisition, the Company changed its VSE trading symbol to "ANE," and the VSE
redesignated the Company as an advanced company (a category of reporting
company previously referred to as a senior board or senior listed company). See
"The Acquisition and Related Financing."
The "Company" or "Antigua" refers to Antigua Enterprises Inc. and its
consolidated subsidiaries. The Company's principal executive offices are
located at 9319 North 94th Way, Scottsdale, Arizona 85258, and its telephone
number is (602) 860-1444.
5
<PAGE>
The Offering
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<S> <C>
Common Shares offered by the Company ......... 3,000,000 shares
Common Shares to be outstanding after this
offering .................................... 7,338,365 shares (1)
Use of Proceeds .............................. The net proceeds from this offering will be used to
repay approximately $12.4 million of indebtedness
incurred in connection with the Acquisition, to
redeem $2.0 million of Series A Preferred (as
defined) and for working capital and other general
corporate purposes. See "The Acquisition and
Related Financing" and "Use of Proceeds."
Proposed Nasdaq National Market symbol ...... ANTGF
</TABLE>
- ------------
(1) Includes 3,631,969 Common Shares issued and outstanding, 646,156 Common
Shares for which the Company has received consideration and is committed
to issue but has not yet issued, 60,240 Common Shares subject to
repurchase and 3,000,000 Common Shares offered hereby. Excludes 4,534,890
Common Shares underlying warrants, 300,000 Common Shares underlying the
Representatives' Warrants and 517,000 Common Shares underlying options to
employees and Directors. Also excludes 1,146,000 Common Shares into which
Convertible Preferred Shares Series A (the "Series A Preferred") may be
converted upon payment of a premium increasing over time and 1,858,954
Common Shares into which two convertible debentures may be converted upon
payment at specified exercise prices. See "The Acquisition and Related
Financing," "Use of Proceeds," "Management -- Executive Compensation,"
"Certain Relationships and Related Transactions," "Description of
Securities," "Shares Eligible for Future Sale" and "Underwriting."
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data --
Antigua Enterprises Inc:
Net sales ........................... $ 131 $ 404 $ 1,793 $ 1,843 $ 2,858 $ 1,970 $ 15,769
Gross profit ........................ (22) 73 124 144 595 437 5,495
Income (loss) from operations ...... (389) (616) (828) (1,068) (652) (290) (211)
Net income (loss) .................. (383) (645) (912) (1,093) (722) (372) (3,286)
Three Months
Year Ended December 31, Ended March 31,
-------------------------------------------------------- --------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ------------ ---------- ---------- ----------- --------------
Statement of Operations Data --
The Antigua Group, Inc.(1):
Net sales ........................... $ 31,279 $ 32,019 $ 31,794 $ 31,403 $ 33,510 $ 6,455 $ 9,219
Gross profit ........................ 10,207 10,454 6,290 10,577 11,019 1,873 3,268
Income (loss) from operations ...... 2,166 1,655 (3,639) 1,751 1,577 (196) 803
Net income (loss)(1) ............... 1,782 1,192 (4,328) 740 620 (470) 196 (2)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
1996 1997
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<S> <C> <C>
Statement of Operations Data -- Company Pro Forma:
Net sales ................................................... $ 36,368 $ 33,950
Gross profit ................................................ 11,615 11,939
Income (loss) from operations .............................. 494 1,577
Net income (loss) .......................................... (8,634) (1,129)
Adjusted pro forma net income (loss) per share ............... (1.45) (.27)
Adjusted pro forma weighted average shares outstanding ...... 6,611,700 6,854,232
September 30, 1997
----------------------------
Actual Pro Forma(3)
------------ -------------
Balance Sheet Data:
Working capital (deficit) .................................... $ (3,740) $ 438
Total assets ................................................ 38,943 37,828
Short term debt ............................................. 14,503 10,057
Long term debt ............................................. 7,815 1,821
Total liabilities .......................................... 29,363 18,076
Preferred stock and common stock subject to repurchase ...... 4,762 3,207
Shareholders' equity ....................................... 4,818 16,545
</TABLE>
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(1) Net income (loss) of The Antigua Group, Inc. ("AGI") does not include any
provision for income tax because AGI operated as an S Corporation prior to
the Acquisition.
(2) Includes an extraordinary charge of $354,000 from early extinguishment of
debt.
(3) On a pro forma basis, as adjusted to give effect to the application of the
net proceeds of this offering in the manner described in "Use of
Proceeds." See "Unaudited Pro Forma Consolidated Financial Statements."
7
<PAGE>
RISK FACTORS
In addition to the other information in this prospectus, prospective
investors should carefully consider the following risk factors prior to making
an investment in the Common Shares offered hereby.
Limited Capital Resources; Leverage; Events of Default
AEI is principally a holding company whose material assets are its
investments in its subsidiaries. AEI does conduct limited business through a
division but is chiefly dependent on distributions from its subsidiaries to
service its obligations. AEI currently has approximately $13.4 million in debt
(net of discounts) incurred in connection with the Acquisition. The debt is
carried on the financial statements of AGI because the lenders require payment
primarily from AGI. After giving pro forma effect to this offering and the
application of the net proceeds therefrom, approximately $10.4 million of that
debt will be repaid, and the Company has the right to cause conversion of the
remaining debt into Common Shares. AGI will still have approximately $8.6
million of indebtedness (including the line of credit and assuming conversion of
the convertible debt), and AEI, on a consolidated basis and after giving pro
forma effect to this offering and the application of the net proceeds therefrom,
will have approximately $9.1 million of indebtedness (assuming conversion of the
convertible debt and including $6.4 million on a revolving line of credit),
representing 48.9% of total capitalization (or 4.4% of total capitalization
excluding the revolving line of credit). The Company believes that, after the
application of the net proceeds from this offering, cash generated from the
operations of AGI will be sufficient to meet AGI's remaining obligations and to
fund its operations for the next twelve months. As part of the terms of the
Acquisition the Company agreed to pay Mr. Dooley additional cash consideration
in an amount currently estimated at $700,000 (less an advance of $75,000), to be
paid in four quarterly installments (on September 16, December 16, March 16 and
June 16). The Company was unable to make the first installment payment in full
on its due date, but has since paid that installment in full. The Company paid
the second installment due on this obligation late after obtaining permission
from its line of credit lender to allow AGI to make such payment. A default on
this obligation triggers cross-default provisions under the Company's loan
agreements with its principal lenders. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- The Antigua Group Inc. --
Liquidity and Capital Resources." The terms of the Acquisition accelerate
payment of any amount remaining on the approximate $700,000 obligation to Mr.
Dooley upon certain securities offerings of the Company, and the Company
anticipates satisfying such obligation from the net proceeds of this offering.
See "Use of Proceeds." AEI has also defaulted on payment of an approximately
$100,000 obligation to Sea/Q of America, Inc. ("Sea/Q"). Sea/Q commenced suit to
recover this amount but has agreed not pursue this claim until after February
15, 1998, in consideration for the Company having caused the transfer of
warrants to Sea/Q. The Company anticipates satisfying the obligation to Sea/Q
from proceeds of this offering. See "Use of Proceeds" and "Business -- Legal
Proceedings." If the Company were unable to meet the obligations to Mr. Dooley
and to Sea/Q with net proceeds of this offering, the Company would need
additional financing to satisfy the obligations, and there can be no assurance
that such financing would be available, or, if available, that such financing
would be on terms favorable to the Company.
Limitations on Distributions from AGI to AEI
AGI's borrowing agreements prohibit payments to AEI except as needed for
scheduled principal and interest payments on AEI's debt obligations to AGI's
former shareholders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." These agreements generally do not permit
AGI to distribute funds to AEI to satisfy the approximately $700,000 obligation
to Mr. Dooley, to pay the approximately $100,000 obligation to Sea/Q or to pay
other expenses incurred at the AEI level. See "--Limited Capital Resources;
Leverage; Events of Default." It is unlikely that AEI will be able to obtain
any material amount of additional working capital from its one operating
division or its SEI subsidiary to make payments on obligations which AGI is
prohibited from satisfying.
Absence of Combined Operating History
The Company was incorporated on December 9, 1986 in the province of
British Columbia as Fair Harbour Mining Corporation and changed its name to
Fair Resources Group Inc. on December 17, 1991. On August 12, 1992, Fair
Resources Group Inc. acquired Southhampton Enterprises, Inc., a Texas
corporation ("SEI"). On December 2, 1992 the Company changed its name to
Southhampton Enterprises
8
<PAGE>
Corp. ("Southhampton"). On June 16, 1997, Southhampton, through SEI, acquired
(the "Acquisition") The Antigua Group, Inc. ("AGI"). Prior to the Acquisition,
management of AGI was under the direction of Thomas E. Dooley, Jr., the founder
of AGI. In connection with the Acquisition, Mr. Dooley ceased having day to day
responsibility for AGI's operations and has agreed to serve as a consultant to
the Company for a period of two years ending in May 1999 and has been appointed
a Director and Chairman of the Board of AGI. There can be no assurance that the
Company will be able to manage effectively the recently combined operations of
SEI and AGI or achieve the Company's operating and growth strategies. The
integration of the management, operations and facilities of AGI could involve
unforeseen difficulties, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "The
Acquisition and Related Financing." Accordingly, neither the historical results
of the Company prior to its acquisition of AGI nor the historical results of
AGI are necessarily indicative of the results that would have been achieved if
Southhampton and AGI had been operated on an integrated basis or the results of
the Company in the future.
Recent Operating Losses
Prior to the Acquisition, the Company's principal operations consisted of a
screen printing business conducted through SEI in Dallas, Texas. In 1994, 1995,
1996 and for the nine months ended September 30, 1997 the Company incurred
operating income (loss) of $(.8), $(1.1), $(.7) and $.2 million, respectively.
For the nine months ended September 30, 1997, SEI incurred an operating loss of
$351,000. The results of operations of the Company for the nine months ended
September 30, 1997 include the results of AGI only for the period following
completion of the Acquisition on June 16, 1997. There can be no assurance that
the operations of SEI will be profitable in future periods. If the Company is
unable to attain profitable operations at SEI, or on a consolidated basis, it
may be forced to curtail or limit the Company's operations.
Legal Proceedings
Sea/Q of America, Inc. ("Sea/Q") filed a lawsuit against the Company in
the Supreme Court of British Columbia, Canada, on October 23, 1997. Sea/Q
alleged that the Company had borrowed $100,000 from Sea/Q in or about August,
1996, had agreed to repay Sea/Q in full on or before May 30, 1997 and that the
Company had failed to repay Sea/Q. The Company entered into a settlement with
Sea/Q on October 30, 1997 and amended the settlement on January 10, 1998. Under
the settlement as amended, the Company has agreed: (i) to pay Sea/Q $100,000 on
or before February 15, 1998; and (ii) to cause the transfer to Sea/Q of
warrants to purchase 12,000 Common Shares of the Company with an exercise price
of C$5 until June 1998, and C$5.75 thereafter until the expiration date of June
1999. Sea/Q has agreed to waive any interest payable from May 30, 1997 to the
date of repayment, to cease prosecuting the lawsuit until February 15, 1998 and
to dismiss the lawsuit entirely if the Company pays Sea/Q $100,000 on or before
February 15, 1998.
Western Pacific Developments LTD., a British Columbia company, filed a
lawsuit, bearing cause No. C975772, against the Company, Eron Mortgage
Corporation ("Eron"), West Coast Golf Promotions LTD., Brian Slobogian and
Frank Biller in the Supreme Court of British Columbia on October 24, 1997, but
voluntarily dismissed its claim against the Company by filing with the court a
Notice of Discontinuance on October 29, 1997. The Company did not offer or
provide any consideration to Western Pacific in exchange for Western Pacific
filing the Notice of Discontinuance. The effect of the Notice of Discontinuance
is to dismiss Western Pacific's claim against the Company, but is not a bar to
any subsequent legal action by Western Pacific against the Company. On November
3, 1997, Western Pacific amended its Statement of Claim to eliminate any
reference to the Company.
Brian Slobogian, who was also named as a defendant in the original
Statement of Claim for cause No. C975772, is a former director of the Company,
having served, without attending any meetings, from June 30, 1997 through his
October 10, 1997 resignation. As a result of allegations of misconduct, Mr.
Slobogian was ordered to resign as a director of any issuer by the British
Columbia Securities Commission on October 3, 1997, which order was extended on
November 26, 1997. On October 3, 1997, the Registrar of Mortgage Brokers in
British Columbia suspended the registration of Eron, froze related corporate
bank accounts and made application to appoint a judicial trustee for the
investors and receiver of Eron. Eron
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acted as a finder for the Company in connection with the Westcoast Debenture
(see "The Acquisition and Related Financing"). The Company has not been
informed that any transactions in which it was engaged with Mr. Slobogian or
entities related to Mr. Slobogian are the subject of current regulatory or
other action. However, there can be no assurance that the Company will not
receive inquiries in the future concerning its past association with Mr.
Slobogian and Eron or that such past associations with Mr. Slobogian and Eron
will not become the subject of regulatory or other action.
The Company and Mr. Haynes, on his own behalf, have received a demand from
Mr. Frank Cutler, an investor in the Company's Series A Preferred, to have his
shares of Series A Preferred purchased by Mr. Haynes or redeemed by the Company
in advance of other holders of the Series A Preferred. Mr. Cutler maintains
that agreements between himself and the Company and between himself and Mr.
Haynes individually entitle him to have had his shares of Series A Preferred
redeemed as early as August 1, 1997. Mr. Cutler also demands from the Company
and Mr. Haynes a reduction in the exercise price of the detachable warrants
issued with the Series A Preferred to $.01 per Common Share, an additional
20,000 warrants to purchase Common Shares at an exercise price of $.01 per
Common Share and an unspecified number of warrants to compensate him for not
having his shares of Series A Preferred redeemed at August 1, 1997. No
complaint has been filed in this matter at this time.
The Company has received a demand from Renaissance Financial Securities
Corporation ("Renaissance") for payment of $144,000 in fees under a management
services agreement and for warrants to purchase 20,000 Common Shares at C$3.50
per share. The Company contests the amount of fees owed to Renaissance and that
the Company is obligated to issue any additional warrants to Renaissance. See
"Certain Relationships and Related Transactions." No complaint has been filed
in this matter at this time.
Competition
The Company encounters intense competition in all three of its
distribution channels, much of which is from significantly larger competitors.
The Company considers its main competitors in its golf distribution channel to
be Ashworth, Inc., Izod Club, Polo Ralph Lauren Corporation, Tommy Hilfiger,
Cutter & Buck Inc. and Sport-Haley, Inc. The Company considers its main
competitors in the licensed goods channel to be Nike, Reebok, Starter, Champion
Products Inc. and Vanity Fair. The Company considers its main competitors in
the corporate channel to be Polo Ralph Lauren Corporation, Tommy Hilfiger, the
Dockers brand of Levi Strauss & Co. and the Gear brand of L.A. Gear, Inc.
Competition in these distribution channels is intense and is based primarily on
brand recognition, as well as loyalty, quality, price, style, decoration
(embroidery) capacity, design, service and availability of shelf space in the
golf apparel and licensed apparel distribution channels. The Company also
competes, particularly in its golf distribution channel, with manufacturers of
high quality men's and women's sportswear and general leisure wear, including
Nike, Tommy Hilfiger and Nautica Enterprises, Inc. Many of these competitors,
as with competitors within particular distribution channels, have substantially
greater experience, financial and marketing resources, manufacturing capacity,
distribution and design capabilities than the Company. Increased competition in
the fashion golf apparel market, such as Nautica's recent entry into golf
apparel, from these manufacturers or others could result in price reductions,
reduced margins or loss of market share, all of which could have a material
adverse effect on the Company's business, operating results and financial
condition. There can be no assurance that the Company will compete successfully
with its present or potential competition. Further, recent entries in these
distribution channels by competitors offering apparel comparable to that of the
Company will likely intensify competitive pressures. There can be no assurance
that the Company will be able to maintain market share, to increase its market
share at the expense of its existing competition or that the Company will not
experience pricing pressures as a result of intensifying competition within
these markets. See "Business -- Competition."
Changes in Apparel Design; Forecasting and Scheduling
Fashion trends in the golf apparel, licensed apparel and corporate
identity markets are subject to rapid innovation and change. Because the
Company typically designs and arranges for the manufacture of its apparel
substantially in advance of sales to customers, there can be no assurance the
Company will
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accurately anticipate shifts in design trends. Should the Company be
unsuccessful in responding to fashion trends or changes in market demand, the
Company may experience insufficient or excess inventory levels, missed market
opportunities or higher markdowns, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company develops forecasts for each of its apparel products and
establishes production schedules based upon these forecasts in order to build
sufficient inventory to meet expected customer demand. If the Company misjudges
market demand for a particular product, or if shipment delays are incurred from
suppliers, the Company's delivery schedules may be disrupted. The Company has
been required to mark down inventory in the past in order to reduce inventory
of specific styles. In particular, the Company's gross margins were adversely
affected during fiscal 1994 and 1996 as a result of close-out sales of
discontinued garments. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." There can be no assurance that the
Company's forecasts and production schedules will accurately anticipate market
demand or that the Company's results of operations will not be adversely
affected by design trends, changes in the market or other factors. See
"Business -- Products and Product Design."
Dependence on Licensing Arrangements
Licensed products sales accounted for approximately 42% of AGI's sales in
1996 and for the nine months ended September 30, 1997. The Company's licensed
apparel lines are based on its use of insignia, logos, names, color schemes and
other identifying marks and images borne by its products under licenses from
professional sports leagues, golf organizations, colleges and universities. The
Company relies on these licensors for their right to grant and maintain
licenses and for their ability to preserve the value of the licenses by
promoting and protecting the licensed properties. The Company's licensing
arrangements are non-exclusive and expire at various times between December 31,
1997 and July 31, 1999 and, generally, allow the licensor to terminate the
license on short notice. Non-renewal, termination or modification of a material
license, in particular the Company's license from the NFL, would have a
material adverse effect on the Company's financial condition and results of
operations. There can be no assurance that the Company will continue to be able
to maintain or renew its existing licenses or that the licensors will not grant
more favorable licenses to competitors. See "Business -- Overview -- Licensed
Apparel."
The Company's licenses limit the types of product, which limits may be
modified from time to time, that may be sold under the license. Accordingly,
the Company may be limited in its ability to respond to changing market
demands. Royalty rates under the licenses have generally been rising over the
past several years, and the Company expects them to continue to rise. There can
be no assurance that the Company will continue to be able to offset the impact
of increasing royalty rates. Any inability to offset royalty rates would reduce
current margins, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Foreign Suppliers and Outside Contractors
The Company obtains its garments from third party independent suppliers,
nearly all of which are foreign. The Company does not have formal contracts
with any of its suppliers or contractors and does not anticipate entering into
such contracts in the future. Because the Company does not have formal
contracts for mill production or for cutting and sewing of products, the
Company competes with other companies for production capacity. In the event any
of the Company's suppliers or contractors are unable or unwilling to ship the
Company's products in a timely manner or to continue to manufacture the
Company's products, the Company would have to rely on other current sources or
identify and qualify new vendors. In such event, there can be no assurance that
the Company would be able to qualify such vendors for existing or new products
in a timely manner or that such vendors would allocate sufficient capacity to
the Company in order to meet its requirements. Delays in shipments to the
Company or inconsistent or inferior apparel quality may adversely affect the
Company's relationships with its customers and independent sales
representatives. The loss of major suppliers or contractors, and resulting
delays, could have a significant adverse effect on the Company's immediate
operating results. Should the Company experience significant unanticipated
demand, the Company will be required to significantly expand its access to
manufacturing, both from current and new manufacturing sources. There can be no
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assurance that such additional manufacturing capacity will be available on
terms as favorable as those obtained from current sources. See "Business --
Product Development and Sourcing." Reliance on foreign suppliers subjects the
Company to risks including changes in economic policies and political or labor
conditions and could result in the imposition of new or additional currency or
exchange controls. Changes in exchange rates could increase the effective
prices the Company pays for its products.
Import Restrictions
The Company's import operations are subject to constraints imposed by the
bilateral textile agreements between the United States and certain foreign
countries. These agreements impose quotas on the amount and type of goods that
can be imported into the United States from these countries. Such agreements
also allow the United States to impose restraints on the import of merchandise
that are not subject to specified limits. The Company's imported products are
also subject to United States customs inspections, which could result in delays
in delivery of the Company's products. There can be no assurance that the
Company will not face material disruption of its business due to quota or
customs restrictions in the future. A substantial increase in customs duties,
decrease in quotas or inability of the Company to import its garments before
quotas have been filled could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, the
United States and the countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adversely adjust presently prevailing quota, duty or
tariff levels.
Operations of Foreign Manufacturers
The Company obtains most of its garments from suppliers in Asia. Certain
foreign garment manufacturers have been found to operate under conditions which
are commonly referred to "sweat shops," in some cases employing children in
violation of local law or otherwise diverging from labor practices generally
accepted as ethical in the United States. Recently, some United States
distributors have been adversely affected by their association with such
operations. The Company generally requires its suppliers to sign a policy
statement confirming that they do not operate in such conditions. The Company's
Sourcing Manager or Vice President of Product Development visits all factories
a minimum of once annually to confirm compliance with Antigua's labor policies.
Nevertheless, the Company does not control such suppliers or their labor
practices. The violation of labor or other laws by any manufacturer used by the
Company, or the divergence of an independent manufacturer's labor practices
from those generally accepted as ethical in the United States, could result in
adverse publicity for the Company and retailers carrying the Company's
products, which, in turn, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Future Status of Hong Kong and China
On July 1, 1997, China resumed sovereignty over Hong Kong in accordance
with the 1984 Sino-British Joint Declaration, and Hong Kong became a Special
Administrative Region of China. There can be no assurance that Hong Kong will
not experience political, economic or social disruption following resumption of
Chinese sovereignty. In addition, there have been a number of recent trade
disputes between China and the United States during which the United States
threatened to impose tariffs and duties on some products imported from China
and to withdraw China's "most favored nation" trade status. A large portion of
the Company's production is arranged through direct company contacts or
contacts with representatives in Hong Kong. In addition, approximately 25% of
the fabric for apparel is sourced from China and the Company has arranged in
the past, and could arrange in the future, for manufacture of product in China.
Therefore, a significant disruption in the operations of the Company's agents
or fabric manufacturers located in Hong Kong or China or the loss of most
favored nation trade status for China could have a material adverse effect on
the Company's business, financial condition and results of operations.
Dependence on Independent Sales Representatives
The Company sells its apparel and accessory products predominantly through
a network of independent sales representatives. The Company's independent sales
representative agreements are generally
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terminable for any reason by either party on 30 days notice. A number of the
Company's independent sales representatives carry apparel or other products
lines which may compete directly or indirectly with the Company's existing and
anticipated apparel lines. The Company's continued growth is dependent in part
on existing representatives increasing their sales per account or increasing
their account base and upon the Company increasing the number of sales
representatives offering its products. There can be no assurance that existing
representatives will be successful in increasing their sales or will not
highlight product lines of other companies to the detriment of the Company's
products. In addition, there can be no assurance that the Company will retain
existing representatives or be successful in expanding the number of sales
representatives. The Company has experienced a loss of sales representatives in
the past. The loss of existing representatives, for any reason, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Distribution and Sales."
Risks Associated with Product Line Expansion
One element of the Company's business strategy is to increase sales by
leveraging the Company's brand name identification to offer an expanded product
line within established distribution channels. Products in development include
an expanded line of outerwear and fleece tops. In part, the Company's future
growth and profitability will be dependent on achieving market acceptance of,
and expanding the market share for, these and other new products. The Company
could encounter manufacturing and marketing obstacles which could adversely
impact production or sales of these product lines and the Company's results of
operations. There can be no assurance that efforts to expand the Company's
product line will be successful or that the allocation of resources to the
expansion of product offerings will prove to be more beneficial than allocation
of the same resources to design and marketing of existing products.
Fluctuations in Quarterly Results; Seasonality
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors including, among other things,
changes in the Company's product and customer mix, the difficulty of accurately
forecasting apparel demand, market acceptance of apparel designs introduced by
the Company or its competitors, seasonality in apparel purchases by customers,
poor weather conditions in the spring and summer seasons, loss of independent
sales representatives, changes in material and manufacturing costs, failure to
deliver products timely, pricing trends in the golf apparel industry, the level
and pricing of international sales, foreign currency exchange rates, general
economic conditions and other factors. The Company's business is seasonal, with
sales in the second and third fiscal quarters typically exceeding the other two
quarters of each fiscal year. However, any of the above factors could cause
quarterly operating results to vary significantly from prior periods. In
addition, certain of the Company's expenses are fixed in the short term and are
based on forecasts of product orders. Significant variations between the
Company's forecasts and actual orders may adversely affect operating results if
the Company is unable to proportionately reduce its expenses in a timely
manner. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Product Development and Sourcing."
Dependence on Key Personnel
The Company's success depends to a significant extent on several key
individuals, including L. Steven Haynes, Chief Executive Officer, Ronald A.
McPherson, President of AGI, Gerald K. Whitley, Vice President of Finance of
AGI, Brett Moore, Vice President of Product Development of AGI, and Joseph M.
Blanchette, Vice President of Information Technology of AGI. The Company has
employment and non-competition agreements with each of these executives but
does not maintain "key person" life insurance on the lives of any of its
executive officers. The success of the Company will depend, among other
factors, on the successful recruitment and retention of quality management and
other personnel. See "Management."
Limited High-End Market for Golf Apparel
AGI's sales into the golf distribution channel accounted for 46.5%, 44.0%,
37.3% and 34.0% of its sales in the years ended December 31, 1994, 1995 and
1996 and for the nine months ended September 30,
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1997, respectively. The Company targets distribution of its fashion golf
apparel toward high quality golf professional shops, country clubs and resorts.
According to industry sources, there are approximately 17,500 golf retailers in
the United States, including golf professional shops (green grass shops) and
off course shops. Of these retailers, the Company targets 75%, or approximately
13,000, as its golf distribution channel customer base (discounting the total
number because of possible credit problems or non-viability as an apparel
retailer). Because the Company currently has open accounts with approximately
7,900 golf professional shops and off course shops (approximately 55% of which
are active in any given year), the domestic market for distribution of golf
apparel lines may be limited. High quality sportswear and general leisure wear,
being similar to fashion golf apparel, can be purchased from a variety of
sources including department stores, sporting goods stores, catalog retailers
and other retail outlets. Customers seeking to purchase high quality sportswear
may elect to purchase apparel from any of these sources, thus creating
competition for discretionary consumer spending. See "Business."
Management of Growth
AGI's sales increased from approximately $31.4 million for the fiscal year
ended December 31, 1995 to approximately $33.5 million for the fiscal year
ended December 31, 1996 and from approximately $26.2 million for the nine
months ended September 30, 1996 to approximately $32.3 million for the nine
months ended September 30, 1997. During the nine months ended September 30,
1997 this growth has required AGI to transport some product by air rather than
by less expensive shipping in order to fill a limited number of customer orders
in a timely manner. An increase in the Company's use of air freight in the
future, as a result of a sudden and significant increase in orders or other
change in procurement procedures, could adversely affect operating results
during periods of such use. This growth has placed and, if sustained, will
continue to place, a substantial strain on the operational, administrative and
financial resources of the Company and has resulted in an increase in the level
of responsibility of the Company's management personnel. The increase in sales
activity, the addition of new product lines and the anticipated expansion of
the Company's Inside Sales department will require the Company to improve its
operating and financial systems and to continue to expand, train and manage its
employee base and network of independent sales representatives. The Company's
future operating results will depend in part on management's ability to manage
future growth and increasing sales in the corporate identity channel from the
expanded Inside Sales department, the success of which cannot be assured. See
"-- Absence of Combined Operating History."
Absence of Prior United States Market; Possible Volatility of Share Price
The Company's Common Shares have been listed on the VSE since May 1989
(trading under the "SOH" symbol between December 2, 1992 and June 13, 1997 and
under the symbol "ANE" after June 13, 1997), but there has been no United
States public market for the Common Shares prior to this offering. There can be
no assurance that an active trading market for the Common Shares will develop
in the United States or be sustained after this offering or that the market
price of the Common Shares will not decline below the public offering price.
The public offering price was determined by negotiations among the Company, the
Selling Shareholders and the Representatives and may not be indicative of the
market price for the Common Shares in the future. See "Underwriting" for a
discussion of the factors considered in determining the public offering price.
The trading price of the Common Shares in the future could be subject to wide
fluctuations in response to quarterly variations in operating results of the
Company or its competitors, actual or anticipated announcements of product
developments by the Company or its competitors, changes in analysts' estimates
of the Company's financial performance, acquisition or loss of licenses,
general industry conditions and other events and factors, including broad-based
market
fluctuations.
Recent VSE Trading Halt
The Company's Common Shares are traded on the VSE under the symbol "ANE."
In connection with the Acquisition, the Company requested that the VSE halt
trading in the Company's Common Shares to allow the Company to dissiminate
information about the Acquisition and in order for the
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Company to obtain final approval for the Acquisition and related transactions
from the VSE. Trading of the Company's Common Shares was halted for these
purposes after the close of the VSE on June 13, 1997 and was recommenced on
September 3, 1997. During this period, holders of Common Shares were restricted
in their ability to transfer shares. The rules of both the VSE and the Nasdaq
National Market contemplate the imposition of trading halts from time to time,
and during any such halt shareholders will be restricted in their ability to
transfer shares.
Performance Shares and Related Compensation Expense
Pursuant to an escrow agreement dated August 4, 1992, among the Company,
Montreal Trust Company and certain of the Company's shareholders (the "Escrow
Agreement"), the Company issued 456,992 common "performance shares" ( the
"Performance Shares") to certain of its founders and future principal
stockholders, Louis B. Lloyd, L. Steven Haynes and Robert J. McCammon. The
Performance Shares were issued pursuant to Local Policy #3-07 of the British
Columbia Securities Commission (the "BCSC") and Policy 19 of the VSE. The
Performance Shares include 25,500 shares which are the remaining portion of
750,000 shares issued pursuant to an escrow agreement dated December 22, 1988,
among the Company, C. Phillip Yeandle, and Montreal Trust Company of Canada
(the "Original Performance Shares"). On October 1, 1991, C. Phillip Yeandle
transferred the remaining 25,500 Original Performance Shares to Franco S.
Cecconi, another then principal of the Company. Such shares were rolled into
the Escrow Agreement in connection with the acquisition of SEI by Fair
Resources Group Inc. in August 1992. The Performance Shares are held in escrow
to be released as the Company achieves positive operating cash flow on a
cumulative basis, as defined by the BCSC ("BCSC Operating Cash Flow"). The
holders of Performance Shares will be entitled to a pro rata release from
escrow on the basis of one share to be released for each $0.6725 of cash flow
to the Company, calculated as a performance share percentage of 31% of the
issued capital of the Company and an earn-out-factor of .3844, subject to
approval by the BCSC and the VSE. Performance Shares are permitted to be
released on an annual basis. A total of 200,492 of these shares have been
returned to treasury and none of the remaining Performance Shares have been
released from escrow, all as a result of a failure by the Company to meet the
performance criteria. The current total of Performance Shares held in escrow is
256,500. Once released, the Performance Shares will be freely tradeable in the
province of British Columbia. If any of the 25,500 Original Performance Shares
remain unreleased from the escrow on December 22, 1998, they will be canceled
on such date. Any of the remaining 231,000 Performance Shares not yet released
will be canceled on August 4, 2002. See "Description of Securities --
Performance Shares."
If and when BCSC Operating Cash Flow justifying release of the Performance
Shares, or a pro rata portion thereof, is probable, the Company will record as
compensation expense an amount equal to the difference between the C$0.35
originally paid for the Performance Shares then available for release and the
market price of its Common Shares at that time. Such a pro rata or full expense
recognition will occur prior to the pro rata or full release from escrow of the
Performance Shares. If and when such expense recognition criteria are achieved,
based on the anticipated offering price in this offering of $6 per Common Share
(for purposes of example only), the aggregate compensation expense that would
be recognized as a result of earning all of the Performance Shares would be
approximately $1.5 million. If, at the time Performance Shares may be released,
the market price for the Common Shares is greater than $6 per Common Share, the
compensation expense would increase by $256,500 for each $1 increase in the
market price. If and when the Performance Shares are earned, the number of
shares used to calculate primary net income (loss) per share will increase by
the number of Performance Shares earned.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. As a
result, in less than two years, the computer system and software used by the
Company will need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the
potential effects associated with such compliance.
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The Company has scheduled hardware and software package upgrades to make
the Company's computer systems Year 2000 compliant, and the compliance effort
will be borne primarily by internal resources. However, there can be no
assurance that such upgrades will be sufficent to make the Company's computer
systems Year 2000 compliant in a timely manner or that the allocated resources
will be sufficient. A failure to become Year 2000 compliant could disrupt the
Company's operating results and financial condition. See "Business -- Management
Information Systems and Inventory Management."
Shares Eligible for Future Sales; Rights to Acquire Shares
Upon completion of this offering, the Company will have 7,338,365 Common
Shares outstanding. Sales of substantial amounts of Common Shares in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices and could impair the Company's future ability to raise
capital through the sale of its equity securities. With respect to sales in the
Province of British Columbia, the securities laws of the Province of British
Columbia generally impose a hold period of one year from the date of issuance
of securities sold in a private placement transaction without the benefit of a
prospectus. During the hold period, common shares are unable to be traded in
British Columbia, or through the facilities of the VSE, without the filing of a
prospectus in respect thereof, but such hold period may not apply to sales
outside of British Columbia. Between the fourth quarter of 1997 and the end of
the fourth quarter of 1998, the hold period will expire with respect to
approximately 11,442,385 Common Shares and Common Shares underlying convertible
securities (not at all of which will necessarily be converted) which have been
privately placed by the Company within the last year. With respect to sales in
the United States, the Common Shares sold in this offering will be freely
tradeable in the United States public market without restriction or further
registration under the Act unless held by an "affiliate" of the Company, as
that term is defined in Rule 144 under the Act. The remaining 4,338,365 Common
Shares, and the 8,086,844 Common Shares underlying warrants, options and other
convertible securities are, or will be when issued, "restricted securities" as
that term is defined in Rule 144 and may be sold only in compliance with Rule
144, pursuant to registration under the Act or pursuant to an exemption
therefrom. See "Shares Eligible For Future Sale."
As of the date of this prospectus, the Company has reserved 547,000 Common
Shares for issuance on exercise of options. Warrants to purchase 4,534,890
Common Shares, excluding the Representatives' Warrants for 300,000 Common
Shares at a per share exercise price equal to 120% of the public offering price
in this offering, were also outstanding, with a weighted average exercise price
per share of $5.37. See "Description of Securities -- Common Share Purchase
Warrants." The Company has additionally reserved 3,004,954 Common Shares into
which shares of the Series A Preferred (as defined) and other convertible
debentures may be converted upon payment of premiums which increase over time.
Holders of certain outstanding warrants and other convertible securities have
certain demand and piggyback registration rights which could require the
Company to register the Common Shares underlying such warrants for a period of
five years from the dates of such warrants. See "Description of Securities --
Registration Rights." Sales of Common Shares underlying options or warrants may
adversely affect the price of the Common Shares. See "Management --
Compensation Plans" and "Description of Securities."
Anti-Takeover Effect of Charter
The Company's Memorandum, as amended, authorizes the issuance of up to
30,000,000 Preferred Shares, of which, 10,000,000 shares were designated as and
5,730,000 shares were issued as Convertible Preferred Shares Series A (the
"Series A Preferred") in connection with financings related to the Acquisition.
The Series A Preferred is non-voting, has a fixed cumulative preferential cash
dividend at a rate of 12% per annum, is convertible for five years into Common
Shares (five Series A Preferred shares being convertible into one Common Share)
upon payment of a premium which escalates over the five-year period, may be
redeemed by the Company upon certain circumstances, is retractable at the
option of the holder (i.e., the holder holds a put option with respect to these
shares) upon completion of a public offering with proceeds to the Company in
excess of $8,000,000, restricts the payment of dividends on or
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redemption of other classes of shares and restricts the creation of classes or
series of shares which would rank senior to or pari passu with the Series A
Preferred. See "The Acquisition and Related Financing" and "Description of
Securities -- Preferred Shares." The Company intends to retire a portion of the
Series A Preferred with proceeds of this offering. Other Preferred Shares may
be issued in series with the material terms of any series determined by the
Board of Directors. Such material provisions would likely include dividend
rights, which may be cumulative, conversion features, voting rights, redemption
rights, retraction rights and liquidation preferences. The Company does not
currently anticipate any new issuances of Preferred Shares. However, if the
Company does issue any series of Preferred Shares in the future, it is likely
that such shares will have dividend privileges and liquidation preferences
superior to those of the Common Shares. Further, the Preferred Shares may be
issued with voting, conversion or other terms determined by the Board of
Directors which could be used to delay, discourage or prevent a change in
control of the Company. Such terms could include, among other things, dividend
payment requirements, redemption provisions, preferences as to dividends and
distributions and preferential voting rights. See "Description of Securities"
and "Canadian Governmental Regulation."
Control by Executive Officers and Directors
Upon the closing of this offering, the executive officers and Directors of
the Company will beneficially own approximately 32% of the outstanding Common
Shares (approximately 30% if the Underwriters' over-allotment option is
exercised in full). Because of such share ownership, these shareholders will
continue to be able substantially to influence or control the election of
members of the Company's Board of Directors and to determine corporate actions
requiring shareholder approval, including mergers or other business
combinations. See "Principal and Selling Shareholders." Mr. Haynes and Mr.
Lloyd have agreed to vote their shares in favor of the election to the Board of
Directors of a nominee of TradeCo Global Securities, Inc. ("TradeCo"). See
"Certain Relationships and Related Transactions."
Benefits to Management, Creditors and Underwriters; Potential Conflict of
Interests
The successful completion of this offering will benefit certain Directors
and officers of the Company by enabling the Company to repay indebtedness to
Mr. Dooley and others which has been guaranteed by Mr. Haynes and Mr. Lloyd,
Directors of the Company, and to satisfy various other obligations of the
Company. See "Certain Relationships and Related Transactions." Additionally,
the Company will repay certain financing extended by lenders in connection with
the Acquisition, including a bridge loan from an affiliate of Cruttenden Roth
Incorporated. See "The Acquisition and Related Financing" and "Use of
Proceeds."
Dilution
Purchasers of Common Shares offered hereby will suffer an immediate and
substantial dilution in the net tangible book value per share from the public
offering price. To the extent outstanding options to purchase Common Shares are
exercised, there will be further dilution. See "Dilution."
Enforceability of Civil Liabilities
The Company is a corporation incorporated under the laws of the province
of British Columbia, Canada. A majority of the directors and controlling
persons of the Company, certain of its officers, and certain of the experts
named herein, are residents of Canada, and all or a substantial portion of
their assets and a smaller portion of the Company's assets are located outside
the United States. As a result, it may be difficult for investors to effect
service of process within the United States upon certain directors, controlling
persons, officers and experts who are not residents of the United States or to
realize in the United States upon judgments of courts of the United States
predicated upon the civil liability provisions of the federal securities laws
of the United States. There is doubt as to the enforceability in Canada against
the Company or against any of its respective directors, controlling persons,
officers or experts, who are not residents of the United States, in original
actions or in actions for enforcement of judgments of United States courts, of
liabilities predicated solely upon the civil liability provisions of the
federal securities laws of the United States.
17
<PAGE>
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS
AND ASSOCIATED RISKS
This prospectus contains certain forward-looking statements. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the products and
future economic performance of the Company. The forward-looking statements and
associated risks set forth in this prospectus include or relate to (i)
development of brand name recognition and loyalty to Antigua apparel, (ii)
increasing sales through the introduction to its existing network of
independent sales representatives of the additional outerwear and fleece
products, as well as other apparel products and designs, (iii) success of
additional marketing initiatives to be undertaken by the Company, (iv)
increased distribution through expansion of its network of independent sales
representatives and its customer base, (v) expansion of sales to corporate and
tournament customers through brand name recognition and capitalizing on
embroidery capacity, (vi) achievement of increases in per-account sales by
broadening the Company's product line, (vii) success of the Company in
forecasting demand for particular apparel styles and its success in
establishing production and delivery schedules and forecasts which accurately
anticipate and respond to market demand, (viii) success in increasing sales in
the corporate identity channel of distribution, and (ix) success of the Company
in achieving increases in net sales such that costs of goods sold and selling,
general and administrative expenses decrease as a percentage of net sales.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
continue to design, market, have manufactured, embroidered and ship new apparel
products on a timely basis, that competitive conditions within the lifestyle
apparel industry will not change materially or adversely, that demand for the
Company's lifestyle apparel will remain strong, that the market will accept the
Company's new lifestyle apparel lines, that the Company will retain existing
independent sales representatives and key management personnel and be able to
add independent sales representatives, that inventory risks due to shifts in
market demand will be minimized, that the Company's forecasts will accurately
anticipate market demand and that there will be no material adverse change in
the Company's operations or business. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. Although the Company believes that the assumptions
underlying the forward-looking statements, many of which are beyond the control
of the Company, are reasonable, any of the assumptions could prove inaccurate
and, therefore, there can be no assurance that the results contemplated in
forward-looking information will be realized. In addition, as disclosed
elsewhere under "Risk Factors," the business and operations of the Company are
subject to substantial risks which increase the uncertainty inherent in such
forward-looking statements. Any of the other factors disclosed under "Risk
Factors" could cause the Company's net sales or net income, or growth in net
sales or net income, to differ materially from prior results. Growth in
absolute amounts of cost of goods sold and selling, general and administrative
expenses or the occurrence of extraordinary events could cause actual results
to vary materially from the results contemplated by the forward-looking
statements. Budgeting and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based
on actual experience and business developments, the impact of which may cause
the Company to alter its marketing, capital expenditure or other budgets, which
may in turn affect the Company's results of operations. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
18
<PAGE>
THE ACQUISITION AND RELATED FINANCING
On May 7, 1997, the Company entered into an agreement (the "Agreement"),
through SEI, to purchase all of the outstanding shares of The Antigua Group,
Inc. ("AGI") from Thomas E. Dooley, Jr., direct and indirect holder of
approximately 82% of the shares of AGI, and from Mr. Dooley as agent for the
other shareholders of AGI, such that AGI became a wholly owned subsidiary of
the Company. At the closing of the transaction on June 16, 1997 (the
"Acquisition Closing Date"), the Company paid Mr. Dooley, personally and as
agent, cash in the amount of $12,636,482, convertible long-term promissory
notes in the total amount of $6,378,000, which notes the Company intends to
repay with proceeds of this offering (subject to Mr. Dooley's right to convert
such debt to equity, see "Description of Securities -- Convertible Note"), and
distributed assets, consisting primarily of forgiveness of a note payable to
the Company, to Mr. Dooley in the amount of $134,706. The Company also
contributed $2,112,000 in cash to AGI to allow AGI to pay certain promissory
notes due and payable to Mr. Dooley and his wife. As additional consideration,
the Company issued to Mr. Dooley, personally and as agent, 250,000 shares of
Series A Preferred, which are convertible into 50,000 Common Shares and a
five-year warrant to purchase 50,000 Common Shares at an escalating per share
exercise price, commencing at C$7.20 per share if exercised within twelve
months of May 1997 and rising in steps to C$12.10 per share if exercised within
the final twelve months of its term. Additionally, Mr. Dooley, as agent, was
issued an option to purchase 50,000 Common Shares at $5.00 per Common Share
and, in connection with a consulting agreement between himself and the Company,
received an option to acquire 10,000 Common Shares at $5.00 per Common Share
and will receive additional cash consideration in the Acquisition in an amount
currently estimated at $700,000 to be paid in four equal quarterly installments
beginning September 16, 1997, subject to prepayment upon the completion of a
securities offering by the Company with gross proceeds to the Company in excess
of $12,000,000. See "Use of Proceeds" and "Certain Relationships and Related
Transactions."
AGI has an existing $12,000,000 line of credit (the "Credit Facility")
from LaSalle Business Credit, Inc., against which, as of September 30, 1997,
AGI had drawn approximately $6.4 million and had outstanding letters of credit
of approximately $4.1 million in the aggregate. The Company also borrowed funds
from the following lenders to finance the acquisition of AGI: (i) LaSalle
Business Credit, $3,500,000 (the "LaSalle Acquisition Loan"); (ii) Imperial
Bank, $2,500,000 (the "Imperial Acquisition Loan"); and (iii) Cruttenden Roth
Bridge Fund, L.L.C., $1,020,000 (the "Cruttenden Bridge Acquisition Loan"). The
Company intends to repay $2,000,000 of the LaSalle Acquisition Loan and the
Cruttenden Bridge Acquisition Loan and to prepay the Imperial Acquisition Loan
with proceeds of this offering. See "Use of Proceeds." To obtain these loans,
the Company issued warrants to these lenders to purchase an aggregate of
2,479,598 Common Shares, subject to adjustment, at an aggregate exercise price
of approximately $12.4 million ($5.00 per Common Share).
In addition to bank and bridge financing for the Acquisition, cash
consideration paid to Mr. Dooley, personally and as agent for AGI's
shareholders, consisted in part of cash raised from a series of private
placements of equity and debt securities of the Company. See "Description of
Securities."
The Company issued 5,730,000 shares of Series A Preferred for aggregate
consideration received of C$7,385,500 in two transactions, one of which was not
funded and completed until after the Acquisition. The proceeds of the second
placement were used in part to pay costs incurred in the Acquisition. The
Series A Preferred is non-voting, has a fixed cumulative preferential cash
dividend at a rate of 12% per annum, is convertible for five years into Common
Shares (five Series A Preferred shares being convertible into one Common Share)
upon payment of a premium which escalates over the five-year period, may be
redeemed by the Company upon certain circumstances, is retractable at the
option of the holder (i.e., the holder holds a put option with respect to these
shares at a purchase price equal to the subscription price plus any accrued
dividends) upon completion of a public offering with proceeds to the Company in
excess of $8,000,000, restricts the payment of dividends on or redemption of
other classes of shares and restricts the creation of classes or series of
shares which would rank senior to or pari passu with the Series A Preferred.
The Company intends to retire a portion of the Series A Preferred with proceeds
of this offering. The Series A Preferred is coupled with detachable five-year
warrants to purchase Common Shares, which warrants entitle the Series A
Preferred holders to purchase 1,146,000 Common Shares in
19
<PAGE>
connection with the placement of the Series A Preferred. The warrants may be
exercised at an escalating per share exercise price, commencing at C$7.20 per
share if exercised within twelve months after issuance and rising in steps to
C$12.10 per share if exercised within the final twelve months of their
respective terms. Frank Cutler, one of the holders of shares of Series A
Preferred, has claimed that he is entitled to a reduction in the exercise price
of his warrants to $.01 per Common Share. See "Business -- Legal Proceedings."
The Company also issued units consisting of Common Shares and warrants to
purchase additional Common Shares in five private transactions. In the first of
such transactions, the Company issued 162,200 Common Shares and two-year
warrants to purchase a like number of Common Shares (of which 42,800 have been
exercised) at a price of C$6.25 per Common Share in the first year and C$7.50
in the second year. In a second transaction, the Company issued 210,000 Common
Shares and two-year warrants to purchase a like number of Common Shares at a
price of C$5.80 per Common Share in the first year and C$6.65 in the second
year. In a third transaction, the Company issued 180,144 Common Shares and
two-year warrants to purchase 90,072 shares at a price of C$6.75 per Common
Share in the first year and C$8.00 in the second year. In the fourth of such
transactions, the Company issued 151,778 Common Shares and two-year warrants to
purchase 75,889 shares at a price of C$4.50 per Common Share in the first year
and C$5.20 in the second year. In connection with the fourth private placement
the Company paid a finder's fee of 12,142 Common Shares to Eron Mortgage Corp.,
an entity of which Brian W. Slobogian, a former Director of the Company, is the
President. The fifth private placement consisted of an issuance by the Company
of 60,000 Common Shares and two-year warrants to purchase a like number of
shares at a price of C$5.35 per Common Share in the first year and C$6.15 in
the second year. The Company raised C$4,451,722 from these five private
placements.
Additionally, the Company issued two convertible debentures, one in the
amount of $1,791,048.45 (the "KOZ Debenture") to KOZ Capital Corp., a Cayman
Islands corporation ("KOZ Capital"), and one in the amount of C$4,200,000 (the
"Westcoast Debenture") to Westcoast Golf Promotions Ltd., a Canadian
corporation ("Westcoast"), of which Mr. Slobogian is an officer and director.
The KOZ Debenture bears interest at 12% per annum and is due in June 1998. The
KOZ Debenture (including interest) is convertible into 714,454 Common Shares
and two-year warrants to purchase an additional 714,454 Common Shares at a
price of C$4.00 per Common Share in the first year and C$4.60 in the second
year. As additional inducement to invest in the Company, the Company agreed to
issue to KOZ Capital 124,378 Common Shares as bonus shares. See "Certain
Relationships and Related Transactions." The Westcoast Debenture bears interest
at 15% per annum and matures in June 1998. The Westcoast Debenture (including
accrued but unpaid interest) is convertible into 1,144,500 Common Shares and
two-year warrants to purchase an additional 1,144,500 Common Shares at a price
of C$4.00 per Common Share in the first year and C$4.60 in the second year. In
connection with the Westcoast Debenture, the Company granted each of Mr. Lloyd
and Mr. Haynes, Directors of the Company, 88,500 Common Shares as a bonus for
their having guaranteed the Westcoast Debenture (see "Certain Relationships and
Related Transactions"), issued 177,000 Common Shares to Westcoast as an
inducement to invest in the Company and paid a finder's fee of C$315,000 to
Eron Mortgage Corp.
In connection with the Acquisition and related financings the Company has
issued Common Shares and warrants to purchase Common Shares as finders' fees,
in addition to the finders' fees described above. In connection with
identifying AGI as a potential acquisition candidate the Company issued 131,758
Common Shares to Sportswear Investors, LLC, a member of which, Gary McCauley,
is a director of AGI. In connection with the three bridge financings, the
Company issued 97,054 Common Shares as a finders' fee to an unaffiliated third
party. In connection with placing 4,730,000 shares of Series A Preferred, the
Company paid finders fees by issuing to an unaffiliated third party (i)
two-year warrants to purchase an aggregate of 118,627 Common Shares at an
exercise price of C$4.00 in the first year and C$4.60 in the second year and
(ii) 37,680 Common Shares and two-year warrants to purchase 160,000 Common
Shares at an exercise price of C$5.00 in the first year and C$5.75 in the
second year. TradeCo Global Securities, Inc. ("TradeCo"), of which Mr. Lewis, a
Director of the Company, is Chairman, has acquired the right to obtain from an
unaffiliated third party the 37,680 Common Shares and warrants to acquire
160,000
20
<PAGE>
Common Shares upon the expiration of relevant hold periods under VSE policies.
See "Certain Relationships and Related Transactions." In connection with
placing the second tranche (1,000,000 shares) of Series A Preferred the Company
issued 16,000 Common Shares to an unaffiliated third party. In connection with
placing 85,089 Common Shares as part of the third common equity private
placement described above the Company issued 6,537 Common Shares to an
unaffiliated third party. In connection with the fifth common equity private
placement described above the Company issued 3,653 Common Shares to an
unaffiliated third party. For finding KOZ Capital as an investor, the Company
issued two-year warrants to purchase 115,344 Common Shares at an exercise price
of C$4.00 in the first year and C$4.60 in the second year to an unaffiliated
third party.
S CORPORATION DISTRIBUTIONS
Prior to the Acquisition Closing Date, AGI had elected (beginning July 1,
1988) to be treated as an S Corporation under Subchapter S of the Internal
Revenue Code and comparable state tax laws. As a result, until the Acquisition
Closing Date the earnings of AGI were attributable for federal and certain
state income tax purposes to their existing shareholders rather than to AGI.
Distributions of approximately $300,000 and $725,000 were paid to AGI
shareholders in 1994 and 1997, respectively. These distributions were made to
provide funds to AGI shareholders with which to pay income taxes on the
earnings of AGI attributable to them. No such distributions were paid in 1995
and 1996, and tax related distributions paid to AGI shareholders were
discontinued as of the Acquisition Closing Date. See "Certain Relationships and
Related Transactions."
21
<PAGE>
USE OF PROCEEDS
The net proceeds (after deducting the estimated offering expenses,
including the underwriting discounts and commissions) to the Company from the
sale of 3,000,000 Common Shares offered by the Company are estimated to be
approximately $15,500,000. The Company will not receive any proceeds from the
sale of Common Shares by the Selling Shareholders.
Upon completion of this offering, the Company is required to repay
approximately $5.52 million in bridge loans incurred in connection with the
Acquisition, as follows: (i) $2,000,000 of the LaSalle Acquisition Loan,
currently bearing interest at 3% over the banks' prime rate with a final
maturity, in the absence of a public offering, of January 23, 2000; and (ii)
the $1,020,000 Cruttenden Bridge Acquisition Loan, currently bearing interest
at 13% with a final maturity, in the absence of a public offering, of May 7,
1998; and (iii) the $2.5 million Imperial Acquisition Loan, currently bearing
interest of 13% with a final maturity of May 7, 1998. The Company intends to
use up to $6.3 million of the net proceeds to retire notes outstanding to Mr.
Dooley as agent for the former shareholders of AGI incurred in the Acquisition,
subject to the creditor's right to convert this debt to equity. Mr. Dooley has
the right to convert this debt to equity following certain securities
offerings, and this right extends to a ten day period following the Company's
notice of its intent to repay such debt. See "Description of Securities --
Convertible Note." These notes currently bear interest at 8.25% and mature, in
the absence of a public offering, on May 7, 1999, with respect to $1.18
million, and on May 7, 2000, with respect to the balance. The Company intends
to use approximately $500,000 to pay the balance of the approximately $700,000
which remains owed to Mr. Dooley and which must be paid upon the completion of
a securities offering by the Company with gross proceeds to the Company in
excess of $12,000,000. The Company intends to use $100,000 to repay See/Q. See
"Business -- Legal Proceedings." The Company anticipates using approximately
$2.0 million of the net proceeds to retire a portion of the Series A Preferred,
which was issued to finance the Acquisition. However, the actual amount used
for such purpose will depend upon the number of shares of Series A Preferred
redeemed at the option of the holder. The Company intends to use remaining net
proceeds for working capital and for other general corporate purposes.
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this offering based on current planning and business
conditions. To the extent the Company is not contractually committed to making
payments upon the closing of this offering, the Company reserves the right to
change such uses when and if market conditions or unexpected changes in
operating conditions or results occur. The amounts actually expended for each
use may vary significantly depending upon a number of factors, including future
sales growth and the amount of cash generated by the Company's operations. Net
proceeds not immediately required for the purposes described above will be
invested principally in U.S. Government securities, short-term certificates of
deposit, money market funds or other short-term, interest-bearing securities.
22
<PAGE>
PRICE RANGE OF COMMON SHARES
The Company's Common Shares are traded on the Vancouver Stock Exchange
under the symbol "ANE" (previously, "SOH"), and the Company has applied to have
its Common Shares listed on the Nasdaq National Market under the proposed
symbol "ANTGF." The Company's Common Shares began trading on the VSE under the
SOH symbol on December 2, 1992 and under the symbol ANE after June 16, 1997.
The symbol was changed to ANE in connection with the Acquisition. The following
table sets forth the range of the high and low sale prices for the Company's
Common Shares for the periods indicated as reported by the VSE. The Company
acquired all of the issued and outstanding shares of AGI on June 16, 1997.
Therefore, prices for the Company's Common Shares prior to that time reflect
the business of Southhampton only. All prices have been adjusted to give effect
to the one-for-five reverse stock split effected on June 16, 1997 and have been
converted into United States dollars equivalents based on the Noon Buying Rate
then in effect. In connection with the closing of the Acquisition, trading of
the Common Shares on the VSE was halted after the close of that market on June
13, 1997 and reopened for trading on the VSE on September 3, 1997.
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1995:
First Quarter ............................. 3.4592 1.7649
Second Quarter ............................. 3.6229 1.5631
Third Quarter ............................. 2.7889 0.9186
Fourth Quarter ............................. 3.3388 1.1593
1996:
First Quarter ............................. 6.9674 1.6123
Second Quarter ............................. 9.1102 4.5861
Third Quarter ............................. 7.1293 4.1916
Fourth Quarter ............................. 6.7481 4.5055
1997:
First Quarter ............................. 5.7763 3.6502
Second Quarter ............................. 5.4210 3.3869
Third Quarter ............................. 5.9261 3.9560
Fourth Quarter ............................. 4.5578 3.4197
1998:
First Quarter (through January 15, 1998) .. 4.5932 3.8435
</TABLE>
The last reported sale price of the Common Shares on the VSE on January
15, 1998 was C$6.60 per share, or approximately $4.59 based on the Noon Buying
Rate on such date. As of December 31, 1997, the Company had 89 shareholders of
record. For a description of securities convertible into Common Shares and
which may be sold pursuant to Rule 144 under the Act, see "The Acquisition and
Related Financing," "Description of Securities" and "Shares Eligible for Future
Sale."
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Shares. The
Company anticipates that for the foreseeable future all earnings will be
retained for use in the Company's business and that no cash dividends will be
paid to shareholders. The Company is restricted by the terms of the Series A
Preferred from paying a dividend on the Common Shares, or on any other class of
shares which might be designated in the future, unless dividends on the Series
A Preferred are current. The terms of the Credit Facility prevent AGI from
paying dividends without the prior written consent of the lender. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- The Antigua Group, Inc. -- Liquidity and Capital Resources."
Prior to the Acquisition, AGI had elected to be treated as an S Corporation and
had paid distributions of approximately $300,000 and $725,000 to AGI
stockholders in 1994 and 1997, respectively, to provide funds to such
stockholders with which to pay income taxes on the earnings of AGI attributable
to them. See "The Acquisition and Related Financing," "Description of
Securities," "Certain Income Tax Considerations" and "Canadian Governmental
Regulation."
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, as adjusted to give effect to the sale of Common Shares
offered by the Company at the offering price of $6.00 per share (and after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company). The following additionally gives effect to
the one-for-five reverse stock split effected on June 13, 1997.
<TABLE>
<CAPTION>
September 30, 1997
(in thousands)
---------------------------
As adjusted
for this
Actual offering
------------ ------------
<S> <C> <C>
Short term debt:
Current portion of long-term debt ................................................ $ 753 $ 753
Revolving line of credit ......................................................... 6,380 6,380
Notes payable to bridge lenders ................................................ 4,158 --
Current portion of notes payable to sellers .................................... 288 --
Convertible debentures, net of discounts ....................................... 2,924 2,924
-------- ---------
$ 14,503 $ 10,057
======== =========
Due to directors and officers ................................................... $ 311 $ 311
-------- ---------
Long-term debt .................................................................. 1,510 1,510
-------- ---------
Notes payable to sellers ......................................................... 5,994 --
-------- ---------
Redeemable preferred stock, 30,000,000 shares authorized, 10,000,000 designated as
Convertible Preferred Shares Series A, 5,730,000 shares issued and outstanding,
3,730,000 issued and outstanding, as adjusted for this offering(1) ............... 4,461 2,906
-------- ---------
Common shares subject to repurchase, 60,240 shares outstanding .................. 301 301
Shareholders' equity:
Common Shares, without par value; 300,000,000 shares authorized, 4,278,125
shares issued and outstanding, and 7,278,125 issued and outstanding, as
adjusted for this offering(1)(2) ............................................. 7,437 22,935
Additional paid-in capital ...................................................... 5,984 5,984
Retained earnings ............................................................... (8,603) (12,374)
-------- ---------
Total shareholders' equity ...................................................... 4,818 16,545
-------- ---------
Total capitalization ......................................................... $ 17,395 $ 21,573
======== =========
</TABLE>
- ------------
(1) The figures of 4,278,125 and 7,278,125 Common Shares include 646,156
Common Shares for which the Company has received consideration and is
committed to issue but has not yet issued. Excludes 4,534,890 Common
Shares underlying warrants, 300,000 Common Shares underlying
Representatives' Warrants and 547,000 Common Shares underlying options to
employees and Directors. Also excludes 1,146,000 Common Shares into which
Series A Preferred ("Series A Preferred") may be converted upon payment of
a premium increasing over time, and 1,858,954 Common Shares and warrants
for an additional 1,858,954 Common Shares into which the convertible
debentures may be converted upon payment at specified exercise prices.
Additionally excludes 60,240 Common Shares subject to repurchase. See "The
Acquisition and Related Financing," "Use of Proceeds," "Management --
Executive Compensation," "Certain Relationships and Related Transactions,"
"Description of Securities," "Shares Eligible for Future Sale" and
"Underwriting."
24
<PAGE>
DILUTION
The net tangible book value of the Company at September 30, 1997 was
$(15,652,306), or $(3.66) per share. Without taking into account any changes in
net tangible book value subsequent to September 30, 1997, other than to give
effect to the sale of the 3,000,000 Common Shares offered by the Company at
$6.00 per share and after deduction of the estimated underwriting discount and
estimated offering expenses payable by the Company, the net tangible book value
of the Company's Common Shares at September 30, 1997 would have been $(154,056)
or $(.04) per share. This represents an immediate increase in net tangible book
value of $3.62 per share to existing shareholders and an immediate dilution in
net tangible book value of $6.04 per share to investors purchasing shares in
this offering. The following table illustrates the per share dilution at
September 30, 1997:
<TABLE>
<S> <C> <C>
Public offering price per Common Share ......... $ 6.00
-------
Net tangible book value per Common Share as
of September 30, 1997 ........................ $ (3.66)
-------
Increase in net tangible book value per share
attributable to this offering ............... 3.62
-------
Adjusted net tangible book value per Common Share
after this offering ........................... ( .04)
-------
Dilution per Common Share to new investors ...... $ 6.04
=======
</TABLE>
The following table sets forth, at September 30, 1997, the number of
Common Shares purchased from the Company, the total consideration paid and the
average price per share paid by the existing shareholders and to be paid by new
investors based upon the initial public offering price of $6.00 per share:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration
----------------------- -------------------------- Price Per
Number Percent Amount Percent Share
----------- --------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders ...... 4,338,365 59.1% $ 10,278,991 36.3% $2.37
New investors ............... 3,000,000 40.9% 18,000,000 63.7% $6.00
--------- ----- ------------ -----
Total ..................... 7,338,365 100.0% $ 28,278,991 100.0%
========= ===== ============ =====
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") are based on the financial statements of the
Company and The Antigua Group, Inc., which are included elsewhere in the
prospectus, adjusted to give pro forma effect to the Acquisition and this
offering (collectively, the "Transactions").
The Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1996 is derived from the audited statements of operations of
the Company and The Antigua Group, Inc. for the year ended December 31, 1996
and assumes the Transactions were consummated on January 1, 1996. The Unaudited
Pro Forma Consolidated Statement of Operations for the nine months ended
September 30, 1997 is derived from the unaudited financial statements of the
Company for the nine months ended September 30, 1997 and the unaudited
financial statements of The Antigua Group, Inc. for the period from January 1,
1997 to June 16, 1997 and assume the Transactions were consummated on January
1, 1996. The Unaudited Pro Forma Consolidated Balance Sheet as of September 30,
1997 is derived from the unaudited balance sheet of the Company as of September
30, 1997 and assumes the consummation of this offering on that date. The
Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical financial statements of the Company and The
Antigua Group, Inc. and the Notes thereto included elsewhere in this
prospectus.
The Unaudited Pro Forma Consolidated Financial Statements do not purport
to represent what the Company's results of operations or financial condition
would actually have been if the Transactions had occurred on the dates
indicated or to project the Company's results or financial condition for or at
any future period or date. The Unaudited Pro Forma Consolidated Financial
Statements are presented for comparative purposes only. The pro forma
adjustments, as described in the accompanying data, are based on available
information and certain assumptions that management believes are reasonable.
26
<PAGE>
Unaudited Pro Forma Consolidated Statements of Operations
For the Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Antigua
Enterprises Antigua
Inc. Group, Inc.
-------------------- ---------------
January 1, January 1,
1997 through 1997 through
September 30, 1997 June 16, 1997
-------------------- ---------------
<S> <C> <C>
Sales, net of returns .................. $ 15,768,654 $ 18,181,083
Cost of sales ........................ 10,273,602 11,736,650
------------ ------------
Gross profit ..................... 5,495,052 6,444,433
------------ ------------
Selling expenses ..................... 2,383,494 2,898,244
General and administrative
expenses .............................. 2,021,062 1,979,999
Amortization of licenses ............... 206,904 --
Expenses related to financings ......... 672,455 --
------------ ------------
5,283,915 4,878,243
------------ ------------
Income (loss) from
operations ........................ 211,137 1,566,190
------------ ------------
Other income (expenses)
Interest ........................... (3,565,858) (571,956)
Other .............................. 68,349 192,988
------------ ------------
(3,497,509) (378,968)
------------ ------------
Income (loss) before income taxes . (3,286,372) 1,187,222
Provision for income taxes ............ -- --
Net income (loss) .................. (3,286,372) 1,187,222
------------ ------------
Dividends on preferred stock ......... 240,283 --
------------ ------------
Net income (loss)
attributable common
shareholders ..................... $ (3,526,655) $ 1,187,222
============ ============
Earnings (loss) per share ............ $ (1.16) $ 0.57
============ ============
Weighted average common and
common equivalent shares
outstanding ........................... 3,041,603 2,074,600
============ ============
Pro Forma Amounts Assuming
Antigua Group, Inc. was a C
Corporation (m)
Income (loss) before income taxes . (3,286,372) 1,187,222
Provision for income taxes ............ -- 474,888
------------ ------------
Net income (loss) .................. (3,286,372) 712,334
Dividends on preferred stock ......... 240,283 --
------------ ------------
Net income (loss)
attributable common
shareholders ..................... $ (3,526,655) $ 712,334
============ ============
Earnings (loss) per share ............ $ (1.16) $ 0.34
============ ============
Weighted average common and
common equivalent shares
outstanding ........................... 3,041,603 2,074,600
============ ============
<CAPTION>
Pro Forma Pro Forma
Adjustments Adjustments
Related to Related to Pro Forma
Acquisition(a) Offering Consolidated
-------------- -------- ------------
<S> <C> <C> <C>
Sales, net of returns .................. $ -- $ -- $ 33,949,737
Cost of sales ........................ -- -- 22,010,252
------------- -------- ---------------
Gross profit ..................... -- -- 11,939,485
------------- -------- ---------------
Selling expenses ..................... -- -- 5,281,738
General and administrative
expenses .............................. (192,790) (b) -- 3,854,104
45,833 (b)
Amortization of licenses ............... 347,314 (c) -- 554,218
Expenses related to financings ......... -- -- 672,455
------------- -------- ---------------
200,357 -- 10,362,515
------------- -------- ---------------
Income (loss) from
operations ........................ (200,357) -- 1,576,970
------------- -------- ---------------
Other income (expenses)
Interest ........................... 431,095 (d) -- (2,967,289)
(469,500) (e)
489,104 (f)
631,826 (g)
88,000 (i)
Other .............................. -- -- 261,337
------------- -------- ---------------
1,170,525 -- (2,705,952)
------------- -------- ---------------
Income (loss) before income taxes . 970,168 -- (1,128,982)
Provision for income taxes ............ -- -- --
Net income (loss) .................. 970,168 -- (1,128,982)
------------- -------- ---------------
Dividends on preferred stock ......... 473,201 (q) -- 713,484
------------- -------- ---------------
Net income (loss)
attributable common
shareholders ..................... $ 496,967 $ -- $ (1,842,488)
============= ======== ===============
Earnings (loss) per share ............ $ (0.27)
===============
Weighted average common and
common equivalent shares
outstanding ........................... 6,854,232 (p)
===============
Pro Forma Amounts Assuming
Antigua Group, Inc. was a C
Corporation (m)
Income (loss) before income taxes . 970,168 -- (1,128,982)
Provision for income taxes ............ (474,888) (m) -- --
------------- -------- ---------------
Net income (loss) .................. 1,445,056 -- (1,128,982)
Dividends on preferred stock ......... 473,201 (q) -- 713,484
------------- -------- ---------------
Net income (loss)
attributable common
shareholders ..................... $ 971,855 $ -- $ (1,842,466)
============= ======== ===============
Earnings (loss) per share ............ $ (0.27)
===============
Weighted average common and
common equivalent shares
outstanding ........................... 6,854,232 (p)
===============
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
27
<PAGE>
Unaudited Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Antigua
Enterprises Antigua
Inc. Group, Inc.
---- -----------
<S> <C> <C>
Sales, net of returns ............... $ 2,857,962 $ 33,510,364
Cost of sales ........................ 2,263,000 22,490,634
----------- ------------
Gross profit ..................... 594,962 11,019,730
----------- ------------
Selling expenses ..................... 259,109 5,843,314
General and administrative
expenses ........................... 987,548 3,598,886
Amortization of licenses ............ -- --
----------- ------------
1,246,657 9,442,200
----------- ------------
Income (loss) from
operations ..................... (651,695) 1,577,530
----------- ------------
Other income (expenses)
Interest ........................ (160,864) (1,342,859)
Other ........................... 90,485 385,730
----------- ------------
(70,379) (957,129)
----------- ------------
Income (loss) before income taxes . (722,074) 620,401
Provision for income taxes ......... -- --
----------- ------------
Net income (loss) ............... (722,074) 620,401
Dividends on preferred stock ......... -- --
----------- ------------
Net income (loss)
attributable common
shareholders .................. $ (722,074) $ 620,401
=========== ============
Earnings (loss) per share ............ $ (0.34) $ 0.30
=========== ============
Weighted average common and
common equivalent shares
outstanding ........................ 2,118,056 2,074,600
=========== ============
Pro Forma Amounts Assuming
Antigua Group, Inc. was a C
Corporation (m)
Income (loss) before income taxes . (722,074) 620,401
Provision for income taxes ......... -- 248,160
----------- ------------
Net income (loss) ............... (722,074) 372,241
Dividends on preferred stock ......... -- --
----------- ------------
Net income (loss)
attributable common
shareholders .................. $ (722,074) $ 372,241
=========== ============
Earnings (loss) per share ............ $ (0.34) $ 0.18
=========== ============
Weighted average common and
common equivalent shares
outstanding ........................ 2,118,056 2,074,600
=========== ============
<CAPTION>
Pro Forma Pro Forma
Adjustments Adjustments
Related to Related to Pro Forma
Acquisition(a) Offering Consolidated
-------------- -------- ------------
<S> <C> <C> <C>
Sales, net of returns ............... $ -- $ -- $ 36,368,326
Cost of sales ........................ -- -- 24,753,634
---------- -------- ---------------
Gross profit ..................... -- -- 11,614,692
---------- -------- ---------------
Selling expenses ..................... -- -- 6,102,423
General and administrative
expenses ........................... (407,593) (b) -- 4,278,841
100,000 (b)
Amortization of licenses ............ 738,957 (c) -- 738,957
---------- -------- ---------------
431,384 -- 11,120,221
---------- -------- ---------------
Income (loss) from
operations ..................... (431,364) -- 494,471
---------- -------- ---------------
Other income (expenses)
Interest ........................ (3,190,502) (d) -- (9,604,862)
(1,026,185) (e)
(3,444,626) (f)
(631,826) (g)
192,000 (i)
Other ........................... -- -- 476,215
-------------- -------- ---------------
(8,101,139) -- (9,128,647)
-------------- -------- ---------------
Income (loss) before income taxes . (8,532,503) -- (8,634,176)
Provision for income taxes ......... -- -- --
-------------- -------- ---------------
Net income (loss) ............... (8,532,503) -- (8,634,176)
Dividends on preferred stock ......... 951,312 (q) -- 951,312
-------------- -------- ---------------
Net income (loss)
attributable common
shareholders .................. $ (9,483,815) $ -- $ (9,585,488)
============== ======== ===============
Earnings (loss) per share ............ $ (1.45)
===============
Weighted average common and
common equivalent shares
outstanding ........................ 6,611,700 (p)
===============
Pro Forma Amounts Assuming
Antigua Group, Inc. was a C
Corporation (m)
Income (loss) before income taxes . (8,532,503) -- (8,634,176)
Provision for income taxes ......... (248,160) (m) -- --
---------- -------- ---------------
Net income (loss) ............... (8,284,343) -- (8,634,176)
Dividends on preferred stock ......... 951,312 (q) -- 951,312
---------- -------- ---------------
Net income (loss)
attributable common
shareholders .................. $ (9,235,655) $ -- $ (9,585,488)
============== ======== ===============
Earnings (loss) per share ............ $ (1.45)
===============
Weighted average common and
common equivalent shares
outstanding ........................ 6,611,700 (p)
===============
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
28
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 1997
Assets
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Antigua Adjustments Adjustments
Enterprises Related to Related to Pro Forma
Inc. Acquisition(a) Offering Consolidated
---- -------------- -------- ------------
<S> <C> <C> <C> <C>
Current assets
Cash .............................. $ 223,470 $ -- $ 1,096,183 (n) $ 1,319,653
Accounts receivable -- net ......... 7,235,634 -- -- 7,235,634
Inventory ........................ 7,824,560 -- -- 7,824,560
Prepaid assets ..................... 148,536 -- -- 148,536
Deferred loan fees ............... 2,127,995 -- (608,694) (h) 164,506
(1,354,795) (i)
Deferred stock offering
expenses ........................ 247,579 -- (247,579) (o) --
------------ ---------- ------------- ------------
Total current assets ............... 17,807,774 -- (1,114,885) 16,692,889
Property and equipment net ............ 2,771,842 -- -- 2,771,842
Licenses -- net of amortization ...... 18,342,029 -- -- 18,342,029
Other assets ........................ 21,675 -- -- 21,675
------------ ---------- ------------- ------------
$ 38,943,320 $ -- $ (1,114,885) $ 37,828,435
============ ========== ============= ============
</TABLE>
Liabilities and Shareholders' Equity
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Antigua Adjustments Adjustments
Enterprises Related to Related to Pro Forma
Inc. Acquisition Offering Consolidated
---- ----------- -------- ------------
<S> <C> <C> <C> <C>
Current liabilities
Current portion of long term
debt .............................. $ 752,628 $ -- $ -- $ 752,628
Revolving credit line ............... 6,380,355 -- -- 6,380,355
Notes payable to bridge lenders,
net of discount ..................... 4,158,106 -- (5,520,000) (n) --
1,361,894 (l)
Current portion of notes payable
to sellers ........................ 287,800 -- (287,800) (n) --
Convertible debentures, net of
discount ........................... 2,923,723 -- -- 2,923,723
Accounts payable ..................... 1,981,856 -- (247,579) (o) 1,734,277
Accrued liabilities .................. 2,931,858 -- (600,000) (n) 2,331,858
Accrued loan fees due to officer
or director ........................ 2,131,826 -- -- 2,131,826
------------ --------- -------------- -------------
Total current liabilities ............ 21,548,152 -- (5,293,485) 16,254,667
Due to directors and officers ......... 310,881 -- -- 310,881
Long term debt ........................ 1,510,281 -- -- 1,510,281
Notes payable to seller ............... 5,994,267 -- (5,994,267) (n) --
Preferred stock, net of discount ...... 4,460,821 -- (2,000,000) (n) 2,906,147
445,326 (k)
Common stock subject to repurchase . 301,200 -- -- 301,200
Shareholders' equity --
Common stock ........................ 7,437,131 -- 15,498,250 (n) 22,935,381
Additional paid in capital ......... 5,983,556 -- -- 5,983,556
Retained earnings .................. (8,602,969) -- (608,694) (h) (12,373,678)
(1,361,894) (i)
(1,354,795) (l)
(445,326) (k)
--------------
Total shareholders' equity ......... 4,817,718 -- 11,727,541 16,545,259
------------ --------- -------------- -------------
$ 38,943,320 $ -- $ (1,114,885) $ 37,828,435
============ ========= ============== =============
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Statements
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) The pro forma consolidated financial statements reflect the AGI
acquisition, which was accounted for as a purchase. See "The Acquisition
and Related Financing." The purchase price and the estimated allocation of
such costs is as follows:
<TABLE>
<S> <C>
Purchase price components:
Cash paid to sellers ....................................... $12,636,482
Notes payable to sellers .................................... 6,378,000
Preferred stock issued to sellers ........................... 250,000
Assets of AGI distributed to the sellers ..................... 134,706
Amounts to be paid to the sellers ........................... 759,656
Transaction costs .......................................... 2,920,360
-----------
Total purchase price .......................................... 23,079,204
Book value per historical financial statements .................. 4,677,674
-----------
Excess of purchase price over net book value of assets acquired $18,401,530
===========
Allocated to:
Licenses (i) ................................................ $18,473,933
Inventory (ii) ............................................. (488,957)
Eliminate LIFO reserve (iii) ................................. 186,221
Accrued interest (iv) ....................................... 230,333
-----------
$18,401,530
===========
</TABLE>
(i) The excess purchase price has been allocated to the identified
intangible assets consisting of the license agreements with the major
league professional sports team organizations.
(ii) As part of the allocation process, inventory carrying value has been
reduced to net realizable value for those items the new management has
decided to liquidate rather than sell through normal close out
channels.
(iii) To eliminate the LIFO reserve as FIFO will be adopted.
(iv) To eliminate accrued interest that is no longer payable as the
principal on the debt has been paid in connection with the
acquisition. The note agreement provides for forgiveness of interest
if paid before December 31, 1997.
(b) To adjust payroll and employee benefits for the effects of the former owner
of AGI not being employed by the Company, and being retained as a
consultant, net of the additional costs of the new CEO.
(c) Reflects the amortization expense resulting from the allocation of the
excess purchase price of AGI to licenses. Licenses are amortized on a
straight line basis over 25 years.
(d) To adjust interest expense on the bridge loans made to complete the
acquisition as if they were made on January 1, 1996. The term of these
loans is either on or three years. The loan fees of $903,305 and loan
discounts of $1,942,000 are amortized over the term of the loans beginning
January 1, 1996. The historical charges in 1997 for amortization of loan
fees and loan discounts are reduced to the extent they are amortized in
1996.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Interest expense ..................... $ 687,600 $ 307,974
Amortization of loan fees ............ 809,557 (257,471)
Amortization of loan discounts ...... 1,693,345 (481,598)
---------- ----------
$3,190,502 $ (431,095)
========== ==========
</TABLE>
30
<PAGE>
(e) To adjust interest expense on the seller notes made to complete the
acquisition as if they were made on January 1, 1996. The term of these
loans is two or three years. Loan fees of $1,500,000 are the amounts paid
to related parties for their guarantee of the payment of the principal and
interest. These fees are amortized over the term of the loans, beginning
January 1, 1996.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Interest expense ............... $ 526,185 $239,706
Amortization of loan fees ...... 500,000 229,794
---------- --------
$1,026,185 $469,500
========== ========
</TABLE>
(f) To adjust interest expense on the convertible debentures issued to complete
the acquisition as if they were issued on January 1, 1996. The term of
these debentures is twelve or fifteen months. Discounts of $2,271,372 are
amounts incurred in connection with the placement of the debentures. These
discounts are amortized over the twelve month term beginning January 1,
1996. The historical charges in 1997 for amortization of loan fees are
reduced to the extent they are amortized in 1996.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Interest expense ..................... $ 723,254 $ 334,301
Amortization of loan discounts ...... 2,721,372 (823,405)
---------- ----------
$3,444,626 $ (489,104)
========== ==========
</TABLE>
(g) To adjust interest expense on short-term loans made in connection with the
acquisition as if they were made on January 1, 1996.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Interest expense ...... $631,826 (631,826)
======== ========
</TABLE>
(h) Reflects the elimination of unamortized deferred loan fees of $608,694 on
the bridge debt, as a result of the pay off of the related debt with
offering proceeds.
(i) Reflects the elimination of unamortized discounts of $1,361,894 on the
bridge debt, as a result of the pay off of the related debt with offering
proceeds.
(j) Reflects the elimination of unamortized deferred loan fees of $1,354,795 on
the seller notes, as a result of the pay off of the related debt with
offering proceeds.
(k) Reflects the elimination of unamortized discounts of $445,326 on the
preferred stock which is redeemed with the proceeds of the offering. The
holders of these preferred shares have notified the Company of their
intention to exercise their right of redemption.
(l) Reflects elimination of interest expense incurred on the notes to the
majority stockholder as these notes were paid off in connection with the
acquisition.
(m) No provision for income taxes has been made for AGI on the historical
statements, since AGI elected S Corporation status. Pro forma amounts are
presented at a 40% tax rate assuming AGI was a C Corporation. The resulting
tax provision is offset by a pro forma adjustment, since there is a pro
forma consolidated loss.
31
<PAGE>
(n) The adjustment reflects the estimate of the net proceeds and use of
proceeds of this offering. See "Use of Proceeds".
<TABLE>
<S> <C> <C> <C>
Proceeds of this offering ...... $ 18,000,000
Expenses of the offering ......... (2,501,750) $15,498,250
------------
Use of proceeds --
To pay off bridge loans ......... 5,520,000
To pay off seller notes --
Current portion ............. 287,800
Long-term portion .......... 5,994,267 6,282,067
---------
To redeem preferred stock . 2,000,000
To pay off profits bonus to seller
and accrued liabilities .. 600,000 14,402,067
------------ -----------
Net cash received .......... $ 1,096,183
===========
</TABLE>
(o) Reflects the elimination of deferred stock offering expenses and related
accounts payable.
(p) Weighted average shares outstanding reflects the 3,000,000 shares to be
issued in this offering. Common stock equivalents are excluded as their
inclusion is non dilutive.
(q) Adjusts dividends on the preferred shares as if they were outstanding as of
January 1, 1996.
32
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of AGI as of and for the years ended December
31, 1992, 1993, 1994, 1995 and 1996 are derived from the Financial Statements
of AGI, which have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data of AEI as of and for the years ended
December 31, 1993, 1994 and 1995 are derived from the Financial Statements of
AEI, which have been audited by BDO Dunwoody, chartered accountants. The
selected financial data of AEI as of and for the year ended December 31, 1992
are derived from the Financial Statements of AEI, which have been audited by
Loewen Stronach & Co., Chartered Accountants. The selected financial data of
AEI as of and for the year ended December 31, 1996 are derived from the
Financial Statements of AEI, which have been audited by Arthur Andersen LLP,
independent public accountants. The financial data should be read in
conjunction with the Financial Statements and the Notes thereto appearing
elsewhere in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected financial data as
of and for the three months ended March 31 and nine months ended September 30,
1996 and 1997 have been derived from the unaudited financial statements of AGI
and AEI, which, in the opinion of management, have been prepared on a basis
consistent with the audited information and include all adjustments, consisting
of only normal recurring adjustments, necessary to present fairly the
information set forth therein. Results of operations for the three months ended
March 31 and nine months ended September 30, 1996 and 1997 may not necessarily
be indicative of the results to be expected for the entire year or any other
period. The Financial Statements are denominated in United States dollars.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Statement of Operations Data -- AEI: (in thousands)
<S> <C> <C> <C> <C> <C>
Net sales ................................. $ 131 $ 404 $ 1,793 $ 1,843 $ 2,858
Cost of sales ........................... 153 331 1,669 1,699 2,263
------- ------ ------- -------- -------
Gross profit ........................... (22) 73 124 144 595
Selling expenses ........................ 50 67 163 250 259
General and administrative expenses ...... 317 622 789 962 988
Amortization of licenses .................. -- -- -- -- --
Expenses related to financings ............ -- -- -- -- --
------- ------ ------- -------- -------
Income (loss) from operations ......... (389) (616) (828) (1,068) (652)
Interest expense ........................ -- (26) (41) (86) (161)
Other income (expense) .................. 6 (3) (43) 61 91
------- --------- ------- -------- -------
Net income (loss) ..................... $ (383) $ (645) $ (912) $ (1,093) $ (722)
======= ======== ======= ======== =======
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1997
---- ----
(unaudited)
Statement of Operations Data -- AEI:
<S> <C> <C>
Net sales ................................. $ 1,970 $ 15,769
Cost of sales ........................... 1,533 10,274
------- --------
Gross profit ........................... 437 5,495
Selling expenses ........................ 98 2,384
General and administrative expenses ...... 629 2,021
Amortization of licenses .................. -- 207
Expenses related to financings ............ -- 672
------- --------
Income (loss) from operations ......... (290) 211
Interest expense ........................ (82) (3,566)
Other income (expense) .................. -- 68
------- --------
Net income (loss) ..................... $ (372) $ (3,287)
======= ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
---------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(unaudited)
Statement of Operations Data -- AGI: (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ........................... $ 31,279 $ 32,019 $ 31,794 $ 31,403 $ 33,510 $ 6,455 $ 9,219
Cost of sales ........................ 21,072 21,565 25,504 20,826 22,491 4,582 5,951
-------- -------- --------- -------- -------- ------- -------
Gross profit ..................... 10,207 10,454 6,290 10,577 11,019 1,873 3,268
Selling expenses ..................... 5,741 6,071 6,424 5,688 5,843 1,114 1,433
General and administrative expenses 2,300 2,728 3,505 3,138 3,599 955 1,032
-------- -------- --------- -------- -------- ------- -------
Income (loss) from operations ... 2,166 1,655 (3,639) 1,751 1,577 (196) 803
Interest expense ..................... (587) (824) (1,037) (1,445) (1,343) (332) (297)
Other income (expense) ............... 203 361 348 434 386 58 44
-------- -------- --------- -------- -------- ------- -------
Income (loss) before
extraordinary item ............ 1,782 1,192 (4,328) 740 620 (470) 550
Extraordinary item --
debt extinguishment ............... -- -- -- -- -- -- (354)
-------- -------- --------- -------- -------- ------- -------
Net income (loss)(1) ............... $ 1,782 $ 1,192 $ (4,328) $ 740 $ 620 $ (470) $ 196
======== ======== ========= ======== ======== ======= =======
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
1996 1997
---- ----
(unaudited)
Statement of Operations Data --
Company Pro Forma(2): (in thousands)
<S> <C> <C>
Net sales .............................. $ 36,368 $ 33,950
Cost of sales ........................... 24,753 22,010
--------- --------
Gross profit ........................ 11,615 11,940
Selling expenses ........................ 6,103 5,282
General and administrative expenses ... 4,279 3,854
Amortization of licenses ............... 739 554
Expenses related to financings ......... -- 673
--------- --------
Income from operations ............... 494 1,577
Interest expense ........................ (9,605) (2,967)
Other income (expense) .................. 476 261
--------- --------
Income (loss) before income taxes ... (8,634) (1,129)
Provision for income taxes ............ -- --
--------- --------
Net income (loss) .................. $ (8,634) $ (1,129)
========= ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------- September 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
(unaudited)
Balance Sheet Data: AEI (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ..................... $ -- 144 $ 90 $ 2 $ 666 $ 223
Working capital (deficit) ..................... (234) (52) (131) (608) (918) (3,740)
Total assets .................................... 608 621 909 465 2,908 38,943
Short term debt ................................. 81 50 128 200 1,432 14,503
Long term debt, excluding preferred stock ...... -- 314 432 136 49 7,815
Preferred stock ................................. -- -- -- -- -- 4,461
Shareholders' equity ........................... 51 (138) (637) (1,439) (1,069) 4,818
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------- March 31,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
(unaudited)
Balance Sheet Data: AGI (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ... $ 318 $ 120 $ 120 $ 17 $ 94 $ 131
Working capital ............ 5,236 10,955 786 4,732 4,797 5,450
Total assets ............... 19,070 21,599 17,992 18,258 15,753 16,469
Short term debt ............ 7,987 4,856 10,658 7,756 5,946 6,358
Long term debt ............ 1,130 7,681 1,645 3,374 2,465 2,940
Shareholders' equity ...... 7,056 7,024 2,395 4,135 4,756 4,952
</TABLE>
<TABLE>
<CAPTION>
September 30,
1997
----
(unaudited)
(in thousands)
<S> <C>
Balance Sheet Data -- Company Pro Forma(2):
Cash and cash equivalents .................................... $ 1,320
Working capital ............................................. 438
Total assets ................................................ 37,828
Short term debt ............................................. 10,057
Long term debt ................................................ 1,821
Preferred stock and common shares subject to repurchase ...... 3,207
Shareholders' equity .......................................... 16,545
</TABLE>
- ------------
(1) Net income (loss) of The Antigua Group, Inc. ("AGI") does not include any
provision for income tax because AGI operated as an S Corporation prior to
the Acquisition.
(2) On a pro forma basis, as adjusted to give effect to the application of the
net proceeds of this offering in the manner described in "Use of Proceeds."
See "Unaudited Pro Forma Consolidated Financial Statements."
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information includes forward-looking statements, the
realization of which may be impacted by certain important factors discussed
under "Important Factors Related to Forward-Looking Statements and Associated
Risks."
Through a series of strategic acquisitions and divestitures, the Company
has shifted from its origins of manufacturing molded and printed plastic
products to designing, screen printing or embroidering, and marketing a full
line of men's and women's sportswear and lifestyle apparel and accessories. The
Company entered the apparel business in 1993 with the acquisition of a screen
printing company. The Company began selling both (i) screen printing services
on apparel provided by customers and (ii) apparel purchased and printed by the
Company. Beginning in 1994, the Company expanded its apparel operations by
providing personalized, printed fleece products for a national retailer's
catalog business. When the retailer discontinued this catalog category in 1995,
the Company leveraged its experience to sell screen printing services and
apparel to other corporate customers. The Company also acquired an embroidering
machine in 1995 to sell embroidery-embellished apparel without subcontracting.
The Company further expanded its customer base with the January 1996
acquisition of the assets of CHL Services, a broker of customized sportswear
and lifestyle apparel and plastic sports accessories for Canadian Junior Hockey
and corporate customers. In June 1997, the Company dramatically expanded its
embroidered apparel business with the acquisition of AGI, which is the
subsidiary through which the Company currently conducts its primary operations.
The following discussion and analysis of financial condition and results
of operations of AGI and AEI should be read in conjunction with their
respective Financial Statements, including the related notes thereto, appearing
elsewhere herein.
ANTIGUA ENTERPRISES INC.
AEI became the corporate parent of AGI on June 16, 1997. Results from AGI
after that date are included in AEI's consolidated financial statements. At the
time of the acquisition, AEI derived most of its revenue from the service of
creating and applying printed and embroidered designs on apparel through its
CHL Services division and SEI subsidiary. AEI sells its services primarily
through its internal sales force. Approximately 25% of AEI's 1996 sales were
through contracts by which AEI added designs to apparel provided by customers,
with the remaining 75% from full-content orders for which AEI sold both the
apparel and the design embellishment to customers. Because AEI typically
purchases any blank apparel needed after an order is placed and fills orders in
approximately two weeks, it operates with little inventory or backlog. When
necessary to meet its production cycle commitments to customers, AEI
subcontracts certain design, embroidery or printing operations. If AEI cannot
purchase sufficient blanks to fulfill an order, it will cancel the remaining
portion of the order and request the customer to re-order the balance in the
future. In late 1996, AEI began warehousing finished inventory to provide
order-fulfillment services for customers who offer apparel to employees as
uniforms or through customized catalogs.
AEI recognizes revenue from the sale of a product at the time it is
shipped to the customer. Orders placed with AEI are cancelable until the
product is altered with printing or embroidery. AEI's warehoused finished goods
for its order-fulfillment programs must be purchased by the customer annually
or at the termination of a warehousing agreement. AEI's net sales consist of
gross revenues less returns, early payment discounts and adjustments for
customer discrepancy claims. Cost of goods sold includes the purchase cost of
blank material, embroidery and screen printing supplies and services, direct
labor, costs of subcontracted operations, and product shipping and handling
expenses. AEI's selling expenses consist of sales force commissions, royalties
and marketing. General and administrative expenses primarily consist of
management and administrative staff expenses, depreciation and amortization and
bad debt expense.
35
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain
historical financial data for AEI as a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales ................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................... 116.8% 81.9% 93.1% 92.2% 79.2%
------ ------ ----- ----- -----
Gross profit .............................. ( 16.8%) 18.1% 6.9% 7.8% 20.8%
Selling expenses ........................ 38.1% 16.6% 9.1% 13.5% 9.1%
General and administrative expenses ...... 242.1% 154.0% 44.0% 52.2% 34.6%
Amortization of licenses .................. -- -- -- -- --
Expenses related to financings ............ -- -- -- -- --
------ ------ ----- ----- -----
Income (loss) from operations ............ (297.0%) (152.5%) (46.2%) (57.9%) (22.8%)
Interest expense ........................ -- 6.4% 2.3% 4.7% 5.6%
Other income (expense) .................. 4.6% ( 0.7%) ( 2.4%) 3.3% 3.2%
------ ------ ----- ----- -----
Net Income (loss) ........................ (292.4%) (159.6%) (50.9%) (59.3%) (25.3%)
====== ====== ===== ===== =====
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1996 1997
---- ----
Statement of Operations Data:
<S> <C> <C>
Net sales ................................. 100.0% 100.0%
Cost of sales ........................... 77.8% 65.2%
----- -----
Gross profit .............................. 22.2% 34.8%
Selling expenses ........................ 5.0% 15.1%
General and administrative expenses ...... 31.9% 12.8%
Amortization of licenses .................. -- 1.3%
Expenses related to financings ............ -- 4.3%
----- -----
Income (loss) from operations ............ (14.7%) 1.3%
Interest expense ........................ 4.2% 22.6%
Other income (expense) .................. -- .4%
----- -----
Net Income (loss) ........................ (18.9%) (20.8%)
===== =====
</TABLE>
Comparison of the Nine Months Ended September 30, 1996 and 1997
Net Sales. Net sales for the nine months ended September 30, 1997 were
$15.8 million, an increase of $13.8 million, or 690%, from $2.0 million in the
same nine months in 1996. Included in the 1997 figure is approximately $14.1
million of post-acquisition sales by AGI. This increase in sales was offset by
a decrease in sales by CHL Services as AEI discontinued unprofitable products,
primarily brokered hockey uniforms and pucks. However, sales by SEI increased
as it expanded its customer base, including new customers attracted by the
inventory SEI could purchase from AGI.
Gross Profit. AEI's gross profit for the nine months ended September 30,
1997 was $5.5 million, an increase of $5.1 million or 1,157%, from $437,497 in
the same nine months in 1996. Gross profit as a percentage of net sales
increased 57%, from 22.2% in the first nine months of 1996 to 34.8% in the same
period in 1997. This increase in gross profit is due to higher margins on sales
by AGI, and lower cost of materials as CHL Services discontinued certain
brokered products and obtained screen printing services from SEI rather than
independent contractors. AEI's direct labor costs increased in 1997, but the
costs were spread over a greater sales volume.
Selling Expenses. Selling expenses for the nine months ended September 30,
1997 were $2.4 million, an increase of $2.3 million, or 2,339%, from $97,710 in
the same nine months in 1996. Selling expenses as a percent of net sales
increased 202%, from 5.0% in the first nine months of 1996 to 15.1% in the same
period in 1997. This increase was due to the inclusion of AGI's selling
expenses and a shift toward a greater percentage of commissioned sales in AEI's
other businesses.
General and Administrative Expenses. General and administrative expenses
for the nine months ended September 30, 1997 were $2.0 million or 12.8% of net
sales, an increase of $1.4 million, or 221%, from $629,505 or 31.9% of net
sales in the same nine months in 1996. The increase was the result of the
inclusion of general and administrative expenses of AGI following the
Acquisition. The increase was offset by the need for only one audit for AEI in
1997. A second audit occurred in 1996 because the annual shareholders meeting
was held late in the year, and VSE rules require a second audit for
shareholders to receive audited financial statements dated within the specified
period. General and administrative expenses as a percentage of net sales
decreased 59.9%. This decrease was primarily because of the need for only one
audit in 1997 and the lower rate of expenses incurred by AGI.
Income from Operations. Income (loss) from operations for the nine months
ended September 30, 1997 was $211,137 or 1.3% of net sales, an increase of
$500,855, or 173%, from $(289,718) or (14.7%) of net sales in the same nine
months in 1996. This increase was primarily due to the inclusion of income from
AGI and expenses related to financings.
36
<PAGE>
Interest Expense. Interest expense for the nine months ended September 30,
1997 was $3.6 million or 22.6% of net sales, an increase of $3.5 million, or
4,245%, from $82,438 or 4.2% of net sales in the same nine months in 1996. This
increase was due to interest on debt incurred to finance the Acquisition, the
inclusion of interest expense of AGI and interest on working capital advances
from officers and employees required to supplement unprofitable operations. See
"Certain Relationships and Related Transactions."
Comparison of Years Ended December 31, 1995 and 1996
Net Sales. Net sales for 1996 were $2.9 million, an increase of $1.1
million, or 61.1%, from $1.8 million in 1995. This increase was primarily
attributable to the acquisition of CHL Services in January 1996, by which AEI
expanded the customer base for its apparel operations and augmented CHL's
product offerings with SEI's printing and embroidering services. The increase
also was due to expanded customer base of AEI's previously existing business
and an increase in the amount of product purchased per customer.
Gross Profit. Gross profit in 1996 was $594,962 or 20.8% of net sales, an
increase of $450,881, or 313%, from $144,081 or 7.8% of net sales in 1995. This
increase was due to AEI's ability to negotiate higher margins on its apparel
business as its reputation and customer base grew, spreading fixed costs over
higher sales volume and an increase of the sales price of AEI's products. The
increase also is attributable to improved quality control and production
efficiency. AEI significantly reduced the incidence of defective products as it
discontinued a club sports uniform program experiencing high returns. AEI
reduced its product defect rate in 1996 by improving procedures for
communicating customer design concepts to manufacturing personnel.
Selling Expenses. Selling expenses for 1996 were $259,109, an increase of
$9,675, or 3.9%, from $249,434 in 1995. Selling expenses as a percentage of net
sales decreased 32.6%, from 13.5% of net sales in 1995 to 9.1% of net sales in
1996. In 1995, AEI incurred significant selling expenses associated with hiring
and training a professional sales force. These expenses decreased in 1996
because AEI terminated unproductive sales personnel, and existing personnel
increased their productivity as they began to develop repeat customers. AEI
also changed the compensation structure for the remaining sales force from
salary to commission.
General and Administrative Expenses. General and administrative expenses
in 1996 were $987,548, an increase of $25,220, or 2.6%, from $962,328 in 1995.
General and administrative expenses as a percentage of net sales decreased
33.7%, from 52.2% in 1995 to 34.6% in 1996. This decrease was due to a
reduction in administrative personnel offset by the addition of expenses
incurred by the acquisition of CHL Services and the need for a second audit.
Bad debt expense also decreased due to an increase in orders from customers
with more reliable payment patterns and the termination of the club sports
uniform program which had unfavorable bad debt experience.
Interest Expense. Interest expense was $160,864 or 5.6% of net sales in
1996, an increase of $75,011, or 87.4%, from $85,853 or 4.7% of net sales in
1995. This increase was due to the incidence and servicing of debt incurred to
finance continued operations and the increased cost of factoring receivables.
AEI discontinued factoring in May 1996.
Comparison of Years Ended December 31, 1994 and 1995
Net Sales. Net sales for 1995 were $1.8 million, an increase of $50,085,
or 2.8%, from 1994. This increase was due to larger volume of units sold offset
by the discontinuance of AEI's customized fleece printing program with a
national retailer.
Gross Profit. Gross profit in 1995 was $144,081, an increase of $20,309,
or 16.4%, from $123,772 in 1994. Gross profit as a percentage of sales
increased 13.0%, from 6.9% in 1994 to 7.8% in 1995. This increase was due to a
shift toward more profitable full-content apparel orders and the termination of
most molded plastic product lines. AEI's manufacturing personnel turnover also
decreased in 1995. These margin increases were offset by a one-time expense of
approximately $200,000 resulting from the termination of patented plastic
product inventory.
37
<PAGE>
Selling Expenses. Selling expenses in 1995 were $249,434, an increase of
$86,765, or 53.3%, from $162,669 in 1994. Selling expenses as a percentage of
net sales increased 48.4%, from 9.1% in 1994 to 13.5% in 1995. This increase
was due to expenses associated with hiring and training a professional sales
force.
General and Administrative Expenses. General and administrative expenses
in 1995 were $962,328, an increase of $173,333, or 22.0%, from $788,995 in
1994. General and administrative expenses as a percentage of net sales
increased 18.6%, from 44.0% in 1994 to 52.2% in 1995. This increase was due to
bad debt resulting from uncollectible receivables associated with unproductive
sales people and a new club sports uniform program offered through a membership
warehouse. AEI also incurred high liability insurance premiums for a skate
board product sold in 1995 and made more extensive use of a temporary service
to provide accounting staff during that year.
Interest Expense. Interest expense in 1995 was $85,853 or 4.7% of net
sales, an increase of $44,663, or 108%, from $41,190 or 2.3% of net sales in
1994. This increase was due to the incidence and servicing of debt incurred to
finance continued operations.
Liquidity and Capital Resources
AEI's capital needs have fluctuated throughout its history with the
requirements of the businesses operated at the time. AEI has historically
financed its operations through private equity sales to and advances from AEI's
principals and investors. Such funds have been supplemented by proceeds from
factoring receivables through May 1996. This capital was sufficient to operate
AEI's business until 1996 when the Company began private equity placements in
connection with the Acquisition. AEI used significant debt to finance the
Acquisition. This debt is carried on the financial statements of AGI because
the lenders require payment primarily from AGI. See "Management's Discussion
and Analysis of
Financial Condition and Results of Operation -- The Antigua Group, Inc. --
Liquidity and Capital Resources" below. For a description of governmental
economic fiscal, monetary, or potential policies or factors that could
materially affect, directly or indirectly, the operations of the Company or an
investment by United States nationals in the Company, see "Certain Income Tax
Considertions -- Certain Canadian Federal Income Tax Considerations" and
"Canadian Governmental Regulation."
Net cash used in operations was $628,639, $699,373, $746,389 and $,682,382
in 1994, 1995, 1996 and the first nine months of 1997, respectively. The cash
use is primarily attributable to unprofitable operations. AEI also expended
significant cash to accumulate funds for the Acquisition. AEI's payables
increased in 1996 with the acquisition of CHL Services.
AEI intends to rely on inventory and receivables financing to satisfy its
working capital requirements for at least the next twelve months. AEI believes
that it will continue to experience increased receivables and inventory as it
generates larger corporate customers who demand longer payment terms and as it
continues to shift its product mix toward higher-margin order-fulfillment
programs. There can be no assurance, however, that AEI will not require
additional capital in the future, particularly for replacement of equipment and
acquisition of new equipment to support anticipated growth. The terms of the
financing for the Acquisition prohibit use of funds from AGI to support AEI's
other operations. Therefore, if AEI were required to obtain additional
financing in the future, there can be no assurance that such sources of capital
will be available on terms favorable to the Company, if at all. See "Risk
Factors -- Limited Capital Resources; Leverage; Events of Default" and "Risk
Factors -- Limitations on Distributions from AGI to AEI."
AEI has incurred significant expenditures to comply with the reporting and
listing requirements associated with maintaining a public market for its Common
Shares on the VSE. AEI expects that these expenditures will increase as it
seeks to comply with the requirements to maintain a public market for its
shares in the United States. However, because these expenses will be supported
by significantly more revenues due to the Acquisition, their relative impact
may not be as significant in the future.
The terms of the Acquisition require that AEI pay AGI's former principal
shareholder the equivalent of all AGI profits earned from April 1, 1997 until
June 16, 1997. AEI has accounted for this obligation as an accrued liability.
See "The Acquisition and Related Financing." This approximately $700,000
obligation is to be paid quarterly, and the first payment was due on September
16, 1997. AEI was unable to
38
<PAGE>
make the entire payment at that time but such obligation has since been paid in
full. With the permission of its line of credit lender, AGI made the required
December 16, 1997 payment to Mr. Dooley late. The terms of the Acquisition
accelerate payment of any amount remaining on the approximate $700,000
obligation to Mr. Dooley upon certain securities offerings of the Company, and
the Company anticipates satisfying such obligation from the net proceeds of this
offering. The terms of AGI's borrowing agreements do not permit AGI to make
payments to AEI to satisfy this obligation to Mr. Dooley. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- The
Antigua Group, Inc. -- Liquidity and Capital Resources." If the Company were
unable to meet this obligation to Mr. Dooley with net proceeds of this offering,
the Company would need additional financing to satisfy the obligation, and there
can be no assurance that such financing would be available, or, if available,
that such financing would be on terms favorable to the Company.
Additional obligations associated with AEI's operations include: (i) a
note payable to Texas Commerce Bank with a principal balance of $8,000 as of
September 30, 1997 bearing interest at 10% per year; (ii) a $2,000 monthly
payment to the State of Texas continuing until March 1998 representing
delinquent sales taxes and penalties incurred as the result of AEI's
acquisition of Promo, Inc. in 1993; (iii) a note to a Director with a principal
and accrued interest balance of $136,130 as of September 30, 1997, due on
demand, bearing interest at 7% per year; and (iv) an aggregate of $174,751 in
10% interest notes due on demand after June 1998 by Directors or shareholders.
Additionally, AEI has approximately $3,500 in monthly commitments under
existing capital equipment leases. AEI has defaulted on payment of an
approximately $100,000 obligation to Sea/Q of America, Inc. ("Sea/Q"). Sea/Q
commenced suit to recover this amount but has agreed not to pursue this claim
until after February 15, 1998, in consideration for the Company having caused
the transfer of warrants to Sea/Q. See "Business -- Legal Proceedings." The
Company anticipates satisfying the obligation to Sea/Q from proceeds of this
offering. See "Use of Proceeds." The terms of AGI's borrowing agreements do not
permit AGI to make payments to AEI to satisfy this obligation. If the Company
were unable to meet the obligation to Sea/Q with net proceeds of this offering,
the Company would need additional financing to satisfy the obligation, and
there can be no assurance that such financing would be available, or, if
available, that such financing would be on terms favorable to the Company. The
Company's principal financing agreements contain cross default provisions, and
nonpayment of the obligation to Sea/Q, or the institution of proceedings by
Sea/Q, or both, created a primary default under at least one of its principal
financing agreements and may have created cross defaults under other principal
financing agreements. Waivers from lenders with respect to the event, or
events, of default have been obtained. AGI previously sought and obtained
waivers from two lenders in connection with financial reporting requirements
and capital expenditure limits. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- The Antigua Group, Inc. --
Liquidity and Capital Resources."
39
<PAGE>
Quarterly Results and Seasonality
The following table presents certain unaudited consolidated financial
information for fiscal 1995, 1996 and applicable quarters of fiscal 1997. In
the opinion of the Company, this information has been prepared on the same
basis as the audited consolidated financial statements appearing elsewhere in
this prospectus and includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the unaudited quarterly
results set forth herein. Operating results for any quarter are not necessarily
indicative of results for any future period or for a full fiscal year. See
"Important Factors Related to Forward-Looking Statements and Associated Risks."
AEI
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------------------------------------------------------
1995 1996
---------------------------------------------- ----------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- ------- ------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .................. $ 546 $ 673 $ 313 $ 311 $ 520 $ 737 $ 714 $ 887
Cost of goods sold ......... 455 424 334 486 421 634 478 730
------- ----- ------- ------- ------- ------- ----- -------
Gross profit ............... 91 249 (21) (175) 99 103 236 157
Selling, general and
administrative expense ... 321 186 383 322 214 338 175 519
Amortization of licenses ... -- -- -- -- -- -- -- --
Expenses related to
financings ............... -- -- -- -- -- -- -- --
------- ----- ------- ------- ------- ------- ----- -------
Income (loss) from
operations ............... (230) 63 (404) (497) (115) (235) 61 (362)
Other income (expense),
net ........................ (12) (8) (45) 39 (40) (30) (13) 12
------- ------- ------- ------- ------- ------- ----- -------
Net income (loss) ......... $ (242) $ 55 $ (449) $ (458) $ (155) $ (265) $ 48 $ (350)
======= ====== ======= ======= ======= ======= ===== =======
<CAPTION>
1997
---------------------------------
Mar. 31 June 30 Sept. 30
------- ------- --------
<S> <C> <C> <C>
Net sales .................. $ 550 $ 2,178 $ 13,090
Cost of goods sold ......... 369 1,455 8,450
----- -------- --------
Gross profit ............... 181 673 4,640
Selling, general and
administrative expense ... 206 839 3,360
Amortization of licenses ... -- 28 179
Expenses related to
financings ............... -- 672 --
----- -------- --------
Income (loss) from
operations ............... (25) (870) 1,101
Other income (expense),
net ........................ 10 (1,146) (2,361)
----- -------- --------
Net income (loss) ......... $ (15) $ (2,016) $ (1,260)
===== ======== ========
</TABLE>
<TABLE>
<CAPTION>
(as a percentage of sales)
----------------------------------------------------------------------------------------------------
1995 1996
-------------------------------------------------- -------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross profit ............ 16.7% 37.0% -6.7% -56.3% 19.0% 14.0% 33.1% 17.7%
Income (loss) from
operations ............ (42.1%) 9.4% (129.1%) (159.8%) (22.1%) (31.9%) 8.5% (40.8%)
Net income (loss) ...... (44.3%) 8.2% (143.5%) (147.3%) (29.8%) (36.0%) 6.7% (39.5%)
<CAPTION>
1997
------------------------------------
Mar. 31 June 30 Sept. 30
------- ------- --------
<S> <C> <C> <C>
Gross profit ............ 32.9% 31.6% 35.4%
Income (loss) from
operations ............ (4.5%) (40.9%) 8.4%
Net income (loss) ...... (2.7%) (92.7%) (9.6%)
</TABLE>
40
<PAGE>
AGI
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------
1995
----------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Net sales .................. $ 7,245 $ 7,288 $ 9,432 $ 7,457
Cost of goods sold ......... 4,918 4,907 6,063 4,937
------- ------- ------- -------
Gross profit ............... 2,327 2,361 3,369 2,520
Selling, general and
administrative expense . 2,358 2,178 2,391 1,898
------- ------- ------- -------
Income (loss) from
operations .................. (31) 183 978 622
Other income (expense),
net ........................ (143) (314) (242) (312)
------- ------- ------- -------
Income (loss) before
extraordinary item(1) ...... $ (174) $ (131) $ 736 $ 310
======= ======= ======= =======
<CAPTION>
1996 1997
------------------------------------------------ -----------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales .................. $ 6,455 $ 9,262 $ 10,476 $ 7,316 $ 9,219
Cost of goods sold ......... 4,582 6,137 6,812 4,959 5,951
------- ------- -------- ------- -------
Gross profit ............... 1,873 3,125 3,664 2,357 3,268
Selling, general and
administrative expense . 2,069 2,407 2,598 2,368 2,465
------- ------- -------- ------- -------
Income (loss) from
operations .................. (196) 718 1,066 (11) 803
Other income (expense),
net ........................ (274) (260) (265) (158) (252)
------- ------- -------- ------- -------
Income (loss) before
extraordinary item(1) ...... $ (470) $ 458 $ 801 $ (169) $ 551
======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
(as a percentage of sales)
--------------------------------------------
1995
--------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- -------
<S> <C> <C> <C> <C>
Gross profit ............... 32.1% 32.5% 35.7% 33.8%
Income (loss) from
operations .................. (0.4%) 2.5% 10.4% 8.3%
Income (loss) before
extraordinary item(1) ...... (2.4%) (1.8%) 7.8% 4.2%
<CAPTION>
1996 1997
-------------------------------------------- ----------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Gross profit ............... 29.0% 33.7% 35.0% 32.2% 35.4%
Income (loss) from
operations .................. (3.0%) 7.8% 10.2% (0.2%) 8.7%
Income (loss) before
extraordinary item(1) ...... (7.3%) 4.9% 7.6% (2.3%) 6.0%
</TABLE>
- ------------
(1) Net income (loss) of AGI does not include any provision for income tax
because AGI operated as an S Corporation prior to the Acquisition.
AGI's business has been seasonal with the highest sales typically
occurring in the second and third quarters of the year. The Company believes
that this seasonality is the result of increased licensed apparel purchases as
consumers prepare for a return to colleges that have license agreements with
AGI. Such seasonality is also affected by the increased interest in licensed
sports apparel during those quarters. The peak in licensed sports apparel often
carries into the fourth quarter depending upon consumer interest in the teams
involved in bowls and championships. AGI's golf apparel business also
contributes to this seasonality as AGI's snowbelt customers increase purchases
during the late first quarter and early second quarter, and sunbelt purchasers
increase purchases in the late third and early fourth quarters, both in
preparation for their busy seasons. AGI's corporate apparel business is less
seasonal because such sales are generally one-time transactions typically
resulting from trade shows, sales calls, and similar marketing efforts. Prior
to the acquisition of AGI, AEI's business did not show seasonal trends because
AEI's performance had been significantly impacted by the timing of major orders
and significant acquisitions or dispositions. Because AGI currently is the
major component of AEI's business, the Company expects AGI's seasonality to be
reflected in AEI's overall performance. The Company also believes that its
business is susceptible to economic cycles as its customers' spending patterns
on marketing and promotional items such as those offered by the Company are
expected to decrease during economic downturns. Significant variability in
orders during quarters may have a material adverse impact on the Company's cash
flow, and a significant decrease in orders could have a material adverse impact
on the Company's results of operations of financial conditions. See "Risk
Factors -- Fluctuations in Quarterly Operating Results; Seasonality."
Inflation
The Company does not believe that inflation has had a material impact on
its business during the last three years. To the extent inflation occurs in the
future, the Company may not be able to pass on increased costs to customers due
to competitive pressures.
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THE ANTIGUA GROUP, INC.
AGI sells quality embroidered lifestyle apparel through golf, licensed
product and corporate marketing channels. The Company also generates sales from
one outlet store and one company store in Arizona, which together account for
less than two percent of revenues. AGI's revenue is primarily derived from the
design of apparel and the value added to non-embroidered apparel by
embroidering logos. AGI sells its products through a network of independent
sales representatives. Beginning in 1995, AGI also developed an internal
telemarketing force targeting the corporate market.
AGI maintains a broad inventory of blank apparel to meet short turn-around
demands of its customers. AGI's production cycle is typically from five to
eight days. The Company also receives advance orders for delivery over 60 days
from the sale. Orders are cancelable until the apparel is embroidered. Revenue
is recognized at the time product is shipped to the customer. AGI's net sales
consist of gross sales less discounts and credit memos for customer returns.
Cost of goods sold consists primarily of the purchase cost of blank apparel,
embroidery supplies and services, royalties for licensed apparel and overhead
attributable to storing, handling and shipping product. AGI purchases all of
its inventory as finished garments from manufacturers, to approximately 87% of
which AGI adds embroidery. The remaining 13% of purchased garments are sold
without embroidery. AGI's selling expenses consist primarily of sales force
commissions, sales management, advertising and marketing, customer service and
order coordination services to control the quality of color and placement of
embroidery on the apparel. In the third quarter of 1996, AGI began accounting
for order coordination services as part of the cost of goods sold. General and
administrative expenses primarily consist of product development and sourcing,
accounting and financial management, bad debt expense, management information
services and administrative staff expenses.
Results of Operations
The following table sets forth, for the periods indicated, certain
historical financial data for AGI as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales .................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ............... 67.4% 67.4% 80.2% 66.3% 67.1% 71.0% 64.6%
----- ----- ----- ----- ----- ----- -----
Gross profit ............... 32.6% 32.6% 19.8% 33.7% 32.9% 29.0% 35.4%
Selling expenses ............ 18.3% 19.0% 20.2% 18.1% 17.4% 17.3% 15.5%
General and administra-
tive expenses 7.3% 8.4% 11.0% 10.0% 10.7% 14.8% 11.2%
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations .................. 7.0% 5.2% (11.4%) 5.6% 4.7% ( 3.0%) 8.7%
Interest expense ............ 1.9% 2.6% 3.3% 4.6% 4.0% 5.1% 3.2%
Other income (expense) ...... ( 0.6%) ( 1.1%) ( 1.1%) ( 1.4%) ( 1.2%) ( 0.9%) ( 0.5%)
----- ----- ----- ----- ----- ----- -----
Income (loss) before
extraordinary item ......... 5.7% 3.7% (13.6%) 2.4% 1.9% ( 7.3%) 6.0%
Extraordinary item --
debt extinguishment ......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.8%
----- ----- ----- ----- ----- ----- -----
Net income (loss)(1) ......... 5.7% 3.7% (13.6%) 2.4% 1.9% ( 7.3%) 2.2%
</TABLE>
- ------------
(1) Net income (loss) of AGI does not include any provision for income tax
because AGI operated as an S Corporation prior to the Acquisition.
Comparison of the Three Months Ended March 31, 1996 and 1997
Net Sales. Net sales for the three months ended March 31, 1997 were $9.2
million, an increase of $2.7 million, or 41.5%, from $6.5 million in the same
three months in 1996. This increase in sales was
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primarily due to an increase in sales of licensed products as AGI became more
accepted as a major supplier by the professional sports leagues. Licensed
product sales also increased due to major orders from AGI's largest retailing
customer, J.C. Penney. Corporate sales also increased due to the productivity
of AGI's inside sales group which started in the third quarter of 1995 and had
grown to twelve salespeople by the first quarter of 1997. AGI's sales in the
golf distribution channel were comparable from period to period.
Gross Profit. AGI's gross profit for the three months ended March 31, 1997
was $3.3 million or 35.4% of net sales, an increase of $1.4 million, or 74.5%,
from $1.9 million or 29.0% of net sales in the same three months in 1996. Gross
profit as a percentage of net sales increased 22.1%. This increase in gross
profit is attributable to the decrease in the number of credit memos and
customer claims corresponding with AGI's greater experience with its retail
customers. AGI also sold more product at lower margins during the first quarter
of 1996 to eliminate inventory as product styles and fashion changed. These
style changes occur periodically throughout the industry and are based on
customer demand which cannot be accurately predicted. Gross profits also
increased as the costs of its garments decreased due to arrangements with new
suppliers and improved relationships with existing suppliers. Increased profit
margins were offset by a shift in the mix of product sales towards licensed
products, which have smaller margins due to required royalty payments.
Selling Expenses. Selling expenses for the three months ended March 31,
1997 were $1.4 million or 15.5% of net sales, an increase of $319,136, or
28.6%, from $1.1 million or 17.3% of net sales in the same three months in
1996. Expenses as a percent of net sales decreased 10.4%. This decrease was
primarily due to a shift in product mix to licensed products which have a lower
sales commission. The decrease was offset by the costs of AGI's inside sales
group. However, such costs were spread over a greater sales volume.
General and Administrative Expenses. General and administrative expenses
for the three months ended March 31, 1997 were $1.0 million or 11.2% of net
sales, an increase of $76,776, or 8.0%, from $955,313 or 14.8% of net sales in
the same three months in 1996. This increase was due to the cost of a new,
experienced controller, increased accounting staff salaries and higher bad debt
expense offset by lower depreciation expense as AGI's local area network system
was fully depreciated and replaced by an IBM AS/400 system. General and
administrative expenses as a percentage of net sales decreased 24.3%. This
decrease was a result of the expenses being spread over a greater sales volume.
AGI also experienced a lower rate of bad debt expenses resulting from fewer
customer claims as AGI continued to build experience with retail customers.
Interest Expense and Extraordinary Item. Interest expense for the three
months ended March 31, 1997 was $296,913 or 3.2% of net sales, a decrease of
$34,838, or 10.5%, from $331,751 or 5.1% of net sales in the same three months
in 1996. This decrease was primarily attributable to refinancing AGI's operating
credit with a new bank under more favorable terms. AGI also incurred an
extraordinary expense of $354,000 due to the termination penalty and unamortized
deferred loan fees associated with the refinancing.
Comparison of Years Ended December 31, 1995 and 1996
Net Sales. Net sales for 1996 were $33.5 million, an increase of $2.1
million, or 6.7%, from $31.4 million in 1995. This increase was due to
increased sales of AGI's licensed products as AGI was able to respond to hot
market items during the year. Hot market items are products for which demand
arises unpredictably due to the performance of the particular organizations
which license their trademarks for embroidering on AGI's apparel. The increase
in licensed product sales was partially offset by a decrease in sales of AGI's
golf products resulting from increased competition as other companies continued
to develop market share while AGI recovered from its restructuring to decrease
costs and offset losses from 1994. AGI also experienced significant turnover in
its sales representatives with the corresponding lower productivity of new
representatives. Additionally, AGI had revenue from Ryder Cup sales in 1995.
Because that golf event is held biannually, the sales did not recur in 1996.
Sales of corporate identity apparel were similar in both years.
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<PAGE>
Gross Profit. Gross profit for 1996 was $11.0 million, an increase of
$442,234, or 4.2%, from $10.6 million in 1995. Gross profit as a percentage of
net sales decreased 2.4%, from 33.7% in 1995 to 32.9% in 1996. This decrease
was due to sales of discontinued garment styles at reduced prices through
customary close-out channels.
Selling Expenses. Selling expenses for 1996 were $5.8 million, an increase
of $154,984, or 2.7%, from $5.7 million in 1995. This increase was primarily
due to the cost of developing an inside sales group. Selling expenses as a
percentage of net sales decreased 3.9%, from 18.1% in 1995 to 17.4% in 1996.
This decrease was due to a spreading of fixed costs over greater sales volume
as well as a growth in sales of licensed products with lower sales commissions.
General and Administrative Expenses. General and administrative expenses
in 1996 were $3.6 million, an increase of $460,996, or 14.7%, from $3.1 million
in 1995. General and administrative expenses as a percentage of net sales
increased 7.0%, from 10.0% in 1995 to 10.7% in 1996. This increase was
attributable to the increased labor costs incurred as AGI sought to control
turnover. AGI also increased staffing to support current and anticipated
growth.
Interest Expense. Interest expense was $1.3 million or 4.0% of net sales
in 1996, a decrease of $102,010, or 7.1%, from $1.4 million or 4.6% of net
sales 1995. This reduction was the result of costs of acquiring a new credit
line in 1995 as well as reduced need to draw upon AGI's credit line.
Comparison of Years Ended December 31, 1994 and 1995
Net Sales. Net sales for 1995 were $31.4 million, a decrease of $391,025
or 1.2% from $31.8 million in 1994. This decrease resulted from lower sales of
AGI's golf products as AGI's cash flow did not permit the acquisition of
sufficient inventory to fill orders. Sales of golf products also declined
because key independent sales representatives became captive representatives of
a competitor. Additionally, AGI did not repeat its 1994 decision to sell
products below cost which was necessary in the last quarter of 1994 to raise
required cash. These decreases in 1995 were offset by a moderate increase in
licensed product sales. Licensed product sales were moderated by intense
competition. Sales of corporate identity apparel were similar in both years.
During this period, AGI was also working both (i) to change its reputation from
a provider of western apparel, and (ii) to recover from its reputation as a
provider of deeply discounted apparel which was necessary to provide cash in
1994. In the third quarter of 1995, AGI also began implementing new strategies
which included a focus on products which could be sold through all of its
distribution channels and a new balance between basic and fashion apparel and
an All Seasons collection. AGI had not yet fully realized the benefits of these
new strategies in 1995.
Gross Profit. Gross profit in 1995 was $10.6 million, an increase of $4.3
million, or 68.2%, from $6.3 million in 1994. The gross profit as a percentage
of net sales increased 70.2%, from 19.8% in 1994 to 33.7% in 1995. Margins
improved in 1995 due to the discontinuance of the below cost sales required for
liquidity in 1994. AGI also discontinued its practice of selling low margin,
full-front embroidered products on low-cost apparel.
Selling, General and Administrative Expenses. Selling expenses in 1995
were $5.7 million, a decrease of $735,670, or 11.5%, from $6.4 million in 1994.
Selling expenses as a percentage of net sales decreased by 10.4%, from 20.2% in
1994 to 18.1% in 1995. General and administrative expenses in 1995 were $3.1
million, a decrease of $367,137, or 10.5%, from $3.5 million in 1994. General
and administrative expenses as a percentage of net sales decreased 9.1%, from
11.0% in 1994 to 10.0% in 1995. These decreases were due to reduced overhead
mandated by lower cash flow.
Interest Expense. Interest expense in 1995 was $1.4 million or 4.6% of net
sales, an increase of $407,560, or 39.3%, from $1.0 million or 3.3% of net
sales in 1994. This increase was due to delinquency and default fees on AGI's
bank line as well as diligence fees charged by prospective new lenders and
increased rates charged by AGI's new bank effective in July 1995.
Liquidity and Capital Resources
AGI has historically financed its operations primarily through cash
generated from operations and borrowing under a bank line of credit. However,
as overhead increased in 1994, AGI sold inventory to
44
<PAGE>
raise cash and create a capital loss carryback. This carryback was passed
through to AGI's shareholders because AGI was organized as an S corporation.
AGI's principal shareholder loaned the proceeds from the tax benefit to AGI. In
1995, AGI also sold $1.0 million in common equity to generate cash needed for
operations. After AGI reduced overhead and implemented new strategic plans,
cash generated from operations, together with its new debt arrangements, have
been sufficient to finance operations. The loan to the principal shareholder
was repaid when AEI acquired AGI in June 1997. See "The Acquisition and Related
Financing."
Cash generated from operations totalled $955,319 in the three months ended
March 31, 1996 compared with $604,187 of cash used in operations in the same
three months of 1997. This cash use resulted from increased sales generating
receivables as AGI maintained its 50 to 60-day collection cycle. AGI's
principal uses of cash historically have been to pay operating expenses, make
capital expenditures and service debt. AGI also made a $300,000 distribution to
its shareholders in 1994. AGI's next shareholder distribution was $725,000 in
the second quarter of 1997.
Cash generated from operations totalled $1.1 million, $506,725 and $3.4
million in fiscal years 1994, 1995 and 1996, respectively. Cash generated in
1994 was attributable to below-cost sales of inventory. AGI also reduced
inventory in 1996 through low-margin sales to eliminate discontinued styles.
Beginning at that time, AGI implemented inventory control systems to attempt to
avoid excessive inventory levels and reduce the need for close-out sales. The
success of AGI's inventory control programs is dependent on its ability to
generate and maintain strong relationships with overseas suppliers over which
AGI has little control. See "Risk Factors -- Dependence on Suppliers and
Outside Contractors." Cash generation decreased in 1995 because AGI's bank
terminated its relationship with AGI due to cash flow problems creating
defaults in the prior year. AGI's new bank required AGI to permit the bank to
collect receivables. The bank's collection programs were unsuccessful, and AGI
resumed collecting its own receivables in May 1996.
AGI's accrued expenses and payables also reflected AGI's operating
patterns from 1994 through the first quarter of 1997. These accounts were high
in 1994 due to AGI's need for cash. As AGI began generating cash from
profitable operations in 1995, it was able to reduce accrued expenses and
payables. As sales grew in the first quarter of 1997, accrued expenses grew due
to accrued royalties and commissions on such sales.
In January 1997, AGI entered into a $12 million asset-based revolving line
of credit with a new lender, LaSalle National Bank, permitting AGI to borrow
amounts equivalent of up to 85% of certain of its receivables and 55% of
certain of its inventory and to issue letters of credit to finance inventory
purchases up to $5 million. The line of credit bears interest at the rate of
prime plus one percentage point (9.5% as of September 30, 1997) and expires on
January 23, 2000. As of September 30, 1997, AGI had $4.1 million in outstanding
letters of credit, and the amount outstanding on the line of credit was $6.4
million, with another $866,000 available. The January 1997 debt arrangement
also provides for a $775,000 term loan which is repayable at $9,226 per month
with the balance due January 2000. Interest is at the prime rate plus 1.25
percentage points. The balance on the term loan was $701,000 as of September
30, 1997. AGI used the proceeds from this loan to retire approximately $500,000
worth of equipment leases, making the then fully owned capital assets
collateral for the loan. The remaining portion of the proceeds was used for
general working capital.
The lenders providing financing in connection with AEI's acquisition of
AGI require AGI to be the named debtor because AGI owns most of the
post-acquisition assets of the Company. See "The Acquisition and Related
Financing" and Notes 9 through 13 of the Notes to the Consolidated Financial
Statements. Therefore, AGI incurred approximately $13.4 million of debt due to
the Acquisition. The financing includes a term loan from LaSalle Business
Credit, Inc. for $3.5 million with interest at prime plus three percentage
points, payable in monthly installments of approximately $100,000 beginning
July 1, 1997, with certain required prepayments based on cash flow. The
proceeds of this offering will be used to make a required $2.0 million
prepayment on this LaSalle loan. The acquisition financing also included a
one-year $2.5 million loan bearing interest at 13% per year from Imperial Bank.
Interest on the Imperial loan is paid monthly, and the principal is due at the
end of the one-year term. The terms of the Imperial
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<PAGE>
loan were modified to allow the Company to prepay the outstanding balance with
proceeds of this offering, and the Company intends to make such prepayment. The
other debt incurred in connection with the Acquisition will be converted to AEI
common equity or repaid with the proceeds of this offering. See "Use of
Proceeds." When the debt is repaid upon closing of this offering, the Company
will recognize an expense of approximately $2.7 million representing the
unamortized portion of loan fees and discounts.
AGI's borrowing agreements contain covenants which place various
restrictions on financial ratios, levels of indebtedness, capital expenditures,
minimum levels of income, transactions with related parties and the payment of
dividends. In addition, the borrowing agreements contain a cross default
provision and an event of default provision wherein all outstanding amounts
will be due and payable should there be any default or certain outstanding
payment obligations of the Company, any material adverse change in AGI's
performance or operations or a change in control of AGI. AGI's borrowing
agreements also prohibit payments to AEI except as needed for scheduled
principal and interest payments on AEI's debt obligations to AGI's former
shareholders. AGI's debt arrangements are secured by substantially all of the
Company's assets and are guaranteed by AEI and SEI. AGI has previously sought
and obtained waivers from two lenders with respect to timely reporting of
financial information and for having exceeded its capital expenditures limit.
Capital expenditures totaled $93,000 and $246,000 for the three months
ended March 31, 1996 and 1997, respectively. The increase in expenditures in
1997 was due to the acquisition of sales force automatization systems. Capital
expenditures totaled $581,000, $575,000 and $610,000 in the fiscal years 1994,
1995 and 1996, respectively. Approximately $200,000 of such expenditures each
year are to capitalize embroidery design programs. The expenditures also
included gravity fed warehouse shelving in 1994, an upgrade to the IBM AS/400
computer system and related software development in 1995, furniture and
fixtures for the new outlet store in 1996, as well as routine replacements and
upgrades. These purchases were financed through cash generated by operations,
except that the AS/400 upgrade was financed through an installment sale
contract. AGI's fiscal 1997 capital budget is $500,000. The budget is to
complete the sales force automatization system, new personal computers, an
upgrade to the IBM AS/400 system, a new embroidery machine and a show van. The
costs of these expenditures will be funded with cash generated by operations,
except the IBM upgrade and van were purchased with installment
contracts.
AGI believes that the net proceeds from this offering and cash generated
from operations will be sufficient to fund its operations for the next twelve
months. However, there can be no assurance that AGI will not require additional
capital in the future. If AGI were required to obtain additional financing in
the future, there can be no assurance that sources of capital will be available
on terms favorable to the Company, if at all.
46
<PAGE>
BUSINESS
Overview
Antigua designs, sources, embroiders, screen prints and markets men's and
women's lifestyle apparel and casual sportswear under the distinctive Antigua
label. The Company, through its AGI operations, has more than 18 years of
experience developing innovative seasonal and year round collections of apparel
for the premium 18-80 year old men's and women's markets. The Company has
developed a strong reputation in its respective distribution channels by
offering high quality, fashion apparel with custom embroidery, screen printing
and generous fit. In addition, the Company believes it holds a competitive
advantage with its reputation for having the necessary capacity to respond
quickly to "hot markets" (such as event-related garments) and corporate impulse
orders, so called "at once" business.
The Company sells its products through three distribution channels: golf;
licensed products; and corporate identity apparel. Antigua designs all of its
apparel to appeal to each of these channels. By selecting styles and color
stories which can be marketed to golf, licensed product and corporate
purchasers, the Company believes that it increases its sales potential and
reduces the risk of obsolescence of any particular stockkeeping unit. The
Company also believes that servicing three distribution channels from one
inventory provides the Company with the additional competitive advantage of
being able to respond quickly to shifting demand in its three distribution
channels with fewer stockkeeping units. The inventory comprises three product
categories:
* Essentials: Antigua's complete offering of basics, solid knit shirts,
jackets, windshirts and sweaters designed to be in stock for one to
three years.
* All Seasons: A large collection of innovatively designed, fancy, knit
shirts and overtops in stock for one year.
* Spring and Fall Fashion Collections: Small groups of fancy, knit
shirts and overtops designed for a four to six month selling season.
Golf distribution is the most mature of Antigua's three distribution
channels and is divided into two complementary areas, retail stores and
tournaments and special events. The retail stores include golf shops located on
resort, private, semi-private and public golf courses and off course specialty
stores. Tournaments and special events include major and minor golf tournaments
and events related to golf. All three product categories sell into this
distribution channel in the premium and mid-priced markets through a network of
approximately 35 independent sales representatives. The golf distribution
channel targets approximately 13,000 golf retailers at green grass shops and
off course locations. The Company's account base in this channel includes
approximately 7,900 open accounts. The Company's open accounts are customers
whose credit has been approved by the Company and who have purchased from the
Company on at least one occasion. Of these accounts, approximately 55% are
active in any calendar year. Approximately 87% of Antigua's product sold into
the golf channel is embroidered with an insignia which depicts the golf course
or club, usually on the left chest or sleeve. The golf distribution channel
accounted for approximately 37% of AGI's sales in 1996 and 34% for the nine
months ended September 30, 1997. Antigua has contracts for distribution of its
golf line in Canada, Australia and Japan, but historically most of its golf
sales have been in the United States.
Antigua's sales of licensed apparel consists of sportswear embroidered
with professional team, college team and institutional insignias sold to
leagues, teams, area stores and large retail chains with team sport departments
and other general business and institutional accounts. This distribution
channel represents an area of recent volume growth and potential future growth
both in terms of amount and percentage of sales to Antigua. Licensed products
sales accounted for approximately 42% of AGI's sales in 1996 and for the nine
months ended September 30, 1997. To protect margins and the value built into
the brand name, the Company has limited distribution of its licensed products
line to the higher end sporting goods and retail department stores. All three
product categories (Essentials, All Seasons and the Spring and Fall
Collections) sell into this distribution channel. Antigua believes that its
success in the
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licensed apparel industry has been due to its control of brand identity and its
use of lifestyle color stories which are complementary to team colors, rather
than relying solely on team specific color stories, creating greater customer
acceptance of licensed apparel.
The Company holds licenses to manufacture, sell and distribute products
bearing the marks of Major League Baseball ("MLB") and the World Series and the
Diamond Club, National Football League ("NFL"), Pro Line and Super Bowl, the
National Basketball Association ("NBA"), the National Hockey League ("NHL") and
the Stanley Cup, the National Collegiate Athletics Association ("NCAA") and the
Final Four, Notre Dame, as well as numerous colleges and universities. The
Company is also licensed by the PGA of America for its championships and its
1997 Ryder Cup matches. The Company believes that its license position with
professional and other sports organizations is the strongest of any of its
competitors in its lifestyle apparel and casual sportswear market.
Antigua views the corporate distribution channel as the largest potential
growth area for the Company. AGI's corporate identity sales in 1996 were
approximately 18% of the Company's sales, compared to approximately 22% of
AGI's sales for the nine months ended September 30, 1997. With the
casualization of corporate America and as "Casual Friday" moves into the work
week, the demand for lifestyle sportswear has increased. Corporate outings,
employee recognition, customer appreciation, corporate catalogs are just a few
of the product uses. The year round in stock concept of Essentials and the All
Seasons Collections supply the "at once" impulse needs of this market place.
Antigua's corporate identity products are positioned in the mid- to
premium-price range and are sold through a network of ten independent sales
representatives and through a direct sales force of approximately 20 sales
people in the United States and Canada. The Company's Inside Sales department
is an in-house telemarketing group. This group generates approximately 60% of
the Company's corporate distribution channel sales. The Company's corporate
clients represent all of the screen printing sales and approximately 20% of its
net sales. The Company recently signed a licensing agreement with the Cadillac
Division of General Motors and believes that this license will create
additional brand building in the future.
Market
The Golf Industry. According to industry sources, the domestic golf
apparel industry totaled approximately $893 million in 1996 at the wholesale
level. In the past 7 years, the golf apparel market in green grass and resort
shops has become fragmented to where no one company has been able to capture
more than a 10% market share. Golf is Antigua's most mature distribution
channel, and the Company has been able to maintain a strong presence in green
grass shops and off course specialty shops. AGI has been selling into this
channel since 1979 and has maintained levels of penetration in this market,
according to a 1997 survey of the golf market, of between 22% in 1989 and 31%
in 1995. According to the same survey, the top companies by brand penetration
in the average facility were Ashworth, Inc., Slazenger, Nike, Izod and Antigua.
The Company believes that its current green grass shops and off course
specialty shops penetration is now even higher than the industry estimates from
1995. According to industry sources, there are approximately 17,500 golf
retailers in the United States, including green grass shops and off course
shops. Of these retailers, the Company targets approximately 13,000 for its
golf distribution channel customer base (discounting the total number because
of possible credit problems and non-viability as an apparel retailer). Based on
these industry estimates, Antigua's golf apparel has been sold in approximately
60% of its golf distribution channel targets and in approximately 45% of golf
retailers. The Company has open accounts with approximately 3,240 private clubs
and resorts, 2,500 daily fee course shops, 1,130 off course specialty stores,
60 direct international buyers, 150 military installation courses and various
other golf associations and miscellaneous buyers. Approximately 55% of the
Company's open accounts in this channel are active during any calendar year.
All product categories of Antigua's inventory sell directly into the golf
channel. The All Seasons Collection, a group of fashionably designed shirts,
has met an increasing market demand for this type of product. The Company
believes that it holds a competitive pricing advantage and is able to bring its
All
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Seasons Collection to market below many competitors' prices. In stock
throughout the year, the Essentials and All Seasons Collection sell to large
and small tournaments, retail operations and to various accounts for staff
uniforms. The fashion collections, released in the Spring and Fall offer a more
upscale product at slightly higher prices and are sold into retail and at
events. This product positioning gives Antigua the opportunity to sell its
products in a variety of applications to all levels of the industry from public
golf facilities to upscale resorts and country clubs.
Antigua was an early market entrant in targeting tournaments and special
events as a channel of distribution, and the Company sold to over 2,700
tournaments and special events in 1996 and has sold to over 2,900 through
September 1997. In 1987, the Company established a tournament services
department which manages all product ordering by and delivery to tournaments
and special events. This dedicated capacity provides, in the Company's belief,
a competitive advantage by focusing an in-house group on the special timing and
production needs of tournaments. In addition to processing and supervising
tournament orders, the tournament services department coordinates delivery and
last minute order details with the Company's sales representatives in the
tournament's area. The Company has established strong ties with major
tournament sponsors such as the PGA of America and has an aggressive product
presence at the Ryder Cup, PGA Seniors Championship and PGA Championship. The
Company utilizes select celebrity endorsements, including PGA Tour and NCAA
champions, to build its brand identity. The Company's apparel sales to
tournaments benefits the Company by association with high-profile tournaments
and events and provides much larger than normal sales volume, and generally
allows tournament sponsors to offer merchandise at a lower than ordinary credit
risk. Tournament and event sales are also generally lower credit risk sales for
the Company as merchandise is included in the cost of tournament or event fees.
Antigua plans to expand its distribution in the golf channel by adding
product categories that will increase square footage at current account
locations and offer more tournament and special event products. This includes
expanding the outerwear collections and the women's collection and creating an
additional pricing tier in the "better" category.
Licensed Apparel. The licensed apparel market totaled approximately $2.0
billion at the wholesale level in 1996 according to industry sources and is
dominated by companies such as Nike, Starter, Reebok, Champion Products Inc.
and The Vanity Fair Corporation, which has acquired Nutmeg Mills and Lee Sport.
Sales to consumers in this market are primarily through major retailers such as
J.C. Penney and Sports Authority, both of which are customers of Antigua. Open
accounts in this channel include approximately 50 department stores, 900
sporting goods stores, five large sporting goods stores, 840 specialty stores,
300 high schools and middle schools, 300 athletic teams and 140 other
miscellaneous buyers. Of these open accounts, approximately 51% are active in
any calendar year. In addition to retailers, Antigua is positioned for, and has
an industry reputation for, providing quick turnaround embroidery on quality
apparel to serve "hot markets" and special events such as the Super Bowl and
the World Series. Apparel for "hot markets" and other "at once" business
generally is provided by in-stock Essentials, the All Seasons Collection and
selected fancy styles.
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<PAGE>
The following table shows types of products which may be produced under
selected licenses held by the Company:
<TABLE>
<CAPTION>
NFL NBA MLB NHL NCAA
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
Men's
-----
Polo's ........................ X X X X X
Fashion Tops .................. X X X X X
T-Shirts
Embroidered .................. X X X X X
Silk Screen .................. X -- X X X
Fleece ........................ X X X X X
Sweaters ..................... X X X X X
Outerwear/Windwear ............ X X X X X
Bottoms-Shorts/Pants ......... X X X X X
Women's
-------
Polo's ........................ X X X X X
Fleece ........................ X X X X X
Sweaters ..................... X X X X X
Outerwear/Windwear ............ X X X X X
Bottoms-Shorts ............... X X X X X
Accessories
-----------
Golf Headcovers ............... X X X X X
Golf Towels .................. X X X X X
Golf Travel Accessories ...... X X X X X
Golf Straw Hats ............... -- X X X --
</TABLE>
Antigua's annual growth in licensed apparel the last two years has been
approximately 13% in 1995 and 28% in 1996. The Company believes that its growth
is substantially due to its introduction of the All Seasons Collection. Taking
a subtle and upscale approach to design, the Company has broadened the
demographics of the licensed consumer and reached more affluent customers.
Antigua's customers are able to wear their licensed apparel to work, a sporting
event or to other recreational activities. Colors in the collections are not
team specific but rather lifestyle driven, allowing the retailer to use the
team color in the logo. Antigua selects these color stories based on its own
historical sales data, potential shifts in the marketplace and the creation of
new teams in the professional sports leagues. This careful color selection
process reduces close-out risk and allows the products to sell into all three
of the Company's distribution channels instead of only the licensed product
channel.
Corporate Identity Apparel. Antigua currently has approximately 4,600 open
corporate accounts. Of these open accounts, approximately 59% are active in any
calendar year. This channel of distribution represents the strongest potential
growth channel for Antigua. AGI's net sales in this channel grew 57% for the
nine months ended September 30, 1997 as compared to the same period in 1996.
The overall lifestyle apparel industry is led by companies much larger than
Antigua, such as Tommy Hilfiger, Polo Ralph Lauren Corporation and Levi Strauss
& Co. The Company believes, however, that it competes for its corporate
identity apparel niche in this overall lifestyle apparel marketplace with such
other companies as Vantage, Land's End, Gear for Sport, LaMode and others who
specialize in embroidering or screen printing apparel for corporations and
small businesses. Some of these competitors are also much larger than the
Company, although the Company believes that its portfolio of approximately
18,000 logos gives it a competitive advantage in this market. The growth of
this market has been aided significantly by the trend toward more relaxed
standards of dress in the workplace.
50
<PAGE>
Antigua distributes in this distribution channel through direct sales to
corporations and small businesses for their use in uniform programs, as
corporate gifts and premiums and in catalogs. Antigua also sells to advertising
specialty companies and other brokers who resell Antigua products to
corporations, small businesses and other end users. The Antigua product
categories of Essentials, All Seasons and the Spring and Fall Collections fit
the needs of the corporate apparel market because of price point attractiveness
and the Company's quick turn embroidery and screen printing capacity.
Business Strategy
The Company's strategic goals focus on growth in brand identity and sales
in all three of its distribution channels. The Antigua corporate strategic
goals are as follows:
* Three Channel Products: All of Antigua's products must be viable in
the three channels of distribution: golf, licensed and corporate
identity. The Company believes that this strategy affords it a
competitive advantage because the products are moved from one channel
to another as demand shifts. Antigua can be responsive to fluctuating
demand because it has one inventory, some with long shelf life, for
three distribution channels, rather than one separate inventory for
each channel.
* Product Mix: Antigua strives to maintain a product mix of 60%
Essentials (i.e., solid color shirts, sweaters, jackets, windshirts,
fleece, slacks and shorts) and 40% All Seasons Collections and the
Spring and Fall Collections, (i.e., seasonal designs which reflect a
trending or fashion forward appearance). Management believes that this
product mix gives Antigua a competitive advantage in that the Company
can serve "at once" business and "hot markets" as well as prebooked
fashion collection business. This reduces the Company's inventory risk
because Essentials have much longer life spans in each of the
Company's three distribution channels.
* Small and Large Customer Mix: Antigua serves both large (for example,
The Sports Authority) and small (small businesses or local country
club pro shops) customers. The Company has built a large customer base
(over 15,000 open accounts) and strives to maintain an even balance of
large and small customers. The Company's strategy is to maintain this
approximate mix to reduce the Company's risk from concentration of
accounts.
* All Seasons Products and Competitive Pricing Model: The All Seasons
Collection allows Antigua to offer apparel that is designed to have
greater longevity than the products of its competitors. Because of
this longevity, Antigua can buy large quantities and reduce its per
item cost. With this price advantage, the Company believes that it
brings its All Seasons Collection products to market below many
competitors' prices. The longevity (one year availability) of the All
Season Collection appeals to all three channels of distribution the
Company serves and allows the Company essentially to "prebook"
business which is ordered later by customers as "at once" goods. The
Company believes that the All Seasons Collection provides customers
the ability to reorder familiar, proven product without requiring
repeat cuts by manufacturers (which may not be economic) and to
include fashion items in their own catalogs with a reduced risk of
offering product that is sold out prior to their catalogs reaching
their end users.
* Sales Expansion in Three Channels: The Company intends to pursue a
strategy of simultaneously increasing sales in all three distribution
channels.
Golf: Antigua will look to grow its golf business by renewing
business relationships with inactive accounts, refining and
providing additional training for its sales force, capitalizing
on its strategic alliances with golf facility management
companies, including Club Corporation of America, American Golf
and Cobblestone and offering additional product categories
(outerwear, women's and special event products).
Licensed Products: Antigua plans to increase its licensed
products sales by offering other products through key national
and regional retailers like J.C. Penney, Sports Authority, Belks
and Jumbo Sports. The Company believes that it currently holds a
competitive advantage in this channel because of its product
design mix, the depth of its portfolio of licensed logos and its
position as one of the higher end providers of licensed apparel.
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<PAGE>
Corporate Identity: Because of the relatively large size of this
market and the relatively small size of the Company's sales force
dedicated to this distribution channel, the Company believes that
corporate identity products provide an important growth
opportunity for the Company. Antigua seeks to add to its
corporate identity business by substantially increasing its sales
force (mostly in the Inside Sales department) and expanding its
direct mail activities. The increasing trend of casual dress in
the workplace should increase opportunities for the Company as
consumers wear more lifestyle apparel, embroidered and screen
printed identity apparel.
Products and Product Design
Antigua's product mix covers a wide range of classifications including
men's and women's shirts, sweaters, outerwear, fleece products, slacks, shorts
and accessories. These classifications break into two specific groups, Basic
items (Essentials) and Fashion items (the All Season Collection and the Spring
and Fall Collections). Basic items represent 60% of Antigua sales and have
long-term marketability, one to three years, in all distribution channels.
Basic items are in-stock and provide the Company with most of its ability to
respond to "at once" orders.
Fashion items have shorter term marketability in all of the Company's
distribution channels. Fashion items presented in the All Season Collection
have the longest availability (approximately 12 months), and Spring and Fall
Collections have the shortest availability (four to six months). The Fashion
component of Antigua's product offerings allows the Company to prebook orders,
necessary due to shorter product life span and limited inventory. The Fashion
component also gives the Company the newness required to stimulate the
marketplace consistently and to satisfy the recurring needs of customers in all
three distribution channels.
<TABLE>
<CAPTION>
Product Matrix
- -----------------------------------------------------------------------------------------------
Golf Corporate at Once Corporate Fulfillment Licensed
---- ----------------- --------------------- --------
<S> <C> <C> <C> <C>
Essentials ............... X X X X
All Seasons ............ X X X X
Spring Collection ...... X X X
Fall Collection ......... X X X
Outerwear ............... X X X X
Sweaters and vests ...... X X X X
Headwear ............... X X X
Travel Accessories ...... X X X
Head Covers ............ X X X X
Towels .................. X X X X
T Shirts ............... X X X X
Fleece .................. X X X X
</TABLE>
The Basic and Fashion items are combined in two catalogs per year.
Catalogs are presented to all of the Company's accounts in July and January of
each year. The July catalog presents the Spring line of the next year. The
January catalog presents the Fall line of the same year. Each catalog allows
for five to six month prebooking period on any new Fashion products and also
allows for immediate booking of in-stock Essentials products.
This twice yearly cycle of product presentation and product mix is
designed expressly to serve all three distribution channels. All of the
Company's products are viable in every channel. By not embroidering a logo or
design until after receipt of an order, the Company tailors a product to that
particular customer's needs, regardless of the distribution channel, and
reduces the risk of producing a product in advance that would appeal only to
one customer or to one channel.
Prior to the Acquisition, the Company, between 1993 and 1995, produced and
marketed a range of plastic printed consumer products, including automotive
aftermarket products, toys and various custom products. The Company no longer
markets such products but does continue to produce one screen printed
52
<PAGE>
plastic golf accessory product. From the date of incorporation through
acquisition of SEI in August 1992, the Company invested in various oil and gas
properties. The Company has since disposed of or written off interests in any
such properties. See "Prospectus Summary -- Company History."
Distribution and Sales
The Company distributes its products in three distinctive but
complementary distribution channels: golf, licensed products and corporate
identity apparel. The customers in each of these channels use Antigua's
products and services because they desire apparel customized with an
embroidered or screen printed logo. These distribution channels are reached and
sales are consummated through a network of independent and Company employed
sales people. Sales people have specific geographic and distribution channel
responsibilities. The Company currently has 35 golf sales people, 43 licensed
product sales people and 21 corporate identity apparel sales people. The
corporate identity apparel sales force is primarily made up of Company employed
telemarketers. This department, called Inside Sales, is responsible for
approximately 60% of the Company's corporate identity channel sales.
All members of the Company's sales forces are provided computer access to
their respective account rosters and the status of all Company inventory by
style, size and color. The Inside Sales telemarketing department utilizes the
company's IBM AS/400 computer system with Business Planning and Control Systems
(BPCS) software, and the outside sales representatives utilize laptop computers
with a custom software package called VRLink, which allows the Company's
salesforce to view from a remote location inventory availability by style,
color and size. This automation of the sales process gives the Company the
ability to react quickly to the marketplace by providing management with
accurate, timely sales information. VRLink also provides sales representatives
with greater certainty that orders written are being written against actual,
current inventory and, therefore, reduces the risk of orders which cannot be
filled timely. The Company is aware that certain of its competitors use VRLink
and similar software programs to allow their respective salesforces to access
inventory and place orders through a computer system. While the Company
believes that its current level of sales force automation is a competitive
advantage in all channels of distribution, the Company is aware that technology
is changing rapidly and that competitors could replicate or exceed this level
of computer automation. To avoid becoming obsolete or uncompetitive, the
Company intends to reassess its capabilities continually and to exploit new
technology.
Each channel and respective sales force is managed by a National Sales
Manager who creates a yearly business plan, manages human resource issues,
trains sales people and monitors progress on the business plan. The three sales
managers, one for each distribution channel, report to the President of AGI.
Marketing
General. In the past 18 years the Company has built the Antigua brand
identity through promoting its products to retailers in golf and licensed
products channels and to the corporate apparel users, as opposed to the
ultimate consumer. The core of the Company's marketing efforts has
traditionally been support of the PGA in small and large tournaments, junior
golf, customer co-op programs (whereby the Company partners with a retailer in
print advertising), league promotions and participation in trade advertising.
Antigua intends to reduce what has been its historical reliance on trade
initiatives in marketing and to create greater consumer awareness of the brand
and consumer demand for the Company's products at the trade level through a
more dynamic marketing plan. The Company intends to integrate the following
components into its revised marketing efforts:
* Product Positioning: Emphasize the Company's use of one inventory to
supply all three distribution channels to send a consistent design and
image message directly to the end consumer.
* Advertising and Public Relations: All print advertising designs and
layouts are completed in-house. Antigua advertises in both trade and
consumer media with a combination of image and product concepts. The
Company also has a monthly direct mail program which focuses on
specific product classifications. Great care is taken to ensure all
print ads reflect a consistent company-wide image and message. Antigua
enlists the services of a public relations firm which has a sports
focus. All press releases are directed to all three distribution
channels.
53
<PAGE>
* Sales Support:
Catalog: The Company produces one catalog for all three
distribution channels with distinctive covers designed for each
channel. As with the advertising, the artwork is produced
in-house and displays the same consistent style and image of
other print media.
Swatchcards: To meet the selling strategy of 60% Basic
(Essentials) product and 40% Fashion, the Company has created
Essentials swatchcards. This is a comprehensive sampling of all
of the fabrics and colors of each basic product in a notebook
format. The look of this notebook is consistent with the style
and image presented in print advertising, catalogs and direct
mailings.
Point of Purchase: Point of purchase displays depicting the
Antigua image are also given to retail accounts to build brand
recognition.
Direct Mail: Antigua mails 6,000 to 15,000 direct mail pieces
during peak marketing periods to its customer base to promote new
and existing products. Mailings are customized for each
distribution channel.
Merchandising Program: In 1997 the Company began an in-store
merchandising program designed to assist the retailer with visual
display, stock analysis and sales support. This program was
designed to increase sales and acquire additional square footage
in the stores.
Internet: The Company maintains a homepage at
"www.Antiguasportswear.com" on the Internet. The page is purely
informational at present, providing limited information about the
Company and links to sites which may be of interest to the
Company's customers. The Company intends to upgrade the page to
allow interactive capacity.
Trade Shows. Antigua markets its golf products nationally at the Orlando
PGA Show in January and the Las Vegas PGA Show in September. Licensed products
are marketed at the Atlanta Super Show, a National Sporting Goods Association
("NSGA") event, in February and the Chicago NSGA Show in July. The Company also
attends other corporate trade shows, including the Motivation Show in October
and the Premium Incentive Show in May, both held each year in New York.
Strategic Alliances. Antigua has carefully positioned its distribution to
enhance brand identity and recognition. Upscale licensed products stores such
as The Sports Authority, high profile golf resorts such as Pebble Beach,
Pinehurst and Coeur D'Alene, and premium catalogs such as the Herrington
Catalog have reinforced the brand to both the trade and retail consumers.
Agreements with prestigious companies such as Mercedes Benz and the PGA have
provided positive media attention and serve to enhance the brand further.
Celebrity Endorsements and Key Account and Corporate Sampling Programs.
* Golf: The Company utilizes select professional golf endorsements to
build its brand recognition. Mark Brooks, the 1996 PGA Champion, Billy
Mayfair, 1995 Tour Champion, Chris Johnson, LPGA tour veteran and
reigning LPGA champion and Jim Carter, former NCAA Champion, wear
Antigua products on tour. Antigua also has numerous clothing-only
programs with golf professionals on other smaller tours. The Company
also maintains a price competitive staff uniform program for golf
course shops and retail stores. The Company believes that having staff
at golf retail shops and off course specialty stores wear the
Company's products is one of the best possible point of sale
promotions.
* License: In the licensed products channel, Antigua is the preferred
supplier to the Coaches Club, where selected NFL Coaches wear Antigua
products on non-game days. Antigua is also a Diamond Club supplier.
The Diamond Club supplies clothing for equipment managers of Major
League Baseball teams to wear during the games. As in the golf
distribution channel, Antigua maintains a price competitive staff
uniform program for stadium and arena employees to provide point of
sale product promotion.
* Corporate: In the corporate channel, Antigua aggressively pursues
relationships with key decision makers such as chief executive
officers, presidents and vice presidents of sales or marketing by
54
<PAGE>
sending sample products to these people. In addition, NBC Sports
announcers wear Antigua shirts while hosting and announcing golf
events. The Company has plans to increase the number of celebrity
endorsements in the near future.
Sponsorships and Promotions.
* Golf: Antigua is an active sponsor of numerous golf tournaments, both
with tour and local club professionals. Among other events, Antigua
sponsors the Antigua South Florida Open, Antigua's Southwest Section
Team Championship and the Kachina Invitational in Scottsdale, Arizona.
The Company also participates in tour event promotions such as tent
sponsorships at major tournaments. The Company sponsors many Junior
tour activities nationally.
* License: The Company participates in numerous "in arena" promotions
during sporting events. These promotions assist retailers in selling
products and help to distinguish the brand from competitive products.
Celebrity and league fund raisers are also supported by the licensed
products channel.
* Corporate: Antigua plans and participates in corporate customers'
gatherings and promotions to create brand awareness.
Customer Communication. In the past seven years Antigua has invested
significantly in its Customer Service, Inside Sales, Embroidery Facility and
Quality Control. During peak demand periods, the Inside Sales and Customer
Service departments process over 10,000 incoming communications and initiate
more than 12,000 outgoing communications each month. Antigua's infrastructure
serves to maintain consumer confidence in the Company and fosters long-term
loyalty to the Company's products and services.
Product Development and Sourcing
The product design cycle begins about one year before product is shipped.
Two in-house departments, Sales and Product Development, establish the general
parameters of new product offerings. These departments conduct design research
through market trend and color forecasts and fabric exhibitions. Retail stores
are shopped extensively at the beginning of each cycle for trends and ideas.
Designs are completed and reviewed in an open forum with Sales and Product
Development, and revisions are made to respond to changing sales needs. The
Company then selects appropriate factories for fabrication of the line. Because
of the complexity of the designs, fabrics are the key to successful product
development. Antigua insists on working with the fabric mills directly, rather
than through the garment factory, in order to maintain product quality and the
integrity of the Company's design. Controlling the fabric source also allows
Antigua flexibility when placing re-orders. The Company is able to place the
same style in different cut and sew facilities depending upon production
capacity, offering the Company more options to ensure timely product delivery.
In the past two years, Antigua has changed its production sourcing
dramatically. Prior to 1996, the majority of Antigua's production was based in
Hong Kong. Due to the then pending return of Hong Kong to China and Hong Kong's
relatively high labor prices, efforts were made to develop sources in other
Asian countries which provide attractive prices while maintaining quality.
Production testing and the process of changing resources is a rigorous and
difficult process, lasting a minimum of six to ten months. Over the last two
years, the Company has diversified its production to Pakistan, Indonesia,
Malaysia, Singapore and Saipan. These efforts have significantly lowered prices
at the mill level and diversified production to safeguard against factory or
natural disasters or political disruptions. As a result of sourcing changes,
the Company has significantly decreased its delivery price for most styles.
Antigua has an extensive quality control program in support of its goal of
delivering generous cut garments of high and uniform quality to its customers.
Garments are checked against Level 3, of the Acceptable Quality Level standard
of testing, an international standard for the garment industry. Each production
run is checked at three stages: in-line (during production); finished product
(at the mill after completion); and once more at Antigua's warehouses in the
United States. Quality control personnel check garments at the Scottsdale
warehouses against the same set of specifications to which the runs are
55
<PAGE>
subject during manufacturing and are checked for fabric weight, shrinkage,
design, construction, fire retardance, adherence to size specification and
color correctness. The Company checks garments a final time prior to shipping
after embroidery for correct logo placement, clarity of stitching and correct
color application.
Approximately 95% of the Company's current products are produced in
Pakistan, Indonesia, Malaysia, Singapore and Saipan. The Company plans to
double its sources in these countries and add more internal quality control
capacity by the end of 1998. In addition, the Company is planning to
investigate more opportunities in Central and Latin America and to establish
test production in that region by the second half of 1999.
Antigua has taken precautions to ensure that its contract manufacturing
facilities all comply with local child labor laws and have safe working
conditions for their employees. Antigua, generally, requires factories to sign
a declaration of local labor law compliance with shipped orders. In addition,
the Company's Sourcing Manager or Vice President of Product Development visits
all factories a minimum of once annually to confirm compliance with Antigua's
labor policies.
Manufacturing, Embroidery and Screen Printing
Antigua's garment manufacturing is done at various contracted
manufacturing facilities, but almost all of Antigua's decoration (i.e., custom
embroidery and custom screen printing) is done in its Scottsdale or Dallas
facilities. The Company believes that Antigua's decoration quality and capacity
gives the Company a competitive advantage in both the quality of the decoration
and the speed of delivery of the finished product. Antigua has daily embroidery
capacity ranging from 7,000 to 10,000 units per day, utilizing 190 embroidery
sewing heads on machines with various capacities with an additional 24
embriodery heads to be added in the first quarter of 1998. The Company
outsources a limited amount of embroidery to pre-qualified embroidery
contractors which use similar thread, embroidery equipment and production
practices. The Company has outsourced approximately 11% of embroidery during
recent demand periods but believes that it can outsource as much as 15% to 20%.
All outsourced work is subjected to the same quality assurance standards for
in-house embroidery and must pass Antigua's quality control prior to shipment
to Antigua's customers. The Company's screen print capacity also approaches
10,000 units per working day.
Management Information Systems & Inventory Management
AGI utilizes an IBM AS/400 computer system to manage all business
transactions and historical data, and the Company is in the process of
designing a program to integrate SEI's record keeping into this system. The
Company anticipates completing the integration of systems during the first half
of 1998. Application systems, known as BPCS (Business Planning and Control
Systems), provide integrated real time information to all departments in
Antigua's infrastructure. The Company currently has over 100 workstations
connected to the internal networks and stores over 15 gigabytes of information
on its various systems. The AS/400 and BPCS databases are also utilized in
association with VRLink, the Company's Sales Force Automation Software system.
The VRLink system provides Antigua's sales representatives with access to their
respective customer rosters and all of Antigua's inventory. Inventory
availability for immediate delivery and for future shipping dates is provided
down to the style/color and size level. The Company's MIS systems are
responsive to all facets of the business, from sourcing to warehousing and
embroidery manufacturing to shipping.
The MIS systems have improved the Company's fill rate percentages for
customer orders in three important ways. First, the MIS systems have improved
the forecasting department's ability to manage and purchase inventory through a
tool set which analyzes sales history, purchasing history and future customer
commitments. Second, the Company's sales force has a clear and concise view of
available inventory which helps assure that customer orders are written and
allocated against actual inventory availability. Third, the Inventory Manager
uses physical inventory and cycle counting tools and systems to control and
manage inventory. As a result of these control mechanisms, the 1996 year end
physical inventory count net adjustments were only .3% of the total inventory
amount.
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The Company has developed a program designed to make the Company's
computer systems Year 2000 compliant. The compliance effort will be borne
primarily by internal resources. By having scheduled hardware and software
package upgrades, the Company believes that it has been able to control costs
such that expenses related to the compliance effort will not be material.
However, there can be no assurance that these upgrades will produce a fully
compliant system before January 1, 2000. See "Risk Factors -- Year 2000
Compliance."
The Company will continue to exploit technology to improve its business
processes, its distribution of sales information and its communication with
suppliers, customers and business partners. See "-- Distribution and Sales."
Order Booking Cycle and Backlog
The Company receives its orders over a nine month period beginning when
samples are first shown to customers and continuing into the season. The
Company must schedule production in advance of order placement, although it can
respond to order trends over the period by sequencing production in advance of
different groupings of its seasonal collection. The Company maintains
Essentials and All Seasons products in stock throughout the year to enable it
to quickly fill "at once" orders for all three channels of distribution.
The Company begins to take orders for Fall collections in January for
delivery between May and October and for Spring collections between July and
January for delivery between January and May. The Company's backlog, which
consists of open, unfilled customer orders, was approximately $10.8 million as
of September 1, 1997, compared to $5.2 million as of September 1, 1996. Because
of the Company's policy of accepting order cancellations under certain
circumstances, and the lack of contractual provisions prohibiting such
cancellations, the Company typically ships 85-90% of its backlog.
The following table compares AGI's booking comparison for the past five
years (numbers marked with an asterisk are estimated numbers generated during a
change in computer system):
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
January ......... $ 2,067 $ 2,695 $ 2,181 $ 2,179 $ 3,081
February ...... 2,623 2,635 2,653 2,131 3,291
March ......... 3,167 3,614 3,589 4,218 7,158
April ......... 4,407 4,100 2,930 4,489 4,385
May ............ 3,174 3,689 3,177 4,415 3,315
June ............ 3,173 3,412 3,260 2,999 2,622
July ............ 2,982 2,876 2,988 3,159 3,804
August ......... 3,006 3,605 *3,500 3,305 4,765
September ...... 3,548 3,425 *3,400 4,132 5,453
October ......... 3,050 4,067 *3,600 4,075 6,577
November ...... 2,675 4,074 3,497 3,659 3,611
December ...... 3,481 3,060 2,426 3,096 3,715
------- ------- -------- ------- -------
Total ...... $37,353 $41,252 $37,201 $41,857 $51,777
======= ======= ======== ======= =======
</TABLE>
Competition
The Company encounters intense competition in all three of its
distribution channels, much of which is from significantly larger competitors.
The Company considers its main competitors in its golf distribution channel to
be Ashworth, Inc., Izod Club, Polo Ralph Lauren Corporation, Tommy Hilfiger,
Cutter & Buck Inc. and Sport-Haley, Inc. The Company considers its main
competitors in the licensed goods channel to be Nike, Reebok, Starter, Champion
and Vanity Fair. The Company considers its main competitors in the corporate
channel to be Polo Ralph Lauren Corporation, Tommy Hilfiger, the Dockers brand
of Levi Strauss & Co. and the Gear brand of L.A. Gear, Inc. Competition in
these distribution channels is intense and is based primarily on brand
recognition, as well as loyalty, quality, price, style, decoration capacity,
design, service and availability of shelf space in the golf apparel and
licensed apparel
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distribution channels. The Company also competes, particularly in its golf
distribution channel, with manufacturers of high quality men's and women's
sportswear and general leisure wear, including Nike, Tommy Hilfiger and Nautica
Enterprises Inc. Many of these competitors, as with competitors within
particular distribution channels, have substantially greater experience,
financial and marketing resources, manufacturing capacity, distribution and
design capabilities than the Company. Increased competition in the fashion golf
apparel market, such as Nautica's recent entry into golf apparel, from these
manufacturers or others could result in price reductions, reduced margins or
loss of market share, all of which could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will compete successfully with its present or
potential competition. Further, recent entries in these distribution channels
by competitors offering apparel comparable to that of the Company will likely
intensify competitive pressures. There can be no assurance that the Company
will be able to maintain market share as new competition develops, to increase
its market share at the expense of its existing competition, or that the
Company will not experience pricing pressures as a result of intensifying
competition within these markets.
Customers
The Company sells to accounts nationwide, with accounts ranging from the
smallest companies or green grass shops to the largest conglomerates and
retailers in the United States. A sampling of the representative customers of
the Company is set forth below:
<TABLE>
<CAPTION>
Licensed/Retail Licensed Accounts -- Golf Accounts -- Golf Accounts --
Corporate Accounts Accounts Leagues and Teams Events Country Club
- ----------------------- ------------------ ---------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
Anheuser Busch J.C. Penney NFL Properties Walt Disney World -- Four Seasons
Oldsmobile Classic Resort
Coca Cola Sports Authority NBA Properties GTE Suncoast Pebble Beach Corp.
NBC Jumbo Sports Cleveland Indians PGA Championship Century Club
U-Haul Dillard's Green Bay Packers Ryder Cup Kapalua C.C.
Jacobson Textron Belks Phoenix Suns Greater Hartford Open Medinah C.C.
Mercedes Benz Sears Colorado Rockies Motorola Open Grayhawk
Hilton Joslin's Texas Rangers Nynex Corp. Oak Hill
Brinker International Gart Brothers Univ. of Florida Quad Cities Classic Mission Hills
Southwest Airlines Caesar's World Notre Dame LPGA Turquoise Classic Grand Cypress
Ameritech Modells San Diego Padres Liberty Mutual Legends Breakers
</TABLE>
No single customer accounts for more than 10% of the Company's revenues.
However, the Company sells into three distribution channels, generally sells
more product during certain seasons and sells to a mix of large and small
accounts. As the Company receives orders, the concentration of accounts will
fluctuate. The Company's strategy is to avoid customer concentration and
believes that the loss of any single account would not have a material adverse
impact on the Company's business, financial condition and results of operations
over a long term. Nevertheless, it is possible that at any one point in time
the loss of a significant account, such as J.C. Penney or Sports Authority,
could have a material adverse impact on the Company.
Intellectual Property
The Company has developed significant value in its "Antigua," "Antigua
Sport," "Kachina," "Antech" and "AII Apparel" names and logos. Antigua has
registered and trademarked the Antigua name in the United States, Canada and
Japan and has pending applications for the same in Australia, New Zealand and
the European Community. The Kachina design logo has been trademarked and
registered in the United States, Canada and Japan. The Antigua/Kachina
combination is registered in Germany and Sweden, and there are pending
applications in Ireland, Italy, Korea and the United Kingdom. The Antech and
AII Apparel names are trademarked and registered in the United States. Leading
brands in the apparel industry have historically been subject to competition
from imitators which infringe the trademarks and trade dress of the brand.
While the Company to date has not been aware of a high level of imitation of
the Antigua brand or other marks, there can be no assurances that its business
will not suffer from such imitation in the future.
58
<PAGE>
The Company has created a library of digitized designs on behalf of its
clients. These designs consists of approximately 18,000 logos and names of golf
courses, resorts, sports teams and corporate logos.
Employees
As of December 31, 1997 the Company had 253 employees in Scottsdale, 19
employees in Dallas and seven employees in Toronto. Approximately 60% of the
Company's employees are in manufacturing and maintenance and 10% are in each
of: management; design and customer service; sales; and MIS, administration and
accounting. None of the Company's employees is a member of a union. The Company
considers its relations with its employees to be good.
Facilities
The Company leases approximately 42,500 square feet of space in
Scottsdale, Arizona from a partnership of which Mr. Dooley is a partner. See
"Certain Relationships and Related Transactions." The current term of the lease
expires December 31, 1998, but the Company may extend the term of the lease for
two additional one-year periods. This facility houses management, data
processing, customer service, warehousing and embroidery and manufacturing
machines. The Company also leases approximately 30,000 square feet of space for
manufacture, storage and sale (at a Company store) of apparel in a facility in
close proximity to its main facility. The lease for this space expires in
October 1999, and the Company may renew the lease for two additional one-year
periods. The Company leases approximately 16,000 square feet of space in Dallas
from a Director to house its screen printing and corporate sales group. The
lease is month to month. The Company has occupied the building since 1992. The
Company leases approximately 1,500 square feet of space in Toronto to house
sales and customer service. The lease is month to month. There can be no
assurances that the month-to-month facilities will continue to be available to
the Company. However, the Company believes that other adequate facilities could
be located, if necessary. The Company has leased approximately 2,000 square
feet of retail space for an outlet store north of Phoenix, Arizona for a five
year term ending in September 2001. The Company believes that existing
facilities are adequate for its current requirements and that suitable
additional or substitute space is readily available as needed.
Legal Proceedings
Other than as set forth below, the Company is not currently involved in
any material legal proceedings. The Company is subject to claims and lawsuits
from time to time in the ordinary course of its business. While the outcome of
such ordinary course proceedings cannot be predicted with certainty, the
Company believes that the resolution of such current or future ordinary course
matters individually or in the aggregate will not have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Legal Proceedings."
Sea/Q of America, Inc., a New York corporation, filed a lawsuit, bearing
cause No. C975720, against the Company in the Supreme Court of British
Columbia, Canada, on October 23, 1997. The principal beneficial owner of Sea/Q
is Ronnie Strasser, a former director of the Company. In the Statement of
Claim, Sea/Q alleged that the Company had borrowed $100,000 from Sea/Q in or
about August, 1996 and had agreed to repay Sea/Q in full without interest on or
before May 30, 1997. Sea/Q further alleged that the Company had failed to repay
Sea/Q. Sea/Q requested a judgment against the Company for $100,000, plus
interest from May 30, 1997, as well as costs. The Company entered into a
settlement with Sea/Q on October 30, 1997, which was reflected in Minutes of
Settlement filed with the court in British Columbia. The Minutes of Settlement
were amended on January 10, 1998. Under the settlement, as amended, the Company
agreed: (i) to pay Sea/Q $100,000 on or before February 15, 1998; and (ii) to
cause the transfer to Sea/Q of warrants to purchase 12,000 Common Shares of the
Company with an exercise price of C$5 until June 1988, and C$5.75 thereafter
until the expiration date of June 1999. Sea/Q agreed to waive any interest
payable from May 30, 1997 to the date of repayment, to cease prosecuting the
lawsuit until February 15, 1998 and to dismiss the lawsuit entirely if the
Company paid Sea/Q $100,000 on or before February 15, 1998.
Western Pacific Developments Ltd., a British Columbia company, filed a
lawsuit, bearing cause No. C975772, against the Company, Eron Mortgage
Corporation ("Eron"), Westcoast Golf Promotions Ltd.
59
<PAGE>
("Westcoast"), Brian Slobogian and Frank Biller in the Supreme Court of British
Columbia on October 24, 1997, but voluntarily dismissed its claim against the
Company by filing with the court a Notice of Discontinuance on October 29,
1997. The Company did not offer or provide any consideration to Western Pacific
in exchange for Western Pacific filing the Notice of Discontinuance. The effect
of the Notice of Discontinuance is to dismiss Western Pacific's claim against
the Company, but is not a bar to any subsequent legal action by Western Pacific
against the Company. In its Statement of Claim, Western Pacific alleged, among
other things, that on or about February 7, 1997, Western Pacific entered into a
loan agreement with Eron, Westcoast and the Company pursuant to which Western
Pacific loaned Westcoast C$100,000, with interest payable on a monthly basis in
the amount of C$2,000. Western Pacific also alleged that it was not paid three
consecutive monthly interest payments, and asked for relief in the amount of
$106,038.74 with interest until paid in full. On November 3, 1997, Western
Pacific amended its Statement of Claim to eliminate any reference to the
Company. Brian Slobogian, who was also named as a defendant in the original
Statement of Claim for cause No. C975772, is a former Director of the Company,
having served, without attending any meetings, from June 30, 1997 through his
October 10, 1997 resignation. As a result of allegations of misconduct, Mr.
Slobogian was ordered to resign as a director of any issuer by the British
Columbia Securities Commission on October 3, 1997. On that same date, the
Registrar of Mortgage Brokers in British Columbia suspended the registration of
Eron, froze related corporate bank accounts and made application to appoint a
judicial trustee for the investors and receivers of Eron. Eron acted as a
finder for the Company in connection with the Westcoast Debenture (see "The
Acquisition and Related Financing"). The Company has not been informed that any
transactions in which it was engaged with Mr. Slobogian or entities related to
Mr. Slobogian are the subject or current regulatory or other action. However,
there can be no assurance that the Company will not receive inquiries in the
future concerning its past association with Mr. Slobogian and Eron or that such
past associations with Mr. Slobogian and Eron will not become the subject of
regulatory action.
The Company and Mr. Haynes, on his own behalf, have received a demand from
Mr. Frank Cutler, an investor in the Company's Series A Preferred, to have his
shares of Series A Preferred purchased by Mr. Haynes or redeemed by the
Company. in advance of the other holders of the Series A Preferred. Mr. Cutler
maintains that agreements between himself and the Company and between himself
and Mr. Haynes individually entitle him to have had his shares of Series A
Preferred redeemed as early as August 1, 1997. Mr. Cutler also demands from the
Company and Mr. Haynes a reduction in the exercise price of the detachable
warrants issued with the Series A Preferred to $.01 per Common Share, an
additional 20,000 warrants to purchase Common Shares at an exercise price of
$.01 per Common Share and an unspecified number of warrants to compensate him
for not having his shares of Series A Preferred redeemed at August 1, 1997. No
complaint has been filed in this matter at this time. The Company continues to
review the demands of Mr. Cutler,
The Company has received a demand from Renaissance Financial Securities
Corporation ("Renaissance") for payment of $144,000 in fees under a management
services agreement and for warrants to purchase 20,000 Common Shares at C$3.50
per share. The Company contests the amount of fees owed to Renaissance and that
the Company is obligated to issue any additional warrants to Renaissance. See
"Certain Relationships and Related Transactions." No complaint has been filed
in this matter at this time. The Company continues to review and investigate
the claims made by Renaissance.
60
<PAGE>
MANAGEMENT
Directors, Executive Officers and Certain Significant Employees
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Louis B. Lloyd(1) ......... 54 Chairman of the Board of Directors
L. Steven Haynes(2) ......... 36 Chief Executive Officer, Director
Ronald A. McPherson ......... 47 President of AGI
Gerald K. Whitley ......... 58 Vice President of Finance of AGI
Brettina M. Moore ......... 37 Vice President of Product Development of AGI
Joseph M. Blanchette ...... 45 Director of Management Information Services
John W. Wood ............... 45 President of SEI
Thomas E. Dooley, Jr. ...... 57 Chairman of the Board of Directors of AGI, Consultant to AGI
James E. Miles(2) ......... 68 Director
Robert J. McCammon(1) . 56 Director
J. Christopher Woods ...... 48 Secretary, Director
James W. Lewis(1)(2) ...... 56 Director
Natale Bosa ............... 52 Director
</TABLE>
- ------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
The Company Act (British Columbia) requires that a minimum of one Director
of the Company be ordinarily resident in British Columbia and that a majority
of the Company's Directors be ordinarily resident in Canada. Mr. Woods and Mr.
Bosa are ordinarily resident in British Columbia, and Mr. Miles and Mr.
McCammon are ordinarily resident in Canada.
Louis B. Lloyd has served as Chairman of the Board of Directors of the
Company since August 1992. He is the President and principal beneficial owner
of Belfinance Haussmann, L.L.C. ("Belfinance"), a private investment vehicle
and is the President of Belfinance Securities, Inc., an NASD member. Mr. Lloyd
is also a founder of Absolute Bank, located in the Republic of Georgia, and has
served as a Director of the bank and as the bank's Vice Chairman since its
founding in January 1995. From November 1991 through May 1994, Mr. Lloyd was
associated with Republic New York Securities Corporation, a New York Stock
Exchange member firm, most recently as President and Chief Executive Officer.
From November 1981 through July 1990, Mr. Lloyd served in various capacities at
Shearson Lehman Brothers, most recently as a Senior Executive Vice President
and head of that firm's Worldwide Institutional Equity Trading and Sales
Departments.
L. Steven Haynes has served as President and Chief Executive Officer of
the Company since its founding in 1992. Mr. Haynes was the Chief Financial
Officer of Concept Communications, a video conference company, from May 1986 to
July 1988. From June 1983 to April 1987, Mr. Haynes was associated with
Shearson Lehman Brothers, most recently as a Vice President in the Capital
Markets division.
Ronald A. McPherson, a former golf professional, has served AGI as either
manager of national sales or Vice President of Sales and Marketing from
September 1979 through August 1997. In September 1997 Mr. McPherson was named
President of AGI. Mr. McPherson is a member of the Board of Directors of the
Golf Manufacturers and Distributors Association and has served on that Board
since August 1992. He is also a member of the Board of Directors of the
Samaritan Foundation, a nonprofit philanthropic corporation supporting the work
of Samaritan hospitals.
Gerald K. Whitley has served as Vice President of Finance of AGI since May
1997 and served AGI as Vice President of Finance and Administration between
August 1985 and May 1997, except for the period from November 1994 to July
1995. From 1962 to 1984, Mr. Whitley was with Arthur Andersen LLP, becoming an
audit partner of that firm in 1974. Mr. Whitley is a certified public
accountant.
Brettina M. Moore is Vice President for Product Development, a position
she has held since November 1994. From September 1984 through November 1994,
Ms. Moore was the Assistant General
61
<PAGE>
Manager of the Gainey Ranch Golf Club in Scottsdale, Arizona. Ms. Moore is the
founder of the Association of Golf Merchandisers. She co-authored that trade
association's training manual and has authored articles on merchandising,
buying and managing retail operations for Golf Shop Operations magazine.
Joseph M. Blanchette has served AGI as Vice President of Information
Technology since September 1997, and from October 1994 to September 1997 as
Director of Management Information Systems. From November 1993 until October
1994, Mr. Blanchette provided Mid-Range (IBM AS/400) computer systems services
to businesses in the Phoenix and Southern California area through JDR
Consulting Group Inc., a company he founded. From November 1988 through
November 1993, Mr. Blanchette was associated with the Information Systems
Consulting Group of Ernst & Young LLP, most recently as Senior Manager,
specializing in managing Mid-Range (IBM AS/400) computing systems engagements.
John W. Wood has served SEI, a subsidiary of the Company, since November
1993. From April 1992 through May 1993, Mr. Wood served as Vice President of
Compliance Partners, Inc., then a development stage environmental and
engineering company. From January 1988 through April 1992, Mr. Wood was the
Branch Manager of an industrial chemical distribution facility of Unocal Corp.
Thomas E. Dooley, Jr. founded AGI, now a subsidiary of the Company, in
1975 and directed its operations through the Acquisition in June 1997. Mr.
Dooley currently serves AGI as Chairman of the Board of Directors and as a
consultant.
James E. Miles has been a Director of the Company since August 1994. Mr.
Miles is a Professor Emeritus of Psychiatry at the University of British
Columbia and has been a psychiatrist in private practice since November 1990.
Robert J. McCammon was elected to the Board of Directors at the Company's
meeting of shareholders on June 30, 1997. Mr. McCammon has been an Assistant
Coach of the Edmonton Oilers Hockey team since July 1994, was the President and
General Manager of the Tri-Cities Junior "A" Hockey Team from July 1991 through
April 1994 and a coach of the Vancouver Canucks Hockey Team from May 1987
through April 1991.
J. Christopher Woods has served as a Director of the Company since October
1996. Mr. Woods is engaged in the management of personal investments and has
provided paralegal services to the Company through an affiliation with the law
firm of Tupper, Jonsson & Yeadon of Vancouver, British Columbia. Since February
1993 Mr. Woods has been the General Manager of 440458 B.C. Ltd., a private
company providing management consulting services to various businesses
including the Company. See "Certain Relationships and Related Transactions."
Mr. Woods also serves as Secretary and a Director of Emerald Dragon Mines Ltd.,
a position he has held since February 1993. He additionally has served as
Secretary of Bismillah Ventures Inc. since January 1993 and has been a director
of that entity since October 1994.
James W. Lewis was elected to the Board of Directors at the Company's
meeting of shareholders on June 30, 1997. Mr. Lewis has been the President of
Tradeco Global Securities Inc. since May 1989. Mr. Lewis is also engaged in the
management of personal investments.
Natale Bosa was appointed a Director of the Company on October 23, 1997.
For more than the past five years Mr. Bosa has served as President of Bosa
Bros. Construction Ltd. and as President of Bosa Development Corporation, a
real estate development company.
Committees of the Board of Directors
The Audit Committee consists of Mr. Haynes, Mr. Miles and Mr. Lewis. The
Audit Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's audit and control functions.
The Board of Directors established a Compensation Committee in June 1997
and appointed Messrs. Lloyd, McCammon and Lewis, all non-employee directors, to
the Committee. The primary function of the Compensation Committee is to
establish compensation, including bonuses, of the Company's officers.
62
<PAGE>
In 1997 the Board of Directors held 24 meetings. All but one Director
attended more than 75% of the aggregate of board and committee meetings held
during their respective tenures in 1997. Mr. Slobogian did not attend the two
board meetings held during his tenure in 1997.
Director Compensation
Directors of the Company do not receive fees or other cash compensation
for service as Directors. The Directors may be reimbursed for actual expenses
reasonably incurred in the course of or in connection with the performance of
their duties as Directors. Directors are eligible to receive options for the
purchase of Common Shares. Messrs. Lloyd, McCammon, Lewis and Woods, Directors
of AEI, and Mr. Dooley, Chairman of the Board of AGI, each receive fees from
the Company for consulting services pursuant to consulting agreements. See "--
Employment and Consulting Contracts, Termination of Employment and
Change-in-Control Arrangements" and "Certain Relationships and Related
Transactions."
The Company does not have a stock option plan, but the Company has granted
stand-alone options to Directors in accordance with applicable VSE rules and
law. The Company has an outstanding option to a Director of SEI for 35,000
Common Shares at an exercise price of C$2.90 per Common Share which expires on
August 25, 2000. In connection with the Acquisition, the Company granted
options to acquire 60,000 Common Shares, 20,000 Common Shares, 50,000 Common
Shares, 5,000 Common Shares, 5,000 Common Shares, 5,000 Common Shares and 5,000
Common Shares to Mr. Haynes, Mr. McCammon, Belfinance, Mr. Lewis, Mr. Lloyd,
Mr. Miles and Mr. Woods, respectively, all of whom (other than Belfinance,
which is controlled by Mr. Lloyd) are Directors of the Company. The foregoing
options are fully vested, expire on June 16, 1999 and are exercisable at $5.00
per Common Share. The Company, at the same time, granted two-year options to
acquire an aggregate of 50,000 Common Shares at $5.00 per Common Share to
Directors of SEI and AGI.
Executive Compensation
Summary Compensation. The following table sets forth the compensation
earned by the Company's Chief Executive Officer during 1997 for services
rendered to the Company and its subsidiaries during such year. No other
executive officer earned or was paid salary and bonus in excess of $100,000
during the year ended December 31, 1997.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ------------
Securities All Other
Name and Principal Position Salary Bonus Underlying Options Compensation
--------------------------- ------ ----- ------------------ ------------
<S> <C> <C> <C> <C>
L. Steven Haynes, Chief Executive Officer(1) ...... $123,327 $14,135 60,000 $75,000
</TABLE>
- ------------
(1) Salary consists of $29,087 paid prior to the Acquisition and $94,230 paid
by AGI following the Acquisition. Bonus consists of a pro rata amount on
salary paid by AGI.
(2) Consists of $75,000 paid by the Company to Renaissance on behalf of Mr.
Haynes. See "Certain Relationships and Related Transactions."
See "Management -- Employment and Consulting Contracts, Termination of
Employment and Change-in-Control Arrangements" for a discussion of the
employment agreements of certain executive officers and consultants entered
into in connection with the Acquisition.
Option Grants. The following table provides information with respect to
stock option grants made to the Company's Chief Executive Officer for the year
ended December 31, 1997. No stock appreciation rights were granted during 1997.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------
Percent of Potential Realizable Value
Total at Assumed Annual Rates
Number of Options of Stock Price
Securities Granted to Exercise Appreciation For Option
underlying Employees or Base Term(2)
Options in Fiscal Price Expiration --------------------------
Name Granted (#) Year(1) ($/Sh) Date 5% ($) 10% ($)
- ------------------------ ---------------- ------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
L. Steven Haynes ...... 60,000 (3) 12.45% $5.00 6/16/99 $30,600 $63,000
</TABLE>
- ------------
(1) Based on total grants during the year of 482,000
63
<PAGE>
Aggregated Fiscal Year-End Option Values. The following table sets forth
for the Company's Chief Executive Officer the number and value of securities
underlying unexercised options and warrants held at December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at December 31, 1997 December 31, 1997(1)(2)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
L. Steven Haynes ...... 60,000 -- $60,000 --
</TABLE>
- ------------
(1) Based on the difference between the assumed public offering price of $6.00
per Common Share and the exercise price.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of the future price for
the Common Shares.
401(k) Plan
In May 1993, the Board of Directors of AGI, adopted a tax qualified
employee savings and retirement plan covering its employees (the "401(k)
Plan"). Pursuant to the 401(k) Plan, eligible employees may elect to reduce
their current compensation by up to statutorily prescribed annual limit and
have the amount of such reduction contributed to the 401(k) Plan. The 401(k)
Plan provides discretionary matching by AGI. Employees become 20% vested in the
Company's matching contributions after two years of service, and increase their
vested percentages by an additional 20% for each year of service thereafter.
The 401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions to the 401(k) Plan, and income earned on the 401(k) Plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company will be deductible by the
Company when made.
Employment and Consulting Contracts, Termination of Employment and
Change-in-Control Arrangements
The Company entered into employment agreements, effective as of the
closing of the Acquisition, with the following executive officers: (1) L.
Steven Haynes, Chief Executive Officer; (2) Ronald A. McPherson, Vice President
of Sales (and since September 1997, President of AGI); (3) Gerald K. Whitley,
Vice President of Finance; (4) Brettina M. Moore, Vice President of Product
Development; and (5) Joseph M. Blanchette, Director of Management Information
Systems (and since September 1997, Vice President of Information Technology).
Pursuant to such agreements, Messrs. Haynes, McPherson, Whitley, Ms. Moore and
Mr. Blanchette receive annual salaries of $175,000, $120,000, $95,000, $108,000
and $86,000, respectively, and bonuses of 15% (not less than 15% in the case of
Ms. Moore) of annual salary (prorated for a partial year of employment).
Additionally, upon execution of the agreements Messrs. Haynes, McPherson,
Whitley, Ms. Moore and Mr. Blanchette received stock option grants for 55,000
shares, 60,000 shares, 60,000 shares, 40,000 shares and 10,000 shares,
respectively. The stock options granted to Mr. McPherson, Mr. Whitley, Ms.
Moore and Mr. Blanchette are fully vested and are exercisable, at a strike
price of C$6.25 per Common Share, for the options to Mr. McPherson and Mr.
Whitley, and $5.00 per share for the options to Ms. Moore and Mr. Blanchette,
over the two-year period following the grant date. The stock options granted to
Mr. Haynes vested as to fifty percent of the options on the effective date of
the employment agreement, with the second fifty percent vesting on the first
anniversary of the date of grant. Mr Haynes' options are exercisable at C$6.75
during the first year following grant and C$7.75 during the second year. The
term of Mr. Haynes' agreement is three years, and the Company may extend the
term for an additional two-year period. The agreements of Mr. McPherson, Mr.
Whitley, Ms. Moore and Mr. Blanchette provide for an indefinite period of
employment, subject to customary termination provisions. The agreements of Mr.
McPherson and Mr. Whitley provide that if employment is terminated for cause by
the Company or by the employee without good reason, the employee shall receive
only the salary payments earned prior to the date of termination; if employment
is terminated without cause or by the employee for good reason, the employee
will continue to receive salary and health and other benefits for a period of
six months following termination, and all unvested stock options shall vest in
full. The agreements of Mr. Haynes, Ms. Moore and Mr. Blanchette provide that
if employment is terminated by the Company for any reason, the employee will
continue to receive salary and health and
64
<PAGE>
other benefits for a period of six months following termination, and all
unvested stock options shall vest in full. The Company has agreed to provide
term life insurance for Mr. Haynes. Each of the employment agreements further
provide that during the term of employment and for a period of six months, two
years in the case of Mr. Haynes, after termination of employment, the employee
will not, subject to certain limitations, compete with the Company.
In connection with the Acquisition and the execution of employment
agreements, AGI refinanced debts owed to Mr. McPherson and Mr. Whitley. The
approximately $251,000 owed to each of Mr. McPherson and Mr. Whitley under
loans originally made in 1993 have been repaid since the Acquisition. A
contingent payment due to each in respect of their notes, $150,600, was
converted into 30,120 Common Shares of the Company and two-year warrants to
acquire 15,060 Common Shares at an exercise price of C$6.75 per share during
the first year following grant and C$7.75 during the second year. Under their
amended notes, Mr. McPherson and Mr. Whitley each have the right, prior to the
first anniversary of the closing of the Acquisition, to require the Company to
repurchase, in whole or in part, these shares and warrants for $150,600.
Also in connection with the Acquisition, the Company entered into a
two-year consulting and non-competition agreement with Thomas E. Dooley, Jr.
Mr. Dooley is the founder of AGI and currently serves as Chairman of the Board
of Directors of AGI. See "-- Directors, Executive Officers and Certain
Significant Employees." Pursuant to the consulting and noncompetition
agreement, Mr. Dooley provides AGI with consulting services with respect to
manufacturing operations, marketing and sales activities and relationships with
licensors as requested by the Chief Executive Officer or Board of Directors of
AGI. The Company pays Mr. Dooley an annual fee of $100,000 for services
provided under the consulting agreement, and Mr. Dooley is eligible for an
annual bonus based, in part, on the performance of AGI. In connection with the
Acquisition, Mr. Dooley was issued an option, which expires May 28, 1999, to
purchase 50,000 Common Shares at an exercise price of $5.00 per Common Share.
Mr. Dooley will also receive additional cash consideration in the Acquisition
in an amount currently estimated at $700,000 to be paid in four equal quarterly
installments beginning September 16, 1997, subject to prepayment upon the
completion of a securities offering by the Company with gross proceeds to the
Company in excess of $12,000,000. See "The Acquisition and Related Financing"
and "Use of Proceeds." Mr. Dooley has agreed for a period of two years not to
compete with AGI, solicit business of customers or clients of the Company or
solicit or offer employment to employees of the Company.
Subject to VSE approval, the Company has entered into a consulting
agreement with Belfinance, the sole beneficial owner of which is Mr. Lloyd, the
Chairman of the Company's Board of Directors. The agreement has a two year term
commencing September 15, 1997. Pursuant to the agreement, Belfinance will
provide AEI consulting services with respect to potential acquisitions and
strategic matters in the golf apparel industry as requested by the Board of
Directors of AEI. For consulting services under the Agreement, AEI will pay
Belfinance $96,000 annually, Belfinance will be eligible for bonuses or
incentive payments and the Company will issue Belfinance options, which vest in
equal installments over two years, to acquire 50,000 Common Shares at an
exercise price of $5.00 per Common Share. In the event of a termination of the
consulting agreement upon a "Change of Control" (as defined in the consulting
agreement) Belfinance is entitled to receive a lump sum cash payment equal to
three times Belfinance's "Cash Compensation" (also as defined in the consulting
agreement), subject to reduction in certain circumstances to preserve favorable
tax treatment to the Company or in connection with other severance payments to
be made by the Company and, for two years following such termination, benefits
substantially similar to those provided to Belfinance for Mr. Lloyd immediately
prior to such termination.
The Company has agreed to retain Robert J. McCammon as a consultant to
assist AGI with its relationship with the National Hockey League. The Company
will retain Mr. McCammon for a three-year term commencing September 1, 1997 and
has agreed with Mr. McCammon to compensate Mr. McCammon at the rate of $30,000
annually. Mr. McCammon is a Director of the Company.
Limitation of Liability and Indemnification of Officers and Directors
The Company Act (British Columbia) permits a company, with the approval of
the British Columbia Supreme Court, to indemnify a director or officer of the
Company in respect of all costs, charges and
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<PAGE>
expenses actually and reasonably incurred by him in connection with a civil,
criminal or administrative action to which he is made a party by reason of
having been a director, provided that he acted honestly and in good faith and
had reasonable grounds for believing that his conduct was lawful.
The Articles of the Company provide that, subject to the provisions of the
Company Act, the directors shall cause the Company to indemnify its directors
and may cause the Company to indemnify its officers and the directors of
companies in which the Company is a shareholder.
The Company entered into written indemnity agreements with two directors,
J. Christopher Woods and Fiama Walker, in connection with approval of the
Acquisition. Ms. Walker is no longer a director of the Company.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee was established in August 1997. Prior to its
establishment, the entire Board of Directors performed the functions now
delegated to that Committee, and Mr. Haynes, the Chief Executive Officer,
participated in deliberations of the Company's Board of Directors concerning
executive officer compensation.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has obtained VSE approval for a bonus of up to 50,676 Common
Shares to Belfinance for having extended a $1,000,000 credit to the Company in
order for the Company to meet short term obligations under the escrow agreement
in connection with, and prior to closing of, the Acquisition. Belfinance
transferred the right to receive repayment on the loan to KOZ Capital which used
the cancellation of the loan as consideration for the purchase of 1,000,000
shares of the Series A Preferred. The Board has not yet caused the issuance of
the 50,676 Common Shares. The Company has approved the payment of a bonus of
47,192 Common Shares to Mr. Lloyd for having made two short-term loans to the
Company prior to and in connection with the Acquisition and for having
personally guaranteed the notes to Mr. Dooley, as agent for the shareholders of
AGI. The amount of the bonus and payment of the bonus is subject to the Company
obtaining approval from the VSE and the shareholders of the Company. If
approved, the Company anticipates that the bonus will be paid in Common Shares.
The Company has entered into a consulting agreement with Belfinance. See
"Management -- Employment and Consulting Contracts, Termination of Employment
and Change-in-Control Arrangements." Mr. Lloyd, through Belfinance, is also a
creditor of the Company. As of September 1, 1997, the principal and interest, at
7% per annum, due was approximately $333,000, of which amount approximately
$311,000 was advanced prior to December 31, 1996 for working capital and $6,825
was advanced on December 31, 1996 for use of the Company to satisfy its tax
obligations. The Company repaid $200,000 during September 1997, with proceeds of
the private placement of Series A Preferred. Mr. Lloyd leases the Dallas, Texas
facility to the Company on a month to month basis at no cost. A lease for the
facility is under negotiation. For having given a personal guarantee of the
Westcoast Debenture, the Company granted Mr. Lloyd 88,500 Common Shares. In
order to effect an agreement among Messrs. Lloyd, Haynes and McCammon, the
Company intends to apply to the VSE for the transfer of 95,000 Performance
Shares to Mr. Lloyd and Mr. Haynes (in equal parts) from Mr. McCammon. These
shares are held in escrow pursuant to the Escrow Agreement and will remain
subject to such agreement.
The Company has approved the payment of a bonus of 47,192 Common Shares to
Mr. Haynes for having made a short-term loan to the Company prior to and in
connection with the Acquisition and for having personally guaranteed the notes
to Mr. Dooley, as agent for the shareholders of AGI. The amount of the bonus and
payment of the bonus is subject to approval of the VSE and the shareholders of
the Company. If approved, the Company anticipates that the bonus will be paid in
Common Shares. Mr. Haynes has advanced to the Company approximately $77,500,
consisting of approximately $57,500 of advances for general corporate purposes
during 1995, approximately $30,000 of advances for general corporate purposes
during 1996 and net repayments of approximately $10,000 during 1997. The
advances bear interest, at 10% per annum, and have no specific terms of
repayment. For having given a personal guarantee of the Westcoast Debenture, the
Company granted Mr. Haynes 88,500 Common Shares. In order to effect an agreement
among Messrs. Lloyd, Haynes and McCammon, the Company intends to apply to the
VSE for the transfer of 95,000 Performance Shares to Mr. Lloyd and Mr. Haynes
(in equal parts) from Mr. McCammon. These shares are held in escrow pursuant to
the Escrow Agreement and will remain subject to such agreement.
On September 15, 1995 the Company entered into a three-year Management
Services Agreement with Renaissance Financial Securities Corp. ("Renaissance").
Robert Moody, Jr., a director of SEI, owns approximately twenty percent of the
share capital of Renaissance. Pursuant to that agreement, Renaissance agreed to
provide management advisory, investment banking and financial services to the
Company for $3,000, $4,000 and $5,000 per month during the first, second and
third years of the term of the agreement, respectively, and an option to acquire
60,000 Common Shares at an exercise price of C$3.50 per share. The Company
maintains that it terminated that agreement on September 12, 1997. Renaissance
has made a demand for payment of fees under that agreement and for warrants to
purchase 20,000 Common Shares of C$3.50 per share. While the Company's records
indicate that options to purchase 30,000 Common Shares were exercised by
Renaissance, a third party has claimed the option to purchase all 60,000 Common
Shares were transferred to him by business. The Company has approved the
issuance of an option to a principal of Renaissance for the purchase of 10,000
Common Shares at an exercise price of $5 per share for a two-year period. Mr.
Haynes pledged warrants to acquire 42,800 Common Shares of the Company in May
1996 to secure repayment of a debit in a trading account of Renaissance.
Following such pledge, the Company paid Renaissance $75,000 in settlement of a
personal obligations of Mr. Haynes to Renaissance, and Renaissance released the
pledge of Mr. Haynes' warrants.
Between November 1, 1996 and June 16, 1997, Mr. Lloyd, Mr. Haynes and Mr.
Wood, the President of SEI, advanced funds in the following aggregate,
respective amounts: $501,589, $492,534 and $169,918. Using promissory notes as
consideration, KOZ Capital purchased these payables from Messrs. Lloyd, Haynes
and Wood and also purchased payables of $627,807 representing professional fees
and legal owed by the Company and fees owed by the Company to 440458 B.C. Ltd.,
of which Mr. Woods, a Director of the Company, is the
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<PAGE>
General Manager. KOZ Capital purchased an aggregate amount of payables equal to
$1,791,048.45, used the same amount to subscribe for the KOZ Debenture and
secured payment of the notes to the individuals with the Common Shares
underlying the KOZ Debenture.
The Company acquired AGI from Mr. Dooley and its minority shareholders in
June 1997. See "The Acquisition and Related Financing." In connection with the
Acquisition, the Company entered into a consulting agreement with Thomas E.
Dooley, Jr., the founder of AGI. Mr. Dooley currently serves as Chairman of the
Board of Directors of AGI. See "Management -- Employment and Consulting
Contracts, Termination of Employment and Change-in-Control Arrangements." The
Company also leases its primary office space, production facility and warehouse
from D&D Development Co., an Arizona general partnership, of which Mr. Dooley
beneficially owns 50%. See "Business -- Facilities." In the event Mr. Dooley
acquires the partnership interests of the other partners of D&D Development Co.,
the monthly rental rate payable under the lease increases from $.45 per square
foot to $.60 per square foot, representing an annual rental increase of
approximately $76,500. Prior to the Acquisition Closing Date, AGI had elected
(beginning July 1, 1988) to be treated as an S Corporation under Subchapter S of
the Internal Revenue Code and comparable state tax laws. Distributions of
approximately $300,000 and $725,000 were paid to AGI shareholders in 1994 and
1997, respectively. These distributions were made to provide funds to AGI
shareholders with which to pay income taxes on the earnings of AGI attributable
to them. See "S Corporation Distributions."
In connection with the Acquisition and the execution of employment
agreements, AGI refinanced debts owed to Mr. McPherson and Mr. Whitley and
issued, to each, 30,120 Common Shares of the Company and two-year warrants to
acquire 15,060 Common Shares at an exercise price of C$6.75 per share during
the first year following issuance and C$7.75 during the second year in
connection with a contingent payment due to each in respect of their notes. See
"Employment and Consulting Contracts, Termination of Employment and
Change-in-Control Arrangements."
Mr. Wood, the President of SEI, has advanced to the Company a net amount of
approximately $105,000, consisting of: $37,000 of working capital advances
during May 1995 and approximately $32,500 of material purchases and other
advances during November 1995 and through December 31, 1995; approximately
$9,000 of material purchases and deferred payroll through June 30, 1996; and
approximately $56,000, all less repayments. The advances bear interest at ten
percent (10%) per annum and have no specific terms of repayment.
The Company has agreed to retain Mr. McCammon as a consultant. Mr. McCammon
is a Director of the Company. See "Management -- Employment and Consulting
Contracts, Termination of Employment and Change-in-Control Arrangements." The
Company also granted Mr. McCammon options to purchase 20,000 Common Stock at an
exercise price of $5.00 per share as an endorsement to Mr. McCammon to endorse
the Company's products.
The Company entered into an agreement (the "TradeCo Agreement") in January
1997 with TradeCo Global Securities, Inc. ("TradeCo"), of which Mr. Lewis, a
Director of the Company, is the President. Due to an oversight, the Company did
not submit the TradeCo Agreement to the VSE for approval within the required
time period, and, accordingly, the Company believes that it may be without
authority to perform under the TradeCo Agreement. The Company has orally agreed
with TradeCo to enter into a substantially similar agreement, subject to VSE
approval. The Company has not yet prepared a written agreement or sought VSE
approval for its terms. If the terms previously agreed to are approved, TradeCo
would provide financial advisory, corporate finance, merger and acquisition and
capital raising advice for a monthly retainer of $5,000 (subject to increase to
not more than $10,000 following a closing of a public offering of Common Shares)
for a one year period. In addition to the monthly retainer, TradeCo will be
eligible under the agreement to receive fees, in the form of cash, Common Shares
or warrants to purchase Common Shares, upon completion of new financings it
initiates. TradeCo has received from a third party Common Shares and warrants to
purchase Common Shares in connection with the financing of the Acquisition. See
"The Acquisition and Related Financing." The Company has also agreed to nominate
a nominee of TradeCo for election to the Company's Board of Directors, Mr. Lloyd
and Mr. Haynes have agreed to vote their shares in favor of such nominee and the
Company has agreed to appoint that nominee to the Compensation Committee of the
Board of Directors and has also agreed to indemnify TradeCo on terms yet to be
decided.
The Company entered into a management contract, which has not been reduced
to writing, pursuant to which 440458 B.C. Ltd., a British Columbia company
("440458 B.C. Ltd."), is entitled to receive compensation for the performance
of management services. For rendering such services, 440458 B.C. Ltd.
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<PAGE>
is paid C$2,500 per month, reasonable related out-of-pocket expenses plus
applicable taxes. The sole beneficial owner of the shares of 440458 B.C. Ltd.
is a person related to J. Christopher Woods, the Secretary and a Director of
the Company.
In connection with the Acquisition, the Company paid a finder's fee of
131,758 Common Shares to Sportswear Investors, LLC. Gary McCauley, a Director
of AGI, is a member of Sportswear Investors, LLC. See "The Acquisition and
Related Financing."
PRINCIPAL AND SELLING SHAREHOLDERS
The following tables set forth certain information regarding the
beneficial ownership of the Company's Common Stock as of September 30, 1997 by
(i) each director, (ii) each named executive officer in the Summary
Compensation Table, (iii) each person who is known by the Company to own
beneficially 5% of more of the Common Stock and (iv) all Directors and
executive officers as a group. Unless otherwise indicated, each person has sole
voting and dispositive power over the shares indicated as owned by such person,
subject to community property laws where applicable. The address of each person
or entity listed is 9319 North 94th Way, Scottsdale, Arizona 85258, except as
otherwise indicated.
<TABLE>
<CAPTION>
Shares beneficially Shares beneficially
owned prior to the owned after the
Offering Offering(1)
----------------------- ----------------------
Name and Address of Beneficial Owner Number Percent Number Percent
------------------------------------ ------ ------- ------ -------
<S> <C> <C> <C> <C>
Louis B. Lloyd(2) ........................ 1,028,443 20.40% 1,028,443 12.79%
L. Steven Haynes(3) ..................... 428,170 9.61 428,170 5.74
James E. Miles(4) ........................ 85,361 1.96 85,361 1.16
Robert J. McCammon(5) .................. 124,600 2.86 124,600 1.69
J. Christopher Woods(6) .................. 5,000 * 5,000 *
James W. Lewis(7) ........................ 834,680 16.93 834,680 10.53
Natale Bosa(8) ........................... 60,555 1.39 60,555 *
Westcoast Golf Promotions Ltd,(9) ...... 2,100,000 32.62 2,100,000 22.25
Suite 500, 1380 Burrard Street
Vancouver, British Columbia, Canada
Thomas E. Dooley, Jr.(10) ............... 1,223,000 21.99 1,223,000 14.29
12401 East Saddlehorn Scottsdale,
Arizona 85259
Geovest Capital Partners, L.P.(11) ...... 412,000 8.67 412,000 5.32
666 Fifth Avenue, 24th Floor
New York, New York 10103
All Directors and executive officers as a
group (12 persons)(12) .................. 2,913,169 48.45 2,913,169 32.32
</TABLE>
- ------------
* Less than 1%
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." If such option is exercised in full, Mr. Lloyd will
beneficially own 1,008,443 Common Shares (or 12.08%), Mr. Haynes will
beneficially own 408,170 Common Shares (or 5.27%) and each of Mr. McPherson
and Mr. Whitley, who currently each beneficially own 105,180 Common Shares,
will beneficially own 85,180 Common Shares (or 1.15%), following the
offering.
(2) Includes 458,075 Common Stock underlying options and warrants to purchase
Common Shares that are exercisable within 60 days (245,000 of which are
held by Belfinance). Also includes 245,000 Common Shares into which shares
of Series A Preferred held by Belfinance may be converted within 60 days.
(3) Includes 118,720 Common Shares underlying options and warrants to purchase
Common Shares that are exercisable within 60 days.
(4) Includes 12,407 Common Shares underlying options and warrants to purchase
Common Shares that are exercisable within 60 days.
(5) Includes 20,000 Common Shares underlying options and warrants to purchase
Common Shares that are exercisable within 60 days. Also includes 95,000
Common Shares held in escrow which Mr.
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<PAGE>
McCammon has agreed to transfer to Mr. Lloyd and Mr. Haynes, in equal
parts, subject to VSE approval. See "Certain Relationships and Related
Transactions" and "Description of Securities - Performance Shares."
(6) Includes 5,000 Common Shares underlying options and warrants to purchase
Common Shares that are exercisable within 60 days.
(7) Includes 160,000 Common Shares into which shares of Series A Preferred may
be converted within 60 days. Also includes 371,000 Common Shares underlying
options and warrants to purchase Common Shares that are exercisable within
60 days. The 371,000 Common Shares includes warrants that are exercisable
within 60 days to acquire 206,000 Common Shares owned by Geovest Capital
Partners, L.P. ("Geovest"), of which Mr. Lewis is an investor and Manager.
Also includes 206,000 Common shares owned by Geovest. Mr. Lewis disclaims
beneficial ownership of shares owned by Geovest except to the extent of his
pecuniary interest therein arising from his partnership intrest. Also
includes 37,680 Common Shares owned by TradeCo Global Securities, Inc., of
which Mr. Lewis is the Chairman. Mr. Lewis disclaims beneficial ownership
of such shares. Also includes 30,000 Common Shares and warrants to purchase
30,000 Common Shares held by Investarit AG, of which Mr. Lewis is a
shareholder. Mr. Lewis disclaims beneficial ownership of such shares. See
"Certain Relationships and Related Transactions."
(8) Includes 18,818 Common Shares underlying options and warrants to purchase
Common Shares that are exercisable within 60 days. Mr. Lewis disclaims
beneficial ownership of such shares
(9) Includes units underlying a convertible debenture, which is convertible
within 60 days into 1,050,000 Common Shares and warrants, which are also
exercisable within 60 days, for 1,050,000 Common Shares.
(10) Includes 1,233,000 Common Shares underlying options and warrants to
purchase Common Shares and instruments convertible into Common Shares
within 60 days. See "The Acquisition and Related Financing."
(11) Includes warrants to acquire 206,000 Common Shares that are exercisable
within 60 days.
(12) Includes 1,003,140 Common Shares underlying options and warrants to
purchase Common Shares that are exercisable within 60 days and 405,000
Common Shares into which shares of Series A Preferred may be converted
within 60 days.
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<PAGE>
DESCRIPTION OF SECURITIES
The following description of the Company's capital stock is a summary only
and is qualified in its entirety by reference to the Company's Memorandum and
Articles, copies of which are filed as exhibits to the Registration Statement
of which this prospectus is a part, and by reference to British Columbia law
under which the Company is incorporated.
General
The Company was incorporated in 1986. Since that time it has effected two
consolidations, or reverse-splits, of its common shares, on December 17, 1991
and June 13, 1997, in each case on the basis of 5 pre-consolidation common
shares for 1 post-consolidation common share. The current authorized capital of
the Company consists of 300,000,000 Common Shares without par value (the
"Common Shares") and 30,000,000 Preferred shares without par value, issuable in
series (the "Preferred Shares"). The Preferred Shares are issuable at any time
and from time to time in one or more series, each series consisting of such
number of shares and, subject to the provisions attached to the Preferred
Shares as a class, having such designation and such rights, privileges,
restrictions and conditions attaching thereto as may be determined by the
directors of the Company. The Company has designated 10,000,000 Preferred
Shares as Convertible Preferred Shares Series A (the "Series A Preferred").
As at September 30, 1997, there were 4,338,365 Common Shares (the Company
has received consideration for and is committed to issue, but has not yet
issued, 630,156 of such shares) and 5,730,000 Series A Preferred Shares
(certificates for which have not yet been delivered) issued and outstanding.
Common Shares
The holders of Common Shares are entitled to notice of and to attend at
all meetings of shareholders and to one vote for each share held on all matters
to be voted on by shareholders at such meetings (other than meetings at which
only holders of another class or series of shares are entitled to vote).
Subject to the rights of the holders of the Preferred Shares, the holders of
Common Shares are entitled to receive, pro rata with all other holders of
Common Shares, such dividends as may from time to time be declared in the
discretion of the directors of the Company and are entitled to receive the
remaining assets of the Company in the event of the Company's liquidation,
dissolution or winding-up.
The holders of Common Shares are not entitled to pre-emptive, subscription
or conversion rights, and there are no redemption or sinking fund provisions
applicable to the Common Shares. The holders of Common Shares are not subject
to further calls or assessments by the Company.
Performance Shares
Pursuant to an escrow agreement dated August 4, 1992, among the Company
(then Fair Resources Group Inc.), Montreal Trust Company and certain of it
shareholders (the "Escrow Agreement"), the Company issued 456,992 common
"performance shares" (the "Performance Shares") to certain of its founders and
future principal stockholders, Messrs. Lloyd, Haynes and McCammon. The
Performance Shares were issued pursuant to Local Policy #3-07 of the British
Columbia Securities Commission (the "BCSC") and Policy 19 of the VSE.
The Performance Shares include 25,500 shares which are the remaining
portion of 750,000 shares issued pursuant to an escrow agreement dated December
22, 1988, among the Company (then Fair Harbour Mining Corporation), C. Phillip
Yeandle, and Montreal Trust Company of Canada (the "Original Performance
Shares"). On October 1, 1991, C. Phillip Yeandle transferred the remaining
25,500 Original Performance Shares to Franco S. Cecconi, another then principal
of the Company. Such shares were rolled into the Escrow Agreement in connection
with the acquisition of SEI by Fair Resources Group Inc. in August 1992.
The Performance Shares are held in escrow to be released as the Company
achieves positive operating cash flow on a cumulative basis. The holders of
Performance Shares will be entitled to a pro rata release from escrow on the
basis of one share to be released for each $0.6725 of cash flow to the Company,
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<PAGE>
calculated as a performance share percentage of 31% of the issued capital of
the Company and an earn-out factor of .3844, subject to approval by BCSC and
the VSE. Performance Shares are permitted to be released on an annual basis.
A total of 200,492 of these shares have been returned to treasury and none
of the remaining Performance Shares have been released from escrow, all as a
result of a failure by the Company to meet the performance criteria. The
current total of Performance Shares held in escrow is 256,500. Once released,
the Performance Shares will be freely tradeable in the province of British
Columbia.
If any of the 25,500 Original Performance Shares remain unreleased from
the escrow on December 22, 1998, they will be cancelled on such date. Any of
the remaining 126,492 Performance Shares not yet released will be cancelled on
August 4, 2002.
Preferred Shares
Voting. The holders of Series A Preferred shares are not entitled to
notice of or to attend or to vote at any meeting of the shareholders of the
Company, except to approve amendments to the terms of the Series A Preferred
shares or otherwise as required by law. The Series A Preferred shares will rank
on a parity with the Preferred Shares of every other series and will be
entitled to preference over the Common Shares and any other shares ranking
junior to the Series A Preferred with respect to the payment of dividends and
the distribution of assets in the event of the liquidation, dissolution or
winding up of the Company.
Dividends. For a period of 5 years from the date of issuance thereof,
shares of the Series A Preferred shares are entitled to a fixed, cumulative
preferential cash dividend of 12% per annum on the subscription price therefor.
Conversion. The holders of Series A Preferred shares have the right, for a
period of 5 years from their issuance, to convert their Series A Preferred
shares (including accrued and unpaid interest) into Common Shares, on a basis
of five shares of Series A Preferred for one Common Share, without further
payment at any time prior to the first anniversary of their issuance, or with a
payment of $1.25, $2.50, $3.75 or $5.00 in the second, third, fourth, or fifth
year following their issuance, respectively.
Retraction. To the extent the Company completes a sale of its securities
by way of an initial public offering through the facilities of the National
Association of Securities Dealers Automatic Quotation System, the holders of
the Series A Preferred shares shall have the right to retract the Series A
Preferred shares at the subscription price thereof together with accrued but
unpaid dividends thereon, but only to the extent that such retraction can be
funded through net proceeds of such initial public offering in excess of
$8,000,000.
Redemption. The Company may at any time redeem the whole or part of the
issued and outstanding Series A Preferred shares upon payment of the sum of
C$6.75 per share together with accrued but unpaid dividends thereon.
Restrictions. Unless otherwise approved by a special resolution of the
holders of the Series A Preferred shares, the Company may not declare or pay
any dividends on the Common Shares, redeem, purchase or make any capital
distribution on the Common Shares or issue any additional Series A Preferred
shares or other shares ranking in priority to or pari passu with the Series A
Preferred shares in respect of the payment of dividends or the return of
capital.
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<PAGE>
Common Share Purchase Warrants
The Company has the following warrants outstanding as of September 30,
1997:
<TABLE>
<CAPTION>
Number of Common
Shares Issuable
Maturity Date Exercise Price Upon Exercise
------------- -------------- -------------
<S> <C> <C>
July 11, 1998 C$6.25 until July 11, 1997; C$7.50 from July 12, 1997 until 119,400
maturity
October 16, 1998 C$5.80 until October 16, 1997; C$6.65 from October 17, 210,000
1997 until maturity
November 30, 1998 C$6.75 until November 30, 1997; C$8.00 from December 49,952
1, 1997 until maturity
May 16, 1999 C$4.50 until May 16, 1998; C$5.20 from May 17, 1998 until 75,889
maturity
June 16, 1999 C$6.75 until June 16, 1998; C$8.00 from June 17, 1998 until 40,120
maturity
June 16, 1999 C$4.00 until June 16, 1998; C$4.60 from June 17, 1998 until 78,627
maturity
June 16, 1999 C$4.00 until June 16, 1998; C$4.60 from June 17, 1998 until 40,000
maturity
June 16, 1999 C$5.00 until June 16, 1998; C$5.75 from June 17, 1998 until 120,000
maturity
June 16, 1999 C$5.35 until June 16, 1998; C$6.15 from June 17, 1998 until 60,000
maturity
September 2, 1999 C$4.00 until September 2, 1998; C$4.60 from September 3, 115,344
1998 until maturity
May 7, 2002 $5.00 323,426
May 7, 2002 $5.00 1,078,086
May 7, 2002 $5.00 1,078,086
June 16, 2002 C$7.20 until June 16, 1998; C$8.40 from June 17, 1998 until 946,000
June 16, 1999; C$9.70 from June 17, 1999 until June 16,
2000; C$10.85 from June 17, 2000 until June 16, 2001;
C$12.10 from June 17, 2001 until maturity
July 18, 2002 C$7.20 until July 18, 1998; C$8.40 from July 19, 1998 until 200,000
July 18, 1999; C$9.70 from July 19, 1999 until July 18,
2000; C$10.85 from July 19, 2000 until July 18, 2001;
C$12.10 from July 19, 2001 until maturity
</TABLE>
Convertible Debentures
The Company has issued two convertible debentures, one in the amount of
$1,791,048.45 (the "KOZ Debenture") to KOZ Capital Corp., a Cayman Islands
corporation, and one in the amount of C$4,200,000 (the "Westcoast Debenture")
to Westcoast Golf Promotions Ltd., a Canadian corporation. The KOZ Debenture
bears interest at 12% per annum and is due in June 1998. The KOZ Debenture is
convertible into 714,454 Common Shares and two-year warrants to purchase an
additional 714,454 Common Shares at a price of C$4.00 per Common Share in the
first year and C$4.60 in the second year. The Westcoast Debenture bears
interest at 15% per annum and matures in June 1998. The Westcoast Debenture is
convertible into 1,144,500 Common Shares and two-year warrants to purchase an
additional 1,144,500 Common Shares at a price of C$4.00 per Common Share in the
first year and C$4.60 in the second year. In connection with the Westcoast
Debenture, the Company granted each of Mr. Lloyd and Mr. Haynes, Directors of
the Company, 88,500 Common Shares as a bonus for their having guaranteed the
Westcoast Debenture and a finder's fee in the form of 177,000 Common Shares to
Eron Mortgage Corp. See "Certain Relationships and Related Transactions."
Convertible Notes
In connection with the Acquisition, the Company issued three convertible
long-term promissory notes in the aggregate principal amount of $6,378,000 to
Mr. Dooley. The Company intends to repay these
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<PAGE>
notes with proceeds of this offering. See "The Acquisition and Related
Financing" and "Use of Proceeds." These notes currently bear interest at 8.25%
and mature, in the absence of a public offering, on May 7, 1999, with respect
to $1.18 million, and on May 7, 2000, with respect to the balance. Upon certain
securities offerings, Mr. Dooley has the right to convert any part of the
outstanding principal amount of the notes into Common Shares at the lesser of
$7.50 or the price of the Common Shares in such securities offering. Further,
the right to convert these notes to equity extends to a period of ten days
following receipt of written notice of the Company's intention to pay the
notes.
Representatives' Warrants
The Company has also agreed to sell to the Representatives warrants to
purchase up to 300,000 Common Shares at a price of $0.001 per warrant (the
"Representatives' Warrants"). The Representatives' Warrants will be exercisable
for a period of four years, commencing one year after the date of this
prospectus, at an initial per share exercise price equal to 120% of the price
to the public set forth on the cover page of this prospectus. The
Representatives' Warrants are not redeemable by the Company under any
circumstances. Neither the Representatives' Warrants nor the Common Shares
issuable upon exercise thereof may be transferred, assigned or hypothecated
until one year from the date of this prospectus, except that they may be
assigned, in whole or in part, to any successor, officer, director, member or
partner of the Representatives.
The holders of the Representatives' Warrants will have no voting, dividend
or other rights as shareholders of the Company unless and until the exercise of
the Representatives' Warrants. The number of securities deliverable upon any
exercise of the Representatives' Warrants or its underlying securities and the
exercise price of the Representatives' Warrants are subject to adjustment to
protect against any dilution upon the occurrence of certain events, including
issuance of stock dividends, stock splits, subdivision or combination of
outstanding stock and reclassification of stock.
The Company has agreed with the Representatives that if, during the
four-year period commencing one year following the date of this prospectus, the
Company registers any of its Common Shares for sale pursuant to a registration
statement (with the exception of Form S-4, Form S-8 or other similar form), it
will use its best efforts, upon request of any of the holders of the
Representatives' Warrants and/or the underlying shares, to include such
securities as a part of the registration statement. The Company will bear all
the costs, except underwriting discounts and the Representatives' legal fees,
for one piggyback registration. In addition, the Company and the
Representatives have agreed that, during the five-year period commencing one
year after the date of this prospectus, the holders of a majority of the
Representatives' Warrants shall have the right to require the Company to
prepare and file one registration statement with respect to a public offering
of the Common Stock underlying the Representatives' Warrants. Such a
registration statement shall be kept effective for a period of up to 120 days,
and the Company shall bear all of the costs, exclusive of underwriting
discounts and selling commissions, of one such demand registration.
Registration Rights
In connection with the Acquisition, the Company entered into a
Registration Rights Agreement with Thomas E. Dooley, Jr., as agent for the
shareholders of AGI. The registration agreement grants Mr. Dooley, as agent,
the right to a demand registration, an additional demand registration if at the
time of the second request the Common Shares may be registered on Commission
Form S-3 and piggyback registration rights in the event the Company proposes to
register any of its securities or is required to register securities of any
other shareholders pursuant to registration rights. Registrable securities
under the registration agreement include Common Shares issued in the
Acquisition and Common Shares underlying convertible notes or issuable upon
exercise of warrants. All fees and expenses of such registration will be borne
by the Company. The Company is required to use its best efforts to effect
demand registrations, subject to certain conditions and limitations.
The Company has granted registration rights covering 2,479,598 Common
Shares, subject to adjustment, underlying warrants issued in connection with
the LaSalle Acquisition Loan, the Imperial Acquisition Loan and the Cruttenden
Bridge Acquisition Loan. See "The Acquisition and Related Financing."
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The Company granted the right to two demand registrations to Imperial Bank and
one demand registration to each of LaSalle Business Credit, Inc. and Cruttenden
Roth Bridge Fund, L.L.C. The Company also granted piggyback registration rights
to each of these three lenders. All fees and expenses of such registration will
be borne by the Company. The Company is required to use its best efforts to
effect demand registrations, subject to certain conditions and limitations. The
Company has agreed to register the Representatives' Warrants and underlying
Common Shares, subject to certain limitations. See "-- Representatives'
Warrants." The Company also agreed to register Common Shares issued to TradeCo
under the Company's financial advisory agreement with TradeCo upon a public
offering. See "Certain Relationships and Related Transactions."
Transfer Agent and Registrar
Montreal Trust Company of Canada is the transfer agent and registrar for
the Company's Common Shares.
CERTAIN INCOME TAX CONSIDERATIONS
Certain Canadian Federal Income Tax Considerations
The following summary presents the principal Canadian federal income tax
consequences of acquiring, holding and disposing of Common Shares generally
applicable to U.S. Holder (as defined below) who purchases Common Shares
pursuant to this offering. This summary is based on the current provisions of
the Income Tax Act (Canada) (the "Tax Act") and the regulations thereunder, all
specific proposals to amend the Tax Act and the regulations thereunder that
have been publicly announced by the Minster of Finance (Canada) prior to the
date hereof and counsel's understanding of the current published administrative
practices of Revenue Canada. This summary does not take into account any other
changes in the law, whether by judicial, governmental or legislative decision
or action, nor does it take into account provincial, territorial or foreign
laws. This summary is of a general nature only and is not intended to be, and
should not be construed to be, legal or tax advice to any prospective investor.
Prospective investors should consult with their own tax advisors with respect
to their own particular circumstances.
The Tax Act contains recently enacted rules (the "mark-to-market rules")
relating to securities held by certain financial institutions. This summary
does not take into account these mark-to-market rules and Holders that are
"financial institutions" for the purposes of these rules should consult their
own tax advisors.
For the purposes of this discussion, a "U.S. Holder" means a person who,
throughout the period during which such holder owns the Common Shares, (i) is
not resident in Canada for purposes of the Tax Act, (ii) is a resident of the
United States for purposes of the Canada-United States Income Tax Convention
(the "Convention"), (iii) holds the Common Shares as capital property for
purposes of the Tax Act, (iv) deals at arm's length with the Company, (v) does
not use or hold, and is not deemed to use or hold, the Common Shares in, or in
the course of, carrying on a business or providing independent personal
services in Canada and (vi) does not own (and is not treated as owning) 10% or
more of the outstanding voting shares of the Company.
Dividends paid or credited on the Common Shares to a U.S. Holder who is
the beneficial owner of such dividends will generally be subject to Canadian
non-resident withholding tax at the rate of 25%. Under the Convention, the rate
of such withholding tax will generally be limited to 15%.
A U.S. Holder will not be subject to tax under the Tax Act in respect of
gains realized on the disposition or deemed disposition (including a deemed
disposition on death) of the Common Shares unless such shares are "taxable
Canadian property" (within the meaning of the Tax Act) to such holder at the
time of the disposition. The Common Shares will generally not constitute
taxable Canadian property to a U.S. Holder unless, at any time during the
five-year period immediately preceding the disposition or deemed disposition of
the Common Shares, the U.S. Holder or persons with whom such holder did not
deal at arm's length or any combination thereof owned or had an interest in or
option to acquire not less than 25% of the issued shares of any class or series
of the capital stock of the Company.
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Even if the Common Shares are "taxable Canadian property" to a U.S. Holder, any
gain realized by such holder on a disposition of such shares will generally be
exempt from Canadian tax under the Convention provided that at the time of the
disposition the Common Shares do not derive their value primarily from real
property situated in Canada.
United States Federal Income Tax Considerations
This summary is based on the United States Internal Revenue Code of 1986,
as amended (the "Code"), Treasury Regulations promulgated thereunder and
judicial and administrative interpretations thereof, all as in effect on the
date hereof and all of which are subject to change thereby changing the United
States federal income tax considerations discussed below. This summary does not
address all aspects of United States federal income taxation that may be
relevant to a particular United States Holder based on such United States
Holder's particular circumstances and does not address foreign, state, local or
other tax consequences. In particular, the following summary does not address
the tax treatment of United States Holders who are broker-dealers or who own,
actually or constructively, 10% or more of the Company's outstanding voting
shares, and other certain United States Holders (including, but not limited to,
insurance companies, tax-exempt organizations, financial institutions, S
corporations, mutual funds, small business investment companies, regulated
investment companies, and persons subject to the alternative minimum tax) who
may be subject to special rules not discussed below. This summary applies only
to United States Holders who hold Common Shares as capital assets within the
meaning of section 1221 of the Code, and does not cover all aspects of United
States federal taxation that may be relevant to a purchaser in light of his or
her particular circumstances. Furthermore, estate and gift tax consequences are
not discussed herein. No ruling from the IRS will be requested with respect to
any of the matters discussed herein.
Dividends. For United States federal income tax purposes, a United States
Holder of Common Shares generally will realize, to the extent of the Company's
current and accumulated earnings and profits (as determined for United States
federal income tax purposes), ordinary income (treated as foreign source
dividend income) on the receipt of cash dividends on the Common Shares equal to
the United States dollar value of such dividends on the date of receipt (based
on the exchange rate on such date). The amount realized will not be reduced by
the amount of any Canadian withholding tax (see discussion below regarding
claiming the amount of Canadian tax withholding as a deduction or foreign tax
credit). To the extent, if any, that distributions made by the Company to a
United States Holder of Common Shares exceed the current and accumulated
earnings and profits of the Company, such distributions will be treated as a
tax-free return of capital to the extent of such United States Holder's
adjusted basis for such Common Shares, and to the extent in excess of adjusted
basis, as capital gain, thus reducing the United States Holder's adjusted tax
basis in such Common Shares and increasing the amount of gain (or reducing the
amount of loss) which may be realized by such United States Holder upon a sale
or exchange of the Common Shares. The amount of any distribution which exceeds
the United States Holder's adjusted basis in the Common Shares will be
long-term capital gain if the United States Holder's holding period for such
Common Shares exceeds eighteen months. If the Holder is an individual taxpayer,
such long-term capital gain will be subject to a maximum tax rate of 20%. If an
individual Holder has held Common Shares for eighteen months or less, but more
than one year, gains on the sale or exchange of such stock will be subject to a
maximum tax rate of 28%. Dividends paid on the Common Shares will not be
eligible for the dividends received deduction available in certain cases to
United States corporations. In the case of foreign currency received as a
dividend that is not converted by the recipient into United States dollars on
the date of receipt, a United States Holder will have a tax basis in the
foreign currency equal to its United States dollars value on the date of
receipt. Any gain or loss recognized upon a subsequent sale or other
disposition of the foreign currency, including an exchange for United States
dollars, will be ordinary income or loss. Subject to certain requirements and
limitations imposed by the Code, a United States Holder may elect to claim the
Canadian tax withheld or paid with respect to dividends on the Common Shares
either as a deduction or as a foreign tax credit against the United States
federal income tax liability of such United States Holder. In general, a United
States Holder may utilize foreign tax credits only to the extent of the United
States income tax attributable to such holder's foreign source income, which
foreign source income would include any dividends paid by the Company but
generally would not include
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any gain realized upon a disposition of Common Shares. The requirements and
limitations imposed by the Code with respect to the foreign tax credit are
complex and beyond the scope of this summary, and consequently prospective
purchasers of Common Shares should consult with their own tax advisers to
determine whether and to what extent they would be entitled to such credit.
Sale or Exchange of Common Shares. For United States federal income tax
purposes, upon a sale or exchange of a Common Share, a United States Holder
will recognize gain or loss equal to the difference between the amount realized
on such sale or exchange and the tax basis of such Common Share. If a Common
Share is held as a capital asset, any such gain or loss will be capital gain or
loss, and will be long-term capital gain or loss if the United States Holder
has held such Common Share for more than eighteen months at the time of the
sale or exchange. In the case of an individual taxpayer, such gain would be
subject to a maximum tax rate of 20%. If an individual Holder holds Common
Shares for 18 months or less, but more than one year, gains on the sale or
exchange of stock will be subject to a maximum tax rate of 28%. The gain, if
any, will generally be United States source income. If the amount realized on
such sale is not denominated in United States dollars, the amount realized will
be equal to the United States dollar value thereof determined at the spot rate
on the date of the sale or exchange.
Backup Withholding. Under section 3406 of the Code and applicable United
States Treasury regulations, a non-corporate U.S. Holder of Common Shares may
be subject to backup withholding at the rate of 31% with respect to "reportable
payments," which include dividends paid on, or the proceeds of a sale, exchange
or redemption of, the Common Shares. The payor will be required to deduct and
withhold the prescribed amounts if (i) the payee fails to furnish a taxpayer
identification number ("TIN") to the payor in the manner required, (ii) the IRS
notifies the payor that the TIN furnished by the payee is incorrect, (iii)
there has been a "notified payee underreporting" described in section 3406(c)
of the Code or (iv) there has been a failure of the payee to certify under
penalty of perjury that the payee is not subject to withholding under section
3406(a)(1)(C) of the Code. As a result, if any one of the events listed above
occurs, the Company will be required to withhold an amount equal to 31% from
any dividend payment made with respect to the Common Shares to a non-corporate
U.S. Holder. Amounts paid as backup withholding do not constitute an additional
tax and will be credited against the U.S. Holder's United States federal income
tax liabilities, so long as the required information is provided to the IRS.
The Company will report to the U.S. Holders of the Common Shares and to the IRS
the amount of any "reportable payments" for each calendar year and the amount
of tax withheld, if any, with respect to payment on those securities.
Passive Foreign Investment Company ("PFIC"). Shareholders of a PFIC must
pay an interest charge on the portion of any "excess distributions" of the PFIC
allocable to prior years, unless an election has been made by the shareholder
and the PFIC to treat the PFIC as a qualified electing fund ("QEF"). An excess
distribution includes (1) all gains from dispositions of PFIC stock, whether
actual or deemed, and whether or not the disposition would ordinarily be
subject to a nonrecognition provision of the Code, and (2) the amount by which
the current year's actual distributions exceed 125% of the average
distributions over the prior three years. The excess distributions are
allocated to prior years during which the corporation was a PFIC, are taxed at
the highest marginal rate in effect for such years and are subject to an
interest charge. If the shareholder has made an election to treat the PFIC as a
QEF, the shareholder generally will be treated as receiving an annual
distribution of its share of the PFIC's earnings and profits, classified as
either ordinary income or capital gain, depending on the underlying income of
the PFIC. A foreign corporation will be characterized as a PFIC if either (1)
75% or more of its gross income is passive; or (2) the average percentage of
assets (as determined under the Code) held by such corporation during the
taxable year which produced passive income or was held for the production of
passive income is at least 50%. For both tests look-through rules apply such
that (1) where a foreign corporation directly or indirectly owns 25% or more
(by value) of the stock of another corporation (the subsidiary) the assets and
income of the subsidiary are treated as owned by the foreign corporation for
purposes of determining PFIC status; (2) dividends, interest, rents, and
royalties received from related persons and the assets to which such payments
relate, are characterized based upon the income of the related person; and (3)
if a foreign corporation owns at least 25% of the stock of a U.S. corporation
then any stock held by the U.S. corporation in a U.S. C corporation, which is
not a regulated investment company or a REIT, is treated
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as a nonpassive asset, and the income from the stock is treated as nonpassive
income, when attributed to the foreign corporation for purposes of determining
PFIC status. Under recently enacted tax legislation, a PFIC will not be treated
as such with respect to any shareholders' holding period after December 31,
1997 during which the shareholder is subject to the controlled foreign
corporation rules discussed below. In addition, a shareholder of a PFIC may now
make a mark-to-market election for marketable PFIC stock. If such an election
is made, the shareholder includes in income each year an amount equal to the
excess, if any, of the fair market value of the PFIC stock as of the close of
the tax year over the shareholder's adjusted basis in the stock. If the
adjusted basis of such stock exceeds the fair market value of the stock as of
the close of the taxable year, the shareholder will be allowed a deduction for
such taxable year equal to the lesser of (i) the amount of such excess, or (ii)
"unreserved inclusions." "Unreserved inclusions" means the excess, if any, of
the mark-to-market gains for the stock included by the shareholder for earlier
tax years over the mark-to-market losses for the stock that were allowed as
deductions for earlier tax years. The Company intends to conduct its business
in the future in such a manner that its income and assets will be such that it
will continue not to constitute a PFIC.
Controlled Foreign Corporation ("CFC"). If a U.S. person owns directly or
indirectly 10% or more of the voting power of all classes of stock entitled to
vote of a CFC, such person is taxed on the subpart F income (generally, passive
income (defined below), certain income from transactions with related parties
and certain income from shipping, oil and insurance activities) of such
corporation in the year in which it is earned whether or not such amounts are
actually distributed. A CFC is a foreign corporation more than 50% of the stock
of which (by vote or value) is owned directly or indirectly by U.S. persons who
each own 10% or more of the voting power of all classes entitled to vote.
Passive income generally includes: (1) interest (or income equivalent thereto),
dividends, royalties, rents, and annuities; (2) net gains from the sale or
exchange of property which gives rise to any of the above types of income or
does not give rise to income; (3) net gains from the sale or exchange of an
interest in a partnership, trust or REMIC; and (4) net gains from commodities
or foreign currency transactions. The Company is not a CFC and does not believe
that it will become a CFC after this offering.
Personal Holding Companies. A non-United States corporation may be
classified as a personal holding company (a "PHC") for United States federal
income tax purposes if both of the following two tests are satisfied: (i) if at
any time during the last half of the Company's taxable year, five or fewer
individuals (without regard to their citizenship or residency) own or are
deemed to own (under certain attribution rules) more than 50% of the stock of
the corporation by value (the "PHC Ownership Test") and (ii) such non-United
States corporation receives 60% or more of its United States related gross
income, as specifically adjusted, from certain passive sources such as
dividends and royalty payments (the "PHC Income Test"). Such a corporation is
taxed (currently at a rate of 39.6%) on certain of its undistributed United
States source income (including certain types of foreign source income which
are effectively connected with the conduct of a United States trade or
business) to the extent amounts at least equal to such income are not
distributed to shareholders. The Company does not believe that the PHC
Ownership Test is currently satisfied, nor that it will be satisfied after this
offering. While there can be no assurance that the Company will fail to satisfy
the PHC Income Test, the Company does not believe that the PHC Income Test is
currently satisfied, nor that it will be satisfied after this offering.
Foreign Personal Holding Companies. A non-United States corporation will
be classified as a foreign personal holding company (a "FPHC") for U.S. federal
income tax purposes if both of the two following tests are satisfied: (i) if at
any time during the tax year five or fewer individuals who are United States
citizens or residents own or are deemed to own (under certain attribution
rules) more than 50% of all classes of the corporation's stock measured by
voting power or value and (ii) at least 60% (50% in later years) of the
corporation's gross income (regardless of source), as specifically adjusted, is
Foreign Personal Holding Company Income (as that term is defined in the Code).
If such a corporation is classified as an FPHC, a portion of its "undistributed
foreign personal holding company income" (as defined for United States federal
income tax purposes) would be imputed to all of its shareholders who are U.S.
Holders on the last day of the corporation's taxable year, or, if earlier, the
last day on which it is classifiable as an FPHC. Such income would be taxable
as a dividend, even if no cash dividend is actually paid. U.S. Holders who
dispose of their shares prior to such date would not be subject to tax under
these rules. In
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addition, each United States citizen or resident who is an officer, director or
10% shareholder of the FPHC is required to file with his or her income tax
return an information return on Form 5471, Information Returns of United States
Persons With Respect to Certain Foreign Corporations (along with applicable
schedules). The Company is not an FPHC and believes that it will not be
classified as an FPHC after this offering.
Foreign Investment Company ("FIC"). A shareholder of an FIC must treat as
ordinary income any gain on the sale of FIC stock to the extent of such
shareholder's ratable share of the FIC's earnings and profits, where such gain
would otherwise be long-term capital gain. An FIC is any foreign corporation
(1) registered under the Investment Company Act of 1940, or (2) engaged
primarily in the business of investing, reinvesting, or trading in securities,
commodities or any interest in securities or commodities during any year in
which 50% or more of its stock (by vote or value) is held, directly or
indirectly, by United States persons. The PFIC rules were enacted after the FIC
rules, but did not repeal the FIC provisions. However, the FIC rules do not
apply to the earnings and profits of a company for any taxable year beginning
after 1986 if the company was a PFIC for that year. The Company is not an FIC
and believes that it will not be classified as an FIC after this offering.
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CANADIAN GOVERNMENTAL REGULATION
Canada has no foreign exchange restrictions on the export or import of
capital, nor on the remittance of dividends, interest or other payment to
non-resident security holders. There are no foreign exchange controls other
than applicable withholding taxes. There is no limitation imposed by Canadian
law or by the Articles or other charter documents of the Company on the right
of a non-resident to hold or vote Common Shares or Preferred Shares of the
Company with voting rights (collectively, "Voting Shares"), other than as
provided in the Investment Canada Act (the "Investment Act"). The Investment
Act requires certain "non-Canadian" individuals, governments, corporations or
other entities who wish to acquire a "Canadian business" (as defined in the
Investment Act) to file either a notification or an application for review with
the Director of Investments, Department of Industry, Government of Canada. The
Investment Act requires that certain acquisitions of control of a Canadian
business by a "non-Canadian" must be reviewed and approved in advance by the
Minister responsible for the Investment Act on the basis that he is satisfied
that the acquisition is likely to be of benefit to Canada. The Investment Act
provides detailed rules for the determination of whether control has been
acquired and, pursuant to those rules, the acquisition of one-third or more of
the voting shares of a corporation may, in some circumstances, be considered to
constitute an acquisition of control. Failure to comply with the Investment Act
could result in, among other things, an injunction or court order directing
disposition of the assets or shares.
The Competition Act (Canada) (the "Competition Act") is a law of general
application regulating "mergers" (as defined in the Competition Act). A
"merger" is defined in the Competition Act to include the acquisition of
control over a significant interest in the whole or a part of a business of a
person. Where the Competition Tribunal, established under the Competition
Tribunal Act (Canada), finds that a merger "prevents or lessens, or is likely
to prevent or lessen, competition substantially," it has the power, among
others, to prohibit or dissolve the merger. The Competition Act also requires
that persons proposing certain transactions, before completing these
transactions, notify the Director of Investigation and Research appointed under
the Competition Act that the transactions are proposed and supply the Director
with certain information. In such situations, the Competition Act prescribes
the time periods following notification which must expire before the
transactions may proceed. In the case of the acquisition of voting shares of a
corporation which are publicly traded, the acquisition by a person of the
voting shares which would result in such person, together with its affiliates,
owning 20 percent or less of the votes of all outstanding voting shares would
not require a notification to be made.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,338,365 Common
Shares outstanding. The securities laws of the Province of British Columbia
generally impose a hold period of one year from the date of issuance. During
the hold period, Common Shares are unable to be traded in British Columbia, or
through the facilities of the VSE, without the filing of a prospectus in
respect thereof, but the hold period would not apply to sales outside of
British Columbia or through facilities other than the VSE. The one year hold
period also applies to warrants, and the hold period does not recommence for
Common Shares issued upon exercise of warrants. During the fourth quarter of
1997, the hold period will expire with respect to approximately 278,901 Common
Shares and Common Shares underlying warrants. During the first quarter of 1998,
the hold period will expire with respect to 2,643,000 Common Shares and Common
Shares underlying warrants. Hold periods with respect to Common Shares and
Common Shares underlying warants for 6,504,328 shares, 1,576,156 shares and
440,000 shares expire during the second quarter of 1998, the third quarter of
1998 and the fourth quarter of 1998, respectively.
The Common Shares sold in this offering will be freely tradeable in the
public market without restriction or further registration under the Act unless
held by an "affiliate" of the Company, as that term is defined in Rule 144
under the Act. The remaining 4,338,365 Common Shares, and the Common Shares
underlying warrants, options and other convertible securities are, or will be
when issued, "restricted securities" as that term is defined in Rule 144 and
may be sold only in compliance with Rule 144, pursuant to registration under
the Act or pursuant to an exemption therefrom. Of such 4,338,365 Common Shares,
upon the availability of public information as required by Rule 144 under the
Act, approximately 2,804,199 will be available for sale under Rule 144. An
additional 124,924 Common Shares will become eligible for sale under Rule 144
during the first quarter of 1998 and an additional 880,490 Common Shares will
become eligible for sale under Rule 144 during the second quarter of 1998.
During the third and fourth quarters of 1998 a further 318,752 and 210,000
Common Shares, respectively, will become eligible for sale under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held at least one year from
the date of issuance by the Company or acquisition from an affiliate, may sell
such shares in brokers' transactions or directly to market makers, provided
that the number of shares sold within any three-month period does not exceed
the greater of 1% of the then outstanding Common Shares or the average weekly
trading volume in the Company's Common Shares in the over-the-counter market
during the four calendar weeks preceding the date on which notice of sale was
filed under Rule 144.
Sales under Rule 144 are also subject to certain provisions relating to
notice of sale and availability of current public information about the
Company. Affiliates may sell shares not constituting restricted securities in
accordance with the same volume limitations and other restrictions, but without
regard to the one-year holding period.
Further, under Rule 144(k), after two years have elapsed from the latter
of the issuance of the restricted securities by the Company or their
acquisition from an affiliate, a holder of such restricted securities who has
not been an affiliate of the Company for at least three months prior to the
sale would be entitled to sell the shares immediately without regard to the
volume limitations and other conditions described above.
The Company has granted registration rights to certain of its
shareholders, warrant holders and option holders. See "Description of
Securities -- Registration Rights."
Prior to this offering there has been no public market in the United
States for the Common Shares of the Company, and no prediction can be made as
to the effect, if any, that market sales of Common Shares or the availability
of Common Shares for sale will have on the market price of Common Shares from
time to time. Nevertheless, sales of substantial amounts of Common Shares in
the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices and could impair the Company's future
ability to raise capital through the sale of its equity securities.
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UNDERWRITING
Cruttenden Roth Incorporated and Ferris, Baker Watts, Incorporated are
acting as the representatives (the "Representatives") of each of the
underwriters named below (the "Underwriters"). Subject to the terms and
conditions set forth in an underwriting agreement dated as of the date hereof
(the "Underwriting Agreement"), the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, the aggregate
number of Common Shares set forth opposite their respective names:
Name Number of Shares
- ---- ----------------
Cruttenden Roth Incorporated .................................
Ferris, Baker Watts, Incorporated ............................
----------------
Total ....................................................
================
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by counsel
and various other conditions. The nature of the Underwriters' obligations is
such that they are committed to purchase all of the above shares if any are
purchased. The Underwriters propose to offer the Common Shares directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share to certain other dealers. After this
offering, the offering price and other selling terms may be changed by the
Representatives.
The Company's Common Shares are traded on the Vancouver Stock Exchange.
Until the consummation of this offering, there has been no United States public
market for the Common Shares of the Company. Accordingly, the initial public
offering price has been determined by negotiation between the Company, the
Selling Shareholders and the Representatives. Among the factors considered in
determining the initial public offering price were recent prices of the Common
Shares on the VSE, the Company's results of operations, current financial
condition and future prospects, the market for its products and services, the
experience of its management, the economics of the industry in general, the
general condition of the equity securities market, the market capitalization and
stages of development of other companies which the Company, the Selling
Shareholders and the Representatives believed to be comparable to the Company
and other relevant factors. There can be no assurance that any active trading
market for the Common Shares will continue or as to the price at which the
Common Shares may trade in the public market from time to time subsequent to the
offering made hereby.
The Company and four shareholders of the Company have granted to the
Underwriters an option, expiring 45 days from the date of this prospectus, to
purchase up to an aggregate of 450,000 additional Common Shares on the same
terms as set forth on the cover page of this prospectus, solely to cover
over-allotments, if any, incurred in the sale of the Common Shares offered
hereby. If the Underwriters exercise the option, each Underwriter will have a
firm commitment, subject to certain conditions, to purchase such number of
additional Common Shares as is proportionate to such Underwriter's initial
commitment to purchase shares from the Company.
In connection with this 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 Common Shares.
Such transactions may include stabilization transactions effected in accordance
with the Securities Exchange Act of 1934 pursuant to which such persons may bid
for or purchase Common Shares 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 Common Shares in connection with this offering
than they are committed to purchase from the Company, and in such case may
purchase Common Shares in the open market following completion of this offering
to convert all or a portion of such Common Shares or may exercise the
Underwriters' over-allotment option referred to above. In addition, the
Representatives, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the
82
<PAGE>
Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in this offering), for the account of the other Underwriters, the
selling concession with respect to Common Shares that is distributed in this
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Shares at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph are required, and, if they are undertaken, they may be
discontinued at any time.
The Company has also agreed to sell to the Representatives warrants to
purchase up to 300,000 Common Shares at a price of $0.001 per warrant. The
Representatives' Warrants will be exercisable for a period of five years,
commencing one year after the date of this prospectus, at an initial exercise
price per share equal to 120% of the price to the public set forth on the cover
page of this prospectus. The Representatives' Warrants are not redeemable by
the Company under any circumstances. Neither the Representatives' Warrants nor
the Common Shares issuable upon exercise thereof may be transferred, assigned
or hypothecated until one year from the date of this prospectus, except that
they may be assigned, in whole or in part, to any successor, officer, director,
member or partner of the Representatives.
The holders of the Representatives' Warrants will not have voting,
dividend or other rights as shareholders of the Company unless and until such
warrants are exercised. The number of securities deliverable upon any exercise
of the Representatives' Warrants and the exercise price of the Representatives'
Warrants are subject to adjustment to protect against dilution upon the
occurrence of certain events, including any stock dividend, stock split,
subdivision or combination of outstanding stock or reclassification of the
Common Shares.
The Company has agreed with the Representatives that if the Company
registers any of its Common Shares for sale pursuant to a registration
statement (other than on Form S-4, Form S-8 or other inappropriate form) during
the five-year period commencing on the date of this prospectus, upon request of
any of the holders of the Representatives' Warrants or the underlying shares,
the Company will use its best efforts to include such securities as a part of
such registration statement. The Company shall bear all of the costs, exclusive
of underwriting discounts and selling commissions, of one such piggyback
registration.
In addition, the Company and the Representatives have agreed that, during
the five-year period commencing one year after the date of this prospectus, the
holders of a majority of the Representatives' Warrants shall have the right to
require the Company to prepare and file one registration statement with respect
to a public offering of the Common Stock underlying the Representatives'
Warrants. Such a registration statement shall be kept effective for a period of
up to 120 days, and the Company shall bear all of the costs, exclusive of
underwriting discounts and selling commissions, of one such demand registration.
The Company and its executive officers, directors, certain shareholders
and optionholders have agreed that for a period of 180 days after the date of
this prospectus, they will not, with certain limited exceptions, directly or
indirectly offer, sell, contract to sell, grant any option to sell, or
otherwise dispose of Common Shares or other securities which are substantially
similar to the Common Shares or securities convertible into or exercisable or
exchangeable for or any rights to purchase or acquire Common Shares or
securities which are substantially similar to the Common Shares without the
prior written consent of Cruttenden Roth Incorporated.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company has also agreed to pay to the Representatives a
non-accountable expense allowance equal to 2.5% of the aggregate offering price
to the public in this offering for due diligence and other out-of-pocket
expenses.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
83
<PAGE>
In May 1997, the Cruttenden Roth Bridge Fund, LLC ("Bridge Fund"), an
affiliate of Cruttenden Roth Incorporated, loaned the Company the principal
amount of $1,020,000 (the "Cruttenden Bridge Acquisition Loan"). The Cruttenden
Bridge Acquisition Loan bears interest at a rate of thirteen percent (13%) per
annum, is due May 7, 1998 and by its terms must be prepaid within ten (10) days
of consummation of this Offering. The Company intends to repay the outstanding
balance on the Cruttenden Bridge Acquisition Loan from the proceeds of this
Offering. The Company also issued to Bridge Fund a warrant to purchase
1,078,086 Common Shares at an exercise price of $5.00 per share, which expires
on May 7, 2002. Cruttenden Roth Incorporated acted as placement agent in
connection with the Cruttenden Bridge Acquisition Loan. The Company paid
Cruttenden Roth Incorporated a funding fee equal to five percent (5%) of the
principal amount of the Cruttenden Bridge Acquisition Loan. See "The
Acquisition and Related Financing," "Use of Proceeds" and "Certain
Relationships and Related Transactions."
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
the Company by Stikeman, Elliott, Vancouver, British Columbia and Quarles &
Brady, Phoenix, Arizona, and for the Underwriters by Gray Cary Ware &
Freidenrich, San Diego, California.
EXPERTS
The audited financial statements included in this prospectus and elsewhere
in the Registration Statement, to the extent and for the periods indicated in
their reports, have been audited by Arthur Andersen LLP and BDO Dunwoody,
independent public accountants, and are included herein in reliance upon the
authority of said firms as experts in giving said reports.
CHANGES IN INDEPENDENT AUDITOR
Effective April 1, 1997, Arthur Andersen LLP was engaged as principal
independent auditors for the Company. Arthur Andersen LLP succeeded BDO
Dunwoody, Chartered Accountants, which was dismissed by the Company on February
1, 1997. The decision to change independent auditors was approved by the Board
of Directors of the Company. In connection with the audits of the Company's
consolidated balance sheet at December 31, 1995 and the Company's consolidated
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the years ended December 31, 1994 and 1995, there were no
disagreements with BDO Dunwoody on any matter of accounting principles or
practices, financial disclosure or auditing scope or procedures. The audit
report of BDO Dunwoody on the consolidated balance sheet at December 31, 1995
and the consolidated statements of operations, changes in shareholders equity
(deficit) and cash flows for the years ended December 31, 1994 and 1995 did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principle.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement under the Act
with respect to the Common Shares offered hereby (the "Registration
Statement"). This prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. Certain items are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Shares offered hereby,
reference is made to the Registration Statement and the exhibits filed
therewith. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete, and, in each instance
where such contract or other document is an exhibit to the Registration
Statement, reference is made 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. A copy of the Registration
Statement, and the exhibits thereto, may be inspected without charge at the
public reference facilities maintained by the Commission in Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the
84
<PAGE>
Commission's regional offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the Registration Statement may be obtained from such offices upon the payment
of the fees prescribed by the Commission. In addition, the Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's web site is http://www.sec.gov.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
-----
Antigua Enterprises Inc.
Report of Independent Public Accountants -- Arthur Andersen LLP ....... F-2
Report of Independent Public Accountants -- BDO Dunwoody .............. F-3
Consolidated Balance Sheets ........................................... F-4
Consolidated Statements of Operations ................................. F-5
Consolidated Statements of Changes in Shareholders' Equity (Deficit) F-6
Consolidated Statements of Cash Flows ................................. F-7
Notes to Consolidated Financial Statements ............................ F-9
The Antigua Group, Inc.
Report of Independent Public Accountants .............................. F-27
Balance Sheets ........................................................ F-28
Statements of Income (Loss) ........................................... F-29
Statements of Changes in Stockholders' Investment ..................... F-30
Statements of Cash Flows .............................................. F-31
Notes to Financial Statements ......................................... F-32
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Antigua Enterprises Inc.:
We have audited the accompanying consolidated balance sheet of ANTIGUA
ENTERPRISES INC. (a Canadian registered corporation) formerly known as
Southhampton Enterprises Corp. and Subsidiaries as of December 31, 1996, and
the related consolidated statements of operations, changes in shareholders'
deficit and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of the
Company as of December 31, 1995, and for the years ended December 31, 1995 and
1994, were audited by other auditors whose report dated September 13, 1996,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Antigua Enterprises
Inc. and Subsidiaries as of December 31, 1996, and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
May 7, 1997.
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Antigua Enterprises Inc.
We have audited the Consolidated Balance Sheet of Antigua Enterprises Inc.
(formerly Southhampton Enterprises Corp.) as of December 31, 1995 and the
related Consolidated Statements of Operations, Changes in Shareholders' Equity
(Deficit) and Cash Flows for the years ended December 31, 1995 and 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States and Canada. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1995 and the results of its operations and its cash flows for the
years ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles in the United States and Canada.
BDO DUNWOODY
CHARTERED ACCOUNTANTS
(Internationally BDO Binder)
Vancouver, Canada
September 13, 1996
F-3
<PAGE>
ANTIGUA ENTERPRISES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
--------------------------------- -------------
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash ......................................................... $ 1,873 $ 30,240 $ 223,470
Funds in trust ............................................. -- 635,646 --
Accounts receivable, net of allowance for doubtful
accounts of $94,300, $63,500, and $408,675 respectively 119,697 540,785 7,235,634
Inventory .................................................... 112,818 174,533 7,824,560
Prepaid expenses ............................................. 10,332 214 148,536
Deferred loan fees, net of accumulated amortization ......... -- -- 2,127,995
Deferred stock offering expenses ........................... -- -- 247,579
------------ ------------ ------------
Total current assets ...................................... 244,720 1,381,418 17,807,774
DEFERRED ACQUISITION COSTS ...................................... -- 1,275,866 --
PROPERTY AND EQUIPMENT, net of accumulated
depreciation ................................................... 201,079 190,479 2,771,842
LICENSES, net of accumulated amortization ....................... -- -- 18,342,029
OTHER ASSETS .................................................... 19,361 60,189 21,675
------------ ------------ ------------
$ 465,160 $ 2,907,952 $ 38,943,320
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt ............................ $ 199,861 $ 423,702 $ 752,628
Revolving line of credit ..................................... -- -- 6,380,355
Notes payable to bridge lenders, net discount of
$1,361,894 .................................................. -- -- 4,158,106
Current portion of due to directors and officers ............. -- 1,007,908 --
Current portion of notes payable to sellers .................. -- -- 287,800
Convertible debentures, net of discount of $1,897,967......... -- -- 2,923,723
Accounts payable ............................................. 289,910 536,872 1,981,856
Accrued liabilities .......................................... 363,080 330,705 2,931,858
Accrued loan fees due to directors and officers .............. -- -- 2,131,826
------------ ------------ ------------
Total current liabilities ................................. 852,851 2,299,187 21,548,152
DUE TO DIRECTORS AND OFFICERS ................................... 402,025 -- 310,881
LONG-TERM DEBT .................................................. 136,471 48,574 1,510,281
NOTES PAYABLE TO SELLERS ........................................ -- -- 5,994,267
EQUITY SECURITY SUBSCRIPTION DEPOSITS ........................... 513,063 1,629,178 --
REDEEMABLE PREFERRED STOCK, net of discount of
$1,269,179, 30,000,000 shares authorized and 5,730,000
shares outstanding at September 30, 1997 ....................... -- -- 4,460,821
COMMON STOCK SUBJECT TO REPURCHASE, 60,240
Shares outstanding at September 30, 1997 ....................... -- -- 301,200
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, 300,000,000 shares authorized and 2,238,691,
2,641,999 and 4,278,125, net of common stock subject to
repurchase, shares outstanding at December 31, 1995 and
1996, and September 30, 1997, respectively, no par value ....... 1,490,389 2,470,461 7,437,131
Additional paid-in capital ...................................... 1,414,501 1,512,606 5,983,556
Accumulated equity (deficit) .................................... (4,344,140) (5,052,054) (8,602,969)
------------ ------------ ------------
Total shareholders' equity (deficit) ...................... (1,439,250) (1,068,987) 4,817,718
------------ ------------ ------------
$ 465,160 $ 2,907,952 $ 38,943,320
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ANTIGUA ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31, Nine months ended September 30,
------------------------------------------------ ---------------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Sales .............................. $ 1,793,227 $ 1,843,312 $ 2,857,962 $ 1,970,376 $ 15,768,654
Cost of Sales ...................... 1,669,455 1,699,231 2,263,000 1,532,879 10,273,602
----------- ------------ ----------- ----------- ------------
Gross Profit ....................... 123,772 144,081 594,962 437,497 5,495,052
----------- ------------ ----------- ----------- ------------
Selling Expenses ................... 162,669 249,434 259,109 97,710 2,383,494
General and Administrative
Expenses .......................... 788,995 962,328 987,548 629,505 2,021,062
Amortization of Licenses ........... -- -- -- -- 206,904
Expenses Related to
Financings ........................ -- -- -- -- 672,455
----------- ------------ ----------- ----------- ------------
Operating Expenses ........... 951,664 1,211,762 1,246,657 727,215 5,283,915
----------- ------------ ----------- ----------- ------------
Income (Loss) From Operations (827,892) (1,067,681) (651,695) (289,718) 211,137
----------- ------------ ----------- ----------- ------------
Other Income (Expense)
Interest Expense ................ (41,190) (85,853) (160,864) (82,438) (3,565,858)
Other ........................... (42,632) 60,661 90,485 -- 68,349
----------- ------------ ----------- ----------- ------------
(83,822) (25,192) (70,379) (82,438) (3,497,509)
----------- ------------ ----------- ----------- ------------
Net Loss ........................... $ (911,714) $ (1,092,873) $ (722,074) $ (372,156) $ (3,286,372)
Dividends on Preferred Stock ....... -- -- -- -- 240,283
Net Loss Attributable to
Common Shareholders ............... $ (911,714) $ (1,092,873) $ (722,074) $ (372,156) $ (3,526,655)
=========== ============ =========== =========== ============
Net Loss Per Share ................. $ (0.60) $ (0.56) $ (0.34) $ (0.18) $ (1.16)
=========== ============ =========== =========== ============
Weighted Average Common
Shares Outstanding ............... 1,531,384 1,959,423 2,118,056 2,087,184 3,041,603
=========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ANTIGUA ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
---------------------------- Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 ................ 1,815,280 $ 576,271 $ 1,421,742 $ (2,337,506) $ (339,493)
Net loss ............................... -- -- -- (911,714) (911,714)
Translation of monetary items .......... -- -- -- 1,732 1,732
Exercise of options .................... 100,600 205,532 -- -- 205,532
Issuance of stock through private
placement ............................. 92,430 182,111 -- -- 182,111
Exercise of warrants .................. 109,869 129,746 -- -- 129,746
Issuance of stock for acquisition of
subsidiary ............................ 17,500 23,171 -- -- 23,171
Purchase of treasury shares ............ (2,185) (8,590) -- -- (8,590)
Issuance of stock in exchange for
debt .................................. 8,385 42,000 -- -- 42,000
Redemption of shares ................... (61,000) (5,535) (7,241) -- (12,776)
--------- ----------- ----------- ------------- ------------
BALANCE, December 31, 1994 ................ 2,080,879 1,144,706 1,414,501 (3,247,488) (688,281)
Net loss ............................... -- -- -- (1,092,873) (1,092,873)
Translation of monetary items .......... -- -- -- (3,779) (3,779)
Exercise of options .................... 1,000 2,016 -- -- 2,016
Issuance of stock through private
placement ............................. 93,867 205,860 -- -- 205,860
Exercise of warrants ................... 42,945 86,560 -- -- 86,560
Issuance of stock for acquisition of
subsidiary ............................ 20,000 51,247 -- -- 51,247
--------- ----------- ----------- ------------- ------------
BALANCE, December 31, 1995 ................ 2,238,691 1,490,389 1,414,501 (4,344,140) (1,439,250)
Net loss ............................... -- -- -- (722,074) (722,074)
Translation of monetary items .......... -- -- -- 14,160 14,160
Exercise of options .................... 88,000 263,195 -- -- 263,195
Exercise of warrants ................... 52,000 109,773 -- -- 109,773
Issuance of shares in private
placement ............................. 227,929 513,063 -- -- 513,063
Proceeds on sale of treasury stock in
excess of acquisition costs ........... 2,165 9,695 2,792 -- 12,487
Capital contribution from noninterest
bearing notes ......................... -- -- 95,313 -- 95,313
Issuance of stock in exchange for
debt .................................. 33,214 84,346 -- -- 84,346
--------- ----------- ----------- ------------- ------------
BALANCE, December 31, 1996 ................ 2,641,999 2,470,461 1,512,606 (5,052,054) (1,068,987)
Net loss (unaudited) ................... -- -- -- (3,286,372) (3,286,372)
Translation of monetary items
(unaudited) ........................... -- -- -- (24,260) (24,260)
Dividends on preferred stock
(unaudited) ........................... -- -- -- (240,283) (240,283)
Exercise of options (unaudited) ........ 64,000 154,778 -- -- 154,778
Issuance of stock through private
placement (unaudited) ................. 1,317,643 3,690,587 -- -- 3,690,587
Exercise of warrants (unaudited) ....... 122,725 400,325 -- -- 400,325
Issuance of stock for acquisition of
subsidiary (unaudited) ................ 131,758 720,980 -- -- 720,980
Issuance of options (unaudited) ........ -- -- 271,350 -- 271,350
Issuance of warrants (unaudited) ....... -- -- 4,199,600 -- 4,199,600
--------- ----------- ----------- ------------- ------------
BALANCE, September 30, 1997
(unaudited) .............................. 4,278,125 $ 7,437,131 $ 5,983,556 $ (8,602,969) $ 4,817,718
========= =========== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ANTIGUA ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, Nine months ended September 30,
------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ................................ $ (911,714) $ (1,092,873) $ (722,074) $ (372,156) $ (3,286,372)
Adjustments to reconcile net loss to
cash used in operating activities --
Translation of monetary items ......... 1,732 (3,779) 14,160 -- (24,260)
Depreciation and amortization ......... 90,308 84,948 114,394 66,000 1,070,431
Accretion of discounts on debt
instruments .......................... -- -- -- -- 1,470,893
Loss on disposal of property and
equipment or other assets ............ 93,635 14,606 11,168 -- --
Changes in assets and liabilities, net of
effect of business acquired --
(Increase) decrease in accounts
receivable, net ...................... (138,280) 147,471 (432,249) (229,489) (849,108)
(Increase) decrease in inventory, net 1,456 134,195 78,328 -- 722,111
(Increase) decrease in prepaid assets 10,165 (9,624) 10,118 -- (2,817,337)
Increase in accounts payable and
accrued liabilities .................. 224,059 25,683 179,766 -- 3,031,260
----------- ------------- ------------ ------------ -------------
Net cash used in operating
activities ........................ (628,639) (699,373) (746,389) (535,645) (682,382)
----------- ------------- ------------ ------------ -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures and licenses
acquired, net effect of business
acquired .............................. (115,124) (71,100) (36,290) (11,906) (538,329)
Proceeds from sale of property and
equipment or other assets ............ 27,362 65,096 -- -- --
Cash paid for business acquired ......... (19,311) (30,059) (37,647) (37,647) (14,613,410)
Deferred acquisition costs ............ -- -- (1,275,866) (1,336,189) 1,266,033
Deferred stock offering expenses ...... -- -- -- -- (247,579)
----------- ------------- ------------ ------------ -------------
Net cash used in investing
activities ........................ (107,073) (36,063) (1,349,803) (1,385,742) (14,133,285)
----------- ------------- ------------ ------------ -------------
(Table continued on following page.)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ANTIGUA ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years ended December 31, Nine months ended September 30,
------------------------------------------ -------------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Repayments to) Advances from
directors ................................. $ 4,528 $160,204 $ 605,883 $ 20,466 $ (559,844)
Net borrowing from revolving line of
credit .................................... -- -- -- -- 228,476
Repayment of long-term debt ................. (35,067) (29,062) (69,657) (15,802) (2,830,684)
Proceeds from the issuance of notes
payable, net of effect of business
acquired .................................. 9,995 66,195 125,000 60,443 1,500,000
Proceeds from the issuance of
convertible debentures, net of
discounts ................................. -- -- -- -- 1,628,515
Proceeds from the issuance of bridge
loans, net of discounts ................... -- -- -- -- 3,578,000
Repayment of notes payable to sellers ....... -- -- -- -- (95,933)
Equity security subscription deposits ....... 357,293 155,770 1,116,115 -- --
Sale of preferred stock, net of
discounts ................................. -- -- -- -- 4,068,438
Dividends on preferred stock ............... -- -- -- -- (240,283)
Sale of common stock ........................ 378,083 294,436 970,377 1,865,088 2,896,966
Sale (acquisition) of treasury shares ...... (23,590) -- 12,487 -- --
Redemption of shares ........................ (10,000) -- -- -- --
Warrants issued ........................... -- -- -- -- 4,199,600
--------- -------- ---------- ---------- -----------
Net cash provided by financing
activities ........................... 681,242 647,543 2,760,205 1,930,195 14,373,251
--------- -------- ---------- ---------- -----------
INCREASE (DECREASE) IN CASH
AND FUNDS IN TRUST ........................ (54,470) (87,893) 664,013 8,808 (442,416)
CASH AND FUNDS IN TRUST,
beginning of period ........................ 144,236 89,766 1,873 1,873 665,886
--------- -------- ---------- ---------- -----------
CASH AND FUNDS IN TRUST, end of
period .................................... $ 89,766 $ 1,873 $ 665,886 $ 10,681 $ 223,470
========= ======== ========== ========== ===========
CASH PAID FOR INTEREST ..................... $ 7,255 $ 62,885 $ 64,186 $ 48,140 $ 767,300
========= ======== ========== ========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1994, the Company purchased equipment for $87,993 under capital lease.
In 1994, the Company issued 17,500 Common Shares in connection with the
acquisition.
In 1994, the Company converted notes in the amount of $42,000 into 8,385
Common Shares.
In 1995, the Company issued 20,000 Common Shares in connection with the
acquisition (see Note 3).
In 1996, the Company converted notes in the amount of $55,146 into 21,786
Common Shares and settled certain accrued liabilities of $29,200 in exchange
for the issuance of 11,429 Common Shares.
In 1997, the Company issued 131,758 Common Shares, 245,000 options for
Common Shares, and 250,000 shares of Series A Preferred in connection with the
Acquisition.
In 1997, the Company issued $6,378,000 of notes payable to seller in
connection with the Acquisition.
In 1997, the Company reduced due to directors by $471,803 by issuing
convertible debentures.
In 1997, the Company reduced equity security subscription deposits by
$1,629,178 by issuing Common Shares.
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(1) NATURE OF BUSINESS:
Antigua Enterprises Inc. (formerly Southhampton Enterprises Corp.), a
British Columbia Corporation, and its subsidiaries (collectively the Company)
are engaged in the business of production and distribution of various
screen-printed and embroidered apparel products and novelty items in the United
States and Canada. The Common Shares of the Company are currently listed on the
Vancouver Stock Exchange (VSE).
Acquisition
On June 16, 1997, the Company acquired The Antigua Group, Inc, (AGI), a
Nevada company involved in the wholesale distribution of embroidered sportswear
and related accessories (Acquisition). This Acquisition was accomplished by
purchasing 100% of the issued and outstanding capital stock of AGI. This
Acquisition was accounted for as a purchase and the unaudited September 30,
1997 consolidated financial statements of the Company include 106 days of AGI
operations (see Note 3).
Reverse Stock Split
All per share amounts have been adjusted to give effect to the one for
five reverse stock split effected on June 13, 1997.
Management Plans
The Company has increased its revenue base and shareholder equity through
the completion of the AGI acquisition.
The products of AGI are sold in the United States through three primary
apparel markets; Golf, Licensed Goods and Corporate Lifestyle. The Company
plans to increase its penetration in all of these markets by focusing on the
following key elements:
* Brand Identity. The Company intends to leverage the Antigua brand name,
built over the past 18 years, to open up new accounts, markets and
opportunities outside the Golf and Licensed Goods distribution channels.
* Expansion of Product Offerings. The Company plans to expand the product
offerings in the apparel line to better serve the needs of the existing
customer base, including the introduction of outerwear and caps.
* Expansion of Golf Network. The Company intends to increase distributions
through the expansion of its network of independent sales representatives
and through reactivation of inactive accounts.
* International Expansion. The Company believes that international markets
provide a significant opportunity to increase sales of its fashion apparel
and its Licensed Goods. The Company plans to increase distribution efforts
outside the United States and Canada, particularly in Europe and Asia.
* Expansion of Licensed Products Network. The Company plans to increase
margins and average account size in this channel by expanding the sales
representative network for Licensed Goods and increasing its retail chain
customer base. The Company also plans to exploit opportunities to sell
licensed screen printed products through market programs and dual branding
with major corporate clients.
* Full Service. Through the addition of the Company's textile screen
printing capability to Antigua's current lines of business, the Company
has the ability to increase sales to corporate, university and tournament
customers. The Company believes that offering services from screen
printing through embroidery market channels gives the Company a
competitive advantage in the casual apparel market.
F-9
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In addition to the private placements (see Note 13) and the financing
transactions made to finance the Acquisition (see Notes 9, 11 & 12), the
Company is also negotiating with potential new lenders in order to obtain
additional public or private debt or equity financing. Although there can be no
assurance that such debt or equity financing will be available to the Company
on commercially favorable terms, or at all, the Company believes that current
available cash provided by operations of the combined companies, and debt and
equity financing available to the Company will be sufficient to fund operations
over the next year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States and are
stated in United States (US) dollars. These consolidated financial statements
include the accounts of the Company and its subsidiaries. All transactions and
balances between the companies have been eliminated.
Funds in Trust
The funds in trust represent amounts received from various individuals for
the purchase of common stock under private placement agreements which are
subject to VSE approval (see Note 13). A third-party investment manager has
been retained to manage the funds based on direction agreed upon by the Company
and the individual subscribers. The individual subscribers have permitted the
third-party investment manager to expend the funds received as equity security
subscription deposits for Acquisition related costs. As such, these amounts are
considered cash equivalents for statement of cash flow purposes. Subsequent to
December 31, 1996, the trust funds were utilized to make payments to the
sellers in connection with the Acquisition.
Inventory
Inventory is stated at the lower of cost or market determined on a
first-in, first-out basis. Inventory includes apparel and primary raw materials
such as T-shirts, garment dies and inks, and towels.
Deferred Loan Fees and Debt Discount
Deferred loan fees and debt discounts are amortized over the term of the
related loans using the effective interest rate method.
Other Assets
Other assets are net of accumulated amortization and consist of costs in
excess of the fair value of net assets of acquired business of $72,000 at
December 31, 1996 and incorporation costs of $19,000 and $21,000 at December
31, 1995 and 1996, respectively. The excess of the fair value of net assets
acquired and incorporation costs are amortized over periods up to five years
using the straight-line method. Accumulated amortization of these assets was
approximately $1,000 and $33,000 at December 31, 1995 and 1996, respectively.
The Company has evaluated whether events and circumstances have occurred
that indicate the remaining estimated useful life of intangible assets may
warrant revision or that the remaining balance of the intangible costs may not
be recoverable. When factors indicate that intangible assets should be
evaluated for possible impairment, the Company uses an estimate of the related
undiscounted future cash flows over the remaining life of the intangible assets
in measuring whether the intangible assets are recoverable.
Based upon the Company's evaluations, $48,095 and $30,059 of other assets
were written off in 1994 and 1995, respectively.
F-10
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
At September 30, 1997, other assets also include refundable deposits.
Loss Per Share
Loss per share is computed by dividing the net loss by the weighted
average number of shares of common stock issued and outstanding, excluding
shares held in escrow (see Note 15). Common stock equivalents are excluded as
their inclusion is non dilutive. Primary and fully diluted earnings per share
are the same in all periods presented.
Foreign Currency
Transactions in currencies other than US dollars are translated into US
dollars using the current exchange rates as of the dates they are reported.
Assets and liabilities denominated in other currencies are adjusted to reflect
the exchange rate in effect at the balance sheet date. Revenues, expenses,
gains and losses are translated using a weighted average exchange rate for the
period. Translation adjustments arising from the translation of monetary items
in the financial statements are included as a separate component of
shareholders' deficit for the reporting period.
Exchange rates between the Canadian dollar and the US dollar for the
periods reported in these consolidated financial statements are as follows:
December 31, December 31, December 31, September 30,
1994 1995 1996 1997
---- ---- ---- ----
Average ........... .7321 .7285 .7352 .7266
Period end ........ .7134 .7331 .7296 .7236
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
In management's opinion, methodologies used to determine estimates are adequate
and consistent with prior periods.
Fair Value of Financial Instruments
At December 31, 1995 and 1996, carrying values of cash, funds in trust,
accounts receivables, accounts payable and accrued liabilities and notes
payable approximate fair values since they are short-term in nature or payable
upon demand. It is not practical to estimate fair value of the amounts due to
Directors and officers as the agreements are between related parties.
The Company estimates fair values of financial instruments by using
available market information. Considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
may not be indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions or valuation
methodologies could have a material effect on the estimated fair value amounts.
Concentrations of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers comprising the Company's credit base and
the geographical dispersion of the customers.
F-11
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share (SFAS No. 128). This statement establishes standards
for computing and presenting earnings per share (EPS) and simplifies the
standards for computing EPS previously found in APB Opinion No. 15, Earnings
per Share. It replaces the presentation of primary earnings per share with the
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. The Company is required to adopt SFAS No. 128 for the years
ending subsequent to December 15, 1997. Based on equity and convertible debt
instruments currently outstanding, the new standard is not expected to have a
material impact on the Company's EPS.
Financial Accounting Standards Board has issued SFAS No. 130, Reporting
Comprehensive Income (SFAS No. 130). SFAS No. 130 established standards for
reporting comprehensive income and its components. SFAS No. 130 is effective
for financial statements for periods beginning after December 15, 1997. The
Company has not yet determined the effects of adopting SFAS No. 130.
Financial Accounting Standards Board has issued SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS No. 131). SFAS
No. 131 establishes standards for reporting information about operating
statements within an enterprise. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company has not
yet determined the effects of adopting SFAS No. 131.
Interim Periods
The results of operations for the nine months ended September 30, 1996 and
1997, are not necessarily indicative of the results to be expected for the full
year. All information as of and for the nine month periods ended September 30,
1996 and 1997, is unaudited and, in the opinion of management, contains all
adjustments consisting only of normal recurring adjustments necessary for a
fair presentation of such information for the respective periods.
(3) ACQUISITION OF THE ANTIGUA GROUP, INC. (AGI) (unaudited):
On June 16, 1997, the Company acquired AGI, a Nevada company involved in
the wholesale distribution of embroidered sportswear and related accessories.
The Acquisition was accounted for as a purchase. The accompanying consolidated
financial statements include the operations of AGI for the 106 day period from
June 17, 1997 to September 30, 1997.
The Company entered into an consulting agreement with the former majority
shareholder of AGI which results in an annual commitment of approximately
$100,000. This agreement terminates in June 1999.
In order to facilitate the above transaction, the Company deposited
$1,000,000 into an escrow account. The deposit was non-refundable in the event
the Acquisition was not consummated. This amount was paid to the AGI
shareholders subsequent to December 31, 1996.
At December 31, 1996, costs incurred in connection with the Acquisition
are included in Acquisition deposit and related costs. Costs incurred as of
December 31, 1996, are as follows:
Deposit paid to AGI shareholders ........................ $ 1,000,000
Acquisition costs ....................................... 275,866
-----------
$ 1,275,866
===========
F-12
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Selected financial data for AGI as of and for the year ended December 31,
1996, is as follows:
<TABLE>
<S> <C>
Working capital .............................................................. $ 4,610,085
Total assets ................................................................. 15,567,399
Current portion of notes payable
(inclusive of line of credit) ............................................... 5,945,490
Notes payable, net of current portion ......................................... 2,465,321
Common stock ................................................................. 10,373
Total shareholders' equity ..................................................... 4,569,751
Revenue ....................................................................... 33,510,364
Net income before taxes ........................................................ 932,867
The purchase price and estimated allocation of such costs are as follows:
Cash paid to sellers ............................................................. $12,636,482
Notes payable to sellers .......................................................... 6,378,000
Preferred stock and attached warrants issued to sellers (250,000 shares) ........... 250,000
Assets of AGI distributed to the sellers ........................................... 134,706
Amounts to be paid to the sellers ................................................. 759,656
Transaction costs ................................................................ 2,920,360
-----------
Total purchase price ................................................................ 23,079,204
Net book value of assets acquired .................................................... 4,677,674
-----------
Excess of purchase price over net book value of assets acquired ...................... $18,401,530
===========
Allocation of excess of purchase price over net book value of
assets acquired and adjustments to fair value:
Licenses ............................................................................ $18,473,933
Inventory ............................................................................ (488,957)
Eliminate lifo reserve ................................................................ 186,221
Accrued interest ...................................................................... 230,333
-----------
$18,401,530
===========
</TABLE>
The licenses are being amortized over 25 years using the straight line
method.
(4) OTHER ACQUISITIONS:
Acquisition of CHL Services
On January 31, 1996, the Company acquired certain rights, customer lists
an inventory constituting the business of CHL Services, a division of a
Canadian company involved in the manufacture and distribution of hockey jerseys
and supplies.
Total consideration for the acquisition was:
<TABLE>
<S> <C>
Cash .................................................................................... $ 37,647
Installments payable in two equal installments, unsecured and noninterest bearing with
the final installment due in April 1997, net of discount of $7,353. ..................... 84,310
Note payable, secured by acquired inventory, noninterest bearing and repayable out of
proceeds on sale of acquired inventory
until due in February 1997, net of discount of $14,935. ................................. 126,100
---------
$ 248,066
=========
</TABLE>
F-13
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The business combination was accounted for using the purchase method. The
purchase price was allocated as follows:
Intangible assets ................... $ 72,713
Office equipment .................... 35,310
Inventory ........................... 140,043
---------
$ 248,066
=========
Additionally, a royalty equal to 50% of gross profit from CHL Services on
inventory acquired is payable to the vendor in quarterly installments for a
period up to the first anniversary of the sale. For the year ended December 31,
1996, royalties of approximately $14,600 are included in accounts payable and
accrued liabilities in the accompanying consolidated financial statements.
The Company has entered into an employment agreement with certain
management personnel of CHL Services which results in an annual commitment of
approximately $70,000 per annum plus 10%-20% of divisional profits until
expiration in January 2001.
The following unaudited pro forma combined results of operations data is
presented as though the merger had occurred on January 1:
1995 1996
---- ----
Sales .................... $ 2,424,860 $ 2,903,962
============= ===========
Net loss ................. $ (1,134,873) $ (727,074)
============= ===========
These pro forma combined results of operations are presented for
comparative purposes only and do not purport to be indicative of the actual
results that would have occurred had the CHL Services acquisition been
consummated on January 1, 1995, or of future operations of the combined Company.
Acquisition of T-Sports, Inc.
On August 5, 1994, the Company acquired 100% of the issued and outstanding
shares of T-Sports, Inc., a Texas company involved in the manufacturing and
distribution of screen printed golf and novelty towels.
Total consideration for the acquisition was:
<TABLE>
<S> <C>
Cash .................................................................................... $ 25,000
Notes payable, unsecured, noninterest bearing, settled with the issuance of
common shares in 1996 .................................................................. 42,250
20,000 common shares at a fair market value of $2.55 issued in 1995 ..................... 51,247
---------
$ 118,497
=========
</TABLE>
The business combination was accounted for using the purchase method. A
summary of the fair value of the assets and liabilities assumed at August 5,
1994, is as follows:
Machinery and equipment .............. $ 15,000
Accounts receivable .................. 64,000
Inventory ............................ 102,369
--------
Total assets ......................... 181,369
Total liabilities .................... 95,967
--------
Shareholders' equity ................. $ 85,402
========
F-14
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The purchase price difference of $33,095 was written off in 1994 due to
the uncertainty regarding continuing future benefits resulting from the
acquisition. In 1995, Texas State filed a lien to enforce payment of $32,400 in
past due taxes which was an existing liability of this acquired subsidiary.
This amount is included in accrued liabilities at December 31, 1996.
(5) LICENSES (unaudited):
As a result of the Acquisition, the Company has a number of license
agreements. Licenses are stated at cost allocated in the Acquisition (see Note
3). Licenses are amortized over twenty-five years using the straight line
method.
The Company has a licensing agreement with National Basketball Association
Properties, Inc. (NBA) which grants the Company the right to use the names,
symbols, emblems, designs and logos of the NBA on certain of its garments. The
license requires royalty payments of approximately 9.25% of sales of NBA
products, subject to an annual minimum required payment of $130,000. The
license expired on July 31, 1997. The Company has renewed the license for an
additional two years.
The Company has licensing agreements with the National Football League
(NFL) which grant the Company the right to use "NFL Marks" on certain of its
garments. These agreements require royalty payments of approximately 10% of
sales of NFL products, subject to certain minimum required payments. These
agreements expire in March 1999. Future minimum required royalty payments range
from approximately $355,000 to $415,000 per year.
The Company has licensing agreements with Major League Baseball
Properties, Inc. (MLB) which grant the Company the right to use the names,
characters, symbols, designs and other similar identifications of the MLB on
certain of its garments. The licenses require royalty payments of 9% of sales
of MLB products, subject to certain annual minimum required payments ranging
from $120,000 to $150,000. The licenses expire December 31, 1999.
The Company has licensing agreements with the National Hockey League (NHL)
which grant the Company the right to use "NHL Marks" on certain of its
garments. The agreement requires royalty payments of 9% on sales of NHL
products. Total future minimum royalties over the term are $20,000. The
agreement expires on December 31, 1997.
In addition, the Company is party to numerous market license agreements
with colleges, universities, bowl administrators and prominent sports figures
which allow the Company to use the names of the institution, sporting event or
sports personality on certain of its garments for varying terms.
Royalty expense of AGI was approximately $977,000, $1,245,000 and
$1,306,000 for the years ended December 31, 1995 and 1996 and the nine months
ended September 30, 1997, respectively.
(6) PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost and are depreciated or
amortized using the straight line method over estimated useful lives as
follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
Estimated September 30,
Useful Lives 1995 1996 1997
------------ ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Office and computer equipment
and furniture ....................... 3-5 years $ 29,717 $ 70,307 $1,231,155
Embroidery machine designs ........... 4 years 22,207 51,959 527,312
Leasehold improvements ............... 15 years 18,092 18,092 18,092
Machinery and equipment .............. 3-5 years 251,798 253,096 1,522,078
---------- ---------- ----------
321,814 393,454 3,298,637
---------- ---------- ----------
Less: Accumulated depreciation ...... (120,735) (202,975) (526,795)
---------- ---------- ----------
$ 201,079 $ 190,479 $2,771,842
========== ========== ==========
</TABLE>
F-15
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In the event that facts and circumstances indicate that the cost of
property and equipment may be impaired, an evaluation of recoverability would
be performed. This evaluation would include the comparison of the future
estimated undiscounted cash flows associated with the assets to the carrying
amount of the assets to determine if a writedown of the assets is required.
(7) LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------- September 30,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Term loans due to bank (Note 8) ..................... $ -- $ -- $1,909,206
Notes and installments due on acquisition of CHL
Services, noninterest bearing (imputed at 10%) due
in 1997 .......................................... -- 232,707 --
Unsecured noninterest bearing demand note payable
to a related party ................................. -- 100,000 --
Other notes payable, interest rates up to 10% due in
various installments through December 1997 ......... 259,657 73,776 35,446
Notes payable for equipment purchases, interest rates
up to 21.5% due in various installments through
December 1999 .................................... 76,675 65,766 318,257
---------- ---------- ----------
336,332 472,249 2,262,909
Less: Current portion .............................. (199,861) (423,702) (752,628)
---------- ---------- ----------
$ 136,471 $ 48,547 $1,510,281
========== ========== ==========
</TABLE>
To provide for interest expense on noninterest bearing notes, interest is
generally measured by the difference between the market value of the goods
received or the note, whichever is more readily determinable, and the face
amount of the note. The market value of a note is determined by discounting all
future payments on the note using an imputed rate of interest. When the note is
between related parties and it is issued for cash and no other stated or
unstated rights are involved, the difference between the cash consideration and
the discounted amount of the payments on the note is treated as additional
paid-in capital. The discount is accounted for as an element of interest over
the life of the note. For amounts due on demand, the notes are reflected at
face value and interest is imputed each period by charging interest expense.
This method allows for the recognition of interest related to the transactions
giving rise to the notes.
Future maturities of long-term debt are as follows:
December 31, 1996 September 30, 1997
----------------- ------------------
(unaudited)
1997 ...................... $423,702 $ 386,599
1998 ...................... 25,156 1,135,817
1999 ...................... 23,391 220,799
2000 ...................... -- 157,763
2001 ...................... -- 119,141
Thereafter ................ -- 242,790
-------- ----------
$472,249 $2,262,909
======== ==========
F-16
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(8) LOAN AGREEMENT WITH BANK (unaudited):
In connection with the Acquisition, the Company assumed the obligations of
AGI under a Loan and Security Agreement (the Loan Agreement) with a bank. The
Loan Agreement provides for a credit facility of up to $12 million, including a
revolving line of credit and outstanding letters of credit. Interest is at the
bank's prime rate plus 1%. The maximum borrowing under the new Loan Agreement
cannot exceed 85% of eligible receivables plus 55% of eligible inventory, as
defined. The Loan Agreement is secured by all of AGI's assets. The Loan
Agreement requires AGI to maintain certain financial covenants including
minimum tangible net worth, interest coverage ratios, debt service coverage
ratios and a ratio of liabilities to tangible net worth. Dividends cannot be
paid or unscheduled payments cannot be made without the prior consent of the
bank.
The Loan Agreement includes a term loan of $775,000 with interest at 1.25%
over the bank's prime rate, payable in monthly installments over seven years
beginning March 1, 1997. It also includes a term loan for $1,500,000 with
interest at 3% over the bank's prime rate, payable in monthly installments over
three years beginning July 1, 1997. The amount due on these two loans at
September 30, 1997 is $1,909,206 and is included in long-term debt (see Note
7).
(9) ACQUISITION BRIDGE FINANCING (unaudited):
In connection with the Acquisition, effective June 16, 1997 the Company
entered into three bridge financing transactions:
Financing Transaction One
A lender (Lender One) loaned $2,500,000 (the Promissory Note) to the
Company for the purpose of completing the Acquisition. The Promissory Note has
a term of one year and bears interest at a rate of 13% per annum. Interest only
is payable until the end of the one-year term; principal will be paid at the
end of the term, or at the election of Lender One, the one-year note may be
converted into a further promissory note having a term of three years, with
regular periodic payments of blended principal and interest. Lender One was
issued warrants to purchase 1,078,086 common shares for a period of five years
at a price of $5.00 per warrant in payment of a bonus for its advance of
$2,500,000 in bridge financing with respect to the Acquisition. These warrants
were valued at $950,000 which is included in the accompanying financial
statements as a discount on the note.
A finder's fee equivalent to 8% of the sum advanced to the Company by
Lender One was paid to the finder by issuing 68,930 common shares valued at
$198,518. These common shares are subject to a statutory hold period of one
year. In addition, loan costs of $201,423 were paid. Total fees and costs of
$399,941 are recorded as deferred loan fees.
Financing Transaction Two
A lender (Lender Two) loaned $1,020,000 to the Company for the purpose of
completing the Acquisition. The promissory note has a term of one year and
bears interest at a rate of 13% per annum. Lender Two was issued warrants to
purchase 1,078,086 common shares for a period of five years at a price of $5.00
per warrant in payment of a bonus for its advance of $1,020,000 in bridge
financing with respect to the Acquisition. These warrants were valued at
$612,000 which is included in the accompanying financial statements as a
discount on the note.
A finder's fee equivalent to 8% of the sum advanced to the Company by
Lender Two was paid to the finder by issuing 28,124 common shares valued at
$80,997. These common shares are subject to a statutory hold period of one
year. In addition, loan costs of $279,100 were paid. Total fees and costs of
$360,097 are recorded as deferred loan fees.
F-17
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Financing Transaction Three
The senior secured lender for AGI loaned the Company $3,500,000 of which
$2,000,000 is bridge financing and $1,500,000 is a three year term loan (see
Note 8). This term loan bears interest at 3% over the lenders prime rate. The
loan is due in monthly installments over three years beginning June 1, 1997,
however, in the event of a securities offering a $2,000,000 payment must be
made. The lender was issued warrants to purchase 323,426 common shares for a
period of five years at a price of $5.00 per share in payment of a bonus for
its advance of $2,000,000 in bridge financing with respect to the Acquisition.
These warrants were valued at $380,000 which is included in the accompanying
financial statements as a discount on the note. In addition, loan costs of
$143,267 were paid and recorded as deferred loan fees.
(10) DUE TO DIRECTORS AND OFFICERS:
Subsequent to December 31, 1996, certain of the terms related to repayment
of amounts due to Directors and officers were renegotiated. The terms below
reflect the changes which occurred subsequent to May 7, 1997.
The following amounts were due to Directors and Officers at December 31
and September 30:
<TABLE>
<CAPTION>
December 31
---------------------------- September 30,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Advances from a Director, unsecured bearing interest
at 7% per annum commencing October 1994,
$200,000 due September 1997 and $142,733 due on
demand after June 1998. ............................. $280,843 $ 564,535 $136,130
Advances from Directors and Officers, unsecured,
noninterest bearing (imputed at 10%) and due on
demand after June 1998. ............................. 121,182 193,373 174,751
Advances from Directors, unsecured, bearing interest
at 7.5% per annum commencing November 1996,
and due in November 1997. ............................. -- 250,000 --
-------- ------------ --------
402,025 1,007,908 310,881
Less -- Current portion ................................ -- (1,007,908) --
-------- ------------ --------
$402,025 $ -- $310,881
======== ============ ========
</TABLE>
The Company intends to repay the above amounts due to Directors and
Officers with funds from equity security offerings.
(11) NOTES PAYABLE TO SELLERS (unaudited):
In connection with the Acquisition the Company issued notes payable to
sellers as follows:
Interest
Payment Terms Rate Amount
------------- ---- ------
Due in quarterly installments of $95,933 beginning
September 16, 1997 with the unpaid balance due
June 16, 2000 ................................. 8.25% $5,102,067
Due June 16, 1999 .............................. 8.25% 855,000
Due June 16, 1999 .............................. 8.25% 325,000
----------
$6,282,067
==========
Upon a securities offering with gross proceeds of $12,000,000 the unpaid
principal balances are due and payable. Upon any securities offering a minimum
principal payment of $1,594,500 is due and payable.
F-18
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Upon a securities offering, or at any time thereafter, the sellers may
convert their outstanding principal amount of these notes into shares of the
Company's common stock at the lesser of $7.50 per share or the actual price of
such common stock in the security offering.
These notes are secured by certain security agreements and pledge
agreements executed by the Company.
In connection with the Acquisition, the Board of Directors of the Company
approved payment of bonuses to two Directors and officers as fees for 1)
personally guaranteeing the seller notes and estimated interest payments, and
2) making loans to the Company.
The amount of these fees is dependent upon the approval of the
shareholders and the VSE. As of September 30, 1997, the Company has recorded
$2,131,826 as an estimate of this obligation. This is reflected as accrued loan
fees due to Directors and Officers in the accompanying financial statements. It
is anticipated that this obligation will be satisfied by the issuance of shares
of common stock.
(12) CONVERTIBLE DEBENTURES (unaudited):
As of March 1, 1997, the Company issued $3,023,999 of 15% convertible
debentures due June 1, 1998. These are convertible into 1,144,500 units, each
of which consists of one common share and one two-year non-transferable warrant
to purchase an additional common share at $2.88 in the first year and $3.31 in
the second year. Certain payments were made in connection with this placement:
* A bonus to the lender paid by the issuance of 177,000 common shares
valued at $509,760.
* A guarantee fee to two directors and officers paid by the issuance of
177,000 common shares valued at $509,760.
* A finder's fee of $226,800.
* An inducement fee of $491,760 paid to a party related to the lender.
* Legal fees of $27,536.
In addition, the interest payable of $134,216 during the period March 1,
1997 to June 16, 1997, is considered a discount on debentures since the
proceeds of the debentures were not available to the Company until the closing
of the Acquisition. The above bonus, fees and interest total $1,899,832 and are
recorded as discounts on convertible debentures. The discounts are amortized
over the period June 16, 1997 to June 1, 1998, using the effective interest
method.
As of June 16, 1997, the Company issued $1,791,048 of 12% convertible
debentures due in one year, to a company which is related to certain officers
and directors of the Company. These are convertible into 714,454 units, each of
which consists of one common share and one two-year non-transferable warrant to
purchase an additional common share at $2.88 in the first year and $3.31 in the
second year. Certain payments were made in connection with this placement;
* A bonus to the lender paid by the issuance of 124,378 common shares
valued at $356,486.
* A loan fee to the lender of $105,000.
* A finder's fee paid by issuance of two year warrants to purchase 115,344
common shares at $2.88 in the first year and $3.31 in the second year.
These warrants are valued at $254,334.
* Legal fees of $105,720.
The above bonus and fees total $821,540 and are recorded as discounts on
convertible debentures. The discounts are amortized over the period June 16,
1997 to June 13, 1998, using the effective interest method.
(13) PRIVATE PLACEMENTS OF EQUITY SECURITIES (unaudited):
On June 16, 1997, the Company completed several private placements of its
common and preferred stock. These private placements were initiated in 1996 and
closed concurrently with the completion of the Acquisition. Additionally, on
September 5, 1997, the Company completed a $1,000,000 private placement of its
preferred stock.
F-19
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
As of December 31, 1996, a third-party investment manager had received
approximately $1.6 million under a combination of these private placements.
Such amounts were held in trust for the subscribers and were available to the
Company upon VSE approval of the Acquisition. As the Company did not have a
legal right to these funds, they were not included in the accompanying
financial statements at December 31, 1996. The Company recorded these amounts
as funds in trust once VSE approval was received or once the subscribers
permitted the use of the funds for the original intended purpose as evidenced
in writing. Amounts released by the subscribers were recorded as equity
security subscription deposits until VSE approval was obtained for the issuance
of the stock in accordance with the private placement.
The following is a summary of the private placements:
<TABLE>
<CAPTION>
Number and Price of Units Description of Placement Gross Proceeds
- ------------------------- ------------------------ --------------
<S> <C> <C>
162,200 units at $4.58 One common share plus one two-year non- $ 742,354
transferable warrant to purchase an additional
common share at a price of $4.58 in the first year
and at a price of $5.50 in the second year.
210,000 units at $4.25 One common share plus one two-year non- $ 891,923
transferable warrant to purchase an additional
common share at a price of $4.25 in the first year
and at a price of $4.87 in the second year.
180,144 units at $4.86 One common share plus one two-year non- $ 875,500
transferable warrant, two of which will entitle the
shareholder to purchase an additional common
share at a price of $4.86 in the first year and at a
price of $5.55 in the second year. A finder's fee for
this placement was paid by issuing 6,537 common
shares valued at $30,657.
Two officers of AGI purchased 60,240 units in this
placement. The officers have the right, prior to
June 16, 1998, to require the Company to repur-
chase, in whole or in part, these units for $301,200.
Accordingly, this amount is presented in the ac-
companying balance sheet as "Common stock
subject to repurchase".
5,730,000 convertible limited To each Share is attached one five-year non- $5,730,000
retractable Series "A" 12% transferable detachable share purchase warrant,
cumulative preferred shares five of which will entitle the shareholder to pur-
at $1.00 chase an additional common share at a price of
$5.18 in the first year, $6.05 in the second year,
$6.91 in the third year, $7.81 in the fourth year and
at $8.71 in the fifth year.
Terms of the Preferred Shares are:
* Five shares are convertible into one common
share within five years upon payment of a con-
version premium above the Purchase Price of
nil during the first year, $0.90 during the second
year, $1.85 during the third year, $2.75 during
the fourth year and $3.65 during the fifth year
after issuance.
* The shares are entitled to a fixed, cumulative
preferential cash dividend of 12% per annum
for five years after issuance.
* The Company may at any time redeem the
shares upon payment of the original subscrip-
tion price plus accrued but unpaid dividends.
</TABLE>
F-20
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Number and Price of Units Description of Placement Gross Proceeds
- ------------------------- ------------------------ --------------
<S> <C> <C>
* To the extent the Company completes a public
offering of its securities with proceeds in excess
of $8,000,000 the holders of the shares have the
right to retract the shares at the original sub-
scription price plus accrued but unpaid divi-
dends.
60,000 units at $3.85 One common share plus one non-transferable $231,120
warrant to purchase an additional common share
at a price of $3.85 in the first year and at a price of
$4.43 in the second year. A finder's fee for this
placement was paid by issuing 3,653 common
shares valued at $13,267.
151,778 units at $3.24 One common share plus one two-year non- $491,760
transferable warrant, two of which entitle the
shareholder to purchase an additional common
share at a price of $3.24 in the first year and at a
price of $3.74 in the second year. A finder's fee for
this placement was paid by issuing 12,142 com-
mon shares valued at $36,426.
</TABLE>
The equity security subscription deposits as of December 31, 1996, related
to funds received under private placements, as discussed above, for use in the
Acquisition.
(14) INCOME TAXES:
The Company records income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes (SFAS No. 109). SFAS No.109 requires the use of an
asset and liability approach in accounting for income taxes. Deferred tax
assets and liabilities are recorded based on the differences between the
financial statement and tax bases of assets and liabilities and the tax rates
in effect when these differences are expected to reverse.
The components of the benefit for income taxes consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1994 1995 1996 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Current income taxes:
Federal -- U.S. and Canadian ............ $ -- $ -- $ -- $ --
State and Provincial ..................... -- -- -- --
------ ------ ------ ---------
-- -- -- --
------ ------ ------ ---------
Deferred income taxes:
Federal -- U.S. and Canadian ............ -- -- -- --
State and Provincial ..................... -- -- -- --
------ ------ ------ ---------
-- -- -- --
------ ------ ------ ---------
Total provision (benefit) for income
taxes .................................... $ -- $ -- $ -- $ --
====== ====== ====== =========
</TABLE>
F-21
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The effective income tax rate is different than the amount that would be
computed by applying the United States corporate income tax rate to the income
(loss) before income taxes. The differences are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------- September 30,
1994 1995 1996 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Tax at the statutory rate (34%) ................ $ (309,000) $ (372,000) $ (246,000) $ (1,117,000)
State income taxes, net of federal benefit ..... (54,000) (66,000) (43,000) (197,000)
Expiration of unutilized net operating loss .... -- 72,000 68,000 --
Increase in deferred tax asset valuation
allowance ..................................... 363,000 366,000 221,000 1,314,000
---------- ---------- ---------- ------------
Actual tax expense (benefit) ................... $ -- $ -- $ -- $ --
========== ========== ========== ============
</TABLE>
Significant components of the Company's deferred tax assets (liabilities)
are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------- September 30,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Inventory reserves ............................... $ -- $ -- $ 34,000
Allowance for doubtful accounts .................. -- -- 58,000
Financing fees ................................... -- -- 311,000
Intangibles ...................................... -- -- (157,000)
Net operating loss carryforwards ................. 1,920,000 2,141,000 $3,206,000
Valuation allowance .............................. (1,920,000) (2,141,000) (3,452,000)
------------ ------------ ----------
$ -- $ -- $ --
============ ============ ==========
</TABLE>
Prior to the acquisition date, AGI was an S Corporation under the Federal
Income Tax laws of the United States.
The Company's ability to utilize its net operating losses to offset future
taxable income may be limited under the Internal Revenue Code Section 382
change in ownership rules. A valuation allowance has been provided since the
Company believes the realizability of the deferred tax asset does not meet the
more likely than not criteria under SFAS No. 109. The Company's accumulated net
operating losses expire in varying amounts between 1997 and 2012.
(15) SHAREHOLDERS' EQUITY:
Escrowed Share Arrangements
At December 31, 1995 and 1996, the Company had 395,992 common shares held
in escrow subject to earn-out provisions. These shares are "performance shares"
issued in 1992 to principal stockholders pursuant to Local Policy #3-07 of the
British Columbia Securities Commission ("BCSC") and Policy 19 of the Vancouver
Stock Exchange, which provide guidelines for the issuance of performance
shares. Certain of these shares have been cancelled or are in the process of
being cancelled. As of September 30, 1997, there are 256,500 performance shares
outstanding that are not being cancelled.
The Performance shares will be released from escrow as the Company
achieves positive operating cash flow on a cumulative basis as defined by the
BCSC. The holders of the performance shares will be entitled to a pro rata
release from escrow on the basis of one share for every $.48 of cumulative
positive BCSC operating cash flow, subject to the approval of the BCSC and the
Vancouver Stock Exchange.
If and when the performance shares are released from escrow, the Company
will record as compensation expense an amount equal to the difference between
$.25 per share and the market price of its
F-22
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
stock at that time. This expense would be a non-cash charge against income and
would have no net impact on total stockholders' equity (deficit). Also, the
number of shares used to calculate earnings (loss) per share will increase by
the number of performance shares released. Through September 30, 1997, no
performance shares have been earned or released.
Stock Options and Warrants Issued to Employees and Directors
As permitted under Statement of Financial Standards No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123), the Company has elected to account
for stock transactions with employees pursuant to F-24 the provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees. No compensation
expense has been recognized for the stock options and warrants granted. Had
compensation cost for the Plan been recorded consistent with SFAS No. 123, the
Company's net loss would have been increased to the following pro forma
amounts:
<TABLE>
<CAPTION>
December 31
---------------------------------- September 30
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Net loss attributable to Common
Shareholders:
As reported ............... $ (1,092,873) $ (722,074) $ (3,526,655)
Pro forma .................. (1,154,813) (766,658) (3,667,433)
Earnings (loss) per share:
As reported ............... (.56) (.34) (1.16)
Pro forma .................. (.59) (.35) (1.21)
</TABLE>
The fair value of each option and warrant grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1995, 1996 and 1997, risk free
interest rates ranging from 5.00% to 6.95%, expected terms ranging from two to
five years, and an expected volatility factors ranging from 35% to 55%. The
Company has granted stock options to employees and directors for the purchase
of common shares. The stock option activity is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
1995 1996 September 30, 1997
------------------- ------------------ -------------------
(unaudited)
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period ..... 41,000 $ 3.95 120,000 $ 2.75 129,000 $ 2.12
Granted ................................ 80,000 2.10 98,000 2.10 237,000 5.00
Exercised .............................. (1,000) 2.10 (88,000) 3.00 (64,000) 2.12
Expired ................................ -- -- (1,000) 2.10 -- --
------- ------- -------
Outstanding at end of period ........... 120,000 2.75 129,000 2.12 302,000 4.38
======= ======= =======
Exercisable at end of period ........... 120,000 2.75 129,000 2.12 302,000 4.38
======= ======= =======
Weighted average fair value of
options granted ....................... $ 0.60 $ 0.50 $ 0.99
======= ======= =======
</TABLE>
Options outstanding at September 30, 1997, have exercise prices ranging
from $2.12 to $5.00, with a weighted average remaining contractual term of 2
years.
F-23
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company also has non-transferable share purchase warrants outstanding
which entitle the holder to purchase common shares at a specified exercise
prices in exchange for either one or two warrants, as detailed in the
applicable warrant agreement. The warrant activity is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
1995 1996 September 30, 1997
---------------------- ---------------------- -----------------------
(unaudited)
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period ... 47,413 $ 2.00 93,867 $ 1.25 118,859 $ 1.72
Granted .............................. 93,867 1.25 84,992 2.55 -- --
Exercised ........................... (42,945) 2.00 (60,000) 2.20 (118,859) 1.72
Expired .............................. (4,468) 2.00 -- -- -- --
------- ------- --------
Outstanding at end of period ......... 93,867 1.25 118,859 1.72 -- --
======= ======= ========
Exercisable at end of period ......... 93,867 1.25 118,859 1.72 -- --
======= ======= ========
Weighted average fair value of
options granted ..................... $ 0.60 $ 0.30 $ --
======= ======= ========
</TABLE>
Stock Options and Warrants Issued in Connection with the Acquisition and
Related Financing Transactions
In connection with the Acquisition, the Company granted stock options to
AGI employees in exchange for options outstanding at the acquisition date
entitling these employees to purchase 245,000 common shares at specified
exercise prices ranging from $4.52 to $5.09, with a term of 2 years. The fair
value of these options, of $271,350, has been included in the purchase price of
the acquisition. All options are exercisable, however, as of September 30,
1997, none of these options have been exercised.
In connection with the financing transactions related to the Acquisition,
the Company issued nontransferable share purchase warrants entitling the
holders to purchase 4,577,690 common shares at specified exercise prices in
exchange for either one or two warrants, as detailed in the applicable warrant
agreement. These warrants have exercise prices ranging from $2.88 to $8.71,
with a weighted average remaining term of 4.2 years and a weighted average
exercise price of $5.37. The fair value of these warrants, of $4,199,600, has
been included as deferred loan fees and discounts in debt in the accompanying
financial statements. All warrants are exercisable, as of September 30, 1997,
42,800 of these warrants have been exercised.
(16) COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases various building space and equipment under
noncancelable lease agreements. As of September 30, 1997 minimum rental
commitments for the remaining three months of 1997 are $155,702. Minimum annual
rental commitments are as follows:
For the Years
Ended
December 31,
--------------
(unaudited)
1998 ......................... $602,713
1999 ......................... 541,484
2000 ......................... 75,152
2001 ......................... 54,336
2002 ......................... --
F-24
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Rental expense charged to operations under these leases was approximately
$15,000, $16,000, $36,000, and $193,000 for the years ended December 31, 1994,
1995, 1996, and the nine months ended September 30, 1997 respectively.
Letters of Credit (unaudited)
At September 30, 1997 AGI has outstanding issued letters of credit for
approximately $4,060,000 in connection with its bank credit lines.
Purchase Commitments (unaudited)
At September 30, 1997 AGI had inventory purchase commitments of
approximately $13,000,000.
Legal Proceedings
In October 1997, the Company reached an agreement to settle a lawsuit with
a lender. Under the terms of the settlement, the Company agreed to pay off the
loan due to the lender in the amount of $100,000, which is accrued for in the
accompanying financial statements, and to have a third party transfer to the
lender warrants to purchase 12,000 common shares of the Company's common stock
at an initial exercise price of $5.00. This action will be dismissed provided
the Company pays the lender the above $100,000 by February 15, 1998.
The Company and its CEO, on his own behalf, have received a demand from an
investor in the Company's Series A Preferred to be repaid in advance of the
other holders of the Series A Preferred. The investor is also demanding a
reduction in the exercise price of the detachable warrants issued with the
Series A Preferred to $.01 per common share, an additional 20,000 warrants to
purchase common shares at an exercise price of $.01 per common share and an
unspecified number of warrants to compensate the investor for not having been
repaid at August 1, 1997. The Company believes that the demand against it is
without merit. The outcome of this demand is not currently predictable and a
reasonable estimate of a liability cannot be made. Therefore, no accrual is
made in the accompanying financial statements.
The Company is subject to various other lawsuits arising in the ordinary
course of business. Management believes, based on discussions with legal
counsel, that the resolution of such lawsuits will not have a material effect
on the financial statements taken as a whole.
(17) RELATED PARTY TRANSACTIONS:
Related party transactions not disclosed elsewhere in these financial
statements include:
(a) The Company utilizes 16,000 square feet of office and
warehouse space in a building in Dallas, Texas owned by a
director. This is a month-to-month agreement and no rent is
charged for the use of the facilities. The average annual
rent for similar space is $2.90 per square foot.
(b) Interest expense includes approximately $6,000, $18,000,
$89,000 and $41,000 on advances from Directors for the years
ended December 31, 1994, 1995, 1996 and the nine months ended
September 30, 1997, respectively.
(c) AGI utilizes 43,000 square feet of office and warehouse space
in a building in Scottsdale, Arizona owned by a director of
AGI. Rent expense for the building included in the statement
of operations was approximately $68,000 for the nine months
ended September 30, 1997. The annual rental commitment is
approximately $234,000.
(18) PROFIT SHARING PLAN (unaudited):
AGI has a defined contribution profit sharing plan covering substantially
all its employees. All full-time (at least 1000 hours) employees who have
completed one year of service and reached the age of 18 are eligible to
participate in the Plan. Annual Company contributions are made at the
discretion of management. The discretionary contribution is allocated to
participants based on their eligible contributions. All employee contributions
are 100% vested.
F-25
<PAGE>
ANTIGUA ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Participants vest in Company contributions as follows:
Year of Percentage
Service Vested
------- ------
1 ..................................... 0
2 ..................................... 0
3 ..................................... 20
4 ..................................... 40
5 ..................................... 60
6 ..................................... 80
7 ..................................... 100
Profit sharing expense for AGI was approximately $24,000, $18,000, $19,000
and $18,000 for the years ended December 31, 1994, 1995, 1996 and the nine
months ended September 30, 1997, respectively.
The Company is in the process of amending the plan to cover all its
employees.
(19) SEGMENT INFORMATION (unaudited):
The Company expanded its operations into Canada as a result of the
acquisition of CHL Services in January 1996 (see Note 4). Financial information
by geographic segment is as follows:
<TABLE>
<CAPTION>
US Canada Total
-- ------ -----
<S> <C> <C> <C>
Year Ended December 31, 1996
Revenues .................................... $ 1,356,948 $ 1,501,014 $ 2,857,962
Net loss .................................... (557,827) (164,247) (722,074)
Identifiable assets ........................ 611,674 2,296,278 2,907,952
Nine Months Ended September 30, 1997 (unaudited)
Revenues .................................... $ 15,168,484 $ 600,170 $ 15,768,654
Net loss .................................... (1,580,538) (1,705,834) (3,286,372)
Identifiable assets ........................ 38,332,143 611,177 38,943,320
</TABLE>
(20) OTHER SUBSEQUENT EVENTS (unaudited):
Subsequent to December 31, 1996, the Company is planning an initial public
offering of its common stock in the U.S. The Company plans to issue
approximately 3,000,000 shares at an estimated public offering price of $6.00
per share. There can be no assurance, however, that the offering will be
completed at a per share price within the estimated range, or at all.
Subsequent to September 30, 1997, the Company received a demand from a
securities firm for payment of approximately $145,000 in connection with a
management services agreement. The securities firm is demanding warrants to
purchase 20,000 common shares at $2.53 per share. The Company plans to
vigorously contest this demand. The outcome of this demand is unknown and a
reasonable estimate of a liability can not be made.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Antigua Group, Inc.:
We have audited the accompanying balance sheets of THE ANTIGUA GROUP, INC.
(a Nevada corporation) as of December 31, 1996 and 1995, and the related
statements of income, changes in stockholders' investment and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 The Antigua Group, Inc. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, the Company has given
retroactive effect to the change in the method of accounting for inventory
costs.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 23, 1997 (except with respect to
the matter discussed in Note 2, as to
which the date is September 23, 1997).
F-27
<PAGE>
THE ANTIGUA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------- March 31,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ................................................... $ 16,507 $ 94,099 $ 130,877
Accounts receivable, net of allowance for doubtful
accounts of $251,000 in 1997, $249,000 in 1996, and
$170,000 in 1995 (Notes 4 and 5) ........................ 5,435,518 4,304,251 5,160,561
Inventories, net (Note 5) .............................. 9,543,144 8,655,490 8,668,528
Prepaid expenses and other current assets ............... 484,345 274,666 65,978
------------ ------------ ------------
Total current assets ................................. 15,479,514 13,328,506 14,025,944
------------ ------------ ------------
PROPERTY AND EQUIPMENT, at cost
(Notes 2, 5 and 6)
Machinery and equipment ................................. 2,430,530 2,760,429 2,791,729
Embroidery machine designs .............................. 1,164,496 916,308 961,308
Office and computer equipment and furniture ............ 2,371,253 2,458,655 2,609,961
Automotive equipment .................................... 57,345 57,345 76,041
------------ ------------ ------------
6,023,624 6,192,737 6,439,039
Less -- Accumulated depreciation and
amortization ....................................... (3,274,812) (3,784,209) (4,010,709)
------------ ------------ ------------
Net property and equipment ........................... 2,748,812 2,408,528 2,428,330
------------ ------------ ------------
OTHER ASSETS ................................................ 29,257 16,459 14,294
------------ ------------ ------------
$ 18,257,583 $ 15,753,493 $ 16,468,568
============ ============ ============
LIABILITIES AND STOCKHOLDERS'
INVESTMENTS
CURRENT LIABILITIES:
Current portion of long--term debt
(Notes 1, 5 and 6) .................................... $ 791,205 $ 840,594 $ 510,358
Revolving line of credit (Notes 1 and 5) ............... 6,965,131 5,104,896 5,847,406
Accounts payable ....................................... 1,758,303 1,440,243 869,758
Accrued expenses and other current liabilities
(Note 3) ................................................ 1,233,505 1,146,594 1,348,512
------------ ------------ ------------
Total current liabilities ........................... 10,748,144 8,532,327 8,576,034
------------ ------------ ------------
LONG--TERM DEBT, less current portion
(Notes 1, 5 and 6) ....................................... 3,373,995 2,465,321 2,940,312
COMMITMENTS AND CONTINGENCIES
(Notes 1, 3 and 8)
STOCKHOLDERS' INVESTMENT (Note 7):
Common stock, $.005 stated value, 5,000,000 shares
authorized, 2,074,600 shares issued and outstanding . 10,373 10,373 10,373
Additional paid-in capital .............................. 1,027,193 1,027,193 1,027,193
Retained earnings ....................................... 3,097,878 3,718,279 3,914,656
------------ ------------ ------------
4,135,444 4,755,845 4,952,222
------------ ------------ ------------
Total stockholders' investment ........................ $ 18,257,583 $ 15,753,493 $ 16,468,568
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-28
<PAGE>
THE ANTIGUA GROUP, INC.
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------------------- ---------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
MERCHANDISE SALES,
net of returns ........................... $ 31,793,546 $ 31,402,521 $ 33,510,364 $6,455,608 $9,219,127
COST OF SALES ........................... 25,503,503 20,825,025 22,490,634 4,582,489 5,951,204
------------ ------------ ------------ ---------- ----------
Gross profit ........................... 6,290,043 10,577,496 11,019,730 1,873,119 3,267,923
------------ ------------ ------------ ---------- ----------
SELLING EXPENSES ........................ 6,424,000 5,688,330 5,843,314 1,114,028 1,433,164
GENERAL AND
ADMINISTRATIVE EXPENSES 3,505,027 3,137,890 3,598,886 955,313 1,032,089
------------ ------------ ------------ ---------- ----------
Total selling, general and
administrative expenses ............... 9,929,027 8,826,220 9,442,200 2,069,341 2,465,253
------------ ------------ ------------ ---------- ----------
Income (loss) from operations ......... (3,638,984) 1,751,276 1,577,530 (196,222) 802,670
------------ ------------ ------------ ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense ........................ (1,037,309) (1,444,869) (1,342,859) (331,751) (296,913)
Other income ........................... 348,122 433,945 385,730 58,172 44,945
------------ ------------ ------------ ---------- ----------
(689,187) (1,010,924) (957,129) (273,579) (251,968)
------------ ------------ ------------ ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM ..................... (4,328,171) 740,352 620,401 (469,801) 550,702
EXTRAORDINARY ITEM --
LOSS ON EXTINGUISHMENT
OF DEBT (NOTE 5) ........................ -- -- -- -- (354,325)
------------ ------------ ------------ ---------- ----------
NET INCOME (LOSS) (NOTE 2) ............... $ (4,328,171) $ 740,352 $ 620,401 $ (469,801) $ 196,377
============ ============ ============ ========== ==========
Pro Forma (NOTE 8) (unaudited);
Income (loss) before taxes and
extraordinary item ..................... $ (4,328,171) $ 740,352 $ 620,401 $ (469,801) $ 550,702
Provision (credit) for income taxes ...... (1,731,268) 296,141 248,160 (187,920) 220,281
------------ ------------ ------------ ---------- ----------
Income (loss) before extraordinary
item .................................... (2,596,903) 444,211 372,241 (281,881) 330,421
Extraordinary item, net of tax effect ..... -- -- -- -- (212,595)
------------ ------------ ------------ ---------- ----------
Net income (loss) ........................ $ (2,596,903) $ 444,211 $ 372,241 $ (281,881) $ 117,826
============ ============ ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
THE ANTIGUA GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Common Stock
------------------------
Additional Total
Paid-in Retained Stockholders'
Shares Amount Capital Earnings Investment
------ ------ ------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 ... 1,886,000 $ 9,430 $ 28,136 $ 6,985,994 $ 7,023,560
Distributions ............... -- -- -- (300,297) (300,297)
Net Loss .................. -- -- -- (4,328,171) (4,328,171)
--------- -------- ----------- ------------ -----------
BALANCE, December 31, 1994 ... 1,886,000 9,430 28,136 2,357,526 2,395,092
Sale of stock ............... 188,600 943 999,057 -- 1,000,000
Net income .................. -- -- -- 740,352 740,352
--------- -------- ----------- ------------ -----------
BALANCE, December 31, 1995 ... 2,074,600 10,373 1,027,193 3,097,878 4,135,444
Net income .................. -- -- -- 620,401 620,401
--------- -------- ----------- ------------ -----------
BALANCE, December 31, 1996 ... 2,074,600 10,373 1,027,193 3,718,279 4,755,845
Net income (unaudited) ...... -- -- -- 196,377 196,377
--------- -------- ----------- ------------ -----------
BALANCE, MARCH 31, 1997
(unaudited) .................. 2,074,600 $ 10,373 $ 1,027,193 $ 3,914,656 $ 4,952,222
========= ======== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
THE ANTIGUA GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
---------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES: (unaudited) (unaudited)
Net income (loss) ................................. $ (4,328,171) $ 740,352 $ 620,401 $ (469,801) $ 196,377
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization .................. 830,839 935,988 950,749 250,800 226,500
Gain on the sale of property and equipment . (6,678) (84,774) -- -- --
Provision for uncollectible accounts ............ 250,000 150,493 289,058 19,495 1,510
Provision for slow moving inventory ............ 107,314 56,943 82,500 21,715 4,821
Change in assets and liabilities
Decrease (increase) in accounts receivable ...... (136,917) (939,736) 842,209 777,505 (857,820)
Decrease (increase) in inventories ............... 2,912,187 117,320 805,154 952,705 (17,860)
Decrease (increase) in prepaid expenses and
other current assets ........................... (19,926) (205,705) 209,679 (69,541) 208,688
Decrease in other assets ........................ 242,597 36,933 12,799 3,128 2,164
(Decrease) increase in accounts payable ......... 695,542 (19,447) (318,060) (394,337) (570,485)
(Decrease) increase in accrued expenses and
other current liabilities ..................... 558,832 (281,642) (86,911) (136,350) 201,918
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by operating
activities .................................... 1,105,619 506,725 3,407,578 955,319 (604,187)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of property and equipment ............ (580,990) (574,790) (610,466) (93,605) (246,301)
Proceeds from the sale of property and
equipment ....................................... 9,315 254,339 -- -- --
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities ............ (571,675) (320,451) (610,466) (93,605) (246,301)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings (repayments) on revolving line of
credit, net .................................... 6,715,764 (2,791,516) (1,860,235) (646,399) 742,511
Proceeds from long-term debt ..................... 984,014 2,350,030 -- -- 775,000
Payments on long-term debt ........................ (7,933,243) (848,096) (859,285) (156,892) (630,245)
Proceeds from sale of stock ........................ -- 1,000,000 -- -- --
Distributions to stockholders ..................... (300,297) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities ....................................... (533,762) (289,582) (2,719,520) (803,291) 887,266
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH ........................ 182 (103,308) 77,592 58,423 36,778
CASH AT BEGINNING OF PERIOD ........................ 119,633 119,815 16,507 16,507 94,099
------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD .............................. $ 119,815 $ 16,507 $ 94,099 $ 74,930 $ 130,877
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for interest ......... $ 1,004,176 $ 1,160,116 $ 954,564 $ 273,085 $ 294,333
============ ============ ============ ============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1995, the Company received a note for $25,000 from the majority
shareholder in partial exchange for the sale of the airplane.
Additionally, in 1995, the Company purchased equipment for $116,155 under
capital lease.
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
THE ANTIGUA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
(1) OPERATIONS:
The Antigua Group, Inc. (Antigua or the Company) is a wholesale
distributor of sportswear and related accessories. Antigua is a closely held
entity and certain transactions involve the Chairman, who is the majority
stockholder. The Company has elected for federal and state income tax purposes
to include taxable income with that of its stockholders (S Corporation
election). Accordingly, no provision for taxes has been made in the
accompanying financial statements (see Note 8).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements reflect the application of
accounting policies as set forth below.
Inventory (reflecting change in accounting principle)
In prior years, inventories were stated at the lower of LIFO cost
(last-in, first-out) or market. Subsequent to December 31, 1996, the Company
changed its method to state inventories at the lower of FIFO cost (first-in,
first-out) or market. The new method of accounting for inventories was adopted
in connection with the purchase of all the outstanding shares of the Company's
Common Stock by Antigua Enterprises Inc. (formerly Southhampton Enterprises
Corp.). The accompanying financial statements have been restated to apply this
new method retroactively. The effect of the accounting change on net income as
previously reported is:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) as previously reported .................. $ (4,356,123) $660,148 $ 932,867
Adjustment for effect of change in accounting method ...... 27,952 80,204 (312,466)
------------- -------- ----------
Net income (loss) as adjusted .............................. $ (4,328,171) $740,352 $ 620,401
============= ======== ==========
</TABLE>
Property and Equipment
Property and equipment are depreciated or amortized using the
straight-line method over estimated useful lives as follows:
Estimated
Classification Useful Lives
-------------- ------------
Machinery and equipment ........................... 3-15
Embroidery machine designs ........................ 1
Office and computer equipment and furniture ...... 3-5
Automotive equipment .............................. 3-7
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
In management's opinion, methodologies used to determine estimates are adequate
and consistent with prior periods.
F-32
<PAGE>
THE ANTIGUA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Concentrations of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers comprising the Company's credit base and
the geographical dispersion of the customers.
Fair Value of Financial Instruments
The carrying values of cash, accounts receivables, accounts payable,
accrued expenses and other liabilities and the revolving line of credit
approximate fair values due to the short-term maturities of these instruments.
In the aggregate, the installment purchase notes and capital lease obligations
approximate fair value based on the market rates currently available for
instruments with similar terms and remaining maturities. It is not practical to
estimate the fair value of the notes payable to the Chairman or employees, as
the agreements are between related parties.
The estimated fair value amounts have been determined by the Company using
available market information and valuation methodologies described above.
Considerable judgement is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates may not be indicative of
the amounts that the Company could realize in a current market exchange.
The use of different market assumptions or valuation methodologies could
have a material effect on the estimated fair value amounts.
(3) LICENSES:
The Company has a licensing agreement with National Basketball Association
Properties, Inc. (NBA) which grants the Company the right to use the names,
symbols, emblems, designs and logos of the NBA on certain of its garments. The
license requires royalty payments of approximately 9.25% of sales of NBA
products, subject to an annual minimum required payment of $130,000. The
license expires on July 31, 1997.
The Company has licensing agreements with the National Football League
(NFL) which grant the Company the right to use "NFL Marks" on certain of its
garments. These agreements require royalty payments of approximately 10% of
sales of NFL products, subject to certain minimum required payments. These
agreements expire in March 1999. Future minimum required royalty payments range
from approximately $355,000 to $415,000 per year.
The Company has licensing agreements with Major League Baseball
Properties, Inc. (MLB) which grant the Company the right to use the names,
characters, symbols, designs and other similar identifications of the MLB on
certain of its garments. The licenses require royalty payments of 9% of sales
of MLB products, subject to certain annual minimum required payments ranging
from $120,000 to $150,000. The licenses expire December 31, 1999.
The Company has licensing agreements with the National Hockey League (NHL)
which grant the Company the right to use "NHL Marks" on certain of its
garments. The agreement requires royalty payments of 9% on sales of NHL
products. Total future minimum royalties over the term are $20,000. The
agreement expires on December 31, 1997.
In addition, the Company has executed numerous market license agreements
with colleges, universities, bowl administrators, and prominent sports figures
which allow the Company to use the names of the institution, sporting event or
sports personality on certain of its garments for varying terms.
Royalty expense was approximately $1,129,000, $977,000 and $1,245,000 in
1994, 1995 and 1996, respectively.
F-33
<PAGE>
THE ANTIGUA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(4) RELATED PARTY TRANSACTIONS:
Included in accounts receivable at December 31, 1996, is a note receivable
from the Chairman of approximately $125,000 due in December 1997.
During 1996, the Company paid $60,000 consulting fees to a
stockholder/board member.
(5) LOAN AGREEMENT WITH BANK:
At December 31, 1995 and 1996, the Company had a credit facility of up to
$12 million, including a revolving line of credit (LOC) and outstanding letters
of credit. Interest was at the bank's prime rate plus 2%. The maximum borrowing
under the LOC could not exceed 85% of eligible receivables plus 50% of eligible
inventories, as defined. The LOC was secured by all of the Company's assets.
The agreement contained certain covenants which, among other things, required
the Company to maintain a current ratio of 1.00, a minimum tangible net worth
of $5,350,000 and a fixed charge coverage ratio, as defined, of at least 1.10.
Dividends could not be paid or unscheduled payments on subordinated debt could
not be made without the prior consent of the bank. The Chairman (majority
stockholder) of the Company personally guaranteed the LOC.
In January 1997, the Company entered into a Loan and Security Agreement
(the Loan Agreement) with a new bank. The Loan Agreement provides for a credit
facility of up to $12 million, including a revolving line of credit and
outstanding letters of credit. Interest is at the bank's prime rate plus 1%.
The maximum borrowing under the new Loan Agreement cannot exceed 85% of
eligible receivables plus 55% of eligible inventory, as defined. The Loan
Agreement is secured by all of the Company's assets. The Loan Agreement
contains certain covenants which, among other things, require the Company to
maintain a minimum tangible net worth (inclusive of subordinated debt, as
defined in the Loan Agreement) of $5,500,000, an interest coverage ratio of no
less than 1.50, a debt service coverage ratio of no less than 1.25 and a ratio
of liabilities to tangible net worth of no more than 2.0. Dividends cannot be
paid or unscheduled payments cannot be made without the prior consent of the
bank.
The Loan Agreement includes a term loan for $775,000 with interest at
1.25% over the bank's prime rate, payable in monthly installments over seven
years beginning March 1, 1997. A portion of the term loan proceeds were used to
retire $478,000 of installment purchase notes and capital lease obligations
subsequent to year end (see Note 6).
The Loan Agreement was entered into in anticipation of the Acquisition
discussed in Note 8. Upon consummation of the Acquisition, the new arrangement
will remain in place.
As a result of the change in banks and the early extinguishment of the
credit facility the Company incurred a loss of $354,325 due to an early
termination fee of $240,000 and the write-off $114,325 of the unamortized
deferred loan fees. This amount has been recorded as an extraordinary item in
1997.
F-34
<PAGE>
THE ANTIGUA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(6) LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------ March 31,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Subordinated note payable to Chairman,
interest at 8%, interest and principal due
August 31, 1998. Accrued interest at
December 31, 1996 and 1995, was $81,000 and
$71,000, respectively. ............................... $1,150,000 $ 900,000 $ 900,000
Subordinated note payable to Chairman,
interest at 10%, due in monthly installments
beginning July 1998. If the principal is paid in
full on or before January 31, 1998, all accrued
interest is waived. Accrued interest at
December 31, 1996 and 1995, was $175,000
and $55,000, respectively. ......................... 1,200,000 1,200,000 1,200,000
Term loan payable to bank, interest at 11|M/4%
over the bank's prime rate, due in monthly
installments through February 2000. ................ -- -- 756,467
Installment purchase notes and capital lease
obligations to finance companies, secured by
equipment, interest ranging from 7.3% to
12.25%, due in varying individual installments
ranging from $500 to $18,500 through 2000. .......... 1,175,777 586,049 72,409
Notes payable to employees, interest at 6%, due
in total annual installments ranging from
$167,309 to $186,870 through June 1998
(see Note 8). ........................................ 541,051 521,494 521,494
Note payable to related party, principal and
interest at 8% due in January 1997. ................ 98,372 98,372 --
---------- ---------- ----------
4,165,200 3,305,915 3,450,370
Less -- Current portion ............................... (791,205) (840,594) (510,358)
---------- ---------- ----------
$3,373,995 $2,465,321 $2,940,012
========== ========== ==========
</TABLE>
Upon consummation of the Acquisition (see Note 8), certain of the
outstanding principal and accrued interest amounts on the subordinated notes
due to the Chairman and various capital lease obligations are due and payable.
The amounts have been classified based on current due dates and have not been
classified based on possible acceleration. Subsequent to year end, $478,000 of
the installment purchase notes and capital lease obligations were retired (see
Note 5). The acquiring company anticipates restructuring of the obligations
above concurrently with the closing of the Acquisition.
Long-term debt matures as follows:
Year Ending
December 31, Amount
------------ ------
1997 .................................. $ 840,594
1998 .................................. 2,459,111
1999 .................................. 5,238
2000 .................................. 972
----------
$3,305,915
==========
F-35
<PAGE>
THE ANTIGUA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(7) STOCKHOLDERS' INVESTMENT:
Stock Options
The Company applies Accounting Principals Board Opinion 25 and related
Interpretations in accounting for its 1993 Stock Option Plan (Plan). Under the
Plan, a maximum of 210,000 shares can be issued. Options for 43,000 shares have
been granted to current employees at a purchase price of $10.00 per share.
These options are fully vested and are exercisable provided the Company
completes a qualified initial public offering prior to the expiration date of
the options.
Options for 10,000 shares were granted in February 1996 to current
employees at an exercise price of $5.78 per share. These options vest at
various dates through February 2000. As of December 31, 1996, options for 1,250
shares at $5.78 per share qualify for vesting.
Upon completion of the Acquisition (see Note 8), however, all of the
outstanding stock options shall terminate. Accordingly, the fair value of these
options is insignificant. No options have been exercised as of December 31,
1996.
(8) COMMITMENTS AND CONTINGENCIES:
Acquisition
On July 18, 1996, the shareholders of Antigua entered into an Acquisition
Agreement, as amended (Acquisition), whereby 100% of the Company's issued and
outstanding stock would be acquired by Antigua Enterprises Inc. The anticipated
consideration to be paid to the shareholders of Antigua is approximately
$20,000,000 in cash and promissory notes.
Upon completion of the Acquisition, the S corporation status will be
terminated and the Company will become a taxable entity subject to provisions
of Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Pro Forma income taxes are presented using a 40% tax rate on the
Statement of Income (Loss) as if the Company had C corporation status for all
periods presented.
Additionally, subsequent to the completion of the Acquisition and subject
to certain terms in the Loan Agreement (see Note 5), the Company may be
eligible to receive an additional term loan under the Loan Agreement in the
amount of $1,500,000.
Contingent Purchase Price for Stock Purchase
Under terms of shareholder agreements in 1993, the Company exercised its
right to purchase 210,800 shares of common stock owned by employees. Payment
was made by the issuance of notes payable (see Note 6). Additionally, $316,200
of the contingent purchase price will be payable upon the occurrence, on or
before May 31, 2003, of (1) a public offering of the Company's common stock
resulting in net proceeds to the Company of at least $10 million or (2) a sale
of substantially all of the stock or assets of the Company (see above
Acquisition). The Company has not recorded the contingent amount payable as of
December 31, 1996.
Operating Leases
The Company leases its primary facility from an affiliate pursuant to a
lease agreement expiring on November 30, 1997. Expense associated with this
related party lease was approximately $249,000 for the year ended December 31,
1994 and $230,000 for each of the years ended December 31, 1995 and 1996.
Remaining payments in 1997 are expected to be approximately $210,500.
F-36
<PAGE>
THE ANTIGUA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
The Company also leases other building space and equipment under
noncancelable lease agreements. Minimum annual rentals for the other
noncancelable leases are as follows:
1997 ........................ $310,300
1998 ........................ 291,500
1999 ........................ 237,800
--------
$839,600
========
Lease expense for the years ended December 31, 1994, 1995 and 1996, for
these noncancelable leases was approximately $247,000, $286,000 and $283,000,
respectively.
Letters of Credit
At December 31, 1996, the Company has outstanding issued letters of credit
for approximately $1,658,000 in connection with its bank credit lines.
Purchase Commitments
At December 31, 1996, the Company had inventory purchase commitments of
approximately $8,750,000.
Profit Sharing Plan
The Company has a defined contribution profit sharing plan covering
substantially all employees. All full-time (at least 1000 hours) employees who
have completed one year of service and reached the age of 18 are eligible to
participate in the Plan. Annual Company contributions are made at the
discretion of management. The discretionary contribution is allocated to
participants based on their eligible contributions. All employee contributions
are 100% vested.
Participants vest in Company contributions as follows:
Years of Percentage
Service Vested
-------------------------------- ------
1 ............................ 0
2 ............................ 0
3 ............................ 20
4 ............................ 40
5 ............................ 60
6 ............................ 80
7 ............................ 100
Profit sharing expense was approximately $24,000, $18,000 and $19,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
F-37
<PAGE>
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
No dealer, sales representative or other person has been authorized to
give any information or to make any representations other than those contained
in this prospectus, and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Company, any Selling Shareholder or the Underwriters. This prospectus does not
constitute an offer to sell, or the solicitation of an offer to buy, the
securities offered hereby to any person in any jurisdiction in which such offer
or solicitation would be unlawful. Neither the delivery of this prospectus nor
any offer or sale hereunder shall, under any circumstances, create any
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
----------------
TABLE OF CONTENTS
Page
---
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 8
The Acquisition and Related Financing ..................................... 19
S Corporation Distributions ............................................... 21
Use of Proceeds ........................................................... 22
Price Range of Common Shares .............................................. 23
Dividend Policy ........................................................... 23
Capitalization ............................................................ 24
Dilution .................................................................. 25
Unaudited Pro Forma
Consolidated Financial Statements ...................................... 26
Selected Financial Data ................................................... 33
Management's Discussion and
Analysis of Financial Condition and
Results of Operations .................................................. 35
Business .................................................................. 47
Management ................................................................ 61
Certain Relationships and
Related Transactions ................................................... 67
Principal and Selling Shareholders ........................................ 69
Description of Securities ................................................. 71
Certain Income Tax Considerations ......................................... 75
Canadian Government Regulation ............................................ 80
Shares Eligible for Future Sale ........................................... 81
Underwriting .............................................................. 82
Legal Matters ............................................................. 84
Experts ................................................................... 84
Changes in Independent Auditor ............................................ 84
Additional Information .................................................... 84
Index to Financial Statements ............................................. F-1
----------------
Until , 1998 (25 days after the date of this prospectus), all
dealers effecting transactions in the Common Shares, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligations of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
3,000,000 Shares
[logo]
Antigua Enterprises Inc.
Common Shares
------------------
P R O S P E C T U S
------------------
CRUTTENDEN ROTH
INCORPORATED
FERRIS, BAKER WATTS
INCORPORATED
, 1998
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection with
the offering described in this Registration Statement, all of which will be
borne by the Company.
Registration Fee ............................................. $ 3,522
NASD Filing Fee .............................................. 1,800
Nasdaq Listing Fees .......................................... 31,250
Underwriters' Non-accountable Expense Allowance .............. 450,000
Blue Sky Fees and Expenses ................................... 3,000
Legal Fees and Expenses ...................................... 320,000
Accounting Fees and Expenses ................................. 150,000
Printing and Engraving Expenses .............................. 125,000
Miscellaneous ................................................ 15,428
----------
Total ..................................................... $1,100,000
==========
- ----------
* To be completed by amendment
Item 14. Indemnification of Directors and Officers
The Company Act (British Columbia) permits a company, with the approval of
the British Columbia Supreme Court, to indemnify a director or officer of the
Company in respect of all costs, charges and expenses actually and reasonably
incurred by him in connection with a civil, criminal or administrative action
to which he is made a party by reason of having been a director provided that
he acted honestly and in good faith and had reasonable grounds for believing
that his conduct was lawful.
The Articles of the Company provide that, subject to the provisions of the
Company Act, the directors shall cause the Company to indemnify its directors
and may cause the Company to indemnify its officers and the directors of
companies in which the Company is a shareholder.
The Company entered into written indemnity agreements with two directors,
J. Christopher Woods and Fiama Walker, with respect to approval of the
Acquisition. Ms. Walker is no longer a director of the Company.
Item 15. Recent Sales of Unregistered Securities
All share amounts reflect a one for five reverse split of the Company's
Common Shares effected on June 13, 1997.
On December 13, 1994 the Company issued 1,185 shares to a vendor of
services in settlement for a debt of approximately C$8,000. The issuance was
not registered under the Act in reliance upon the exemption from registration
provided by Section 4(2) thereof.
On March 30, 1995 the Company sold 46,933 Common Shares to Mr. Haynes for
C$140,802 and 46,933 Common Shares to an officer of the Southhampton
Enterprises, Inc., a wholly owned subsidiary of the Company, for C$140,799. The
Common Shares were coupled with warrants to acquire an additional 46,933 Common
Shares. The sale was not registered under the Act in reliance upon the
exemption from registration provided by Section 4(2) thereof. On March 1, 1996
Mr. Haynes exercised warrants to acquire 4,000 Common Shares for an exercise
price of C$13,800. On January 29, 1997 Mr. Haynes and the officer exercised
warrants to acquire 19,467 and 19,466 Common Shares, respectively, for an
aggregate exercise price of C$134,286.
On August 25, 1995 the Company issued options to acquire 98,000 Common
Shares to eight directors. The exercise price of these options was set at
C$2.05 on that date, but the options were repriced on
II-1
<PAGE>
January 16, 1996 to C$2.90 per Common Share. The issuance was not registered
under the Act in reliance upon the exemption from registration provided Rule
701 under the Act. On November 26, 1996 a director exercised an option to
acquire 9,000 Common Shares for an exercise price of C$26,100. On January 29,
1997 four directors exercised options to acquire 9,000 Common Shares each for
an aggregate exercise price of C$104,400. The issuance was not registered under
the Act in reliance upon the exemption from registration provided by Rule 701
under the Act.
On August 30, 1995 the Company sold 84,992 Common Shares to Mr. Haynes for
C$212,480. The Common Shares are coupled with two-year warrants to acquire an
additional 84,992 Common Shares at an exercise price of C$2.75 per Common Share
during the first year and C$3.50 per Common Share during the second year. The
sale was not registered under the Act in reliance upon the exemption from
registration provided by Section 4(2) thereof. On December 31, 1996 Mr. Haynes
exercised 44,000 share purchase warrants at C$3.50 per Common Share. The
issuance of securities was not registered under the Act in reliance upon the
exemption from registration provided by Section 4(2) thereof.
On January 16, 1996 the Company issued options to acquire 80,000 Common
Shares to six employees. The exercise price of these options was set at C$2.90
per Common Share. The issuance was not registered under the Act in reliance
upon the exemption from registration provided by Rule 701 under the Act. On
April 10, 1996, May 2, 1996, July 17, 1996 and September 16, 1996, four
employees exercised options to acquire 2,000, 30,000, 2,000 and 4,000 Common
Shares, respectively. These securities were not sold in a transaction involving
any public offering in the United States and, accordingly, were exempted from
registration under the Act.
On July 9, 1996 the Company issued 11,429 shares to R. James Beadle in
settlement for a debt of approximately C$40,000. These securities were not sold
in a transaction involving any public offering in the United States and,
accordingly, were exempted from registration under the Act.
On July 9, 1996 the Company issued 21,786 shares to a single individual in
exchange for the cancellation of the then remaining indebtedness (approximately
C$76,250) under the agreement for the acquisition by the Company of T-Sports,
Inc. The issuance was not registered under the Act in reliance upon the
exemption from registration provided by Section 4(2) thereof.
On July 11, 1996 the Company sold 162,200 Common Shares and two-year
warrants to purchase a like number of shares at a price of C$6.25 per Common
Share in the first year and C$7.50 in the second year for an aggregate
consideration of C$1,013,750 to a total of 16 investors, including four
directors of the Company or subsidiaries. The sale was not registered under the
Act in reliance upon the exemption from registration provided by Section 4(2)
thereof.
On July 17, 1996 an employee acquired 2,000 Common Shares from the
registrant upon exercise of an option and payment of C$5,800. The sale was
registered under the Act in reliance upon the exemption from the registration
provided by Rule 701 under the Act.
On September 16, 1996 an employee acquired 4,000 Common Shares from the
registrant upon exercise of an option and payment of C$11,600. The sale was not
registered under the Act in reliance upon the exemption from registration
provided by Rule 701 under the Act.
On October 17, 1996 the Company sold 210,000 Common Shares and two-year
warrants to purchase a like number of shares at a price of C$5.80 per Common
Share in the first year and C$6.65 in the second year for an aggregate
consideration of C$1,218,000 to five investors, four of which were directors of
the Company or subsidiaries. The sale was not registered under the Act in
reliance upon the exemption from registration provided by Section 4(2) thereof.
On January 11, 1997 a director acquired 9,000 Common Shares from the
registrant upon exercise of a warrant and payment of C$26,100. The sale was not
registered under the Act in reliance upon the exemption from registration
provided by Section 4(2) thereof.
On January 29, 1997 a director acquired 40,992 Common Shares from the
registrant upon exercise of a warrant and payment of C$143,472. The sale was
not registered under the Act in reliance upon the exemption from registration
provided by Section 4(2) thereof.
II-2
<PAGE>
On January 29, 1997 a director and an officer acquired an aggregate of
38,932 Common Shares from the registrant upon exercises of warrants and payment
of C$134,320 in the aggregate. The sale was not registered under the Act in
reliance upon the exemption from registration provided by Section 4(2) thereof.
On March 1, 1997 the Company issued a one-year C$4,200,000 convertible
debenture bearing interest at 15% per annum to a single investor. The debenture
is convertible into 1,144,500 Common Shares of the Company and warrants to
acquire an additional 1,144,500 Common Shares at an exercise price of C$4.00
during the first year following issuance and C$4.60 during the second year
after issuance. In connection with guarantees of the debenture, two directors
were issued an aggregate of 177,000 Common Shares as bonus shares. The Company
also issued 177,000 Common Shares to the investors as an inducement to invest
in the Company. The issuances were not registered under the Act in reliance
upon the exemption from registration provided by Section 4(2) thereof.
On April 21, 1997 the Company sold 4,730,000 convertible limited
retractable Series A 12% cumulative preference shares, which are convertible
into 946,000 Common Shares and warrants to purchase a like number of Common
Shares, to twelve investors, including two directors, a director of a
subsidiary and two entities affiliated with a director, for an aggregate
consideration of C$4,730,000. The convertible preference shares are convertible
at C$6.75, C$8.00, C$9.25, C$10.50 and C$11.75 in the first, second, third,
fourth and fifth years, respectively, and the warrants are exercisable at
C$7.20, C$8.40, C$9.70, C$10.85 and C$12.10 in the first, second, third, fourth
and fifth years, respectively. In connection with the sale, the Company issued
warrants to purchase 238,627 Common Shares to an unaffiliated third party as a
finder's fee. The sale was not registered under the Act in reliance upon the
exemption from registration provided by Section 4(2) thereof.
On April 21, 1997 the Company sold 151,778 Common Shares and two-year
warrants to purchase 75,889 shares at a price of C$4.50 per Common Share in the
first year and C$5.20 in the second year to a single investor for C$683,000. In
connection with such private placement the Company issued 12,142 Common Shares
to an entity controlled by a former director. The foregoing securities were not
offered or sold in transactions involving any public offering in the United
States and, accordingly, were exempted from registration under the Act.
On June 13, 1997 the Company issued a one-year $1,791,048.45 convertible
debenture bearing interest at 12% per annum to a single investor. The debenture
is convertible into 714,454 Common Shares and two-year warrants to purchase an
additional 714,454 Common Shares at a price of C$4.00 per Common Share in the
first year and C$4.60 in the second year. The investor also received 124,378
Common Shares as bonus shares in connection with the loan to the Company. The
foregoing securities were not offered or sold in transactions involving any
public offering in the United States and, accordingly, were exempted from
registration under the Act. In connection with the convertible debenture, the
Company issued warrants to purchase 115,344 Common Shares to an unaffiliated
third party as a finder's fee in connection with such financing. The issuance
of the warrants was not registered under the Act in reliance upon the exemption
from registration provided by Section 4(2) thereof.
On June 16, 1997 the Company sold 180,144 Common Shares and two-year
warrants to purchase 90,072 shares at a price of C$6.75 per Common Share in the
first year and C$7.75 in the second year for an aggregate consideration of
C$1,215,969 to eight investors, including two current executive officers and
one director of the Company. The sale was not registered under the Act in
reliance upon the exemption from registration provided by Section 4(2) thereof.
In connection with this private placement, the Company issued 6,537 Common
Shares as a finder's fee to an unaffiliated third party. The issuance was not
registered under the Act in reliance upon the exemption from registration
provided by Section 4(2) thereof.
On June 16, 1997 the Company sold 60,000 Common Shares and two-year
warrants to purchase 60,000 shares at a price of C$5.35 per Common Share in the
first year and C$6.15 in the second year. In connection with the sale the
Company issued 3,653 Common Shares to an unaffiliated third party as a finder's
fee. Neither the sale nor the issuance was registered under the Act in reliance
upon the exemption from registration provided by Section 4(2) thereof.
II-3
<PAGE>
On June 16, 1997 the Company issued warrants for the purchase of 2,479,598
Common Shares to three bridge lenders in connection with financing the
Acquisition and 97,054 Common Shares to an unaffiliated third party as a
finder's fee in connection with such financing. The exercise price of the
warrants is $5.00 per Common Share. The issuance was not registered under the
Act in reliance upon the exemption from registration provided by Section 4(2)
thereof.
On June 30, 1997 the Company issued options to acquire 120,000 Common
Shares to two executive officers. The exercise price of the options is C$6.25
per Common Share. The issuance was not registered under the Act in reliance
upon the exemption from registration provided by Section 4(2) thereof.
On June 30, 1997 the Company issued options to acquire 277,000 Common
Shares to 11 employees and consultants. The exercise price of the options is
$5.00 per Common Share. The issuance was not registered under the Act in
reliance upon the exemption from registration provided by Section 4(2) thereof.
On June 30, 1997 the Company issued options to acquire 75,000 Common
Shares to 13 directors of the Company and its subsidiaries. The exercise price
of the options is $5.00 per Common Share. The issuance was not registered under
the Act in reliance upon the exemption from registration provided by Section
4(2) thereof.
On July 11, 1997 six individuals, including one director, acquired an
aggregate of 28,800 Common Shares from the registrant upon exercise of warrants
and payment of C$180,000 in the aggregate. The sale was not registered under
the Act in reliance upon the exemption from registration provided by Section
4(2) thereof.
On July 18, 1997 the Company sold 1,000,000 convertible limited
retractable Series A 12% cumulative preference shares, which are convertible
into 200,000 Common Shares and warrants to purchase a like number of Common
Shares to a single investor for an aggregate consideration of C$1,000,000. The
convertible preference shares are convertible at C$6.75, C$8.00, C$9.25,
C$10.50 and C$11.75 in the first, second, third, fourth and fifth years,
respectively, and the warrants are exercisable at C$7.20, C$8.40, C$9.70,
C$10.85 and C$12.10 in the first, second, third, fourth and fifth years,
respectively. The Company paid a finder's fee in connection with this placement
of 16,000 Common Shares to an unaffiliated third party. The issuances were not
registered under the Act in reliance upon the exemption from registration
provided by Section 4(2) thereof.
On August 18, 1997 three employees acquired an aggregate of 10,000 Common
Shares from the registrant upon exercise of a warrant and payment of C$29,100
in the aggregate. The sale was not registered under the Act in reliance upon
the exemption from registration provided by Section 4(2) thereof.
On August 25, 1997 a director of the registrant acquired 9,000 Common
Shares from the registrant upon exercise of an option and payment of C$26,100.
The sale was not registered under the Act in reliance upon the exemption from
registration provided by Rule 701 under the Act.
On August 29, 1997 a former director of a subsidiary acquired 14,000
Common Shares from the registrant upon exercise of a warrant and payment of
C$105,000. The sale was not registered under the Act in reliance upon the
exemption from registration provided by Section 4(2) thereof.
On September 23, 1997 the Company issued 131,758 Common Shares to
Sportswear Investors, LLC. Mr. McCauley, a member of that entity, is a director
of a subsidiary of the registrant. The issuance was not registered under the
Act in reliance upon the exemption from registration provided by Section 4(2)
thereof.
Item 16. Exhibits and Financial Statement Schedules
a. Exhibits
See Exhibit Index following the certification of the Authorized
Representative. The Exhibit Index is incorporated herein by this reference.
b. Financial Statement Schedules
None.
II-4
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the
Underwriters, 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance on Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offer
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, State of
Arizona, on the 16th day of January, 1998.
ANTIGUA ENTERPRISES INC.
/s/ L. Steven Haynes
By: ------------------------------------
L. Steven Haynes
Chief Executive Officer, Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ LOUIS B. LLOYD Chairman of the Board of Directors January 16, 1998
- ---------------------------
Louis B. Lloyd
/s/ L. STEVEN HAYNES Chief Executive Officer, Director January 16, 1998
- --------------------------- (Principal Executive Officer)
L. Steven Haynes
/s/ GERALD K. WHITLEY Vice President of Finance of AGI January 16, 1998
- --------------------------- (Principal Financial Officer and
Gerald K. Whitley Principal Accounting Officer)
Secretary, Director
- ---------------------------
J. Christopher Woods
/s/ JAMES E. MILES Director January 16, 1998
- ---------------------------
James E. Miles
Director January 16, 1998
- ---------------------------
Robert J. McCammon
/s/ JAMES W. LEWIS Director January 16, 1998
- ---------------------------
James W. Lewis
/s/ NATALE BOSA Director January 16, 1998
- ---------------------------
Natale Bosa
</TABLE>
II-6
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, the
undersigned certifies that it is the duly authorized United States
representative of Antigua Enterprises Inc. and has duly caused this
registration statement to be signed on behalf of it by the undersigned,
thereunto duly authorized, in the city of Scottsdale, Arizona on January 16,
1998.
THE ANTIGUA GROUP, INC.
(Authorized U.S. Representative)
/s/ L. Steven Haynes
By: ------------------------------------
L. Steven Haynes
Chief Executive Officer
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
--- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement between Antigua Enterprises Inc. (the "Registrant") and
Cruttenden Roth Incorporated
1.2 Form of Representative Warrant
+2.1 Stock Purchase Agreement between Southhampton Enterprises Corp., Southhampton
Enterprises, Inc., and Thomas E. Dooley, Jr., Gail Dooley, Thomas E. Dooley and Gail
Dooley Revocable Trust of 1988, E. Louis Werner, Jr. Revocable Intervivos Trust of
1982, The Irrevocable Gift Trusts of the Children of Thomas and Gail Dooley of 1989,
dated April 21, 1997 (collectively, the "Sellers")
+2.2 Letter Amendment to Stock Purchase Agreement between Southhampton Enterprises
Corp., Southhampton Enterprises, Inc. and the Sellers, dated June 2, 1997
3.1 Memorandum of Antigua Enterprises Inc.
3.2 Articles of Antigua Enterprises Inc.
3.2.1 Amendment to the Articles of Antigua Enterprises Inc.
*4.1 Specimen Stock Certificate representing the Common Shares
+4.2 Warrant to Purchase 50,000 shares of common stock of Antigua Enterprises Inc., Certificate
No. W-#1 issued to Thomas E. Dooley, Jr. as agent for Sellers, dated May 29, 1997
+4.3 Warrant to Purchase shares of common stock of Southhampton Enterprises Corp. issued to
LaSalle Business Credit, Inc., dated May 7, 1997
+4.3.1 Amendment No. 1 to Warrant, dated May 7, 1997
+4.4 Warrant to Purchase shares of common stock of Southhampton Enterprises Corp. issued to
Imperial Bank, dated May 7, 1997
+4.4.1 Amendment No. 1 to Warrant, dated May 7, 1997
+4.5 Warrant to Purchase shares of common stock of Southhampton Enterprises Corp., issued to
The Cruttenden Roth Bridge Fund, L.L.C., dated May 7, 1997
*4.6 Form of Common Share Purchase Warrant issued in private placement of 162,000 units
*4.7 Form of Common Share Purchase Warrant issued in private placement of 210,000
*4.8 Form of Common Share Purchase Warrant issued in private placement of 4,730,000 shares
of Series A Preferred
*4.9 Form of Common Share Purchase Warrant issued in private placement of 4,730,000 Shares
of Series A Preferred
*4.10 Form of Common Share Purchase Warrant issued in private placement of 4,730,000 shares
of Series A Preferred
*4.11 Form of Common Share Purchase Warrant issued in private placement of 4,730,000 shares
of Series A Preferred
*4.12 Form of Common Share Purchase Warrant issued in private placement of 151,778 units
*4.13 Form of Common Share Purchase Warrant issued in private placement of 60,000 units
*4.14 Form of Common Share Purchase Warrant issued in private placement of 1,000,000 shares
of Series A Preferred
*4.15 Form of Common Share Purchase Warrant issued in private placement of 1,000,000 shares
of Series A Preferred
*4.16 Form of Common Share Purchase Warrant issued in connection with C$4,200,000
Convertible Debenture
*4.17 Form of Common Share Purchase Warrant issued in connection with $1,791,048.45
Convertible Note
*5.1 Opinion of Stikeman, Elliott
8.1 Form of Tax Opinion of Stikeman, Elliott
+10.1 Registration Rights Agreement between Southhampton Enterprises Corp. and Dooley, as
agent, effective as of May 7, 1997
+10.2 Intercreditor Agreement by and between LaSalle Business Credit, Inc., Sellers, The
Cruttenden Roth Bridge Fund, L.L.C., Imperial Bank, The Antigua Group, Inc.,
Southhampton Enterprises Corp. and Southhampton Enterprises, Inc., dated May 7, 1997
+10.3 Employment Agreement between The Antigua Group, Inc. and Ronald A. McPherson,
dated May 7, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
--- ----------------------
<S> <C>
+10.4 Employment Agreement between The Antigua Group, Inc. and Gerald K. Whitley, dated
May 7, 1997
+10.5 Employment Agreement between The Antigua Group, Inc. and L. Steven Haynes, dated
June 16, 1997
+10.6 Employment Agreement between The Antigua Group, Inc. and Brett Moore, dated May
29, 1997
10.7 Employment Agreement between The Antigua Group, Inc. and Joseph M. Blanchette,
dated June 16, 1997
10.8 Form of Independent Sales Representative Agreement
+10.9 Lease Agreement between D&D Development Co., an Arizona general partnership, and
The Antigua Group, Inc., dated December 1, 1994
+10.9.1 Letter Agreement between D&D Development Co., an Arizona general partnership, and
The Antigua Group, Inc., dated September 20, 1996
+10.10 McCormick Ranch Industrial Center III Commercial Lease Agreement between Petroleum,
Inc. and Antigua Group, Inc., dated July 26, 1996
+10.10.1 Lease Modification Agreement #1 between Petroleum, Inc. and Antigua Group, Inc., dated
October 7, 1996
+10.10.2 Lease Modification Agreement #2 between Petroleum, Inc. and Antigua Group, Inc., dated
January 7, 1997
**10.11 Term Sheet and License Agreement, National Football League Properties, Inc., dated
February 27, 1996
+10.12 Loan and Security Agreement between LaSalle Business Credit, Inc. And The Antigua
Group, Inc. for $14,275,000, dated January 23, 1997
+10.13 Term Note A (Machinery & Equipment) payable to LaSalle Business Credit, Inc. by The
Antigua Group, Inc. in the original principal amount of $775,000, dated January 23, 1997
+10.14 Revolving Loan Note payable to LaSalle Business Credit, Inc. by The Antigua Group, Inc.
in the original principal amount of $12,000,000, dated January 23, 1997
+10.15 Trademark Security Agreement between LaSalle Business Credit and The Antigua Group,
Inc., dated January 23, 1997
+10.16 Modification Agreement between LaSalle Business Credit, Inc. and The Antigua Group,
Inc., dated May 7, 1997
+10.17 Loan and Security Agreement between LaSalle Business Credit, Inc. and The Antigua
Group, Inc. for $3,500,000, dated May 7, 1997
+10.18 Term Note payable to LaSalle Business Credit, Inc. by The Antigua Group, Inc. in the
original principal amount of $3,500,000, dated May 7, 1997
+10.19 Continuing Unconditional Guaranty between LaSalle Business Credit, Inc. and
Southhampton Enterprises Corp., dated May 7, 1997
+10.20 Continuing Unconditional Guaranty between LaSalle Business Credit, Inc. and
Southhampton Enterprises, Inc., dated May 7, 1997
+10.21 Security Agreement between LaSalle Business Credit, Inc. and Southhampton Enterprises
Corp., dated May 7, 1997
+10.22 Security Agreement between LaSalle Business Credit, Inc. and Southhampton Enterprises,
Inc., dated May 7, 1997
+10.23 Trademark Security Agreement between LaSalle Business Credit, Inc. and The Antigua
Group, Inc., dated May 7, 1997
+10.24 Credit Agreement between Imperial Bank, The Antigua Group, Inc. Southhampton
Enterprises Corp. and Southhampton Enterprises, Inc., dated May 7, 1997
10.24.1 Modification of Imperial Bank Credit Agreement
+10.25 Amendment No. 1 to Credit Agreement and Indemnification Agreement, dated May 30,
1997
+10.26 Promissory Note payable to Imperial Bank by The Antigua Group, Inc. in the original
principal amount of $2,500,000, dated May 7, 1997
+10.27 Continuing Guarantee and Subordination Agreement between Imperial Bank and
Southhampton Enterprises Corp., dated May 7, 1997
+10.28 Continuing Guarantee and Subordination Agreement between Imperial Bank and
Southhampton Enterprises, Inc., dated May 7, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
--- ----------------------
<S> <C>
+10.29 Security Agreement between Imperial Bank and Southhampton Enterprises Corp., dated
May 7, 1997
+10.30 Security Agreement between Imperial Bank and Southhampton Enterprises, Inc., dated
May 7, 1997
+10.31 Security Agreement between Imperial Bank and The Antigua Group, Inc., dated May 7,
1997
+10.32 Trademark Security Agreement between Imperial Bank and The Antigua Group, Inc.,
dated May 7, 1997
+10.33 Pledge and Irrevocable Proxy Security Agreement between Imperial Bank and
Southhampton Enterprises Corp., dated May 7, 1997
+10.34 Pledge and Irrevocable Proxy Security Agreement between Imperial Bank and
Southhampton Enterprises, Inc., dated May 7, 1997
+10.35 Securities Purchase Agreement between The Cruttenden Roth Bridge Fund, L.L.C., The
Antigua Group, Inc., Southhampton Enterprises Corp. and Southhampton Enterprises,
Inc., dated May 7, 1997 *
+10.36 Senior Subordinated Secured Note payable to The Cruttenden Roth Bridge Fund, L.L.C.
by The Antigua Group, Inc. in the original principal amount of $1,020,000, dated May 7,
1997
+10.37 Guaranty from Southhampton Enterprises Corp. in favor of Cruttenden Roth Bridge Fund,
L.L.C., dated May 7, 1997
+10.38 Guaranty from Southhampton Enterprises, Inc. in favor of Cruttenden Roth Bridge Fund,
L.L.C., dated May 7, 1997
+10.39 Security and Pledge Agreement between The Cruttenden Roth Bridge Fund, L.L.C. and
Southhampton Enterprises Corp., dated May 7, 1997
+10.40 Security and Pledge Agreement between The Cruttenden Roth Bridge Fund, L.L.C. and
Southhampton Enterprises, Inc., dated May 7, 1997
+10.41 Security Agreement between The Cruttenden Roth Bridge Fund, L.L.C. and The Antigua
Group, Inc., dated May 7, 1997
+10.42 Promissory Note (Three Year Note) payable to the Sellers by Southhampton Enterprises
Corp. in the original principal amount of $5,198,000, dated May 7, 1997
+10.43 Promissory Note (Two Year Note) payable to the Sellers by Southhampton Enterprises
Corp. in the amount of $325,000, dated May 7, 1997
+10.44 Promissory Note (Profit Note) payable to the Sellers by Southhampton Enterprises Corp. in
the amount of $855,000, dated May 7, 1997
+10.45 Unconditional Guarantee of Payment between the Sellers and Southhampton Enterprises,
Inc. and Antigua Enterprises Inc., dated May 7, 1997
+10.46 Security Agreement between Sellers and Southhampton Enterprises Corp., dated May 7,
1997
+10.47 Security Agreement between Sellers and Southhampton Enterprises, Inc., dated May 7,
1997
+10.48 Security Agreement between Sellers and The Antigua Group, Inc., dated May 7, 1997
+10.49 Trademark Security Agreement between Sellers and The Antigua Group, Inc., dated May
7, 1997
+10.50 Pledge and Security Agreement and Irrevocable Proxy between the Sellers and
Southhampton Enterprises Corp., dated May 7, 1997
+10.51 Pledge and Security Agreement and Irrevocable Proxy between the Sellers and
Southhampton Enterprises, Inc., dated May 7, 1997 *
+10.52 Amendment to Second Amended and Restated Non-Negotiable Note payable to Gerald K.
Whitley by The Antigua Group, Inc. in the original principal amount of $250,964.25,
dated June 16, 1997
+10.53 Note Amendment Agreement dated July 1, 1995 and Second Amended and Restated
Non-Negotiable Note between Gerald K. Whitley and The Antigua Group, Inc., in the
original principal amount of $334,619.00, dated January 1, 1993
+10.54 Amendment to Second Amended and Restated Non-Negotiable Note payable to Ronald
A. McPherson by The Antigua Group, Inc. in the original principal amount of
$250,964.25, dated June 10, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
--- ----------------------
<S> <C>
+10.55 Note Amendment Agreement dated July 1, 1995 and Second Amended and Restated
Non-Negotiable Note between Ronald A. McPherson and The Antigua Group, Inc., in
the original principal amount of $334,619.00, dated January 1, 1993
11.1 Statement Regarding Computation of Earnings Per Share
16.1 Letter from BDO Dunwoody, Chartered Accountants, dated November 5, 1997
+21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of BDO Dunwoody, Chartered Accountants
*23.3 Consent of Stikeman, Elliott (contained in their opinion filed as Exhibit 5.1 to this
Registration Statement)
+24.1 Powers of Attorney (contained on Signatures Page)
*24.2 Certified resolution of the Board of Directors of the Registrant appointing the
attorneys-in-fact
24.3 Power of Attorney of Louis B. Lloyd
24.4 Power of Attorney of L. Steven Haynes
24.5 Power of Attorney of Gerald K. Whitley
*24.6 Power of Attorney of J. Christopher Woods
24.7 Power of Attorney of James E. Miles
24.8 Power of Attorney of Robert J. McCammon
24.9 Power of Attorney of James W. Lewis
+27 Financial Data Schedule (filed by EDGAR only)
</TABLE>
- ------------
* To be filed by amendment.
** Confidential treatment requested for portions of this exhibit.
+ Previously filed.
3,000,000 Shares
ANTIGUA ENTERPRISES INC.
Common Shares
UNDERWRITING AGREEMENT
<PAGE>
DRAFT OF Friday, January 16, 1998
3,000,000 Shares(1)
ANTIGUA ENTERPRISES, INC.
Common Shares
UNDERWRITING AGREEMENT
CRUTTENDEN ROTH INCORPORATED
FERRIS, BAKER WATTS INCORPORATED
As Representative of the Several Underwriters
c/o Cruttenden Roth Incorporated
18301 Van Karman, Suite 100
Irvine, California 92715
Ladies and Gentlemen:
Antigua Enterprises Inc., a British Columbia corporation (the
"Company"), and a shareholder of the Company named in Schedule B hereto
(hereafter called the "Selling Shareholder") address you as the Representatives
of each of the persons, firms and corporations listed in Schedule A hereto
(herein collectively called the "Underwriters") and hereby confirm their
respective agreements with the several Underwriters as follows:
DESCRIPTION OF SHARES. The Company proposes to issue and sell 3,000,000
shares of its authorized and unissued common stock, no par value per share
("Common Shares"), to the several Underwriters. The 3,000,000 Common Shares to
be sold by the Company are hereinafter called the "Firm Shares". The Selling
Shareholder also proposes to grant to the Underwriters an option to purchase up
to 450,000 additional Common Shares (the "Option
- --------------------------
(1) Plus an option to purchase up to 450,000 additional shares from the
Selling Shareholder to cover over-allotments.
2
<PAGE>
Shares"), as provided in Section 7 hereof. As used in this Agreement, the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
common stock, no par value per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby, including the Shares, are
hereinafter referred to as "Common Shares."
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING SHAREHOLDER.
The Company represents and warrants to and agrees with each
Underwriter that:
A registration statement on Form S-1 (File No.
333-39929) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of such
registration statement and amendments, of each related prospectus subject to
completion (the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
If the registration statement relating to the Shares
has been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if Cruttenden Roth
Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations pursuant to subparagraph (1), (4) or
(7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file an amendment to the registration statement, including a final form of
prospectus, or, if Cruttenden Roth Incorporated, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations. The
term "Registration Statement" as
3
<PAGE>
used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits (including exhibits incorporated by
reference), in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto or the filing of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations relating thereto after the effective date of
such registration statement, and shall also mean (from and after the
effectiveness of such amendment or the filing of such abbreviated registration
statement) such registration statement as so amended, together with any such
abbreviated registration statement. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations); provided, however, that if in reliance on Rule
434 of the Rules and Regulations and with the consent of Cruttenden Roth
Incorporated, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as
applicable, prior to the time that a confirmation is sent or given for purposes
of Section 2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus
subject to completion" (as defined in Rule 434(g) of the Rules and Regulations)
last provided to the Underwriters by the Company and circulated by the
Underwriters to all prospective purchasers of the Shares (including the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus referred to in the immediately preceding
sentence (whether or not such revised prospectus is required to be filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use. If in reliance on Rule 434
of the Rules and Regulations and with the consent of Cruttenden Roth
Incorporated, on behalf of the several Underwriters, the Company shall have
provided to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as
applicable, prior to the time that a confirmation is sent or given for purposes
or Section 2(10)(a) of the Act, the Prospectus and the term sheet, together,
will not be materially different from the prospectus in the Registration
Statement.
The Commission has not issued any order preventing or
suspending the
4
<PAGE>
use of any Preliminary Prospectus or instituted proceedings for that purpose,
and each such Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of its date,
has not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
The Company and each of its subsidiaries have been
duly incorporated and organized and are validly existing and duly qualified as
corporations in good standing under the laws of the jurisdiction of their
incorporation with full power and authority (corporate and other) to own, lease
and operate their properties and conduct their business as described in the
Prospectus; the Company and each of its subsidiaries are duly qualified to do
business as a foreign corporation or registered as an extra-provincial
corporation and are in good standing in each jurisdiction in which the ownership
or leasing of their properties or the conduct of their business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
no proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
registration or qualification; the Company and each of its subsidiaries are in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from all governmental and other
regulatory authorities that are material to the conduct of its business, all of
which are valid, existing, in good standing, and in full force and effect and
none of these authorizations, licenses, certificates, consents,
5
<PAGE>
orders and permits contain any burdensome term likely to have a material adverse
effect on the business of the Company; the Company and each of its subsidiaries
are not in violation of their memorandum, articles or bylaws or in default in
the performance or observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its subsidiaries, respectively is a party or by which its
properties may be bound; and the Company and each of its subsidiaries are not in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or a subsidiary or
over their properties of which it has knowledge. The Company does not own or
control, directly or indirectly, any corporation, association or other entity
except that the Company is the registered and beneficial owner of all of the
outstanding shares of Southhampton Enterprises, Inc., a Texas corporation
("SEI"), and (ii) SEI is the registered and beneficial owner of all of the
outstanding shares of Antigua Group, Inc., a Nevada corporation, in each case
free and clear of all mortgages, liens, charges, pledges, security interests,
encumbrances, claims or demands whatsoever, and not person, firm or corporation
has any agreement or option or right or privilege (whether preemptive or
contractual) capable of becoming an agreement for the purchase from the Company
of all or any part of such shares, and all such shares have been validly issued
and are outstanding as fully paid and non-assessable, except as set forth in the
Registration Statement or Prospectus.
The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated have been duly
authorized by all necessary corporate action and will not result in a material
breach or violation of any of the terms and provisions of, or constitute a
material default under, (i) any material bond, debenture, note or other evidence
of indebtedness, or under any material lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which the Company is a party or by which the Company or its properties may be
bound, (ii) the memorandum, articles or bylaws of the Company or (iii) any law,
policy, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
6
<PAGE>
jurisdiction over the Company or its properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or its properties is required for the execution and delivery of this
Agreement and the consummation by the Company of the transactions herein
contemplated, except such as may be required under the Act, or under state or
other securities or Blue Sky laws, all of which requirements have been satisfied
in all material respects. The transactions herein contemplated comply in all
material respects with applicable Canadian securities laws. No order, ruling or
determination having the effect of suspending the sale or ceasing the trading of
the Shares or any other security of the Company has been issued or made by any
securities commission or stock exchange or any other regulatory authority and is
continuing in effect and no proceedings for that purpose have been instituted or
are pending or, to the best of the Company's knowledge, contemplated or
threatened by any such authority or under any applicable securities laws.
There is not any pending or, to the Company's
knowledge, threatened action, suit, claim, investigation or proceeding against
or affecting the Company or any of its subsidiaries, or any of their respective
officers or any of their respective properties, assets or rights before any
court, arbitration tribunal, government or governmental agency or body, domestic
or foreign, having jurisdiction over the Company or its subsidiaries or their
respective directors, officers, former directors or officers, properties or
otherwise which (i) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or might materially and adversely affect the Company's
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or which could reasonably be expected to put
into question the validity of the issuance of the Shares in accordance with this
Agreement or (iii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement by the Act or the Rules and Regulations
which have not been accurately described in all material respects in the
Registration Statement or Prospectus or filed as exhibits to the Registration
Statement.
All outstanding share capital of the Company
(including the Option Shares) has been duly authorized and validly issued and is
fully paid and nonassessable, has been issued in compliance with all applicable
Canadian securities laws, stock exchange rules and regulations, and all
applicable U.S. federal and state securities laws, was not issued in violation
of or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and the authorized and outstanding share capital of the
Company is as set forth in the Prospectus
7
<PAGE>
under the caption "Capitalization" and conforms in all material respects to the
statements relating thereto contained in the Registration Statement and the
Prospectus (and such statements correctly state the substance of the instruments
defining the capitalization of the Company); the Firm Shares have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly issued and
outstanding, fully paid and nonassessable, and will be sold free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest;
and no preemptive right, co-sale right, registration right, right of first
refusal or other similar right of shareholders exists with respect to any of the
Firm Shares or the issuance and sale thereof other than those that have been
satisfied or expressly waived prior to the date hereof and those that will
automatically expire upon and will not apply to the consummation of the
transactions contemplated on or before the Closing Date. No further approval or
authorization of any shareholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act or under state or other securities or Blue Sky
laws. Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto included in the Prospectus, the Company
has no outstanding options to purchase, or any preemptive rights or other rights
or privileges capable of becoming an agreement to subscribe for or to purchase,
any securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its share capital 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, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
Arthur Andersen, Independent Auditors ("AA"), which
has examined the consolidated financial statements of the Company, together with
the related schedules and notes, as of September 30, 1997 and 1996 and for the
year ended December 31, 1996 and BDO Dunwoody, Chartered Accountants
(internationally, BDO Binder) ("BDO"), which has examined the consolidated
financial statements of the Company, together with the related notes, as of
December 31, 1995 and for the years ended December 31, 1994 and 1995, filed with
the Commission as a part of the Registration Statement, which are included in
the Prospectus, are independent accountants within the meaning of the Act and
the Rules and Regulations; the audited financial statements of the Company,
together with the related schedules and notes, and the unaudited financial
information, forming part of the Registration Statement and Prospectus, are
complete and correct and fairly present the financial position and the results
of operations of the Company at the respective dates and for the respective
periods to which they apply; and all audited financial statements of the
Company, together with the related schedules and notes, and
8
<PAGE>
the unaudited financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with Canadian generally
accepted accounting principles consistently applied throughout the periods
involved except as may be otherwise stated therein and have been reconciled to
generally accepted accounting principles in the United States in accordance with
applicable U.S. securities laws and regulations. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. The pro
forma financial information set forth in the Registration Statement reflects,
subject to the limitations set forth in the Registration Statement as to such
pro forma financial information, the results of operations of the Company
purported to be shown thereby for the periods indicated and conforms to the
requirements of Regulation S-X of the Rules and Regulations. No other financial
statements or schedules are required to be included in the Registration
Statement.
Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (ii) any
transaction that is material to the Company, except transactions entered into in
the ordinary course of business, (iii) any obligation, direct or contingent,
that is material to the Company, incurred by or asserted against the Company,
except obligations incurred in the ordinary course of business, (iv) any change
in the share capital or outstanding indebtedness of the Company that is material
to the Company, (v) any dividend or distribution of any kind declared, paid or
made on the share capital of the Company, or (vi) any loss or damage (whether or
not insured) to the property of the Company which has been sustained or will
have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or its subsidiaries.
Except as set forth in the Registration Statement and
Prospectus, (i) the Company and its subsidiaries have good and marketable title
to all their respective properties and assets described in the Registration
Statement and Prospectus as owned by each of them, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest, other than
such as would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company,
(ii) the agreements to which the Company or its subsidiaries are parties
described in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company or its subsidiaries, as applicable, in accordance
with their terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles, performance of the transactions
9
<PAGE>
contemplated thereby have been duly authorized by all necessary corporate action
of the Company or its subsidiaries, as applicable, and, to the Company's
knowledge, the other contracting party or parties thereto are not in material
breach or material default under any of such agreements, and (iii) the Company
or its subsidiaries have valid and enforceable leases for all properties
described in the Registration Statement and Prospectus as leased by it, except
as the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus, the Company or its
subsidiaries own or lease all such properties as are necessary to their
respective operations as now conducted or as proposed to be conducted.
The Company and its subsidiaries have timely filed
all necessary Canadian and U.S. federal, provincial, state, local and foreign
income and franchise tax returns and have paid all taxes shown thereon as due,
and there are no actions, suits or proceedings, and there is no tax deficiency
that has been or, to the Company's knowledge, might be asserted against the
Company (or any of its subsidiaries) that might have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company; and all tax liabilities are adequately
provided for on the books of the Company and adequate provision has been made
for taxes payable for any completed fiscal period for which tax returns are not
yet required to be filed.
The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their business and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or 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; neither the Company nor any
of its subsidiaries have been refused any insurance coverage sought or applied
for; and the Company does not have any reason to believe that it will not be
able to renew its or its subsidiaries existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
No labor disturbance by the employees of the Company
or its subsidiaries exists or is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its principal
suppliers, value added resellers, subcontractors, authorized dealers or
international distributors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business
10
<PAGE>
or business prospects of the Company. No collective bargaining agreement exists
with any of the Company's or its subsidiaries' employees and, to the Company's
knowledge, no such agreement is imminent.
The Company directly or through its subsidiaries,
owns or possesses adequate rights to use all patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; except as set forth in the Registration Statement and
the Prospectus, the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company; the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, nor has it
any knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, individually or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
might have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
The Common Shares are registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and are listed on The Nasdaq National Market, and the Company has taken no
action designed to, or likely to have the effect of, terminating the
registration of the Common Shares under the Exchange Act or delisting the Common
Shares from The Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating terminating such registration or
listing.
The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the future
to conduct, its affairs in such a manner as to ensure that it is not and will
not become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with
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the offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
The Company has not (nor have its subsidiaries) at
any time during the last five (5) years (i) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or Canada or any jurisdiction thereof.
The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Shares to facilitate the sale or resale of the Shares.
Except as otherwise set forth in the Registration
Statement and the Prospectus, each officer and director of the Company, the
Selling Shareholder and each of the Company's shareholders who own at least one
percent (1%) of the outstanding Common Shares of the Company has agreed in
writing that such person will not, directly or indirectly, except as described
below, for a period of 180 days from the date of the final Prospectus, and with
respect to the Selling Shareholder, for a period of 365 days from the date of
the final Prospectus (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Shares, any options or
warrants to purchase any shares of Common Shares or any securities convertible
into or exchangeable for shares of Common Shares (collectively, "Securities")
now owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, otherwise than
(i) if such shareholder is an individual, he or she may transfer any shares of
the Company's Common Shares or securities convertible into or exchangeable or
exercisable for Common Shares either during his or her lifetime or on death by
will or intestacy to his or her immediate family or to a trust the beneficiaries
of which are exclusively the undersigned and/or a member of his or her immediate
family; provided, however, that prior to any such transfer each transferee shall
execute an agreement, satisfactory to Cruttenden Roth Incorporated, pursuant to
which each transferee shall agree to receive and hold such shares of Common
Shares, or securities convertible into or exchangeable or exercisable for Common
Shares, subject to the provisions hereof, and there shall be no further transfer
except in accordance with the provisions hereof, or (ii) with the prior written
consent of Cruttenden Roth Incorporated. For purposes of this Agreement,
"immediate family" shall mean spouse, lineal descendant, father, mother, brother
or sister of the transferor. The foregoing restriction has been expressly agreed
to preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of
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Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than such shareholder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a complete
and accurate list of all securityholders of the Company as of ________, 1998 and
the number and type of securities held by each securityholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies of
all of the agreements pursuant to which its officers, directors and shareholders
have agreed to such or similar restrictions (the "Lock-up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other shareholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Cruttenden Roth Incorporated.
Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance, in all material respects, with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of waste and toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to the Company or its business, (ii)
the Company has not received notice from any U.S. or foreign governmental
authority or third party of an asserted claim under Environmental Laws that is
required to be disclosed in the Registration Statement and the Prospectus and is
not so disclosed, (iii) the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et
seq.), or otherwise designated as a contaminated site under applicable foreign,
U.S. state or local law.
The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded
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accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers, directors or shareholders of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement and
the Prospectus.
No relationship, direct or indirect, exists between
or among the Company or any of its subsidiaries, on the one hand, and the
directors, officers, shareholders, customers or suppliers of the Company or any
of its subsidiaries, on the other hand, which is required to be described in the
Registration Statement or the Prospectus which is not so described.
To the knowledge of the Company, none of the holders
of securities issued by the Company or the directors or officers of the Company
or any associate or affiliate of any of the foregoing had, has or intends to
have, any material interest, direct or indirect, in any material transaction or
any proposed material transaction with the Company which, as the case may be,
materially affects, is material to or will materially affect the Company, except
as disclosed in the Prospectus. There are no outstanding loans, advances or
guaranties of indebtedness by the Company to or for the benefit of any of (i)
its "affiliates," as such term is defined in the Rules and Regulations, (ii) any
of the officers or directors of any of its subsidiaries or (iii) any of the
members of the families of any of them.
Except as disclosed in the Registration Statement or
the Prospectus, the Company has not incurred any liability or potential
liability for any fee, commission, or other compensation on account of the
employment of any broker or finder in connection with this Agreement or the
transactions contemplated by this Agreement, and in the event any person, firm
or corporation engaged by or purporting to be engaged by the Company establishes
a claim for any fee from the Underwriters, the Company covenants to indemnify
and hold harmless the Underwriters with respect thereto and with respect to all
costs reasonably incurred in the defense thereof.
The Company has complied with all provisions of
Section 517.075, Florida statutes relating to doing business with the government
of Cuba or with any person or affiliate located in Cuba.
The Selling Shareholder represents and warrants to and agrees
with each Underwriter and the Company that:
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The Selling Shareholder is the registered and
beneficial owner of the Option Shares and now has and on the Closing Date will
have valid marketable title to the Shares to be sold by the Selling Shareholder,
free and clear of any mortgage, charge, demand, pledge, lien, security interest,
encumbrance, claim or equitable interest other than pursuant to this Agreement;
and upon delivery of such Shares hereunder and payment of the purchase price as
herein contemplated, each of the Underwriters will obtain valid marketable title
to the Shares purchased by it from the Selling Shareholder, free and clear of
any pledge, lien, security interest pertaining to the Selling Shareholder or the
Selling Shareholder's property, encumbrance, claim or equitable interest,
including any liability for estate or inheritance taxes, or any liability to or
claims of any creditor, devisee, legatee or beneficiary of the Selling
Shareholder.
Such Selling Shareholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representative, an irrevocable Power of Attorney (the "Power of Attorney")
appointing ____________________________ or _____________________________ as
attorney(s)-in-fact (collectively, the "Attorneys" and individually, an
"Attorney") and a Letter of Transmittal and Custody Agreement (the "Custody
Agreement") with [transfer agent] as custodian (the "Custodian"); each of the
Power of Attorney and the Custody Agreement constitutes a valid and binding
agreement on the part of the Selling Shareholder enforceable in accordance with
its terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and each of the Selling Shareholder's Attorneys, acting alone, is
authorized to execute and deliver this Agreement and the certificate referred to
in Suction 6(i) hereof on behalf of the Selling Shareholder, to determine the
purchase price to be paid by the several Underwriters to the Selling Shareholder
as provided in Section 3 hereof; to authorize the delivery of the Option Shares
under this Agreement and to duly endorse (in blank or otherwise) the certificate
or certificates representing such Shares or a stock power or powers with respect
thereto, to accept payment therefor, and otherwise to act on behalf of the
Selling Shareholder in connection with this Agreement.
All consents, approvals, authorizations and orders
required for the execution and delivery by the Selling Shareholder of the Power
of Attorney and the Custody Agreement, the execution and delivery by or on
behalf of the Selling Shareholder of this Agreement and the sale and delivery of
the Option Shares under this Agreement (other than, at the time of the execution
hereof (if the Registration Statement has not yet been declared effective by the
Commission), the issuance of the order of the Commission declaring the
Registration Statement effective and such consents, approvals, authorizations or
orders as may be necessary under state or other securities or Blue Sky laws)
have been obtained and are in full force and
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effect; the Selling Shareholder has full legal right, power and authority to
enter into and perform his obligations under this Agreement and such Power of
Attorney and Custody Agreement, and to sell, assign, transfer and deliver the
Option Shares to be sold by the Selling Shareholder under this Agreement.
The Selling Shareholder will not directly or
indirectly, during the Lock-up Period, effect the Disposition of any Securities
now owned or hereafter acquired directly by the Selling Shareholder or with
respect to which the Selling Shareholder has or hereafter acquires the power of
disposition, otherwise than (i) if such shareholder is an individual, he or she
may transfer any shares of the Company's Common Shares or securities convertible
into or exchangeable or exercisable for Common Shares either during his or her
lifetime or on death by will or intestacy to his or her immediate family or to a
trust the beneficiaries of which are exclusively the undersigned and/or a member
of his or her immediate family; provided, however, that prior to any such
transfer each transferee shall execute an agreement, satisfactory to Cruttenden
Roth Incorporated, pursuant to which each transferee shall agree to receive and
hold such shares of Common Shares, or securities convertible into or
exchangeable or exercisable for Common Shares, subject to the provisions hereof,
and there shall be no further transfer except in accordance with the provisions
hereof, or (ii) with the prior written consent of Cruttenden Roth Incorporated.
The foregoing restriction is expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the Selling Shareholder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from the
Securities. The Selling Shareholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by the Selling Shareholder except in compliance
with this restriction.
Certificates in negotiable form for all Shares to be
sold by the Selling Shareholder under this Agreement, together with a stock
power or powers duly endorsed in blank by the Selling Shareholder, have been
placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
This Agreement has been duly executed and delivered
by or on behalf of the Selling Shareholder and is a valid and binding agreement
of the Selling Shareholder, enforceable in accordance with its terms, except as
rights to indemnification hereunder may be
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limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and the execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a material default under, any material bond, debenture, note or other
evidence of indebtedness, or under any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Selling Shareholder is a party or by which the Selling
Shareholder, or any Option Shares hereunder, may be bound or, to the Selling
Shareholder's knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Selling Shareholder or over the properties of the Selling Shareholder, or, if
the Selling Shareholder is other than a natural person, result in any violation
of any provisions of the memorandum, articles, bylaws or other organizational
documents of the Selling Shareholder.
The Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Shares to facilitate the sale or resale of the Shares.
The Selling Shareholder has not distributed and will
not distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
All information furnished by or on behalf of the
Selling Shareholder relating to the Selling Shareholder and the Option Shares
that is contained in the representations and warranties of the Selling
Shareholder in the Selling Shareholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and complete in
all material respects, and does not, and at the time the Registration Statement
became or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date, and on any later date on which Option
Shares are to be purchased, will not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make such information not misleading.
The Selling Shareholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the Closing
Date, or any later date on which Option Shares are to be purchased, as the case
may be, and will advise one of its Attorneys and Cruttenden Roth
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Incorporated prior to the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, if any statement to be made on behalf
of the Selling Shareholder in the certificate contemplated by Suction 6(i) would
be inaccurate if made as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be.
The Selling Shareholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be sold
by the Company to the Underwriters pursuant to this Agreement; the Selling
Shareholder does not have, or has waived prior to the date hereof; any
registration right or other similar right to participate in the offering made by
the Prospectus, other than such rights of participation as have been satisfied
by the participation of the Selling Shareholder in the transactions to which
this Agreement relates in accordance with the terms of this Agreement; and the
Selling Shareholder does not own any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, rights, warrants, options or other securities from the Company, other
than those described in the Registration Statement and the Prospectus.
No person, firm or corporation has (except for the
Underwriters) any agreement or option or right or privilege (whether pre-emptive
or contractual) capable of becoming an agreement for the purchase from him or it
of all or any part of the Option Shares.
To the best knowledge of the Selling Shareholder, and
after due inquiry (i) each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which, they were made, not misleading, except that the representations and
warranties set forth in this paragraph (l) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein, and (iii) the Selling
Shareholder, is not aware that, and has no reason to believe that, any of the
representations and warranties of the Company set forth in Section 2.I. above is
untrue or inaccurate in any material respect.
PURCHASE, SALE AND DELIVERY OF SHARES On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter
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agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $ _________ per Share, the respective number of Firm Shares which is
set forth opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10).
The certificates in negotiable form for the Option Shares have
been placed in custody (for delivery under this Agreement) under the Custody
Agreement. The Selling Shareholder agrees that the certificates for the Option
Shares of the Selling Shareholder so held in custody are subject to the
interests of the Underwriters hereunder, that the arrangements made by the
Selling Shareholder for such custody, including the Power of Attorney is to that
extent irrevocable and that the obligations of the Selling Shareholder hereunder
shall not be terminated by any act of the Selling Shareholder or by operation of
law, whether by the death or incapacity of the Selling Shareholder or the
occurrence of any other event, except as specifically provided herein or in the
Custody Agreement. If the Selling Shareholder should die or be incapacitated, or
if any other such event should occur before the delivery of the certificates for
the Option Shares hereunder, the Option Shares to be sold by the Selling
Shareholder shall, except as specifically provided herein or in the Custody
Agreement, be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event had not
occurred, regardless of whether the Custodian shall have received notice of such
death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company and the Custodian (and the Company and the Custodian each agrees
not to deposit any such check in the bank on which it is drawn, and not to take
any other action with the purpose or effect of receiving immediately available
funds, until the business day following the date of delivery to the Company and,
in the event of any breach of the foregoing, the Company or the Selling
Shareholder as the case may be, shall reimburse the Underwriters for the
interest lost and any other expenses borne by the Underwriters by reason of such
breach), at the offices of Gray Cary Ware & Freidenrich 4365 Executive Drive,
Suite 1600, San Diego, California (or at such other place as may be agreed upon
among the Representative, the Company and the Attorneys), at 7:00 A.M., San
Diego time (a) on the third (3rd) full business day following the first day that
Shares are traded, (b) if this Agreement is executed and delivered after 1:30
P.M., San Diego time, the fourth (4th) full business day following the day that
this Agreement is executed and delivered or (c) at such other time and date not
later than seven (7) full business days following the first day that Shares are
traded as the Representative, the Company and the Attorneys may determine (or at
such time and date to which payment and
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delivery shall have been postponed pursuant to Section 10 hereof), such time and
date of payment and delivery being herein called the "Closing Date"; provided,
however, that if the Company has not made available to the Representative a copy
of the Prospectus within the time provided in Section 4(d) hereof, the
Representative may, in its sole discretion, postpone the Closing Date until no
later than two (2) full business days following delivery of copies of the
Prospectus to the Representative. The certificates for the Firm Shares to be so
delivered will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the Closing Date and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to the Closing Date. If the
Representative so elects, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representative.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the
several Underwriters intend to make a public offering (as such term is described
in Section 11 hereof) of the Firm Shares at a public offering price of $
__________ per Share. After the public offering, the several Underwriters may,
in their discretion, vary the public offering price.
The information set forth on the front cover page (insofar as
such information relates to the Underwriters) concerning stabilization,
over-allotment and passive market making by the Underwriters, and under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Shareholder that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
The Company will use its best efforts to cause the
Registration Statement
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and any amendment thereof, if not effective at the time and date that this
Agreement is executed and delivered by the parties hereto, to become effective
as promptly as possible; the Company will use its best efforts to cause any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations as may be required subsequent to the date the Registration Statement
is declared effective to become effective as promptly as possible; the Company
will notify you, promptly after it shall receive notice thereof, of the time
when the Registration Statement, any subsequent amendment to the Registration
Statement or any abbreviated registration statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the Rules
and Regulations, the Company will provide evidence satisfactory to you that the
Prospectus and term sheet meeting the requirements of Rule 434(b) or (c), as
applicable, of the Rules and Regulations have been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (7) of Rule 424(b) of
the Rules and Regulations; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it
will provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify you promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus or for
additional information; promptly upon your request, it will prepare and file
with the Commission any amendments or supplements to the Registration Statement
or Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriters, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be
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necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act; and it will file no amendment or supplement to the Registration Statement
or Prospectus which shall not previously have been submitted to you a reasonable
time prior to the proposed filing therefor to which you shall reasonably object
in writing, subject, however, to compliance with the Act and the Rules and
Regulations and the provisions of this Agreement.
The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of proceeding for that purpose; and it will promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
The Company will use its best efforts (including by
providing full cooperation with your counsel, whose services in this matter are
required and which you and the Company will seek to expedite) to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction for such purpose.
The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first full business day
following the first day that Shares are traded, copies of the Registration
Statement (two of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if Cruttenden Roth
Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time reasonably
request.
The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration
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Statement, an earnings statement (which will be in reasonable detail but need
not be audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
During a period of five (5) years after the date
hereof, the Company will furnish to its shareholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and, upon
request by a shareholder, unaudited quarterly reports of operations for each of
the first three quarters of the fiscal year, and will furnish to you and the
other several Underwriters hereunder, upon request (i)<0- 95>concurrently with
furnishing such reports to its shareholders, statements of operations of the
Company for each of the first three (3) quarters in the form furnished to the
Company's shareholders, (ii)<0- 95>concurrently with furnishing to its
shareholders, a balance sheet of the Company as of the end of such fiscal year,
together with statements of operations, of shareholders' equity, and of cash
flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii)<0- 95>as soon as they are available, copies of all reports (financial or
other) mailed to shareholders, (iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, any
securities exchange or the NASD, (v) every material press release and every
material news item or article in respect of the Company or its affairs which was
generally released to shareholders or prepared by the Company, and (vi) any
additional information of a public nature concerning the Company, or its
business which you may reasonably request. During such five (5) year period, if
the Company shall have active subsidiaries, the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the Company
and such subsidiaries are consolidated, and shall be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated.
The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Shares
If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholder to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement pursuant
to Section 11(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 11(a) or 11(b), then the provisions of Section 11 of that
certain letter agreement dated
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June 3, 1997 between you and the Company (the "Letter Agreement") shall govern
payment and reimbursement obligations of the parties notwithstanding that the
Letter Agreement shall have ceased to be of full force or effect for any other
purpose.
If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Shares has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
During the Lock-up Period, the Company will not,
without the prior written consent of Cruttenden Roth Incorporated, effect the
Disposition or purchase of, directly or indirectly, any Securities other than
the sale of the Firm Shares and the Option Shares hereunder and the Company's
issuance of options or Common Shares currently reserved for issuance under the
Company's Warrants described in the Registration Statement and the Prospectus.
The Company shall issue and sell to the
Representative upon the Closing Date, at a price of $0.001 per share, warrants
to purchase in the aggregate that number of shares of the Company's Common
Shares equal to ten percent (10%) of the Firm Shares at an exercise price equal
to One Hundred and Twenty Percent (120%) of the public offering purchase price
per share set forth in Section 3 hereof (the "Representative' Warrants"). The
Representative's Warrants shall have a term of five (5) years from the date of
issuance and shall be in substantially the form attached hereto as Exhibit A.
For a period ending upon the earlier of (i) one (1)
year following the Closing Date; and (ii) the closing of a public offering of
the Company's securities in which the Representative has declined to exercise
their rights under this subsection, the Company shall notify the Representative
in writing at least thirty (30) days prior to initiating (A) any proposed
private or public offering of any debt or equity securities (other than bank
debt or similar financing with institutional lending institutions) by the
Company or by any of its majority owned or controlled subsidiaries having as its
principal objective the raising of capital for the Company; or (B) the proposed
public offering of any equity securities by any of the Company's shareholders
owning at least five percent (5%) of the outstanding Common Shares of the
Company. Such written notice shall describe the proposed transaction giving rise
to the notice,
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including the price and the terms and conditions upon which the Company proposed
to conduct such transaction. The Representative or, at the option of the
Representative, a group of associated investment bankers including and led by
the Representative, shall jointly and severally have the right of first refusal
to manage the offering on substantially the terms and conditions set forth in
the notice. The Representative agrees to provide the Company with notice of its
acceptance of such right of first refusal no later than ten (10) days of receipt
of the Company's notice hereunder. If the Representative fails to exercise their
right of first refusal within the ten (10) day period and the terms of the
proposed subsequent financings thereafter are altered in any material respect,
the Company shall again offer to the Representative this right of first refusal
to manage such subsequent financings upon such altered terms, in the manner
provided in this subsection.
The Company will cause the Shares to be listed on The
Nasdaq National Market, and the Company will comply with all registration,
filing, reporting and other requirements of the Exchange Act and any such
exchange or The Nasdaq National Market which may from time to time be applicable
to the Company, and the Company shall not agree to the delisting from The Nasdaq
National Market without the prior written consent of the Representative.
The Company will use its best efforts to maintain a
board of directors that will at all times include at least two (2) non-employee
directors.
The Company shall at all times maintain director and
officer liability insurance from a responsible insurer with $___________ of
coverage per occurrence.
The Company will use its best efforts to ensure that
all executive officers and key employees listed in the Registration Statement
remain employed by the Company for a minimum of twenty four (24) months after
the Closing Date.
EXPENSES
The Company agrees with each Underwriter that:
The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto the Preliminary Blue Sky Memorandum and any Supplemental Blue Sky
Memorandum; the printing of this Agreement, the Agreement Among Underwriters,
the Selected Dealer Agreement, the Underwriters' Questionnaire and Power of
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Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent certified
public accountants; the cost of furnishing to the several Underwriters copies of
the Registration Statement (including appropriate exhibits), Preliminary
Prospectus and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares under the laws
of such jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); provided, however, that fees of Underwriters counsel
with respect to Blue Sky matters shall not exceed $30,000; and all other
expenses directly incurred by the Company and the Selling Shareholder in
connection with the performance of their obligations hereunder. In addition,
upon the Closing Date the Company will pay Cruttenden Roth Incorporated a
non-accountable expense allowance equal to two and one-half percent (2.5%) of
the total proceeds from the offering of the Shares, less $30,000 which has been
previously paid. The provisions of this Section 3(a)(i) are intended to relieve
the Underwriters from the payment of the expenses and costs which the Selling
Shareholder and the Company hereby agree to pay, but shall not affect any
agreement which the Selling Shareholder and the Company may make, or may have
made, for the sharing of any of such expenses and costs. Such agreements shall
not impair the obligations of the Company and the Selling Shareholder hereunder
to the several Underwriters.
In addition to its other obligations under
Section 8 hereof, the Company agrees that as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
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In addition to their other obligations under
Section 8 hereof, the Selling Shareholder agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(b) hereof relating to the Selling Shareholder,
it will reimburse the Underwriters on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Selling Shareholder's obligation to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Selling Shareholder, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request. In no event shall the aggregate amount that
the Selling Shareholder (as a Selling Shareholder) is required to advance
pursuant to this paragraph exceed the net proceeds received by the Selling
Shareholder from sales of the Option Shares contemplated by this Agreement.
In addition to their other obligations under Section
8(c) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8(c) hereof, they will reimburse the
Company and the Selling Shareholder on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company and each the Selling
Shareholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and the Selling Shareholder shall promptly return such
payment to the Underwriters together with interest, compounded daily, determined
on the basis of the Prime Rate. Any such interim reimbursement payments which
are not made to the Company and the Selling Shareholder within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the reimbursing parties, shall
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<PAGE>
be settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant
to the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. In the event
the party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof and will not resolve the ultimate propriety
or enforceability of the obligation to indemnify for expenses which is created
by the provisions of Sections 8(a), 8(b) and 8(c) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(e)
hereof.
CONDITIONS OF UNDERWRITERS' OBLIGATIONS The obligations of the several
Underwriters to purchase and pay for the Shares as provided herein shall be
subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Shareholder
herein, to the performance by the Company and the Selling Shareholder of their
respective obligations hereunder and to the following additional conditions:
The Registration Statement shall have become
effective not later than 2:00 P.M., San Diego time, on the date following the
date of this Agreement, or such later date and time as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company, the Selling Shareholder or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of Underwriters'
Counsel.
All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company from that set forth in the Registration
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Statement or Prospectus, which, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus.
You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
the following opinion of counsel for the Company and the Selling Shareholder,
dated the Closing Date or such later date on which Option Shares are to be
purchased addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
Each of the Company and its subsidiaries
have been duly incorporated and are validly existing as a corporation in good
standing under the laws of the jurisdiction of their incorporation;
Each of the Company and its subsidiaries
have the corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus;
Each of the Company and its subsidiaries are
duly qualified to do business as a foreign corporation and are in good standing
in each jurisdiction, if any, in which the ownership or leasing of their
properties or the conduct of their business (as known to such counsel) requires
such qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company or its subsidiaries,
as applicable. The Company does not own or control, directly or indirectly, any
corporation, association or other entity except that the Company (i) owns all of
the outstanding shares of SEI and (ii) SEI owns all of the outstanding shares of
Antigua Group, Inc.
The authorized, issued and outstanding share
capital of the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and outstanding
shares of capital stock of the Company (including the Option Shares) have been
duly and validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right;
The Firm Shares to be issued by the Company
pursuant to the terms of this Agreement have been duly authorized and, upon
issuance and delivery against payment therefor in accordance with the terms
hereof; will be duly and validly issued and fully paid and nonassessable and
will not have been issued in violation of or subject to any preemptive
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right, co-sale right, registration right, right of first refusal or other
similar right contained in the Company's memorandum, articles or bylaws or, to
such counsel's knowledge, in any other agreement or contract to which the
Company is a party;
The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due authorization, execution
and delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or
threatened under the Act;
The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the financial
statements (including supporting schedules), financial data derived therefrom
and other financial and statistical information included therein as to which
such counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations;
The information in the Prospectus under the
caption "Description of Securities," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions; and the forms of certificates
evidencing the Common Shares comply with British Columbia law;
The description in the Registration
Statement and the Prospectus of the memorandum, articles and bylaws of the
Company and of statutes are accurate and fairly present the information required
to be presented by the Act and the applicable Rules and Regulations;
To such counsel's knowledge, there are no
agreements, contracts,
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leases or documents to which the Company is a party of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
The performance of this Agreement and the
consummation of the transactions herein contemplated (other than performance of
the Company's indemnification obligations hereunder, concerning which no opinion
need be expressed) will not (a) result in any violation of the memorandum,
articles or bylaws of the Company or (b) to such counsel's knowledge, result in
a material breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other evidence of
indebtedness, or any lease, contract, indenture, mortgage, deed of trust, loan
agreement, joint venture or other agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by which the
Company or its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court, government or governmental agency or body having
jurisdiction over the Company or any of its properties or operations; provided,
however, that such counsel need not express any opinion or belief with respect
to state securities or Blue Sky laws;
No consent, approval, authorization or order
of or qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or their
properties or operations is necessary in connection with the consummation by the
Company of the transactions herein contemplated, except such as have been
obtained under the Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters;
To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the Company or
any of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein;
To such counsel's knowledge, none of the
Company or its subsidiaries is presently (a) in material violation of its
respective memorandum, articles or bylaws, or (b) in material breach of any
applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court or governmental
agency or body having jurisdiction over the Company or its subsidiaries or over
any of its properties or operations; and
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To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of Common Shares
or other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company having rights known to
such counsel to registration of such shares of Common Shares or other
securities, because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement or have included
securities in the Registration Statement pursuant to the exercise of and in full
satisfaction of such rights;
the Power of Attorney and Custody Agreement
of the Selling Shareholder have been duly executed and delivered by or on behalf
of the Selling Shareholder, and the Power of Attorney and Custody Agreement of
the Selling Shareholder constitute the valid and binding agreement of the
Selling Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles;
The Selling Shareholder has full right,
power and authority to enter into and to perform his obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be sold by the
Selling Shareholder hereunder:
This Agreement has been duly executed and
delivered by or on behalf of the Selling Shareholder; and
Upon the delivery of and payment for the
Shares as contemplated in this Agreement, each of the Underwriters will receive
valid marketable title to the Shares purchased by it from the Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. In rendering such opinion, such counsel may assume
that the Underwriters are without notice of any defect in the title of the
Shares being purchased from the Selling Shareholder.
In addition, such counsel shall state that such
counsel has acted as legal counsel to the Company and participated in
conferences with officials and other representatives of the Company, the
Representative, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement
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or the Prospectus, nothing has come to the attention of such counsel which leads
such counsel to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date and
on any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement thereto (other than the financial
statements including supporting schedules, other financial information derived
therefrom and other financial and statistical information included therein, as
to which such counsel need express no comment) 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, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement, the Prospectus and any amendment
or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of the United States, the States of
Arizona, Florida and Wisconsin or the corporate laws of the Province of British
Columbia upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Shareholder, and of government officials, in which case their opinion is to
state that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Gray Cary Ware & Freidenrich, a Professional Corporation, and
Fraser & Beatty, Barristers and Solicitors, in form and substance satisfactory
to you, with respect to the sufficiency of all such corporate proceedings and
other legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be, a
letter from AA, addressed to the Underwriters, dated the Closing Date or such
later date on which Option Shares are to be purchased, as the case may be (in
each case, the "Bring Down Letter"), confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations and based upon the
procedures described
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in a letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
two (2) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i)<0- 95>confirming, to
the extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter that are necessary to reflect any changes in the facts described
in the Original Letter since its date, or to reflect the availability of more
recent financial statements, data or information. The Bring Down Letter shall
not disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from AA shall be addressed to or for the use
of the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations, (ii) set forth their opinion
with respect to their examination of the consolidated balance sheet of the
Company as of December 31, 1996 and related consolidated statements of
operations, shareholders' equity and cash flows for the twelve (12) months ended
December 31, 1996, (iii) state that AA has performed the procedures set out in
Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim
financial information and providing the report of AA as described in SAS 71 on
the financial statements for the nine-month period ended September 30, 1997 (the
"Interim Financial Statements"), (iv) state that in the course of such review,
nothing came to their attention that leads them to believe that any material
modifications need to be made to any of the Interim Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, (v) state that nothing came
to their attention that caused them to believe that the financial statements
included in the Registration Statement and Prospectus do not comply as to form
in all material respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X and that any adjustments thereto have not been properly
applied to the historical amounts in the compilation of such statements, and
(vi) address other matters agreed upon by AA and you. In addition, you shall
have received from AA a letter addressed to the Company and made available to
you for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's financial
statements as of December 31, 1996, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
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You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
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
any later date on which Option Shares are to be purchased, as the case may be,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be;
No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act;
When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations, and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b) any
transaction that is material to the Company, except transactions entered into in
the ordinary course of business, (c) any obligation, direct or contingent, that
is material to the Company, incurred by the Company, except obligations incurred
in the ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company or is
out of the ordinary course of business of the Company, (e) any
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dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, or (f) any loss or damage (whether or not insured) to the
property of the Company which has been sustained or will have been sustained
which has a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
You shall be satisfied that, and you shall have
received a certificate dated the Closing Date from the Attorneys for the Selling
Shareholder to the effect that, as of the Closing Date:
The representations and warranties made by
the Selling Shareholder herein are true or correct in all material respects on
the Closing Date or on any later date on which Option Shares are to be
purchased, as the case may be; and
The Selling Shareholder has complied with
all obligations and satisfied all conditions which is required to be performed
or satisfied on the part of such Selling Shareholder at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be.
The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company, the Selling
Shareholder and each other shareholder of the Company who holds more than one
percent (1%) of the total number of Common Shares of the Company then
outstanding, in writing prior to the date hereof that such person will not,
directly or indirectly, except as described below, during the Lock-up Period,
effect the Disposition of any Securities now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) if such shareholder is an
individual, he or she may transfer any shares of the Company's Common Shares or
securities convertible into or exchangeable or exercisable for Common Shares
either during his or her lifetime or on death by will or intestacy to his or her
immediate family or to a trust the beneficiaries of which are exclusively the
undersigned and/or a member of his or her immediate family; provided, however,
that prior to any such transfer each transferee shall execute an agreement,
satisfactory to Cruttenden Roth Incorporated, pursuant to which each transferee
shall agree to receive and hold such shares of Common Shares, or securities
convertible into or exchangeable or exercisable for Common Shares, subject to
the provisions hereof, and there shall be no further transfer except in
accordance with the provisions hereof, or (ii) with the prior written consent of
Cruttenden Roth Incorporated. The foregoing restriction shall have been
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would
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include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
The Company and the Selling Shareholder shall have
furnished to you such other certificates and documents as you shall reasonably
request (including certificates of officers of the Company or the Selling
Shareholder as to the accuracy of the representations and warranties of the
Company and the Selling Shareholder herein, as to the performance by the Company
and the Selling Shareholder of their respective obligations hereunder and as to
the other conditions concurrent and precedent to the obligations of the
Underwriters hereunder.
You shall have received the Representative's
Warrants, in a form reasonably satisfactory to you, duly and validly executed by
the President of the Company.
the Shares have been duly approved for listing on The
Nasdaq National Market.
You shall have received a Blue Sky Memorandum and
Supplemental Blue Sky Memorandum from counsel for the Company of a form
reasonably satisfactory to Underwriters' Counsel.
All such opinions, certificates, letters and
documents will be in compliance with the provisions hereof only if they are
reasonably satisfactory to Underwriters' Counsel. The Company and the Selling
Shareholder will furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
OPTION SHARES.
On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Selling Shareholder hereby grants to the several Underwriters, for
the purpose of covering over-allotments in connection with the distribution and
sale of the Firm Shares only, a nontransferable option to purchase up to an
aggregate of 450,000 Option Shares at the purchase price per share for the Firm
Shares set forth in Section 3 hereof. Such option may be exercised by the
Representative on behalf of the
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several Underwriters on one (1) or more occasions in whole or in part during the
period of forty-five (45) days after the date on which the Firm Shares are
initially offered to the public by giving written notice (the "Option Notice")
to the Company and the Selling Shareholder. The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be the same
proportion of the total number of Option Shares to be purchased by the several
Underwriters pursuant to the exercise of such option as the number of Firm
Shares purchased by such Underwriter (set forth in Schedule A hereto) bears to
the total number of Firm Shares purchased by the several Underwriters (set forth
in Schedule A hereto), adjusted by the Representative in such manner as to avoid
fractional shares.
Delivery of definitive certificates for the Option
Shares to be purchased by the several Underwriters pursuant to the exercise of
the option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks drawn in next-day funds, payable to the order of the
Selling Shareholder (and the Selling Shareholder agrees not to deposit any such
check in the bank on which it is drawn, and not to take any other action with
the purpose or effect of receiving immediately available funds, until the
business day following the date of its delivery to the payee). In the event of
any breach of the foregoing, the Selling Shareholder shall reimburse the
Underwriters for the interest lost and any other expenses borne by them by
reason of such breach. Such delivery and payment shall take place at the offices
of Gray Cary Ware & Freidenrich, 4365 Executive Drive, Suite 1600, San Diego,
California or at such other place as may be agreed upon among the Representative
and the Selling Shareholder (i) on the Closing Date, if written notice of the
exercise of such option is received by the Selling Shareholder at least two (2)
full business days prior to the Closing Date, or (ii) on a date which shall not
be later than the third (3rd) full business day following the date the Selling
Shareholder receives written notice of the exercise of such option, if such
notice is received by the Selling Shareholder after the date two (2) full
business days prior to the Closing Date.
The certificates for the Option Shares to be so
delivered will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representative so elects, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representative.
It is understood that you, individually, and not as
the Representative of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on
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behalf of any Underwriter or Underwriters whose check or checks shall not have
been received by you prior to the date of payment and delivery for the Option
Shares to be purchased by such Underwriter or Underwriters. Any such payment by
you shall not relieve any such Underwriter or Underwriters of any of its or
their obligations hereunder.
Upon exercise of any option provided for in Section
7(a) hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company and the Selling
Shareholder herein, to the accuracy of the statements of the Company, the
Selling Shareholder and officers of the Company made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder, to the
conditions set forth in Section 6 hereof, and to the condition that all
proceedings taken at or prior to the payment date in connection with the sale
and transfer of such Option Shares shall be satisfactory in form and substance
to you and to Underwriters' Counsel, and you shall have been furnished with all
such documents, certificates and opinions as you may request in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements, the performance of any of the covenants or agreements of the
Company and the Selling Shareholder or the satisfaction of any of the conditions
herein contained.
INDEMNIFICATION AND CONTRIBUTION
The Company and the Selling Shareholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject (including, without limitation, in its capacity
as an Underwriter or as a qualified independent underwriter as defined in Rule
2720 of the Conduct Rules of the NASD) under the Act, the Exchange Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of the Company
or the Selling Shareholder herein contained, (ii) any untrue statement or
alleged untrue statement or any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a 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, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
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damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall
extend upon the same terms and conditions to, and shall inure to the benefit of
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
The Selling Shareholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject (including, without limitation, in its capacity as an Underwriter
or as a "qualified independent underwriter" as defined in Rule 2720 of the
Conduct Rules of the NASD) under the Act, the Exchange Act or otherwise,
specifically including, but not limited to, losses, claims, damages or
liabilities (or actions in respect thereof) arising out of or based upon (i) any
breach of any representation, warranty, agreement or covenant of the Selling
Shareholder herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action: provided, however,
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that the indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been sent
or given to such person within the time required by the Act and the Rules and
Regulations, unless such failure is the result of noncompliance by the Company
with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit of
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Shareholder may otherwise have.
Each Underwriter, severally and not jointly, agrees
to indemnify and hold harmless the Company and the Selling Shareholder against
any losses, claims, damages or liabilities, joint or several, to which the
Company or the Selling Shareholder may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and the Selling Shareholder for any
legal or other expenses reasonably incurred by the Company and the Selling
Shareholder in connection with investigating or defending any such loss, claim,
damage, liability or action.
The indemnity agreement in this Section 8(c) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each officer of the Company who signed the Registration Statement and each
director of the Company, each Selling Shareholder and each person, if any, who
controls the Company or any Selling Shareholder within the
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meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8 except to the extent
that it has been prejudiced by such omission. In case any such action is brought
against any indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it shall 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; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i)<0-
95>the indemnified party shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii)<0- 95>the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii)<0- 95>the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought
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hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on all claims
that are the subject matter of such proceeding.
In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 8 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 sight of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that, the Underwriters severally and not jointly are responsible pro rata for
the portion represented by the percentage that the underwriting discount bears
to the public offering price, and the Company and the Selling Shareholder are
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of damages which such Underwriter has otherwise
been required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter, the Company or the Selling
Shareholder within the meaning of the Act or the Exchange Act and each officer
of the Company who signed the Registration Statement and each director of the
Company.
The liability of the Selling Shareholder for
indemnification pursuant to this Section 8 shall be limited to an amount equal
to the public offering price of the Option Shares sold by the Selling
Shareholder to the Underwriters less underwriting discounts and commissions
related to the securities sold by the Selling Shareholder. The Company and the
Selling Shareholder may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
The parties to this Agreement hereby acknowledge that
they are sophisticated businesspersons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and
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Prospectus as required by the Act and the Exchange Act.
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY All representations, warranties, covenants and agreements of the
Company, the Selling Shareholder and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or the Selling Shareholder, or
any of their officers, directors or controlling persons within the meaning of
the Act or the Exchange Act, and shall survive the delivery of the Shares to the
several Underwriters hereunder or termination of this Agreement.
SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Firm Shares agreed by such Underwriter
or Underwriters to be purchased hereunder upon tender of such Firm Shares in
accordance with the terms hereof, and if the aggregate number of Firm Shares
which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty-four (24) hours to allow the several Underwriters
the privilege of substituting within twenty-four (24) hours (including
non-business hours) another underwriter or underwriters (which may include any
nondefaulting Underwriter) satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the option of the Company, be postponed
for a further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this
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Section 10, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven (7) full business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement,
supplements to the Prospectus or other such documents which may thereby be made
necessary, and (ii) the respective number of Firm Shares to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, then other than as set forth in the
Letter Agreement, neither the Company nor the Selling Shareholder shall be
liable to any Underwriter (except as provided in Sections 5 and 8 hereof) nor
shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
number of Firm Shares agreed by such Underwriter to be purchased hereunder,
which Underwriter shall remain liable to the Company, the Selling Shareholder
and the other Underwriters for damages, if any, resulting from such default) be
liable to the Company or Selling Shareholder (except to the extent provided in
Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Diego time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the public offering shall mean the time
of the release by you, for publication, of the first newspaper advertisement
relating to the Shares, or the time at which the Shares are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. By giving notice as set forth in Section
12 before the time this Agreement becomes effective, you, as Representative of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
provided in Sections 4(i) and 8 hereof.
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You, as Representative of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company or the Selling Shareholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your sole judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the sole judgment of the
Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company and the Selling
Shareholder shall remain obligated to pay costs and expenses pursuant to
Sections 4(i) and 8 hereof. Any termination pursuant to any of subparagraphs
(ii) through (v) above shall be without liability of any party to any other
party except as provided in Sections 4(i) and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed
46
<PAGE>
(and confirmed by letter) or telecopied (and confirmed by letter) to you c/o
Cruttenden Roth Incorporated, 18301 Von Karman, Suite 100, Irvine, California
92715, telecopier number (714) 852-9603, Attention: General Counsel; if sent to
the Company, such notice shall be mailed, delivered, telegraphed (and confirmed
by letter) or telecopied (and confirmed by letter) to 9313 North 94th way,
Scottsdale, Arizona, 85258, telecopier number (602) 860-9609, Attention: L.
Steven Haynes, Chief Executive Officer, if sent to the Selling Shareholder, such
notice shall be sent mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to _______________, as Attorney-in-Fact for
the Selling Shareholder, at 9319 North 94th way, Scottsdale, Arizona, 85258,
telecopier number (___) ___-____.
PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and the Selling Shareholder and their
respective executors, administrators, successors and assigns. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person or entity, other than the parties hereto and their respective executors,
administrators, successors and assigns, and the controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 8 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Shareholder
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Shareholder shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by Cruttenden Roth Incorporated on behalf of you.
APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California without giving effect to
conflict of law principles.
COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
[SIGNATURE PAGE FOLLOWS]
47
<PAGE>
If the foregoing correctly sets forth the understanding among
the Company, the Selling Shareholder and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Shareholder
and the several Underwriters.
Very truly yours,
ANTIGUA ENTERPRISES, INC.
By
--------------------------------------
SELLING SHAREHOLDER
By
--------------------------------------
Attorney-in-Fact for the Selling
Shareholder named in Schedule B hereto
Accepted as of the date first above written:
CRUTTENDEN ROTH
INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A
hereto.
By: CRUTTENDEN ROTH
INCORPORATED
By:
----------------------------------
Authorized Signatory
48
<PAGE>
SCHEDULE A
Number of
Firm Shares
To Be
Underwriters Purchased
------------ ---------
Cruttenden Roth Incorporated.........................................
Ferris, Baker Watts Incorporated.....................................
Total....................................................... 3,000,000
===========
49
<PAGE>
SCHEDULE B
Name of Selling Shareholder Number of Shares
- --------------------------- ----------------
Thomas E. Dooley 450,000
---------------
TOTAL 450,000
50
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, (ii) THE SALE IS MADE IN ACCORDANCE WITH RULE 144
UNDER THE ACT, OR (iii) THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT.
_______________, 1998
ANTIGUA ENTERPRISES, INC.
COMMON SHARES PURCHASE WARRANT
300,000 Shares
Void after ____________, 2003
1. NUMBER AND PRICE OF SHARES SUBJECT TO WARRANT. In connection with the
of public offering of Common Shares (the "Offering") of Antigua Enterprises,
Inc. (the "Company") and subject to the terms and conditions of this Warrant,
Cruttenden Roth Incorporated, or its permitted transferees (each a "Holder") is
entitled to purchase from the Company, at any time after ____________, 1999, and
on or before ____________, 2004, up to 300,000 shares (which number of shares is
subject to adjustment as described below) of fully paid and non-assessable
Common Shares of the Company (the "Shares"). Subject to adjustments for any
stock splits, reverse stock splits, stock dividends, recapitalization or
reclassification, the purchase price of one share of Common Shares shall be
equal to [$_____] per share. The purchase price of one share of Common Shares
payable from time to time upon the exercise of this Warrant (whether such price
be the price specified above or an adjusted price determined as hereinafter
provided) is referred to herein as the "Warrant Price."
2. ADJUSTMENTS. The number of Shares issuable upon the exercise of this
Warrant and the exercise price thereof shall be subject to adjustment from time
to time, and the Company agrees to provide notice upon the happening of certain
events, as follows:
a) Merger, Sale of Assets, etc. If any capital reorganization of the
share capital of the Company, or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Shares shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Shares, then, as a condition of such reorganization,
<PAGE>
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the Holder hereof shall thereafter have the right to
purchase and receive (in lieu of the Shares immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding Shares equal to the number of shares of
such stock immediately theretofore purchasable and receivable upon the exercise
of the rights represented hereby. In any such case, appropriate provision shall
be made with respect to the rights and interests of Holder to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Warrant Price and of the number of Shares purchasable and receivable upon
the exercise of this Warrant) shall thereafter be applicable, as nearly as may
be possible, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other that the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
b) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, this Warrant
shall thereafter be deemed to give the Holder the right to acquire such number
and kind of securities as would have been issuable as the result of such change
with respect to the securities which were subject to the purchase rights under
this Warrant immediately prior to such subdivision, combination,
reclassification or other change. If shares of the class of the Company's share
capital for which this Warrant is being exercised are subdivided or combined
into a greater or smaller number of shares of share capital, the Warrant Price
shall be proportionately reduced in the case of subdivision of shares or
proportionately increased in the case of combination of shares, in both cases by
the ratio which the total number of shares of such class of share capital to be
outstanding immediately after such event bears to the total number of shares of
such class of share capital outstanding immediately prior to such event.
c) Adjustment for Dividends in Stock. In case at any time or from time
to time on or after the date hereof the holders of the shares of the Company's
Common Shares (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor, other or additional share
capital or securities (or any rights or options to subscribe for or purchase any
of the foregoing) of the Company by way of dividend, then and in each case, the
holder of this Warrant shall, upon the exercise hereof, be entitled to receive,
in addition to the number of Shares receivable thereupon, and without payment of
any additional consideration therefor, the amount of such other or additional
share capital of the Company which such holder would hold on the date of such
exercise had it been the holder of record of such Shares on the date hereof and
had thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock
receivable by it as aforesaid during such
<PAGE>
period, giving effect to all adjustments called for during such period by
paragraph (c) of this Section 2.
3. NO SHAREHOLDER RIGHTS. This Warrant shall not entitle Holder to any of
the rights of a shareholder of the Company, except that Holder shall be entitled
to receive copies of such annual and periodic reports and other communications
as the Company sends to all of its shareholders.
4. RESERVATION OF STOCK. The Company covenants that during the period this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Shares a sufficient number of shares to provide for the issuance
of the Shares upon the exercise of this Warrant. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for Shares upon the exercise of this Warrant.
5. EXERCISE AND CONVERSION OF WARRANT.
a) This Warrant may be exercised by Holder or its permitted assigns, in
whole or in part, by delivery of the Notice of Exercise in the form attached
hereto as ATTACHMENT 1 and surrender of this Warrant at the principal office of
the Company, accompanied by payment in full of the Warrant Price as described
above. Notwithstanding any provision of this Warrant, this Warrant may not be
exercised prior to one (1) year following ____________, 1998. Upon partial
exercise hereof, a new warrant or warrants containing the same date and
provisions as this Warrant shall be issued by the Company to the registered
holder for the number of shares of Common Stock with respect to which this
Warrant shall not have been exercised.
b) Notwithstanding anything to the contrary contained in this Section
5, Holder may elect to receive Shares on a "net exercise" basis in an amount
equal to the value of this Warrant by delivery of the Notice of Conversion in
the form attached hereto as ATTACHMENT 2 and surrender of this Warrant at the
principal office of the Company, in which event the Company shall issue to
Holder a number of Shares computed using the following formula:
(P)(Y)(A-B)
-----------
X = A
Where: X = the number of Shares to be issued to Holder.
P = the portion of the Warrant being exercised.
Y = the number of Shares issuable upon exercise of this Warrant.
A = the Fair Market Value of one Share.
<PAGE>
B = Warrant Price.
c) As used herein, the Fair Market Value of the Shares shall mean with
respect to each Share the closing price or last sale price of the Company's
Common Shares sold on any securities exchange or quoted on the Nasdaq National
Market on which the Common Shares may at the time be listed or quoted, or, if
there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on such exchange at the end of such day or
quote on the Nasdaq National Market, or, if on any day the Common Shares are not
so listed or quoted, the average of the representative bid and asked prices
quoted on the Nasdaq SmallCap Market as of 4:00 p.m., New York City time, or, if
on any day the Common Shares are not quoted on the Nasdaq SmallCap Market, the
average of the highest bid and lowest asked price on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of five days consisting of the day as of which the current fair
market value of the Shares is being determined and the four consecutive business
days prior to such day. If at any time the Common Shares are not listed on any
securities exchange or quoted on the Nasdaq National Market, the Nasdaq SmallCap
Market or the over-the-counter market, the current fair market value of a Share
shall be the highest price per share which the Company could obtain from a
willing buyer (other than a current employee or director) for Common Shares sold
by the Company, from authorized but unissued shares, as determined in good faith
by the Board of Directors of the Company, unless the Company shall become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current Fair Market Value
of a Share shall be deemed to be the value received by the holders of the
Company's Common Shares for each share of Common Shares in such merger,
acquisition or other consolidation.
d) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the Shares issuable upon such
exercise shall be treated for all purposes as the holder of such shares of
record as of the close of business on such date. As promptly as practicable on
or after such date, the Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
full Shares issuable upon such exercise, together with cash in lieu of any
fraction of a Share.
6. TRANSFER OF WARRANT. This Warrant and all rights hereunder may be
transferred, in whole or in part, provided that any such transfer is in
compliance with the legend appearing on the first page hereof and the transferee
delivers a duly executed copy of ATTACHMENT 4; provided, however, for a period
of one year from the effective date of the Offering, the Warrant may not be
sold, transferred, assigned or hypothecated except to officers or partners of
Holder and members of the selling group of the Offering and their officers and
partners; and, provided further that any transferee other than an officer or
partner of Holder must acquire the lesser of the right to acquire (i) 30,000
Shares or (ii) all of the Shares issuable upon exercise of this Warrant.
<PAGE>
7. COMPLIANCE WITH SECURITIES LAWS.
a) Holder represents and agrees that this Warrant is being purchased
only for investment, for Holder's own account, and without any present intention
to sell or distribute the Warrant or the Shares, other than a distribution to
certain employees of Holder who agree in writing to be bound by the terms of
this Warrant to the same extent as Holder. Holder further acknowledges that the
Shares will not be issued pursuant to the exercise of this Warrant unless the
exercise of this Warrant and the issuance and delivery of such Shares shall
comply with all relevant provisions of law, including, without limitation, the
Act and other federal and state securities laws and regulations and the
requirements of any stock exchange or other system upon which the Shares may
then be listed.
b) Holder acknowledges and agrees that this Warrant and the Shares
(collectively, the "Securities") have not been registered under the Act and
accordingly will not be transferable except as permitted under the various
exemptions contained in the Act, or upon satisfaction of the registration and
prospectus delivery requirements of the Act. Therefore, the Securities must be
held indefinitely unless they are subsequently registered under the Act, or an
exemption from such registration is available. Holder understands that unless
the Shares are registered under the Act the certificate evidencing the Shares
will be imprinted with a legend which prohibits the transfer of the Shares
unless they are registered or unless the Company receives an opinion of counsel
reasonably satisfactory to the Company that such registration is not required.
Holder is aware of the adoption of Rule 144 by the Securities and Exchange
Commission and that at the time Holder wishes to sell the Securities, the
Company may not be satisfying the current public information requirements of
Rule 144 and, in such case, Holder would be precluded from selling the
Securities under Rule 144. Holder understands that a stop transfer instruction
will be in effect with respect to transfer of Securities inconsistent with the
requirements of all applicable securities laws.
8. REGISTRATION RIGHTS. Holder shall be entitled to the registration
rights set forth on ATTACHMENT 3 to this Warrant.
9. MISCELLANEOUS. This Warrant shall be governed by the laws of the State
of California. The headings in this Warrant are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company and
the registered Holder hereof. All notices and other communications from the
Company to Holder shall be mailed by first-class registered or certified mail,
postage prepaid, to the address furnished to the Company in writing by the last
Holder of this Warrant who shall have furnished an address to the Company in
writing.
ISSUED effective this ____ day of ____________, 1998.
ANTIGUA ENTERPRISES, INC.
a British Columbia Corporation
By:
------------------------------------
Title:
---------------------------------
<PAGE>
ATTACHMENT 1
NOTICE OF EXERCISE
TO: ANTIGUA ENTERPRISES, INC.
1. The undersigned hereby elects to purchase _____________ Common Shares
of Antigua Enterprises, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said Common
Shares in the name of the undersigned or in such other name as is specified
below:
(Name)
(Address)
(Tax I.D. Number)
Name of Warrant Holder
Date:
-------------------------
By:
------------------------------------
Title:
---------------------------------
<PAGE>
ATTACHMENT 2
NOTICE OF CONVERSION
TO: ANTIGUA ENTERPRISES, INC.
1. The undersigned hereby elects to acquire _______________ Common Shares
of Antigua Enterprises, Inc., pursuant to the terms of the attached Warrant, by
conversion of ________ percent (___%) of the Warrant.
2. Please issue a certificate or certificates representing said Common
Shares in the name of the undersigned or in such other name as is specified
below:
(Name)
(Address)
(Tax I.D. Number)
Name of Warrant Holder
Date:
-------------------------
By:
------------------------------------
Title:
---------------------------------
<PAGE>
ATTACHMENT 3
STATEMENT OF REGISTRATION RIGHTS
1. DEFINITIONS. For purpose of the Warrant to which this Statement of
Registration Rights is attached as ATTACHMENT 3:
a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
b) The term "Registrable Securities" means the Common Shares issued or
issuable upon exercise of the Warrant;
c) The term "Holder" means the original holder of the Warrant and any
permitted transferee of the Warrant to the extent such persons are the holders
of Registrable Securities;
d) The term "Form S-3" means such form under the Act as in effect on
the date hereof, or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission (the "SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC; and
e) The term "Warrant" means the original Warrants issued in connection
with the Offering, as such term is defined in the Warrant, and all Warrants
issued as a result of the transfer of such original Warrants.
2. COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes at any time after _____________, 1999 and before
______________, 2004 to register (including for this purpose a registration
effected by the Company for shareholders other than Holder) any of its share
capital or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give Holder written notice of such registration. Upon the written
request of Holder given within 15 days after mailing of such notice by the
Company, the Company shall, subject to the provisions of Section 8 hereof and
Section 5 of the Warrant, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
3. DEMAND REGISTRATION. In case the Company shall, at any time after
________________, 1999 and before _____________, 2004 receive from Holders
holding a majority of the outstanding Registrable Securities a written request
that the Company effect a
<PAGE>
registration on Form S-3 (or any successor forms) and any related qualification
or compliance with respect to all or a part of the Registrable Securities (which
registration shall at the election of Holder either be for a registration for a
primary issuance of the Shares upon the exercise of the Warrant or the resale of
the Shares previously issued upon exercise of the Warrant at the election of
Holder) owned by such Holder, the Company will promptly notify each other Holder
(if any) of such request and will:
a) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of a Holder's
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other holder of registration
rights joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; PROVIDED,
HOWEVER, that the Company shall not be obligated to effect more than one such
registration, qualification or compliance, pursuant to this Section 3 and the
Company shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 3: (1) if the Company shall furnish to
Holder a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the registration statement for a period of not more than 90
days after receipt of the request of Holder under this Section 3; PROVIDED,
HOWEVER, that the Company shall not utilize this right more than once in any 12
month period; or (2) in any jurisdiction in which the Company would be required
to qualify to do business or to execute a general consent to service of process
in effecting such registration, qualification or compliance; and,
b) subject to the foregoing, file a registration statement covering the
Registrable Securities and other securities so requested to be registered
promptly after receipt of the request or requests of Holder, and in any event
within 45 days of receipt of such request.
4. OBLIGATION OF THE COMPANY. Subject to the terms of the Warrant, in the
event that the Company is to effect the registration of any Registrable
Securities pursuant to Section 2 or 3 hereof, the Company shall promptly:
a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the holders
of a majority of the securities registered thereunder, keep such registration
statement effective for up to 120 days, or such shorter period as is required to
dispose of all securities covered by such registration statement.
b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
2
<PAGE>
c) Furnish to Holder such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and such
other documents as Holder may reasonably request in order to facilitate the
disposition of Registrable Securities owned by Holder.
d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by Holder, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions or to agree to any restrictions as to the
conduct of its business in the ordinary course thereof.
e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Holder shall also enter
into and perform its obligations under such underwriting agreement, including
furnishing an opinion of counsel for such Holder if requested by the managing
underwriter.
f) Notify Holder at any time when a prospectus relating to Registrable
Securities of Holder covered by such registration statement is required to be
delivered under the Act, of the happening of any event 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 under which they were made.
g) Furnish, at the request of Holder, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to the Warrant, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to Holder and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to Holder.
5. AVAILABILITY OF RULE 144. Notwithstanding anything in the Warrant or
this Statement of Registration Rights to the contrary, the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to Section 2 or 3, if application of Rule 144 would allow Holder requesting
registration under Section 2 or 3 to dispose of the Registrable Securities for
which a registration is demanded within a single 90-day period.
6. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to the Warrant that the
selling Holder shall furnish to
3
<PAGE>
the Company such information regarding itself, the Registrable Securities held
by Holder, and the intended method of disposition of such securities as shall be
required to effect the registration of their Registrable Securities.
7. EXPENSES. The Company shall bear and pay all expenses other than
underwriting discounts and commissions incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
the registrations pursuant to Section 2 or 3 hereof for Holder, including
(without limitation) all registration, filing, and qualification fees, printers
and accounting fees relating or apportionable thereto, and the cost of any
reasonable fees or disbursements of counsel for Holder.
8. UNDERWRITING REQUIREMENTS. In connection with any registrations in
which Registrable Securities have a right to be included pursuant to Section 2
or 3 hereof and which involves an underwriting of securities being issued by the
Company, the Company shall not be required, under Section 2 or 3 hereof, to
include any of Holder's securities in such underwriting unless Holder accepts
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters reasonably
believe compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters believe will not
jeopardize the success of the offering, the securities so included to be
apportioned pro rata among the selling Holder and other shareholders holding
contractual registration rights according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by Holder and each other
selling shareholder.
9. DELAY OF REGISTRATION. Holder shall have no right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of the Warrant.
10. INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement filed by the Company:
a) To the extent permitted by law, the Company will indemnify and hold
harmless Holder, its officers and directors, any underwriter (as defined in the
Act) for Holder and each person, if any, who controls Holder or underwriter
within the meaning of the Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) asserted by a third party to which they may become subject under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any
4
<PAGE>
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation of the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will reimburse Holder, any of its officers or directors,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 10(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, underwriter or controlling person.
b) To the extent permitted by law, Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter and any other shareholder selling securities
in such registration statement or any of its directors or officers or any person
who controls such shareholder, against any losses, claims, damages, or
liabilities (joint or several) asserted by a third party to which the Company or
any such director, officer, controlling person, or underwriter or controlling
person, or other such shareholder or director, officer or controlling person may
become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by Holder expressly for use in
connection with such registration; and Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or controlling person, other shareholder,
officer, director, or controlling person, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability, or action;
PROVIDED, HOWEVER, that the obligations of Holder hereunder shall be limited to
an amount equal to the net proceeds (equal to the offering price less the
exercise price, expenses and underwriting commissions and discounts) to such
Holder of Shares sold as contemplated herein. Notwithstanding the foregoing, the
indemnity agreement contained in this Section 10(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Holder, which consent shall not be
unreasonably withheld.
c) Promptly after receipt by an indemnified party under this Section 10 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying part under this Section 10, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
5
<PAGE>
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; PROVIDED,
HOWEVER, that an indemnified party shall have the right to retain its own
counsel, with the reasonable fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel representing the indemnified parties who are parties to
such action). The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 10, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 10.
11. REPORTS UNDER THE 1934 ACT. With a view to making available to Holder
the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company will endeavor to:
a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
b) take such action as is necessary to enable Holder to utilize Form
S-3 for the sale of its Registrable Securities;
c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
d) furnish to Holder, so long as Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144, the Act and the
1934 Act, or that it qualifies as a registrant whose securities may be resold
pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
12. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to the Warrant may be assigned by
Holder to a permitted transferee or assignee of the Warrant or of at least
30,000 Shares, provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
6
<PAGE>
ATTACHMENT 4
STATEMENT OF HOLDER
The undersigned, represents and warrants to Antigua
Enterprises, Inc., a British Columbia corporation, that the representations and
warranties contained in Section 7 of the Common Shares Purchase Warrant to which
this Statement is attached are true and correct. The undersigned also agrees to
be bound by the terms of Section 10(b) of Attachment 3 to such Warrant.
CRUTTENDEN ROTH INCORPORATED
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
Dated:
-------------------------------
Ex. 3.1
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
-----------
ALTERED MEMORANDUM
(as altered by Directors' Resolution passed June 11, 1997)
OF
ANTIGUA ENTERPRISES INC.
1. The name of the Company is "ANTIGUA ENTERPRISES INC.".
2. The authorized capital of the Company consists of Three Hundred and
Thirty Million (330,000,000) shares divided into:
(a) Three Hundred Million (300,000,000) Common shares without par
value; and
(b) Thirty Million (30,000,000) Preferred shares without par
value, having attached thereto the Special Rights and
Restrictions set forth in Part 26 of the Articles of the
Company, of which:
(i) Ten Million (10,000,000) shares are designated as
Convertible Preferred Shares Series A having attached
thereto the Special Rights and Restrictions set forth
in Part 26.3 of the Articles of the Company as
adopted by the resolutions of the Directors of the
Company of today's date.
I CERTIFY THIS IS A COPY OF A Ex. 3.2
DOCUMENT FILED ON
JUN 13 1997
/s/ John S. Powell
12 JOHN S. POWELL
REGISTRAR OF COMPANIES
PROVINCE OF BRITISH COLUMBIA
FORM 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
Certificate of
Incorporation No. 318692
COMPANY ACT
SPECIAL RESOLUTION
------------------
The following special resolution was passed by the undermentioned Company
on date stated:
Name of Company: Southhampton Enterprises Corp.
Date Resolution passed: December 12, 1996
Resolution:
"RESOLVED, AS A SPECIAL RESOLUTION THAT:
1. The authorized capital of the Company be increased by creating an
additional 280,000,000 common shares without par value and 30,000,000
Preferred shares without par value;
2. The authorized capital of the Company consists of 330,000,000 shares
divided into 30,000,000 Preferred shares without par value and 300,000,000
common shares without par value;
3. The Preferred shares have attached to them the special rights and
restrictions set out in Part 26;
4. The Articles of the Company be altered by the addition of the Part 26 set
forth in the attached Schedule "A";
5. The Table of Contents of the Articles of the Company be
<PAGE>
altered by the addition of the following:
"Part 26 Rights and Restrictions Attaching to Preferred Shares"
6. The Memorandum of the Company be altered to read as set out in the attached
Schedule "B",
CERTIFIED a true copy May 30, 1997.
/s/Illegible
Signature
Solicitor
Relationship to Company
<PAGE>
SCHEDULE "A"
26.1 The Preferred shares as a class shall have attached thereto the special
rights and restrictions specified in this Part 26.
26.2 Preferred shares may at any time and from time to time be issued in one or
more series. The directors may from time to time, by resolution passed
before the issue of any Preferred shares of any particular series, alter
the memorandum of the Company to fix the number of Preferred shares in, and
to determine the designation of the Preferred shares of that series and
alter the Memorandum or the Articles to create, define and attach special
rights and restrictions to the Preferred shares of that series, including,
without in any way limiting or restricting the generality of the foregoing,
the rate or amount of dividends, whether cumulative, noncumulative or
partially cumulative, the dates, places and currencies of payment thereof,
the consideration for and the terms and conditions of any purchase for
cancellation or redemption thereof, including, without in any way limiting
or restricting the generality of the foregoing, redemption after a fixed
term or at a premium, conversion or exchange rights, the terms and
conditions of any share purchase plan or sinking fund, the restrictions
respecting payment of dividends on, or the repayment of capital in respect
of, any other shares of the Company and voting rights and restrictions.
<PAGE>
SCHEDULE "B"
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
-----------
ALTERED MEMORANDUM
(as altered by Special Resolution passed December 12, 1996)
OF
ANTIGUA ENTERPRISES INC.
1. The name of the Company is "ANTIGUA ENTERPRISES INC.".
2. The authorized capital of the Company consists of Three Hundred and Thirty
Million (330,000,000) shares divided into:
(a) Three Hundred Million (300,000,000) Common shares without par value;
and
(b) Thirty Million (30,000,000) Preferred shares without par value.
3. The Thirty Million (30,000,000) Preferred shares without par value shall
have attached thereto those special rights and restriction set forth in
Part 26 of the Articles of the Company.
<PAGE>
I CERTIFY THIS IS A COPY OF A
DOCUMENT FILED ON
JUN 13 1997
/s/ John S. Powell
12 JOHN S. POWELL
REGISTRAR OF COMPANIES
PROVINCE OF BRITISH COLUMBIA
PROVINCE OF BRITISH COLUMBIA
Certificate of
Incorporation No. 318692
COMPANY ACT
Section 229(1)(b)
DIRECTORS' RESOLUTION
---------------------
The following special resolutions were passed by the undermentioned Company
on the date stated:
Name of Company: Southhampton Enterprises Corp.
Date Resolution passed: June 11, 1997
RESOLVED
1. THAT pursuant to the provisions of Part 26.2 of the Articles of the
Company:
(a) the number of preferred shares in the capital of the Company to
constitute the first series of such shares be fixed at 10,000,000;
(b) the designation of the said first series of preferred shares be
determined as Convertible Preferred Shares Series "A";
(c) the Memorandum of the Company be altered to be in the form as set out
in the Altered Memorandum attached hereto as Schedule "A"; and
(d) there be attached to the Convertible Preferred Shares Series "A" the
special rights and restrictions set out in Part 26.3 of the Articles
of the Company as adopted
<PAGE>
by the Resolution of the Directors of the Company of today's date.
2. THAT pursuant to Part 26.2 the Articles of the Company be altered by adding
the following as Part 26.3 thereof, namely:
"26.3 The Convertible Preferred Shares Series "A" (the "Series "A"
Shares") shall have attached thereto the following special
rights and restrictions:
(a) Holders of Series "A" Shares shall not be entitled to receive
notice of, to attend at or to vote at any general meeting of
the members of the Company;
(b) Holders of Series "A" Shares will be entitled to receive for
the period from the issuance thereof to the fifth anniversary
date of such issuance a fixed cumulative preferential cash
dividend at a rate of 12% per annum calculated from the date
of issue thereof upon the subscription price therefor payable
annually on the first day of July of each year provided that
the payment or accrual of such dividend in whole or in part
shall be subject to the discretion of the directors of the
Company;
(c) In the event of the liquidation, dissolution or winding up of
the Company the holders of the Series "A" Shares shall have
preference over the holders of Common shares and the holders
of all other shares of the Company to the extent of the
Redemption Amount (as hereinafter defined) of the Series "A"
Shares together with all accrued and unpaid cumulative
dividends thereon. After payment of such amounts the holders
of Series "A" Shares will not be entitled to share in any
further distribution of property of the Company. If the
property of the Company is insufficient to pay in full the
amount hereinbefore set out on all of the Series "A" Shares
then such property will be applied firstly to the payment, pro
rata, of an amount equal to the Redemption Amount thereof (as
hereinafter defined) and secondly to the payment, pro rata, of
an amount equal to dividends accrued and unpaid thereon.
<PAGE>
(d) Holders of Series "A" Shares shall have the right, at any time
up to four o'clock in the afternoon (Vancouver time) on the
fifth anniversary date of the issue thereof, to convert fully
paid Series "A" Shares into Common shares without par value in
the capital of the Company (as such may exist at the date of
such conversion). The conversion price of the Series "A"
Shares shall be as follows:
Time of Conversion Conversion Price
------------------ ----------------
(i) from the date of issue to 4-00 pm. (Vancouver time)
on the first anniversary date of the issue thereof 0
(ii) from the day following the first anniversary date
of the issue to 4:00 pm. (Vancouver time) on the
second anniversary date of the issue thereof $ 1.25
(iii) from the day following the second anniversary date
of the issue to 4:00 p.m. (Vancouver time) on the
third anniversary date of the issue thereof $ 2.50
(iv) from the day following the third anniversary date
of issue to 4:00 p.m. (Vancouver time) on The
fourth anniversary date of the issue thereof $ 3.75
(v) from the day following the fourth anniversary date
of issue to 4:00 p.m. (Vancouver time) on the fifth
anniversary date of issue thereof $ 5.00
(e) The conversion right herein provided for may be exercised by notice in
writing given to the Company accompanied by the certificate or certificates
representing the Series "A" Shares in respect of which the holder thereof
desires to exercise such right of conversion in whole or in part together
with an amount payable to the Company equal to the Conversion Price
applicable to the Time of Conversion within
<PAGE>
which such written notice is received by the Company multiplied by the
number of Series "A" Shares which the holder desires to convert
(collectively a "Conversion Notice"). Such Conversion Notice shall be
signed by the person or persons registered in the books of the Company as
the holder of the Series "A" Shares in respect of which such right is being
exercised or by his or their duly authorized attorney and shall specify the
number of Series "A" Shares which the holder desires to have converted.
Upon the Company receiving such Conversion Notice, the Company shall,
within 10 business days, issue certificates for that number of Common
shares equal to the number of Series "A" Shares in respect of which a
complete Conversion Notice is received to the registered holder of the
Series "A" Shares represented by the certificate or certificates
accompanying such Conversion Notice, or in such name or names as such
registered holder may direct in writing (either in the said Conversion
Notice or otherwise) provided that if less than all the Series "A" Shares
represented by any certificate or certificates accompanying any such
Conversion Notice are to be converted, the holder shall be entitled to
receive, at the expense of the Company, a new certificate representing the
Series "A" Shares comprised in the certificate or certificates delivered as
aforesaid which are not to be converted.
(f) The Company may redeem the whole or any part of the issued and outstanding
Series "A" Shares on payment of the sum of $6.75 (the "Redemption Amount")
for each share to be redeemed together with an amount equal to any
dividends accrued and unpaid thereon provided however that not less than
thirty days notice in writing of such redemption is given by mailing such
notice to the registered holders of the Series "A" Shares to be redeemed
specifying a date and place or places of redemption unless the holders of
the Series "A" Shares to be redeemed waive any notice required to be given
under this paragraph which waiver, whether given before or after the
redemption, will cure any default in giving such notice and if notice as
required of any redemption is given by the Company and monies in an amount
sufficient to redeem the Series "A" Shares plus all accrued and unpaid
dividends thereon be deposited with any trust company or chartered bank of
Canada as specified on any notice given on or before the date fixed for
redemption, the holders thereafter will have no rights against the Company
<PAGE>
in respect of such Series "A" Shares except upon the surrender of the
certificates for the Series "A" Shares to be redeemed to receive payment
for them out of the monies so deposited. Upon the mailing of a notice
pursuant to this Article 25.3(f) the right of a holder to deliver a
Conversion Notice in respect of the Series "A" Shares which are the subject
matter of such notice shall be thereafter suspended unless and until the
Company shall fail to complete the redemption set out in such notice.
(g) For greater certainty the Company may redeem Series "A" Shares to the
exclusion of shares of any other class and notwithstanding anything in
these Articles to the contrary, if not all of the outstanding Series "A"
Shares are to be redeemed, the Series "A" Shares to be redeemed shall be
selected in proportion to the number of Series "A" Shares registered in the
name of each holder of Series "A" Shares.
(h) If a part only of the Series "A" Shares represented by any certificate are
to be redeemed then a new certificate representing the Series "A" Shares
which are not to be redeemed shall be issued at the expense of the Company.
(i) No Series "A" Shares are to be redeemed if to do so would reduce the value
of the net assets of the Company to less than the aggregate of the
redemption amount of all issued shares of all other classes which have
rights on liquidation in priority to the rights of the Series "A" Shares.
(j) The Company may at any time and from time to time offer to purchase for
cancellation all or any number of Series "A" Shares at any price by a pro
rata tender to all holders of Series "A" Shares provided in such case the
price for each Series "A" Share so purchased for cancellation shall not
exceed the Redemption Amount plus an amount equal to dividends accrued and
unpaid to the date of purchase.
(k) The holders of the Series "A" Shares shall have the right if, the Company
shall complete the sale of any of its securities by way of an initial
public offering through the facilities of NASDAQ, and the aggregate net
proceeds of such offering exceeds S8,000,000.00 US, by notice in writing
delivered to the registered office of the Company (a "Retraction Notice")
not later than four o'clock in the afternoon Vancouver time, on the 10th
day following
<PAGE>
completion of such initial public offering to require the Company to redeem
all or a portion of the Series "A" Shares registered in that holder's name
(the "Retracted Shares") at a price equal to the subscription price thereof
(the "Retraction Price") plus any accrued dividends due thereon as at the
date of the Retraction Notice. Such holder must, upon delivery of a
Retraction Notice, deliver therewith a certificate or certificates
representing the Retracted Shares registered in the holder's name which
certificate or Certificates shall be duly endorsed for surrender to the
Company for cancellation. Upon receipt of the Retraction Notice and the
certificate or certificates for the Retracted Shares of the Company, not
more than thirty days thereafter, shall deliver a cheque in the sum of the
Retraction Price plus any accrued dividends due thereon to the holder at
that holder's address Provided That a holder shall not, prior to payment of
the Retraction Price have exercised any right of conversion as set out
hereinbefore in respect of the Retracted Shares. For greater certainty the
payment of the Retraction Price and any accrued dividends date on the
Retracted Shares to the holders thereof shall only be made from the
aggregate net proceeds of the initial public offering in excess of the
amount of $8,000,000.00 US (the "Residual Proceeds"). In the event that the
Residual Proceeds are less than the amount required to redeem all Retracted
Shares in respect of which holders thereof shall have delivered Retraction
Notices to the Company (collectively the "Aggregate Retracted Shares") the
Company shall only be required to redeem that number of the Retracted
Shares of a holder obtained when the number of Retracted Shares of a holder
is multiplied by a fraction of the numerator of which is the number of
Retracted Shares of a holder and the denominator of which is the number of
Aggregate Retracted Shares. If a part only of the Series "A" Shares
represented by a certificate or certificates delivered as part of a
Retraction Notice are to be redeemed then a new certificate representing
the Series "A" Shares which are not to be redeemed shall be issued at the
expense of the Company.
(l) So long as any of The Series 'A" Shares are outstanding the Company shall
not:
(i) declare, pay or set apart for payment any dividend on the Common
shares or any shares of the Company
<PAGE>
ranking as to the payment of dividends junior to the Series "A"
Shares;
(ii) redeem, purchase for cancellation or otherwise retire or make any
capital distribution on or in respect of any Common shares or
other shares ranking as to the return of capital junior to the
Series "A" Shares; or
(iii) issue any additional Series "A" Shares or any shares ranking as
to either the payment of dividends or the return of capital in
priority to or pari passu with the Series "A" Shares;
unless a resolution of the holders of the Series "A" Shares which complies
with the provisions of Section 226 of the Company Act R.S.B.C. 1996, C. 62
has been received by the Company."
Certified a true copy the 11th day of June, 1997.
/s/ James E. Miles
JAMES E. MILES
Director
--------
SCHEDULE "A"
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
-----------
ALTERED MEMORANDUM
(as altered by Directors' Resolution passed June 11, 1997)
OF
ANTIGUA ENTERPRISES INC.
1. The name of the Company is "ANTIGUA ENTERPRISES INC.".
2. The authorized capital of the Company consists of Three Hundred and Thirty
Million (330,000,000) shares divided into:
(a) Three Hundred Million (300,000,000) Common shares without par value;
and
(b) Thirty Million (30,000,000) Preferred shares without par value, having
attached thereto the Special Rights and Restrictions set forth in Part
26 of the Articles of the Company, of which:
(i) Ten Million (10,000,000) shares are designated as Convertible
Preferred Shares Series A having attached thereto the Special
Rights and Restrictions set forth in Part 26.3 of the Articles of
the Company as adopted by the resolutions of the Directors of the
Company of today's date.
Ex. 8.1
[STIKEMAN, ELLIOTT LETTERHEAD]
(604) 631-1300
FILE NO. 2798-000
________________, 1998
BY COURIER
- ----------
Antigua Enterprises Inc.
9319 North 94th Way
Scottsdale, Arizona
85258
Dear Sirs/Mesdames:
Re: Antigua Enterprises Inc. - Registration Statement
on Form S-1 (the "Registration Statement") and
prospectus (the "Prospectus") under the Securities Act of 1933
-------------------------------------------------------------------
We have acted as Canadian tax counsel to Antigua Enterprises Inc.
("Antigua") in connection with the preparation of the Registration Statement and
Prospectus of Antigua relating to the offering (the "Offering") of 3,000,000
common shares of Antigua without nominal or par value (the "Common Shares"),
which are to be filed with the United States Securities and Exchange Commission
(the "SEC").
In this regard, we have participated in the preparation of the statements
contained in the Registration Statement under the heading "CERTAIN INCOME TAX
CONSIDERATIONS Certain Canadian Federal Income Tax Considerations". For the
purpose of expressing our opinion herein, we have examined a copy, provided to
us by your United States counsel, Quarles & Brady, of the preliminary
registration statement filed with the SEC on November 12, 1997.
Our opinion is expressed only with respect to the federal laws of Canada
stated or referred to herein and should not be taken as expressing any opinion
in respect of the laws of any other jurisdiction or any laws other than those
upon which our opinion is expressly based.
Based and relying upon and subject to the foregoing, we are of the opinion
that the statements contained under the heading "CERTAIN INCOME TAX
CONSIDERATIONS Certain Canadian Federal Income Tax Considerations" in the
Registration Statement constitute a
<PAGE>
- 2 -
fair and adequate summary, subject to the qualifications and limitations stated
herein and therein, of the principal Canadian federal income tax consequences
under the Income Tax Act (Canada) and the Regulations thereunder in effect at
the date hereof generally applicable to U.S. Holders (as such term is defined in
such section of the Registration Statement) who purchase Common Shares pursuant
to the Offering and to whom such summary is addressed.
We hereby consent to the use of our name in the Registration Statement
under the caption "Legal Opinions" and to the filing of this opinion as an
exhibit thereto.
Yours truly,
"STIKEMAN, ELLIOTT"
EMPLOYMENT AGREEMENT EXHIBIT 10.7
THIS EMPLOYMENT AGREEMENT (the "Agreement" is entered into as of
June 16, 1997, by and between THE ANTIGUA GROUP, INC., a Nevada corporation with
its principal place of business in Scottsdale, Arizona (the "Company"), and
JOSEPH M. BLANCHETTE, a resident of the State of Arizona ("Employee").
RECITALS
--------
A. Employee is currently Director of Management Information Systems of
the Company.
B. Employee is currently an at-will employee of the Company.
C. The Company manufactures and sells various types of apparel on a
national and international basis.
D. The Company and Employee desire to continue Employee's relationship
with the Company and to memorialize the terms of Employee's employment with the
Company.
AGREEMENT
---------
1. Employment. The Company hereby continues to employ Employee and
Employee hereby accepts such employment upon the terms and conditions set forth
herein. Employee shall continue to be employed by the Company in Scottsdale,
Arizona.
2. Duties of Employment. Employee shall continue to serve as Director
of Management Information Systems of the Company. In such capacity, Employee
shall continue to perform such duties and services as the Company's Board of
Directors may assign or delegate to him from time to time. As of the date
hereof, such duties shall include primary responsibility for the following
functions: management of MIS Department and personnel; developing annual MIS
plan and budget; coordinate the use of technology to reduce costs and provide
management reports; oversee and manage all programming and system development
activities; actively participate in specific application programming and
development projects; investigate the viability and application of new
technologies to support future business needs and growth; interface (as needed)
with customer information technology departments; develop and maintain
relationship with MIS vendors; and actively participate in day-to-day support of
MIS users. Employee shall report directly to the Company's Chief Executive
Officer.
3. Term. This Agreement shall commence upon the closing of the Stock
Purchase Agreement dated April 21, 1997 and shall continue in effect until
terminated as provided in Paragraph 5 hereof.
<PAGE>
4. Compensation and Benefits. Employee will receive the following
compensation for his services during his term of employment hereunder:
(a) Salary. Employee shall receive a base salary of $81,120
per year, payable in accordance with the standard payroll policies of the
Company. Such salary shall be prorated for any partial year of employment by
Employee hereunder.
(b) Bonuses. Employee shall be eligible to participate in the
Company's Executive Incentive Compensation Program at a bonus level equal to 15%
of Employee's base salary. Such bonus shall be paid within sixty (60) days of
the end of the Company's fiscal year and shall be prorated for any partial year
of employment by Employee hereunder.
(c) Stock Options. Concurrently with the execution of this
Agreement, Employee has been granted an option to purchase up to 50,000 shares
of the Common Stock of the Company's parent, Southhampton Enterprises Corp.
("Parent"), pursuant to Parent's Executive and Employee Stock Option Plan (the
"Plan") at an exercise price per share equal to the market price of Parent's
Common Stock on the date hereof. The number and exercise price of such options
is subject to adjustment to reflect the reverse stock split of Parent Common
Stock to be effected after the date hereof. Such options are vested in full as
of the date hereof. Employee shall also participate in the Plan on a
going-forward basis.
(d) Medical Insurance. The Company will provide coverage for
Employee and his dependents (if any) during the term of his employment under the
Company's health insurance policy.
(e) Miscellaneous Benefits. Employee shall be entitled to
vacation, sick pay and reimbursement of business expenses incurred on behalf of
the Company on the same basis as other senior management of the Company.
Employee shall also be entitled to participate in the Company's 401(k) Plan to
the same extent as other senior management of the Company.
5. Termination. This Agreement may be terminated as follows:
(a) For any or no reason by either Employee or the Company
upon sixty (60) days' notice by the terminating party to the other party;
(b) By the Company immediately upon the death of Employee; or
(c) By the Company in the event Employee is unable to perform
his duties under this Agreement for a period of more than ninety (90)
consecutive days due to total or partial disability.
<PAGE>
Any termination of Employee's employment will be effective upon the non-
terminating party's receipt of written notice of such termination, and such
termination shall be without prejudice to any other remedy to which the Company
may be entitled either at law, in equity or under this Agreement.
6. Severance. In the event the Company terminates this Agreement for
any reason or Employee terminates this agreement for "Good Reason" (as
hereinafter defined), then (a) Employee shall receive six month's salary paid
bi-monthly with the first payment due and payable two weeks after Employee's
last day of employment and (b) the Company shall vest any and all unvested stock
options on the date of such termination. In the event Employee terminates this
Agreement for other than "Good Reason", then (i) Employee shall be entitled to
no compensation past the last day of Employee's employment with the Company; and
(ii) all stock options of Employee which are not vested as of the date of such
termination shall automatically be null and void and of no further force or
effect.
"Good Reason" shall mean the occurrence of any of the following (i) the
Company's failure to re-appoint Employee to offices, titles or positions
carrying comparable authority, responsibilities, dignity and importance to that
of Employee's offices and positions as of the date hereof; or (ii) any material
change by the Company in Employee's functions, duties or responsibilities which
would cause Employee's positions with the Company to be of less dignity,
responsibility or importance than as in effect on the date hereof.
7. Confidentiality. Employee acknowledges that Employee has received
and contributed to the production of, Confidential Information, and that
Employee may continue to receive and contribute to the production of
Confidential Information in the future. For purposes of this Agreement, Employee
agrees that "Confidential Information" shall mean information or material
proprietary to the Company or designated as Confidential Information by the
Company and not generally known by non-Company personnel, which Employee
develops or to which Employee may obtain knowledge or access through or as a
result of Employee's relationship with the Company (including information
conceived, originated, discovered or developed in whole or in part by Employee).
Confidential Information includes, but is not limited to, the following types of
information and other information of a similar nature (whether or not reduced to
writing): discoveries, inventions, ideas, concepts, research, development,
processes, procedures, "know-how", formulae, marketing techniques and materials,
marketing and development plans, business plans, customer names and other
information related to customers, price lists, pricing policies, financial
information, employee compensation, and computer programs and systems.
Confidential Information also includes any information described above which
obtains from another party and which treats as proprietary or designates as
Confidential Information, whether or not owned by or developed by the
<PAGE>
Company. Employee acknowledges that the Confidential Information derives
independent economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use. Information publicly known
without breach of this Agreement that is generally employed by the trade at or
after the time Employee first learns of such information, or generic information
or knowledge which Employee would have learned in the course of similar
employment or work elsewhere in the trade, shall not be deemed part of the
Confidential Information. Employee further agrees:
7.1 To furnish the Company on demand, at any time during or
after employment, a complete list of the names and addresses known to employee
of all present, former and potential customers and other contacts gained while
an employee of the Company, whether or not in the possession or within the
knowledge of the Company.
7.2 That all notes, memoranda, documentation and records in
any way incorporating or reflecting any Confidential Information shall belong
exclusively to the Company and Employee agrees to turn over all copies of such
materials in Employee's control to the Company upon request or upon termination
of Employee's employment with the Company.
7.3 That while employed by the Company and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report, publish,
disclose or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Employee's work for the Company.
7.4 That any ideas in whole or in part conceived or made by
Employee during the term of this employment or relationship with the Company
which are made through the use of any of the Confidential Information of the
Company or any of the Company's equipment, facilities, trade secrets or time, or
which result from any work performed by Employee for the Company, shall belong
exclusively to the Company and shall be deemed a part of the Confidential
Information for purposes of this Agreement. Employee hereby assigns and agrees
to assign to the Company all rights in and to such Confidential Information
whether for purposes of obtaining patent or copyright protection or otherwise.
Employee shall acknowledge and deliver to the Company, without charge to the
Company (but at its expense) such
<PAGE>
written instruments and do such other acts, including giving testimony in
support of Employee's authorship or inventorship, as the case may be, necessary
in the opinion of the Company to obtain patents or copyrights or to otherwise
protect or vest in the Company the entire right and title in and to the
Confidential Information.
8. Non-Competition During Employment. Employee agrees that during the
term of Employee's employment with the Company, Employee will devote all of
Employee's business time and effort to and give undivided loyalty to the
Company, and will not engage in any way whatsoever, directly or indirectly, in
any business that is competitive with the Company or solicit, or in any other
manner work for or assist any business which is competitive with the Company.
During the term of Employee's employment by the Company, Employee will undertake
no planning for or organization of any business activity competitive with the
Company, and Employee will not combine or conspire with any other employee of
the Company or any other person for the purpose of organizing any such
competitive business activity.
9. Non-Competition After Employment. The Company and Employee
acknowledge that Employee will acquire much knowledge and information concerning
the business of the Company as the result of Employee's employment. Competition
by Employee in that business after this Agreement is terminated would severely
injure the Company. Accordingly, until one year after this Agreement is
terminated or Employee leaves the employment with the Company for any reason
whatsoever, Employee will not:
9.1 Within any jurisdiction or marketing area in which the
Company is doing business or is qualified to do business, directly or indirectly
own, manage, operate, control, be employed by or participate in the ownership,
management, operation or control of, or be connected in any manner with, any
business of the type and character engaged and competitive with that conducted
by the Company. For purposes of interpreting the preceding sentence, the parties
acknowledge that while the Company currently competes in the apparel industry,
this provision should not prohibit Employee from participating in the entire
apparel industry, but only those segments of the apparel industry which compete
with the Company's products and services. For these purposes, ownership of
securities of not in excess of 5% of the stock of a company that is publicly
traded on a national securities exchange or is quoted on an automated
<PAGE>
quotation system of a national securities association and is part of a national
market system shall not be considered to be competition with the Company or any
of its affiliates.
9.2 Persuade or attempt to persuade any potential customer or
client to which the Company or any of its affiliates has made a proposal or
sale, or with which the Company or any of its affiliates has been having
discussions, not to transact business with the Company or such affiliate, or
instead to transact business with another person or organization.
9.3 Solicit the business of any company which is a customer or
client of the Company or any of its affiliates at any time during Employee's
employment by the Company, or was its customer or client within two years prior
to the date of this Agreement; provided, however, if Employee becomes employed
by or represents a business that exclusively sells products that are wholly
dissimilar from products then marketed or intended to be marketed by the
Company, such contact shall be permissible;
9.4 Solicit, endeavor to entice away from the Company or any
of its affiliates, or otherwise interfere with the relationship of the Company
or any of its affiliates with, any person who is employed by or otherwise
engaged to perform services for the Company or any of its affiliates, whether
for Employee's account or for the account of any other person or organization.
10. Injunctive Relief. Employee agrees that it would be difficult to
measure the damage to the Company from any breach by Employee of the covenants
set forth herein, that injury to the Company from any such breach would be
impossible to calculate, and that money damages would therefore be an inadequate
remedy for any such breach. Accordingly, Employee agrees that if Employee should
breach Paragraphs 7, 8 or 9 of this Agreement, the Company shall be entitled, in
addition to and without limitation of all other remedies it may have, to
injunctions or other appropriate orders to restrain any such breach without
showing or proving any actual damage to the Company. This Paragraph shall
survive termination of Employee's employment.
11. Governing Law. This Agreement shall be interpreted and construed
under the laws of the State of Arizona, which laws shall prevail in the event of
any conflict of law. This Agreement and the obligations hereunder are made and
performable in Maricopa County,
<PAGE>
Arizona, which shall be the exclusive venue for any litigation hereunder.
12. Modification of Contract. No waiver or modification of this
Agreement shall be valid unless it is in writing and duly executed by both
parties.
13. Judicial Modification of Agreement. If the period of time or the
area specified in Paragraphs 7, 8 or 9 herein should be adjudged unreasonable in
any proceeding, then the period of time shall be reduced by such number of
months or the area shall be reduced by the elimination of such portion thereof
or both so that such restrictions may be enforced in such area and for such time
and is adjudged to be reasonable. If Employee violates any of the restrictions
contained in Paragraphs 7, 8 or 9 of this Agreement, then the restrictive period
contained in Paragraph 9 shall not run in favor of Employee from the time of the
commencement of any such violation until such time as such violation shall be
cured by Employee to the satisfaction of the Company.
14. Notices. Any notice to be given hereunder by either party to the
other shall be in writing and may be transmitted by personal delivery or by
mail, registered or certified, postage prepaid with return receipt requested.
Notices shall be addressed to the parties at the following addresses and shall
be effective upon receipt:
If to the Company: The Antigua Group, Inc.
9319 N. 94th Way
Scottsdale, Arizona 85258
Attention: Chief Executive Officer
If to Employee: Mr. Joseph M. Blanchette
c/o The Antigua Group, Inc.
9319 N. 94th Way
Scottsdale, Arizona 85258
15. Entire Agreement. This Agreement contains the complete agreement
concerning the employment arrangement between the Company and Employee. This
Agreement supersedes any previous agreements or understandings between the
parties.
16. Attorneys' Fees. In the event of a dispute or litigation arising
hereunder, the successful party in such dispute or litigation shall be entitled
to recover its costs and reasonable attorneys' fees from the other parties to
such dispute or litigation.
<PAGE>
DATED on June 16, 1997.
THE ANTIGUA GROUP, INC.
By /s/ L. Steven Haynes /s/ Joseph M. Blanchette
L. Steven Haynes Joseph M. Blanchette
Its Chief Executive Officer
COMPANY EMPLOYEE
THE ANTIGUA GROUP, INC. Ex. 10.8
INDEPENDENT SALES REPRESENTATIVE
AGREEMENT
THIS AGREEMENT is entered into at Scottsdale, Arizona, on
______________ ____, 199__, between THE ANTIGUA GROUP, INC., a Nevada
Corporation, (hereinafter referred to as the "Company") and
__________________________________________ (hereinafter referred to as
"Representative").
I. APPOINTMENT
1.01 Appointment. Effective ____________________ ____, 199__, the
Company hereby appoints Representative as its independent sales representative
and grants Representative, upon the terms and conditions hereinafter set forth,
the right to solicit from past, current and prospective customers of the
Company, (the "Customers") orders for goods from the Company's general product
categories produced, manufactured or sold by the Company (the "Products").
"Products" do not include "Closeouts" or "Licensed Products", as defined in
Section 2.01. All orders so solicited shall be subject to final acceptance by
the Company. Representative hereby accepts such appointment and agrees to
diligently solicit orders for the Products.
1.02 Area of Responsibility. Subject to the other terms and conditions
hereof, Representative shall solicit orders for the Products from Customers
located only in the Company's Representative Geographic Area of (the "Area").
The Representative hereby has no exclusive rights to solicit orders for the
Products in the Area, and the Company reserves the right to have more than one
sales representative in the Area.
II. REPRESENTATIVE'S RIGHTS, DUTIES AND AUTHORITY
2.01 Compensation. The Company agrees to pay to Representative, as full
compensation for all selling and related services to be rendered by
Representative, a commission of 10% of all Net Sales, as defined in Section
2.02, of Products; except that the commissions paid by the Company to
Representative for sales of Closeouts and Licensed Products shall be determined
solely by the Company, but in no event shall be less than 3% or greater than 8%
of the Net Sales of the Closeouts or Licensed Products, as defined in Section
2.02. Commissions for a sale shall be due and payable on the 20th day of the
month following the sale. If any account created by Representative's sale of
Products, Closeouts or Licensed Products is uncollectible within the terms and
not paid within the limits fixed, any commission previously paid to
Representative for the sale giving rise to such account shall be refunded to the
Company by Representative via a cashier's check within 30 days after Company has
notified Representative of such uncollectible account. If Representative fails
to refund any such commission to the Company within the 30-day period, the
Company may, in its sole discretion, deduct an amount equal to 110% of such
commission from any future commission payments due to Representative.
1
<PAGE>
2.02 "Closeouts"; "Licensed Products"; "Invoice Price"; "Net Sales".
For the purposes of this Agreement, "Closeouts" shall mean Products which are no
longer regarded by the Company as current items or are marketed at discount. For
the purposes of this Agreement, "Licensed Products" shall mean Products bearing
logos or other trademarked items for which the Company has a license from a
third party (i.e. The National Football League). For the purposes of this
agreement, "Invoice Price" shall mean the price of the Products, Licensed
Products or Closeouts which are billed to the Customers, less any applicable
discounts. For purposes of this Agreement, "Net Sales" shall mean the Invoice
Price to Customers of Products, Licensed Products or Closeouts FOB the Company's
point of shipment, less all costs of insurance, discounts, sales returns and
allowances.
2.03 Limitations of Representative's Authority. Representative hereby
agrees with the Company as follows:
(a) Representative shall have no authority to make quotations of prices
or terms (including warranties) other than those authorized in writing by the
Company, or to accept orders or make commitments in behalf of the Company.
(b) Except as otherwise requested in writing by an officer of the
Company, Representative shall have no authority under any circumstances to: (i)
collect money; (ii) receive or accept payments on behalf of the Company; or
(iii) endorse or deposit any checks or other instruments of payment for the
account of the Company.
(c) Representative shall not extend any warranty or guarantee regarding
the Products, make any other representation regarding the Products, or assume
any liability on behalf of the Company, provided, however, that Representative
may distribute current literature supplied by the Company containing
representations as to the Products.
(d) Representative shall not have any authority to make any commitment
and/or obligation on behalf of the Company to anyone for any purpose under any
circumstances other than those authorized in writing by an officer of the
Company.
(e) Representative will not hold or sell inventory that is owned by the
Company, other than samples provided by the Company to the Representative for
use as sales aids.
(f) The Company does not require the Representative to perform work
exclusively for the Company.
(g) The Company does not provide the Representative with any business
registrations or licenses required to perform the specific services set forth in
this Agreement.
(h) The Company does not pay the Representative a salary or hourly
rate.
(i) The Company does not provide tools to the Representative.
(j) The Company does not dictate the time of Representative's
performance.
(k) The Company pays the Representative in the name appearing on this
Agreement.
(l) The Company will not combine business operations with the
Representative.
2.04 Trade Secrets. Representative shall keep confidential and, except
as otherwise authorized in writing by an officer of the Company, shall not
during the term of this Agreement or at any other time thereafter use, divulge,
furnish or make accessible to anyone other than the
2
<PAGE>
Company, its directors and officers, any knowledge or information (including
customer lists) with respect to any confidential or secret aspect of the
business, products or activities of the Company, its affiliates or subsidiaries.
2.05 Competitive Products. Representative, or any entity in which
Representative is an employee, agent, owner, partner, shareholder, affiliate,
officer or director, shall not, during the term of this Agreement, directly or
indirectly market or sell products to Customers in the Area similar to or
competitive with the Products. Representative shall be free to market and sell
other products not in competition with the Products, provided that the
Representative shall not undertake to market or sell such noncompetitive
commodities to such an extent as to interfere with Representative's full and
effective performance of all Representative's duties and functions as described
in this Agreement.
2.05 Insurance. Representative shall maintain public liability
insurance with a responsible insurance company of good repute, with bodily
injury limits of at least One Hundred Thousand Dollars ($100,000)/Three Hundred
Thousand Dollars ($300,000) and property damage limit of at least Twenty-Five
Thousand Dollars ($25,000) on any motor vehicle operated by Representative or
Representative's agents or employees in the performance of this Agreement
wherein the Company shall be named as additional insured. The Representative
shall from time to time furnish certificates evidencing such coverage upon
request of the Company.
III. RESERVED POWERS OF THE COMPANY
3.01 Acceptance of Orders. Notwithstanding anything to the contrary
contained herein, the Company shall have the right to accept or reject, in whole
or in part, any or all orders received from or through Representative, and to
make such allowances or adjustments and to accept such cancellations and returns
with respect to such orders as it deems necessary or advisable; and the Company
shall not be liable to Representative for any loss or damage resulting from any
such action so taken. All purchase orders are subject to final acceptance by the
Company in Scottsdale, Arizona.
3.02 Price and Product Modification. All sales made by Representative
shall be at prices and discounts established by the Company and in effect at the
time of shipment, it being understood that such prices and discounts are subject
to change by, and at the sole discretion of the Company at any time without
prior notice to Representative and without liability on the part of the Company
to Representative.
3
<PAGE>
IV. TERM AND TERMINATION
4.01 Term. Representative's appointment under this Agreement shall
commence on the effective date stated in Paragraph 1.01 and continue for one
year. Either party may, upon 30 days written notice, terminate this Agreement
with or without cause.
4.02 Effects of Termination. In the event of termination of the
Agreement, the Company shall not, by reason of the termination of this
Agreement, be liable to the Representative for compensation, reimbursement, or
damages of any kind, including but not limited to: (i) Representative's present
or prospective profits on sales or expenditures, investments, or commitments
made in connection therewith; (ii) expenses, investments or commitments made by
Representative in connection with the establishment, development or maintenance
of the business or goodwill of the Company or Representative; or (iii) on
account of any other cause or thing whatsoever. Provided, however, that such
termination shall not affect the rights or liabilities of the parties with
Representatives's sales of Products or Closeouts prior to the date of
termination, or with respect to any indebtedness then owing by either party to
the other. Subject to all terms of Section 2.01, Representative shall be paid by
the Company for all shipments made on all unfilled orders accepted by the
Company prior to termination. Upon termination of the Agreement, Representative
shall immediately return to the Company all lists of Customers, price books,
other pricing data, catalogs, booklets, pamphlets, and other sales and
advertising aids, and sample Products.
4.03 Termination of Previous Agreements. The Company and Representative
agree that any previous agreements between them regarding the subject matter
hereof which may still be in effect is hereby terminated.
V. MISCELLANEOUS
5.01 Representative's Status as Independent Contractor.
(a) Representative is appointed by the Company as, and shall be and
remain an independent contractor, and neither Representative nor any of
Representative's employees or agents shall be deemed to be an agent or employee
of the Company. As an independent contractor hereunder, Representative shall
have complete charge of any persons engaged by Representative in the
solicitation of orders for the purchase of Products, and any such persons shall
be agents or employees solely of Representative and not of the Company.
Representative shall be solely and wholly responsible for all losses, costs and
expenses incurred in his function as a Representative under this Agreement and
the Company shall have no obligation or liability for them.
(b) Representative understands that the Company will not withhold any
amounts from the commissions paid to Representative for federal or state income
taxes or for contributions under the federal or state income taxes or for
contributions under the federal social security program, any applicable
unemployment compensation statute, and any similar statute.
4
<PAGE>
(c) The parties agree that, even if it is determined by any
governmental agency or court or judicial authority of any kind that
Representative is covered by any of the statutes or programs mentioned in the
preceding subsection (b), Representative's status as an independent contractor
hereunder will not be adversely affected thereby and the Company may contest
such determination in its own name, in the name of the Representative, or both.
5.02 Indemnification. Representative agrees to indemnify and hold the
Company harmless against any claims for injuries or damages caused by
Representative or Representative's employees or agents, whether Representative,
or Representative's employees or agents are acting within the scope of
Representative's duties and authority hereunder or otherwise. In addition,
Representative shall indemnify and hold the Company harmless from any and all
liability arising from the relationship between Representative and any of
Representative's employees, agents and servants, whether under industrial
accident laws, Workers Compensation laws, or tax laws or tort liability laws or
any other law applicable to employers and employees. The provisions of this
paragraph 5.02 shall survive the termination of this Agreement.
5.03 Communications. Representative shall transmit promptly to the
Company any process or other notice or communication directed to the Company in
care of the address of Representative. The Company expressly reserves the right,
as against Representative, to communicate directly with actual or potential
Customers to obtain any information regarding the Products or the service
provided with respect thereto.
5.04 Equitable Relief. Representative acknowledges and agrees that any
confidential information acquired by Representative during the course of
performance of this Agreement is valuable and unique and that a breach by
Representative, or Representative's agents or employees, of the provisions of
Paragraphs 2.04 and 2.05 hereof may cause the Company irreparable injury and
damage which cannot reasonably and adequately be compensated by damages at law.
Representative therefore expressly agrees that the Company shall be entitled, in
addition to any other remedies legally available, to injunctive and/or other
equitable relief to prevent a breach of Paragraph 2.04 or 2.05 of this
Agreement.
5.05 Governing Law and Venue. Arizona law shall govern the construction
and enforcement of this Agreement and the parties agree that any claim or cause
of action pertaining to this Agreement shall lie only in courts of competent
jurisdiction located in Maricopa County, Arizona.
5.06 Construction. The language in all parts of this Agreement shall in
all cases be construed as a whole according to its fair meaning and not strictly
for nor against any party. The parties agree that each party has reviewed this
Agreement and that any rule of construction to the effect that ambiguities are
to be resolved against the drafting party shall not apply in the interpretation
of this Agreement or any amendment or any exhibits thereof.
5
<PAGE>
5.07 Nondelegability of Representative's Rights; Company Assignment
Rights. The obligations, rights and benefits of Representative hereunder are may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. The Company may assign its rights, duties and obligations arising
hereunder in the Company's sole discretion.
5.08 Severability. In the event any term or provision of this Agreement
is declared by a court of competent jurisdiction to be invalid or unenforceable
for any reason, this Agreement shall remain in full force and effect, and either
(a) the invalid or unenforceable provision shall be modified to the minimum
extent necessary to make it valid and enforceable or (b) if such a modification
is not possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
5.09 Attorneys' Fees. Except as otherwise provided herein, in the event
any party hereto institutes an action or other proceeding to enforce any rights
arising out of this Agreement, the party prevailing in such action or other
proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
5.10 Consideration. It is expressly understood and agreed that this
document sets forth the entire consideration for this Agreement, and that said
consideration for this Agreement is contractual and not a mere recital.
5.11 Gender and Number. All terms used in one number or gender shall be
construed to include any other number or gender as the context may require.
5.12 Counterparts. This Agreement may be executed in any number of
counterparts, all such counterparts shall be deemed to constitute one and the
same instrument, and each of said counterparts shall be deemed an original
hereof.
5.13 Section Headings. The section headings used in this Agreement are
inserted for convenience only and shall not affect the meaning or construction
of this Agreement.
5.14 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, sent by
telefacsimile with a copy by first-class U.S. mail, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Company: THE ANTIGUA GROUP, INC.
------------- 9319 North 94th
Way Scottsdale, AZ
85258 Attention:
6
<PAGE>
With a copy to: Quarles & Brady
One East Camelback Road, Suite 400
Phoenix, Arizona 85012-1649
Attention: Mark K. Briggs
Fax: 602-230-5598
If to Representative: _______________________
-------------------- _______________________
_______________________
[address and fax #]
With a copy to: _______________________
_______________________
_______________________
[address and fax #]
or to such other address and/or telefacsimile number as any party may provide to
the other in accordance with this Section.
5.15 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof (i.e.,
Representative's sales activities in connection with the Company) and supersedes
all prior or contemporaneous offers, understandings or agreements in regard
thereto.
5.16 Modification of Agreement. No modification or addition to this
Agreement shall be valid unless in writing, specifically referring to this
Agreement and signed by all parties hereto.
5.17 Waiver. No waiver of any rights under this Agreement shall be
valid unless in writing and signed by the party to be charged with such waiver.
No waiver of any term or condition contained in this Agreement shall be deemed
or construed as a further or continuing waiver of such term or condition, unless
the waiver specifically provides otherwise.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
7
<PAGE>
THE ANTIGUA GROUP, INC.
________________________________________
By: Ronald A. McPherson, Vice President
REPRESENTATIVE
________________________________________
By:
_____________________________________
[Printed Name]
Its:
____________________________________
[Title, if Representative is
not an individual.]
8
Ex. 10.24.1
IMPERIAL BANK ARIZONA
One Arizona Center, 400 E. Van Buren, Suite 900,
Phoenix, Arizona 85004
(602) 417-1100 - Fax (602) 261-7881 - (800) 525-4913
Mr. Gerald Whitley
Vice President, Finance and Administration
The Antigua Group, Inc.
9319 North 94th Way
Scottsdale, AZ 85258
October 9, 1997
Dear Gerry:
Please consider this letter as confirmation of our earlier telephone
conversations regarding (1) our agreement on termination payments in the event
Imperial Bank exercises its extension rights under the Credit Agreement (the
"Agreement") dated May 7, 1997, and (2) waiver of the Antigua Group, Inc.'s
("Antigua" or the Company) default on certain reporting covenants of the
Agreement. All capitalized terms not defined herein shall have the definition
given in the Agreement.
(1) At your request, Imperial Bank is willing to modify section 2.4(c) of the
Agreement with the addition of the following paragraph at the end of section
2.4(c):
"In the place of the Required Cash Pledge, and after giving notice to Lender
within ten (10) days after a Securities Offering Prepayment Event, Borrower may
elect to pay to Lender within ten (10) days of giving notice the amount of
unpaid principal then outstanding, all accrued and unpaid interest and all other
amounts payable under the Credit Documents, plus a termination fee ("Termination
Fee") equal to the following calculation for the present value of the net
payments to be received by Imperial under Imperial's extension option:
A + B where A equals [(Unpaid principal) multiplied by the differences between
eleven percent (11.0%) and the rate publicly quoted by Lender for twelve (12)
month certificates of deposit], the produce of the preceding divided by one (1)
plus the rate publicly quoted by Lender for twelve (12) month certificates of
deposit, and B equals [Unpaid principal) multiplied by the difference between
eleven percent (11.0%) and the rate publicly quoted by Lender for twelve (12)
month certificates of deposit], the product of the preceding divided by
<PAGE>
Mr. Gerald Whitley
The Antigua Group, Inc.
10/10/97
Page 2
one (1) plus the rate publicly quoted by Lender for twelve (12) month
certificates of deposit, the sum of the preceding raised to the power of two
(2)."
In the event that Antigua desires to move its entire banking relationship to
Imperial Bank, we would be very pleased to discuss waiving the Termination Fee.
(2) You have informed us that, due to acquisition and integration issues,
Antigua is unable to meet the requirements of section 6.1 of the Agreement
relating to financial reporting. Specifically, Imperial Bank did not receive
within the required time the Quarterly Statements (6.1(b)) for the quarter ended
June, 1997, the Monthly Statements (6.1(c)) for the months of July, 1997 and
August, 1997, the monthly Advanced Bookings and Sales Reports (section 6.1(d))
for the months of June, 1997, July, 1997 and August, 1997 and the Compliance
Certificate of Borrower (6.1(e)) for the month of June, 1997, July, 1997 and
August, 1997.
Additionally, we have not yet received the Monthly Statements for the month of
August, 1997, the Advance Bookings and Sales Reports for the months of June
1997, July 1997 and August 1997, the Compliance Certificate of Borrower for the
months of July 1997 and August 1997.
Imperial Bank is willing to waive defaults related to the late submission of the
above statements. Imperial Bank is also willing to grant an extension for the
submission of the yet to be submitted reports listed above until October 30,
1997. Furthermore, Imperial Bank is willing to extend until December 31, 1997
the dates at which selected reports as required as follows:
<TABLE>
<CAPTION>
Report Section Reference Current Requirement Temporary Extension
<S> <C> <C> <C>
Quarterly Statements 6.1(b) 30 days 45 days
Monthly Statements 6.1(c) 25 days 35 days
Advance Bookings 6.1(d) 25 days 35 days
Compliance Certificate 6.1(e) with monthly and with monthly and
quarterly statements quarterly statements
</TABLE>
Imperial Bank is willing waive the above defaults and to grant the above
extensions subject to the following conditions:
<PAGE>
Mr. Gerald Whitley
The Antigua Group, Inc.
10/10/97
Page 3
o Antigua represents that all representations and warranties made and given
by Borrower in the Loan Documents are true and correct;
o Antigua represents that, other than the defaults waived by this letter, no
Default or event of Default has occurred;
o Antigua reaffirms all of its obligations under the Loan Documents,
including unpaid principal of $2,500,000 and accrued and unpaid interest of
$3,611.11 as of October 10, 1997, and acknowledges that it has no claims,
offsets or defenses with respect to the payment of sums due under the Loan
Documents or related documents;
o Antigua hereby releases and discharges Bank and its affiliates and from and
against any and all demands, claims and causes of action of any type or
nature, at law and/or in equity, that Borrower now has resulting from any
action or omission by Bank prior to the date of this letter;
o Antigua acknowledges that, with the sole exception of the waivers granted
by this letter, the Loan Documents shall each remain unaffected by this
letter and shall remain in full force and effect; and,
o Antigua acknowledges that the waivers granted by this letter relate solely
to the above existing Events of Default. Antigua acknowledges that, except
as provided herein, Bank does not waive any existing Event of Default or
any Default or Event of Default hereafter occurring, or become obligated to
waive any condition or obligation in any agreement between Borrower and
Bank.
This letter agreement shall become binding upon its execution by Borrower.
Borrower's execution of this agreement shall constitute agreement with the
conditions listed above.
Sincerely,
/s/ Edmund Ozorio
- -----------------------------------
Edmund Ozorio
Vice President
Commercial Loan Officer
<PAGE>
Mr. Gerald Whitley
The Antigua Group, Inc.
10/10/97
Page 4
I accept the waiver granted herein subject to the terms and conditions of this
letter,
Date:
- -------------------------------------
/s/ Gerald K. Whitley
- -------------------------------------
Gerald K. Whitley
Vice President - Finance
The Antigua Group, Inc.
cc: Mr. Stephen Haynes, President, Southhampton Enterprises Corp., Guarantor
Mr. Stephen Haynes, Secretary, Southhampton Enterprises Inc., Guarantor
Exhibit 11.1
ANTIGUA ENTERPRISES, INC.
STATEMENT REGARDING COMPUTATION OF
EARNINGS PER SHARE--FULLY DILUTED
<TABLE>
<CAPTION>
Years ended December 31, Nine months ended September 30,
-------------------------------------------------- --------------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Loss ........................... $ (911,714) $ (1,092,873) $ (722,074) $(372,156) $ (3,286,372)
Dividends on Preferred Stock ...... (240,283)
------------
Adjusted net loss .................. $ (911,714) $ (1,092,873) $ (722,074) $(372,156) $ (3,526,655)
========== ============ ========== ========= ============
Historical
Weighted average common
shares outstanding ............ 1,531,384 1,959,423 2,118,056 2,087,184 3,041,603
Common Stock Equivalences
Stock Options .................. -- * -- * -- * -- * -- *
Stock Warrants .................. -- * -- * -- * -- * -- *
Assumed Conversions ............... -- *
Preferred Stock ............... -- *
Convertible Debentures ......... -- *
---------- ------------ ---------- --------- ------------
Weighted average common and
common equivalent shares ......... 1,531,384 1,959,423 2,118,056 2,087,184 3,041,603
========== ============ ========== ========= ============
Primary net loss per share ......... $ (0.60) $ (0.56) $ (0.34) $ (0.18) $ (1.16)
========== ============ ========== ========= ============
</TABLE>
* Assumed conversion of each of these securities, on an individual basis, has
an antidilutive effect on earnings per share.
<PAGE>
ANTIGUA ENTERPRISES, INC.
STATEMENT REGARDING COMPUTATION OF
EARNINGS PER SHARE--PRIMARY
<TABLE>
<CAPTION>
Years ended December 31, Nine months ended September 30,
-------------------------------------------------- --------------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Loss ........................... $ (911,714) $ (1,092,873) $ (722,074) $(372,156) $ (3,286,372)
Dividends on Preferred Stock ...... (240,283)
------------
Adjusted net loss .................. $ (911,714) $ (1,092,873) $ (722,074) $(372,156) $ (3,526,655)
========== ============ ========== ========= ============
Historical
Weighted average common
shares outstanding ............ 1,531,384 1,959,423 2,118,056 2,087,184 3,041,603
Common Stock Equivalences
Stock Options .................. -- * -- * -- * -- * -- *
Stock Warrants .................. -- * -- * -- * -- * -- *
---------- ------------ ---------- --------- ------------
Weighted average common and
common equivalent shares ......... 1,531,384 1,959,423 2,118,056 2,087,184 3,041,603
========== ============ ========== ========= ============
Primary net loss per share ......... $ (0.60) $ (0.56) $ (0.34) $ (0.18) $ (1.16)
========== ============ ========== ========= ============
</TABLE>
* Assumed conversion of each of these securities, on an individual basis, has
an antidilutive effect on earnings per share.
Exhibit 16.1
January 16, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C 20549
Ladies and Gentlemen:
We have read the item captioned "Changes in Independent Auditor" in the
Registration Statement of Antigua Enterprises Inc. on Form S-1 to be filed with
the Securities and Exchange Commission on the date of this letter. We are in
agreement with the statements in such captioned item.
Yours truly,
Chartered Accountants
(Internationally BDO Binder)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 16, 1998.
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
Registration Statement.
Chartered Accountants
(Internationally BDO Binder)
Vancouver, Canada
January 16, 1998
POWER OF ATTORNEY Ex. 24.3
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints L. Steven Haynes and Gerald K. Whitley,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign the Registration Statement of Antigua
Enterprises Inc. on Form S-1, and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any state securities commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: October 20, 1997 /s/ Louis B. Lloyd
Louis B. Lloyd
Witness:
/s/ Mark K. Briggs
----------------------
Signature
Mark K. Briggs
Print Name
State of Arizona )
------------------
) ss.
County of Maricopa
----------------- )
Subscribed and sworn to before me this Official Seal
20 day of Oct. , 1997. VICKIE L. STRIPP
- ---- ------ Notary Public - Arizona
Maricopa County
Vickie L. Stripp Notary Public
- --------------------------- My comm. expires Sept. 23, 1998
My commission expires:
September 23, 1998
POWER OF ATTORNEY Ex. 24.4
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints L. Steven Haynes and Gerald K. Whitley,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign the Registration Statement of Antigua
Enterprises Inc. on Form S-1, and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any state securities commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: October 20, 1997 /s/ L. Steven Haynes
L. Steven Haynes
Witness:
/s/ Mark K. Briggs
-------------------------
Signature
Mark K. Briggs
Print Name
State of Arizona )
------------------
) ss.
County of Maricopa
----------------- )
Subscribed and sworn to before me this Official Seal
20 day of Oct. , 1997. VICKIE L. STRIPP
Notary Public - Arizona
Vickie L. Stripp Maricopa County
- --------------------------- My comm. expires Sept. 23, 1998
Notary Public
My commission expires:
September 23, 1998
POWER OF ATTORNEY Ex. 24.5
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints L. Steven Haynes and Gerald K. Whitley,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign the Registration Statement of Antigua
Enterprises Inc. on Form S-1, and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any state securities commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: October 17, 1997 /s/ Gerald K. Whitley
Gerald K. Whitley
Witness:
Kevin Blazer
--------------------------------
Signature
Kevin Blazer
--------------------------------
Print Name
State of Arizona )
------------------
) ss.
County of Maricopa
-----------------)
Subscribed and sworn to before me this Official Seal
17 day of Oct. , 1997. VICKIE L. STRIPP
- ------ -------- Notary Public - Arizona
Maricopa County
/s/ Vickie L. Stripp My comm. expires Sept. 23, 1998
- --------------------------
Notary Public
My commission expires:
September 23, 1998
- --------------------
POWER OF ATTORNEY Ex. 24.7
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints L. Steven Haynes and Gerald K. Whitley,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign the Registration Statement of Antigua
Enterprises Inc. on Form S-1, and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any state securities commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10/20/97 /s/ James E. Miles
James E. Miles
Witness:
Mark K. Briggs
----------------------------------
Signature
Mark K. Briggs
----------------------------------
Print Name
State of Arizona )
-----------------
) ss.
County of Maricopa
----------------)
Subscribed and sworn to before me this Official Seal
20 day of Oct. , 1997. VICKIE L. STRIPP
- ------ -------- Notary Public - Arizona
Maricopa County
/s/ Vickie L. Stripp My comm. expires Sept. 23, 1998
- -------------------------
Notary Public
My commission expires:
September 23, 1998
- --------------------
POWER OF ATTORNEY Ex. 24.8
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints L. Steven Haynes and Gerald K. Whitley,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign the Registration Statement of Antigua
Enterprises Inc. on Form S-1, and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any state securities commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: October 24, 1997 /s/ Robert J. McCammon
Robert J. McCammon
Witness:
/s/ Betty Wale
----------------------
Signature
Betty Wale
Print Name
State of Burnaby )
------------------
) ss.
County of British Columbia
--------------------- )
Subscribed and sworn to before me this Official Seal
24 day of Oct. , 1997. R. DEAN SIMPSON
- ---- ------- A Notary Public in and for the
Province of British Columbia
/s/ R. Dean Simpson
- ---------------------------
Notary Public
My commission expires:
Permanent Commission
POWER OF ATTORNEY Ex. 24.9
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints L. Steven Haynes and Gerald K. Whitley,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign the Registration Statement of Antigua
Enterprises Inc. on Form S-1, and any and all amendments (including
post-effective amendments) thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any state securities commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: 10/20/97 /s/ James W. Lewis
James W. Lewis
Witness:
Mark K. Briggs
-----------------------------------
Signature
Mark K. Briggs
-----------------------------------
Print Name
State of Arizona )
------------------
) ss.
County of Maricopa
------------------)
Subscribed and sworn to before me this Official Seal
20 day of Oct. , 1997. VICKIE L. STRIPP
- ------ -------- Notary Public - Arizona
Maricopa County
/s/ Vickie L. Stripp My comm. expires Sept. 23, 1998
- ---------------------------
Notary Public
My commission expires:
September 23, 1998
- --------------------
