<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1998
REGISTRATION NO. 333-58631
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
OUTLOOK SPORTS TECHNOLOGY, INC.
(Name of Small Business Issuer in its Charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3949 65-0648808
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification Number)
Code Number)
</TABLE>
--------------------------
4400 NORTH FEDERAL HIGHWAY, SUITE 410
BOCA RATON, FLORIDA 33431
(561) 750-7528
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------------
JIM DODRILL
PRESIDENT
4400 NORTH FEDERAL HIGHWAY, SUITE 410
BOCA RATON, FLORIDA 33431
(561) 750-7528
(Address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
PETER ROSENBLUM, ESQ. ROBERT E. ALTENBACH, ESQ.
DAVE BROADWIN, ESQ. Kutak Rock
Foley, Hoag & Eliot LLP 225 Peachtree Street, N.E.
One Post Office Square Atlanta, Georgia 30303-1731
Boston, Massachusetts 02109 (404) 222-4600
(617) 832-1000
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock, $.01 par value (2)......... 2,875,000 $7.00 $20,125,000 --
Redeemable Class A Common Stock Purchase Warrants
(3)............................................ 2,952,500 $0.125 $369,063 --
Class A Common Stock issuable upon exercise of
Redeemable Class A Common Stock Purchase
Warrants....................................... 2,952,500 $8.05 $23,767,625 --
Representative's Warrant......................... 250,000 $0.01 $2,500 --
Class A Common Stock issuable upon exercise of
Representative's Warrant....................... 250,000 $8.40 $2,100,000 --
Total............................................ 9,280,000 $46,364,188 $13,677 (4)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(2) Includes 375,000 shares of Class A Common Stock subject to the Underwriters'
over-allotment option.
(3) Includes 150,000 Warrants subject to the Underwriters' over-allotment
option, 50,000 Warrants issuable upon exercise of the Representative's
Warrant and 1,752,500 warrants registered in the concurrent registration.
(4) Includes a filing fee of $10,546 paid in connection with the initial filing
of this Registration Statement on July 7, 1998.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
OUTLOOK SPORTS TECHNOLOGY, INC.
2,500,000 SHARES OF CLASS A COMMON STOCK AND
1,000,000 REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANTS
Outlook Sports Technology, Inc., a Delaware corporation (the "Company"),
hereby offers 2,500,000 shares of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock"), and 1,000,000 Redeemable Class A Common
Stock Purchase Warrants (the "Warrants"). The shares of Class A Common Stock and
the Warrants offered hereby (sometimes hereinafter collectively referred to as
the "Securities") may be purchased separately. It is currently estimated that
the initial offering price per share of the Class A Common Stock will be between
$6.00 and $8.00 and that the initial offering price per Warrant will be $.125.
Each Warrant is transferable and exercisable immediately upon issuance and
entitles the holder thereof to purchase one share of Class A Common Stock at a
price per share of 115% of the initial public offering price of the Class A
Common Stock, for a period of three years. The Warrants are redeemable by the
Company at a redemption price of $.125 per Warrant, at any time, upon 30 days
prior written notice to the holders thereof, if the average closing price of the
Class A Common Stock equals or exceeds 120% of the initial public offering price
per share of Class A Common Stock for 10 consecutive trading days ending on the
date prior to the date of the notice of redemption. Concurrently herewith the
Company is registering for resale (i) 275,000 shares of Class A Common Stock
(the "Selling Stockholder Shares") held by six existing Stockholders (the
"Selling Stockholders") and (ii) 1,752,500 Warrants (the "Selling Warrantholder
Warrants") held by 44 existing Warrantholders (the "Selling Warrantholders" and
collectively with the Selling Stockholders the "Selling Security-holders"). The
Selling Warrantholders have agreed, subject to certain conditions, not to sell
any Selling Warrantholder Warrants for a period of one year following the
effective date of this Offering. Thereafter the Selling Warrantholder Warrants
may be sold without any lock-up restrictions. The Selling Stockholders have
granted the Underwriters an option, exercisable within 45 days of the date
hereof, to purchase up to 275,000 shares of Class A Common Stock solely to cover
over-allotments, if any. The Company will not receive any of the proceeds of the
sales of the Selling Warrantholder Warrants or the Selling Stockholders Shares.
See "Description of Securities."
Prior to this offering (the "Offering") there has been no public market for
the Class A Common Stock or Warrants and there can be no assurance that any such
market will develop. The initial public offering price of the shares of Class A
Common Stock, the Warrants and the exercise price and other terms of the
Warrants have been determined by negotiations between the Company and Argent
Securities, Inc., as representative of the Underwriters (the "Representative").
See Underwriting. The Company has applied to include the Class A Common Stock
and the Warrants for listing on the NASDAQ Stock Market's SmallCap Market under
the symbols TGRA and TGRAW, respectively.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER THE
CAPTION "RISK FACTORS" WHICH APPEAR BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
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.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY(2) SECURITY-HOLDERS(3)
<S> <C> <C> <C> <C>
Per Share of Class A Common Stock... $ $
Per Warrant......................... $ $
Total (3)..................... $ $
</TABLE>
(1) Does not reflect additional compensation to be received by Argent
Securities, Inc. (the "Representative") in the form of: (i) a non-
accountable expense allowance equal to 3% of the gross proceeds of this
Offering or $ ($ if the Underwriter's over allotment option
described in footnote 3 is exercised in full), and (ii) an option to
purchase up to 250,000 shares of Class A Common Stock and 50,000 Warrants at
120% of the initial public offering price (the "Representative's Warrants"),
exercisable for a period of four years, commencing one year after the
effective date of the Registration Statement of which this Prospectus is a
part. The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at approximately $ , including the Representative's non-accountable
expense allowance (assuming no exercise of the Underwriters' over-allotment
option).
(3) The Company has granted the Underwriters an option, exercisable within 45
days of the date hereof, to purchase up to an additional 100,000 shares of
Class A Common Stock and 150,000 Warrants, solely to cover over-allotments,
if any. The Selling Stockholders have granted the Underwriters an option,
exercisable within 45 days of the date hereof, to purchase up to 275,000
shares of Class A Common Stock solely to cover over-allotments, if any. The
Underwriters have agreed to exercise in full the over-allotment option
granted to them by the Company before exercising any of the over-allotment
options granted to them by the Selling Stockholders. If the Underwriters'
over-allotment option is exercisable in full, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ , and $ , respectively.
See "Underwriting."
The Securities offered by this Prospectus are being offered by the
Underwriters on a "firm commitment" basis subject to prior sale, when, as and if
accepted by the Underwriters, approval of certain legal matters by counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer without notice and reject any
order in whole or part. It is expected that delivery of the certificates
representing the Securities will be made in Atlanta, Georgia on or about
, 1998.
ARGENT SECURITIES, INC.
The Date of this Prospectus is , 1998
<PAGE>
"OUTSIDE" OF GATE FOLD
On this page appears a photograph of the Tegra driver featuring its
Invisible Inset Hosel.
INSIDE OF GATE FOLD LEFT
On this page appear several photographs including one of the Company's Tegra
Retail Environment displaying the Company's golf equipment, apparel and
accessories, one of Ian Woosnam with Tegra golf clubs and golf bag and one of
Glen Day using the Tegra driver.
INSIDE GATE FOLD RIGHT
On this page appear two photographs including one of the Tegra iron
featuring its Invisible Inset Hosel and one showing four golfers using and/or
wearing Tegra products.
INSIDE BACK COVER
Red background with Tegra logo.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
The Company intends to furnish to its security holders annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
<PAGE>
NOTICE TO CALIFORNIA INVESTORS
Each purchaser of Securities in California must meet one of the following
suitability standards: (i) a liquid net worth (excluding home, furnishings and
automobiles) of $250,000 or more and gross annual income during 1997, and
estimated during 1998, of $65,000 or more from all sources; or (ii) a liquid net
worth (excluding home, furnishings and automobiles) of $500,000 or more. Each
California resident purchasing Securities offered hereby will be required to
execute a representation that it comes within one of the aforementioned
categories.
The Company uses and has applied to register in the United States the
following marks: TEGRA-TM-, TEGRA T (and design)-TM-, T (and design)-TM-, GOLF
FIRST-TM-, INVISIBLE INSET HOSEL-TM-, and NEMESIS-TM-. Other trademarks referred
to in this Prospectus are not owned by the Company and the Company makes no
claim of association with respect to those marks or their owners.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION, AND THE FINANCIAL STATEMENTS AND
NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO GIVE
RETROACTIVE EFFECT TO A NUMBER OF STOCK SPLITS AND REVERSE STOCK SPLITS AS
DESCRIBED IN NOTE 6 TO THE COMPANY'S FINANCIAL STATEMENTS INCLUDED ELSEWHERE
HEREIN AND ASSUMES (I) THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION HAS NOT BEEN
EXERCISED, AND (II) THAT THE REPRESENTATIVE'S WARRANTS HAVE NOT BEEN EXERCISED.
EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
ON OCTOBER 7, 1998, THE COMPANY AMENDED ITS CERTIFICATE OF INCORPORATION TO
CREATE TWO CLASSES OF COMMON STOCK (15,000,000 SHARES OF CLASS A COMMON STOCK
AND 5,000,000 SHARES OF CLASS B COMMON STOCK) (THE "AMENDMENT"). ALL SHARES OF
THE COMPANY'S COMMON EQUITY OUTSTANDING PRIOR TO THE AMENDMENT WERE CONVERTED
INTO SHARES OF CLASS A COMMON STOCK EXCEPT FOR 1,464,953 SHARES OF COMMON EQUITY
OWNED BY MESSRS. BERGER AND DODRILL WHICH WERE CONVERTED INTO AN EQUAL NUMBER OF
SHARES OF CLASS B COMMON STOCK. THE CLASS A AND CLASS B COMMON STOCK HAVE
IDENTICAL RIGHTS, INCLUDING VOTING RIGHTS. EACH SHARE OF CLASS B COMMON STOCK
WILL BE AUTOMATICALLY CONVERTED INTO A SHARE OF CLASS A COMMON STOCK ON THE
EARLIER TO OCCUR OF (I) OCTOBER 31, 2000 OR (II) SUCH TIME AS THE CLOSING PRICE
OF THE CLASS A COMMON STOCK SHALL EQUAL OR EXCEED $8.00 FOR 10 CONSECUTIVE
TRADING DAYS. REFERENCES IN THIS PROSPECTUS TO "COMMON STOCK" ARE TO THE CLASS A
COMMON STOCK AND THE CLASS B COMMON STOCK COLLECTIVELY. SEE "DESCRIPTION OF
SECURITIES -- COMMON STOCK."
THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"), THAT INVOLVE RISKS AND UNCERTAINTIES. THE SAFE
HARBOR FROM PRIVATE ACTIONS BASED ON UNTRUE STATEMENTS OR OMISSIONS OF MATERIAL
FACT THAT IS PROVIDED BY THESE TWO STATUTORY PROVISIONS DOES NOT APPLY TO
STATEMENTS MADE IN CONNECTION WITH AN INITIAL PUBLIC OFFERING. THE COMPANY'S
ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION" AND "BUSINESS."
THE COMPANY
The Company is a designer, marketer and manufacturer of premium quality golf
equipment, apparel and accessories under the Tegra brand name. Tegra products
represent a wide range of technologically innovative, premium-priced men's golf
clubs, apparel and accessories that are sold in off-course golf specialty and
on-course pro shops. Tegra golf clubs incorporate the Company's patent-pending
Invisible Inset Hosel (the cylindrical chamber in which the shaft is attached to
the club head), a feature designed to reduce slice, and increase the accuracy
and distance of golf shots, and were introduced into the US market in October
1997. In the spring of 1998, the Company began installing dedicated Tegra Retail
Environments ("TREs") in select golf stores across the country and shipping a
Tegra men's apparel line. TREs are defined spaces in golf shops which house the
Company's equipment, apparel and accessories in an integrated, branded selling
environment. The Company has installed 58 TREs in golf stores in 55 cities. The
Company is in the process of opening additional TREs and expects to install up
to 100 new TREs for the Spring, 1999 selling season. Tegra products are now
available in over 170 golf shops nationwide and the Company expects they will be
available in 300 golf shops by year end.
The Company's business strategy is to establish itself as a leading
designer, marketer and manufacturer of premium golf equipment, apparel and
accessories by providing a complete range of products at the premium-priced
segment of the golf market. The Company is implementing this strategy by: (1)
creating products with proprietary, visibly distinct technology and design such
as the Company's patent-pending Invisible Inset Hosel to differentiate the
Company from its competitors while pricing such products
4
<PAGE>
competitively and (2) raising consumer demand for and awareness of the Company's
products through innovative marketing programs such as TREs as well as
traditional advertising, endorsements from professional golfers and use of
infomercials.
The Company was founded as Hippo, Inc. in 1996 and contemporaneously
acquired a license from Hippo Holdings, Ltd. to sell value-priced HiPPO-TM-
brand golf equipment, apparel and accessories in the United States. The
Company's initial strategy was to sell value-priced golf clubs that were
presently available under the HiPPO-TM- brand and to simultaneously develop a
premium-priced golf club brand because that segment of the golf market comprises
approximately 70% of golf equipment sales and offers higher margins to
manufacturers. This development effort resulted in the Tegra line of
premium-priced golf equipment. The Company has since discontinued the
distribution of value-priced golf equipment to pursue opportunities offered by
its Tegra products. On May 4, 1998, the Company sold its license to sell
HiPPO-TM- products in the U.S. back to Hippo Holdings, Ltd. along with all
existing HiPPO-TM- inventory, marketing materials and related liabilities. In
return, the Company received a cash payment from Hippo Holdings, Ltd. of
approximately $413,000. In addition Hippo Holdings, Ltd. returned to the Company
50,000 shares of the Company's Common Stock and assumed outstanding liabilities
and commitments of the Company in excess of $1,000,000.
INDUSTRY OVERVIEW. According to the National Golf Foundation ("NGF"), in
1997, wholesale sales of golf equipment in the U.S. were approximately $3.9
billion. In addition, wholesale sales of golf clubs are estimated to have
increased at an annual compound growth rate of approximately 10.9% over the
5-year period from 1992 to 1997. The Company believes that a number of trends
are likely to further increase the demand for golf products generally. These
trends include: (i) the large numbers of golfers entering their 40s and 50s, the
age when most golfers begin to play more often and increase their spending on
the sport; (ii) growth in the number of golf courses; (iii) increasing interest
in golf from women, junior and minority golfers; (iv) the large population who
are beginning to enter their 20s, the age when golfers generally take up the
sport; and (v) the rapid evolution of golf club designs and materials.
PRODUCTS. Tegra golf clubs which incorporate the Company's patent-pending
Invisible Inset Hosel are an evolution from current golf club technology. The
Company's design moves or insets the shaft as close to the center of the club
head as is permitted under USGA rules. As a result, the club head will rotate to
the target faster than conventional designs, making it easier to square the club
at impact and enabling the golfer to hit longer and straighter shots. The
Company believes that the Company's Invisible Inset Hosel technology could be as
significant to the golf industry as perimeter weighting, graphite shafts or
oversize metal woods.
The Company has conducted player testing on its woods and irons and the
Company believes such testing shows its Tegra technology promotes straighter and
longer golf shots than other leading premium-priced golf clubs. "Iron Byron"
testing (robotic testing designed to repeat identical swings so different clubs
can be compared under controlled conditions) of Tegra woods has shown that the
Tegra driver provides greater carry, roll and overall distance than certain
leading premium-priced clubs while simultaneously increasing accuracy.
Additional mechanical testing which has been recorded using high speed video
shows that the Invisible Inset Hosel design produces a squarer club face at
impact than other leading premium-priced clubs.
The Company has also developed a line of Tegra men's apparel. The Company's
apparel collection emphasizes quality, comfort and style and is intended to
enhance a golfer's on-course performance. The Company plans to introduce to the
U.S. market its new apparel line and a full range of golf accessories by Spring
1999. The Company has already begun selling headwear featuring ergonomic
closures and intends to introduce items such as golf bags, umbrellas and towels.
One of the Company's strategies is to deliver products which can achieve
superior retail margin in order to incentivize retailers to sell more Tegra
product. The Company estimates that retailers on average achieve 20% gross
margin on sales from premium golf equipment. By pricing appropriately, the
Company
5
<PAGE>
believes it is able to offer retailers products that can achieve superior
margin. The Company expects that, on average, Tegra golf clubs will allow
retailers to achieve 40% gross margin, while Tegra apparel will allow retailers
to achieve in excess of 50% gross margin.
MARKETING. By creating TREs, the Company has adapted a marketing model used
by marketers of many leading brands of consumer products, who use in-store shops
to increase sales and brand awareness. TREs are defined spaces in golf shops,
which occupy from 50 to 150 square feet and consist of flooring, fixtures,
graphics and point-of-purchase materials. Within a TRE, the Company markets its
Tegra golf clubs, apparel and accessories in an integrated, branded environment
designed to convey the image of the Company as innovative in golf club
technology and distinctive in design.
The Company's advertising focuses on the Company's visibly distinct
technology and its performance benefits. In addition, the Company is presently
developing a long-format (30 minute) infomercial which is anticipated to air in
December. This broadcast advertising is expected to be supplemented with a print
campaign.
Tegra products are currently endorsed by four touring professionals
including Ian Woosnam and Glen Day. Mr. Woosnam began endorsing Tegra products
on January 1, 1998, although Mr. Woosnam does not yet have an endorsement
contract. Mr. Woosnam competes using Tegra golf clubs, carrying a Tegra bag and
wearing Tegra headwear and apparel. The Company is currently negotiating with
Mr. Woosnam for him to endorse Tegra products through December 31, 2006. Mr.
Woosnam has won more than 40 tournaments worldwide, including the 1991 Master's
Tournament. Mr. Day is currently endorsing Tegra golf equipment, apparel and
accessories under a contract terminating on December 31, 1998. Since beginning
his association with Tegra, Mr. Day has had five top three finishes on the
United States PGA Tour.
The Company's executive offices are located at 4400 North Federal Highway,
Suite 410, Boca Raton, Florida 33431. The Company's telephone number is (561)
750-7528.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered (1).......... 2,500,000 shares of Class A Common Stock and 1,000,000
Warrants. See "Description of Securities."
Warrants........................ Each Warrant is immediately exercisable and entitles the
holder thereof to purchase one share of Class A Common
Stock at a price per share of 115% of the initial public
offering price for a period of three years. The Warrants
are redeemable by the Company at a redemption price of
$0.125 per Warrant, at any time, upon 30 days prior
written notice to the holders thereof, if the closing
price of the Class A Common Stock equals or exceeds 120%
of the initial public offering price of the Class A Common
Stock, for 10 consecutive trading days ending on the day
prior to the date of the Notice of redemption. See
"Description of Securities."
Securities Outstanding Prior to
the Offering (2).............. 1,051,818 shares of Class A Common Stock and 1,464,953
shares of Class B Common Stock.
Securities Outstanding
Subsequent to the Offering
(3)........................... 3,551,818 shares of Class A Common Stock and 1,464,953
shares of Class B Common Stock and 1,000,000 Warrants.
Use of Proceeds by the Company.. The net proceeds of this Offering will be used for
repayment of indebtedness, the purchase of inventory, the
payment of marketing and advertising expenses and working
capital and other corporate purposes. See "Use of
Proceeds."
NASDAQ Symbols.................. Class A Common Stock -- TGRA; Warrants -- TGRAW
</TABLE>
- ------------------------
(1) Assumes the Underwriters' over-allotment option is not exercised.
(2) The Class A Common Stock and the Class B Common Stock have identical rights,
including voting rights. Each share of Class B Common Stock will
automatically convert into one share of Class A Common Stock on the earlier
to occur of (i) October 31, 2000 and (ii) such time as the closing price of
the Class A Common Stock shall equal or exceed $8.00 for 10 consecutive
trading days. Also excludes 1,752,500 Warrants issuable upon the exercise by
certain bridge investors of the right to elect payment in Warrants of
amounts due them in connection with the Company's bridge financing (the
"Bridge Warrants").
(3) Does not include (i) the 1,000,000 shares of Class A Common Stock issuable
upon the exercise of the Warrants offered hereby, (ii) the 100,000 shares of
Class A Common Stock and 150,000 Warrants issuable by the Company upon the
exercise of the Underwriters' over-allotment option, (iii) the 150,000
shares of Class A Common Stock issuable upon exercise of the Warrants
included in the Underwriters' over-allotment option, (iv) the 250,000 shares
of Class A Common Stock and 50,000 Warrants issuable upon exercise of the
Representative's Warrants (or the 50,000 shares of Class A Common Stock
issuable upon exercise of the Warrants included therein), (v) 2,036,170
shares of Class A Common Stock issuable upon the exercise of stock options
and warrants outstanding on the date hereof or (vi) up to 1,752,500 Bridge
Warrants or 1,752,500 shares of Class A Common Stock issuable upon exercise
of such Bridge Warrants. See "Management -- Stock Option Plans,"
"Description of Securities" and "Underwriting."
7
<PAGE>
RISK FACTORS
The Company does not presently have adequate cash from operations or
financing activities to meet either its short-term or long-term needs. In
addition, the Company's obligation to repay $1,975,000 of bridge debt matured on
September 30, 1998 and an additional $3,505,000 of bridge debt will become due
on October 15, 1998. The Company does not have sufficient cash to repay these
obligations and is currently negotiating with the holders of this debt to extend
the maturity date. The Company expects to repay this debt from the proceeds of
this offering. See "Use of Proceeds." If this offering is not successful, the
Company expects that it will seek alternative private financing or seek to sell
the Company if an interested buyer can be found. If no alternative private
financing can be secured and no buyer can be found, the Company expects that it
will seek protection from its creditors under the applicable bankruptcy laws.
See "Risk Factors -- Lack of Cash." There can be no assurance that the Company
will be able to achieve its business goals or ever achieve profitability. See
"Risk Factors -- Precarious Financial Condition", "-- Ability to Continue as a
Going Concern," and "-- History of Losses; Anticipation of Future Losses." The
Company is substantially dependent on the efforts of its founders and principal
officers who have no proven record of success in designing, marketing or
manufacturing retail products. See "Risk Factors -- Lack of Experience of
Management."
RECENT TRANSACTIONS
Since, July, 1988, the Company has consumed all cash on hand and has funded
its operations with cash flow and loans from its officers aggregating $67,500
which are to be repaid with the proceeds of this offering. The Company is in the
process of negotiating to obtain a loan of $250,000 from an individual. This may
be personally guaranteed by Jim Dodrill and Paul Berger. The lender may also
provide consulting services to the Company the terms of which are currently
being negotiated. See "Use of Proceeds" and "Certain Transactions -- Recent Loan
and Consulting Agreement."
8
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial data, insofar as it relates to the period
February 8, 1996 (inception) to January 31, 1997 and the year ended January 31,
1998, has been derived from the Company's audited financial statements,
including the balance sheets at January 31, 1997 and 1998 and the related
statements of operations, of changes in shareholders' deficit and of cash flows
for the periods then ended, and notes thereto appearing elsewhere herein. The
data for the six months ended July 31, 1997 and 1998 has been derived from
unaudited financial statements also appearing herein and which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods. The summary financial data should be read in conjunction with
the "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 8,
1996 FOR THE FOR THE SIX MONTHS
(INCEPTION) TO YEAR ENDED ENDED JULY 31,
JANUARY 31, JANUARY 31, ----------------------------
1997 1998 1997 1998
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................ $ -- $ 741,120 $ 267,547 $ 440,474
Total costs and expenses........................... $ 2,375,708 $ 5,190,123 $ 1,913,404 $ 3,378,022
Loss from operations............................... $ (2,375,708) $ (4,449,003) $ (1,645,857) $ (2,937,549)
Interest expense................................... $ (2,844) $ (244,648) $ (76,555) $ (325,636)
Gain on sale of license............................ $ -- $ -- $ -- $ 413,997
Net loss........................................... $ (2,378,552) $ (4,693,651) $ (1,722,412) $ (2,849,188)
Basic and diluted net loss per share (1)........... $ (3.24) $ (2.21) $ (1.48) $ (1.17)
Weighted average number of shares outstanding...... 734,330 2,120,460 1,162,539 2,425,197
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1998
-----------------------------
AS ADJUSTED
ACTUAL (2)
------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets...................................... $ 26,850 $ 650,792 $ 1,135,979 $ 10,435,979
Working (deficit) capital........................... $ (1,306,705) $ (5,056,682) $ (7,679,293) $ 7,683,207
Total assets........................................ $ 227,347 $ 1,005,055 $ 1,658,578 $ 10,958,578
Total liabilities................................... $ 1,373,555 $ 5,747,474 $ 8,855,272 $ 2,792,772
Total shareholders' (deficit) equity................ $ (1,146,208) $ (4,742,419) $ (7,196,694) $ 8,165,806
</TABLE>
- ------------------------
(1) Due to the Company's losses from continuing operations, the Company's
diluted loss per share is the same as that of basic loss per share.
(2) Adjusted to give effect to the sale of 2,500,000 shares of Class A Common
Stock and 1,000,000 Warrants offered hereby at assumed initial public
offering prices of $7.00 per Share and $0.125 per Warrant, respectively, and
the application of the net proceeds therefrom. See "Use of Proceeds." No
effect has been given to the exercise of (i) the Warrants, (ii) the
Underwriter's over-allotment option (iii) the Representative's Warrants (or
the Warrants included therein) or (iv) the Bridge Warrants. See
"Underwriting."
9
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION, AND SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD
CONSIDER CAREFULLY THE FOLLOWING FACTORS AS WELL AS OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING THE INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS
HEREIN, PRIOR TO PURCHASING THE SECURITIES.
LACK OF CASH
The Company does not presently have adequate cash from operations or
financing activities to meet either its short-term or long-term needs. In
addition, the Company's obligation to repay $1,975,000 of bridge debt matured on
September 30, 1998 and an additional $3,505,000 of bridge debt will become due
on October 15, 1998. The Company does not have sufficient cash to repay these
obligations and is currently negotiating with the holders of this debt to extend
the maturity date. The Company expects to repay this debt from the proceeds of
this offering. See "Use of Proceeds." If this offering is not successful, the
Company expects that it will seek alternative private financing or seek to sell
the Company if an interested buyer can be found. If no alternative private
financing can be secured and no buyer can be found, the Company expects that it
will seek protection from its creditors under the applicable bankruptcy laws.
PRECARIOUS FINANCIAL CONDITION
For the year ended January 31, 1998, the Company incurred net losses of
$4,693,651, and for the six months ended July 31, 1998, the Company incurred net
losses of $2,849,188. As of July 31, 1998, the Company had $1,621 in cash and an
accumulated deficit of $9,921,391. The Company's current liabilities, as of such
date, aggregated $8,815,272 and exceeded the Company's current assets by
$7,679,293. The Company expects its cash needs subsequent to repayment of bridge
loan debt for the next twelve months to be approximately $4,400,000. The Company
does not presently have adequate cash from operations to meet these needs. In
order to meet its needs for cash to fund its operations, the Company must obtain
additional financing. The Company is currently in default under a number of its
arrangements, agreements and instruments with creditors. If this Offering is not
successful or if the Company is unable to obtain significant additional
financing, it may be obligated to seek protection from its creditors under the
bankruptcy laws and the existing stockholders may lose their investment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources"; and the financial statements and
notes thereto included elsewhere in this Prospectus.
ABILITY TO CONTINUE AS A GOING CONCERN
The Company's independent certified public accountants have issued their
report dated June 9, 1998 on the financial statements of the Company as of
January 31, 1998 and for the year then ended, which includes an explanatory
paragraph expressing substantial doubt about the Company's ability to continue
as a going concern. Among the reasons cited by the independent certified public
accountants as raising substantial doubt as to the Company's ability to continue
as a going concern are the following: the Company has suffered recurring losses
and negative cash flows from operations through January 31, 1998, has a
shareholders' deficit and working capital deficiency as of January 31, 1998, and
is dependent on raising additional financing in order to fund its existing level
of operations. These factors raise substantial doubt about the Company's ability
to continue as a going concern. If this Offering is not successful or if the
Company is unable to secure significant additional financing, it may be obliged
to seek protection under the bankruptcy laws and the stockholders may lose their
investment. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources"; and the financial
statements and notes thereto included elsewhere in this Prospectus.
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<PAGE>
HISTORY OF LOSSES; ANTICIPATION OF FUTURE LOSSES
The Company has incurred operating losses since its inception and had an
accumulated deficit of $9,921,391 as of July 31, 1998. The Company incurred a
net loss of $4,693,651 for the twelve months ended January 31, 1998, as compared
with a net loss of $2,378,552 for the period ended January 31, 1997. The Company
incurred a net loss of $2,849,188 for the six months ended July 31, 1998, as
compared with a net loss of $1,722,412 for the six months ended July 31, 1997.
Such losses have resulted principally from expenses incurred from general and
administrative costs, research and development and marketing costs incurred
during the Company's development efforts. The continued development of the
Company's business will require the commitment of substantial resources to
establish sales and marketing capabilities. The amount of net losses and the
time required by the Company to reach sustained profitability are highly
uncertain, and to achieve profitability the Company must, among other things,
successfully establish sales and marketing capabilities by itself or with third
parties. There is no assurance that the Company will ever generate substantial
revenues from its products or achieve profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
LACK OF EXPERIENCE OF MANAGEMENT
The Company is substantially dependent on the efforts of its founders and
principal officers. The Company was founded in 1996 and only entered the market
for premium-priced golf products in the Fall of 1997. Management has no proven
record of success in designing, marketing or manufacturing retail products. In
addition, the Company has only recently hired the majority of its sales force.
No assurance can be given that the Company will be successful in retaining such
personnel and recruiting additional personnel. The golf market is a highly
competitive market for personnel and new personnel could be costly in terms of
cash compensation or equity necessary to attract them to the Company or may not
be available to the Company on any terms. The Company currently has no
employment contracts or non-competition agreements with, nor does it carry key
man life insurance for, any of its founders or principal officers.
DEPENDENCE ON OFFERING PROCEEDS
The Company's capital requirements have been and will continue to be
significant. The Company is dependent on and intends to use a substantial
portion of the proceeds of this Offering to fund purchases of inventory and
implement its marketing strategies. The Company also plans to use approximately
$6,062,500 of the proceeds of this Offering to repay indebtedness. See "Use of
Proceeds." The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that the proceeds of this Offering,
together with cash flow from operations, will be sufficient to satisfy its
contemplated cash requirements for the next 18 months. In the event that the
Company's plans change, its assumptions change or prove to be inaccurate or if
the proceeds of this Offering or cash flows otherwise prove to be insufficient
to fund operations (due to unanticipated expenses, delays, problems,
difficulties or otherwise), the Company will be required to minimize cash
expenditures and/or obtain additional financing in order to support its plan of
operations. The Company has no current arrangements with respect to, or sources
of, additional financing and there can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
LIMITED HISTORY
The Company has a limited operating and financial history for potential
investors to consider in assessing the advisability of an investment in the
Company. The Company must, therefore, be considered to be subject to all of the
risks inherent in the establishment of a new business enterprise, including the
absence of any significant operating history, any significant revenues, losses
from continuing operations and the presence of outstanding payables and
significant commitments, along with the uncertainties of the
11
<PAGE>
development and marketing of new products. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by new businesses in a highly competitive industry. To date the
Company has achieved limited sales and during the year ended January 31, 1998
the Company incurred losses of $4,693,651 on revenues of $741,120. To address
these risks, the Company must, among other things, successfully increase the
scope of its operations, respond to competitive and technological developments,
continue to attract, retain and motivate qualified personnel and continue to
develop and obtain market acceptance of its products. There can be no assurance
that the Company will be successful in addressing these risks and challenges.
See "-- Lack of Experience of Management."
LITIGATION
The Company has received a letter from Tatsuya Saito requesting that the
Company review its TEGRA line of clubs in view of a patent issued to him on July
12, 1994 (the "Saito Patent"). The Saito Patent covers certain aspects of a club
head and hosel, including the positioning of the hosel inset relative to the
club head. The Company has referred this request to independent outside patent
counsel. The Company does not believe that the TEGRA line of clubs infringes any
of the claims of the Saito Patent; however, there can be no assurance that a
court will not conclude that one or more of the Company's products does not
infringe the Saito Patent, or any other patent. If Mr. Saito is successful in
asserting his patent, it could require the Company to alter or withdraw existing
products, delay or prevent the introduction of new products, or force the
Company to pay damages if the products have been introduced. See "--
Intellectual Property" and "Business -- Legal Proceedings."
The Company has received a letter from Vardon Golf Company, Inc. ("Vardon")
asserting that the Company's TEGRA woods and irons infringe one of the claims of
its patent issued on April 12, 1994 (the "Vardon Patent"). The Vardon Patent
includes claims directed to a number of aspects of a golf club head and hosel,
including claims directed to an extended radius of gyration, which includes an
aspect of the club head extending behind the hosel. Vardon filed a complaint in
the Northern District of Illinois, Eastern Division, on May 13, 1998, in which
Vardon alleges that six companies have manufactured, sold, offered to sell and
distributed in the United States, specifically in the Northern District of
Illinois, wood-type and iron golf club products that are covered by at least one
claim of the Vardon Patent and a related design patent. The Company does not
believe that the TEGRA line of clubs infringes any of the claims of these
patents and the Company is in the process of preparing a response to the
complaint; however, there can be no assurance that a court will not conclude
that the Company does not infringe one or the other of these patents, or both.
If Vardon is successful in asserting its patent, it could require the Company to
alter or withdraw existing products, delay or prevent the introduction of new
products, or force the Company to pay damages if the products have been
introduced. See "-- Intellectual Property" and "Business -- Legal Proceedings."
The Company is the defendant in a lawsuit filed by TBWA Chiat/Day Inc.
("Chiat") in the Supreme Court of the State of New York on July 6, 1998 alleging
breach of contract for advertising services and that certain fees and expenses
in an amount of approximately $200,000 incurred by Chiat have not been paid by
the Company. The Company has prepared and filed a response to this complaint,
and the Company intends to assert its defenses vigorously; however, there can be
no assurance that the Company will prevail. See "Business -- Legal Proceedings."
DEPENDENCE ON PRODUCT INTRODUCTION
The Company believes that the introduction of new, innovative golf clubs
will be crucial to its future success. The Company has just begun to sell
products to retailers but there can be no assurance that the Company's newly
developed products will be accepted by consumers or preferred by consumers over
other companies' products. There can also be no assurance that the Company will
successfully develop new products. New models and basic design changes are
frequently introduced into the golf club market but often meet with consumer
rejection. Failure by the Company to identify and develop products that achieve
12
<PAGE>
widespread market acceptance would adversely affect the Company's future growth
and profitability. Additionally, successful technologies, designs and product
concepts are likely to be copied by competitors. Accordingly, the Company's
operating results could fluctuate as a result of the amount, timing and market
acceptance of new product introductions by the Company or its competitors.
In addition the Company plans to introduce new apparel and accessories. The
Company has only recently begun to sell some of these products to retailers.
There can be no assurance that the Company's apparel and accessories will be
accepted by consumers. There can also be no assurance that the Company will be
able to design or sell new apparel and accessories in the future. Failure of the
Company's current and planned apparel and accessories would adversely affect the
Company's future growth and profitability.
POTENTIAL CHANGES IN USGA REGULATIONS
The design of new golf clubs is also greatly influenced by rules and
interpretations of the United States Golf Association ("USGA"). Although the
golf equipment standards established by the USGA generally apply only to
competitive events sanctioned by that organization, it has become critical for
designers of new clubs to assure compliance with USGA Rules. The Company has
received an authorization letter from the USGA stating that the Tegra irons and
titanium metal woods conform with USGA Rules. Although the Company believes that
all future clubs designed by the Company will conform with USGA Rules, no
assurance can be given that any new products will receive confirmation of such.
In the past, the USGA has made changes in the rules and regulations governing
golf equipment. No assurance can be given that it will not do so in the future,
any such action by the USGA which changes the rules regarding golf equipment
could have a material adverse effect on the Company.
INTELLECTUAL PROPERTY
TRADEMARKS. The Company has applied in the United States for registration
of the following marks: TEGRA, TEGRA T (and design), T (and design), GOLF FIRST,
INVISIBLE INSET HOSEL, and NEMESIS. The Company has only applied to register the
mark TEGRA outside the U.S., and has only sought to register that mark in
Canada, the United Kingdom, Japan and Taiwan. The Company has received notices
of allowance from the U.S. Patent and Trademark Office ("PTO") for the marks
TEGRA, TEGRA T (and design), T (and design), and NEMESIS. While the Company has
undertaken U.S. trademark searches through standard trademark search channels
for some of the marks for which the Company seeks registration and the search
results reveal that these marks appear to be available for use and registration
in the U.S. in connection with golf clubs and some golf accessories and golf
related apparel, no assurance can be given that such searches uncovered all
existing or potentially conflicting marks. Outside the U.S., the Company has not
undertaken any trademark searches to determine whether any of these marks is
available for use or registration in connection with golf clubs, golf
accessories or golf related apparel.
No assurances can be given that any or all of the Company's applications for
these trademark registrations will be granted. Additionally, no assurances can
be given that any issued trademark registrations will give the Company exclusive
rights to use the marks with respect to all of the goods or services the Company
may propose to sell. The Company does not plan to introduce any product which is
covered by any third party U.S. or foreign trademark, registration or trademark
rights known to the Company. To date, there have been no interruptions in the
Company's business as the result of any claim of infringement. However, no
assurance can be given that the Company will not be adversely affected by the
assertion of intellectual property rights belonging to others. The effects of
such assertions could include requiring the Company to alter or withdraw
existing trademarks or products delaying or preventing the introduction of
products, or forcing the Company to pay damages if the products have been
introduced.
PATENTS. The Company has filed an application for a United States patent
claiming certain elements of the Company's Tegra line of inset woods and irons,
and the Company has filed a Patent Cooperation
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<PAGE>
Treaty patent application, designating all countries, that is based on such
United States patent application. Based on the results of a patent search
conducted by outside patent counsel, the Company is of the view that various
aspects of the Tegra line of woods and irons may be patentable, but no assurance
can be given that any of the foregoing patent applications or any future
application for a utility or design patent will be granted by the U.S. PTO or
any other PTO or, if a patent issues, as to the scope of any patent that might
issue, or that any such patent will prevent misappropriation or duplication of
the Company's products or similar products by competitors, or that the Company
will have the rights or resources to commercialize products on the basis of any
new patents. There can be no assurance that any issued patents will provide the
Company with significant competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patents owned by the
Company or, if instituted, that such challenges will not be successful. The cost
of litigation to uphold the validity of a patent and prevent infringement can be
very substantial and could be beyond the Company's financial means, even if the
Company could otherwise prevail in such litigation. Furthermore, there can be no
assurance that others will not independently develop similar designs or
technologies, duplicate the Company's designs and technologies or design around
the patented aspects of the Company's technology.
There are numerous patents granted with respect to golf technology, and the
Company cannot provide any assurances that any particular product of the Company
will not infringe any issued patent or any patent that issues in the future from
an application that is currently pending with any of the PTOs, or will not
infringe any other right of any third party. To date, there have been no
interruptions in the Company's business as the result of any claim of patent
infringement. However, no assurance can be given that the Company will not be
adversely affected by the assertion of intellectual property rights belonging to
others. The Company has not obtained an opinion from its patent counsel that the
Company's products do not infringe on the rights of others. The effects of
assertion of patent rights of third parties could include requiring the Company
to alter or withdraw existing products, delaying or preventing the introduction
of products, or forcing the Company to pay damages if the products have been
introduced. See "-- Litigation" and "Business -- Legal Proceedings."
GLOBAL ESTABLISHMENT OF TEGRA-TM- BRAND
The Company's business strategy includes the global use of the TEGRA brand
name. Successfully implementing this strategy requires that the Company create
recognition of the TEGRA brand, which is new to the golf industry and establish
trademark rights in the TEGRA and TEGRA T (and design) marks. Implementing this
strategy requires the commitment of substantial financial resources. There can
be no assurance that the proceeds of this Offering will be sufficient to
implement this strategy or that the Company will be able to obtain any
additional financing on acceptable terms or at all.
RISK OF RETAILERS' REFUSAL TO PLACE OR MAINTAIN TEGRA RETAIL ENVIRONMENTS
A significant component of the Company's corporate strategy is the
installation of TREs within stores of the Company's targeted Tegra retailers.
There can be no assurance, however, that such retailers will be willing to place
the TREs in their stores, or that, if such TREs are installed, their performance
will meet the Company's expectations. Moreover, there can be no assurance that,
if such TREs are installed, the retailers will agree to keep such TREs in place.
This risk is particularly high when, as is currently the case, the Company may
not have the resources to provide advertising and other marketing support to the
retailers in maintaining the TREs. The Company's failure to persuade such
retailers to place or keep TREs in their stores, or the failure of such TREs to
perform up to their expectations, would have a material adverse effect on the
Company's business.
COMPETITION
The Company will face intense competition for customers because the golf
equipment and apparel industry is highly competitive and is characterized by the
frequent introduction of new products. The
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Company's competitors consist of several well established domestic and foreign
companies, the substantial majority of which have significantly greater
financial resources than the Company, longer operating histories in the golf
industry, well established reputations, and marketing, distribution and service
networks, larger product lines than the Company, and greater management and
technical resources. Accordingly, many of these competitors will have greater
financial resources to devote to areas such as advertising, marketing and club
development, and consequently the cost of entry into the golf market is higher
than in many markets. A manufacturer's ability to compete is in part dependent
upon its ability to satisfy various subjective requirements of golfers,
including the golf club's "look" and "feel" and the level of acceptance that the
golf club has among professional and other golfers. Additionally, the apparel
industry is driven by, among other factors, fashion considerations and no
assurance can be given that the Company's designs will be accepted by consumers
or preferred by consumers over other companies' products.
SOURCES OF SUPPLY
As is the case with most golf club manufacturers, the Company will import
club heads and other components from companies in Asia, including companies
located in mainland China. In the event that the Company should fail to
establish adequate sources of supply, lose its sources of supply for these
materials and components, or experience delays in receiving delivery from such
sources, the Company would sustain shortages of materials and components and
incur delays in meeting delivery deadlines. The Company would also experience
such difficulties in the event that any supplier was unable or unwilling to meet
the Company's requirements. Any of these occurrences could have a material
adverse effect on the Company's operating results. Additionally, the Company
faces certain risks associated with importing goods from other countries such as
the risk of currency fluctuations, government imposed quotas, work stoppages,
political instability and the difficulty in enforcing contracts.
The Company relies on a limited number of suppliers for a significant
portion of the component parts used in the manufacture of its golf clubs. The
Company could in the future experience shortages of components or periods of
increased price pressures, which could have a material adverse effect on the
Company's business, operating results or financial condition. In addition,
failure to obtain adequate supplies or fulfill customer orders on a timely basis
could have a material adverse effect on the Company's business, operating
results or financial condition.
SEASONALITY; DISCRETIONARY CONSUMER SPENDING
Golf is generally regarded as a warm weather sport and accordingly, sales of
golf equipment reflect a seasonality of market demand and have historically been
strongest in the first and second quarters of each year with the weakest sales
occurring during the fourth quarter. Due to the seasonality of the industry,
results from any one or more quarters are not necessarily indicative of annual
results or continuing trends. Additionally, quarterly results may vary from year
to year due to the timing of new product introductions by both the Company and
its competitors, advertising expenditures, promotional periods; competitive
pressures resulting in lower than expected average selling prices; and the
volume of orders that are received and that can be fulfilled in a quarter.
Additionally, due to the outdoor nature of the sport, golf sales are influenced
by the weather and inclement or unseasonable weather conditions can adversely
affect the Company's operating results. In addition, sales of golf clubs are
dependent on discretionary consumer spending, which may be affected by general
economic conditions. A decrease in consumer spending generally could result in
decreased spending on golf equipment, which could have a material adverse effect
on the Company's business, operating results and financial condition. Any one or
more of the above factors could result in the Company failing to achieve its
expectations as to future sales or net income.
Because in the short term most operating expenses are relatively fixed, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate in the event of any unexpected sales shortfall. Any such failure by
the Company could materially adversely affect quarterly results of operations.
If technological advances by competitors or other competitive factors require
the Company to invest
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<PAGE>
significantly greater resources than anticipated in research and development or
sales and marketing efforts, the Company's business, operating results or
financial condition could be materially adversely affected. Accordingly, the
Company believes that comparisons of its results of operations on a period to
period basis should not be relied upon as an indication of future performance.
Additionally, the results on any quarter are not indicative of results to be
expected for a full fiscal year. Fluctuations in operating results or any of the
numerous other factors discussed above or below may result in certain future
quarters in the Company's results of operations may be below the expectations of
public market analysts or investors. In these events, the market price of the
Common Stock and Warrants would be materially adversely affected.
RESPONSIBILITY FOR MARKDOWNS
In the apparel industry, the prices of products that are not sold by
retailers in a timely manner are often marked down. It is customary in the
industry for the seller of such products to share markdown costs with the
retailers and the Company anticipates that it will share such costs with, to the
extent they are incurred by, its major customers in order to maintain its
relationships with such customers.
POTENTIAL ACQUISITIONS
The Company may in the future utilize a portion of the net proceeds of the
Offering to pursue acquisitions of complementary services or businesses. Future
acquisitions may result in potentially dilutive issuances of equity securities,
the incurrence of additional debt, the write-off of costs, and the amortization
of expenses related to goodwill and other intangible assets, all of which could
have a material adverse effect on the Company's business, operating results and
financial condition. Future acquisitions would involve numerous additional
risks, including difficulties in the assimilation of the operations, services
and personnel of the acquired company, the diversion of management's attention
from other business concerns, entering markets in which the Company has little
or no direct prior experience and the potential loss of key employees of the
acquired company. The Company has not consummated any acquisitions and currently
has no agreements or understandings with regard to any acquisitions.
Shareholders will not vote on any potential acquisitions (unless required by
NASDAQ regulations or applicable law) nor have the opportunity to review any
potential acquisition candidate. See "-- Representative's Influence Over
Potential Future Capital Financing."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds of the Offering for working
capital and general corporate purposes, including potential acquisitions.
Accordingly, the Company will have broad discretion with respect to the use of
the net proceeds of the Offering. Purchasers of Common Stock in the Offering
will not have the opportunity to evaluate the economic, financial or other
information that the Company will use to determine the application of such
proceeds. See "Use of Proceeds."
LISTING AND MAINTENANCE CRITERIA FOR NASDAQ SYSTEM; "PENNY STOCK" REGULATIONS.
The National Association of Securities Dealers, Inc. (the "NASD"), which
administers Nasdaq, requires, among other things, for a company's securities to
be listed on the Nasdaq SmallCap Market, that the Company have at least
$4,000,000 in total assets and a $5,000,000 market value of the public float.
Further, initial listing requires three market makers and a minimum bid price of
$4.00 per share. Continued inclusion in the Nasdaq SmallCap Market currently
requires two market makers and a minimum bid price of $1.00 per share and a
market value of the public float of at least $1,000,000 among other
requirements. If the Company fails to maintain the Nasdaq minimum threshold
requirements, it would lose Nasdaq listing and trading, if any, in the
securities would be conducted in the over-the-counter market known as the NASD
OTC Electronic Bulletin Board, or more commonly referred to as "pink
16
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sheets." As a result, an investor may find it more difficult to dispose of, or
to obtain accurate quotations as to the market value of, the Company's Common
Stock.
The Commission has adopted regulations which generally define "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. If the Class A Common Stock and Warrants are accepted for
quotation on Nasdaq, they will initially be exempt from the definition of "penny
stock." If the Class A Common Stock and Warrants are later removed from listing
by Nasdaq and are traded at a price below $5.00, the Class A Common Stock and
Warrants may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such Class A Common Stock and Warrants
to persons other than established customers and institutional accredited
investors. For transactions covered by these rules, the broker-dealer must make
a special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities, and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Class A Common Stock and
Warrants and may affect the ability of purchasers in this Offering to sell the
Class A Common Stock and Warrants in the secondary market.
REPRESENTATIVE'S INFLUENCE OVER POTENTIAL FUTURE CAPITAL FINANCING
The Company has agreed that for a period of 24 months from the date of this
Prospectus, it will not sell or otherwise dispose of any of its securities (with
the exception of the shares of Common Stock issued upon exercise of currently
outstanding options or warrants, and options granted under the Company's 1996
Incentive and Non-qualified Stock Option Plan or the Company's 1998 Incentive
and Non-qualified Stock Option Plan) without the Representative's prior written
consent. The Company has also agreed that, for a period of 24 months from the
date of this Prospectus, it will not sell or issue any of its securities
pursuant to Regulation S under the Securities Act nor any preferred stock
without the Representative's prior written consent. These agreements represent
significant potential restrictions on the Company's ability to raise capital or
consummate any merger or acquisition through the sale or issuance of the
Company's securities. Should the Company need to raise capital or complete a
merger or acquisition transaction through the sale or issuance of its securities
within the applicable time frame of these agreements, the refusal of the
Representative to grant its consent would have a material adverse effect on the
Company. The Representative has informed the Company that these agreements are
for the purpose of encouraging the Company not to issue additional securities on
terms that would be dilutive to investors who participate in this Offering,
although there can be no assurance that additional sales of securities that may
have dilutive effects will not occur. The Representative has further advised the
Company that in determining whether consent will be granted the Representative
will consider on a case-by-case basis, in addition to the potential dilution to
existing shareholders, a number of factors, including the Company's current need
for additional financing, the purposes for which the financing is sought, the
cost and availability of alternative sources of non-equity financing and, in the
case of a proposed acquisition, the type of business to be acquired, its
relation to the Company's current business and the existence of alternative
methods of financing the transaction. See "Underwriting."
17
<PAGE>
REPRESENTATIVE'S INFLUENCE THROUGH ABILITY TO SELECT A DIRECTOR
The Company has agreed with the Representative that, promptly after the
completion of this Offering, the Company will increase to five the number of
individuals serving on the Company's Board of Directors. In addition, the
Company has agreed with the Representative that, for a period of five years
following the completion of the Offering, it will use its best efforts to cause
the election to its Board of Directors, one designee of the Representative. This
agreement will, as a practical matter, allow the Representative to continue to
influence the management of the Company for a period of five years.
PAYMENTS TO AFFILIATES
The Company plans to use approximately $782,500 from the proceeds of the
Offering to repay outstanding loans to certain stockholders. These stockholders
currently hold Class A and Class B Common Stock of the Company as well as
options and/or warrants to purchase additional shares in the following amounts
and exercise prices. Paul H. Berger, the co-founder, Chairman of the Board of
Directors, and Chief Executive Officer of the Company, will receive
approximately $170,000. He currently owns 1,305,120 shares of the Class B Common
Stock of the Company, 125,000 shares of the Class A Common Stock of the Company
and has options to purchase 19,577 shares of Class A Common Stock at the
exercise price of $0.225 per share. Jim G. Dodrill II, the co-founder,
President, General Counsel, and a Director of the Company, will receive
$102,500. He currently owns 159,833 shares of the Class B Common Stock of the
Company, 25,000 shares of Class A Common Stock of the Company and has options to
purchase 336,510 shares of Class A Common Stock at an average exercise price of
$1.76 per share. Stanley Berger, father of Paul Berger and a member of the
Company's Advisory Board, will receive $510,000. He currently owns none of the
Class A or Class B Common Stock of the Company, but has warrants to purchase
108,002 shares of Class A Common Stock at an average exercise price of $1.73 and
an option to purchase 4,444 of Class A Common Stock shares at the exercise price
of $2.75 per shares. See "Use of Proceeds" and "Certain Transactions."
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon completion of this Offering, Messrs. Berger and Dodrill will own 100%
of the outstanding Class B Common Stock which together with their shares of
Class A Common Stock and presently exercisable options represents approximately
36.7% of the outstanding Class A and Class B Common Stock of the Company,
assuming no exercise of options, warrants or the over-allotment option. Although
no voting arrangement exists among them, the Company's principal stockholders
and current management will, as a practical matter, be able to control the
outcome of most matters submitted for shareholder approval including the
election of directors and amendments to the Company's Certificate of
Incorporation and otherwise direct the affairs of the Company. See "Principal
and Selling Shareholders."
FUTURE SALES OF CLASS A COMMON STOCK PURSUANT TO RULE 144
The 2,566,771 shares of Class A and Class B Common Stock issued prior to
this Offering are "restricted securities" as that term is defined by Rule 144
under the Securities Act, and in the future, may be sold in compliance with Rule
144 or pursuant to an effective registration statement. The 1,305,120 shares of
Class B Common Stock owned by Mr. Berger and the 159,833 shares of Class B
Common Stock owned by Mr. Dodrill are subject to the provisions of an agreement
between the Company, the Representative and Messrs. Berger and Dodrill pursuant
to which the Company has agreed not to register the Class B Common Stock for
sale by either Mr. Berger or Mr. Dodrill. Ordinarily, under Rule 144, a person
who has beneficially owned restricted securities for a period of one year may,
every three months, sell in brokerage transactions an amount that does not
exceed the greater of (i) 1% of the outstanding number of shares of a particular
class of such securities or (ii) the average weekly trading volume in such
securities on all national exchanges and/or reported through the automated
quotation system of a registered securities association during the four weeks
prior to the filing of a notice of sale by a securities holder. In the future,
18
<PAGE>
sales of restricted stock pursuant to Rule 144 may have an adverse effect on the
market price of the Company's Class A Common Stock should a public trading
market develop for such shares.
Prior to this Offering, there has been no market for the Class A Common
Stock. The Company can make no prediction as to the effect, if any, that sales
of shares of Class A Common Stock, or the availability of such shares for sale,
will have on the market price of Class A Common Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Class A Common Stock in the
public market could adversely affect prevailing market prices.
SUBSTANTIAL SHARES OF CLASS A COMMON STOCK RESERVED FOR ISSUANCE PURSUANT TO
STOCK OPTION PLAN
The Company has reserved 1,150,000 and 800,000 shares of Class A Common
Stock for issuance to employees, officers, directors, and consultants pursuant
to option exercises under the Company's 1996 Incentive and Non-qualified Stock
Option Plan and the Company's 1998 Incentive and Non-qualified Stock Option
Plan, respectively. To date, the Company has granted options to purchase a total
of 823,688 shares of Class A Common Stock, at prices ranging from $0.225 to
$9.20 per share. The existence of these options may be perceived as an overhang
on the market and therefor may prove to be a hindrance to the Company's future
equity financing. Sales in the public market of substantial amounts of Class A
Common Stock, or the perception that such sales could occur, could depress
prevailing market prices for the Class A Common Stock. See "Management -- Stock
Option Plans," "Certain Transactions" and "Underwriting."
POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of preferred stock, $0.01 par value per share ("Preferred
Stock"), with designations, rights, and preferences determined from time to time
by its Board of Directors. Accordingly, the Company's Board of Directors is
empowered, without stockholder approval, to issue Preferred Stock with
dividends, liquidation, conversion, voting, or other rights that could adversely
affect the voting power or other rights of the holders of Class A Common Stock.
In the event of issuance, the Preferred Stock could be used, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. See "-- Representative's Influence Over Potential Future
Capital Financing" and "Description of Securities."
SUBSTANTIAL DILUTION; DISPROPORTIONATE CONSIDERATION PAID BY NEW SHAREHOLDERS
Based upon the net tangible book value of the Company at July 31, 1998,
investors in this Offering will suffer an immediate and substantial dilution of
their investment of approximately $5.39 or 77% in net tangible book value per
share. The cash consideration paid by new investors in this Offering is 87.51%
of the total consideration paid for the securities of the Company that will be
outstanding after this Offering. To the extent outstanding options or warrants
to purchase the Company's Class A Common Stock are exercised, there will be
further dilution. See "Dilution."
LACK OF PRIOR MARKET FOR THE CLASS A COMMON STOCK OR WARRANTS
Prior to this Offering, there has been no public trading market for the
Class A Common Stock or Warrants and there can be no assurances that a public
trading market for the Class A Common Stock or Warrants will develop or, if
developed, will be sustained. Although the Company has applied to list the Class
A Common Stock and Warrants on the NASDAQ SmallCap Market, there can be no
assurance that a regular trading market will develop for the Class A Common
Stock or Warrants offered hereby, or, if developed, that it will be maintained.
If for any reason the Company fails to maintain sufficient qualifications for
continued listing on the NASDAQ SmallCap Market or a public trading market does
not develop, purchasers of the Class A Common Stock or Warrants may have
difficulty selling their Class A Common Stock or Warrants should they desire to
do so.
19
<PAGE>
ARBITRARY DETERMINATION OF OFFERING PRICE AND WARRANT EXERCISE PRICE
The initial public offering price of the Class A Common Stock and the
Warrants and the Warrant exercise price have been determined by negotiations
between the Company and the Representative and do not necessarily bear any
relationship to the Company's assets, net worth or results of operations, or any
other established criteria of value. The offering price set forth on the cover
page of this Prospectus should not be considered an indication of the actual
value of the Class A Common Stock and Warrants offered hereby. After completion
of this offering, such price may vary as a result of market conditions and other
factors. See "Description of Securities" and "Underwriting."
IMPACT ON MARKET OF WARRANT EXERCISE
In the event of the exercise of a substantial number of Warrants at the
Warrant exercise price within a reasonably short period of time after the right
to exercise commences, the resulting increase in the amount of Class A Common
Stock of the Company in the trading market could materially adversely affect the
market price of the Class A Common Stock. Futhermore, in the event of a
redemption of the Warrants, Selling Warrantholder Warrants will cease to be
subject to any lock-up restrictions and will be fully tradeable and the shares
of Class A Common Stock underlying such Warrants will also be freely tradeable
upon exercise of such Warrants. This increase in the number of Warrants and/or
Shares of Class A Common Stock could materially adversely affect the market
price of the Class A Common Stock and/or the Warrants. See "Description of
Securities -- Warrants."
RISK OF WARRANT CALL TO WARRANTHOLDERS
The one million Warrants for sale in this Offering will be immediately
exercisable. Furthermore, in the event of a redemption of the Selling
Warrantholders' Warrants by the Company, an additional 1.75 million Warrants
will be immediately exercisable. The resulting increase in the number of
exercisable Warrants could materially adversely affect the market price of the
Warrants sold in this Offering. The Warrants will be exercisable immediately
upon issuance at a price per share of 115% of the initial public offering price
of the Class A Common Stock for a period of three years and will be redeemable
by the Company at a redemption price of $0.125 per Warrant at such time as the
price per share of the Class A Common Stock reaches 120% of the initial public
offering price of the Class A Common Stock for ten consecutive trading days. If
the Company redeems the Warrants before the Warrantholders exercise their right
of purchase, then the Warrantholders will be entitled to receive only the
redemption price, $0.125 per Warrant. Because the difference in exercise price
and redemption price of the Warrants is narrow, there is a substantial risk that
the Warrantholders will have limited opportunity to exercise their Warrants.
ADJUSTMENTS TO WARRANT EXERCISE PRICE AND EXERCISE DATE
The Company, in it sole discretion, may reduce the exercise price of the
Warrants and/or extend the time within which the Warrants may first be
exercised. Further, in the event the Company issues certain securities or makes
certain distributions to shareholders, the exercise price of the Warrants may be
reduced. Any such price reductions (assuming exercise of the Warrants) will
provide less money for the Company and possibly materially adversely affect the
market price of the Class A Common Stock and Warrants.
REDEMPTION OF REDEEMABLE WARRANTS
The Warrants are subject to redemption by the Company, at any time, at a
price of $0.125 per Warrant upon 30 days prior written notice to the holders
thereof, if the average closing bid price for the Class A Common Stock equals or
exceeds 120% of the initial public offering price for the Class A Common Stock
for ten consecutive trading days. In the event that the Warrants are called for
redemption by the Company, holders thereof will have 30 days during which they
may exercise their rights to purchase shares of Class A
20
<PAGE>
Common Stock. In the event a current prospectus is not available, the Warrants
may not be exercised and the Company will be precluded from redeeming the
Warrants. If holders of the Warrants elect not to exercise them upon notice of
redemption thereof, and the Warrants are subsequently redeemed prior to
exercise, the holders thereof would lose the benefit of the difference, if any,
between the market price of the underlying Class A Common Stock as of such date
and the exercise price of such Warrants, as well as any possible future price
appreciation in the Class A Common Stock. As a result of an exercise of the
Warrants, existing shareholders would be diluted and the market price of the
Class A Common Stock may be adversely affected. If holders of the Warrants fail
to exercise their rights under the Warrants prior to the date set for
redemption, then they will be entitled to receive only the redemption price,
$0.125 per Warrant. See "Description of Securities -- Warrants."
POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE CLASS A COMMON STOCK
AND WARRANTS
Although they have no legal obligation to do so, the Underwriters from time
to time may act as market makers and otherwise effect transactions in the Class
A Common Stock and Warrants. Unless granted an exemption by the Securities and
Exchange Commission (the "Commission") from Rule 103 of Regulation M under the
Exchange Act, the Underwriters will be prohibited from engaging in any market
making activities or solicited brokerage activities with respect to the Class A
Common Stock and Warrants for the period from five business days prior to any
solicitation of the exercise of any Warrant or five business days prior to the
exercise of any Warrant based on a prior solicitation until the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right the Underwriters may have to receive such a fee for the
exercise of the Warrants following such solicitation. As a result, the
Underwriters may be unable to continue to provide a market for the Class A
Common Stock and Warrants during certain periods while the Warrants are
exercisable. The prices and liquidity of the Class A Common Stock and Warrants
may be materially and adversely affected by the cessation of the Underwriters
market making activities. In addition, there is no assurance that the
Underwriters will continue to be market makers in the Class A Common Stock and
Warrants. The prices and liquidity of the Class A Common Stock and Warrants may
be affected significantly by the degree, if any, of the Underwriters'
participation in the market. The Underwriters may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the Class
A Common Stock and Warrants may be adversely affected by the fact that a
significant amount of the Class A Common Stock and Warrants may be sold to
customers of the Underwriters. See "Underwriting."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION WITH THE
EXERCISE OF THE WARRANTS
The Company will be able to issue shares of its Class A Common Stock upon
the exercise of the Warrants only if (i) there is a current prospectus relating
to the Class A Common Stock issuable upon exercise of the Warrants under an
effective registration statement filed with the Commission and (ii) such Class A
Common Stock is then qualified for sale or exempt therefrom under applicable
state securities laws of the jurisdictions in which the various holders of
Warrants reside. Although the Company will undertake to use its best efforts to
maintain the effectiveness of a current prospectus covering the Class A Common
Stock subject to the Warrants offered hereby, there can be no assurance that the
Company will be successful in doing so. After a registration statement becomes
effective, it may require continuous updating by the filing of post-effective
amendments. A post-effective amendment is required (i) when, for a prospectus
that is used more than nine months after the effective date of the registration
statement, the information contained therein (including the audited financial
statements) is as of a date more than 16 months prior to the use of the
prospectus, (ii) when facts or events have occurred which represent a
fundamental change in the information contained in the registration statement,
or (iii) when any material change occurs in the information relating to the plan
of distribution of the securities registered by such registration statement. The
Company anticipates that this Registration Statement will remain effective for
at least nine months following the date of this Prospectus, assuming a
post-effective amendment is not filed by the Company. The Company intends to
qualify the sale of the Class A Common Stock and Warrants in a
21
<PAGE>
limited number of states, although certain exemptions under certain state
securities laws may permit the Warrants to be transferred to purchasers in
states other than those in which the Warrants were initially qualified. The
Company will be prevented, however, from issuing Class A Common Stock upon
exercise of the Warrants in those states where exemptions are unavailable and
the Company has failed to qualify the Class A Common Stock upon exercise of the
Warrants. The Company may decide not to seek, or may not be able to obtain,
qualification of the issuance of such Class A Common Stock in all of the states
in which the ultimate purchasers of the Warrants reside. In such a case, the
Warrants of those purchasers will expire and have no value if such Warrants
cannot be exercised or sold. Accordingly, the market for the Warrants may be
limited because of the foregoing requirements. See "Description of Securities."
REPRESENTATIVE'S WARRANTS
In connection with the Offering, the Company will sell to the
Representative, for nominal consideration, warrants to purchase an aggregate of
250,000 shares of Class A Common Stock and 50,000 Warrants. The Representative's
Warrants will be exercisable for a period of four years, commencing one year
after the effective date of the Registration Statement of which this Prospectus
is a part, at an exercise price of 120% of the initial public offering price of
the Class A Common Stock and Warrants. The holder of the Representative's
Warrants will have the opportunity to profit from a rise in the market price of
the Securities, if any, without assuming the risk of ownership. The Company may
find it more difficult to raise additional equity capital if it should be needed
for the business of the Company while the Representative's Warrants are
outstanding. At any time when the holder thereof might be expected to exercise
them, the Company would probably be able to obtain additional capital on terms
more favorable than those provided by the Representative's Warrants.
The Representative has demand and "piggyback" registration rights with
respect to the Class A Common Stock owned by the Representative, the
Representative's Warrants and the Class A Common Stock and Warrants issuable
upon exercise of the Representative's Warrants. Any future exercise of these
registration rights may cause the Company to incur substantial expense and could
impair the Company's ability to raise capital through the public sale of its
securities. See "Dilution," "Shares Available for Future Sale" and
"Underwriting."
NO DIVIDENDS ANTICIPATED
The Company has never paid any dividends. It expects that it will retain its
earnings, if any, for the foreseeable future to finance its operations and will
not pay dividends to investors.
LIMITED LIABILITY OF DIRECTORS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation eliminated personal liability of a director to the
Company and its stockholders for monetary damages for breach of fiduciary duty
as a director, except in certain circumstances. Accordingly, stockholders may
have limited rights to recover money damages against the Company's directors for
breach of fiduciary duty.
22
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
of Class A Common Stock and Warrants offered by the Company hereby are estimated
at approximately $15,362,500, based on an assumed initial public offering prices
of $7.00 per shares of Class A Common Stock and $0.125 per Warrant
(approximately $16,009,375 if the Underwriters' over-allotment option is
exercised in full). The Company expects such net proceeds (assuming no exercise
of the Underwriters' over-allotment option) to be utilized in approximately the
manner set forth in the following table:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ------------------------------------------------------------------------ -------------- -------------------------
<S> <C> <C>
Repayment of existing bridge debt (1)................................... $ 6,062,500 39.46%
Purchase of Inventory................................................... 1,950,000 12.69
Advertising and Marketing............................................... 1,750,000 11.39
Purchase of Fixed Assets................................................ 200,000 1.30
Working capital and general corporate purposes (2)...................... 5,400,000 35.16
-------------- ------
Total............................................................... $ 15,362,500 100.00%
-------------- ------
-------------- ------
</TABLE>
- --------------------------
(1) Of the $6,062,500, $1,360,000 was loaned at an interest rate of 12.5% and
$525,000 was loaned at an interest rate of 15%. The remainder was loaned
without a term interest rate, but with an option to receive a $3,125
lump-sum payment per $50,000 of indebtedness. The maturity date for
$1,975,000 of the bridge debt is September 30, 1998, and for $3,505,000 of
the bridge debt the maturity date is October 15, 1998. See "Risk Factors --
Lack of Cash." Of the $6,062,500, $4,630,000 was received within the past
year and the proceeds were used for payroll and benefits, rent, utilities,
acquisition of inventory, distribution costs, manufacturing costs,
advertising costs and other overhead expenses. In addition, $272,500
consisted of advances from officers. Of the $6,062,500, approximately
$782,500 will be used to repay affiliates of the Company. See "Certain
Transactions."
(2) Includes payroll and benefits, rent, utilities, acquisition of inventory,
distribution costs, manufacturing costs, advertising costs and other
overhead expenses.
A portion of the net proceeds may be used for acquisitions. Although the
Company is engaged from time to time in discussions relating to possible
acquisitions, the Company presently has no agreements, understandings or
commitments with respect to any acquisitions. The foregoing represents the
Company's current estimate of its allocation of the net proceeds of this
Offering based upon the current status of its business operations, its current
plans, and current economic and industry conditions. Future events, as well as
changes in economic or competitive conditions or the Company's business and the
results of the Company's sales and marketing activities, may make different uses
of funds necessary or desirable. The Company will require the consent of the
Representative to engage in any such transations. See "Risk Factors --
Representative's Influence Over Potential Future Capital Financing."
If the Underwriters exercise the over-allotment option in full, the Company
will realize additional net proceeds of approximately $646,875, which will be
added to the Company's working capital.
The Company believes that the proceeds of this Offering, together with cash
flow from operations, will be sufficient to satisfy its contemplated cash
requirements for the next 18 months. The Company's financial requirements will
depend upon, among other things, the growth rate of the Company's business, the
amount of cash flow generated by operations and the company's ability to borrow
funds to produce inventory or for working capital purposes. Should the Company
require additional debt or equity financing to support its operations, there can
be no assurance that such additional financing will be available to the Company
on commercially reasonable terms, or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short term
certificates of deposit, money market funds or other short-term interest bearing
investments.
The Company anticipates that the proceeds, if any, received from any
exercise of the Warrants or the Underwriters' Warrants (or the Warrants included
therein) will be utilized for working capital and other corporate purposes.
23
<PAGE>
DILUTION
The difference between the initial public offering price per share of Class
A Common Stock and the pro forma net tangible book value per share of Class A
Common Stock after this Offering constitutes the dilution to investors in this
Offering. Net tangible book value per share is determined by dividing the net
tangible book value of the Company (total assets less intangible assets and
liabilities) by the total number of shares of Class A and Class B Common Stock
outstanding.
At July 31, 1998 the net tangible deficit of the Company was ($7,196,694),
or approximately ($2.80) per share. After giving effect to the sale by the
Company of the 2,500,000 shares of Class A Common Stock in this Offering (at an
assumed offering price of $7.00 per share) and the 1,000,000 Warrants in this
Offering (at an assumed offering price of $.125 per Warrant) and the Company's
use of the estimated net proceeds therefrom as set forth under "Use of
Proceeds," the pro forma net tangible book value of the Class A Common Stock at
July 31, 1998 would have been $8,165,806 or approximately $1.61 per share. This
represents an immediate pro forma increase in net tangible book value of $4.41
per share to the Company's present shareholders and an immediate pro forma
dilution of $5.39 per share to the purchasers of shares of Class A Common Stock
in this Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price (per share of Class
A Common Stock) (1)..................................... $ 7.00
Net tangible deficit per share at July 31, 1998........... $ (2.80)
Increase per share attributable to shares offered
hereby.................................................. $ 4.41
---------
Pro forma net tangible book value per share after the
Offering................................................ $ 1.61
---------
Dilution of net tangible book value per share to
purchasers in this Offering (2)......................... $ 5.39
---------
---------
</TABLE>
- ------------------------
(1) Represents the assumed initial public offering price per share of Class A
Common Stock before deduction of the underwriting discount and estimated
expenses of the Offering.
(2) Assuming no exercise of Warrants or the Underwriters' over-allotment option.
See "Description of Securities" and "Underwriting."
The following table sets forth on a pro forma basis as of July 31, 1998, the
number and percentage of shares of Class A and Class B Common Stock issued, and
the amount and percentage of consideration and average price per share paid by
existing shareholders of the Company, and to be paid by purchasers pursuant to
this Offering (based upon an assumed initial public offering price of $7.00 per
share of Class A Common Stock and before deducting the underwriting discount and
estimated expenses of this Offering):
<TABLE>
<CAPTION>
OWNERSHIP
---------------------- CONSIDERATION
NUMBER ------------------------- AVERAGE PRICE
OF SHARES PERCENT AMOUNT PERCENT PER SHARE
---------- ---------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders.......................... 2,566,771 50.66% $ 2,497,246 12.49% $ 0.97
New Shareholders............................... 2,500,000 49.34% 17,500,000 87.51% $ 7.00
---------- ---------- ------------- ----------
Total.................................... 5,066,771 100.00% $ 19,997,246 100.00% $ 3.95
---------- ---------- ------------- ----------
---------- ---------- ------------- ----------
</TABLE>
The foregoing table gives effect to the sale of the shares of Class A Common
Stock offered hereby and does not give effect to the exercise of the
Underwriters' over-allotment option, any Warrants or the Underwriters' Warrants.
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1998 and as adjusted giving effect to the sale by the Company of the
2,500,000 shares of Class A Common Stock and 1,000,000 Warrants offered hereby.
The table has not been adjusted to give effect to the exercise of the
Underwriter's over-allotment option, the exercise of the Warrants, or the
exercise of the Underwriters' Warrants. This table should be read in conjunction
with the Financial Statements, including the notes thereto, appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1998
-----------------------------
PRO FORMA AS
ACTUAL ADJUSTED(1)
------------- --------------
<S> <C> <C>
Cash............................................................................... $ 1,621 $ 9,301,621
------------- --------------
Advances from officers............................................................. 272,500 --
------------- --------------
Notes payable...................................................................... 5,865,000 75,000
------------- --------------
Shareholders' deficit:
Common Stock, par value $0.01 per share, (8,100,000 shares authorized, 2,566,771
shares issued and 2,516,771 outstanding; as adjusted, 5,066,771 shares issued
and 5,016,771 outstanding) (2)................................................. 25,668 50,668
Treasury Stock -- 50,000 shares.................................................... (19,300) (19,300)
Additional paid-in capital....................................................... 2,718,329 17,893,329
Warrants......................................................................... -- 162,500
Accumulated deficit.............................................................. (9,921,391) (9,921,391)
------------- --------------
Total shareholders (deficit) equity.......................................... (7,196,694) 8,165,806
------------- --------------
Total capitalization......................................................... $ (1,057,573) $ 17,542,427
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) Assumes (i) an initial public offering price of $7.00 per share and $0.125
per Warrant, (ii) deduction of underwriting commissions assumed to be 10%,
estimated offering expenses payable by the Company of $500,000 and repayment
of $5,790,000 of indebtedness and $272,500 of advances from officers, and
(iii) an estimated value of the Representative's Warrant of $37,500.
(2) Does not include (i) the 1,000,000 shares of Class A Common Stock issuable
upon the exercise of the Warrants offered hereby, (ii) the 100,000 shares of
Class A Common Stock and 150,000 Warrants issuable upon exercise of the
Underwriters' over-allotment option, (iii) the 150,000 shares of Class A
Common Stock issuable upon exercise of the Warrants included in the
Underwriters' over-allotment option, (iv) the 250,000 shares of Class A
Common Stock and the 50,000 Warrants issuable upon exercise of the
Representative's Warrants (or the 50,000 shares of Class A Common Stock
issuable upon exercise of the Warrants included therein), (v) 2,036,170
shares of Class A Common Stock issuable upon the exercise of stock options
and warrants outstanding on the date hereof.
DIVIDEND POLICY
The Company intends to retain any future earnings for the operation and
expansion of its business and does not anticipate paying any cash dividends in
the foreseeable future. Any future determination as to the payment of cash
dividends will depend upon a number of factors, including the Company's
earnings, capital requirements, financial condition and other factors considered
relevant by the Company's Board of Directors.
25
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data, insofar as it relates to the period
February 8, 1996 (inception) to January 31, 1998 and the year ended January 31,
1998, has been derived from the Company's financial statements, including the
balance sheets at January 31, 1997 and 1998 and the related statements of
operations, of changes in shareholders' deficit and of cash flows for the
periods then ended, and notes thereto appearing elsewhere herein. The data for
the six months ended July 31, 1997 and 1998 has been derived from unaudited
financial statements also appearing herein and which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim periods. The selected financial data should be read in conjunction with
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and notes thereto appearing
elsewhere herein. The results of operations for the six months ended July 31,
1998 are not necessarily indicative of future results.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 8,
1996 FOR THE YEAR FOR THE SIX MONTHS ENDED
(INCEPTION) TO ENDED JULY 31,
JANUARY 31, JANUARY 31, ----------------------------
1997 1998 1997 1998
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................................ $ -- $ 741,120 $ 267,547 $ 440,474
Costs of sales..................................... -- 859,317 300,028 520,179
Research and development........................... 650,805 451,019 185,078 102,235
Stock-based compensation........................... 473,894 210,130 133,583 --
Selling, general and administrative expenses....... 1,251,009 3,669,657 1,294,715 2,755,609
Total costs and expenses........................... 2,375,708 5,190,123 1,913,404 3,378,023
Loss from operations............................... (2,375,708) (4,449,003) (1,645,857) (2,937,549)
Interest expense................................... (2,844) (244,648) (76,555) (325,636)
Gain on sale of license............................ -- -- -- 413,997
Net loss........................................... $ (2,378,552) $ (4,693,651) $ (1,722,412) $ (2,849,188)
Basic and diluted loss per share of Common Stock... $ (3.24) $ (2.21) $ (1.48) $ (1.17)
Weighted average number of common shares
outstanding (1).................................. 734,330 2,120,460 1,162,539 2,425,197
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, 1998
----------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(2)
------------- -------------
BALANCE SHEET DATA:
Current assets...................................................................... $ 1,135,979 $ 10,435,979
Working (deficit) capital........................................................... $ (7,679,293) $ 7,683,207
Total assets........................................................................ $ 1,658,578 $ 10,958,579
Total liabilities................................................................... $ 8,855,272 $ 2,792,772
Stockholders' (deficit) equity...................................................... $ (7,196,694) $ 8,165,806
</TABLE>
- ------------------------
(1) Adjusted to give retroactive effect to a number of stock splits and reverse
stock splits as described in Note 6 to the Company's Financial Statements
included elsewhere in this Prospectus.
(2) Adjusted to reflect the sale of the 2,500,000 shares of Class A Common Stock
and 1,000,000 Warrants offered by the Company hereby at an assumed public
offering price of $7.00 per share and $.125 per Warrant and the initial
application of the estimated net proceeds to the Company as described under
"Use of Proceeds."
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the Company's financial condition as of and for
the fiscal year ended January 31, 1998 and for the period from February 8, 1996
(inception) through January 31, 1997 and for the Company's results of operations
for the six month periods ended July 31, 1998 and 1997 should be read in
conjunction with the Company's financial statements and notes thereto included
elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Sales during the year ended January 31, 1998 totaled $741,120. There were no
sales during the period February 8, 1996 (inception) to January 31, 1997. Of the
sales during the year ended January 31, 1998, $588,514 were generated by sales
of HiPPO products and $152,606 by sales of Tegra products.
Sales during the six months ended July 31, 1998 totaled $440,474 compared to
sales of $267,547 during the same period in 1997. Of the sales during the six
months ended July 31, 1998, $22,395 were generated by sales of HiPPO products
and $418,079 by sales of Tegra products. The sales recognized during the six
months ended July 31, 1997 represent HiPPO club and apparel sales.
The Company introduced the HiPPO line in July of 1997 and the Tegra line in
October of 1997. Sales during both the year ended January 31, 1998 and the six
months ended July 31, 1998 were negatively impacted because the Company was not
able to purchase inventory to fill customer orders as a result of the Company's
inadequate working capital and lack of open terms with its vendors. The Company
believes that the absence of sufficient working capital has historically
prevented the Company from taking full advantage of demand for its products.
Likewise, the Company believes that the lack of open terms with its vendors
contributed to preventing the Company from meeting this demand.
In May of 1998 the Company sold its license to sell HiPPO products in the
U.S. back to Hippo Holdings, Ltd. along with all existing HiPPO inventory,
marketing materials and related liabilities. In return, the Company received a
cash payment from Hippo Holdings, Ltd. of approximately $413,000. In addition
Hippo Holdings, Ltd. returned to the Company 50,000 shares of the Company's
common stock and assumed commitments of the Company in excess of $1,000,000.
Accordingly, the Company has ceased selling HiPPO products and does not expect
to receive revenue on a going forward basis from such brand.
Costs of sales during the year ended January 31, 1998 totaled $859,317. Of
this amount, approximately $89,343 reflects costs associated with air freighting
goods from manufacturing facilities, which are in Asia, to the Company's
warehouse in Miami, Florida. Cost of sales during the six months ended July 31,
1998 totaled $520,179. Of this amount, $28,895 reflects costs associated with
air freighting goods to the Company's warehouse in Miami, Florida. The cost of
air freight was necessitated by the Company's marginal working capital position
which limited the Company's ability to place orders as far in advance as would
otherwise be desirable or to maintain inventory to support demand. The Company's
shortage of working capital required the Company to attempt to shorten lead
times involved in production and shipping of goods in order to deliver product
as quickly as possible to its customers. Other incremental delivery costs of
$47,787 also adversely impacted cost of sales for the year ending January 31,
1998. Additional production cost variances of $52,218 in material and assembly
charges attributed to smaller production runs and manufacturing carrying charges
than the Company expects would have been the case if it were in a better working
capital position also adversely impacted cost of sales for the year ending
January 31, 1998. Costs of sales in comparison to sales for the year ended
January 31, 1998 was negatively impacted by the liquidation of apparel for
$85,356 with a cost of $151,089. Cost of sales for the six months ended July 31,
1998 were also negatively impacted by a $142,157 provision for liquidation of
apparel.
27
<PAGE>
Research and development costs totaled $451,019 for the year ended January
31, 1998 as compared to $650,805 for the period ended January 31, 1997. This 31%
decrease resulted from reduced spending associated with final development of
Tegra golf equipment.
Research and development costs totaled $102,235 for the six months ended
July 31, 1998 as compared to $185,078 for the six months ended July 31, 1997.
This 45% decrease is attributed primarily to timing in recognition of research
and development costs. The Company expects that its research and development
costs will continue to decline for the rest of fiscal year 1998, but may
increase thereafter as the Company undertakes new projects.
During the year ended January 31, 1998 the Company incurred a royalty
expense of $16,681 to Hippo Holdings, Ltd. in connection with sales of HiPPO
products. Because all such sales have been terminated, the Company will no
longer have any royalty expenses to Hippo Holdings, Ltd.
Selling, general and administrative expenses totaled $3,669,657 for the year
ended January 31, 1998 as compared to $1,251,009 for the period ended January
31, 1997. This increase resulted primarily from increased advertising and
promotion spending and development costs and growth in employment and related
costs.
Selling, general and administrative expenses totaled $2,755,609 for the six
months ended July 31, 1998 as compared to $1,294,715 for the six months ended
July 31, 1997. This 213% increase resulted primarily from increased payroll and
related expenses, advertising and promotion, travel, professional fees and
facilities, supplies and services.
FORECAST
The Company has installed 58 TREs in 55 cities. The Company is in the
process of opening additional accounts and installing additional TREs. The
Company expects to have products available in 300 stores by year end and to open
up to 100 new TREs for Spring, 1999. The Company expects sales of Tegra products
to increase as existing and potential retailers and consumers gain familiarity
with the Tegra brand and the benefits offered by the Company's product lines and
as additional accounts are opened and TREs are installed. The Company plans to
use $1,750,000 of the proceeds from the Offering for marketing and advertising
efforts. See "Use of Proceeds."
The Company anticipates that its cost of goods sold will decrease with
increased volume of purchasing and lower costs associated with shipping product
as the Company's working capital position improves.
The Company anticipates that within the 12 months subsequent to the closing
of the Offering it will hire an additional 20 people. Of these 20 people, 5 are
expected to be hired for sales positions. These individuals will primarily be
territory managers responsible for sales to specific accounts within a defined
geographic region. The Company also anticipates that 5 of these 20 people will
work in customer service and the remaining 10 in support, administrative and
distribution positions.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. As a result, as year 2000
approaches, computer systems and applications used by many companies may need to
be upgraded to comply with "Year 2000" requirements. The Company relies on its
systems in operating and monitoring many significant aspects of its business,
including financial systems (such as general ledger, accounts payable, accounts
receivable, inventory and order management), customer services, infrastructure
and network and telecommunications equipment. The Company also relies directly
and indirectly on the systems of external business enterprises such as
customers, suppliers, creditors, financial organizations and domestic and
international governments. The Company currently estimates that its costs
associated with Year 2000 compliance, including any costs associated with the
consequences of incomplete or untimely
28
<PAGE>
resolution of Year 2000 compliance issues, will not have a material adverse
effect on the Company's business, financial condition or results of operations.
However, the Company has not exhaustively investigated and does not believe it
has fully identified the impact of Year 2000 compliance and has not concluded
that it can resolve any issues that may arise in complying with Year 2000
without disruption of its business or without incurring significant expense. In
addition, even if the Company's internal systems are not materially affected by
Year 2000 compliance issues, the Company could be affected through disruption in
the operation of the enterprises with which the Company interacts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has historically consisted of
sales of equity securities and high yield debt borrowings. During the year ended
January 31, 1998 the Company borrowed $1,870,500 from unaffiliated individuals
at interest rates ranging from 9.4% to 24% and with a weighted average rate of
13.4%. Additionally, the Company borrowed $782,500 from individuals who either
are officers of the Company or are affiliated with or related to officers of the
Company. These borrowings will be repaid from the proceeds of this Offering. See
"Use of Proceeds" and "Certain Transactions."
At January 31, 1998, the Company was in default of the terms of certain
12.5% and 15% unsecured notes payable to private investors which were due during
September 1997. During February 1998, the Company obtained a specific waiver to
extend the maturity of the then outstanding unsecured notes payable through the
earlier of September 30, 1998 or within 5 days after an initial public offering
of the Company's common stock generating in excess of $7.5 million of gross
proceeds.
The Company has developed and implemented strategies to meet ongoing and
future liquidity needs. These strategies include (i) obtaining funds from a
private placement of securities of the Company which was completed in June,
1998; (ii) an initial public offering of the Company's Class A Common Stock and
(iii) arranging for working capital financing on inventory and receivables to
assist in cash flow. The management of the Company believes that these actions
along with a tighter control on overall costs will allow the Company to meet its
liquidity needs for the next 18 months.
Pursuant to the terms of a factoring agreement, the Company assigns
substantially all of its accounts receivable to a factor with recourse. The
Company is able to borrow up to 50% of eligible accounts receivable, as defined,
up to a maximum amount of $1 million. Advances from the factor incur interest at
24% per annum. Receivables assigned to the factor are subject to a charge of
3.0% of the face amount of the receivable. The advances from the factor are
secured by all the Company's assets. During the year ended January 31, 1998, the
Company incurred interest and factoring charges of $10,059 and $7,739,
respectively. The factoring agreement was for an initial term of six months and
renews for successive twelve month periods thereafter, unless cancelled by the
Company or the factor. At January 31, 1998, the Company had received advances of
approximately $115,000 in excess of those permitted under the factoring
agreement, resulting in the Company being in default of such agreement. As a
result of the default, the factor had the right to terminate the agreement and
demand payment of the funds advanced. Subsequent to year end, the Company has
reduced the amounts outstanding under the factoring agreement and is currently
within the borrowing base of such agreement.
The Company has held discussions with a purchase order financing institution
regarding opening a purchase order financing arrangement. The Company has
received a commitment from this institution to enter such an arrangement
conditioned on the Company reducing its accounts payable to within current
reasonable terms. The closing of this Offering will allow the Company to reduce
accounts payable to a point where the Company expects to be able to enter into
such purchase order financing arrangement. See "Use of Proceeds."
One of the Company's most significant commitments is to Ian Woosnam as a
worldwide spokesperson for the Tegra brand. As of July 31, 1998, the Company
owed Mr. Woosnam approximately $550,000 for services rendered since January 1,
1998. If the Company is able to successfully negotiate an endorsement
29
<PAGE>
contract with Mr. Woosnam, the Company expects to pay Mr. Woosnam approximately
$1,150,000 annually during the term of the agreement. The Company currently
expects the term of the agreement to be nine years. See "Business -- Marketing
- -- Endorsements."
SEASONALITY
The business of the Company is subject to seasonal fluctuations.
Historically, companies in the golf industry have seen their greatest sales in
the first half of the calendar year, and the business of the Company is
particularly dependent on sales during these months. Nevertheless, the Company
believes that, in the near term, its sales may not reflect this seasonality
because the opening of new accounts during the second half of 1998 will outweigh
seasonal effects, which the Company expects may increase its sales during this
period.
30
<PAGE>
BUSINESS
GENERAL
The Company is a designer, marketer and manufacturer of premium quality golf
equipment, apparel and accessories under the Tegra brand name. Tegra products
represent a wide range of technologically innovative, premium-priced men's golf
clubs, apparel and accessories that are sold in off-course golf specialty and
on-course pro shops. Tegra golf clubs incorporate the Company's patent-pending
Invisible Inset Hosel (the cylindrical chamber in which the shaft is attached to
the club head), a feature designed to increase the accuracy and distance of golf
shots, and were introduced into the US market in October 1997. In the spring of
1998, the Company began installing dedicated Tegra Retail Environments ("TREs")
in select golf stores across the country and shipping a Tegra men's apparel
line. TREs are defined spaces in golf shops which house the Company's equipment,
apparel and accessories in an integrated, branded selling environment. The
Company has installed 58 TREs in golf stores in 55 cities. The Company is in the
process of opening additional TREs and expects to install up to 100 new TREs for
the Spring, 1999 selling season. Tegra products are now available in over 170
golf shops nationwide and the Company expects they will be available in 300 golf
shops by year end. In addition, the Company expects to have products available
in 1,000 stores by Spring, 1999. Professional golfers Ian Woosnam and Glen Day
began endorsing Tegra products in January, 1998. The Company is currently
negotiating an agreement with Mr. Woosnam for him to continue his endorsement
through December 31, 2006.
GOLF INDUSTRY OVERVIEW
According to the National Golf Foundation ("NGF"), there are approximately
48 million golfers worldwide, including approximately 25 million in the U.S. In
1997, golfers in the U.S. played an estimated 547 million rounds of golf and,
according to the National Sporting Goods Association, are estimated to have
spent $5.8 billion on golf equipment, apparel and accessories. Of the 25 million
U.S. golfers, about 5.2 million, characterized by the NGF as "avid golfers,"
play over 25 rounds of golf per year. The Company believes that avid golfers are
the first to seek out performance-oriented golf equipment and generally drive
golf club product trends.
According to the NFG in 1997, wholesale sales of golf equipment in the U.S.
were approximately $3.9 billion. In addition, wholesale sales of golf clubs
increased at an annual compound growth rate of approximately 10.9% over the
5-year period from 1992 to 1997. The Company believes that sales of golf clubs
will continue to grow in the future due to a number of factors including:
FAVORABLE POPULATION TRENDS. The Company believes that the aging of Baby
Boomers (those born between 1946 and 1964) and the emergence of the Baby
Boomers' children (those born between 1977 and 1995) are likely to increase the
demand for golf products generally. As golfers age, they tend to play golf more
often and spend more money on the sport, particularly in the over-50 age group.
Accordingly, because a majority of Baby Boomers are entering their 40s and 50s,
the Company expects interest in and spending on golf to increase. Further,
because Baby Boomers' children are beginning to enter their 20s, the age most
golfers begin to play the sport, the Company believes they will further increase
their participation in and spending on golf.
INCREASING AVAILABILITY OF GOLF FACILITIES. According to the NGF,
approximately 350 new golf courses will open in the U.S. annually between 1998
and the year 2000. The Company believes that these additional facilities will
make golf more accessible and convenient, leading to a further increase in golf
participation rates.
INCREASING INTEREST FROM NON-TRADITIONAL GOLFERS. The Company believes that
golf has become increasingly attractive to segments of the population that have
not historically been well-represented among golfers. Most notably, Tiger Woods
has made golf more appealing to junior and minority golfers. According to the
NGF, the total number of beginning and junior golfers increased by over 40% in
1997
31
<PAGE>
compared to the previous year. In addition, the success of the Ladies
Professional Golf Association (the "LPGA") Tour and such female golfers as
Annika Sorenstam have increased the appeal of the sport to women.
NEW PRODUCT INNOVATIONS. In recent years, the golf equipment industry has
made significant advances in product designs and technologies to enhance
golfers' performance and overall enjoyment of the game. The Company believes
that this rapid evolution of golf clubs accelerates the rate at which golfers
purchase new or additional clubs.
COMPANY HISTORY
The Company was founded as Hippo, Inc. in February 1996, with the goal of
becoming a leading U.S. golf equipment and apparel manufacturer. To that end the
Company entered into a licensing agreement with Hippo Holdings, Ltd, a leading
manufacturer of value-priced golf equipment in Europe, to manufacture, market
and distribute the HiPPO brand of golf equipment in the United States and
Canada. The Company began shipments of HiPPO products in July of 1997 and for
the ten month period ending April 30, 1998 sold approximately $500,000 in HiPPO
clubs. The Company has since discontinued the distribution of value-priced golf
equipment to pursue opportunities in the premium-priced end of the market
offered by Tegra products.
In June of 1996, the Company initiated a significant research and
development project to develop new, visibly distinct technology for its golf
clubs with which to enter the premium-priced segment of the U.S. golf market.
The premium-priced segment of the golf market captures the largest portion of
consumer spending with approximately 70% of consumer dollars being spent on
premium clubs. In addition, manufacturers margins on premium clubs are typically
significantly higher than on value-priced equipment. This research led to the
Company's development of its patent-pending Invisible Inset Hosel and bullet
shaped driver technology. These new technologies have become the key
technological elements of the Tegra brand of golf equipment. To improve its
margins and profits, the Company added the Tegra brand of premium golf equipment
and accessories at the premium-priced segment of the market.
In January, 1998 the Company changed its name to Outlook Sports Technology,
Inc. Management believes that this name better reflects the attitude and spirit
of the Company, as a forward thinking and technologically advanced sporting
goods manufacturer, than its prior name.
In April, 1998 the Company was approached by Hippo Holdings, Ltd. to
reacquire the rights to the HiPPO brand in the United States and Canada. On May
4, 1998 the Company sold its license to sell HiPPO-TM- products in the U.S. back
to Hippo Holdings, Ltd. along with all existing HiPPO-TM- inventory, marketing
materials and related liabilities. In return, the Company received a cash
payment from Hippo Holdings, Ltd. of approximately $413,000. In addition Hippo
Holdings, Ltd. returned to the Company 50,000 shares of the Company's common
stock and assumed outstanding liabilities and commitments of the Company in
excess of $1,000,000.
COMPANY PRODUCTS
TEGRA GOLF CLUBS. Tegra woods and irons with the Company's patent-pending
Invisible Inset Hosel are an evolution from current club technology. The Company
has worked with Chou Golf Design Labs, Inc. to develop the Tegra line of golf
clubs. The Company's design moves or insets the shaft as close to the center of
the club head as permitted under current USGA rules. As a result, the club head
will rotate to the target faster than conventional designs, making it easier to
square the club at impact and enabling the golfer to hit straighter and longer
shots. This technology has been designed to be visibly distinct to the consumer
at all times except while the club is being used. The Company's purpose in
making the technology "invisible" to golfers while hitting the shot is to
enhance the golfers ability to aim the club when addressing the ball. The
Company believes that the Company's Invisible Inset Hosel technology could be as
significant to the golf industry as perimeter weighting, graphite shafts or
oversize metal woods.
32
<PAGE>
In addition, the Company designed the Tegra woods with a "bullet" shape in
which the widest part of the club is the club's face or hitting area. This
"bullet" shape contrasts with conventional club designs, in which the club head
widens out from the face of the club resulting in the widest part of the club
head being half an inch or more behind the face. The club's bullet shape
provides a larger hitting area and sweet spot than would be achieved in a club
having the same volume but a conventional design. An additional result of the
bullet shape is that more weight in the club is distributed directly behind the
hitting area than with conventional designs.
Tegra irons incorporate the same patent-pending Invisible Inset Hosel
technology as Tegra woods. The inset is as beneficial in Tegra irons as it is in
Tegra woods. The Company believes that squaring the club to the target at impact
makes Tegra iron shots more accurate than conventional designs. Tegra irons
feature an oversize head design, with weighting around the perimeter and behind
the sweet spot designed to maximize forgiveness on mis-hits and to provide a
better feel on center hits, and the Invisible Inset Hosel which has been
elevated to reduce club head twisting in longer grass.
The Company presently manufactures Tegra men's right handed titanium woods
and 17-4 stainless steel irons. The Company produces a full range of titanium
drivers (6 DEG., 8 DEG., 9 DEG., 10 DEG. and 11 DEG.) and titanium fairway woods
(#3, #5, #7 and #9) with graphite shafts and irons with options of steel or
graphite shafts. Each shaft is available in various flexes to accommodate
golfers of all ages and ability levels. The Company plans to introduce
left-handed, ladies and seniors woods in the Spring of 1999.
The Company has conducted player testing on its woods and irons and the
Company believes such testing shows its Tegra technology promotes straighter and
longer golf shots than other leading premium-priced golf clubs. "Iron Byron"
testing (robotic testing designed to repeat identical swings so different clubs
can be compared under controlled conditions) of Tegra woods has confirmed that
the Tegra driver provides greater carry, roll and overall distance than certain
leading premium-priced clubs while simultaneously increasing accuracy.
Additional mechanical testing which has recently been recorded using high speed
video shows that the Invisible Inset Hosel design produces a squarer club face
at impact than other leading premium-priced clubs, resulting in straighter and
longer shots.
The Company's Invisible Inset Hosel technology is visibly distinct to the
consumer except while the club is being used. In the golf industry, where many
products look alike, some technological features are difficult to distinguish.
Since many manufacturers make similar performance claims, consumers can become
confused and have difficulty distinguishing products. The visibility of the
technology is extremely important to identifying the product and communicating
its benefits in a believable way and therefore adds to the Company's marketing
effort. The Company believes that past performance of golf club sales shows that
golf clubs which have had visibly distinct technology have seen far greater
sales growth than equipment with new but non-visibly distinct technology. In
1967, Ping became a leader in the irons category when it introduced the first
cavity backed (perimeter weighted) irons, a technology that was visibly distinct
from other irons available at the time. In 1979, Taylor Made became a leader in
the driver category when it introduced the first "metal wood" with an investment
cast steel club head replacing the traditional persimmon wood head. In 1991,
Callaway Golf became a leader in the driver category when it introduced the
first oversized metal wood. Each of these products was not only an evolution of
existing technology but its technology was visibly distinct to the consumer. As
a more recent example, in 1994, Taylor Made introduced the Burner Bubble Shaft.
This shaft incorporates a geometrical "bubble" highlighted with copper paint to
emphasize its visible difference from conventional shafts. In the second quarter
of 1995, Taylor Made's sales nearly tripled from 1994, achieving a 30% share of
the premium driver market. The Company believes that a key factor to the success
of these products is that the technology was visibly distinct to the consumer.
The Company is currently sourcing all of its golf club components from
contract manufacturing facilities. The Company's golf club heads are currently
made in Asia by Fu Sheng Industrial Co., Ltd. and Zhong Shan Wei Sheng Sporting
Goods Co., Ltd. True Temper Sports ("True Temper"), the world's largest
33
<PAGE>
shaft manufacturer, is currently producing the Company's steel and graphite
shafts domestically. Golf Pride, a division of the Eaton Corporation, the
world's largest grip manufacturer, produces the grips domestically. Joe Powell
Golf, Inc. ("Powell"), one of the golf industry's leading golf equipment
assembly companies, assembles the Tegra clubs domestically. The Company obtains
these supplies by using individual purchase orders, rather than detailed open
supply agreements. The Company spent approximately $451,019 in 1997 and $650,905
in 1996 in connection with research and development.
APPAREL. In addition to golf clubs, the Company presently designs and
manufacturers a line of men's apparel. The Tegra apparel range consists of men's
shirts and outerwear which emphasize performance, comfort and style and are
suitable for wear on or off the course. The Company expects that Tegra men's
shirts will retail from $38-$54, while outerwear will retail from $80-$125 for a
jacket and $225 for a rain-suit. The Company's apparel designs are intended to
enhance the Tegra image of a technologically advanced and fashionable line of
apparel.
The Company's men's collection is divided into three groupings: solid color
shirts, fashion shirts, and technical pieces (shirts, rainwear and other
outerwear incorporating innovative fabrics, zippers, and other features). The
foundation of the apparel collection is the Company's line of core solids. The
Company's solids are produced from 97% cotton-3% spandex which fabric has the
benefits of moveability and durability. Tegra's fashion collection incorporates
Tegra's colors (red, black and white) to reinforce the Company's brand image.
Technical pieces are constructed from innovative fabric combinations which
include cotton and polyester microfiber materials to keep golfers cool and dry
in the heat. These shirts are designed to accentuate the athleticism of the
golfer and may include such details as zippered plackets, Johnny (i.e. V-neck)
collars and reinforced sleeve and shoulder seams.
Tegra outerwear is designed to perform in a variety of climatic conditions.
A collection of technical fabrics such as Air-Tech-TM-, a waterproof-breathable
nylon, and Micro Fleece, a brushed Polyester fabric which provides breathable
insulation have been incorporated to help keep the golfer comfortable when
playing in inclement weather.
ACCESSORIES. The Company currently offers a variety of golf caps and full
size staff bags. The Company plans to offer a full line of accessories,
including bags, umbrellas, towels and caps. The Company anticipates offering a
range of golf bags, including stand, light-weight carry and full size staff
bags. The Company expects its golf bags, umbrellas, and towels to be available
in March, 1999. See "Risk Factors -- Dependence on Product Introduction."
MARKETING
GENERAL. The Company's target consumer is the avid amateur golfer. To reach
this consumer the Company is developing and installing TREs in golf shops
throughout the country, creating a distinctive advertising campaign for the
Tegra brand, attempting to obtain endorsements from touring professionals, such
as Ian Woosnam, and pursuing other traditional forms of marketing. See "Risk
Factors -- Dependence on Product Introduction."
TEGRA RETAIL ENVIRONMENTS. The Company has adapted a marketing model used
by marketers of many leading brands of consumer products who use in-store shops
to increase sales and brand awareness. TREs are advanced retail selling systems
designed to increase sales and brand awareness by selling Tegra golf clubs,
apparel and accessories in a dedicated in-store area. Within the TRE the Company
markets its Tegra golf clubs, apparel and accessories in an integrated, branded
environment designed to convey the image of the Company as innovative in golf
club technology and distinctive in design. The Company expects that TREs will
promote Tegra products as visually distinctive and technologically advanced and
will encourage customers to purchase the Company's accessories and apparel as
well as its golf clubs. These types of in-store environments have been
successfully used to promote many other products such as designer clothing and
personal computers.
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TREs occupy from 50 to 150 square feet in specialty golf shops, and consist
of flooring, fixtures, graphics and point-of-purchase materials. The TREs
display Tegra clubs, clothing and apparel in a unified environment. The Company
has developed proprietary fixtures which it uses to define the Tegra area within
a store. These fixtures vary from a free standing display which can hold a
complete set of irons and individual clubs, to a display which houses 18 woods,
and a variety of apparel fixtures which display anywhere from 24 to 148 apparel
pieces. A typical TRE is comprised of a wood and iron display as well as a
clothing presentation. The Company's aim is to establish TREs in 1,000
off-course golf shops within three years. The Company has installed 58 TREs to
date and expects to install up to 100 additional TREs by spring of 1999. The
Company believes that a major point of differentiation from its competitors will
be its emphasis on retail environments and in-store presentations. To the
Company's knowledge, no other golf company is presently manufacturing clubs,
bags, apparel and accessories and providing the retailer with fixturing to
accommodate these items. See "Risk Factors -- Risk of Retailers' Refusal to
Place or Maintain Tegra Retail Environments."
ADVERTISING. The Company has completed a distinctive advertising campaign
for the Tegra brand in an effort to create consumer awareness of and demand for
Tegra products. The initial Tegra advertising campaign, entitled "Golf First,"
focused on the Company's visibly distinct technology, and was designed to build
brand awareness and name recognition for Tegra and position the Tegra brand as
the golf equipment choice for avid golfers. The Company intends to continue to
use advertising to build an image for the Tegra brand and to separate itself
from other golf companies. The Company believes the breadth of its product line,
in particular its apparel line, should greatly enhance the Company's ability to
create this image.
The Company is presently developing a long format (30-minute) infomercial
for Tegra drivers, which is expected to air in December. This broadcast
advertising will be supplemented with a print campaign. The Company believes
that several golf equipment companies have found long format infomercials to be
extremely successful and profitable. The Company believes that the unique
technological features incorporated in the Tegra driver and the visibility of
these features give it the potential to be a successful direct marketed product.
The Company plans to test market the infomercial on the Golf Channel and other
cable sports channels. In addition, Peter Kessler, host of GOLF ACADEMY LIVE,
wears Tegra clothing on the show. GOLF ACADEMY LIVE, which airs in prime time
two nights per week, is one of the highest rated shows on the Golf Channel.
ENDORSEMENTS
Ian Woosnam. Mr. Woosnam began competing using Tegra clubs in October, 1997
and began endorsing Tegra products on January 1, 1998, although he does not yet
have an endorsement contract. The Company is currently negotiating with Ian
Woosnam to enter into an endorsement agreement for the Tegra brand. The Company
expects to enter into a contract with Ian Woosnam pursuant to which he will
continue to endorse Tegra products through December 31, 2006. Under the terms of
the proposed agreement, Mr. Woosnam will endorse Tegra worldwide, wear Tegra
clothing and headgear, play Tegra clubs and carry a Tegra bag and accessories.
The Company also believes that Mr. Woosnam will agree to play a minimum of eight
of his approximately 25 annual tournaments per year in the United States. Mr.
Woosnam held a top ten Sony Ranking from the end of 1987 through the summer of
1994, and has over forty career victories world-wide, including the Master's
Tournament in 1991 and is one of the top ranked golfers in Europe. Mr. Woosnam
is a global personality as he annually plays in approximately 25 tournaments
worldwide. Mr. Woosnam customarily plays in the four majors, including the three
U.S. majors (the Masters, the U.S. Open and the PGA Championship) which
traditionally receive the highest television viewership for golf tournaments.
Mr. Woosnam's European Tour events can be seen in the U.S. on the Golf Channel.
Additionally, the Company expects to secure publicity appearances and photo
shoot days from Mr. Woosnam. The Company believes that Mr. Woosnam's visibility
and extensive knowledge of golf will enhance the Company's brand identity and
capabilities.
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Glen Day. Mr. Day, a U.S. PGA Tour member, has endorsed Tegra golf
equipment, apparel and accessories worldwide since January 1998. Mr. Day
currently endorses such products under a contract that will expire on December
31, 1998. As of September 14, 1998, Mr. Day was ranked in the top ten on the
U.S. PGA Tour. Mr. Day has had six top ten finishes, including five top three
finishes since beginning his association with Tegra. Mr. Day's endorsement
contract with the Company expires on December 31, 1998.
Other Professional Endorsers. The Company's products are currently being
endorsed by PGA and Nike Tour professionals John Maginnes and Gene Sauers. Mr.
Maginnes has been a professional golfer on the PGA and Nike Tours since 1994 and
won the Nike Dakota Dunes Open in August, 1998. The Company and Mr. Maginnes
have entered into a two-year contract for him to wear Tegra apparel on tour. Mr.
Sauers has been a professional golfer for fourteen years and had two PGA Tour
victories including the 1986 Bank of Boston Classic and the 1989 Hawaiian Open.
Mr. Sauers won the Nike South Carolina Classic in May of this year. The Company
anticipates that Mr. Sauers will enter into a two-year contract to wear Tegra
apparel on tour.
PERFORMANCE ACCOUNT PROGRAM. The Company intends to institute a Performance
Account Program ("PAP") as part of its distribution strategy. The Company plans
to grant each participant in the PAP program priority status for off-course
retail distribution of Tegra products in a specific territory. The Company
expects to require these selected retailers to purchase at least $250,000 of
merchandise per year in each territory for which they are granted priority
status. The Company also plans to require such retailers to install TREs in each
of their retail locations. See "Risk Factors -- Risk of Retailers' Refusal to
Place or Maintain Tegra Retail Environments."
RETAIL PRICING. One of the Company's sales strategies is to deliver
products which can achieve superior retail margin in order to incentivize
retailers to sell more Tegra product. The Company estimates that retailers on
average achieve 20% gross margin on sales from premium golf equipment. By
pricing appropriately, the Company believes it will be able to offer retailers
products that can achieve superior margin. The Company expects that, on average,
Tegra golf clubs will allow retailers to achieve 40% gross margin, while Tegra
apparel allow retailers to achieve in excess of 50% gross margin.
CATALOGUE SALES. Tegra products are available in the Edwin Watts golf
catalog, one of the country's leading golf catalogues.
PATENTS
Where appropriate, the Company seeks patent protection. The Company has
filed patent applications covering various aspects of its TEGRA line of inset
woods and irons. The Company filed a United States provisional patent
application on December 31, 1996, entitled INSET HOSEL GOLF CLUB. The Company
subsequently filed a full United States patent application and a Patent
Cooperation Treaty patent application based on the United States provisional
patent application, claiming priority as of the December 31, 1996 date. The
Patent Cooperation Treaty Application designated all states. Based on the
results of a patent search obtained by outside patent counsel, the Company is of
the view that various aspects of the TEGRA line of woods and irons may be
patentable. The patent applications include sixty-eight claims of varying scope
and construction, including claims directed to golf clubs having an inset hosel
wherein the fact that the hosel is inset and is hidden from the golfer, as well
as claims directed to methods of making such a golf club. Other claims are
directed to other features or combinations of features of the Tegra golf clubs.
The Company has not received a substantive office action on the merits from the
United States Patent and Trademark Office.
The Company intends to seek further patents on its technology, if
appropriate. However, there can be no assurance that patents will issue from any
of the Company's pending or any future applications or that any claimed allowed
from such applications will be of sufficient scope of strength, or be issued in
all
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countries where the Company's products can be sold, to provide meaningful
protection or any commercial advantage to the Company. See "Risk
Factors--Intellectual Property."
COMPETITION
The Company competes with a number of established golf club manufacturers,
many of which have greater financial and other resources than the Company. The
Company's competitors include Callaway Golf Company, Adidas-Salomon AG (Taylor
Made) and Fortune Brands, Inc. (Titleist and Cobra). The Company competes
primarily on the basis of performance, brand name recognition, quality and
price. The Company believes that its ability to establish its brand and market
its products through its distributors is important to its ability to compete.
See "Risk Factors -- Competition."
The golf club industry is generally characterized by rapid and widespread
imitation of popular technologies, designs and product concepts. The Company
expects that one or more competitors may introduce products similar to its Tegra
clubs. The buying decisions of many purchasers of golf clubs are often the
result of highly subjective preferences which can be influenced by many factors,
including, among others, advertising media, promotions and product endorsements.
The Company may face competition from manufacturers introducing other new or
innovative products or successfully promoting golf clubs that achieve market
acceptance. The failure to compete successfully in the future could result in a
material deterioration of customer loyalty and could have a material adverse
effect on the Company's business, operating results or financial condition. See
"Risk Factors -- Competition."
In addition, the Company competes with a number of more well-established
designers of golf apparel, including Nike, Reebok, Greg Norman, and Tommy
Hilfiger. Because the Company competes primarily on the basis of brand name
recognition, quality, comfort, and fashion considerations, the Company believes
that its ability to establish its brand and market its apparel is important to
its ability to compete. The subjective nature of apparel-buying decisions could
result in a lack of acceptance in the market of the Company's apparel and
accessories. Failure of the Company's current and planned apparel and
accessories would adversely affect the Company's future growth and
profitability. See "Risk Factors -- Competition."
PROPERTIES
The Company's corporate headquarters are located in a 2,650 square foot
facility in Boca Raton, Florida. This facility accommodates the Company's
corporate, administrative, marketing and sales personnel. The lease expires
November 30, 1998.
Additionally, the Company's apparel division is headquartered in a 2,250
square foot facility in New York, New York. The facility accommodates the
Company's apparel design sourcing and quality assurance personnel. The Company
is currently leasing this facility on a month-to-month basis.
EMPLOYEES
At September 21, 1998, the Company had 25 full-time employees, of whom 24
were involved in executive, managerial, supervisory and sales capacities, and
one served in a clerical capacity. None of the Company's employees is covered by
a collective bargaining agreement or is a member of a union. The Company
considers its relationship with its employees to be good.
LEGAL PROCEEDINGS
The Company has received a letter from Tatsuya Saito requesting that the
Company review its Tegra line of clubs in view of a patent issued to him on July
12, 1994 (the "Saito Patent"). The Saito Patent covers certain aspects of a club
head and hosel, including the positioning of the hosel inset relative to the
club head. The Company has referred this request to independent outside patent
counsel. The Company does not believe that the Tegra line of clubs infringes any
of the claims of the Saito Patent; however, there can
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be no assurance that a court will find that one or more of the Company's
products does not infringe the Saito Patent, or any other patent. If Tatsuya
Saito is successful in asserting its patent, it could require the Company to
alter or withdraw existing products, delay or prevent the introduction of new
products, or force the Company to pay damages if the products have been
introduced. See "Risk Factors -- Litigation."
The Company has received a letter from Vardon Golf Company, Inc. ("Vardon")
asserting that the Company's Tegra woods and irons infringe one of the claims of
its patent issued on April 12, 1994 (the "Vardon Patent"). The Vardon Patent
includes claims directed to a number of aspects of a golf club head and hosel,
including claims directed to an extended radius of gyration, which includes an
aspect of the club head extending behind the hosel. Vardon filed a complaint in
the Northern District of Illinois, Eastern Division, on May 13, 1998, in which
Vardon alleges that six golf club manufacturers, including the Company, have
manufactured, sold, offered to sell and distributed in the United States,
specifically in the Northern District of Illinois, wood-type and iron golf clubs
that are covered by at least one claim of the Vardon Patent and a related design
patent. The Company does not believe that the Tegra line of clubs infringes any
of the claims of these patents and the Company is in the process of preparing a
response to the complaint; however, there can be no assurance that a court will
find that the Company does not infringe one or the other of these patents, or
both. If Vardon is successful in asserting its patent, it could require the
Company to alter or withdraw existing products, delay or prevent the
introduction of new products, or force the Company to pay damages if the
products have been introduced. See "Risk Factors -- Litigation."
The Company is the defendant in a lawsuit filed by TBWA Chiat/Day Inc.
("Chiat") in the Supreme Court of the State of New York on July 6, 1998 alleging
breach of contract for advertising services and that certain fees and expenses
in an amount of approximately $200,000 incurred by Chiat have not been paid by
the Company. The Company has prepared and filed a response to this complaint,
and the Company intends to assert its defences vigorously, however, there can be
no assurance that the Company will prevail. See "Risk Factors -- Litigation."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions with the
Company as of the date of this Prospectus of all of the officers and directors
of the Company. Also set forth below is information as to the principal
occupation and background for each person in the table.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul H. Berger....................................... 30 Chairman of the Board and Chief Executive Officer
Jim G. Dodrill II.................................... 32 President, General Counsel and Director
Gary M. Treater...................................... 42 Executive Vice President
Everette C. Hinson................................... 49 Vice President Finance
Neal J. Cohen........................................ 41 Vice President Apparel Operations
David K. Stern....................................... 34 Vice President Marketing
James J. Henley...................................... 30 Apparel Design Director
</TABLE>
MR. BERGER co-founded the Company with Mr. Dodrill and has served as the
Chairman of the Board and Chief Executive Officer of the Company since the
Company's inception. From 1994 to 1995, Mr. Berger was the Special Projects
Manager for Designs, Inc. ("Designs"), of which his father is the Chairman of
the Board. Mr. Berger assisted in repositioning Designs from a single brand
apparel chain to a multi-brand operation and in the acquisition by Designs of
Boston Trading Ltd., a high quality men's and women's apparel manufacturer. From
1993 to 1994, Mr. Berger served as an attorney with Designs. Mr. Berger is a
graduate of the George Washington University and the University of Miami School
of Law. Mr. Berger is licensed to practice law in the Commonwealth of
Massachusetts and the State of Florida.
MR. DODRILL co-founded the Company with Mr. Berger and has served as
President, General Counsel and a director of the Company since the Company's
inception. From 1993 to 1996, Mr. Dodrill was an associate at the law firm of
Latham & Watkins, practicing in the corporate area with an emphasis on
securities offerings, acquisitions, finance and general corporate
representation. From 1988 to 1990, Mr. Dodrill worked for Davis Polk & Wardwell
conducting research and coordinating administrative efforts regarding corporate
reorganization and recapitalization transactions and mergers and acquisitions.
Mr. Dodrill graduated from Brown University and the University of Miami School
of Law, MAGNA CUM LAUDE. Mr. Dodrill is licensed to practice law in the State of
New York.
MR. TREATER has served as the Company's Executive Vice President since
January, 1997, after having served as Vice President of Golf Operations for the
Company from June 1996 through December 1996. From 1994 to 1996, Mr. Treater
served as President of Gary Player Golf Equipment Inc., where he was responsible
for relocating the company from South Africa to the U.S. and for development of
the Player product line. From 1989 to 1994, Mr. Treater served as the General
Manager of the Golf Club & Golf Products Divisions at the Ben Hogan Company. For
the four years prior to that, Mr. Treater was the Senior Vice President at the
National Golf Foundation.
MR. HINSON has served as the Company's Vice President of Finance since May,
1997. From 1987 to 1997, Mr. Hinson served as Controller and Vice President of
Finance, responsible for the accounting, treasury, credit, MIS and human
resources departments, at Dunlop Maxfli Sports Corporation, a multi-division
sporting goods manufacturer with annual sales in excess of $125 million. From
1980 to 1987, Mr. Hinson served as Corporate Controller and in various
controllership and operations positions at Elscint, Inc., a manufacturer and
distributor of medical diagnostic equipment with annual sales in excess of $100
million.
MR. COHEN has served as the Company's Vice President of Apparel Operations
since June 1996. From 1989 to 1996, Mr. Cohen was Vice President of Operations
for Benetton Sportsystem Active, where he was
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responsible for managing the global sourcing of all brands, implementing final
quality assurance auditing procedures and managing customer service, and
traffic, warehousing and distribution of product. From 1980 to 1985 Mr. Cohen
served as the Quality/Production Manager for Adidas U.S.A.
MR. STERN has served as the Company's Vice President of Marketing since
March, 1998. From 1997 to February, 1998, Mr. Stern served on the Company's
Advisory Board. From 1997 to 1998, Mr. Stern served as Director of Marketing for
Thermolase, a publicly traded company which owns and runs spa facilities across
the U.S. From 1987 to 1997, Mr. Stern was Vice President of Marketing at
Maddocks and Company.
MR. HENLEY has served as the Company's Apparel Design Director since June
1996. From 1995 to June, 1996, Mr. Henley served as Apparel Designer for the
Tommy Golf line at Tommy Hilfiger, Inc. From 1992 to 1994, Mr. Henley served as
the designer for all product categories for Duck Head Apparel Co.
The Company currently has two directors, Mr. Paul Berger and Mr. Jim
Dodrill. The Company's Board of Directors is divided into three classes, with
one class of directors elected each year at the annual meeting of stockholders
for a three-year term of office. All directors of one class hold their positions
until the annual meeting of stockholders at which the terms of directors in such
class expire and until their respective successors are elected and qualified.
Mr. Jim Dodrill serves in the class whose term expires in 1999; Mr. Paul Berger
serves in the class whose term expires in 2000. The Company intends to appoint
one of the individuals named below under the caption "New Directors" to serve in
the class whose term expires in the year 2000 and the Company intends to appoint
one of the individuals under the caption "New Directors" to serve in the class
whose term expires in the year 2001. Executive officers of the Company are
elected annually by the Board of Directors and serve at the discretion of the
Board of Directors or until their successors are duly elected and qualified.
None of the Company's executive officers has entered into an employment
agreement with the Company. See "Risk Factors -- Lack of Experience of
Management."
NEW DIRECTORS
The Company has agreed with the Representative that, promptly after the
completion of this Offering, the Company will increase to five the number of
individuals serving on the Company's Board of Directors, at least two of whom
will be independent directors. The Company has also agreed that, for a period of
five years following the completion of the Offering, it will use its best
efforts to cause the election to its Board of Directors, one designee of the
Representative.
Set forth below are the names, ages and certain background information of
the two individuals the Company intends to appoint to its Board of Directors,
each of whom has agreed to serve. The Company anticipates that the new directors
will also serve on the Audit Committee and the Compensation Committee.
MR. HASKELL has agreed to serve on the Company's Board of Directors. Mr. Kim
C. Haskell has over twenty-one years of media and marketing experience,
including currently serving as Executive Vice President of Colby, Effler &
Partners.
MR. SNIDER has agreed to serve on the Company's Board of Directors. Mr.
Michael Daniel Snider has been a professional golfer for twenty-five years and
is currently the Head Golf Professional at Chenal Country Club. Mr. Snider's
students include PGA, LPGA and Nike Tour players as well as amateur golfers of
all skill levels.
The third new director, to be nominated by the Representative, has not yet
been appointed.
COMPENSATION OF DIRECTORS
The Company's directors will be reimbursed for any out-of-pocket expenses
incurred by them for attendance at meetings of the Board of Directors or
committees thereof. The Board of Directors intends
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to establish and form a Compensation Committee and Audit Committee upon
completion of this Offering. The Board of Directors also intends to compensate
Directors who are not employees of the Company $1,000 per month and to grant
each Director who is not an employee of the Company options to purchase 12,000
shares of Common Stock each year, with a per share exercise price equal to the
then fair market value of the Common Stock.
ADVISORY BOARD
Since the Company's formation, it has operated under the guidance of a
Senior Advisory Board. The Senior Advisory Board serves as a resource for
management and has no power or authority to direct the affairs of the Company.
The following are members of that Board:
STANLEY BERGER. Mr. Berger is Chairman of the Board of Directors of
Designs, Inc., based in Needham, Massachusetts. Mr. Berger co-founded Designs in
1977. Under his leadership, the company has grown to be one of the largest
global retailers of Levi Strauss & Co. products. Mr. Berger is the father of
Paul Berger.
STEVEN FIREMAN. Mr. Fireman served in the senior management of Reebok, Inc.
for five years, including his last two years serving as President of Reebok's
Casual Division (which included Reebok's Golf Division). At Reebok, Mr. Fireman
launched the Greg Norman apparel line and Reebok's line of golf footwear.
RIC JARRETT. Mr. Jarrett has twenty years of experience in the golf
industry. As the former owner, President and Chief Executive Officer of Tiger
Shark Golf, Inc., a multi-national golf equipment manufacturer, Mr. Jarrett has
extensive experience in areas ranging from product design to creation of
marketing and sales strategies. Mr. Jarrett is currently the President and Chief
Executive Officer of Absolute Sports, Inc.
DOUG RUDISCH. Mr. Rudisch is with Brookside Capital, a limited partnership
formed by Bain Capital, Inc. to make strategic equity investments in public
companies. Prior to joining Brookside, Mr. Rudisch was an associate at Bain
Capital, where he was responsible for structuring, analyzing and executing
private equity transactions and management buy outs. Prior to joining Bain
Capital, Mr. Rudisch worked with the Boston Consulting Group, a strategic
consulting firm. Mr. Rudisch graduated MAGNA CUM LAUDE from the Wharton School
of Business.
WILLIAM TAYLOR. Mr. Taylor was Vice President of Customer Relations at Levi
Strauss & Co. Mr. Taylor was an executive at Levi Strauss for more than 20
years. Before joining Levi Strauss, Mr. Taylor was an Assistant Coach of the
Dallas Cowboys.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation received by the Company's
Chief Executive Officer and each other executive officer whose total annual
salary and bonus exceeded $100,000 during the fiscal year ended January 31, 1998
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
(FISCAL YEAR 1998)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
----------------------- OTHER ANNUAL UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (1) (2)
- ---------------------------------------------------- ---------- ----------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Paul H. Berger...................................... $ 125,000 -- $ 7,800 --
Chairman of the Board and Chief
Executive Officer
James G. Dodrill II................................. 32,721 -- 7,800 (3)
President, General Counsel and Director
Gary M. Treater..................................... 153,912 -- 6,039 13,000
Executive Vice President
Neal J. Cohen....................................... 135,600 -- 6,444 10,000
Vice President Apparel Operations
Everette C. Hinson.................................. 77,263 -- -- 18,333
Vice President Finance
James J. Henley..................................... 120,000 -- 5,400 7,000
Apparel Design Director
</TABLE>
- --------------------------
(1) Other Annual Compensation consists of life insurance premiums paid by the
Company on behalf of the Named Executive Officer. See "-- Benefit Plans --
MONY Plan."
(2) See "Option Grants in Last Fiscal Year," below.
(3) In March, 1998, Mr. Dodrill received options to purchase 166,666 shares of
Class A Common Stock at $3.00 per share in lieu of approximately $95,000 of
salary for 1997.
BENEFIT PLANS
STOCK OPTION PLANS. The 1996 Incentive and Non-Qualified Stock Option Plan
(the "1996 Plan") was adopted by the Board of Directors and the shareholders.
Under the 1996 Plan, 1,150,000 shares of Class A Common Stock have been reserved
for issuance upon exercise of options designated as either (i) incentive stock
options ("ISOs") under the Internal Revenue Code (the "Code"), or (ii)
non-qualified options. ISOs may be granted under the 1996 Plan to employees and
officers of the Company. Non-qualified options may be granted to consultants,
directors and other persons who render services to the Company or any subsidiary
corporation of the Company (whether or not they are employees).
The 1998 Incentive and Non-Qualified Stock Option Plan (the "1998 Plan" and
collectively with the 1996 Plan, the "Plans") was adopted by the Board of
Directors and the shareholders of the Company in June, 1998. Under the 1998
Plan, 800,000 shares of Class A Common Stock have been reserved for issuance
upon exercise of options designated as either (i) incentive stock options
("ISOs") under the Internal Revenue Code (the "Code"), or (ii) non-qualified
options. ISOs may be granted under the 1998 Plan to employees and officers of
the Company. Non-qualified options may be granted to consultants and other
persons who render services to the Company or any subsidiary corporation of the
Company (whether or not they are employees), and to all directors of the
Company.
The purpose of the Plans is to provide additional incentive to officers and
other employees of the Company as well as other persons providing services to
the Company by affording them an opportunity to acquire or increase their
proprietary interest in the Company through the acquisition of shares of its
Common Stock. The Board of Directors is responsible for administering the Plans.
The 1998 Plan may also be administered by a committee consisting of at least two
disinterested directors. The Board, within the
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limitations of the Plans, may determine the persons to whom options will be
granted, the number of shares to be covered by each option, whether the options
granted are intended to be ISOs, the duration and rate of exercise of each
option, the option purchase price per share and the manner of exercise, the
time, manner and form of payment upon exercise of an option, and whether
restrictions such as repurchase rights by the Company are to be imposed on
shares subject to options. ISOs granted under the Plans may not be granted at a
price less than the fair market value of the Class A Common Stock on the date of
grant (or 110% of fair market value in the case of persons holding 10% or more
of the voting power of all classes of stock of the Company). The aggregate fair
market value at the time of grant of shares for which ISOs granted to any person
are exercisable for the first time by any person during any calendar year may
not exceed $100,000. Options under the Plans may not be granted more than 10
years after its effective date. Options granted to date have seven (7) year
terms. The term of each ISO granted under the Plans will expire not more than
ten years from the date of grant (or five (5) years in the case of persons
holding 10% or more of the voting power of all classes of stock of the Company).
Options granted under the Plans are not transferable during an optionee's
lifetime but are transferable at death by will or under the laws of descent and
distribution. In addition to the options summarized below, a total of ISOs and
non-qualified options to purchase 326,819 shares of Class A Common Stock have
been granted to other employees and advisors of the Company.
The following table sets forth as to each Named Executive Officer (a) the
total number of shares subject to options granted during the fiscal year ended
January 31, 1998, (b) exercise price of such options, (c) the percentage such
grants represent of the total option grants to employees in the fiscal year
ended January 31, 1998, and (d) the expiration date of such option grants.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES SUBJECT TOTAL OPTIONS
TO EXERCISE GRANTED TO
NAME OPTION GRANTS PRICE EMPLOYEES EXPIRATION DATE
- ----------------------------------------- ---------------- ------------- --------------- ----------------------
<S> <C> <C> <C> <C>
Gary Treater............................. 4,000 $ 6.00 .8% December 31, 2004
9,000 $ 6.00 1.8 January 30, 2005
Everette Hinson.......................... 8,333 $ 0.75 1.7 May 5, 2004
3,000 $ 6.00 .6 December 31, 2004
7,000 $ 6.00 1.4 January 30, 2005
Neal Cohen............................... 3,000 $ 6.00 .6 December 31, 2004
7,000 $ 6.00 1.4 January 30, 2005
James Henley............................. 5,000 $ 6.00 1.0 December 31, 2004
2,000 $ 6.00 .4 January 30, 2005
</TABLE>
The following table sets forth certain information concerning the value of
unexercised stock options held by the Named Executive officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT JANUARY 31, OPTIONS AT JANUARY 31,
1998 1998
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gary Treater........................................... 11,554 28,334 $ 44,578 $ 116,579
Everette Hinson........................................ 3,000 15,333 $ 3,000 $ 59,081
Neal Cohen............................................. 6,193 14,917 $ 20,804 $ 53,343
James Henley........................................... 6,526 4,917 $ 12,336 $ 16,943
</TABLE>
MONY PLAN. The MONY Plan is a flexible premium variable life insurance
policy that the Company has provided as a benefit since August 15, 1996 to the
following employees: Paul Berger, Jim Dodrill, Gary Treater, Neal Cohen and
James Henley. In addition, the Company has provided this benefit to Everette
Hinson since July 1, 1998. Pursuant to the MONY Plan, an individual (or his
successors) may, subject to certain conditions, receive up to $500,000 at his
death. In the alternative, the individual may choose to receive a lesser payment
after a certain number of years in service, the amount of such payment to vary
with length of service, among other factors. The Company pays monthly premiums
ranging from $450 to $650 for the MONY Plan. The Company has the discretion to
increase the benefit amounts provided to MONY Plan beneficiaries and to
terminate the MONY Plan at will.
43
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock immediately prior to this
Offering, and as adjusted to reflect the sale of the shares of Class A Common
Stock offered by the Company by (i) each person known by the Company to
beneficially own more than five percent of the Common Stock, (ii) each director
and the Company's Chief Executive Officer, (iii) all directors and executive
officers of the Company as a group and (iv) each Selling Stockholder. Except as
otherwise indicated, the address of each beneficial owner of five percent of
such Common Stock is the same as the Company. See "Management."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP IMMEDIATELY AFTER
NAME AND ADDRESS OF PRIOR TO OFFERING SHARES OFFERING (1)
BENEFICIAL OWNER 5% STOCKHOLDER OR SELLING ---------------------- BEING ----------------------
STOCKHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Paul Berger (2)..................................... 1,449,697 38.29% 125,000 1,449,697 28.89%
Jim Dodrill (3)..................................... 521,343 13.77% 25,000 521,343 10.39%
Synergy Group International, Inc. (4)............... 200,000 7.9% -- 200,000 3.98%
4725 East Sunrise Drive, Suite 228
Tucson, AZ 85718
All directors and executive officers of the Company
as a group (7 persons) (5)........................ 2,011,563 53.11% -- 2,011,563 40.09%
</TABLE>
- ------------------------
(1) Assumes that all Securities offered in this Offering are purchased but that
the Underwriters' over-allotment option is not exercised. The first 100,000
shares of Class A Common Stock and 150,000 Warrants purchased pursuant to
the exercise of such option, if any, would be acquired from the Company. The
next 150,000 shares of Class A Common Stock purchased pursuant to the
exercise of such option, if any, would be acquired from Messrs. Berger and
Dodrill and the remaining shares of Class A Common Stock would be acquired
from the other Selling Stockholders.
(2) Includes 19,577 shares of Class A Common Stock issuable upon the exercise of
options exercisable within 60 days of the date of this Prospectus.
(3) Includes 336,510 shares of Class A Common Stock issuable upon the exercise
of options exercisable within 60 days of the date of this Prospectus.
(4) The principal beneficial owner of Synergy Group International, Inc. is
Vincent J. Marold.
(5) Includes 388,833 shares of Class A Common Stock issuable upon the exercise
of options exercisable within 60 days of the date of this Prospectus.
CONCURRENT REGISTRATION
The following table sets forth certain information with respect to persons
for whom the Company is registering Bridge Warrants for resale to the public.
The Company will not receive any proceeds from the sale of such Bridge Warrants.
The Bridge Warrants are not being underwritten by the Underwriters.
<TABLE>
<CAPTION>
WARRANTS PERCENTAGE
WARRANTS OWNED OF WARRANTS
OWNED BEFORE WARRANTS OFFERED AFTER OWNED
NAME OFFERING HEREBY OFFERING AFTER OFFERING
- -------------------------------------------------- ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
John G. Costino................................... 212,500 212,500 0 0%
Afzal Ahmad....................................... 150,000 150,000 0 0
Gary E. Markman................................... 125,000 125,000 0 0
James S. Mulholland, Jr........................... 125,000 125,000 0 0
David Hungerford.................................. 87,500 87,500 0 0
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
WARRANTS PERCENTAGE
WARRANTS OWNED OF WARRANTS
OWNED BEFORE WARRANTS OFFERED AFTER OWNED
NAME OFFERING HEREBY OFFERING AFTER OFFERING
- -------------------------------------------------- ------------- ---------------- ------------- --------------
Kal Zeff.......................................... 75,000 75,000 0 0%
<S> <C> <C> <C> <C>
Martin C. Watz.................................... 75,000 75,000 0 0
Eugene D. Crittenden, Jr.......................... 50,000 50,000 0 0
Kelly Joseph Flynn................................ 50,000 50,000 0 0
Ronald Gagnon..................................... 50,000 50,000 0 0
Douglas H. Symons................................. 50,000 50,000 0 0
Robert Hurley..................................... 50,000 50,000 0 0
Dr. Riyaz Jinnah.................................. 37,500 37,500 0 0
Ronald J. Berk.................................... 25,000 25,000 0 0
Communication Enterprises, Inc.................... 25,000 25,000 0 0
Gilbert X. Dementis............................... 25,000 25,000 0 0
Richard Grant..................................... 25,000 25,000 0 0
Andrew A. Holder.................................. 25,000 25,000 0 0
Edward M. Kalinowski, Sr.......................... 25,000 25,000 0 0
L G Trust......................................... 25,000 25,000 0 0
Martin R. Lesh.................................... 25,000 25,000 0 0
Meca, Inc......................................... 25,000 25,000 0 0
Pafco General Insurance Co........................ 25,000 25,000 0 0
Joe Y. Pitts, Jr.................................. 25,000 25,000 0 0
Roy Roberts....................................... 25,000 25,000 0 0
Benjamin Russell.................................. 25,000 25,000 0 0
Kenneth J. Santiamo............................... 25,000 25,000 0 0
Superior Insurance Company........................ 25,000 25,000 0 0
Alex Theriot, Jr.................................. 25,000 25,000 0 0
Jane P. Trudeau................................... 25,000 25,000 0 0
Mark Wiener....................................... 25,000 25,000 0 0
Mike and Dana Eberts.............................. 15,000 15,000 0 0
Tyrone and Evelyn Adams........................... 12,500 12,500 0 0
Joel Benowitz..................................... 12,500 12,500 0 0
Milton Chwasky Retirement Trust................... 12,500 12,500 0 0
Jay L. Kobrin..................................... 12,500 12,500 0 0
Lee Harrison Corbin............................... 12,500 12,500 0 0
M. Jenkins Cromwell, Jr........................... 12,500 12,500 0 0
Nelson Garjian.................................... 12,500 12,500 0 0
Esther Golub...................................... 12,500 12,500 0 0
Integrated Capital Corp........................... 12,500 12,500 0 0
Paul J. Kuehn..................................... 12,500 12,500 0 0
H. Barry Robins................................... 12,500 12,500 0 0
Milan Tyburec..................................... 12,500 12,500 0 0
Total......................................... 1,752,500 1,752,500
------------- ----------------
------------- ----------------
</TABLE>
There are no material relationships between any of the selling
warrantholders and the Company. Each selling warrantholder has agreed to lock-up
provisions pursuant to which the warrantholders have agreed not to sell any
Bridge Warrants for a period of one year following the effective date of this
Offering which lock up agreements cannot be terminated without the prior written
consent of the Representative. Commencing one year from the effective date of
this Offering, each selling warrantholder may sell without any lock-up
restrictions.
45
<PAGE>
CERTAIN TRANSACTIONS
AMENDMENT OF CERTIFICATE OF INCORPORATION
On October 7, 1998, the Company amended its certificate of incorporation to
create two classes of Common Stock (15,000,000 shares of Class A Common Stock
and 5,000,000 shares of Class B Common Stock) (the "Amendment"). All shares of
the Company's common equity outstanding prior to the Amendment were converted
into shares of Class A Common Stock except for 1,464,953 shares of common equity
owned by Messrs. Berger and Dodrill which were converted into Class B Common
Stock. The Class A and Class B Common Stock have identical rights, including
voting rights. Each share of Class B Common Stock will be automatically
converted into a share of Class A Common Stock on the earlier to occur of (i)
October 31, 2000 and (ii) such time as the closing price of the Class A Common
Stock shall equal or exceed $8.00 for 10 consecutive trading days. See
"Description of Securities -- Common Stock."
RECENT LOAN AND CONSULTING AGREEMENT
Since, July, 1998, the Company has consumed all cash on hand and has funded
its operations with cash flow and loans from its officers aggregating $67,500
which are to be repaid with the proceeds of this offering. The Company is in the
process of negotiating to obtain a loan of $250,000 from an individual. This may
be personally guaranteed by Jim Dodrill and Paul Berger. The lender may also
provide consulting services to the Company the terms of which are currently
being negotiated. See "Use of Proceeds."
TRANSACTIONS INVOLVING PAUL BERGER
Between August 21, 1996 and January 23, 1998, Paul Berger, Chairman of the
Board of Directors and Chief Executive Officer of the Company, made a number of
advances to the Company. On August 21, 1996, Mr. Berger advanced $10,000 to the
Company and received a note with a term of six years, earning 7.5% interest
annually and an option to purchase 19,577 shares of the common stock of the
Company at a price of $0.225 per share. In addition, Mr. Berger made four
advances to the Company using proceeds from sales of his own stock to other
individuals (some of whom were affiliates of the Company) at lower prices than
contemporaneous sales of stock by the Company to third-party investors. On
October 17, 1997, Mr. Berger advanced $50,000 to the Company after selling
100,000 shares of his stock to Synergy Group International, Inc. at the price of
$0.50 per share. On October 28, 1997, Mr. Berger advanced $50,000 to the Company
after selling 100,000 shares of his stock to Carol Dodrill, Jim Dodrill's
mother, and Bill Powell at the price of $0.50 per share. On November 11, 1997,
Mr. Berger advanced $2,500 to the Company after selling 3,333 shares of his
stock to Rodger Berman at the price of $0.75 per share. On January 23, 1998, Mr.
Berger advanced $50,000 to the Company after selling 50,000 shares of his stock
to Andrew Holder and Marc Roberts at the price of $1.00 per share. These four
transactions were contemporaneous with the Company's sale of its common stock at
$2.10 per share. On July 31, 1998, Mr. Berger advanced $17,500 to the Company.
Mr. Berger received notes from the Company for all five advances with an annual
interest rate of 12.5%. All five notes, aggregating $170,000 plus interest, are
to be repaid out of the proceeds of this Offering. See "Underwriting."
TRANSACTIONS INVOLVING JIM DODRILL
Between September 5, 1996 and January 23, 1998, Jim Dodrill, President and
General Counsel of the Company, made a number of advances to the Company. On
September 5, 1996, Mr. Dodrill advanced $30,000 to the Company and received a
note with a term of six years, earning 7.5% interest annually and an option to
purchase 58,731 shares of the common stock of the Company at a price of $0.225
per share. In addition, Mr. Dodrill made three advances to the Company using
proceeds from sales of his own stock to other individuals at lower prices than
contemporaneous sales of stock by the Company to third-party investors. On
October 17, 1997, Mr. Dodrill advanced $50,000 to the Company after selling
100,000 shares of his stock to Synergy Group International, Inc. at the price of
$0.50 per share. On November 11, 1997,
46
<PAGE>
Mr. Dodrill advanced $2,500 to the Company after selling 3,333 shares of his
stock to Rodger Berman at the price of $0.75 per share. On January 23, 1998, Mr.
Dodrill advanced $50,000 to the Company after selling 50,000 shares of his stock
to Andrew Holder and Marc Roberts at the price of $1.00 per share. These three
transactions were contemporaneous with the Company's sale of its Common Stock at
$2.10 per share. Mr. Dodrill received notes from the Company for all three
advances with an annual interest rate of 12.5%. All three notes, aggregating
$102,500 plus interest, are to be repaid out of the proceeds of this Offering.
See "Underwriting."
TRANSACTIONS INVOLVING STANLEY BERGER
Between August 13, 1996 and January 16, 1998, Stanley Berger, Paul Berger's
father, made a number of advances to the Company. The following table summarizes
the loans made. For each loan, Mr. Berger received a note with the loan amount
and interest rate set forth in the table. In addition, for all but the two
repaid loans and one loan on October 1, 1997, Mr. Berger also received a warrant
to purchase the number of shares set forth in the table and at the exercise
price set forth in the table. All of these notes, aggregating $510,000 plus
interest, are to be repaid out of the proceeds of the Offering. See
"Underwriting."
<TABLE>
<CAPTION>
NUMBER OF
SHARES
PURCHASABLE
INTEREST UPON EXERCISE WARRANT
DATE AMOUNT OF LOAN RATE OF WARRANT EXERCISE PRICE
- -------------------------------------------------------- --------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
August 13, 1996(1)...................................... $ 35,000 -- -- --
September 26, 1996...................................... $ 40,000 12.5% 4,400 $ 1.13
October 8, 1996......................................... $ 25,000 12.5% 2,750 $ 1.13
April 30, 1997.......................................... $ 25,000 12.5% 3,437 $ 0.75
May 27, 1997............................................ $ 50,000 15% 27,708 $ 0.75
June 19, 1997........................................... $ 50,000 15% 27,708 $ 0.75
July 3, 1997............................................ $ 30,000 12.5% 6,000 $ 2.10
July 10, 1997........................................... $ 15,000 12.5% 3,000 $ 2.10
August 27, 1997(1)...................................... $ 50,000 -- -- --
September 12, 1997...................................... $ 50,000 12.5% 8,333 $ 2.10
October 1, 1997(2)...................................... $ 25,000 12.5% -- --
October 14, 1997........................................ $ 50,000 12.5% 8,333 $ 2.10
November 14, 1997....................................... $ 50,000 12.5% 8,333 $ 2.10
November 28, 1997....................................... $ 30,000 12.5% 2,400 $ 2.10
December 3, 1997........................................ $ 20,000 12.5% 1,600 $ 2.10
January 16, 1998........................................ $ 50,000 12.5% 4,000 $ 4.00
Total............................................... $ 595,000 108,002
</TABLE>
- ------------------------
(1) This Note was repaid.
(2) For this loan, Mr. Berger received a security interest in all of the
Company's accounts receivable.
47
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 15,000,000 shares of
Class A Common Stock, par value $0.01 per share, 5,000,000 shares of Class B
Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $0.01 per share. As of the date of this Prospectus, 1,051,818
shares of Class A Common Stock and 1,464,953 shares of Class B Common Stock were
issued and outstanding.
COMMON STOCK
The holders of Class A and Class B Common Stock ("Common Stock") are
entitled to one vote per share. The holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of legally available funds. Upon liquidation, dissolution or
winding up of the Company, the holders of the Common Stock are entitled to share
ratably in all assets of the Company which are legally available for
distribution, after payment of or provisions for all debts and liabilities.
Holders of Common Stock have no preemptive, subscription, or redemption rights.
The shares of Common Stock offered hereby will be, when and if issued, fully
paid and non-assessable. The Company has agreed that for a period of 24 months
from the date of this Offering it will not sell or issue any securities (with
certain limited exceptions) without the Representative's prior written consent.
See "Risk Factors -- Representative's Influence Over Potential Future Capital
Financing."
The Company has agreed not to register the Class B Common Stock under the
Securities Exchange Act of 1934, as amended, for a period of two (2) years. The
shares of Class B Common Stock will be automatically exchanged into shares of
Class A Common Stock on a share for share basis (subject to adjustment upon the
occurrence of certain events including a dividend distribution to the holders of
Class A Common Stock, or a subdivision, combination or reclassification of the
Class A Common Stock) after the earlier to occur of (i) October 31, 2000 and
(ii) such time as the closing price for the Class A Common Stock shall equal or
exceed $8.00 for a period of 10 consecutive trading days.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
an aggregate of 5,000,000 shares of Preferred Stock in one or more series. Each
such series of Preferred Stock shall have such number of shares, designations,
preferences, voting powers, qualifications and special or relative rights or
privileges, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences and conversion
rights, as shall be determined by the Board of Directors in a resolution or
resolutions providing for the issuance of such series. Any such series of
Preferred Stock, if so determined by the Board of Directors, may have full
voting rights with the Common Stock or superior or limited voting rights, and
may be convertible into Common Stock or another security of the Company.
The Company has granted to the Board of Directors the authority to issue
Preferred Stock and to determine its rights and preferences in order to
eliminate delays associated with a stockholder vote on specific issuances. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Description of Securities--Certain Effects of Authorized but
Unissued Stock." The Company has agreed that for a period of 24 months from the
date of this Offering it will not sell or issue any securities (with certain
limited exceptions) without the Representative's prior written consent. See
"Risk Factors -- Representative's Influence Over Potential Future Capital
Financing."
48
<PAGE>
WARRANTS
Each Warrant entitles the holder thereof to purchase one share of Class A
Common Stock at a price per share of 115% of the initial public offering price
per share of Class A Common Stock for a period of three years commencing on the
effective date of this Offering. Each Warrant is redeemable by the Company at a
redemption price of $0.125 per Warrant at any time, upon 30 days prior written
notice to holders thereof, if the average closing bid price of the Class A
Common Stock, as reported on the principal exchange on which the Class A Common
Stock is traded, equals or exceeds 120% of the initial public offering price per
share for 10 consecutive trading days ending on the day prior to the date of the
notice of redemption.
Pursuant to applicable federal and state securities laws, in the event a
current prospectus is not available, the Warrants may not be exercised by the
holders thereof and the Company will be precluded from redeeming the Warrants.
There can be no assurance that the Company will not be prevented by financial or
other considerations from maintaining a current prospectus. Any Warrant holder
who does not exercise prior to the redemption date, as set forth in the
Company's notice of redemption, will forfeit the right to purchase the Class A
Common Stock underlying the Warrants, and after the redemption date or upon
conclusion of the exercise period, any outstanding Warrants will become void and
be of no further force or effect, unless extended by the Board of Directors of
the Company. See "Underwriting" for the terms of the Warrants issuable pursuant
to the Underwriters' Warrants.
The number of shares of Class A Common Stock that may be purchased is
subject to adjustment upon the occurrence of certain events, including a
dividend distribution to the Company's shareholders or a subdivision,
combination or reclassification of the outstanding shares of Class A Common
Stock. Further, the Warrant exercise price is subject to adjustment in the event
the Company issues additional stock or rights to acquire stock at a price per
share that is less that the current market price per share of Class A Common
Stock on the record date established for the issuance of additional stock or
rights to acquire stock. The term "current market price" is defined as the
average of the daily closing prices for the 20 consecutive trading days ending
three days prior to the record date. However, the Warrant exercise price will
not be adjusted in the case of the Underwriter's Warrants (or the Warrants
included therein) or any other options or warrants outstanding as of the date of
this Offering. The Warrant exercise price is also subject to adjustment in the
event of a consolidation or merger where a distribution by the Company is made
to its shareholders of the Company's assets or evidences of indebtedness (other
cash or stock dividends) or pursuant to certain subscription rights or other
rights to acquire Class A Common Stock.
The Company may at any time, and from time to time, extend the exercise
period of the Warrants, provided that written notice of such extension is given
to the Warrant holders prior to the expiration date then in effect. Also, the
Company may reduce the exercise price of the Warrants for limited periods or
through the end of the exercise period if deemed appropriate by the Board of
Directors. Any extension of the term and/or reduction of the exercise price of
the Warrants will be subject to compliance with Rule 13e-4 under the Exchange
Act including the filing of a Schedule 13E-4. Notice of any extension of the
exercise period and/or reduction of the exercise price will be given to the
Warrant holders. The Company does not presently contemplate any extension of the
exercise period nor does it contemplate any reduction in the exercise price of
the Warrants. The Warrants are also subject to price adjustment upon the
occurrence of certain events including subdivisions or combinations of the Class
A Common Stock.
The Warrants will be issued pursuant to the terms and conditions of a
Warrant Agreement between the Company and American Stock Transfer and Trust
Company.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person
49
<PAGE>
became an interested stockholder is approved in a prescribed manner. Generally,
a "business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
As a result of the foregoing provisions, the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors could be made more difficult. These provisions
are expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company to negotiate with the Company first. The Company believes that the
benefits of increased protection of the Company's potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure the Company outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management. The Company has agreed that for a period of 60 months from the date
of this Offering it will not sell or issue any securities (with certain limited
exceptions) without the Representative's prior written consent. See "Risk
Factors -- Representative's Influence Over Potential Future Capital Financing."
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock and the Warrants is
American Stock Transfer and Trust Company.
50
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 3,551,818
shares of Class A Common Stock (3,651,818 shares of Class A Common Stock if the
Underwriters' over-allotment option is exercised in full) and 1,464,953 shares
of Class B Common Stock. All of the shares of Class A Common Stock offered
hereby will be freely tradeable by persons other than "affiliates" of the
Company without restriction or further registration under the Securities Act.
Of the 3,551,818 shares of Class A Common Stock, 1,051,818 shares and
1,464,953 shares of Class B Common Stock (the "Restricted Shares") held by
officers, directors, employees, consultants and other stockholders of the
Company were sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act. Of the Restricted
Shares of Class A Common Stock 463,903 will be eligible for resale in the public
market as of the date of this Prospectus (the "Effective Date") in reliance on
Rule 144 under the Securities Act.
The one million Warrants for sale in this Offering will be immediately
exercisable. Furthermore, in the event of a redemption of the Selling
Warrantholders' Warrants by the Company, an additional 1.75 million Warrants
will be immediately exercisable. The Warrants will be exercisable at a price per
share of 115% of the initial public offering price of the Class A Common Stock
and will be redeemable by the Company at a price per Warrant of $0.125 upon 30
days prior written notice to the holders thereof if the average closing price of
the Class A Common Stock equals or exceeds 120% of the initial public offering
price per share of the Class A Common Stock for ten consecutive trading days. If
the Company redeems the Warrants before the Warrantholders exercise their right
of purchase, then the Warrantholders will be entitled to receive only the
redemption price, $0.125 per Warrant.
Persons who are deemed affiliates of the Company are generally entitled
under Rule 144 as currently in effect to sell within any three-month period a
number of shares that does not exceed 1% of the number of shares of the Common
Stock then outstanding or the average weekly trading volume of Common Stock
during the four calendar weeks preceding the making of a filing with the
Securities and Exchange Commission (the "Commission") with respect to such sale.
Such sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about the Company. The Company is unable to estimate accurately the number of
shares of Common Stock that ultimately may be sold under Rule 144 because the
number of shares will depend in part on the market price for the Common Stock,
the personal circumstances of the sellers and other factors. In addition to the
restrictions under Rule 144, the Company, the Representative and Messrs. Berger
and Dodrill have entered into an agreement pursuant to which the Company has
agreed not to register the Class B Common Stock for sale by either Mr. Berger or
Mr. Dodrill. See "Underwriting." The shares of Class B Stock will be
automatically exchanged into shares of Class A Common Stock on a share for share
basis (subject to adjustment upon the occurrence of certain events including a
dividend or distribution to the holders of Class A Common Stock, or a
subdivision, combination or reclassification of the Class A Common Stock) after
the earlier to occur of (i) October 31, 2000 and (ii) such time as the closing
price for the Class A Common Stock shall equal or exceed $8.00 for a period of
ten (10) consecutive trading days. See "Underwriting."
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Company has agreed to sell to the Underwriters, and
the Underwriters, severally and not jointly, have agreed to purchase from the
Company, on a "firm commitment" basis, if any are purchased, the number of
shares of Class A Common Stock and Warrants (exclusive of shares of Class A
Common Stock and Warrants issuable upon exercise of the Underwriters'
over-allotment option) set forth opposite their respective names below:
<TABLE>
<CAPTION>
SHARES OF
CLASS A
UNDERWRITERS COMMON STOCK WARRANTS
- ------------------------------------------------------------------------------------- -------------- ----------
<S> <C> <C>
Argent Securities, Inc. 2,500,000 1,000,000
Total 2,500,000 1,000,000
</TABLE>
The Company has agreed to sell the shares of Class A Common Stock and
Warrants to the Underwriters at a discount of percent ( %) of the initial
public offering price thereof. The Underwriters will offer the shares of Class A
Common Stock and Warrants to the public at $ . per share of Class A
Common Stock and $0.125 per Warrant as set forth on the cover page of this
Prospectus and may allow to certain dealers who are National Association off
Securities Dealers, Inc. ("NASD") members concessions not to exceed $ .
per share of Class A Common Stock and $
. per Warrant, of which not in excess of $ . per share of Class A
Common Stock and $
. per Warrant may be re-allowed to other dealers who are members of the NASD.
After the initial public offering, the public offering price, concession and
re-allowances may be changed by the Underwriters.
Prior to this offering, there has not been any public market for the Class A
Common Stock or the Warrants. The initial public offering prices of the shares
of Class A Common Stock and the Warrants and the exercise price and other terms
of the Warrants were determined by negotiations between the Company and the
Representative and do not necessarily relate to the assets, book value or
results of operations of the Company and the Representative and do not
necessarily relate to the assets, book value or results of operations of the
Company or any other established criteria of value.
The Company has granted an option to the Underwriters, exercisable during
the 45-day period from the date of this Prospectus, to purchase in the aggregate
up to a maximum of 100,000 additional shares of Class A Common Stock and 150,000
Warrants and the Selling Stockholders have granted an option to the Underwriters
to purchase 275,000 shares of Class A Common Stock, in each case at the prices
set forth on the cover page of this Prospectus, minus the underwriting discount.
The Underwriters have agreed to exercise in full the over-allotment option
granted to them by the Company before exercising any of the over-allotment
options granted to them by the Selling Stockholders and to exercise in full the
over-allotment options granted to them by Messrs. Berger and Dodrill before
exercising any of the over-allotment options granted to them by the other
Selling Stockholders. The Underwriters' over-allotment option is exercisable
upon the same terms and conditions as are applicable to the sale of the shares
of Class A Common Stock and Warrants offered hereby.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be provided to officers, directors or persons controlling the Company, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy and is therefore unenforceable.
52
<PAGE>
The Company has agreed to pay certain blue sky legal fees of the
Underwriters and to pay to the Underwriters at the closing of the Offering a
non-accountable expense allowance of % of the aggregate offering price of the
shares of Class A Common Stock and Warrants offered hereby (including any shares
of Class A Common Stock and Warrants purchased purchasing pursuant to the
Underwriters' over-allotment option).
The Company has agreed to sell to the Representative or its respective
designees, for an aggregate purchase price of $ , an option (the
"Representative's Warrant") to purchase up to an aggregate of 250,000 shares of
Class A Common Stock and 50,000 Warrants exercisable at 120% (providing for a
purchase price per share at 120% of the initial public offering price of the
Class A Common Stock underlying the Warrants) of the initial public offering
price of the Securities. The Underwriters' Warrant shall be exercisable during a
four-year period commencing one year after the effective date of the
Registration Statement of which this Prospectus is a part. The Underwriters'
Warrant may not be assigned, transferred, sold or hypothecated by the
Underwriters until 12 months from the date of this Prospectus, except to
officers or partners of the Underwriters, to a successor to the Underwriters, to
a purchaser of substantially all of the assets of the Underwriters, or by
operation of law. Any profits realized by the Underwriters upon the sale of the
Class A Common Stock and Warrants (or the underlying Securities) issuable upon
exercise of the Underwriters' Warrants may be deemed to be additional
underwriting compensation. The exercise price of the Warrants issuable upon
exercise of the Underwriters' Warrants during the period of exercisability shall
be 115% of the initial public offering price of the Class A Common Stock per
Warrant. The exercise of the Warrants subject to the Underwriters' Warrants and
the number of shares of Class A Common Stock covered thereby are subject to
adjustment in certain events to prevent dilution. For the life of the
Underwriters' Warrant, the holders thereof are given, at a normal cost, the
opportunity to profit from a rise in the market price of the Securities with a
resulting dilution in the interest off other shareholders. The Company may find
it more difficult to raise capital for its business if the need should arise
while the Underwriters' Warrant is outstanding. At any time when the holders of
the Underwriters' Warrant might be expected to exercise it, the Company would
probably be able to obtain additional capital on more favorable terms.
The Company has agreed with the Underwriters that the Company will pay to
the Underwriters a warrant solicitation fee (the "Warrant Solicitation Fee")
equal to 5% of the exercise price of the Warrants exercised beginning one year
from the date of this Prospectus and to the extent not inconsistent with the
guidelines of the NASD and the rules and regulations of the Commission
(including NASD Notice to Members 81-38). Such Warrant Solicitation Fee will be
paid to the Underwriters if (a) the market price of the Class A Common Stock on
the date that any Warrant is exercised is greater than the exercise price of the
Warrant; (b) the exercise of such warrant was solicited by the Underwriters; (c
) prior specific written approval for exercise is received from the customer if
the Warrant is held in a discretionary account; (d) disclosure of this
compensation agreement is made prior to or upon the exercise of such Warrant;
(e) solicitation of the exercise is not in violation of Rule 103 of Regulation M
of the Exchange Act; (f) the Underwriter provided bona fide services in exchange
for the Warrant Solicitation Fee; and (g) the Underwriter has been specifically
designated in writing by the holders of the Warrants as the broker. In addition,
unless granted and exemption by the Commission from Rule 103 of Regulation M
under the Exchange Act, the Underwriters will be prohibited from engaging in any
market making activities or solicited brokerage activities with respect to the
Securities for a specified period (generally five business days) prior to any
solicitation of the exercise of any Warrant or prior to the exercise of any
Warrant based on a prior solicitation until the later of the termination by
waiver or otherwise) of any right the Underwriters may have to receive such a
fee for the exercise of the Warrants following such solicitation. As a result,
the Underwriters may be unable to continue to provide a market for the
Securities during certain periods while the Warrants are exercisable.
53
<PAGE>
The Representative has informed the Company that the Underwriters do not
intend to confirm sales of shares of Class A Common Stock or Warrants offered
hereby to any accounts over which they exercise discretionary authority.
The Underwriters have been given certain "piggyback" and demand registration
right with respect to the Class A Common Stock underlying the Underwriters'
Warrants for a period of four years commencing one year from the date of this
Prospectus. The exercise of any such registration rights by the Underwriters may
result in dilution to the interest of the Company's shareholders, hinder efforts
by the Company to arrange future financing of the Company and/or have an adverse
effect on the market price of the Securities.
The Company has agreed that for a period of 24 months commencing from the
date of this Prospectus, it will not issue or sell, directly or indirectly, any
shares of its capital stock, or sell or grant options, warrants or rights to
purchase any shares of its capital stock, without the written consent of the
Representative, except for issuances pursuant to (i) the public offering of the
Company's securities as described herein, (ii) the exercise of the Warrants and
the Underwriters' Warrants, and the Class A Common Stock issuable thereunder,
(iii) outstanding convertible securities or contractual obligations disclosed in
this Prospectus, (iv) the grant of options and the issuance of shares issued
upon exercise of options granted or to be granted under the Plan, and (v) an
acquisition, merger or similar transaction provided that the acquirer of such
capital stock does not receive, and will not be entitled to demand, registered
securities during such 24-month period. See "Shares Available for Future Sale."
The Company has agreed that, for a period of five years following the
completion of this Offering, it will use its best efforts to cause the election
too its Board of Directors one designee of the Representative, provided that
such designee is reasonably acceptable to and approved by the Company.
Alternatively, the Representative may appoint an observer to attend all meetings
of the Board of Directors during such period. As of this date, no person has
been identified by the Representative for election as a director or for
appointment as a observer.
LEGAL MATTERS
The validity of the Class A Common Stock and Warrants being offered hereby
will be passed upon for the Company by Foley, Hoag & Eliot LLP, Boston,
Massachusetts. Certain matters are being passed upon for the Underwriters by
Kutak Rock, Atlanta, Georgia.
EXPERTS
The financial statements as of January 31, 1998 and 1997 and for the year
ended January 31, 1998 and the period February 8, 1996 (inception) to January
31, 1997 included in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system a registration statement on Form SB-2
(together with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act with respect to the Securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in such Registration Statement, certain parts of which have been omitted
in accordance with the rules and regulation of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. For further
information, reference is made to such registration statement, including the
exhibits thereto, which may be inspected without charge at the Commission's
principal office
54
<PAGE>
at 450 Fifth Street, N. W., Room 1024, Washington D. C. 20549; and at the
following Regional Offices of the Commission, except that copies of the exhibits
may not be available at certain of the Regional Offices: Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New
York Regional Office 7 World Trade Center, Suite 1300, New York, NY 10048.
Copies of all or any part of such material may be obtained from the Commission
at 450 Fifth Street, N. W. Room 1024, Washington, D.C. 20549, upon payment of
certain fees prescribed by the Commission. The Commission maintains a World Wide
Web site on the Internet at http://www.sec.gov that contains reports, proxy,
information statements, and registration statements and other information filed
with the Commission through the EDGAR system.
The Company is not presently a reporting company and does not file reports
or other information with the Commission. However, on the effective date of the
Registration Statement, the Company will become a reporting company. Further,
the Company will register its Common Stock and Warrants under the Exchange Act.
Accordingly, the Company will become subject to the additional reporting
requirements of the Exchange Act and in accordance therewith will file reports,
proxy statements and other information with the Commission. In addition, after
the completion of this Offering, the Company intends to furnish its shareholders
with annual reports containing audited financial statements and such interim
reports, in each case as it may determine to furnish or as may be required by
law.
55
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Balance Sheets at January 31, 1997, January 31, 1998 and July 31, 1998 (unaudited).... F-3
Statements of Operations for the period February 8, 1996 (inception) to January 31,
1997, for the year ended January 31, 1998 and for the six months ended July 31, 1997
and 1998 (unaudited)................................................................. F-4
Statement of Changes in Shareholders' Deficit......................................... F-5
Statements of Cash Flows for the period February 8, 1996 (inception) to January 31,
1997, for the year ended January 31, 1998 and for the six months ended July 31, 1997
and 1998 (unaudited)................................................................. F-6
Notes to Financial Statements, January 31, 1998....................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Outlook Sports Technology, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in shareholders' deficit and of cash flows present
fairly, in all material respects, the financial position of Outlook Sports
Technology, Inc. (formerly Hippo, Inc.) at January 31, 1998 and 1997, and the
results of its operations and its cash flows for the year ended January 31, 1998
and for the period February 8, 1996 (inception) to January 31, 1997, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations through January 31, 1998, has a shareholders' deficit
and working capital deficiency as of January 31, 1998, and is dependent on
raising additional financing in order to fund its existing level of operations.
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Price Waterhouse LLP
Miami, Florida
June 9, 1998
F-2
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JANUARY 31,
---------------------- JULY 31,
1997 1998 1998
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash................................................... $ 19,041 $ 1,367 $ 1,621
Accounts receivable, net of allowance for doubtful
accounts of $35,000.................................. -- 167,700 279,108
Inventory.............................................. -- 417,058 527,296
Prepaid expenses....................................... -- 12,854 96,760
Debt issuance costs.................................... -- -- 194,688
Deposits and other current assets...................... 7,809 51,813 36,506
---------- ---------- ----------
Total current assets............................... 26,850 650,792 1,135,979
---------- ---------- ----------
Deferred expenses -- -- 93,750
Prepaid royalties...................................... 150,000 133,319 --
Property and equipment, net............................ 31,197 201,644 428,849
License................................................ 19,300 19,300 --
---------- ---------- ----------
$ 227,347 $1,005,055 $1,658,578
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................... $ 495,413 $1,962,657 $1,798,024
Accrued expenses..................................... 134,482 824,179 919,748
Advances from officers............................... 588,660 255,000 272,500
Notes payable, current portion....................... 115,000 2,665,638 5,825,000
---------- ---------- ----------
Total current liabilities.......................... 1,333,555 5,707,474 8,815,272
Notes payable, long term............................... 40,000 40,000 40,000
---------- ---------- ----------
1,373,555 5,747,474 8,855,272
---------- ---------- ----------
Commitments and contingencies.......................... -- -- --
---------- ---------- ----------
Shareholders' deficit:
Common stock; $.01 par value, 8,100,000 shares
authorized; 1,118,488 and 2,324,071 shares issued
and outstanding in 1997 and 1998, respectively, and
2,566,771 issued and 2,516,771 outstanding at July
31, 1998 (unaudited)............................... 11,185 23,241 25,668
Treasury stock; 50,000 shares (unaudited)............ -- -- (19,300)
Additional paid in capital........................... 1,221,159 2,306,543 2,718,329
Accumulated deficit.................................. (2,378,552) (7,072,203) (9,921,391)
---------- ---------- ----------
Total shareholders' deficit........................ (1,146,208) (4,742,419) (7,196,694)
---------- ---------- ----------
$ 227,347 $1,005,055 $1,658,578
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY 8,
1996
(INCEPTION) FOR THE SIX MONTHS ENDED
TO YEAR ENDED JULY 31,
JANUARY 31, JANUARY 31, ----------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.............................................. $ -- $ 741,120 $ 267,547 $ 440,474
------------- ------------- ------------- -------------
Operating expenses:
Costs of sales..................................... -- 859,317 300,028 520,179
Research and development........................... 650,805 451,019 185,078 102,235
Stock-based compensation........................... 473,894 210,130 133,583 --
Selling, general and administrative expenses....... 1,251,009 3,669,657 1,294,715 2,755,609
------------- ------------- ------------- -------------
Total costs and expenses......................... 2,375,708 5,190,123 1,913,404 3,378,023
------------- ------------- ------------- -------------
Loss from operations................................. (2,375,708) (4,449,003) (1,645,857) (2,937,549)
Interest expense..................................... (2,844) (244,648) (76,555) (325,636)
Gain on sale of license.............................. -- -- -- 413,997
------------- ------------- ------------- -------------
Net loss............................................. $(2,378,552) $ (4,693,651) $ (1,722,412) $ (2,849,188)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic and diluted loss per share..................... $ (3.24) $ (2.21) $ (1.48) $ (1.17)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares outstanding........... 734,330 2,120,460 1,162,539 2,425,197
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL TOTAL
PAR TREASURY PAID IN ACCUMULATED SHAREHOLDERS'
SHARES VALUE STOCK CAPITAL DEFICIT DEFICIT
---------- --------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 8, 1996........ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock......... 1,068,488 10,685 -- 1,128,074 -- 1,138,759
Stock option compensation........ -- -- -- 73,785 -- 73,785
Acquisition of license........... 50,000 500 -- 19,300 -- 19,800
Net loss......................... -- -- -- -- (2,378,552) (2,378,552)
---------- --------- ---------- ------------ ------------- -------------
Balance, January 31, 1997........ 1,118,488 11,185 -- 1,221,159 (2,378,552) (1,146,208)
Issuance of common stock......... 1,205,583 12,056 -- 932,218 -- 944,274
Stock option compensation........ -- -- -- 153,166 -- 153,166
Net loss......................... -- -- -- -- (4,693,651) (4,693,651)
---------- --------- ---------- ------------ ------------- -------------
Balance, January 31, 1998........ 2,324,071 23,241 -- 2,306,543 (7,072,203) (4,742,419)
Issuance of common stock for
payment of services
(unaudited).................... 242,700 2,427 -- 411,786 -- 414,213
Treasury stock (unaudited)....... -- -- (19,300) -- -- (19,300)
Net loss (unaudited)............. -- -- -- -- (2,849,188) (2,849,188)
---------- --------- ---------- ------------ ------------- -------------
Balance, July 31, 1998
(unaudited).................... 2,566,771 $ 25,668 $ (19,300) $ 2,718,329 $ (9,921,391) $(7,196,694)
---------- --------- ---------- ------------ ------------- -------------
---------- --------- ---------- ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY 8,
1996
(INCEPTION) FOR THE SIX MONTHS ENDED
TO YEAR ENDED JULY 31,
JANUARY 31, JANUARY 31, ----------------------
1997 1998 1997 1998
------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Operating activities:
Net loss........................................................ $(2,378,552) ($4,693,651) $(1,722,412) $(2,849,188)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation................................................ 3,355 8,100 4,409 74,700
Stock-based compensation.................................... 473,894 210,130 133,583 --
Changes in operating assets and liabilities:
Increase in accounts receivable........................... -- (167,700) (212,892) (111,408)
Increase in inventory..................................... -- (417,058) (220,539) (110,238)
Increase in prepaid expenses.............................. -- (12,854) (36,946) 14,731
Increase in deposits and other current assets............. (7,809) (44,004) (102,494) 34,607
(Increase) decrease in prepaid royalties.................. (150,000) 16,681 -- 133,319
Increase (decrease) in accounts payable and accrued
expenses................................................ 629,895 2,156,941 221,585 152,762
------------- ----------- ---------- ----------
Net cash used in operating activities............................. (1,429,217) (2,943,415) (1,935,706) (2,660,715)
------------- ----------- ---------- ----------
Investing activities:
Capital expenditures............................................ (34,552) (178,547) (13,951) (301,905)
------------- ----------- ---------- ----------
Net cash used in investing activities............................. (34,552) (178,547) (13,951) (301,905)
------------- ----------- ---------- ----------
Financing activities:
Proceeds from line of credit.................................... -- 35,000 35,000 --
Advances from officers.......................................... 588,660 255,000 3,000 17,500
Proceeds from issuance of unsecured notes payable............... 190,000 2,265,500 1,870,000 3,555,000
Debt issuance costs............................................. -- -- -- (194,688)
Proceeds (payments) from (to) factor............................ -- 280,138 -- (280,138)
Repayment of unsecured notes payable............................ (35,000) (30,000) -- (115,500)
Proceeds from exercise of stock options and sale of common
stock......................................................... 739,150 298,650 59,150 --
Acquisition of treasury stock................................... -- -- -- (19,300)
------------- ----------- ---------- ----------
Net cash provided by financing activities......................... 1,482,810 3,104,288 1,967,150 2,962,874
------------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.............. 19,041 (17,674) 18,493 254
------------- ----------- ---------- ----------
Cash and cash equivalents, beginning of period.................... -- 19,041 19,041 1,367
------------- ----------- ---------- ----------
Cash and cash equivalents, end of period.......................... $ 19,041 $ 1,367 $ 36,534 $ 1,621
------------- ----------- ---------- ----------
------------- ----------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.......................... $ -- $ 1,868 $ -- $ 47,924
------------- ----------- ---------- ----------
------------- ----------- ---------- ----------
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In June 1998, the Company issued 125,000 shares of its common stock to obtain
financial and investment services through January 2000. Additionally, the
Company issued in June 1998, 1,666 shares of its common stock to a vendor. These
shares were valued by the Company's Board of Directors at $1.00 per share based
on the fair market value of other common stock transactions during the
particular time frame. (unaudited)
In March 1998, the Company issued 104,784 shares of its common stock to a
professional golfer as consideration for $220,047 owed to such golfer.
Additionally, the Company issued in March, 1998 11,250 shares of its common
stock valued at $67,500 in connection with endorsement contracts expiring in
December 1998 (unaudited).
During February 1997, the Company issued 1,024,800 shares of its common stock in
exchange for the forgiveness of $588,660 of advances due to the Company's Chief
Executive Officer.
During 1996, the Company issued 50,000 shares of its common stock valued at
approximately $19,800 in exchange for certain marketing rights.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
Outlook Sports Technology, Inc. (the Company) was incorporated on February
8, 1996 in the State of Delaware. The Company is a designer and marketer and,
through the use of contracted parties, a manufacturer of golf equipment, apparel
and accessories under the TEGRA-TM- brand name. TEGRA-TM- golf clubs incorporate
the Company's patent-pending Invisible Inset Hosel-TM-.
The Company initially entered the U.S. golf market under a license agreement
with Hippo Holdings, Ltd. ("Hippo Holdings"), a British golf equipment
manufacturer and distributor. Under the terms of the licensing agreement, the
Company acquired the rights, in perpetuity, to market and sell HiPPO-TM- brand
products in the U.S. and Canada for 50,000 shares of the Company's common stock,
and prepaid $150,000 of royalties. In May 1998, the Company sold this license
back to Hippo Holdings. (See Note 9.)
Since its inception in 1996 to January 31, 1998, the Company has incurred
recurring losses, has not generated cash from its operating activities and is
dependent on raising additional financing in order to fund its existing level of
operations. Additionally, at January 31, 1998, the Company's current liabilities
exceeded its current assets by approximately $5,057,000, and the Company had an
accumulated deficit of approximately $4,742,000. These factors, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. These financial statements do not reflect any adjustments that might
result from the outcome of this uncertainty.
In connection with the above, the Company's management intends to execute an
initial public offering under which the Company expects to sell shares of its
common stock as well as warrants to acquire shares of common stock. Proceeds
from the offering are expected to be used to repay the Company's outstanding
notes payable (see Note 5) and fund inventory purchases and ongoing operations.
There can be no assurance that such offering will be successful. If the offering
is not successful, management will seek alternative financing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company in the
preparation of the accompanying financial statements is presented below.
ACCOUNTING ESTIMATES
The preparation of financial statements 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 and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data of the Company is unaudited. Certain information
and footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted. In the opinion of management, the interim financial statements
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results of the Company's operations for
the interim periods presented. The results of operations for the six month
period ended July 31, 1998 are not necessarily indicative of the results for the
full year.
F-7
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH
The Company considers those short term, highly liquid investments with
original maturities of three months or less as cash.
INVENTORY
Inventory, which is primarily comprised of clubs and component parts, is
stated at the lower of cost or market with cost determined using the first-in,
first-out (FIFO) method. Component parts consist primarily of golf club heads,
shafts and grips.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight line method over the estimated useful lives of the assets. Significant
additions and improvements are capitalized and costs for maintenance and repairs
are expensed as incurred.
LICENSE
The license to market HIPPO-TM- brand golf products in the U.S. and Canada
is recorded at the estimated fair value of 50,000 shares issued in May 1996 as
consideration for such license (see Note 9).
LONG LIVED ASSETS
The Company reviews long lived assets and identifiable intangibles for
recoverability and reserves for impairment whenever events or changes in
circumstances indicate, based on estimated future cash flows, the carrying
amount of the assets will not be fully recoverable.
REVENUE RECOGNITION
Revenue from the sale of non consignment products is recognized at the time
title to such products passes to the customer. Revenue from the sale of products
delivered on consignment is recognized at the time such products are sold by the
customer.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, which relate primarily to the design of the
TEGRA-TM- brand name products, are expensed as incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense consists of
media advertising as well as brochure, production and direct mail costs.
Advertising expense approximated $1,033,000 for the year ended January 31, 1998.
F-8
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company records deferred income taxes using the liability method. Under
the liability method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement and income tax bases of the Company's assets and liabilities. An
allowance is recorded, based upon currently available information, when it is
more likely than not that any or all of a deferred tax asset will not be
realized. The provision for income taxes includes taxes currently payable, if
any, plus the net change during the year in deferred tax assets and liabilities
recorded by the Company.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to its employees using the
intrinsic value method, which requires the recognition of compensation expense
over the vesting period of the options when the exercise price of the stock
option granted is less than the fair value of the underlying common stock.
Additionally, the Company provides pro forma disclosure of net loss and loss per
share as if the fair value method had been applied in measuring compensation
expense for stock options granted. Stock-based compensation related to options
granted to non-employees is recognized using the fair value method.
LOSS PER SHARE
The computation of loss per share of common stock is computed by dividing
net loss for the period by the weighted average number of shares outstanding
during that period. The weighted average number of shares outstanding for the
period February 8, 1996 (inception) to January 31, 1997 and the year ended
January 31, 1998 excludes approximately 274,000 and 1,179,000 respectively, of
antidilutive stock options and warrants.
Because the Company is incurring losses, the effect of stock options and
warrants is antidilutive. Accordingly, the Company's presentation of diluted
earnings per share is the same as that of basic earnings per share.
Assuming the Company's contemplated public offering and the related payment
of the unsecured notes payable to private investors had taken place on February
1, 1997, the Company would have net loss per share of $1.68 for the year ended
January 31, 1998 and $0.78 for the unaudited period February 1, 1998, to July
31, 1998. Such supplemental net loss per share is based on the number of shares
of common stock used in the calculation of net loss per share plus the number of
shares required to be sold by the Company to fund the repayment of the unsecured
notes payable after giving effect to the interest savings of approximately
$237,000 and $300,000 for the periods ended January 31, 1998, and July 31, 1998,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and notes payable approximated fair value because of the short maturity of these
instruments. The Company routinely assesses the financial strength of its
customers and records an allowance for doubtful accounts when it determines that
collection of a particular amount is unlikely.
F-9
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
3. INVENTORY
Inventory at January 31, 1998 consists of the following:
<TABLE>
<CAPTION>
Components parts.................................................. $ 126,340
<S> <C>
Clubs............................................................. 278,715
Apparel, golf accessories and other............................... 12,003
---------
$ 417,058
---------
---------
</TABLE>
At January 31, 1998, the Company had inventory of approximately $134,000 on
consignment at various customer locations. The consigned inventory did not
include any HIPPO-TM- brand products.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, ESTIMATED
--------------------- USEFUL LIVES
1997 1998 (IN YEARS)
--------- ---------- ---------------
<S> <C> <C> <C>
Furniture and fixtures................................... $ -- $ 169,215 3
Equipment................................................ 34,552 43,884 3
--------- ----------
34,552 213,099
Accumulated depreciation................................. (3,355) (11,455)
--------- ----------
$ 31,197 $ 201,644
--------- ----------
--------- ----------
</TABLE>
The Company recorded depreciation expense related to its property and
equipment of $3,355 and $8,100 for the period ended January 31, 1997 and the
year ended January 31, 1998, respectively.
F-10
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
5. NOTES PAYABLE
The Company's notes payable are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------
1997 1998 JULY 31, 1998
----------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Unsecured notes payable to private investors, due September 1998 (see
below)............................................................... $ -- $ 50,000 $ 3,905,000
Unsecured notes payable to private investors, due September 1998,
interest at 12.5%.................................................... 115,000 1,705,000 1,360,000
Unsecured notes payable to private investors, due September 1998,
interest at 15%...................................................... -- 525,000 525,000
Unsecured notes payable to private investors, due September 1998,
interest at 24%...................................................... -- 70,500 --
Unsecured line of credit, interest at the bank's prime rate plus 2%
(10.5% at January 31, 1998), guaranteed by the Company's President
and Chief Executive Officer, due on demand........................... -- 35,000 35,000
Long term unsecured notes payable to the Company's President and Chief
Executive Officer, interest at 7.5%, due by September 2002........... 40,000 40,000 40,000
Advances from factor, interest at 24%, due on demand................... -- 280,138 --
----------- ------------- -------------
155,000 2,705,638 5,865,000
Current portion........................................................ (115,000) (2,665,638) (5,825,000)
----------- ------------- -------------
$ 40,000 $ 40,000 $ 40,000
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
In January 1998, as part of a proposed $3,500,000 debt offering, the Company
issued a $50,000 note payable maturing at the earlier of September 1998 or
within 5 days after an initial public offering of the Company's common stock
generating in excess of $7 million of gross proceeds. Under the terms of the
debt financing, the holder of the $50,000 note payable has the option to receive
interest in the amount of $3,125 or warrants to purchase 25,000 shares of the
Company's common stock at a price per share equal that to be offered in
connection with the offering of warrants under the Company's planned initial
public offering, which management expects to be 115% of the per share initial
public offering price.
Under the terms of the original issuance of 12.5% unsecured notes payable to
private investors, the notes were due at the earlier of September 30, 1997, or
an initial public offering of the Company's common stock. Additionally, the
Company issued $275,000 of such notes during or subsequent to September 1997
which had a maturity of September 1998 or within 5 days of an initial public
offering, if earlier. The 12.5% debt included 231,400 warrants to purchase the
Company's common stock at prices ranging from $0.75 to $3.99 per share.
Under the original terms of the 15% unsecured notes payable to private
investors, the notes were due at the earlier of September 30, 1997, or an
initial public offering of the Company's common stock. The terms of the debt
included 232,750 warrants to purchase the Company's common stock at $0.75 per
share.
F-11
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
5. NOTES PAYABLE (CONTINUED)
At January 31, 1998, the Company was in default of the terms of the 12.5%
and 15% unsecured notes payable to private investors which were due during
September 1997. During February 1998, the Company obtained a specific waiver to
extend the maturity of the then outstanding unsecured notes payable through the
earlier of September 1998 or within 5 days after an initial public offering of
the Company's common stock generating in excess of $7.5 million of gross
proceeds.
As a result of the extension of the maturity of the 15% and certain of the
Company's 12.5% unsecured notes payable to September 1998, the Company issued to
the holders of such unsecured notes, warrants to purchase 85,000 shares of the
Company's common stock at $0.75 per share, warrants to purchase 98,333 shares of
the Company's common stock at $3.00 per share and warrants to purchase 31,666
shares of the Company's common stock at $2.10 per share. The warrants were
exercisable in full at the time of their issuance and expire on the dates of
expiration of the warrants issued under the terms of the original debt.
The Company's management believes that at the time of their issuance, the
warrants issued in connection with the Company's unsecured notes payable had no
value due to the financial condition of the Company as explained in Note 1.
Accordingly, no portion of the proceeds from the issuance of the notes was
allocated to the warrants nor was any value assigned to warrants issued in
connection with the extension of the maturity of certain unsecured notes as
described above.
In February and May 1998 the Company repaid an aggregate of $68,500 and
$47,000, respectively, of unsecured notes payable to private investors
representing notes bearing interest at 12.5% and 24%.
Pursuant to the terms of a factoring agreement, the Company assigns
substantially all of its accounts receivable to a factor with recourse. The
Company is able to borrow up to 50% of eligible accounts receivable, as defined,
up to a maximum amount of $1 million. Advances from the factor bear interest at
24% per annum. Receivables assigned to the factor are subject to a charge of 3%
of the face amount of the receivable. The advances from the factor are secured
by all of the Company's assets. During the year ended January 31, 1998, the
Company incurred interest and factoring charges of $10,059 and $7,739,
respectively. The factoring agreement was for an initial term of six months and
renews for successive twelve month periods thereafter, unless cancelled by the
Company or the factor.
At January 31, 1998, the Company had received advances of approximately
$115,000 in excess of those permitted under the factoring agreement, resulting
in the Company being in default of such agreement. As a result of the default,
the factor had the right to terminate the agreement and demand payment of the
funds advanced. Subsequent to year end, the Company has reduced the amounts
outstanding under the factoring agreement and currently is within the borrowing
base of such agreement.
At January 31 and July 31, 1998, the Company had accrued interest under its
unsecured notes payable in the aggregate amount of approximately $237,000 and
493,000, respectively.
At January 31, 1998, $410,000 and $100,000 of the 12.5% and 15% unsecured
notes payable, respectively, were held by a related party. Accrued interest and
interest expense of approximately $34,000 and $31,000, respectively, was
recorded in regards to these unsecured notes payable as of and for the year
ended January 31, 1998.
During the period February to June 1998, the Company obtained debt financing
amounting to approximately $3.4 million (amounts outstanding at January 31, 1998
and July 31, 1998 were $50,000 and $3,905,000, respectively). This debt matures
at the earlier of September 1998, or within 5 days of an initial
F-12
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
5. NOTES PAYABLE (CONTINUED)
public offering of the Company's common stock generating in excess of $7 million
of gross proceeds. Under the terms of the debt financing, each holder of a
$50,000 note payable has the option to receive interest in the amount of $3,125
or warrants to purchase 25,000 shares of the Company's common stock at a price
per share equal to that to be offered in connection with the offering of
warrants under the Company's intended initial public offering, which management
expects to be 115% of the per share initial public offering price.
6. SHAREHOLDERS' DEFICIT
STOCK SPLITS AND NUMBER OF AUTHORIZED SHARES
In August 1996, the Company increased the number of authorized shares of
common stock from 250,000 to 6,500,000 and simultaneously effected a 15-for-1
stock split. In February 1997, the Company increased the number of authorized
shares of common stock from 6,500,000 to 10,881,000 and simultaneously effected
a 3-for-2 reverse stock split. In July 1997, the Company increased the number of
authorized shares of common stock from 10,881,000 to 24,300,000. On January 31,
1998, the Company decreased the authorized shares of Common Stock to 8,100,000
and simultaneously effected a 3-for-1 reverse stock split.
All references to the number of common shares and per share amounts
elsewhere in the financial statements and related footnotes have been restated
to reflect the effect of all stock splits for all periods presented.
See Note 10.
COMMON STOCK
During February 1997, the Company's Chief Executive Officer was issued
approximately 1,025,000 shares of the Company's common stock in return for the
forgiveness of $588,660 in advances to the Company at various dates during 1996
and 1997. The Company recorded approximately $57,000 of compensation expense in
connection with the issuance of such shares based on the fair market value of
the shares as determined by an independent valuation. Also, during the year
ended January 31, 1998, the Company sold approximately 181,000 shares of its
common stock for $299,000, of which 4,833 shares were sold to a related party.
In May 1996, the Company issued 50,000 shares of its common stock to Hippo
Holdings in exchange for the perpetual rights to market and sell HiPPO-TM- brand
products in the U.S. and Canada. These shares were valued by the Company's Board
of Directors at $19,800, the estimated fair value, and their issuance recorded
as an intangible asset in the accompanying balance sheets at January 31, 1997
and 1998 (see Note 9).
At various dates during the period ended January 31, 1997, the Company's
President and Chief Executive Officer purchased approximately 992,000 shares of
the Company's common stock for $529,000. In connection with the sale of such
shares to the Company's Chief Executive Officer, the Company recorded
compensation expense of approximately $400,000 for the period ended January 31,
1997 based on fair market value of shares issued to other investors during the
particular time frame.
Additionally, during the period ended January 31, 1997, the Company issued,
to third parties, approximately 77,000 shares of its common stock for $210,000.
F-13
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
6. SHAREHOLDERS' DEFICIT (CONTINUED)
COMMON STOCK WARRANTS
In connection with the issuance of its unsecured notes payable to private
investors, the Company issued warrants to purchase shares of its common stock as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
WARRANTS PRICE
--------- -----------
<S> <C> <C>
Warrants issued in connection with $65,000 of notes payable at 12.5%........................ 7,150 $ 1.13
--------- -----
BALANCE AT JANUARY 31, 1997................................................................. 7,150 1.13
Warrants issued in connection with $975,000 of notes payable at 12.5%....................... 107,250 0.75
Warrants issued in connection with $525,000 of notes payable at 15%......................... 232,750 0.75
Warrants issued in connection with $420,000 of notes payable at 12.5%....................... 84,000 2.10
Warrants issued in connection with other notes payable...................................... 33,000 2.33
--------- -----
BALANCE AT JANUARY 31, 1998................................................................. 464,150 $ 1.75
--------- -----
--------- -----
</TABLE>
The Company believes, based on an independent valuation, that the above
warrants had an insignificant fair market value at the time of their issuance.
The above warrants do not include 25,000 warrants issuable at the election of a
debt holder in connection with a $50,000 note payable issued by the Company in
January 1998 (see Note 5).
COMMON STOCK OPTIONS
On September 4, 1996, the Company adopted an Incentive Stock Plan (the
"Plan") allowing the Company to issue 500,000 incentive stock options to
employees and non-qualified options to either employees or consultants. The
total number of shares with respect to which options may be granted was
increased to 1.1 million on January 24, 1997.
F-14
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
6. SHAREHOLDERS' DEFICIT (CONTINUED)
The Company has issued various stock options to employees and consultants.
The options' vesting period varies from full vesting upon issuance of options to
vesting over a three year period. A summary of the Company's stock options
activity is as follows:
<TABLE>
<CAPTION>
OPTIONS
----------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- -----------
<S> <C> <C>
Balance, February 8, 1996................................................................... -- $ --
Granted..................................................................................... 267,531 0.82
--------- -----
Balance, January 31, 1997................................................................... 267,531 0.82
Granted..................................................................................... 448,880 3.04
--------- -----
Balance, January 31, 1998................................................................... 716,411 $ 2.21
--------- -----
--------- -----
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
OUTSTANDING EXERCISABLE AVERAGE
----------- ----------- EXERCISE
EXERCISE PRICE RANGE SHARES SHARES PRICE
- ----------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.225....................................................................... 85,476 85,476 $ 0.225
0.72-0.75................................................................... 169,161 125,204 $ 0.729
2.10-3.00................................................................... 384,068 286,624 $ 2.550
6.00........................................................................ 77,166 24,000 $ 6.000
----------- -----------
716,411 520,749 $ 2.210
----------- -----------
----------- -----------
</TABLE>
The Company generally grants options at exercise prices equal to the
estimated market value of the Company's common stock at the date of the grant.
The Company recognized approximately $74,000 and $153,000 of stock-based
compensation expense during the periods ended January 31, 1997 and 1998,
respectively, relating to options granted at exercise prices below the estimated
fair market value of the Company's common stock at the date of grant. Had
compensation costs for the Company's stock option grants to employees been
determined using the fair value method, the Company's loss and loss per share
for the year ended January 31, 1998 would not have been significantly different
from the amounts recorded.
Fair market value information for the Company's stock warrants and options
for the period February 8, 1996 (inception) to January 31, 1997 and the year
ended January 31, 1998 was estimated using the Black-Scholes option pricing
model assuming risk free rates of 5.6% to 6.5%, no dividend yield, expected
terms of 3 years, and no significant volatility.
7. INCOME TAXES
The Company is subject to federal and state income taxes but has not
incurred a liability for such taxes due to losses incurred. The Company had
deferred tax assets of approximately $812,000 and $2,414,000 at January 31, 1997
and 1998, respectively, resulting primarily from net operating loss
carryforwards. The deferred tax assets have been fully offset by a valuation
allowance resulting from the uncertainty surrounding the future realization of
the net operating loss carryforwards. These carryforwards are
F-15
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
7. INCOME TAXES (CONTINUED)
available to offset future taxable income, if any, through 2013. Limitations on
the utilization of the Company's net operating tax loss carryforwards could
result in the event of certain changes in the Company's ownership.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancelable operating
lease arrangements. Rent expense for the period February 8, 1996 (inception) to
January 31, 1997 and for the year ended January 31, 1998 was approximately
$46,000 and $101,000, respectively.
Minimum future rental payments on non-cancelable operating leases with
remaining lease terms of one or more years are as follows at January 31, 1998:
<TABLE>
<S> <C>
JANUARY 31,
1999.............................................................. $ 93,883
2000.............................................................. 36,951
2001.............................................................. 3,953
2002.............................................................. 549
---------
Total minimum future rental payments.............................. $ 135,336
---------
---------
</TABLE>
The Company has entered into an endorsement contract with a professional
golfer for endorsement of the TEGRA-TM- brand. Under the terms of the contract,
the professional golfer will wear TEGRA-TM- headwear and apparel, play TEGRA-TM-
clubs and carry a TEGRA-TM- bag and accessories in professional competitions and
in any golf related activities worldwide.
Total minimum annual payments under the endorsement contract are as follows:
<TABLE>
<S> <C>
JANUARY 31,
1999........................................................... $ 147,500
2000........................................................... 152,500
2001........................................................... 120,000
----------
Total minimum future endorsement contract commitments.......... $ 420,000
----------
----------
</TABLE>
The Company has commitments under employment and design consulting contracts
expiring through November 1999. The terms of the present design consulting
contract entered into in October 1996, as amended in April 1997, include a
monthly retainer and royalty payments based on a percentage of cost of sales of
the designed products. The designer also received 6,666 options at $0.75 per
share which vest 3,333 each at December 31, 1997 and at December 31, 1998, upon
final performance of the contract. In connection with these options, no amount
was recorded as compensation expense as the Company's management believes these
options had an insignificant fair market value at the time of issuance based on
F-16
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
an independent appraisal. The Company is currently negotiating an extension of
the design consulting contract. Total minimum annual payments under these
contracts are as follows:
<TABLE>
<S> <C>
JANUARY 31,
1999.............................................................. $ 192,500
2000.............................................................. 46,667
---------
Total minimum future employment and design consulting contract
commitments..................................................... $ 239,167
---------
---------
</TABLE>
The Company entered into an agreement with Hippo Holdings under which the
Company was to pay a percentage of the endorsement fee paid by Hippo Holdings to
a professional golfer. In connection therewith, the Company accrued
approximately $220,000 during the year ended January 31, 1998. This agreement
was terminated upon the sale back to Hippo Holdings of its license (see Note 9).
As of January 31, 1998, the Company had entered into purchase agreements
with various suppliers for components and finished goods for both TEGRA-TM- and
HiPPO-TM- brand products, approximating $1.3 million (see Note 9).
The Company is a defendant in a lawsuit alleging patent infringement and,
additionally, has received a request that the Company review its TEGRA-TM- line
of clubs in view of a patent issued to a third party relating to golf club
design. The Company believes that its TEGRA-TM- brand golf clubs do not infringe
the patents which are the subject of the lawsuit or the review request. However,
no assurance can be given that the Company's product does not infringe such
patents, or any other golf club related patent. Further, the Company cannot
currently estimate the effect of an adverse decision in connection with these
matters on the Company's financial condition or results of operations.
See Note 10.
9. SUBSEQUENT EVENTS
In March 1998, the Company issued 104,784 shares to a professional golfer as
consideration for $220,047 owed to such golfer under the Company's endorsement
arrangement with Hippo Holdings. The Company is currently negotiating an
endorsement contract with this professional golfer for the Company's TEGRA-TM-
brand products.
In May 1998, the Company sold its license to sell HiPPO-TM- products in the
U.S. back to Hippo Holdings along with all existing HiPPO-TM- brand inventory of
approximately $62,000, prepaid royalties of approximately $133,000, and the
assumption of liabilities in the amount of approximately $225,000. The Company
received a cash payment of approximately $359,000. A gain of approximately
$389,000 will be recorded in connection with this transaction. In addition,
Hippo Holdings returned to the Company the 50,000 shares of common stock it had
received upon entering the license agreement; no gain or loss will be recorded
in connection with the return of the stock. Furthermore, Hippo Holdings assumed
the Company's then outstanding purchase commitments in the amount of
approximately $1,172,000 related to the HiPPO-TM- brand of products. Sales of
HiPPO-TM- brand products for the year ended January 31, 1998, and the three
months ended April 30, 1998, were approximately $589,000 and $24,000,
respectively.
On April 29, 1998, the Company entered into an agreement with a financial
advisor to obtain financial investment services through January 22, 2000. The
consideration provided for in the agreement was
F-17
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
9. SUBSEQUENT EVENTS (CONTINUED)
125,000 shares of the Company's Common Stock. The Company recorded $125,000 as a
deferred charge to be amortized over the period of the agreement.
See Note 10.
10. UNAUDITED SUBSEQUENT EVENTS
In October 1998, the Company increased the authorized shares of common stock
from 8,100,000 to 20,000,000. Within the authorized shares of common stock, the
Company created a Class A and a Class B stock, consisting of 15,000,000 and
5,000,000 shares of stock, respectively. Additionally, the Company authorized
5,000,000 shares of preferred stock, par value $0.01 per share.
The Company is a defendant in a lawsuit alleging breach of contract for
advertising services in an amount of approximately $200,000. The Company's
management believes its defense to be meritorious; however, there can be no
assurance that the Company will prevail.
The Company received an additional payment of approximately $54,000 from
Hippo Holdings in connection with the sale of the Company's license to produce
HiPPO-TM- products. Accordingly, the gain on the sale was increased by
approximately $25,000.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 4
Risk Factors.................................... 10
Use of Proceeds................................. 23
Dilution........................................ 24
Capitalization.................................. 25
Dividend Policy................................. 25
Selected Financial Data......................... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 27
Business........................................ 31
Management...................................... 39
Principal and Selling Shareholders.............. 44
Concurrent Registration......................... 44
Certain Transactions............................ 46
Description of Securities....................... 48
Shares Available for Future Sale................ 51
Underwriting.................................... 52
Legal Matters................................... 54
Experts......................................... 54
Available Information........................... 54
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,500,000 SHARES OF
CLASS A COMMON STOCK
AND
1,000,000 REDEEMABLE
CLASS A COMMON STOCK PURCHASE
WARRANTS
OUTLOOK SPORTS TECHNOLOGY, INC.
---------------------
PROSPECTUS
---------------------
[LOGO]
[LOGO]
SECURITIES, INC.
Atlanta, Georgia
(404) 965-5353
(800) 840-8467
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation includes certain provisions
permitted pursuant to the Delaware General Corporation Law ("Delaware Law")
whereby officers and directors of the Company are to be indemnified against
certain liabilities. The Certificate of Incorporation also limits to the fullest
extent permitted by Delaware Law a director's liability to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
including gross negligence, except liability for (i) breach of the director's
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption, and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware Law does not permit a corporation to eliminate a director's duty of
care and this provision of the Company's Certificate of Incorporation has no
effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's beach of the duty of care.
Article SEVENTH of the Company's Certificate of Incorporation, as amended
(the "Certificate of Incorporation"), provides that no director of the Company
shall be personally liable for any monetary damages for any breach of fiduciary
duty as a director, except to the extent that the Delaware General Corporation
Law prohibits the elimination or limitation of liability of directors for breach
of fiduciary duty.
Article EIGHTH of the Certificate of Incorporation provides that a director
or officer of the Company shall be indemnified by the Company against (a) all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Company) brought against him or
her by virtue of his or her position as a director or officer of the Company if
he or she acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful and (b) all expenses (including attorneys' fees) and
amounts paid in settlement incurred in connection with any action by or in the
right of the Company brought against him or her by virtue of his or her position
as a director or officer of the Company if he or she acted in good faith and in
a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the Company, except that no indemnification shall be made with
respect to any matter as to which such person shall have been adjudged to be
liable to the Company, unless a court determines that, despite such adjudication
but in view of all of the circumstances, he or she is entitled to
indemnification of such expenses. Notwithstanding the foregoing, to the extent
that a director or officer has been successful, on the merits or otherwise,
including the dismissal of an action without prejudice, he or she is required to
be indemnified by the Company against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his or her request, provided that he or she undertakes to repay the
amount advanced if it is ultimately determined that he or she is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Company determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Company that the director or officer
did not meet the applicable standard of conduct required for indemnification, or
if the Company fails to make an indemnification payment within sixty days after
such payment is claimed by such person, such person is permitted to petition the
court to make an independent determination as to whether such person is entitled
to indemnification. As a condition precedent to the right of indemnification,
the director or officer must give the Company notice of the action for which
indemnity is sought and the Company has the right to participate in such action
or assume the defense thereof.
II-1
<PAGE>
Article EIGHTH of the Certificate of Incorporation further provides that the
indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers the Company must indemnify
those persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he or she is or is threatened
to be made a party by reason of such position, if such person shall have acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his or her conduct
was unlawful; provided that, in the case of actions brought by or in the right
of the corporation, no indemnification shall be made with respect to any matter
as to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Company maintains a directors' and officers' insurance policy that
covers certain liabilities of directors and officers of the Company. The Company
maintains a general liability insurance policy that covers certain liabilities
of directors and officers of the Company arising out of claims based on acts or
omissions in their capacities as directors or officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
An itemized statement of expenses in connection with the issuance and
distribution of the securities to be registered, other than underwriting
discounts and commissions, appears below. All amounts are estimates, except for
the SEC registration fee, the NASD filing fee and the NASDAQ SmallCap Market
listing fee.
<TABLE>
<S> <C>
SEC Registration Fee.............................................................. $ 13,677
NASD Filing Fee................................................................... 4,040
NASDAQ SmallCap Market Listing Fee................................................ 7,566
Blue Sky Qualification Fees and Expenses.......................................... 30,000
Accounting Fees and Expenses...................................................... 100,000
Legal Fees and Expenses........................................................... 250,000
Transfer Agent Fees............................................................... 6,000
Printing and Engraving Expenses................................................... 75,000
Miscellaneous Expenses............................................................ 13,717
---------
TOTAL............................................................................. $ 500,000
---------
---------
</TABLE>
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES.
On October 7, 1998, the Company amended its certificate of incorporation to
create two classes of Common Stock. References to Common Stock below are to the
Common Stock of the Company prior to this Amendment.
The following information is furnished with regard to all securities sold by
the Company within the past three years which were not registered under the
Securities Act. The share numbers set forth below have been adjusted to reflect
a number of stock splits. In August 1996, the Company increased the number of
authorized shares of Common Stock from 250,000 to 6,500,000 and simultaneously
effected a 15-for-1 stock split. In February 1997, the Company increased the
number of authorized shares of Common Stock from 6,500,000 to 10,881,000 and
simultaneously effected a 3-for-2 reverse stock split. In July 1997, the Company
increased the number of authorized shares of Common Stock from 10,881,000 to
24,300,000. On
II-2
<PAGE>
January 31, 1998, the Company decreased the number of authorized shares to
8,100,000 and simultaneously effected a 3-for-1 reverse stock split.
The issuances described in this Item 26 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. None of the
foregoing transactions involved a distribution or public offering.
ISSUANCES OF COMMON STOCK
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PURCHASE PRICE DATE SOLD
- ------------------------------------------------------- ----------------- -------------- ----------------------
<S> <C> <C> <C>
Paul Berger............................................ 333,333 $ 132,000 May 13, 1996
117,630 95,000 June 21, 1996
207,690 170,000 August 19, 1996
1,024,800 588,660 February 27, 1997
Jim Dodrill............................................ 333,333 132,000 May 31, 1996
4,833 10,150 April 22, 1997
Greg Cohen............................................. 76,502 210,000 September 4, 1996
David Staudinger....................................... 6,666 14,000 July 25, 1997
Walter Maupay.......................................... 16,666 35,000 July 31, 1997
Walter & Gina McDonough................................ 3,333 7,000 August 1, 1997
DDJ Hackworthy Ltd Pp.................................. 47,619 100,000 August 11, 1997
David Stern............................................ 8,333 17,500 August 18, 1997
Ian Woosnam(1)......................................... 104,784 220,047 October 1, 1997
Synergy Group International(2)......................... 200,000 100,000 October 17, 1997
Carol Dodrill/Bill Powell(3)........................... 100,000 50,000 October 28, 1997
Paul Fairchild......................................... 33,333 70,000 October 30, 1997
Rodger Berman(2)....................................... 6,666 5,000 November 10, 1997
Frank Maddocks......................................... 60,000 45,000 November 11, 1997
Glen Day............................................... 10,000 (4) January 1, 1998
Dan Snider............................................. 1,250 (4) January 1, 1998
Arthur Chou............................................ 1,666 (4) January 1, 1998
Andrew Holder/Marc Roberts(2).......................... 100,000 100,000 January 23, 1998
Argent Securities, Inc................................. 125,000 (4) January 23, 1998
Total............................................
</TABLE>
- ------------------------
(1) Purchase price was paid by the individual forgoing payments due under a
contract with Company in amounts equal to the purchase price.
(2) These individuals purchased stock from Paul Berger and Jim Dodrill.
(3) These individuals purchased stock from Paul Berger.
(4) Issued in connection with a services contract.
II-3
<PAGE>
DEBT SECURITIES AND WARRANTS
From February, 1997 through July 1, 1998, the Company issued unregistered
debt securities and warrants to a number of individuals pursuant to five private
placements and to Stanley Berger in connection with certain advances to the
Company. The issuances made in connection with these transactions were made in
reliance on Section 4(2) of the Securities Act. In each case, each purchaser was
an accredited investor. The following summary of these transactions reflects the
effect of all stock splits of the Company's Common Stock. The summary also
reflects a 25% increase in the number of shares of Common Stock that may be
purchased by each investor in the offerings described under (a) and (b) below,
which increase was granted by the Company in return for an extension of the
payment date for each Note.
(a) In February through April, 1997, the Company sold through a private
placement a total of 9.75 Units (or portions of a Unit) to fourteen individuals,
each Unit consisting of a non-transferable promissory note in the amount of
$100,000, earning 12.5% interest annually, and a warrant to purchase 13,570
shares of the Common Stock of the Company. The warrants are convertible into
shares of Common Stock at $0.75 per share and terminate after five years.
(b) In May through June, 1997, the Company sold through a private placement
a total of 10.5 Units (or portions of a Unit) to ten individuals (all of whom
had participated in the first private placement), each Unit consisting of a
non-transferable promissory note in the amount of $50,000, earning 15% interest
annually, and a warrant to purchase 27,708 shares of the Common Stock of the
Company. The warrants are convertible into shares of Common Stock at $0.75 per
share and terminate after five years.
(c) In July, 1997, the Company sold through a private placement a total of
six Units (or portions of a Unit) to three individuals, each Unit consisting of
a non-transferable promissory note in the amount of $75,000, earning 12.5%
interest annually, and a warrant to purchase 15,000 shares of the Common Stock
of the Company. The warrants are convertible into shares of Common Stock at
$2.10 per share and terminate after five years. One investor in this offering
received warrants to purchase an additional 98,333 shares of common stock at
$3.00 per share, and one investor received warrants to purchase an additional
31,666 shares of common stock at $2.10 per share.
(d) In January through June, 1998, the Company sold through a private
placement a total of 70.1 Units (or portions of a Unit) to 43 individuals (four
of whom had participated in the first private placement), each Unit consisting
of a non-transferable promissory note in the amount of $50,000 and an option to
receive an additional $3,125 in cash or a warrant to purchase 25,000 shares of
the Common Stock of the Company. The warrants are convertible into shares of
Common Stock at $6.90 per share and terminate after three years. The Company
will register the warrants contemporaneously with registration of this Offering.
Argent Securities, Inc. acted as placement agent in the private placement and
received compensation of $499,150 consisting of a 10% commission and certain
other fees.
(e) On July 1, 1998, the Company sold through a private placement a total of
one Unit to a single individual, which Unit consisted of a non-transferable
promissory note in the amount of $400,000 and a warrant to purchase 533,333
shares of the Common Stock of the Company. The warrant is convertible into
shares of Common Stock at $7.50 per share and terminates after three years. H.J.
Meyers acted as placement agent in the private placement and received
compensation of $40,000 consisting of a 10% commission.
(f) In September, 1996 through January, 1998, the Company issued a total of
ten non-transferable promissory notes, totaling $340,000 and warrants to
purchase a total of 67,857 shares of the Common Stock of the Company. The
warrants are convertible into shares of Common Stock at exercise prices ranging
from $0.75 per share to $4.00 per share and terminate after five years.
II-4
<PAGE>
ITEM 27: EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Representative's Warrant
1.2 Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2* By-Laws of the Company
4.1* Specimen certificate for the Common Stock of the Company
4.2* Specimen certificate for the Warrants of the Company
5.1** Opinion of Foley, Hoag & Eliot LLP
10.1* Employment Agreement with William Barthold, dated January 16, 1996
10.2* Employment Agreement with Daniel Snider, dated January 16, 1998
10.3* Business Note and Security Agreement, dated June 19, 1997, with Barnett Bank, N.A.
10.4* Revolving Accounts Receivable Funding Agreement between the Company and Gibraltar
Financial Corporation, dated November 25, 1997
10.5* Amendment to Revolving Accounts Receivable Funding Agreement, dated November 25,
1997
10.6* Gibraltar Financial Corporation Demand Note, dated November 25, 1997
10.7* Form of Promissory Note signed by the Company in favor of Paul Berger, Jim Dodrill
and Stanley Berger for all advances made by them to the Company
10.8* Security Agreement with Stanley Berger, dated October 1, 1997
10.9* Subordination Agreement with Stanley Berger, dated December 3, 1997
10.10* Option, dated January 24, 1997, received by Paul Berger as consideration for an
advance made by him to the Company
10.11* Option, dated September 5, 1996, received by Jim Dodrill as consideration for an
advance made by him to the Company
10.12* Form of Warrant for the purchase of the Common Stock of the Company received by
Stanley Berger as consideration for advances made by him to the Company
10.13* Form of Promissory Note signed by the Company in favor of all participants in a
private financing between February 4, 1997 and April 30, 1997
10.14* Form of Warrant for the purchase of the Common Stock of the Company received by
all participants in a private financing between February 4, 1997 and April 30,
1997
10.15* Form of Promissory Note signed by the Company in favor of all participants in a
private financing between May 12, 1997 and June 30, 1997
10.16* Form of Warrant for the purchase of the Common Stock of the Company received by
all participants in a private financing between May 12, 1997 and June 30, 1997
10.17* Form of Promissory Note signed by the Company in favor of all participants in a
private financing in July, 1997
10.18* Form of Warrant for the purchase of the Common Stock of the Company received by
all participants in a private financing in July, 1997
10.19* Form of Consent to extension of payment date for all Notes executed by the Company
in all private financings
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
10.20* Form of Subscription Agreement signed by all investors in the Company
10.21* Lease Agreement, dated March 13, 1997, between the Company and Sanctuary of Boca,
Inc. (for office space in Boca Raton)
10.22* Amendment to Lease #1, dated August 1, 1997, between the Company and Sanctuary of
Boca, Inc.
10.23* Amendment to Lease #2, dated February 2, 1998, between the Company and Sanctuary
of Boca, Inc.
10.24* Sublease Agreement and Rider, dated December 1, 1996, between the Company and Tom
Rochon Associates (for office space in New York City) and Over-Lease Agreement
incorporated therein
10.25* Sublease Agreement and Rider, dated July 12, 1996, between the Company and Tom
Rochon Associates (for office space in New York City) and Over-Lease Agreement
incorporated therein
10.26* Research, Development and Consulting Contract, dated October 8, 1996, with Chou
Golf Design Labs, Inc.
10.27* Contract Amendment, dated May 4, 1997, to Research, Development and Consulting
Contract with Chou Golf Design Labs, Inc.
10.28 Agreement, dated September 1, 1998, with G. Day Associates, Inc.
10.29* 1996 Incentive and Non-qualified Stock Option Plan
10.30* Form of Incentive Stock Option Agreement under 1996 Incentive and Non-qualified
Stock Option Plan
10.31* Form of Non-qualified Stock Option Agreement under 1996 Incentive and
Non-Qualified Stock Option Plan
10.32* 1998 Incentive and Non-qualified Stock Option Plan
10.33 Form of Incentive Stock Option Agreement under 1998 Incentive and Non-Qualified
Stock Option Plan
10.34 Form of Non-Qualified Stock Option Agreement under 1998 Incentive and
Non-Qualified Stock Option Plan
10.35* MONY Deferred Compensation Plan for managers of the Company
10.36* Settlement Agreement and Release, dated May 4, 1998, between the Company and Hippo
Holdings Ltd
10.37 Consulting Agreement, dated April 29, 1998, between the Company and Argent
Securities, Inc.
10.38 Form of Non-Qualified Stock Option Agreement for Outside Directors under 1998
Incentive and Non-Qualified Stock Option Plan
10.39 Termination Agreement, dated September 1, 1998, between the Company and Daniel
Snider
10.40 Form of Warrant Agreement, dated , 1998, between the Company and
American Stock Transfer & Trust Company
21.1* Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
23.2** Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1* Power of Attorney (contained on the signature page of this Registration Statement)
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
27.1* Financial Data Schedule
99.1 Consent of Daniel Snider to being named in the Registration Statement as a new
director, dated June 19, 1998
99.2 Consent of Kim Haskell to being named in the Registration Statement as a new
director, dated June 23, 1998
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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 small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer 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.
(a) The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells, a post-effective
amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the termination of the offering.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) of
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Boca Raton, The State of Florida, on October 7, 1998.
OUTLOOK SPORTS TECHNOLOGY, INC.
By: /s/ PAUL H. BERGER
-----------------------------------------
Paul H. Berger
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD OF DIRECTORS
By: /s/ JIM G. DODRILL II
-----------------------------------------
Jim G. Dodrill II
PRESIDENT
By: /s/ EVERETTE C. HINSON
-----------------------------------------
Everette C. Hinson
VICE PRESIDENT FINANCE
II-8
<PAGE>
Exhibit 1.1
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF
SUCH OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A
PROSPECTUS MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF
1933, AS AMENDED, FORMING A PART OF A REGISTRATION STATEMENT, OR
POST-EFFECTIVE AMENDMENT THERETO, WHICH IS EFFECTIVE UNDER SAID ACT, OR
UNLESS IN THE OPINION OF COUNSEL TO THE CORPORATION, SUCH OFFER AND SALE IS
EXEMPT FROM THE APPLICABLE PROVISIONS OF SECTION 5 OF SAID ACT.
UNDERWRITERS' CLASS A COMMON STOCK PURCHASE WARRANT
For the Purchase of Shares of Class A Common Stock, no par value,
of
OUTLOOK SPORTS TECHNOLOGY, INC.
Incorporated Under the Laws of the
State of Delaware
Void After 5 P.M. New York, New York, time
on ______________, 200___
No. _________ Warrant to Purchase 250,000 Shares
THIS IS TO CERTIFY, that, for value received Argent Securities, Inc.
(the "Underwriter"), or registered assigns, is entitled, subject to the terms
and conditions hereinafter set forth, on or after _________________, 19___
and at any time prior to 5:00 P.M., New York, New York, time on
_______________, 200__, but not thereafter, to purchase the number of shares
set forth above (the "Shares") of common stock, $0.01 par value per share
(the "Class A Common Stock") of OUTLOOK SPORTS TECHNOLOGY, INC., a
corporation organized under the laws of the State of Delaware (the
"Corporation"), from the Corporation upon payment to the Corporation of
$__________ per share (the "Purchase Price"), if and to the extent this
Warrant is exercised, in whole or in part, during the period this Warrant
remains in force, subject in all cases to adjustment as provided in Article
II hereof, and to receive certificates representing the Class A Common Stock
so purchased, upon presentation and surrender to the Corporation of this
Warrant, with the form of subscription attached hereto duly executed, and
accompanied by payment of the Purchase Price of each share of Class A Common
Stock purchased as provided herein.
ARTICLE I -- TERMS OF THE WARRANT
Section 1.01 Subject to the provisions of Sections 1.05 and 3.01
hereof, this Warrant may be exercised at any time and from time to time after
9:00 A.M., New York, New York, time, on _____________, 1998 (the "Exercise
Commencement Date"), but no later than 5:00 P.M., New York, New York, time on
______________, 200__ (the "Expiration Time"). If _________________, 200___
is a day on which banking institutions are authorized by law to close, then
the date on which this Warrant shall expire shall be the next succeeding day
which shall not be such a day. If this Warrant is not exercised on or before
the Expiration Time it shall become void, and all rights hereunder shall
thereupon cease.
<PAGE>
Section 1.02 (a) The holder of this Warrant (the "Holder") may exercise
this Warrant, in whole or in part, upon surrender of this Warrant with the form
of subscription attached hereto duly executed, to the Corporation at its
corporate office located at Suite 410, 4400 North Federal Highway, Boca Raton,
Florida 33431, together with the full Purchase Price for each share of Class A
Common Stock to be purchased in lawful money of the United States, or by check,
bank draft or postal or express money order payable in United States dollars to
the order of the Corporation, and upon compliance with and subject to the
conditions set forth herein.
(b) Upon receipt of this Warrant with the form of
subscription duly executed and accompanied by payment of the aggregate Purchase
Price for the Shares for which this Warrant is then being exercised, together
with all taxes applicable upon such exercise, the Corporation shall cause to be
issued certificates for the total number of whole shares of Class A Common Stock
for which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Corporation shall thereupon deliver such
certificates to the Holder or its nominee.
(c) In case the Holder shall exercise this Warrant
with respect to less than all of the shares of Class A Common Stock that may be
purchased under this Warrant, the Corporation shall execute a new Warrant for
the balance of the shares of Class A Common Stock that may be purchased upon
exercise of this Warrant and deliver such new Warrant to the Holder.
(d) The Corporation covenants and agrees that it will
pay when due and payable any and all taxes that may be payable in respect of the
issue of this Warrant, or the issue of any shares of Class A Common Stock, upon
the exercise of this Warrant. The Corporation shall not, however, be required to
pay any tax that may be payable in respect of any transfer involved in the
issuance or delivery of this Warrant or of the shares of Class A Common Stock,
in a name other than that of the Holder at the time of surrender, and until the
payment of such tax the Corporation shall not be required to issue such shares
of Class A Common Stock.
Section 1.03 This Warrant may be split-up, combined or exchanged for
another Warrant or Warrants of like tenor to purchase a like aggregate number of
shares. If the Holder desires to split-up, combine, or exchange this Warrant, he
shall make such request in writing delivered to the Corporation at its corporate
office and shall surrender this Warrant and any other Warrants to be so
split-up, combined or exchanged at such office. Upon any such surrender for a
split-up, combination or exchange, the Corporation shall execute and deliver to
the person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Corporation shall not be required to effect any split-up,
combination or exchange that will result in the issuance of a Warrant entitling
the Holder to purchase upon exercise a fraction of the shares of Class A Common
Stock. The Corporation may require the holder to pay a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
split-up, combination or exchange of Warrants.
Section 1.04 Prior to due presentment for registration or transfer of
this Warrant, the Corporation may deem and treat the Holder, as registered on
the books of the Corporation maintained for that purpose, as the absolute owner
of this Warrant (notwithstanding any endorsement or notation of ownership or
other writing hereon) for the purpose of any exercise hereof and for all other
purposes and the Corporation shall not be affected by any notice to the
contrary.
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Section 1.05 Prior to ______________, 19____, this Warrant may not be
sold, hypothecated, exercised, assigned, or transferred, except to any member of
the National Association of Securities Dealers, Inc. participating in the
offering contemplated in Section 3.01 hereof and to individuals who are the bona
fide officers or partners of the Underwriter or such members, or any successor
to their respective businesses or pursuant to the laws of descent and
distribution, and thereafter and until its expiration shall be assignable and
transferable in accordance with and subject to the provisions of the Securities
Act of 1933, as amended (the "Act"), if this Warrant is exercised immediately
upon assignment or transfer. If this Warrant is not exercised immediately upon
assignment or transfer, this Warrant shall lapse.
Section 1.06 Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Corporation at its principal office with the
form of assignment attached hereto duly executed and funds sufficient to pay any
transfer tax. In such event, the Corporation shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants that carry the same rights upon
presentation thereof at the corporate office of the Corporation together with a
written notice signed by the Holder, specifying the names and denominations in
which such new Warrants are to be issued.
Section 1.07 Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive notice
as a stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Corporation. If, however, at any time prior to the expiration
of this Warrant and prior to its exercise, any of the following shall occur:
(a) the Corporation shall declare any dividend payable in
stock to the holders of its Class A Common Stock or make any other distribution
in property other than cash to the holders of its Class A Common Stock; or
(b) the Corporation shall offer to the holders of its Class A
Common Stock rights to subscribe for or purchase any shares of any class of
stock or any other purchase any shares of any class of stock or any other rights
or options or securities exchangeable for or convertible into shares of any
class of stock; or
(c) the Corporation shall effect any reclassification of its
Class A Common Stock (other than a reclassification involving merely the
subdivision or combination of outstanding shares of Class A Common Stock) or any
capital reorganization, or any consolidation or merger (other than a merger in
which no distribution of securities or other property is made to holders of
Class A Common Stock), or any sale, transfer or other disposition of its
property, assets and business substantially as an entirety, or the liquidation,
dissolution or winding up of the Corporation; or
(d) except as set forth in the Corporation's Final Prospectus
dated ________________, 19____, the Corporation shall issue any shares of Class
A Common Stock in exchange for shares of preferred stock or indebtedness of the
Corporation, other than upon conversion of such shares of preferred stock or
indebtedness; then, in each such case, the Corporation shall cause notice of
such proposed action to be mailed to the Holder. Such notice shall specify (i)
the date on which the books of the Corporation shall close, or a record be
taken, for determining holders of Class A Common Stock entitled to receive such
stock dividend or other
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<PAGE>
distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution, winding up or exchange shall take place
or commence, as the case may be, (ii) the date as of which it is expected that
holders of record of Class A Common Stock shall be entitled to receive
securities or other property deliverable upon such action, if any such date has
been fixed (on such date in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the right to exercise this Warrant
shall terminate), and (iii) such facts as shall indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Purchase Price and the kind and amount of the Class A Common Stock and other
securities and property deliverable upon exercise of this Warrant. Such notice
shall be mailed in the case of any action covered by Subsection 1.07(a) and
1.07(b) above, at least ten (10) days prior to the record date of determining
holders of the Class A Common Stock for purposes of receiving such payment or
offer, and in the case of any action covered by Subsection 1.07(c) or 1.07(d)
above, at least ten (10) days prior to the earlier of the date upon which such
action is to take place or any record date to determine holders of Class A
Common Stock entitled to receive such securities or other property.
Without limiting the obligation of the Corporation to provide
notice to the Holder of actions hereunder, it is agreed that failure of the
Corporation to give notice shall not invalidate such action of the Corporation.
Section 1.08 If this Warrant is lost, stolen, mutilated or destroyed,
the Corporation shall, on such reasonable terms as to indemnity or otherwise as
it may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination and tenor as, and
in substitution for, this Warrant, which shall thereupon become void. Any such
new Warrant shall constitute an independent contractual obligation of the
Corporation, whether or not the Warrant so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
Section 1.09 (a) The Corporation covenants and agrees that at all times
it shall reserve and kept available for the exercise of this Warrant such number
of authorized shares of Class A Common Stock as are sufficient to permit the
exercise in full of this Warrant.
(b) Prior to the issuance of any shares of Class A Common
Stock upon exercise of this Warrant, the Corporation shall secure the
registration of such shares and listing of such securities upon any securities
exchange including NASDAQ upon which the shares of the Corporation's Class A
Common Stock may at the time be listed for trading, if any.
(c) The Corporation covenants that all shares of
Class A Common Stock, when issued upon the exercise of this Warrant, will be
validly issued, fully paid, nonassessable and free of preemptive rights.
ARTICLE II -- ADJUSTMENT OF PURCHASE PRICE
AND NUMBER OF SHARES OF COMMON STOCK
PURCHASABLE UPON EXERCISE
Section 2.01 Subject to the provisions of this Article II, the Purchase
Price in effect from time to time as it relates to the shares of Class A Common
Stock shall be subject to adjustment as follows:
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(a) In the case the Corporation shall (i) declare a
dividend or make a distribution on the outstanding shares of its Class A Common
Stock in shares of its Class A Common Stock, (ii) subdivide the outstanding
shares of its Class A Common Stock into a greater number of shares, (iii)
combine the outstanding shares of its Class A Common Stock into a smaller number
of shares, (iv) issue any shares of its Class A Common Stock shares, except as
contemplated by the Final Prospectus dated ______________, 19____, (v) issue any
shares of its Class A Common Stock by reclassification of the Class A Common
Stock, then in each case the Purchase Price in effect immediately after the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Class A Common Stock outstanding immediately before such
dividend, distribution, subdivision, combination or reclassification, and of
which the denominator shall be the number of shares of Class A Common Stock
outstanding immediately after such dividend, distribution, subdivision,
combination or reclassification. Any shares of Class A Common Stock of the
Corporation issuable in payment of a dividend shall be deemed to have been
issued immediately prior to the record date for such dividend.
(b) All calculations under this Section 2.01 shall be
made to the nearest whole cent.
Section 2.02 No adjustment in the Purchase Price in accordance with the
provisions of Subsection 2.01(a) hereof need be made if such adjustment would
amount to a change of less than 1% in such Purchase Price; provided that the
amount by which any adjustment is not made by reason of the provisions of this
Section 2.02 shall be carried forward and taken into account at the time of any
subsequent adjustment in the Purchase Price.
Section 2.03 Upon each adjustment of the Purchase Price pursuant to
Subsection 2.01(a) each Warrant shall thereupon evidence the right to purchase
shares of Class A Common Stock comprised of the same number of Warrants and that
number of shares of Class A Common Stock (calculated to the nearest whole share
or Warrant, as the case may be) obtained by multiplying the number of shares of
Class A Common Stock purchasable immediately prior to such adjustment and
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment.
Section 2.04 In case of any capital reorganization, other than in the
cases referred to in Section 2.01 hereof, or the consolidation or merger of the
Corporation with or into another corporation (other than a merger or
consolidation in which the Corporation is the merger or consolidation in which
the Corporation is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Class A Common Stock or the
conversion of the outstanding shares of Class A Common Stock into shares of
other stock or other securities or property), or the sale of the property of the
Corporation as an entirety or substantially as an entirety, or the conversion,
however effected, of the Corporation into another form of entity (collectively
such actions being hereinafter referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of any Warrant (as to the shares of
Class A Common Stock subject thereto and in lieu of the number of shares of
Class A Common Stock theretofore deliverable) the number of shares of stock or
other securities or property to which a holder of the number of shares of Class
A Common Stock that would otherwise have been deliverable upon the exercise of
such Warrant would have been entitled upon such Reorganization if such Warrant
had been exercised in full immediately prior to such Reorganization. In case of
any Reorganization, appropriate adjustment, as determined in good
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faith by the Board of Directors of the Corporation, shall be made in the
application of the provisions herein set forth with respect to the rights and
interests of Warrant holders so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of Warrants. The Corporation
shall not effect any such Reorganization, unless upon or prior to the
consummation thereof the successor entity, or if the Corporation shall be the
surviving entity in any such Reorganization and is not the issuer of the shares
of stock or other securities or property to be delivered to holders of shares of
the Class A Common Stock outstanding at the effective time thereof, then such
issuer shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, cash or other property as the Holder
shall be entitled to purchase in accordance with the foregoing provisions. In
the event of a sale or conveyance or other transfer of all or substantially all
of the assets of the Corporation as a part of a plan for liquidation of the
Corporation, all rights to exercise any Warrant shall terminate on the date such
sale or conveyance or other transfer is to be consummated.
Section 2.05 The Corporation may select a firm of independent certified
public accountants acceptable to the Holder hereof, which selection may be
changed from time to time, to verify the computations made in accordance with
this Article II. The certificate, report or other written statement of any such
firm shall be conclusive evidence of the correctness of any computation made
under this Article II.
Section 2.06 Irrespective of any adjustments pursuant to this Article
II, Warrants theretofore or thereafter issued need not be amended or replaced,
but certificates thereafter issued shall bear an appropriate legend or other
notice of any adjustments.
Section 2.07 The Corporation shall not be required upon the exercise of
any Warrant to issue fractional shares of Class A Common Stock that may result
from adjustments in accordance with this Article II to the Purchase Price or
number of shares of Class A Common Stock purchasable under each Warrant. If more
than one Warrant is exercised at one time by the same Holder, the number of full
shares of Class A Common Stock that shall be deliverable shall be computed based
on the number of shares of Class A Common Stock deliverable in exchange for the
aggregate number of Warrants exercised. With respect to any final fraction of a
share called for upon the exercise of any Warrant or Warrants, the Corporation
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the market value of a share of Class A Common Stock on
the business day next preceding the date of such exercise. The Holder, by his
acceptance of the Warrant, shall expressly waive any right to receive any
fractional share of Class A Common Stock upon exercise of the Warrants. For the
purposes of this Section 2.07, the market price per share of Class A Common
Stock or price per Warrant at any date shall mean the last reported sale price
regular way or, in case no such reported sale takes place on such date, the
average of the last reported bid and asked prices regular way, in either case on
the principal national securities exchange on which the Class A Common Stock are
admitted to trading or listed if that is the principal market for the Class A
Common Stock or if not listed or admitted to trading on any national securities
exchange or if such national security exchange is not the principal market for
the Class A Common Stock, the closing bid price (or closing sales price, if
reported) as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or its successor, if any. If the price of the Class A
Common Stock is not so reported, then such market price shall mean the last
known price paid per share, by a purchaser of such stock in an arms' length
transaction. All calculations under this Section 2.07 shall be made to the
nearest 1/100th of a share.
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<PAGE>
Section 2.08 In no event shall the Purchase Price be adjusted below the
par value per share of the Class A Common Stock.
ARTICLE III -- REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.01 The sale of the shares of Class A Common Stock issuable
upon exercise of this Warrant have been registered under the Act in the
Corporation's Registration Statement on Form SB-2, SEC File No. 333-58631
(the "Registration Statement").
Upon exercise, in part or in whole, of this Warrant, the
certificates representing the Class A Common Stock shall bear the following
legend:
"THE SHARES (OR WARRANTS, AS APPLICABLE) REPRESENTED BY THIS
CERTIFICATE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SOLELY FOR SALE TO THE HOLDER OF A WARRANT TO PURCHASE, WHICH
HOLDER MAY BE DEEMED TO BE AN UNDERWRITER OF SUCH SHARES WITHIN THE
PROVISIONS AND FOR PURPOSES ONLY OF THE SECURITIES ACT OF 1933, AS
AMENDED. THE ISSUER OF THESE SHARES WILL AGREE TO A TRANSFER HEREOF
ONLY IF (1) AN AMENDED OR SUPPLEMENTED PROSPECTUS SETTING FORTH THE
TERMS OF THE OFFER HAS BEEN FILED AS PART OF A POST-EFFECTIVE AMENDMENT
TO THE REGISTRATION STATEMENT UNDER WHICH THESE SHARES ARE REGISTERED
OR AS PART OF A NEW REGISTRATION STATEMENT, IF THEN REQUIRED, AND SUCH
POST-EFFECTIVE AMENDMENT OR NEW REGISTRATION STATEMENT HAS BECOME
EFFECTIVE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (2) COUNSEL
TO THE ISSUER IS SATISFIED THAT NO SUCH POST-EFFECTIVE AMENDMENT OR NEW
REGISTRATION STATEMENT IS REQUIRED."
The Corporation agrees that it shall be satisfied that no
post-effective amendment or new registration statement is required for the
public sale of the shares of Class A Common Stock if it shall be presented with
a letter from the Staff of the Securities and Exchange Commission (the
"Commission") stating in effect that, based upon stated facts that the
Corporation shall have no reason to believe are not true in any material
respect, the Staff of the Commission will not recommend any action to the
Commission if such shares are offered and sold without delivery of a prospectus,
and that, therefore, no post-effective amendment to the Registration Statement
under which the sale of such shares is registered or new registration statement
is required to be filed.
Section 3.02 The Corporation understands and agrees that if at any time
during the period referred to above it should file a registration statement or
offering statement pursuant to the Act for a public offering of securities, the
Corporation, at its own expense, will offer to the Holder the opportunity to
register or qualify the offering and sale of the shares of Class A Common Stock.
Registration Rights set forth in Section 9 of the Underwriters' Purchase Option
Agreement are incorporated by reference and made a part hereof. This paragraph
is not applicable to a registration statement filed with the Commission on Form
S-4 or S-8, or any successor Forms.
Section 3.03 In connection with any registration under Section 3.02
hereof, the Corporation covenants and agrees as follows:
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(a) The Corporation shall use its best
efforts to have any post-effective amendment or new registration statement
declared effective at the earliest possible time, and shall furnish such number
of prospectuses as shall reasonably be requested by the Holder selling Shares.
(b) The Corporation shall pay all costs, fees, and
expenses in connection with all post-effective amendments or new registration
statements under Section 3.02 hereof including, without limitation, the
Corporation's legal and accounting fees, printing expenses, blue sky fees and
expenses, except that the Corporation shall not pay any of the following costs,
fees or expenses: (i) underwriting discounts and commissions allocable to the
shares of Class A Common Stock, (ii) state transfer taxes, (iii) brokerage
commissions and (iv) fees and expenses of counsel and accountants for the Holder
of the Warrant and/or Shares.
(c) The Corporation will take all necessary
action to qualify or register the Securities included in a post-effective
amendment or new registration statement for offering and sale under the
securities or blue sky laws of such states as are requested by the holders of
such Securities, provided that the Corporation shall not be obligated to execute
or file any general consent to service of process or to qualify as a foreign
corporation to do business under the law of any such jurisdiction.
(d) The Holder shall be entitled to pay the
Purchase Price for the Securities purchasable upon the exercise of this Warrant
out of the proceeds of any sale of the Securities purchasable upon their
exercise, provided such exercise and sale occur simultaneously.
Section 3.04 (a) The Corporation shall indemnify and hold harmless each
person registering the sale of Securities pursuant to this Article III (the
"Seller") and each underwriter, within the meaning of the Act, who may purchase
from or sell for any Seller any of the Securities from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any post-effective
amendment or new registration statement or any supplemented prospectus under the
Act included therein required to be filed or furnished by reason of Section
3.02, or caused by any omission or alleged omission to state therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or alleged untrue statement or omission or alleged omission based upon
information furnished or required to be furnished in writing to the Corporation
by such Seller or underwriter expressly for use therein, which indemnification
shall include each person, if any, who controls any such Seller or underwriter
within the meaning of the Act; provided, however, that the indemnity agreement
by the Corporation set forth in this Section 3.04 with respect to any prospectus
that shall be subsequently amended or supplemented prior to the written
confirmation of the sale of any securities shall not inure to the benefit of any
Seller or underwriter from whom the person asserting such securities that are
the subject thereof (or to the benefit of any person controlling such Seller or
underwriter), if such Seller or underwriter failed to send or give a copy of the
prospectus as amended or supplemented to such person at or prior to written
confirmation of the sale of such securities to such person and if such amended
or supplemented prospectus did not contain any untrue statement or alleged
untrue statement or omission or alleged omission giving rise to such cause,
claim, damage or liability.
(b) Each Seller that avails itself of the procedures under
Article III shall indemnify, and secure the agreement of any underwriter which
the Seller employs to indemnify, the Corporation, its directors, each officer
signing the related post-effective amendment or registration
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statement and each person, if any, who controls the Corporation within the
meaning of the Act from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any post-effective amendment or registration
statement or any prospectus required to be filed or furnished by reason of
Section 3.02, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, insofar as such losses, claims, damages or liabilities
are caused by any untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished in writing to the Corporation
by any such Seller or underwriter expressly for use therein.
Section 3.05 The agreements in this Article III shall continue in
effect regardless of the exercise and surrender of this Warrant.
ARTICLE IV -- OTHER MATTERS
Section 4.01 The Corporation will from time to time promptly pay,
subject to the provisions of paragraph (4) of Section 1.02 hereof, all taxes and
charges that may be imposed upon the Corporation in respect of the issuance or
delivery of this Warrant or the shares of Class A Common Stock purchasable upon
the exercise of this Warrant.
Section 4.02 All the covenants and provisions of this Warrant by or for
the benefit of the Corporation shall bind and inure to the benefit of it
successors and assigns hereunder.
Section 4.03 Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Corporation shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Corporation, as follows:
Outlook Sports Technology, Inc.
Suite 410
4400 North Federal Highway
Boca Raton, Florida 33431
Notices to the Holder provided for in this Warrant shall be deemed given or made
by the Corporation if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Corporation.
Section 4.04 The validity, interpretation and performance of this
Warrant shall be governed by the substantive laws of the State of Georgia.
Section 4.05 Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be construed, to
confer upon, or give to, any person or corporation other than the Corporation
and the Holder any right, remedy or claim under promise or agreement hereof, and
all covenants, conditions, stipulations, promises and agreements contained in
this Warrant shall be for the sole and exclusive benefit of the Corporation and
its successors and of the Holder, its successors and, if permitted, its
assignees.
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Section 4.06 The headings herein are for convenience only and are not
part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this, Warrant has been duly executed by the
Corporation under its corporate seal as of the day of ,
1998. --- --------------------
OULTOOK SPORTS TECHNOLOGY, INC.
By:
----------------------------
Name: Jim G. Dodrill II
------------------------
Its: President
---------------------------
Attest:
- ------------------------------------
, Secretary
- -----------------------
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OUTLOOK SPORTS TECHNOLOGY, INC.
Subscription Form
(To be executed by the registered holder to exercise the right to purchase Class
A Common Stock evidenced by the foregoing Warrant)
Outlook Sports Technology, Inc.
Suite 410
4400 North Federal Highway
Boca Raton, Florida 33431
The undersigned hereby irrevocably subscribes for the purchase of
________________ shares of your Class A Common Stock pursuant to and in
accordance with the terms and conditions of this Warrant No. ___, and herewith
makes payment, covering the purchase of such Shares. Certificates for the shares
of Class A Common Stock should be delivered to the undersigned at the address
stated below. If such number of shares of Class A Common Stock shall not be all
of the Shares purchasable hereunder, please deliver a new Warrant of like tenor
for the balance of the remaining Shares purchasable hereunder to the undersigned
at the address stated below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any such shares of Class A Common Stock being
purchased hereunder unless either (a) a registration statement, or
post-effective amendment thereto, covering the sale of such shares of Class A
Common Stock has been filed with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "Act"), and such sale, transfer
or other disposition is accompanied by a prospectus meeting the requirements of
Section 10 of the Act forming a part of such registration statement, or
post-effective amendment thereto, which is in effect under the Act covering the
sale of the shares of Class A Common Stock to be sold, transferred or otherwise
disposed of, or (b) counsel acceptable to Outlook Sports Technology, Inc. and
satisfactory to the undersigned has rendered an opinion acceptable to the
Company in writing and addressed to the Company that such proposed offer, sale,
transfer or other disposition of the shares of Class A Common Stock is exempt
from the provisions of Section 5 of the Act in view of the circumstances of such
proposed offer, sale, transfer or other disposition; (2) the Company may notify
the transfer agent for its Class A Common Stock that the certificates for the
Class A Common Stock acquired by the undersigned pursuant hereto are not to be
transferred unless the transfer agent receives advance from the Company that one
or both of the conditions referred to in (1)(a) and (1)(b) above have been
satisfied; and (3) the Company may affix the legend set forth in Section 3.01 of
this Warrant to the certificates for shares of Class A Common Stock hereby
subscribed for and purchasable upon exercise of the Warrants, if such legend is
applicable.
Dated:______________________
Signed:
Signature guaranteed:
_______________________________________
Address:
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OUTLOOK SPORTS TECHNOLOGY, INC.
Assignment Form
(To be executed by the registered holder to effect assignment of the
foregoing warrant)
FOR VALUE RECEIVED _________________________________ hereby sells, assigns and
transfers unto _________________________________ the right to purchase
___________ shares of Class A Common Stock, $0.01 par value per share on the
terms and conditions set forth therein, and does hereby irrevocably constitute
and appoint ______________________________________ and/or its transfer agent
Attorney, to transfer on the books of the Corporation Warrants representing such
rights, with full power of substitution.
Dated:________________________
Signed:
Signature guaranteed:
________________________________________
<PAGE>
Exhibit 1.2
2,500,000 Shares of Class A Common Stock
and
1,000,000 Redeemable Class A Common Stock Purchase Warrants
of
OUTLOOK SPORTS TECHNOLOGY, INC.
UNDERWRITING AGREEMENT
Atlanta, Georgia
_______________, 1998
Argent Securities, Inc.
3340 Peachtree Road, N.E., Suite 900
Atlanta, Georgia 30326
Gentlemen:
Outlook Sports Technology, Inc., a corporation organized under the
laws of the State of Delaware (the "Company"), confirms its agreement with
Argent Securities, Inc. ("Argent") and each of the other underwriters, if
any, named in Schedule I hereto (collectively, the "Underwriters" which term
shall also include any underwriter substituted as hereinafter provided in
Section 11) for whom Argent is acting as representative (in such capacity,
Argent shall hereinafter be referred to as the "Representative") with respect
to the sale by the Company and the Selling Shareholders listed on Schedule
III, and the purchase by the Underwriters, acting severally and not jointly,
of 2,500,000 shares (the "Shares") of the Company's Class A Common Stock,
$0.01 par value per share (the "Common Stock"), and 1,000,000 Redeemable
Class A Common Stock Purchase Warrants (the "Redeemable Warrants") ("Firm
Securities"), each of the Redeemable Warrants entitles the holder thereof to
purchase one share of Class A Common Stock at an exercise price of $8.05 per
share pursuant to a warrant agreement (the "Warrant Agreement") between the
Company and the warrant agent, set forth in Schedule II, and with respect to
the grant by the Company and the Selling Shareholders to the Underwriters of
the option described in Section 2(b) hereof to purchase all or any part of
375,000 additional Shares (100,000 of the additional Shares to be purchased
from the Company and 275,000 of the additional Shares to be purchased from
the Selling Shareholders) and 150,000 Redeemable Warrants (the "Additional
Securities") for the purpose of covering over-allotments, if any. The
aforesaid Firm Securities together with all or any part of the Additional
Securities are hereinafter collectively referred to as the "Securities." The
Company also proposes to issue and sell to the Underwriters for an
approximate price of $__________ ($________ per warrant), ____________
non-callable warrants entitling the Underwriters to purchase from the Company
an Underwriter's Warrant (the "Underwriters' Warrant" or the "Underwriters'
Purchase Option") for the purchase of an aggregate of 250,000 shares of Class
A Common Stock (the "Underwriters' Shares") and 50,000 Underwriters' Class A
Common Stock Purchase Warrants (the "Underwriters' Redeemable Warrants"). The
shares of Class A Common Stock issuable upon exercise of the Redeemable
Warrants including the Underwriters' Redeemable Warrants are hereinafter
sometimes referred to as the "Warrant Shares." The Shares, the Redeemable
Warrants, the Class A Common Stock, Underwriters' Redeemable Shares,
Underwriters' Warrants and the Warrant
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Shares are more fully described in the Registration Statement (as defined in
Subsection 1(a) hereof) and the Prospectus (as defined in Subsection 1(a)
hereof) referred to below. Unless the context otherwise requires, all references
to the "Company" shall include all subsidiaries (as defined in Subsection 1(e)
hereof) referred to below and identified in the Prospectus, as if separately
stated herein. All representations, warranties and opinions of counsel shall
cover such subsidiaries.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters as of the
date hereof, and as of the Closing Date and any Option Closing Date, (as defined
in Subsection 2 (c) hereof), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement, and
an amendment or amendments thereto, on Form SB-2 (File No. 333-58631) under the
Act (the "Registration Statement"), including a prospectus subject to completion
relating to the Shares and Redeemable Warrants which registration statement and
any amendment or amendments have been prepared by the Company in material
compliance with the requirements of the Act and the rules and regulations of the
Commission under the Act. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the Abbreviated
Registration Statement. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Preliminary Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part thereof and no proceedings
for a stop order have been instituted or are pending or, to the best knowledge
of the Company, threatened. Each of the Preliminary Prospectus, the Registration
Statement and Prospectus at the time of filing thereof conformed in all material
respects with the requirements of the Act and the Rules and Regulations, and
neither the Preliminary Prospectus, the Registration Statement or Prospectus at
the time of filing thereof contained an untrue
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statement of a material fact or omitted to state a material fact required to be
stated therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date and
during such longer period as the Prospectus may be required to be delivered in
connection with sales by the Underwriters or a dealer, the Registration
Statement and the Prospectus will contain all material statements which are
required to be stated therein in material compliance with 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; neither the Registration Statement,
nor any amendment thereto, at the time the Registration Statement or such
amendment is declared effective under the Act, will contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Prospectus at the time the Registration Statement becomes effective, at the
Closing Date and at any Option Closing Date, will not contain an 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; provided, however, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with information supplied to the Company in writing by or
on behalf of the Underwriters expressly for use in the Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is now, and at the
Closing Date and any Option Closing Date will be, validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not own, directly or indirectly, an interest in any corporation,
partnership, trust, joint venture or other business entity; provided, that the
foregoing shall not be applicable to the investment of the net proceeds from the
sale of the Securities in short-term, low-risk investments as set forth under
"Use of Proceeds" in the Prospectus. The Company is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of its properties or the character of its operations
require such qualification or licensing, except where the failure to so register
or qualify does not have a material adverse effect on the condition (financial
or other), business, properties, net worth or results of operations of the
Company and the subsidiaries taken as a whole (a "Material Adverse Effect"). The
Company has all requisite power and authority (corporate and other), and has
obtained any and all necessary material applications, approvals, orders,
licenses, certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus; the Company
is and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises and permits and all
material federal, state, local and foreign laws, rules and regulations; and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise, or permit which, singly or in the aggregate, would have a Material
Adverse Effect. The disclosures in the
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Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact necessary to make the statements contained therein
not misleading in light of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and will
have the adjusted capitalization set forth therein on the Closing Date and the
Option Closing Date, if any, based upon the assumptions set forth therein, and
the Company is not a party to or bound by any instrument, agreement or other
arrangement providing for the Company to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and as
otherwise described in the Prospectus. The Securities, the Additional
Securities, the Shares, the Redeemable Warrants, the Warrant Shares and all
other securities issued or issuable by the Company conform or, when issued and
paid for, will conform in all material respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. All issued
and outstanding securities of the Company and the Selling Shareholders have been
duly authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company, or similar contractual rights granted by the
Company. The Securities, the Additional Securities, the Shares, and the
Redeemable Warrants to be issued and sold by the Company and the Selling
Shareholders hereunder, and the Warrant Shares issuable upon exercise of the
Redeemable Warrants and the Underwriters' Warrants and payment therefor, are not
and will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof and thereof, will be validly issued, fully
paid and non-assessable and will conform in all material respects to the
descriptions thereof contained in the Prospectus; the holders thereof will not
be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Securities,
the Additional Securities, the Shares, and the Redeemable Warrants, and the
Warrant Shares has been duly and validly taken; and the certificates
representing the Securities, the Redeemable Warrants, and the Warrant Shares
will be in due and proper form. Upon the issuance and delivery pursuant to the
terms hereof of the Securities to be sold by the Company and the Selling
Shareholders hereunder, the Underwriters will acquire good and marketable title
to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
(f) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus 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 such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved. There has been no material
adverse change or development involving a prospective change in the condition,
financial or otherwise, or in the earnings, business affairs, position,
prospects, value, operation, properties, business, or results of operation of
the Company, whether or not arising in the ordinary course of business, since
the dates of the financial statements included in the Registration Statement and
the Prospectus and the outstanding debt, the
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property, both tangible and intangible, and the business of the Company,
conforms in all material respects to the descriptions thereof contained in the
Registration Statement and in the Prospectus.
(g) Price WaterhouseCoopers LLP, independent certified public
accountants, whose report is filed with the Commission as a part of the
Registration Statement, are independent certified public accountants as required
by the Act.
(h) The Company (i) has paid all federal, state, local, and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and taxes payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986 (the "Code"), (ii) has furnished all tax and information returns it
is required to furnish pursuant to the Code, and has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
knowledge of any tax deficiency or claims outstanding, proposed or assessed
against it (other than certain state or local tax returns, as to which the
failure to file, singly or in the aggregate, would not have a Material Adverse
Effect.)
(i) The Company maintains insurance, which is in full force and
effect, of the types and in the amounts which it reasonably believes to be
necessary for its business, including, but not limited to, personal and product
liability insurance covering all personal and real property owned or leased by
the Company against fire, theft, damage and all risks customarily insured
against.
(j) There is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or foreign,
pending (to the knowledge of the Company) or threatened against (or
circumstances known to the Company that may give rise to the same), or involving
the properties or business of the Company which: (i) is required to be disclosed
in the Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in all
respects); or (ii) singly or in the aggregate would have a Material Adverse
Effect.
(k) The Company has full legal right, power and authority to enter
into this Agreement, the Underwriters' Warrant and the Warrant Agreement and to
consummate the transactions provided for in such agreements; and this Agreement,
the Underwriters' Warrant and the Warrant Agreement have each been duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement, the Underwriters' Warrant and the Warrant Agreement, constitutes a
legal, valid and binding agreement of the Company, subject to due authorization,
execution and delivery by the Representative and/or the Underwriters,
enforceable against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). Neither the Company's
execution or delivery of this Agreement, the Underwriters' Warrant, and the
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, nor the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
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<PAGE>
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest defect or other restriction or equity of any kind whatsoever
upon any property or assets (tangible or intangible) of the Company pursuant to
the terms of: (i) the Articles of Incorporation or By-Laws of the Company; (ii)
any material license, contract, indenture, mortgage, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which the Company
is bound or to which any of its properties or assets (tangible or intangible) is
or may be subject, other than conflicts that, singly or in the aggregate, will
not have a Material Adverse Effect; or (iii) any statute, judgment, decree,
order, rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company or
any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with (i) the Underwriters' purchase and distribution of the
Securities to be sold by the Company hereunder; or (ii) the issuance and
delivery of the Underwriters' Warrant, the Underwriters' Shares, the Redeemable
Warrants or the Warrant Shares.
(m) All executed agreements or copies of executed agreements filed
as exhibits to the Registration Statement to which the Company is a party or by
which the Company may be bound or to which any of its assets, properties or
businesses may be subject have been duly and validly authorized, executed and
delivered by the Company, and constitute the legal, valid and binding agreements
of the Company, enforceable against it in accordance with its respective terms.
The descriptions contained in the Registration Statement of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by the Act and the Rules
and Regulations and there are no material contracts or other documents which are
required by the Act or the Rules and Regulations to be described in the
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required, and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
(n) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not:
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money in any material amount; (ii) entered into any
transaction other than in the ordinary course of business; (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock; or (iv) made any changes in capital stock, material changes in debt (long
or short term) or liabilities other than in the ordinary course of business,
material changes in or affecting the general affairs, management, financial
operations, stockholders equity or results of operations of the Company.
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(o) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, no default exists in
the due performance and observance of any material term, covenant or condition
of any license, contract, indenture, mortgage, installment sales agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets (tangible or intangible) of the Company is subject or
affected.
(p) To the best knowledge of the Company, the Company has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance in all material respects with all federal, state,
local, and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours.
(q) To the best knowledge of the Company, since its inception, the
Company has not incurred any liability arising under or as a result of the
application of the provisions of the Act.
(r) Subsequent to the respective dates as of which information is
set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company does not
presently maintain, sponsor or contribute to, and never has maintained,
sponsored or contributed to, any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan" or a "multi-employer
plan" as such terms are defined in Sections 3(2), 3(l) and 3(37) respectively of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). The Company does not maintain or contribute, now or at any time
previously, to a defined benefit plan, as defined in Section 3(35) of ERISA.
(s) The Company is not in violation in any material respect of any
domestic or foreign laws, ordinances or governmental rules or regulations to
which it is subject, except to the extent that any such violation would not,
singly or in the aggregate, have a Material Adverse Effect.
(t) No holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within twelve (12) months of the date hereof or to require the Company to file a
registration statement under the Act during such twelve (12) month period,
except such registration rights as have been waived or disclosed in the
Prospectus.
(u) Neither the Company, nor, to the Company's best knowledge, any
of its employees, directors, principal stockholders or affiliates (within the
meaning of the Rules and Regulations) has taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
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(v) Except as described in the Prospectus, to the best of the
Company's knowledge, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, or licenses and rights to the
foregoing presently owned or held by the Company is in dispute or are in any
conflict with the right of any other person or entity within the Company's
current area of operations nor has the Company received notice of any of the
foregoing. To the best of the Company's knowledge, the Company: (i) owns or has
the right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing; and (ii) except as set forth in the Prospectus, is not obligated
or under any liability whatsoever to make any payments by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(w) Except as described in the Prospectus, to the best of the
Company's knowledge, the Company owns and has the unrestricted right to use all
material trade secrets, trademarks, trade names, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "Intellectual
Property") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the
Company, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company, or employees or agents, could have
developed trade secrets or items of technical information similar or identical
to those of the Company.
(x) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects, or other restrictions or equities of any
kind whatsoever, other than those referred to in the Prospectus and liens for
taxes or assessments not yet due and payable.
(y) The Company has obtained such duly executed legally binding
and enforceable agreements as required by the Representative pursuant to which
the Company's President and certain Directors and affiliates described in the
Prospectus, have agreed not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber any of their shares of Class A Common Stock or other
securities of the Company (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose of any beneficial interest therein for
certain periods of up to 60 months subject to earlier release upon the Company's
achievement of certain performance thresholds, following the effective date of
the Registration Statement without the prior written consent of the
Representative. The Company will cause the Transfer Agent, as defined below, to
mark an appropriate legend on the face of stock
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certificates representing all of such shares of Class A Common Stock and other
securities of the Company.
(z) Except as disclosed in the Prospectus, the Company has not
incurred any liability and there are no arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company or any of its officers,
directors, employees or affiliates that may adversely affect the Underwriters'
compensation, as determined by the NASD.
(aa) The Securities have been approved for quotation on the
Nasdaq SmallCap Market of the Nasdaq Stock Market, Inc., subject to official
notice of issuance.
(bb) Neither the Company nor to the Company's best knowledge
any of its respective officers, employees, agents or any other person acting on
behalf of the Company, has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or other
person who was, is, or may be in a position to help or hinder the business of
the Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign); (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company;
or (c) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act 1977, as amended.
(cc) Except as set forth in the Prospectus, and to the best
knowledge of the Company, no officer, director or principal stockholder of the
Company, or any "affiliate" or "associate" (as these terms are defined in Rule
405 promulgated under the Rules and Regulations) of any such person or entity or
the Company, has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services,
except with respect to the beneficial ownership of not more than 1% of the
outstanding shares of capital stock of any publicly-held entity; or (ii) a
beneficial interest in any contract or agreement to which the Company is a party
or by which it may be bound or affected. Except as set forth in the Prospectus
under "Certain Relationships and Related Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, or principal stockholder of the Company, or
any affiliate or associate of any such person or entity, which is required to be
disclosed pursuant to Rule 404 of Regulation S-B.
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(dd) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' Counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(ee) The Company has entered into an employment agreements
with William Barthold and Daniel Snider as described in the Prospectus. Unless
waived by the Representative, the Company shall use its reasonable efforts at
reasonable cost to obtain key-man life insurance policies in the amount of not
less than $1,000,000 on the life of Messrs. Barthold and Snyder, which policies
shall be owned by the Company and shall name the Company as the sole beneficiary
thereunder.
(ff) No securities of the Company have been sold by the
Company since its date of incorporation, except as disclosed in Part II of the
Registration Statement.
(gg) The minute books of the Company have been made available
to Underwriters' Counsel and contain a complete summary of all meetings and
actions of the Board of Directors and Shareholders of the Company since the date
of its incorporation.
1A. Representations and Warranties of the Selling Shareholders. The
Selling Shareholders represent and Warrant to each Underwriter that:
(a) The Selling Shareholders now have, and on any Option
Closing Date will have, valid and marketable title to the Shares to be sold by
such Selling Shareholders, free and clear of any lien, claim, security interest
or other encumbrance, including, without limitation, any restriction on
transfer.
(b) Such Selling Shareholders now have, and on any option
Closing Date will have, full legal right, power and authorization, and any
approval required by law, to sell, assign, transfer and deliver such Shares in
the manner provided in this Agreement, and upon delivery of and payment for such
Shares hereunder, the several Underwriters will acquire valid and marketable
title to such Shares free and clear of any lien, claim, security interest, or
other encumbrance.
(c) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholders and is the valid and
binding agreement of such Selling Shareholders enforceable against the Selling
Shareholders in accordance with its terms, except to the extent enforceability
may be limited by laws relating to creditors' rights generally or by general
equitable principles, and except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws.
(d) Neither the execution and delivery of this Agreement by
or on behalf of the Selling Shareholders, nor the consummation of the
transaction s herein or therein contemplated by or on behalf of such Selling
Shareholders requires any consent, approval, authorization or order of, or
filing or registration with any court, regulatory body, administrative agency or
other governmental body, agency or official (except such as may be required
under the Act and the Exchange Act or such as may be required under state
securities or Blue Sky laws governing the purchase and distribution of the
Shares), or conflicts or will conflict with or constitutes or will constitute a
breach of, or default under, or violates or will violate, any agreement,
indenture or other instrument to
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which such Selling Shareholders are a party or by which such Selling
Shareholders is or may be bound, or to which any of such Selling Shareholders'
property or assets is subject, or any statute, law, rule, regulation, ruling,
judgment, injunction, order or decree applicable to such Selling Shareholders or
to any property or assets of such Selling Shareholders.
(e) The Registration Statement and the Prospectus, insofar as
they relate to the Selling Shareholders, do not and will not contain an untrue
statement of a material fact or omit to any state any material fact required to
be stated therein or necessary to make the statements therein not misleading.
(f) The Selling Shareholders haven not taken, 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 Securities to
facilitate the sale or resale of the Securities.
2. Purchase, Sale and Delivery of the Securities, Additional Securities
and Agreement to Issue Underwriters' Warrant.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company and the Selling Shareholders agree to
sell to each Underwriters, and each Underwriter, severally but not jointly,
agrees to purchase from the Company and the Selling Shareholders at the price
per share and the price per warrant set forth below, that proportion of the
number of shares of Class A Common Stock and Redeemable Warrants set forth in
Schedule I opposite the name of such Underwriter that such number of shares of
Class A Common Stock and Redeemable Warrants bears to the total number of shares
of Class A Common Stock and Redeemable Warrants, respectively, subject to such
adjustments as the Underwriters in their discretion shall make to eliminate any
sales or purchases of fractional Securities, plus any additional numbers of
Securities which the Underwriters may become obligated to purchase pursuant to
the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the terms
and conditions herein set forth, the Company and the Selling Shareholders hereby
grant an option to the Underwriters, severally and not jointly, to purchase up
to an additional 375,000 Shares from the Company and 150,000 Redeemable Warrants
at the prices set forth below. The option granted hereby will expire 45 days
after the date of this Agreement, and may be exercised in whole or in part from
time to time only for the purpose of covering over-allotments which may be made
in connection with the offering and distribution of the Additional Securities
upon notice by the Representative to the Company and the Selling Shareholders
setting forth the number of Additional Securities as to which the Underwriters
is then exercising the option and the time and date of payment and delivery for
such Additional Securities. The Underwriter shall purchase the first 100,000
Shares from the Company, and thereafter any remaining Additional Securities
shall be purchased from the Selling Shareholders, provided, however, that the
Underwriter shall purchase all of the Additional Securities owned by Messrs.
Dodrill and Berger before purchasing Additional Securities from any of the other
Selling Shareholders. Any such time and date of delivery shall be determined by
the Underwriters, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as defined
in paragraph (c) below, unless otherwise agreed to between the
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Representative, the Selling Shareholders and the Company. In the event such
option is exercised, each of the Underwriters shall purchase such number of
Additional Securities then being purchased which shall have been allocated to
the Representative, and which such Underwriters shall have agreed to
purchase. Nothing herein contained shall obligate the Underwriters to make
any over-allotments. No Additional Securities shall be delivered unless the
Firm Securities shall be simultaneously delivered or shall theretofore have
been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of counsel to
the Representative in Atlanta, Georgia, or at such other place as shall be
agreed upon by the Underwriters and the Company. Such delivery and payment shall
be made at 10:00 a.m. (New York City time) on ___________, 1998 or at such other
time and date as shall be designated by the Representative but not less than
three (3) nor more than five (5) business days after the effective date of the
Registration Statement (such time and date of payment and delivery being
hereafter called "Closing Date"). In addition, in the event that any or all of
the Additional Securities are purchased by the Underwriters, payment of the
purchase price for, and delivery of certificates for such Additional Securities
shall be made at the above-mentioned office or at such other place and at such
time (such time and date of payment and delivery being hereinafter called
"Option Closing Date") as shall be agreed upon by the Representative and the
Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Firm
Securities and the Additional Securities, if any, shall be made to the
Underwriters against payment by the Underwriters of the purchase price for the
Firm Securities and the Additional Securities, if any, to the order of the
Company as the case may be by certified check or, at the election of the
Representative, all or a portion of the funds may be paid by Bank wire transfer
of funds or by Representative's commercial check. Certificates for the Firm
Securities and the Additional Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to Closing Date or the relevant
Option Closing Date, as the case may be. The certificates or the Depository
Trust Corporation electronic notifications, as the case may be, for the
Securities and the Additional Securities, if any, shall be made available to the
Underwriters at the above-mentioned office or such other place as the
Underwriters may designate for inspection, checking and packaging no later than
9:30 a.m. on the last business day prior to Closing Date or the relevant Option
Closing Date, as the case may be.
The purchase price of the Class A Common Stock and Redeemable Warrants
to be paid by the Underwriters to the Company and the Selling Shareholders for
the Securities purchased under Clauses (a) and (b) above will be $________ per
Share and $________ per Redeemable Warrant (which price is net of the
Underwriters' discount and commissions). Neither the Company nor the Selling
Shareholders shall be obligated to sell any Securities hereunder unless all Firm
Securities to be sold by the Company and the Selling Shareholders are purchased
hereunder. The Company and the Selling Shareholders each agree to issue and sell
2,500,000 shares of the Class A Common Stock and the Company agrees to issue and
sell 1,000,000 Redeemable Warrants to the Underwriters in accordance herewith.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriters the Underwriters' Warrant at a purchase price of $___________,
which warrant shall entitle the
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holders thereof to purchase an aggregate of 250,000 Shares and 50,000 Warrants.
The Underwriters' Warrant shall be exercisable for a period of four years
commencing one year from the effective date of the Registration Statement at an
initial exercise price equal to one hundred twenty percent (120%) of the initial
public offering price of the Shares and Redeemable Warrants. The Underwriters'
Warrant shall be substantially in the form filed as an Exhibit to the
Registration Statement. Payment for the Underwriters' Warrant shall be made on
Closing Date. The Company has reserved and shall continue to reserve a
sufficient number of Shares for issuance upon exercise of the Underwriters'
Warrant.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective and as the Representative deems advisable, but in no
event more than three (3) business days after such effective date, the
Underwriters shall make a public offering of the securities (other than to
residents of or in any jurisdiction in which qualification of the Securities is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus. The Underwriters may allow such concessions and
discounts upon sales to other dealers as set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Exchange Act (i) before termination of the offering of the Securities
by the Underwriters, which the Underwriters shall not previously have been
advised and furnished with a copy, or [(ii) to which the Underwriters shall have
objected or] (iii) which is not in compliance with the Act, the Exchange Act or
the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriters and confirm by notice in
writing: (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the commission of any stop order or of the initiation, or the
threatening of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution or proceeding for that purpose; (iii) of the issuance by any state
securities commission of any proceedings for the suspension of the qualification
of the Securities for offering or sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose; (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or any state
securities commission or regulatory authority shall enter a stop order or
suspend such qualification at any time, the Company will make every reasonable
effort to obtain promptly the lifting of such order.
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<PAGE>
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriters) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Underwriters pursuant to
Rule 424(b)(4)) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Underwriters notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
will furnish the Underwriters with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, [and will not file any such prospectus to which the Underwriters or
Robert E. Altenbach, Esq.("Underwriters' Counsel") shall reasonably object.]
(e) The Company shall cooperate in good faith with the
Underwriters, and Underwriters' Counsel, at or prior to the time the
Registration Statement becomes effective, in endeavoring to qualify the
Securities for offering and sale under the securities laws of such jurisdictions
as the Underwriters may reasonably designate, and shall cooperate with the
Underwriters and Underwriters' Counsel in the making of such applications, and
filing such documents and shall furnish such information as may be required for
such purpose; provided, however, the Company shall not be required to: (i)
qualify as a foreign corporation or file a general consent to service of process
in any such jurisdiction; or (ii) qualify or "blue sky" in any state which
requires a lock-up of inside securities for a period greater than five (5) years
(or such earlier date if the Representative has exercised the Underwriters'
Warrant). In each jurisdiction where such qualification shall be effected, the
Company will, unless the Underwriters agree that such action is not at the time
necessary or advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction to continue such qualification.
(f) During the time when the Prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act,
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<PAGE>
each such amendment or supplement to be reasonably satisfactory to Underwriters'
Counsel, and the Company will furnish to the Underwriters a reasonable number of
copies of such amendment or supplement.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period commencing on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriters, an earnings
statement which will be in such form and detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof and
provided that the Company is required to file reports with the Commission under
Section 12 of the Exchange Act, the Company will provide the Underwriters'
director Designee or Attendee, as defined herein, copies of the below described
documents prior to release where applicable and will furnish to its stockholders
and to the Underwriters as soon as practicable, annual reports (including
financial statements audited by independent public accountants):
(i) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(ii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(iii) every press release and every material news item or
article of interest to the financial community in respect of the Company and any
future subsidiaries or their affairs which was released or prepared by the
Company;
(iv) any additional information of a public nature concerning
the Company and any future subsidiaries or their respective businesses which the
Underwriters may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4
received or filed by the Company from time to time; and
(vi) such other information as may be requested with
reference to the property, business, stockholders and affairs of the Company .
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
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<PAGE>
(i) For as long as the Company is required to file reports with
the Commission under Section 12 of the Exchange Act, the Company will maintain a
Transfer Agent and a Warrant Agent, which may be the same entity, and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer and Warrant Agent) for its Class A
Common Stock and Redeemable Warrants.
(j) The Company will furnish to the Underwriters or pursuant to
the Underwriters' direction, without charge, at such place as the Underwriters
may designate, copies of each Preliminary Prospectus, the Registration Statement
and any pre-effective or post-effective amendments thereto (two of which copies
will be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriters may reasonably
request.
(k) Neither the Company, nor its officers or directors, nor
affiliates of any of them (within the meaning of the Rules and Regulations) will
take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(1) The Company shall apply the net proceeds from the sale of the
Securities in substantially the manner, and subject to the provisions, set forth
under "Use of Proceeds" in the Prospectus. No portion of the net proceeds will
be used directly or indirectly to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available internally prepared financial statements
of the Company.
(o) For a period of five (5) years from the Closing Date (or such
earlier date if the Representative has exercised the Underwriters' Warrant), the
Company shall furnish to the Underwriters at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Securities upon the
Underwriters' reasonable request; (ii) a list of holders of Securities upon the
Underwriters' reasonable request; (iii) a list of, if any, the securities
positions of participants in the Depository Trust Company upon the Underwriters'
reasonable request.
(p) For a period of five (5) years after the effective date of the
Registration Statement (or such earlier date if the Underwriters have exercised
the Underwriters' Warrant), the Company shall use its best efforts to cause one
(1) individual (the "Designee") selected by the Underwriters to be elected to
the Board of Directors of the Company (the "Board"), if requested by the
Underwriters. Alternatively, the Underwriters shall be entitled to appoint an
individual who shall
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<PAGE>
be permitted to attend all meetings of the Board (the "Advisor") and to receive
all notices and other correspondence and communications sent by the Company to
members of the Board. Upon election to the Board, the Designee shall be entitled
to call special meetings of the Board and to serve on the Audit and Compensation
Committees. The Designee may be removed by the Board only for "justifiable
cause" as that term is defined in the Employment Contracts between the Company
and Mr. Barthold and Mr. Snider. The Company shall reimburse the
Representative's Designee or Advisor for his or her out-of-pocket expenses
reasonably incurred and authorized in advance by the Company in connection with
his or her attendance of the Board meetings and a fee equal to the amount paid
to the other outside directors of the Company. The Designee or Advisor shall
also be entitled to participate in any Stock Option Plans of the Company for
non-employees. To the extent permitted by law, the Company agrees to indemnify
and hold the Designee (as a director or Advisor) and the Representative harmless
against any and all claims, actions, awards and judgements arising out of his or
her service as a director or Advisor and in the event the Company maintains a
liability insurance policy affording coverage for the action of its officer and
directors, to include such Designee and the Representative as an insured under
such policy.
(q) For a period equal to the lesser of (i) five (5) years from
the date hereof, or (ii) the sale to the public of the Warrant Shares, the
Company will use its best efforts not to take any action or actions which may
prevent or disqualify the Company's use of Forms S-1 or, if applicable, S-2 and
S-3 (or other appropriate form) for the registration under the Act of the
Warrant Shares.
(r) For a period of five (5) years from the date hereof, the
Company shall use its best efforts at its cost and expense to maintain the
listing of the Securities on the Nasdaq SmallCap Market or NASDAQ National
Market System if the Company meets all of the requirements and qualifications
promulgated by the NASD.
(s) On or before the effective date of the Registration Statement,
the Company shall retain or make arrangements to retain a financial public
relations firm and a publicist reasonably satisfactory to the Underwriters which
shall be continuously engaged from such engagement date to a date 24 months from
the effective date of the Registration Statement. Upon the expiration of such
two (2) year period, such engagement shall continue until the expiration of any
lock-up period provided for in the Lock-Up Agreement(s) with certain officers
and directors of the Company subject to the Company's right to terminate any
such firm with the consent of the Underwriters' director Designee. Further, the
Company shall engage for a period of two years at least three firms (one of
which shall be the Representative and one of which shall be Standard & Poor's
Stock Reports Professional Edition) which are reasonably acceptable to the
Underwriters to provide industry research and advice to the Company. Upon the
expiration of such two-year period, such engagement shall continue until the
expiration of any lock-up period provided hereunder, subject to the Company's
right to terminate any such firm with the consent of the Underwriters' director
designee.
(t) The Company shall (i) file a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and (ii)
promptly take all necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and/or Moody's OTC Manual and to continue
such inclusion for a period of not less than five (5) years, as soon as
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<PAGE>
practicable, but in no event more than five (5) business days' after the
effective date of the Registration Statement.
(u) Following the Effective Date of the Registration Statement and
for a period of five (5) years thereafter (or such earlier date if the
Underwriters has exercised the Underwriters' Warrant), the Company shall, at its
sole cost and expense, prepare and file such blue sky trading applications with
such jurisdictions as the Underwriters may reasonably request after consultation
with the Company, and on the Underwriters' request, furnish the Underwriters
with a secondary trading survey prepared by securities counsel to the Company.
(v) The Company shall not amend or alter any term of any written
employment agreement nor Lock-Up Agreement between the Company and any executive
officer, director or affiliate, during the term thereof, in a manner more
favorable to such employee or entity, without the express written consent of the
Representative until such time as the Underwriters' Warrant has been exercised
in full.
(w) Until the completion of the distribution of the Securities,
the Company shall not, without the prior written consent of the Representative
and Underwriters' Counsel, which consent shall not be unreasonably withheld,
issue, directly or indirectly, any press release or other communication or hold
any press conference with respect to the Company or its activities or the
offering contemplated hereby, other than trade releases issued in the ordinary
course of the Company's business consistent with past practices with respect to
the Company's operations.
(x) Commencing one (1) year from the date hereof, upon the
exercise of any Warrant, the exercise of which was solicited by the Underwriters
in accordance with the applicable rules and regulations of the NASD prevailing
at the time of such solicitation, the Company shall pay to the soliciting
Underwriter a fee of ___% of the aggregate exercise price of such Warrant (the
"Warrant Solicitation Fee") within five (5) business days of such exercise, so
long as the Underwriters provided bona fide services in exchange for the Warrant
Solicitation Fee and the Underwriters has been specifically designated in
writing by the holders of the Warrants as the broker. The Company further agrees
that it will not solicit the exercise of any Warrant other than through the
Underwriters, unless either: (i) the Underwriters cannot legally solicit the
exercise of the Warrants at the time of such solicitation; (ii) the
Representative declines, in writing, to solicit the exercise of the Warrants
within five (5) business days of such a written request by the Company; or (iii)
the Representative consents to the solicitation of the exercise of the Warrants
by the Company or another entity.
(y) The Company will use its best efforts to maintain its
registration under the Exchange Act in effect for a period of five (5) years
from the Closing Date.
(z) For a period of twenty-four (24) months commencing on the
Effective Date (or such earlier date if the Representative has exercised the
Underwriters' Warrant), except with the written consent of the Underwriters,
which consent shall not be unreasonably withheld, the Company will not issue or
sell, directly or indirectly, any shares of its capital stock, or sell or grant
options, or warrants or rights to purchase any shares of its capital stock,
except pursuant to (i) this Agreement, (ii) the Underwriters' Warrants, (iii)
warrants and options of the Company heretofore issued and
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<PAGE>
described in the Prospectus, and (iv) the grant of options and the issuance of
shares issued upon exercise of options issued or to be issued under a stock
option plan to be adopted in the future by the Company with terms that are
reasonable for a public entity the size of the Company which is described in the
Prospectus; except that, during such period, the Company may issue up to
__________ shares pursuant to certain employee stock options as is described in
the Prospectus, and issue securities in connection with an acquisition, merger
or similar transaction, provided that such securities are not publicly
registered or issued pursuant to Regulation S of the Act, and the acquirer of
the securities is not granted registration rights with respect thereto which are
effective prior to 24 months after the Effective Date and until the
Underwriters' Warrant is exercised, the Underwriter grants its consent.
Notwithstanding anything to the contrary set forth in the prior sentence, the
Company may not issue any class or series of Preferred Stock for a period of 24
months from the Effective Date without the unanimous vote or consent of all
members of the Board of Directors of the Company. Prior to the Effective Date,
the Company will not issue any options or warrants without the prior written
consent of the Underwriters.
(aa) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the 12 months following the Closing
Date without the Underwriters' prior written consent.
(bb) Subsequent to the dates as of which information is given
in the Registration Statement and Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock, funded debt (other than regular repayments of
principal and interest on existing indebtedness) or other securities of the
Company, any adverse change in the condition (financial or other), business,
operations, income, net worth or properties, including any loss or damage to the
properties of the Company (whether or not such loss is insured against), which
could adversely affect the condition (financial or other), business, operations,
income, net worth or properties of the Company; and (iii) the Company shall not
pay or declare any dividend or other distribution on its Class A Common Stock or
its other securities or redeem or repurchase any of its Class A Common Stock or
other securities.
(cc) The Company, for a period of twenty-four (24) months
following the Effective Date (or such earlier date if the Representative has
exercised the Underwriters' Warrant), shall not redeem any of its securities,
except as disclosed in the Registration Statement, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the Effective Date without obtaining the Underwriters' prior written consent,
which consent shall not be unreasonably withheld. The Underwriter shall either
approve or disapprove such contemplated redemption of securities or dividend
payment or distribution within five (5) business days from the date the
Underwriter receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the five (5) business
day period shall be deemed approval of the transaction.
(dd) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as
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<PAGE>
necessary in order to permit preparation of financial statements in accordance
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; (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences, and (v) all quarterly reports filed on
Form 10-Q shall be reviewed by the Company's accountant in accordance with SAS
71.
(ee) The Company, for a period of twenty-four (24) months
following the Effective Date (or such earlier date if the Underwriter has
exercised the Underwriters' Warrant), shall implement the following procedures:
(i) Thirty days prior to fiscal year end, the President
will present to the Board of Directors a business plan to be adopted by the
Board of Directors at fiscal year end. The business plan will include the
following:
a) quarterly projections - including balance sheet,
profit/loss statement and cash flow statements with underlying assumptions
b) upon board approval, this document becomes the
annual budget
(ii) No later than the 20th day of each month, the
Company will provide the Board with comparative financial statements for the
previous month showing actual balance sheet, profit/loss and cash flow vs.
budget with written explanations for deviation in excess of $50,000 or 10% of
line item presented.
(iii) Monthly Board meetings (which may be by telephone)
by the 25th of each month to include discussion of the Monthly Report and
approval of any changes to the business plan based on change of circumstances.
(iv) Implementation of a compensation committee, which
will be headed by an outside director and include one of the Underwriters'
Designee Directors, to make recommendations to the Board for compensation for
all outside consultants, officers and outside directors.
(v) Implementation of an audit committee which will have
as its members the Underwriters' Designee Director and one outside Director.
If the Company fails to comply with or breaches any provisions of this
Section 4 of this Agreement, after 30 days written notice from the
Representative of such default or breach, the Underwriter may cause the Company
to retain one or more consultants, accountants or other professionals to assist
the Company in curing the breach or failure and the Company will reimburse such
third party directly for costs and expenses incurred.
(ff) Financial Advisory Agreement. On the Closing Date, the
Company shall execute a Financial Advisory Agreement with you for services,
which shall include without limitation (i) advising the Company in connection
with possible acquisitions (ii) facilitating
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shareholder communications and relations, including the preparation of the
Company's annual report and (iii) advising and assisting the Company with
long-term financial planning, corporate reorganization, expansion and capital
structure and other financial matters. Such agreement shall have a term of
__________ years and provide for compensation of $______________ per month which
amount shall be prepaid in full on the Closing Date. The Financial Advisory
Agreement shall further provide that during the term of such agreement, in the
event that you (i) introduce, negotiate or arrange on the Company's behalf a
non-public equity financing or (ii) arrange on the Company's behalf a non-public
debt financing or (iii) arrange for the purchase or sale of assets, or for a
merger acquisition or joint venture for the Company, then the Company will
compensate you (based on the Transaction Value, as defined below) for such
services in an amount equal to:
5% on the first $1,000,000 of the Transaction Value;
4% on the amount from $1,000,001 to $2,000,000;
3% on the amount from $2,000,001 to $3,000,000;
2% on the amount from $3,000,001 to $4,000,000;
1% on the amount from $4,000,001 to $5,000,000;
1% on the amount in excess of $5,000,000.
"Transaction Value" shall mean the aggregate value of all
cash, securities and other property (i) paid to the Company, its affiliates or
their shareholders in connection with any transaction referred to above
involving any investment in or acquisition of the Company or any affiliates (or
the assets of either), (ii) paid by the Company or any affiliate in any such
transaction involving an investment in or acquisition of another party or its
equity holdings by the Company or any affiliate, or (iii) paid or contributed by
the Company or any affiliate and by the other party or parties in the event of
any such transaction involving a merger, consolidation, joint venture or similar
joint enterprise or undertaking. The value of any such securities (whether debt
or equity) or other property shall be the fair market value thereof as
determined by mutual agreement of the Company and the Underwriter or by an
independent appraiser jointly selected by the Company and the Underwriter.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date
and the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriters' Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, including, without limitation: (i) the fees and expenses
of accountants and counsel for the Company; (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing, filing, delivery and
mailing (including the payment of postage with respect thereto) of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing and delivery of this Agreement, the Selected
Dealer Agreements, Underwriter Questionnaires, Powers of Attorney and related
documents, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriter in quantities as hereinabove stated; (iii)
the printing, engraving, issuance and delivery of the Securities including any
transfer or other taxes payable thereon; (iv) disbursements and fees of
Underwriters' Counsel in connection with the qualification of the Securities
under state or foreign securities or
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"Blue Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, which Underwriters' Counsel blue sky fees
(exclusive of filing fees and disbursements) shall be $1,000 for each state in
which application for registration or qualification is made up to an aggregate
of $15,000 for all states which Underwriters' Counsel files and inclusive of the
Blue Sky Memorandum described above; (v) fees and expenses of the transfer
agent; (vi) the fees payable to the NASD; (vii) the fees and expenses incurred
in connection with the listing of the Securities on the Nasdaq SmallCap Market
and any other fees for application and admission to a registered Stock Exchange
for which the Underwriter requires the Company to register its Securities;
(viii) fees and expenses for any tombstone advertisements reasonably requested
by the Representative; (ix) Closing Binders; and (x) Lucite cubes containing a
miniature definite Prospectus. All fees and expenses payable to the Underwriters
shall be payable at the Closing Date or Option Closing Date, as applicable.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company shall reimburse and indemnify the Underwriters for all of their
out-of-pocket expenses reasonably incurred in connection with the transactions
contemplated hereby.
(c) The Company and the Selling Shareholders further agree that,
in addition to the expenses payable pursuant to subsection (a) of this Section
5, it will pay to the Underwriter a non-accountable expense allowance equal to
____________ percent (____%) of the gross proceeds received by the Company and
the Selling Shareholders from the sale of the Securities, none of which has been
paid to date to the Underwriter. The Company and the Selling Shareholders will
pay the remainder of the non-accountable expense allowance on the Closing Date
by direct payment to third parties for fees and expenses including, but not
limited to, fees and expenses of Underwriters' Counsel and the balance by
deduction from the proceeds of the offering contemplated herein. In the event
the Underwriter elect to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Underwriter on the Option
Closing Date (by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to ______________ (___%) of the gross proceeds received
by the Company from the sale of the Additional Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or Option Closing Date, if any, of the statements of
officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Option Closing
Date, if any, of each of its covenants and obligations hereunder and to the
following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., New York City time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter, and,
at Closing Date and each Option Closing Date, if any, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated
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by the Commission and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Underwriter and Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Securities and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriter of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriters' opinion, is material or omits to state a
fact which, in the Underwriters' opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Underwriters' reasonable opinion, is material, or omits to
state a fact which, in the Underwriters' reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date and each Option Closing Date,
as the case may be, the Underwriter shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Underwriter reasonably may request
and such counsel shall have received such papers and information as they request
to enable them to pass upon such matters.
(d) At the Closing Date and the Option Closing Date the
Underwriter shall have received an opinion of Foley, Hoag & Eliot, L.L.P.,
counsel to the Company, dated the Closing Date, or Option Closing Date, as the
case may be, addressed to the Underwriter and in form and substance satisfactory
to Underwriters' Counsel, to the effect that:
(i) The Company: (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (B) to the best knowledge of such counsel, the Company
is duly registered or qualified as a foreign corporation in all jurisdictions in
which by reason of maintaining an office in such jurisdiction or by owning or
leasing real property in such jurisdiction it is required to be so registered or
qualified except where failure to register or qualify does not have, singly or
in the aggregate, a Material Adverse Effect; and (C) to the best knowledge of
such counsel, the Company has not received any notice of proceedings relating to
the revocation or modification of any such registration or qualification.
(ii) The Registration Statement, each Preliminary Prospectus
that has been circulated and the Prospectus and any post-effective amendments or
supplements thereto (other
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than the financial statements, schedules and other financial and statistical
data included therein, as to which no opinion need be rendered) comply as to
form in all material respects with the requirements of the Act and Regulations
and the conditions for use of a registration statement on Form SB-2 have been
satisfied by the Company. Such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the Company
and representatives of the Underwriter at which the contents of the Registration
Statement, the Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus, on the basis of the foregoing, no facts
have come to the attention of such counsel which lead them to believe that
either the Registration Statement or any amendment thereto at the time such
Registration Statement or amendment became effective or the Prospectus as of the
date thereof contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or to make the statements
therein in light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no opinion with respect to
the financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus or with respect to
statements or omissions made therein in reliance upon information furnished in
writing to the Company on behalf of the Underwriter expressly for use in the
Registration Statement or the Prospectus).
(iii) To the best of such counsel's knowledge, the Company
has a duly authorized, issued and outstanding capitalization as set forth in the
Prospectus as of the date indicated therein, under "Capitalization." The Shares,
Redeemable Warrants, the Underwriters' Warrants, and the Warrant Shares conform
in all material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable; the holders thereof, to counsel's best knowledge, are not
subject to personal liability by reason of being such holders, and none of such
securities were issued in violation of the preemptive rights of any holder of
any security of the Company.
(iv) The issuance of the Shares, Redeemable Warrants and the
Warrant Shares have been duly authorized and when issued and paid for in
accordance with this Agreement and the Warrant Agreement, respectively, will be
validly issued, fully paid and non-assessable securities of the Company. The
holders of the Securities when issued and paid for, will not be subject to
personal liability by reason of being such holders. To the best of such
counsel's knowledge, the Securities are not and will not be subject to the
preemptive or similar contractual rights of any shareholder of the Company. All
corporate action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken. The certificates representing
the Shares and Redeemable Warrants are in due and proper form.
(v) Based solely on telephonic, verbal confirmation provided
to such counsel by the staff of the Commission, the Registration Statement and
all post-effective amendments, if any, have become effective under the Act, and,
if applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and, to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration Statement has
been issued and to the best of such counsel's knowledge, no proceedings for that
purpose have been
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<PAGE>
instituted or are pending or threatened or contemplated under the Act; and any
required filing of the Prospectus pursuant to Rule 424(b) has been made.
(vi) To the best of such counsel's knowledge, (A) there are
no material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form SB-2
and the Rules and Regulations.
(vii) This Agreement, the Underwriters' Warrant, the Warrant
Agreement, and the Financial Advisory Agreement have each been duly and validly
authorized, executed and delivered by the Company, and assuming that it is a
valid and binding agreement of the Underwriter, so as the case may be,
constitutes a legal, valid and binding agreement of the Company enforceable as
against the Company in accordance with its respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law or pursuant to public policy).
(viii) Neither the execution or delivery by the Company of
this Agreement, the Underwriters' Warrant, and the Warrant Agreement, nor its
performance hereunder or thereunder, nor its consummation of the transactions
contemplated herein or therein, nor the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, nor the issuance of the securities conflicts with or will conflict with
or results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a material default under, or
result in the creation or imposition of any material lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon any property or assets (tangible or intangible) of the
Company pursuant to the terms of (A) the Articles of Incorporation of the
Company, or (B) to the best knowledge of such counsel, and except to the extent
it would not have a Material Adverse Effect on the Company, any statute,
judgment, decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, having jurisdiction over the Company or any of its
respective activities or properties.
(ix) No consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other body, (other
than such as may be required under state securities laws, as to which no opinion
need be rendered) is required in connection with the issuance by the Company of
the Securities pursuant to the Prospectus and the Registration Statement, the
performance of this Agreement, the Underwriters' Warrant, the Financial Advisory
Agreement and the Warrant Agreement by the Company, and the taking of any action
by the Company contemplated hereby or thereby, which has not been obtained.
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<PAGE>
(x) To the best of such counsel's knowledge, except as
described in the Prospectus, no person, corporation, trust, partnership,
association or other entity holding securities of the Company has the
contractual right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement
for twelve months from the date hereof.
(xi) After the public offering, the Securities will be
eligible for listing on the Nasdaq SmallCap Market.
In rendering such opinion such counsel may rely, (A) as to matters
involving the application of corporate laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and in substance reasonably satisfactory to Underwriters'
Counsel) of other counsel reasonably acceptable to Underwriters' Counsel,
familiar with the applicable laws, and (B) as to matters of fact, to the extent
they deem proper, on certificates and written statements of responsible officers
of the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company; provided, that copies of
any such statements or certificates shall be delivered to Underwriters' Counsel
if requested. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such counsel and,
in their opinion, the Underwriter and they are justified in relying thereon.
(e) At each Option Closing Date, if any, the Underwriter shall
have received the an opinion of counsel to the Company, each dated the Option
Closing Date, addressed to the Underwriter and in form and substance
satisfactory to Underwriters' Counsel confirming as of Option Closing Date the
statements made by such firm, in their opinion, delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the Option Closing
Date, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions herein
contained.
(g) Prior to the Closing Date and each Option Closing Date, if
any: (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
prospects or the business activities of the Company, whether or not in the
ordinary course of business, from the latest dates as of which such condition is
set forth in the Registration Statement and Prospectus; (ii) there shall have
been no transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in material default under
any provision of any instrument relating to any outstanding indebtedness; (iv)
no material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus; (v)
no action, suit or proceeding, at law or in equity, shall have been pending or
to its knowledge threatened against the Company, or affecting any of its
properties or
26
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businesses before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may materially adversely affect the business, operations, prospects or
financial condition or income of the Company, except as set forth in the
Registration Statement and Prospectus; and (vi) no stop order shall have been
issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(h) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and neither the
Preliminary Prospectus nor any supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and except
as otherwise contemplated therein: (A) the Company has not incurred up to and
including the Closing Date or the Option Closing Date as the case may be, other
than in the ordinary course of its business, any material liabilities or
obligations, direct or contingent; (B) the Company has not paid or declared any
dividends or other distributions on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary course of business; (D) there
has not been any change in the capital stock or any increase in long-term debt
or any increase in the short-term borrowings (other than any increase in the
short term borrowings in the ordinary course of business) of the Company; (E)
the Company has not sustained any material loss or damage to its property or
assets, whether or not insured; (F) there is no litigation which is pending or
threatened against the Company which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth;
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(v) Neither the Company nor any of its officers or affiliates
shall have taken, and the Company, its officers and affiliates will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in the stabilization or manipulation of the price
of the Company's securities to facilitate the sale or resale of the Shares.
References to the Registration Statement and the Prospectus in this
subsection (i) are to such documents as amended and supplemented at the date of
such certificate.
(i) By the Closing Date, the Underwriter shall have received
clearance from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Representative
shall have received a letter, dated such date, addressed to the Representative
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter, from Price WaterhouseCoopers LLP, independent certified
public accountants:
(i) confirming that they are independent public accountants
with respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) stating that it is their opinion that the consolidated
financial statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Underwriter may rely upon the opinion of Price
WaterhouseCoopers, LLP, independent certified public accountants with respect to
the financial statements and supporting schedules included in the Registration
Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim consolidated
financial statements of the Company (with an indication of the date of the
latest available unaudited interim consolidated financial statements), a reading
of the latest available minutes of the stockholders and board of directors and
the various committees of the boards of directors of the Company, consultations
with officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
consolidated financial statements of the Company included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements of the Company included in the Registration
Statement, or (B) at a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been any change in the
capital stock, or any increase in total borrowings of the Company, or any
decrease in the stockholders' equity or working capital of the Company as
compared with amounts shown in the financial statements included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from
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____________, 1998 to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease in revenue,
net earnings or increase in net income or earnings per common share of the
Company, in each case as compared with the corresponding period of the prior
year other than as set forth in or contemplated by the Registration Statement,
or, if there was any such decrease, setting forth the amount of such decrease;
(iv) stating that they have compared specific dollar amounts,
numbers of Securities, percentages of revenue and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures did not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
(v) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may reasonably request.
(k) At the Closing Date and each Option Closing Date, the
Underwriter shall have received from Price WaterhouseCoopers LLP, independent
certified public accountants, a letter, dated as of the Closing Date, or Option
Closing Date, as the case may be, to the effect that they reaffirm that
statements made in the letter furnished pursuant to Subsection (j) of this
Section, except that the specified date referred to shall be a date not more
than five days prior to the Closing Date and, if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (iii) of subsection (j) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Underwriter and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (iii).
(l) On each of the Closing Date and the Option Closing Date, if
any, there shall have been duly tendered to the Underwriter for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to subsection (e) of Section
4 hereof shall have been issued on either the Closing Date or the Option Closing
Date, if any, and no proceedings for that purpose shall have been instituted or
to its knowledge or that of the Company shall be contemplated.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
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7. Indemnification.
(a) The Company (and the Selling Shareholders, but such indemnity
shall be limited to the proceeds received from the sale of his shares, if any,
as a portion of the Additional Securities) agrees to indemnify and hold harmless
each of the Underwriters, including specifically any person who may be
substituted for an Underwriter as provided in Section 11 hereof and each person,
if any, who controls any Underwriter ("controlling person") within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against any and
all losses, claims, damages, expenses or liabilities, joint or several (and
actions in respect thereof), whatsoever (including but not limited to any and
all expenses whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever), as such are incurred, to which such Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any other federal
or state statutory laws or regulations at common law or otherwise or under the
laws of foreign countries arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus (except that the indemnification contained in this paragraph with
respect to any preliminary prospectus shall not inure to the benefit of the
Underwriter or to the benefit of any person controlling the Underwriter on
account of any loss, claim, damage, liability or expense arising from the sale
of the Securities by the Underwriter to any person if a copy of the Prospectus,
as amended or supplemented, shall not have been delivered or sent to such person
within the time required by the Act, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus, as amended and
supplemented, and such correction would have eliminated the loss, claim, damage,
liability or expense), the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Underwriters'
Warrant; or (iii) in any application or other document or written communication
(in this Section 8 collectively called "application") executed by the Company or
based upon written information furnished by the Company in any jurisdiction in
order to qualify the Securities under the securities laws thereof or filed with
the Commission, any state securities commission or agency, Nasdaq Stock Market,
Inc. or any other securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the Prospectus, in the
light of the circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
application, as the case may be, or (iv) any failure of the Company to comply
with any provision of this Underwriting Agreement resulting in a claim or loss
to the Underwriters.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration
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Statement, the Selling Shareholders and each other person, if any, who controls
the Company within the meaning of Section 20 of the Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
the Underwriters but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto in any post-effective amendment, new
registration statement or prospectus, or in any blue sky application or any
other such application made in reliance upon, and in strict conformity with,
written information furnished to the Company with respect to any Underwriter by
such Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any post-effective amendment, new registration statement or
prospectus, or in any such application, provided that such written information
or omissions only pertain to disclosures in the Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto, in any post-effective amendment, new registration statement or
prospectus or in any such application, provided, further, that the liability of
each Underwriter to the Company shall be limited to the amount of the net
proceeds of the Offering received by the Company. The Company acknowledges that
the statements with respect to the public offering of the Securities set forth
under the heading "Underwriting" and the stabilization legend and the last
paragraph of the cover page in the Prospectus have been furnished by the
Underwriters expressly for use therein and any information furnished by or on
behalf of the Underwriter filed in any jurisdiction in order to qualify the
Securities under State Securities laws or filed with the Commission, the NASD or
any securities exchange constitute the only information furnished in writing by
or on behalf of the Underwriter for inclusion in the Prospectus and the
Underwriter hereby confirms that such statements and information are true and
correct.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise avoided). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party or
parties of the commencement thereof, the indemnifying party or parties will be
entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the foregoing
the indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnifying party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties),
31
<PAGE>
in any of which events such fees and expenses of one additional counsel shall be
borne by the indemnifying parties. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
Anything in this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided however, that such consent was not
unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party in lieu of indemnifying such
indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand from the offering of the Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (A)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company or the Selling Shareholders is the contributing
party and the Underwriters are the indemnified party the relative benefits
received by the Company or the Selling Shareholders on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Securities (before deducting
expenses) bear to the total underwriting discounts and commissions received by
the Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subdivision (d), the Underwriters shall not be required to contribute any amount
in excess of the amount of the net proceeds of the Offering received by the
Company. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section 7, each person, if any, who controls the Company within the meaning of
the Act, each officer of the Company who has signed the Registration Statement,
and each director of the Company shall have the same rights to contribution as
the
32
<PAGE>
Company, subject in each case to this subparagraph (d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subparagraph (d), or to
the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, or any controlling person, including the Selling Shareholders, and
shall survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters.
9. Effective Date. This Agreement shall become effective: (i) upon the
execution and delivery hereof by the parties hereto; or (ii) if, at any time
this Agreement is executed and delivered, it is necessary for the Registration
Statement or a post-effective amendment thereto to be declared effective before
the offering of the Shares may commence, when notification of the effectiveness
of the Registration Statement or such post-effective amendment has been released
by the Commission and communicated to the Company and Representative. Until such
time as this Agreement shall have become effective, it may be terminated by the
Company, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Company and the Selling Shareholders.
10. Termination.
(a) The Underwriters shall have the right to terminate this
Agreement (i) if any calamitous domestic or international event or act or
occurrence has materially disrupted, or in the Underwriters' opinion will in the
immediate future materially disrupt general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market, or in the over-the-counter market shall
have been suspended or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required on
the over-the-counter market by the NASD or by order of the Commission or any
other government authority having jurisdiction; or (iii) if the United States
shall have become involved in a war or major hostilities; or (iv) if a banking
moratorium has been declared by a New York State or federal authority; or (v) if
a moratorium in foreign exchange trading has been declared; or (vi) if the
Company shall have sustained a material adverse loss, whether or not insured, by
reason of fire, flood, accident or other calamity that materially impairs the
investment quality of the Securities; or (vii) if there shall have been such
material adverse change in the conditions or prospects of the Company, involving
a change not contemplated by the Registration Statement.
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<PAGE>
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Underwriters shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Underwriters shall not have completed such arrangements
within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters; or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Underwriters shall have the right to postpone the Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Underwriters option, by notice from the Underwriters to the Company,
terminate the Underwriters' several obligations to purchase Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5 and Section 7 hereof. No action taken
pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be
34
<PAGE>
directed to the Representative at Argent Securities, Inc., 3340 Peachtree Road,
Suite 900, Atlanta, Georgia 30326, with a copy to Robert E. Altenbach, Esq., 225
Peachtree Street, NE, Suite 2100, Atlanta Georgia 30303. Notices to the Company
shall be directed to the Company at the address on the signature page.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and their respective
heirs and legal representatives and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or
by virtue of this Agreement or any provisions herein contained. No purchaser of
Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
OUTLOOK SPORTS TECHNOLOGY, INC.
Suite 410
4400 North Federal Highway
Boca Raton, Florida 33431
By:
----------------------------------
Jim G. Dodrill II, President
Confirmed and accepted as of the date first above
written on behalf of themselves and the other
several underwriters named in Schedule I hereto:
Argent Securities, Inc., as
Representative of the Several Underwriters
By:
---------------------------------
Name: L. Phillips Reames
Title: Chairman
35
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Number of Securities
<S> <C>
Argent Securities, Inc. __________Shares of Class A Common Stock
__________Redeemable Class A Common
Stock Purchase Warrants
</TABLE>
36
<PAGE>
SCHEDULE II
Warrant Agent: American Stock Transfer and Trust Company
37
<PAGE>
SCHEDULE III
SELLING SHAREHOLDERS
Paul H. Berger
Jim G. Dodrill II
Gary M. Treater
Everette C. Hinson
Neal J. Cohen
David K. Stern
James J. Henley
38
<PAGE>
Exhibit 10.28
AGREEMENT
This agreement ("Agreement") is made by and between G. Day Associates,
Inc. ("GDA"), and Outlook Sports Technology, Inc. ("Company"), as of the 1st
day of September, 1998 in the following circumstances:
WHEREAS, the directors and officers of GDA have the exclusive right to
control the professional golfers employed by GDA and to assign one or more of
said professional golfers to serve as a representative of Company;
WHEREAS, Glen Day is a professional golfer employed by GDA and effective
as of September 1, 1998, the Board of Directors of GDA have assigned Glen Day
(the "Professional"), as the professional golfer to represent Company until
December 31, 1998;
WHEREAS, Professional is a professional golfer who plays and intends to
play tournaments and exhibitions throughout the Territory (as hereinafter
defined);
WHEREAS, Professional's endorsement of products and services has
commercial value;
WHEREAS, Company is engaged in the business of golf club manufacturing
and distribution, and Company and Professional previously worked together in
the development, advertisement, promotion and sale of Company's golf products
and equipment pursuant to that certain Agreement (hereinafter the "Old
Agreement") by and between Professional and Company dated as of the 1st day of
January, 1998;
WHEREAS, Company was unable, and failed, to pay Professional certain sums
due under the Old Agreement and, as result thereof, Professional terminated
the Old Agreement on or about September 1, 1998;
WHEREAS, Company acknowledges that it is currently indebted to
Professional for such past due sums and that Company is obligated, pursuant
to the Old Agreement, to pay Professional certain additional sums;
WHEREAS, Company desires to engage Professional's services, through GDA,
for the balance of the 1998 calendar year pursuant to the terms and
conditions of this Agreement; and,
WHEREAS, GDA desires to provide Company with the services set forth
below, in accordance with the terms and conditions of this Agreement, and
Professional desires to forgive the sums owed by Company to Professional
under the Old Agreement in consideration of the Company retaining GDA
pursuant to this agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties do hereby AGREE as follows:
1. Recitals; Release: The foregoing recitals are true, correct and hereby
incorporated into this Agreement. Further, each of the parties to this
Agreement hereby waives any and all
<PAGE>
defaults under the Old Agreement and hereby releases the other party
from any claims, demands, damages, actions, and/or causes of action arising
from and/or related to the Old Agreement.
2. Definitions. For purposes of this Agreement the following terms shall
have the following meanings:
2.1 "Endorsed Products(s)" shall mean the following Tegra golf
products: Tegra Woods and Irons, headcovers, umbrella, headwear, towel
and golf apparel.
2.2 "Professional Endorsements(s)" shall mean the name, photograph,
message, voice, initials, likeness or signature of Professional, or any
words and/or sounds, and/or symbols, and/or graphic representations
which identify Professional and/or his name, identity, or likeness.
2.3 "Official Events" shall mean U.S. PGA TOUR officially sanctioned
events, plus the British Open (including practice rounds and pro-ams).
2.4 "Territory" shall mean the entire world.
2.5 "Trademark" shall mean the Company's Tegra, T design, Tegra T
design and other marks (whether registered or unregistered) forming a
part of the Tegra line of products and services offered by the Company.
3. Management Representation. GDA acknowledges and represents that it has
appointed International Golf Partners, Inc., as GDA's and Professional's
exclusive management representative for this Agreement. Company and GDA
agree that International Golf Partners, Inc., shall be deemed to be the
exclusive management representative of GDA and Professional for the purposes
of this Agreement and that all payments, notices, statements or other
documents required or permitted to be given hereunder shall be sent directly
to GDA and Professional in care of International Golf partners, Inc., as
specified in Section 15 below.
4. Term of Agreement. This Agreement shall commence as of the date first
written above and shall extend through December 31, 1998 ("Term").
5. Responsibility of GDA. GDA agrees to cause Professional to fulfill the
following responsibilities with respect to the development, advertisement
and promotion of the Endorsed Products during the Term (the "Endorsed
Services"):
5.1 Use of Endorsed Products. Company agrees to provide the
Professional from time to time, as reasonably needed by Professional
during the Term, a reasonable quantity of the Endorsed Products, at no
cost, for Professional's use hereunder. GDA and Professional
specifically agree that no endorsed Product supplied to Professional
shall be sold or traded to a third party. GDA agrees to cause
Professional to carry Company's golf staff bag, headcovers, towels,
and umbrella and wear the Company's headwear and apparel in all
Official Events and other golf related
2
<PAGE>
events. Company agrees that Professional shall be under no obligation
to use Company's Woods or Irons in official events.
5.2 GDA agrees to ensure that Professional shall, in all circumstances,
wear and use the Endorsed Products whenever he is competing, practicing
or playing in golf related activities and at teaching and coaching
sessions. The Company acknowledges and agrees that if Professional
represents his country in a special team event where there are specific
products analogous to, or competitive with, the Endorsed Products
that are required to be worn and/or used which are not Endorsed
Products, the Professional may wear and/or use such products during
such event. In addition, GDA shall ensure that Professional shall, in
all appropriate circumstances, wear and/or use the Endorsed Products
during golf related press and/or television interviews. GDA agrees to
cause Professional to wear a golf hat or visor and golf shirt of the
Company (or ones that prominently display the Trademark) during
television interviews, press interviews and awards ceremonies other
than specified above.
6. Endorsement. GDA agrees to ensure that Professional shall endorse the
Endorsed Products during the Term and permit Company to use the Professional
Endorsements during the Term as follows:
6.1 Permitted Uses. Company shall have the exclusive right and license to
use, reproduce, and to distribute Professional Endorsements as they
relate to the Endorsed Products during the Term, throughout the
Territory and for purposes of advertising, promoting, marketing,
sales, and distribution of any of the Endorsed Products, including,
without limitation, use on label and packaging and in print, broadcast,
electronics, and any other media now known or hereafter created,
subject to the quality control provisions set forth below.
6.2 Exclusivity. The Professional Endorsement rights granted hereby shall
be exclusive with respect to the Endorsed Products only. The parties
acknowledge and agree that all proprietary rights in and to the
Professional Endorsements shall be and remain vested in Professional
except to the extent of the license expressly granted herein.
6.3 GDA expressly agrees that the right to use the Professional Endorsement
will not be granted to anyone other than the Company for use within
the Territory during the Term in connection with advertisement,
promotion, sale or distribution of a product or products analogous to
or competitive with Endorsed Products.
7. Quality Control. All uses by Company of the Professional Endorsement
shall be subject to the prior approval of GDA, which approval may be
withheld in GDA's sole and absolute discretion. Company agrees to submit
all proposed uses of the Professional Endorsement to GDA reasonably in
advance of the time intended for first use. GDA shall have a period of five
(5) business days from the date of receiving notice of any proposed use of
the Professional Endorsement to either approve or disapprove thereof. If
GDA fails to act within the five (5) business day period, it will be
deemed to have
3
<PAGE>
approved the proposed use. Company acknowledges and agrees that its
right to produce, promote and distribute materials incorporating the
Professional Endorsement shall cease upon expiration of this Agreement,
except those materials that have been distributed outside of Company
provided that in the event of early termination of this Agreement,
Company shall have ninety (90) days after termination of this Agreement
to exhaust advertising and other materials which may include the
Professional Endorsement. GDA agrees that Company is authorized to
advertise "Win Ads" without Professional's advance approval.
Additionally, GDA agrees that Company is authorized to use the
Professional Endorsement in connection with the Company's Registration
Statement and Prospectus. Failure by the Company to obtain the approvals
set forth herein shall constitute a material breach of this Agreement.
8. Official Events. Pursuant to the Old Agreement, Professional was obligated
to play in not less than twenty (20) official PGA Tour events ("Official
Events") during the 1998 PGA Tour year. Company acknowledges that
Professional has already played in excess of twenty (20) Official Events
during 1998 and Company hereby expressly agrees that Professional is
under no obligation to play in any additional Official Events during the
Term.
9 Fees. Subject to the terms of this Agreement, Company agrees to pay
Professional the following fees and bonuses during the Term:
9.1 Retainer Fee: Company agrees to pay to GDA a $33,333.34 retainer fee
(the "Retainer Fee") for GDA ensuring Professional provides the
services set forth in this Agreement.
9.2 Stock Shares: Company previously paid Professional, under the Old
Agreement, as additional compensation for the services and rights
provided by Professional pursuant thereto, taking into account a
three (3) for one (1) reverse split, 10,000 shares (the "Shares")
of the Company's common stock, valued at par value $0.01 per share.
Company agreed, under the Old Agreement, that in the event that the
Shares do not have a minimum value of $60,000 at the date of
initial public offering (IPO) of the Company's stock, that the
Company would pay the difference between the value of the Shares,
on such date, and $60,000 to Professional in cash compensation or
gifting additional shares of Company stock no later than thirty
(30) days following the date of the IPO. Company hereby agrees that
the Shares previously paid to Professional were fully earned.
Further, Company and Professional hereby agree that Company's
obligations relative to the contingency related to the Shares not
having a minimum value of $60,000 at the date of the IPO, is hereby
modified to require that Company pay to GDA the difference between
the valuation of the Shares on such date and $60,000 in cash no
later than thirty days following the date of the IPO, irrespective
of whether such IPO date is prior to, or after, the expiration or
early termination of this Agreement.
9.3 Tournament Bonuses: Company agreed, under the Old Agreement, to pay
Professional certain bonuses based on Professional's performance on
the PGA
4
<PAGE>
Tour, and Company hereby reaffirms its obligation to pay the bonuses set
forth below (Each of the bonuses set forth in this Section may be
referred to individually as a "Bonus" and/or collectively as the
"Bonuses"):
A. PGA Tour Victories: Company agrees to pay GDA $25,000 for each of
Professional's tournament victories.
B. Money List: Company agrees to pay GDA a cash bonus ("Money List
Bonus") in an amount determined by the Professional's year end
ranking on the Official PGA Tour Money List for the year 1998
as follows:
#1 $100,000
#2-10 $ 50,000
#11-20 $ 40,000
#21-30 $ 30,000
C. Professional of the Year: Company agrees to pay GDA $50,000 if
Professional should be named "PGA Tour Professional of the Year".
D. Ryder Cup/Presidents Cup: Company agrees to pay GDA $25,000 if
Professional should be named to the Ryder Cup or Presidents Cup teams.
9.4 Payments:
A. Retainer Fee: The Retainer Fee shall be paid to GDA on the
earlier of: (i) five (5) days after the IPO of Company's stock,
or, (ii) December 1, 1998. The Retainer Fee shall be paid on such
date without demand notice and/or set off.
B. Bonuses: Company hereby represents that all Bonuses due under
Section 9.3 above were insured by Company through Lexington
Insurance Company (the "Insurer") under policy number 548-NA0080098
(the "Policy"). Company hereby agrees to forward to the Insurer
Exhibit "A" attached hereto and direct the Insurer to forward to
GDA any benefits due under the Policy by reason of any of the
occurrences described in Section 9.3 above upon delivery to the
Insurer of the documents necessary to establish a proof of loss as
set forth in the Policy. Further, to the extent that any such
documentation is required from Company, Company agrees to fully
cooperate and assist GDA in supplying Insurer with the documents
necessary to establish proof of loss under the Policy. Further,
Company agrees that in the event that any benefits due under the
Policy in payment of the Bonuses are paid to Company, the Company
shall immediately notify Professional of same and deliver such
proceeds to Professional without setoff and/or deduction.
9.5 Guarantees: Company hereby agrees to have Paul Berger and Jim Dodrill
execute, and deliver to Professional, the Guarantee of Agreement
attached hereto as Exhibit "B".
5
<PAGE>
10. Information and Promotion. During the Term of this Agreement, GDA agrees
to ensure that Professional uses reasonable efforts when possible to
promote and further the sale of the Endorsed Products. GDA also agrees
and promises to use reasonable efforts to keep Company informed as to
any information Professional acquires relating to the Company and
Company's products, including, without limitation, information on
performance and including information obtained from other professional
golfers.
11. No Waiver. Failure of either party to complain of any act or omission on
the part of the other party, no matter how long the same may continue,
shall not be deemed to be a waiver by either party of its rights under
this Agreement.
12. Binding Effect. Subject to the provisions of this Agreement governing
assignment, this Agreement shall be binding upon and to inure to the
benefit of the successors of the parties hereto.
13. Severance. If any term, covenant, condition or provision of this
Agreement or the application thereof to any person or circumstance shall
to any extent be invalid or unenforceable, the remainder of this
Agreement or application of such term of provision to any person or
circumstance other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term, covenant,
condition or provision of this Agreement shall be valid and shall be
enforced to the fullest extent provided by law.
14. Notice. Notice by any party is deemed given when mailed, postage paid,
certified or registered, return receipt requested (Federal Express, DHL,
Airborne, US Overnight Mail and UPS Overnight are also applicable),
addressed to the other parties at the address appearing below:
To Professional: G. Day Associates, Inc.
c/o International Golf Partners, Inc.
3300 PGA Blvd., Suite 990
Palm Beach Gardens, FL 33410
To Company: Outlook Sports Technology, Inc.
4400 N. Federal Hwy., Suite 410
Boca Raton, FL 33431
Attn: Jim Dodrill, President
Either party may, by written notice to the other, change the address to
which any such communications shall be sent. After notice of such change
has been received, any communications shall be sent directly to such
party at such changed address.
15. Authority. Each of the parties hereby represents and warrants to the
other that it has the right, power and legal authority to enter into and
fully perform this Agreement in accordance with its terms and that this
Agreement when executed and delivered by the parties will be a legal,
valid and binding obligation enforceable against the parties in
accordance with its teams.
6
<PAGE>
16. Modification. No modification or waiver of any provisions of this
Agreement shall be effective unless made in writing and signed by all
parties.
17. Indemnification. Company agrees to fully indemnify, save, defend and
hold GDA and Professional harmless from and against any and all claims,
demands, and/or damages including all reasonable attorney's fees
incurred by GDA and/or Professional in defense thereof) arising from,
based upon, or involving the Endorsed Services, Company's use of a
Professional Endorsement, and/or Professional's appearance or
participation in any promotion, advertisement, and/or marketing event,
of whatever nature, in, of, or for which Company requests and/or
requires Professional's participation. GDA and/or Professional shall have
the right to reasonably select any attorney to defend GDA and/or
Professional in any matter falling within Company's indemnification
obligation and Company shall have the right to receive, monitor and
audit any bills and shall be required to pay relating to such defense.
Company hereby agrees, in advance, that Peter M. Bernhardt, Esq., may
represent GDA and/or Professional in any action falling within this
indemnification provision.
GDA agrees to fully indemnify and hold harmless Company from and against
any and all damages arising out of or in anyway related to third party
claims or government fines or penalties based on the gross negligence or
intentional acts or willful omissions of GDA and/or Professional
in relation to the activities described in this Agreement, provided that
such actions were not at the direction of the Company and that such
damages do not arise from the gross negligence of Company.
18. Assignment. Neither GDA nor Company shall have the right to grant
sublicenses hereunder or to otherwise assign, alienate, transfer,
encumber or hypothecate any of its rights or obligations hereunder,
except as set forth herein: (1) GDA shall have the right to assign the
financial benefits hereof, and Company hereby consents to such
assignment upon receipt by Company of written notice thereof from GDA;
(2) Company shall have the right to grant sublicenses hereunder or to
otherwise assign, alienate, transfer, encumber or hypothecate any of its
rights or obligations hereunder, if prior written consent is obtained
from GDA, which consent will not be unreasonably withheld; (3) Company
may assign this Agreement and all rights and obligations hereunder to a
purchaser of substantially all of the assets of the Company's business
associated with the Trademarks or any successor entity in a corporate
reorganization or any entity under common ownership or control.
19. Termination.
19.1 Company may terminate this Agreement in the event GDA breaches any
of its obligations under this Agreement and such breach continues
uncured for more than fifteen (15) days after written notice
thereof is given to the GDA by the Company. Such right of
termination is in addition to any other remedy the Company may
have and shall not waive the Company's right to damages for any
breach.
7
<PAGE>
19.2 GDA agrees that Company shall have the right to immediately terminate
this Agreement upon written notice to GDA's representative:
A. In the event of Professional's death during the Term, or
B. In the event Professional is convicted of a felony, or
C. In the event Professional fails to use the Endorsed Products at
the PGA Tour Championship; or
D. If Professional has committed, or shall commit, any act, or has,
or in the future becomes involved in any situation or occurrence
including, but not limited to, the use of or other association
with drugs or excessive alcohol, or otherwise tending to bring
himself and/or the Company and/or the Endorsed Product into public
disrepute, contempt, scandal, or ridicule, or tending to shock,
insult, or offend the people of this nation or another nation, or
any class or group thereof, or reflecting unfavorably upon
Company's reputation or products, or is charged with the
commission or any act or thing which is an offense involving moral
turpitude under Federal, State or local law.
E. In the event that Company shall terminate this Agreement pursuant
to this Section, Company agrees that such termination shall not
effect GDA's entitlement to the Bonuses or fifty percent (50%) of
the Retainer Fee; however, with respect to the balance of the
remaining fifty percent (50%) of the Retainer Fee, GDA shall only
be paid a pro-rata share calculated against the Term.
19.3 GDA shall have the right to immediately terminate this Agreement
by giving written notice thereof to Company upon the occurrence of
any of the following contingencies:
A. If Company is adjudicated as insolvent, declares bankruptcy or
fails to continue its business of selling the Endorsed Products;
or
B. If Company fails to make payment to GDA of any sums due pursuant
to this Agreement within five (5) days of such payment being due.
Company expressly agrees, as a result of the Company's failure to
pay amounts due under the Old Agreement, GDA shall have absolutely
no obligation to notify Company of its failure to make any payment
prior to GDA's termination of this Agreement.
19.4 In the event GDA terminates this Agreement, the parties agree that
any and all sums due to GDA shall immediately become due and payable
without demand and/or further notice. Furthermore, Company agrees
that such termination shall not affect GDA's entitlement to any
Bonuses described in this Agreement and that Professional shall have
the right to collect such bonuses from Insurer, and/or the
8
<PAGE>
Company, as provided by this Agreement, as if this Agreement had
not been terminated.
20. Terms of Agreement Confidential. It is hereby agreed that the specific
terms and conditions of this Agreement, including but not limited to the
financial terms, and the duration are strictly confidential and shall
not be divulged to any third parties, other than those having a need for
disclosure in connection with the normal business affairs of the parties
without the prior written consent of both the Company and GDA, unless
otherwise required by law to be disclosed or unless in connection with
the prosecution of defense of an arbitration proceeding brought under
this Agreement.
21. Entire Agreement. This Agreement and the exhibits referred to herein,
which are incorporated herein by this reference, constitutes the entire
agreement between the parties with respect to this subject matter
covered by this Agreement. The Agreement may not be amended, changed or
modified except by a writing duly executed by both parties hereof. Each
party understands and hereby represents and acknowledges to the other
that no understanding, agreement, inducement, or promise has been made
other than as set forth in this Agreement and that this Agreement
supersedes any and all prior understandings, agreements,
representations, promises or inducements, whether oral or written, not
set forth in, referred to in, or reserved or preserved in this Agreement.
22. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Florida without regard to its
principles of conflicts of laws. Any action on this Agreement or arising
out of its terms and conditions shall be instituted and litigated in the
courts of the State of Florida, County of Palm Beach. In accordance, the
parties submit to the jurisdiction and venue of the State of Florida and
agree and acknowledge that such a forum shall be a convenient forum for
resolution of their questions, disputes and other differences.
IN AGREEMENT, to the foregoing the parties set their hands below as of
the date first written above.
G. DAY ASSOCIATES, INC. OUTLOOK SPORTS TECHNOLOGY, INC.
By: By: /s/ Jim Dodrill
------------------------- -------------------------------
Glen Day, its President Jim Dodrill, its President
Dated: Date: October 6, 1998
---------------------- ---------------------
By:
-------------------------
Glen Day, individually, as to the terms and conditions of Section 1 above.
9
<PAGE>
EXHIBIT A
OUTLOOK SPORTS TECHNOLOGY, INC.
4400 North Federal Highway
Suite 510
Boca Raton, FL 33431
(561) 750-7528
September 29, 1998
Lambert Fenchurch Specialties Group Ltd.
Crowley Colosso Fine Arts and Entertainment Division
Friary Court--Crutched
Friars
London EC 3N 2NT
Re: Lexington Insurance Company Policy No. 548-NA0080098
Insured: Outlook Sports Technology, Inc.
Period of Insurance: January 16, 1998 - December 31, 1998
Gentleman:
As you are aware, you recently issued to us the above-referenced
Lexington Insurance Company insurance policy (the "Policy"). The Policy is a
bonus indemnification insurance policy. Pursuant to Schedule B of the Policy,
certain benefits would be due to Outlook Sports Technology, Inc., in the event
that Glen Day achieves certain standings on the U.S. PGA Tour Money List, wins
a PGA Tour event and/or is named to the President's Cup Team. Outlook Sports
Technology Inc. has recently assigned all of its right to receive the
aforesaid benefits under the Policy to G. Day Associates, Inc. The purpose of
this correspondence is to advise you that any and all of the aforesaid
benefits due Outlook Sports Technology, Inc. should be paid directly to
G. Day Associates, Inc., c/o International Golf Partners, Inc. 3300 PGA
Boulevard, Suite 990, Palm Beach Gardens, FL 33490, upon compliance with
Section 14 of the Policy.
Thank you in advance for your anticipated cooperation in this matter, and
should you have any questions or wish to discuss anything contained herein,
please feel free to call me.
Very truly yours,
OUTLOOK SPORTS TECHNOLOGY, INC.
By:
------------------------------
JIM DODRILL, President
cc: Mr. Glen Day, President
G. Day Associates, Inc.
c/o International Golf Partners
Mr. Mike Price
ESIX Entertainment and Sports
1899 Powers Ferry Road, Suite 375
Atlanta, GA 30339-5655
<PAGE>
Exhibit B
GUARANTEE OF AGREEMENT
----------------------
THIS GUARANTEE OF AGREEMENT ("Guarantee of Agreement") is made and
delivered to G. Day Associates, Inc. ("GDA") as of the 1st day of September,
1998, in the following circumstance:
WHEREAS, GDA and OUTLOOK SPORTS TECHNOLOGY, INC. ("Company"), have
entered into a Agreement dated as of September 1, 1998 ("Agreement");
WHEREAS, the undersigned are principals of the Company;
WHEREAS, the GDA required as a condition to its execution of the
Agreement that the undersigned unconditionally becomes surety to GDA for
Company's full performance of certain aspects of the Agreement; and
WHEREAS, in order to induce GDA to execute the Agreement, the undersigned
has agreed to execute this Guarantee of Agreement.
NOW, THEREFORE, in consideration of the GDA's execution of the Agreement,
and in consideration of other good and valuable considerations, and intending
to be legally bound, the undersigned hereby unconditionally become surety to
GDA, his successors, endorsees or assigns for the full, faithful and punctual
performance of each and all of the terms, covenants, agreements and
conditions of Section 9.1 of the Agreement to be kept and performed by
Company, in accordance with and within the time prescribed by the Agreement,
whether at maturity, or by declaration, acceleration or otherwise, together
with costs and expenses of collection incurred by GDA, including, without
limitation, attorney's fees incurred by GDA in connection with any of the
foregoing (hereinafter referred to as the "Liabilities"). The undersigned
further agree as follows:
1. GDA shall have the right from time to time, and at any time in his
sole discretion without notice to or consent from the undersigned, or any of
the undersigned, or without affecting, impairing, or discharging in whole or
in part, the Liabilities of the undersigned hereunder, to modify, change,
extend, alter, amend, or supplement, in any respect, whatever any
indebtedness or evidence thereof, or any agreement or transaction between GDA
and Company or between GDA and any other party liable.
2. THE UNDERSIGNED WAIVE (a) ALL NOTICES, INCLUDING BUT NOT LIMITED TO
(i) NOTICE OF ACCEPTANCE OF THIS GUARANTEE OF AGREEMENT; (ii) NOTICE OF
PRESENTMENT, DEMAND FOR PAYMENT, OR PROTEST OF ANY OF THE LIABILITIES, OR THE
OBLIGATION OF ANY PERSON, FIRM OR CORPORATION HELD BY GDA AS COLLATERAL
SECURITY; (b) ALL DEFENSES, OFFSETS AND COUNTERCLAIMS WHICH UNDERSIGNED MAY
AT ANY TIME HAVE JOINTLY OR SEVERALLY TO ANY OF THE LIABILITIES; (c) TRIAL BY
JURY AND THE RIGHT THERETO AND ANY PROCEEDING OF ANY KIND, WHETHER ARISING ON
OR OUT OF, UNDER OR BY REASON OF THIS GUARANTEE, OR ANY OTHER AGREEMENT OR
TRANSACTION BETWEEN UNDERSIGNED, GDA AND/OR COMPANY; (d) ALL NOTICES OF A
FINANCIAL
<PAGE>
CONDITION OR OF ANY ADVERSE OR OTHER CHANGE IN THE FINANCIAL CONDITION OF
COMPANY.
3. GDA may, without notice, assign this Guarantee in whole or in part,
and no assignment or transfer of GDA shall operate, extinguish or diminish
the liability of the undersigned hereunder.
4. The liability of the undersigned under this Guarantee shall be
primary under any right of action which shall accrue to GDA under the
Agreement and GDA may, at his option, proceeds against any of, or all of, the
undersigned without having to commence any action, or having obtained any
judgment, against the Company.
5. All of the Liabilities shall be immediately due and payable by
undersigned, anything contained herein to the contrary notwithstanding,
immediately upon the insolvency of the Company in the bankruptcy or equity
sense: the application for appointment or appointment of a trustee, receiver,
conservator, liquidator, sequester, custodian, or other similar judicial
representatives, for Company or any of the Company's assets; Company's making
any assignment for the benefit of creditors; the commencement of a case by or
against Company under any insolvency, bankruptcy, creditor adjustment or
debtor rehabilitation laws, state or federal, including but not limited to
arrangement, composition, liquidation or reorganization; the calling of a
meeting of creditors of Company; the commencement of levy, or execution or
attachment proceedings against Company or any of Company's assets whether or
not GDA has exercised any option which it may have to require payment in full
or acceleration of payment of the Liabilities, from any other person liable
for payment of the Liabilities.
6. The undersigned and each of them agree and consent to the exclusive
jurisdiction of the County or Circuit Courts of Palm Beach County, Florida,
whichever may be appropriate and/or of the United States District Court for
the Southern District of Florida in any and all actions and proceedings
whether arising hereunder or under any other Agreement or undertaking, and
irrevocably agree to service of process by certified mail, return receipt
requested, to its address set forth herein, or such address as may appear in
GDA's records.
WITNESSES:
- --------------------------------
--------------------------------
- -------------------------------- Jim Dodrill
Address:
------------------------
------------------------
- --------------------------------
--------------------------------
- -------------------------------- Paul Berger
Address:
------------------------
------------------------
<PAGE>
Exhibit 10.33
Date:
--------------
INCENTIVE STOCK OPTION
Granted by
OUTLOOK SPORTS TECHNOLOGY, INC.
(hereinafter called the "Company")
to
-------------------
(hereinafter called the "Holder")
under the
1998 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
WITNESSETH:
For valuable consideration, the receipt of which is hereby
acknowledged, the Company hereby grants to the Holder the following option:
FIRST: Subject to the terms and conditions hereinafter set forth, the
Holder is hereby given the right and option to purchase from the Company an
aggregate of ______ shares of Common Stock of the Company, without par value, at
the time and in the manner hereinafter stated. Schedule A attached hereto and
hereby incorporated herein sets forth with respect to this option (i) its
expiration date, (ii) its exercise price per share, (iii) its vesting rate, and
(iv) certain other terms and conditions applicable to this option and
incorporated herein.
This option is and shall be subject in every respect to the provisions
of the Company's 1998 Incentive and Nonqualified Stock Option Plan (the "Plan"),
as amended from time to time, which is incorporated herein by reference and made
a part hereof. In the event of any conflict or inconsistency between the terms
hereof and those of the Plan, the latter shall prevail. References herein to the
Plan Administrator shall mean the Plan Administrator as defined in the Plan.
This option shall be exercised by the delivery of written notice to
the Company (the "Notice") setting forth the number of shares with respect to
which the option is to be exercised and the address to which the certificates
for such shares are to be mailed, together with (i) cash or check payable to the
order of the Company for an amount equal to the option price for the number of
shares specified
<PAGE>
in the Notice, or (ii) with the consent of the Plan Administrator, shares of
Common Stock of the Company which (a) either have been owned by the Holder for
more than six (6) months on the date of surrender or were not acquired, directly
or indirectly, from the Company, and (b) have a fair market value on the date of
surrender not greater than the option price for the shares as to which such
option is being exercised, (iii) with the consent of the Plan Administrator,
delivery of such documentation as the Plan Administrator and a broker, if
applicable, shall require to effect an exercise of the option and delivery to
the Company of the sale or loan proceeds required to pay the option price of the
shares for which the option is being exercised, (iv) with the consent of the
Plan Administrator, such other consideration which is acceptable to the Plan
Administrator and which has a fair market value equal to the option price for
the shares as to which the option is being exercised, or (v) with the consent of
the Plan Administrator, a combination of (i), (ii), (iii) or (iv). For the
purpose of the preceding sentence, the fair market value per share of the Common
Stock so delivered to the Company shall be the closing price per share on the
date of delivery as reported by a nationally recognized stock exchange, or, if
the Common Stock is not listed on such an exchange, as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") National
Market System or, if the Common Stock is not listed on the Nasdaq National
Market System, the mean of the bid and asked prices per share on the date of
delivery or, if the Common Stock is not traded over-the-counter, the fair market
value per share as determined by the Plan Administrator.
SECOND: The Company, in its discretion, may file a registration
statement on Form S-8 under the Securities Act of 1933 to register shares of
Common Stock reserved for issuance under the Plan. At any time at which such a
registration statement is not in effect, it shall be an additional condition
precedent to any exercise of this option that the Holder shall deliver to the
Company a customary "investment letter" satisfactory to the Company and its
counsel in which, among other things, the Holder shall state that the Holder is
purchasing the shares for investment and acknowledges that they are not freely
transferable except in compliance with state and federal securities laws.
THIRD: Within a reasonable time after receipt by the Company of the
Notice and payment for any shares to be purchased hereunder and, if required as
a condition to exercise, the investment letter described in paragraph SECOND,
the Company will deliver or cause to be delivered to the Holder (or if any other
individual or individuals are exercising this option, to such individual or
individuals) at the address specified in the Notice a certificate or
certificates for the number of shares with respect to which the option is then
being exercised, registered in the name or names of the individual or
individuals exercising the option, either alone or jointly with another person
or persons with rights of survivorship, as the individual or individuals
exercising the option shall prescribe in writing to the Company at or prior to
such purchase; provided, however, that if any law or regulation or order of the
Securities and Exchange Commission or other body having jurisdiction in the
premises shall require the Company or the Holder (or the individual or
individuals exercising this option) to take any action in connection with the
shares then being purchased, the date for the delivery of the certificates for
such shares shall be extended for the period necessary to take and complete such
action, it being understood that the Company shall have no obligation to take
and complete any such action. The Company may imprint upon such certificate
legends referencing stock transfer
2
<PAGE>
restrictions which counsel for the Company considers appropriate. Delivery by
the Company of the certificates for such shares shall be deemed effected for all
purposes when the Company or a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to the Holder,
at the address specified in the Notice.
FOURTH: The existence of this option shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of Common Stock, or any issue of bonds, debentures,
preferred or prior preference stock or other capital stock ahead of or affecting
the Common Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Common Stock outstanding, in any
such case without receiving compensation therefor in money, services or
property, then the number, class, and price per share of shares of stock subject
to this option shall be appropriately adjusted in such a manner as to entitle
the Holder to receive upon exercise of this option, for the same aggregate cash
consideration, the same total number and class of shares as the Holder would
have received as a result of the event requiring the adjustment had the Holder
exercised this option in full immediately prior to such event.
After a merger of one or more corporations with or into the Company or
after a consolidation of the Company and one or more corporations in which the
stockholders of the Company immediately prior to such merger or consolidation
own after such merger or consolidation shares representing at least fifty
percent (50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, the Holder shall, at no additional cost, be
entitled upon exercise of this option to receive in lieu of the shares of Common
Stock as to which this option was exercisable immediately prior to such event,
the number and class of shares of stock or other securities, cash or property
(including, without limitation, shares of stock or other securities of another
corporation or Common Stock) to which the Holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, the Holder had been the
holder of record of a number of shares of Common Stock equal to the number of
shares for which this option shall be so exercised.
If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation in which the stockholders of
the Company immediately prior to such merger or consolidation continue to own
after such merger or consolidation shares representing at least fifty percent
(50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, or if the Company is liquidated, or sells or
otherwise disposes of substantially all its assets to another corporation while
this option remains outstanding, then (i) subject to the provisions of clause
(iii) below, after the effective date of such merger, consolidation,
3
<PAGE>
liquidation, sale or disposition, as the case may be, the Holder of this option
shall be entitled, upon exercise of this option, to receive, in lieu of the
shares of Common Stock as to which this option was exercisable immediately prior
to such event, the number and class of shares of stock or other securities, cash
or property (including, without limitation, shares of stock or other securities
of another corporation or Common Stock) to which the Holder would have been
entitled pursuant to the terms of the merger, consolidation, liquidation, sale
or disposition if, immediately prior to such event, the Holder had been the
holder of a number of shares of Common Stock equal to the number of shares as to
which such option shall be so exercised; (ii) the Plan Administrator may
accelerate the time for exercise of this option, so that from and after a date
prior to the effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, specified by the Plan Administrator, such
accelerated options shall be exercisable in full; or (iii) this option may be
canceled by the Plan Administrator as of the effective date of any such merger,
consolidation, liquidation, sale or disposition provided that (x) notice of such
cancellation shall be given to the Holder and (y) the Holder shall have the
right to exercise this option to the extent that the same is then exercisable
or, if the Plan Administrator shall have accelerated the time for exercise of
this option pursuant to clause (ii) above, in full during the 10-day period
preceding the effective date of such merger, consolidation, liquidation, sale or
disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding options.
FIFTH: No person shall, by virtue of the granting of this option to the
Holder, be deemed to be a holder of any shares purchasable under this option or
to be entitled to the rights or privileges of a holder of such shares unless and
until this option has been exercised with respect to such shares and they have
been issued pursuant to that exercise of this option.
The Company shall, at all times while any portion of this option is
outstanding, reserve and keep available, out of shares of its authorized and
unissued stock or reacquired shares, a sufficient number of shares of its Common
Stock to satisfy the requirements of this option; shall comply with the terms of
this option promptly upon exercise of the option rights; and shall pay all fees
or expenses necessarily incurred by the Company in connection with the issuance
and delivery of shares pursuant to the exercise of this option.
SIXTH: This option is not transferable by the Holder otherwise than by
will or under the laws of descent and distribution. The granting of this option
shall not impose upon the Company any obligation to employ or to continue to
employ the Holder. The right of the Company to terminate the employment of the
Holder shall not be diminished or affected by reason of the fact that this
option has been granted to such Holder.
4
<PAGE>
This option is exercisable, subject to the vesting rate and certain
other terms and conditions contained in Schedule A attached hereto and
incorporated herein, at any time prior to the date of expiration of this option
and during the Holder's lifetime, only by the Holder, and by the Holder only
while the Holder is an employee of the Company, except that (i) in the event the
employment of the Holder terminates for cause (as determined by the Company) or
voluntarily by the Holder and other than in the event of death or retirement in
good standing from the Company for reasons of age or disability under the then
established rules of the Company, this option shall terminate immediately, and
(ii) in the event the Company terminates the employment of the Holder without
cause, this option shall terminate thirty (30) days after such termination.
As used herein, "cause" shall mean (x) any material breach by the
Holder of any agreement to which the Holder and the Company (or any parent or
subsidiary) are both parties, (y) any act or omission to act by the Holder which
may have a material and adverse effect on the business of the Company (or any
parent or subsidiary) or on the Holder's ability to perform services for the
Company (or any parent or subsidiary), including, without limitation, the
commission of any crime (other than ordinary traffic violations), or (z) any
material misconduct or material neglect of duties by the Holder in connection
with the business or affairs of the Company (or any parent or subsidiary) or any
affiliate of the Company (or any such parent or subsidiary).
In the event of the retirement of the Holder in good standing from the
employ of the Company for reasons of age or disability under the then
established rules of the Company, this option shall terminate on the earlier of
its expiration date and a date ninety (90) days after the Holder's retirement.
After such retirement the Holder shall have the right, at any time prior to such
termination, to exercise this option to the extent the Holder was entitled to
exercise this option immediately prior to such retirement.
In the event of the death of the Holder while the Holder is in the
employ of the Company (or any parent or subsidiary of the Company) and before
the expiration date of this option, this option shall terminate on the earlier
of its expiration date and a date 180 days after his death. After the death of
the Holder, the Holder's executors, administrators or any person or persons to
whom the Holder's option has been transferred by will or by the laws of descent
and distribution shall have the right, at any time prior to such termination, to
exercise this option to the extent the Holder was entitled to exercise this
option at the time of his death.
SEVENTH: Any notice to be given to the Company hereunder shall be
deemed sufficient if addressed to the Company and delivered by hand or by mail
to the Treasurer of the Company, 428 Plaza Real, Suite 410, Boca Raton, Florida
33432 or such other address as the Company may hereafter designate.
Any notice to be given to the Holder hereunder shall be deemed
sufficient if addressed to and delivered in person to the Holder or when
deposited in the mail, postage prepaid, addressed to the Holder at the Holder's
address furnished to the Company.
5
<PAGE>
EIGHTH: This option is subject to all laws, regulations and orders of
any governmental authority which may be applicable thereto and, notwithstanding
any of the provisions hereof, the Holder agrees that the Holder will not
exercise the option granted hereby nor will the Company be obligated to issue or
sell any shares of stock hereunder if the exercise thereof or the issuance or
sale of such shares, as the case may be, would constitute a violation by the
Holder or the Company of any such law, regulation or order or any provision
thereof. The Company shall not be obligated to take any affirmative action in
order to cause the exercise of this option or the issuance or sale of shares
pursuant hereto to comply with any such law, regulation, order or provision.
NINTH: This option shall be governed by, and construed and enforced in
accordance with, the substantive laws of the State of Delaware.
* * * * *
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed in its name and on its behalf as of the date first written above.
OUTLOOK SPORTS TECHNOLOGY, INC.
By:
-------------------------------
Its:
---------------------------
ATTEST: (Seal)
- ------------------------------
Secretary or
Assistant Secretary
7
<PAGE>
Schedule A
OUTLOOK SPORTS TECHNOLOGY, INC.
Incentive Stock Option
Date of Grant:
------------------------
Name of Holder:
-----------------------------------------------------------------
Address:
------------------------------------------------------------------------
City, State, Zip:
---------------------------------------------------------------
Social Security Number:
------------------------
Maximum number of shares for which
this option is exercisable:
------------------------
Exercise (purchase) price per share:
------------------------
Expiration date of option:
------------------------
Vesting Rate:
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
Position in, or relationship to, the Company:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other terms and conditions: The Holder agrees that upon request of the Company
or the underwriters managing any underwritten offering of the Company's
securities, the Holder shall agree in writing that for a period of time not to
exceed one hundred eighty (180) days from the effective date of any registration
of securities of the Company the Holder will not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any shares
of Common Stock issued pursuant to the exercise of this option without the prior
written consent of the Company or such underwriters, as the case may be.
* * *
The undersigned Holder acknowledges receipt of the stock option of which this
Schedule A is a part.
--------------------------------
Holder's Signature
Print Name:
8
<PAGE>
Exhibit 10.34
Date: _____________
NONQUALIFIED STOCK OPTION
Granted by
OUTLOOK SPORTS TECHNOLOGY, INC.
(hereinafter called the "Company")
to
----------------
(hereinafter called the "Holder")
under the
1998 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
WITNESSETH:
For valuable consideration, the receipt of which is hereby
acknowledged, the Company hereby grants to the Holder the following option:
FIRST: Subject to the terms and conditions hereinafter set forth, the
Holder is hereby given the right and option to purchase from the Company an
aggregate of ______ shares of Common Stock of the Company, without par value, at
the time and in the manner hereinafter stated. Schedule A attached hereto and
hereby incorporated herein sets forth with respect to this option (i) its
expiration date, (ii) its exercise price per share, (iii) its vesting rate, and
(iv) certain other terms and conditions applicable to this option and
incorporated herein.
This option is and shall be subject in every respect to the provisions
of the Company's 1998 Incentive and Nonqualified Stock Option Plan (the "Plan"),
as amended from time to time, which is incorporated herein by reference and made
a part hereof. In the event of any conflict or inconsistency between the terms
hereof and those of the Plan, the latter shall prevail. References herein to the
Plan Administrator shall mean the Plan Administrator as defined in the Plan.
This option shall be exercised by the delivery of written notice to
the Company (the "Notice") setting forth the number of shares with respect to
which the option is to be exercised and the address to which the certificates
for such shares are to be mailed, together with (i) cash or check payable to the
order of the Company for an amount equal to the option price for the number of
shares specified
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in the Notice, or (ii) with the consent of the Plan Administrator, shares of
Common Stock of the Company which (a) either have been owned by the Holder for
more than six (6) months on the date of surrender or were not acquired, directly
or indirectly, from the Company, and (b) have a fair market value on the date of
surrender not greater than the option price for the shares as to which such
option is being exercised, (iii) with the consent of the Plan Administrator,
delivery of such documentation as the Plan Administrator and a broker, if
applicable, shall require to effect an exercise of the option and delivery to
the Company of the sale or loan proceeds required to pay the option price of the
shares for which the option is being exercised, (iv) with the consent of the
Plan Administrator, such other consideration which is acceptable to the Plan
Administrator and which has a fair market value equal to the option price for
the shares as to which the option is being exercised, or (v) with the consent of
the Plan Administrator, a combination of (i), (ii), (iii) or (iv). For the
purpose of the preceding sentence, the fair market value per share of the Common
Stock so delivered to the Company shall be the closing price per share on the
date of delivery as reported by a nationally recognized stock exchange, or, if
the Common Stock is not listed on such an exchange, as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") National
Market System or, if the Common Stock is not listed on the Nasdaq National
Market System, the mean of the bid and asked prices per share on the date of
delivery or, if the Common Stock is not traded over-the-counter, the fair market
value per share as determined by the Plan Administrator.
Pursuant to applicable Federal, state or local laws, the Company may be
required to withhold income or other taxes upon the exercise of this option. The
Company may require, as an additional condition to the exercise of this option,
that the Holder pay the Company at the time of exercise an amount which the
Company determines is sufficient to satisfy all federal, state and other
governmental withholding tax requirements relating to such exercise.
SECOND: The Company, in its discretion, may file a registration
statement on Form S-8 under the Securities Act of 1933 to register shares of
Common Stock reserved for issuance under the Plan. At any time at which such a
registration statement is not in effect, it shall be an additional condition
precedent to any exercise of this option that the Holder shall deliver to the
Company a customary "investment letter" satisfactory to the Company and its
counsel in which, among other things, the Holder shall state that the Holder is
purchasing the shares for investment and acknowledges that they are not freely
transferable except in compliance with state and federal securities laws.
THIRD: Within a reasonable time after receipt by the Company of the
Notice and payment for any shares to be purchased hereunder and, if required as
a condition to exercise, the investment letter described in paragraph SECOND,
the Company will deliver or cause to be delivered to the Holder (or if any other
individual or individuals are exercising this option, to such individual or
individuals) at the address specified in the Notice a certificate or
certificates for the number of shares with respect to which the option is then
being exercised, registered in the name or names of the individual or
individuals exercising the option, either alone or jointly with another person
or persons with rights of survivorship, as the individual or individuals
exercising the option shall prescribe in writing to the Company at or prior to
such purchase; provided, however, that if any law or regulation
2
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or order of the Securities and Exchange Commission or other body having
jurisdiction in the premises shall require the Company or the Holder (or the
individual or individuals exercising this option) to take any action in
connection with the shares then being purchased, the date for the delivery of
the certificates for such shares shall be extended for the period necessary to
take and complete such action, it being understood that the Company shall have
no obligation to take and complete any such action. The Company may imprint upon
such certificate legends referencing stock transfer restrictions which counsel
for the Company considers appropriate. Delivery by the Company of the
certificates for such shares shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Holder, at the address
specified in the Notice.
FOURTH: The existence of this option shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of Common Stock, or any issue of bonds, debentures,
preferred or prior preference stock or other capital stock ahead of or affecting
the Common Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Common Stock outstanding, in any
such case without receiving compensation therefor in money, services or
property, then the number, class, and price per share of shares of stock subject
to this option shall be appropriately adjusted in such a manner as to entitle
the Holder to receive upon exercise of this option, for the same aggregate cash
consideration, the same total number and class of shares as the Holder would
have received as a result of the event requiring the adjustment had the Holder
exercised this option in full immediately prior to such event.
After a merger of one or more corporations with or into the Company or
after a consolidation of the Company and one or more corporations in which the
stockholders of the Company immediately prior to such merger or consolidation
own after such merger or consolidation shares representing at least fifty
percent (50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, the Holder shall, at no additional cost, be
entitled upon exercise of this option to receive in lieu of the shares of Common
Stock as to which this option was exercisable immediately prior to such event,
the number and class of shares of stock or other securities, cash or property
(including, without limitation, shares of stock or other securities of another
corporation or Common Stock) to which the Holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, the Holder had been the
holder of record of a number of shares of Common Stock equal to the number of
shares for which this option shall be so exercised.
3
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If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation in which the stockholders of
the Company immediately prior to such merger or consolidation continue to own
after such merger or consolidation shares representing at least fifty percent
(50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, or if the Company is liquidated, or sells or
otherwise disposes of substantially all its assets to another corporation while
this option remains outstanding, then (i) subject to the provisions of clause
(iii) below, after the effective date of such merger, consolidation,
liquidation, sale or disposition, as the case may be, the Holder of this option
shall be entitled, upon exercise of this option, to receive, in lieu of the
shares of Common Stock as to which this option was exercisable immediately prior
to such event, the number and class of shares of stock or other securities, cash
or property (including, without limitation, shares of stock or other securities
of another corporation or Common Stock) to which the Holder would have been
entitled pursuant to the terms of the merger, consolidation, liquidation, sale
or disposition if, immediately prior to such event, the Holder had been the
holder of a number of shares of Common Stock equal to the number of shares as to
which such option shall be so exercised; (ii) the Plan Administrator may
accelerate the time for exercise of this option, so that from and after a date
prior to the effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, specified by the Plan Administrator, such
accelerated options shall be exercisable in full; or (iii) this option may be
canceled by the Plan Administrator as of the effective date of any such merger,
consolidation, liquidation, sale or disposition provided that (x) notice of such
cancellation shall be given to the Holder and (y) the Holder shall have the
right to exercise this option to the extent that the same is then exercisable
or, if the Plan Administrator shall have accelerated the time for exercise of
this option pursuant to clause (ii) above, in full during the 10-day period
preceding the effective date of such merger, consolidation, liquidation, sale or
disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding options.
FIFTH: No person shall, by virtue of the granting of this option to the
Holder, be deemed to be a holder of any shares purchasable under this option or
to be entitled to the rights or privileges of a holder of such shares unless and
until this option has been exercised with respect to such shares and they have
been issued pursuant to that exercise of this option.
The Company shall, at all times while any portion of this option is
outstanding, reserve and keep available, out of shares of its authorized and
unissued stock or reacquired shares, a sufficient number of shares of its Common
Stock to satisfy the requirements of this option; shall comply with the terms of
this option promptly upon exercise of the option rights; and shall pay all fees
or expenses necessarily incurred by the Company in connection with the issuance
and delivery of shares pursuant to the exercise of this option.
4
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SIXTH: This option is not transferable by the Holder otherwise than by
will or under the laws of descent and distribution. The granting of this option
shall not impose upon the Company any obligation to engage as a consultant or to
continue to engage the Holder as a consultant. The right of the Company to
terminate the services of the Holder as a consultant to the Company shall not be
diminished or affected by reason of the fact that this option has been granted
to such Holder.
This option is exercisable, subject to the vesting rate and certain
other terms and conditions contained in Schedule A attached hereto and
incorporated herein, at any time prior to the date of expiration of this option
and during the Holder's lifetime, only by the Holder, and by the Holder only
while the Holder is a consultant of the Company, except that in the event the
Holder ceases to serve as a consultant to the Company for any reason (including,
without limitation, voluntary resignation and termination with or without cause)
other than death, this option shall terminate immediately.
As used herein, "cause" shall mean (x) any material breach by the
Holder of any agreement to which the Holder and the Company (or any parent or
subsidiary) are both parties, (y) any act or omission to act by the Holder which
may have a material and adverse effect on the business of the Company (or any
parent or subsidiary) or on the Holder's ability to perform services for the
Company (or any parent or subsidiary), including, without limitation, the
commission of any crime (other than ordinary traffic violations), or (z) any
material misconduct or material neglect of duties by the Holder in connection
with the business or affairs of the Company (or any parent or subsidiary) or any
affiliate of the Company (or any such parent or subsidiary).
In the event of the death of the Holder while the Holder is serving as
a consultant to the Company (or any parent or subsidiary of the Company) and
before the expiration date of this option, this option shall terminate on the
earlier of its expiration date and a date 180 days after his death. After the
death of the Holder, the Holder's executors, administrators or any person or
persons to whom the Holder's option has been transferred by will or by the laws
of descent and distribution shall have the right, at any time prior to such
termination, to exercise this option to the extent the Holder was entitled to
exercise this option at the time of his death.
SEVENTH: Any notice to be given to the Company hereunder shall be
deemed sufficient if addressed to the Company and delivered by hand or by mail
to the Treasurer of the Company, 428 Plaza Real, Suite 410, Boca Raton, Florida
33432 or such other address as the Company may hereafter designate.
Any notice to be given to the Holder hereunder shall be deemed
sufficient if addressed to and delivered in person to the Holder or when
deposited in the mail, postage prepaid, addressed to the Holder at the Holder's
address furnished to the Company.
EIGHTH: This option is subject to all laws, regulations and orders of
any governmental authority which may be applicable thereto and, notwithstanding
any of the provisions hereof, the Holder agrees that the Holder will not
exercise the option granted hereby nor will the Company be obligated to issue or
sell any shares of stock hereunder if the exercise thereof or the issuance or
sale
5
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of such shares, as the case may be, would constitute a violation by the Holder
or the Company of any such law, regulation or order or any provision thereof.
The Company shall not be obligated to take any affirmative action in order to
cause the exercise of this option or the issuance or sale of shares pursuant
hereto to comply with any such law, regulation, order or provision.
NINTH: This option shall be governed by, and construed and enforced in
accordance with, the substantive laws of the State of Delaware.
* * * * *
6
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IN WITNESS WHEREOF, the Company has caused this instrument to be
executed in its name and on its behalf as of the date first written above.
OUTLOOK SPORTS TECHNOLOGY, INC.
By:
----------------------------
Its:
------------------------
ATTEST: (Seal)
- ------------------------------
Secretary or
Assistant Secretary
7
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Schedule A
OUTLOOK SPORTS TECHNOLOGY, INC.
Nonqualified Stock Option
Date of Grant: _____________________________
Name of Holder: _____________________________________________________________
Address: ____________________________________________________________________
City, State, Zip: ___________________________________________________________
Social Security Number: _____________________________
Maximum number of shares for which
this option is exercisable: _____________________________
Exercise (purchase) price per share: _____________________________
Expiration date of option: _____________________________
Vesting Rate: _______________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Position in, or relationship to, the Company: _______________________________
_____________________________________________________________________________
Other terms and conditions: The Holder agrees that upon request of the Company
or the underwriters managing any underwritten offering of the Company's
securities, the Holder shall agree in writing that for a period of time not to
exceed one hundred eighty (180) days from the effective date of any registration
of securities of the Company the Holder will not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any shares
of Common Stock issued pursuant to the exercise of this option without the prior
written consent of the Company or such underwriters, as the case may be.
* * *
The undersigned Holder acknowledges receipt of the stock option of which this
Schedule A is a part and agrees to its terms.
--------------------------------
Holder's Signature
Print Name:
8
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April 29, 1998
Mr. Paul H. Berger
Outlook Sports Technology, Inc.
4400 North Federal Highway
Suite 410
Boca Raton, FL 33431
Re: Consulting Agreement
Dear Mr. Berger:
This letter is to confirm the engagement of Argent Securities, Inc.
("Argent") by Outlook Sports Technology, Inc., formerly known as Hippo, Inc.
(the "Company), which was agreed upon and effective January 23, 1998, for
purposes of providing on a nonexclusive basis, financial and investor advisor
services as more detailed herein in consideration for the fee and compensation
described below.
The Company agrees to provide Argent such information, historical
financial data, projections, proformas, business plans and other information in
the possession of the Company which Argent may reasonably require to complete
the duties set forth herein. It is expressly understood that the responsibility
for the accuracy of such information will be that of the Company and that to the
best knowledge and belief of the Company any information provided to Argent will
not contain any untrue statement and will not omit or misstate any material
fact. The Company authorized Argent to use such information and documents in
connection with the services to be provided as described below. Argent shall
preserve the confidentiality of such information and documents and return all
information, materials and documents to the Company upon expiration of this
agreement.
Argent will furnish ongoing advisory and management consulting services
on behalf of the Company including, without limitations, providing operational
and strategic advice and direction and development of a business plan. The
Company hereby engages Argent to provide the services as described herein. Such
services will generally include advice to and consulting with the company's
management concerning marketing surveys, investor profile information, and
expanding its products and/or services. Argent will also provide additional
services to the Company, including assisting in the preparation and format of
due diligence meetings and attendance at conventions and trade shows. Further,
Argent shall make introductions of officers of the Company to investment
bankers, investment brokers, broker dealers, analysts, and other consultants and
advisors who Argent believes to be in the best interest of the Company for
purposes of completing its business plan.
<PAGE>
Mr. Paul H. Berger
April 29, 1998
Page 2
The term of this Agreement shall be for a period of Two (2) years from
the date of commencement, January 23, 1998.
The Company further agrees to issue to Argent 125,000 (post-split as of
January 30, 1998) shares of common stock in lieu of the fees of $12,500.
If the Company decides to terminate Argent without cause, the Company
shall give 10 days written notice of termination to Argent. If terminated,
Argent shall not be required to perform any additional services as outlined in
this agreement and all shares of common stock issued pursuant to this agreement
shall be earned.
If the company terminates Argent for cause, as defined herein, or if
Argent resigns, a number of shares of common stock issued to Argent shall be
returned to the Company based on a percentage of the number of months remaining
under the agreement bears to twenty-four (24) months (the term of the
agreement).
Cause shall be defined as a violation of any of the rules and
regulations of any commission, exchange or governing body that regulates the
activities of Argent resulting in Argent's being barred from the industry or a
willful or wanton disregard of Argent's obligations under this agreement so as
to constitute gross negligence so as to rise to a breach of fiduciary duty.
The Company represents and warrants that it has provided Argent access
to all information available to the Company concerning its condition, financial
and otherwise, its management, its business and its prospects (the "Disclosure
Documents"). The Company represents that it will continue to provide Argent with
any information or documentation necessary to verify the accuracy of the
information or documentation necessary to verify the accuracy of the information
contained in the Disclosure Documents and will promptly notify Argent upon the
filing of any registration statement or other periodic reporting documents filed
pursuant to the rules and regulations of the Securities Act of 1933 or the
Securities Exchange Act of 1934.
Any dispute, controversy or claim arising between the Company and
Argent arising out of or related to this Agreement or breach thereof, shall be
settled by arbitration, which shall be conducted in accordance with the rules of
the American Arbitration Association then in effect and conducted in the city of
Atlanta, county of Fulton and state of Georgia. Any award made by ;arbitrators
shall be binding and conclusive for all purposes thereof, may include injunctive
relief, as well as orders for specific performance and may be entered as a final
judgment in any court of competent jurisdiction. No arbitration arising out of
or relating to this Agreement shall include, by consolidation or joinder or in
any other manner, parties other than the Company or Argent and other persons
substantially involved in common question of fact or law whose presence is
required if complete relief is to be afforded in arbitration. The cost and
expenses of such
<PAGE>
Mr. Paul H. Berger
April 29, 1998
Page 3
arbitration shall be borne in accordance with the determination of the
arbitrators and may include reasonable attorneys' fees. Each party hereby
further agrees that service of process may be made upon it by registered or
certified mail or personal service at the address provided for herein.
The Company further agrees to reimburse Argent for all reasonable out
of pocket expenses to include travel, printing, and mailing cost which Argent
may incur as a result of services which it performs under this Agreement,
provided however, that any particular item of expense in excess of $1,000 shall
require the prior approval of the President of the Company before the expense is
incurred. Argent shall submit expense statements to the Company on a monthly
basis and the Company shall reimburse such expenses promptly thereafter.
The Company agrees to indemnify and hold Argent and its directors,
officers, employees and assigns harmless against any and all losses, claims,
costs, damages or liabilities (including the reasonable fees and expenses of
counsel in connection with investigating, defending or settling any actions or
claim caused by the statements or omissions to state set forth below, to which
any of them may become subject arising in any manner out of or in connection
with the rendering of services by Argent hereunder or otherwise in connection
with this letter agreement, in so far as such losses, claims, costs, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of material fact contained in the
information furnished by the Company to Argent in accordance herewith or any
omission or alleged omission to state therein the material fact required to be
stated therein or necessary to make the statements therein not misleading.
Argent agrees to indemnity and hold the Company and its directors,
officers, employees, agents and assigns harmless to the same extent as the
foregoing indemnity (including the reasonable fees and expenses of counsel) from
the Company to Argent but only with reference to written information furnished
by Argent to the Company concerning itself or its business specifically for use
in the preparation of the documentation contemplated by this letter of
agreement. Promptly after receipt by an indemnified party under this Agreement
of notice of the commencement of any action with respect to which indemnity may
be sought hereunder, the indemnified party shall notify the indemnifying party
in writing and the indemnifying party shall be entitled to assume any defense
thereof with counsel 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 and/or other
indemnified parties which are different from or in addition to those available
to the indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf or such indemnified party or
parties. Upon assumption of the defense of such action by the indemnifying party
in connection with the defense thereof unless (a) the indemnifying party shall
fail to assume the defense and employ counsel, (b) the employment of counsel for
the indemnified party at the expense of the indemnifying party has been
specifically authorized in writing by the indemnifying party, or (c) the
indemnified party shall
<PAGE>
Mr. Paul H. Berger
April 29, 1998
Page 4
have employed separate counsel in connection with the assertion of legal
defenses in connection with the proviso to the preceding sentence, it being
understood, however, that the indemnifying party shall not be liable for the
fees and expenses of more than one separate firm of attorneys for the
indemnified parties. Any indemnifying party shall not be liable for any
settlement of any action effected without the written consent of such
indemnifying party.
If the foregoing is in accordance with your understanding, kindly
confirm your acceptance and agreement by signing and returning the enclosed
duplicate of this letter which will thereupon constitute an agreement between
us.
Yours very truly,
ARGENT SECURITIES, INC.
By: /s/ Illegible Signature
-------------------------------
Accepted and Approved this 29th
day of April, 1998.
By: /s/ Illegible Signature
-------------------------------
<PAGE>
Exhibit 10.38
Date: ____________
NONQUALIFIED STOCK OPTION
[FOR OUTSIDE DIRECTORS]
Granted by
OUTLOOK SPORTS TECHNOLOGY, INC.
(hereinafter called the "Company")
to
---------------
(hereinafter called the "Holder")
under the
1998 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
WITNESSETH:
For valuable consideration, the receipt of which is hereby
acknowledged, the Company hereby grants to the Holder the following option:
FIRST: Subject to the terms and conditions hereinafter set forth, the
Holder is hereby given the right and option to purchase from the Company an
aggregate of ______ shares of Common Stock of the Company, without par value, at
the time and in the manner hereinafter stated. Schedule A attached hereto and
hereby incorporated herein sets forth with respect to this option (i) its
expiration date, (ii) its exercise price per share, (iii) its vesting rate, and
(iv) certain other terms and conditions applicable to this option and
incorporated herein.
This option is and shall be subject in every respect to the provisions
of the Company's 1998 Incentive and Nonqualified Stock Option Plan (the "Plan"),
as amended from time to time, which is incorporated herein by reference and made
a part hereof. In the event of any conflict or inconsistency between the terms
hereof and those of the Plan, the latter shall prevail. References herein to the
Plan Administrator shall mean the Plan Administrator as defined in the Plan.
This option shall be exercised by the delivery of written notice to
the Company (the "Notice") setting forth the number of shares with respect to
which the option is to be exercised and the address to which the certificates
for such shares are to be mailed, together with (i) cash or check payable to
<PAGE>
the order of the Company for an amount equal to the option price for the number
of shares specified in the Notice, or (ii) with the consent of the Plan
Administrator, shares of Common Stock of the Company which (a) either have been
owned by the Holder for more than six (6) months on the date of surrender or
were not acquired, directly or indirectly, from the Company, and (b) have a fair
market value on the date of surrender not greater than the option price for the
shares as to which such option is being exercised, (iii) with the consent of the
Plan Administrator, delivery of such documentation as the Plan Administrator and
a broker, if applicable, shall require to effect an exercise of the option and
delivery to the Company of the sale or loan proceeds required to pay the option
price of the shares for which the option is being exercised, (iv) with the
consent of the Plan Administrator, such other consideration which is acceptable
to the Plan Administrator and which has a fair market value equal to the option
price for the shares as to which the option is being exercised, or (v) with the
consent of the Plan Administrator, a combination of (i), (ii), (iii) or (iv).
For the purpose of the preceding sentence, the fair market value per share of
the Common Stock so delivered to the Company shall be the closing price per
share on the date of delivery as reported by a nationally recognized stock
exchange, or, if the Common Stock is not listed on such an exchange, as reported
by the National Association of Securities Dealers Automated Quotation System
("Nasdaq") National Market System or, if the Common Stock is not listed on the
Nasdaq National Market System, the mean of the bid and asked prices per share on
the date of delivery or, if the Common Stock is not traded over-the-counter, the
fair market value per share as determined by the Plan Administrator.
Pursuant to applicable Federal, state or local laws, the Company may be
required to withhold income or other taxes upon the exercise of this option. The
Company may require, as an additional condition to the exercise of this option,
that the Holder pay the Company at the time of exercise an amount which the
Company determines is sufficient to satisfy all federal, state and other
governmental withholding tax requirements relating to such exercise.
SECOND: The Company, in its discretion, may file a registration
statement on Form S-8 under the Securities Act of 1933 to register shares of
Common Stock reserved for issuance under the Plan. At any time at which such a
registration statement is not in effect, it shall be an additional condition
precedent to any exercise of this option that the Holder shall deliver to the
Company a customary "investment letter" satisfactory to the Company and its
counsel in which, among other things, the Holder shall state that the Holder is
purchasing the shares for investment and acknowledges that they are not freely
transferable except in compliance with state and federal securities laws.
THIRD: Within a reasonable time after receipt by the Company of the
Notice and payment for any shares to be purchased hereunder and, if required as
a condition to exercise, the investment letter described in paragraph SECOND,
the Company will deliver or cause to be delivered to the Holder (or if any other
individual or individuals are exercising this option, to such individual or
individuals) at the address specified in the Notice a certificate or
certificates for the number of shares with respect to which the option is then
being exercised, registered in the name or names of the individual or
individuals exercising the option, either alone or jointly with another person
or persons with rights of survivorship, as the individual or individuals
exercising the option shall prescribe in
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writing to the Company at or prior to such purchase; provided, however, that if
any law or regulation or order of the Securities and Exchange Commission or
other body having jurisdiction in the premises shall require the Company or the
Holder (or the individual or individuals exercising this option) to take any
action in connection with the shares then being purchased, the date for the
delivery of the certificates for such shares shall be extended for the period
necessary to take and complete such action, it being understood that the Company
shall have no obligation to take and complete any such action. The Company may
imprint upon such certificate legends referencing stock transfer restrictions
which counsel for the Company considers appropriate. Delivery by the Company of
the certificates for such shares shall be deemed effected for all purposes when
the Company or a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Holder, at the address
specified in the Notice.
FOURTH: The existence of this option shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of Common Stock, or any issue of bonds, debentures,
preferred or prior preference stock or other capital stock ahead of or affecting
the Common Stock or the rights thereof, or the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Common Stock outstanding, in any
such case without receiving compensation therefor in money, services or
property, then the number, class, and price per share of shares of stock subject
to this option shall be appropriately adjusted in such a manner as to entitle
the Holder to receive upon exercise of this option, for the same aggregate cash
consideration, the same total number and class of shares as the Holder would
have received as a result of the event requiring the adjustment had the Holder
exercised this option in full immediately prior to such event.
After a merger of one or more corporations with or into the Company or
after a consolidation of the Company and one or more corporations in which the
stockholders of the Company immediately prior to such merger or consolidation
own after such merger or consolidation shares representing at least fifty
percent (50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, the Holder shall, at no additional cost, be
entitled upon exercise of this option to receive in lieu of the shares of Common
Stock as to which this option was exercisable immediately prior to such event,
the number and class of shares of stock or other securities, cash or property
(including, without limitation, shares of stock or other securities of another
corporation or Common Stock) to which the Holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, the Holder had been the
holder of record of a number of shares of Common Stock equal to the number of
shares for which this option shall be so exercised.
3
<PAGE>
If the Company is merged with or into or consolidated with another
corporation, other than a merger or consolidation in which the stockholders of
the Company immediately prior to such merger or consolidation continue to own
after such merger or consolidation shares representing at least fifty percent
(50%) of the voting power of the Company or the surviving or resulting
corporation, as the case may be, or if the Company is liquidated, or sells or
otherwise disposes of substantially all its assets to another corporation while
this option remains outstanding, then (i) subject to the provisions of clause
(iii) below, after the effective date of such merger, consolidation,
liquidation, sale or disposition, as the case may be, the Holder of this option
shall be entitled, upon exercise of this option, to receive, in lieu of the
shares of Common Stock as to which this option was exercisable immediately prior
to such event, the number and class of shares of stock or other securities, cash
or property (including, without limitation, shares of stock or other securities
of another corporation or Common Stock) to which the Holder would have been
entitled pursuant to the terms of the merger, consolidation, liquidation, sale
or disposition if, immediately prior to such event, the Holder had been the
holder of a number of shares of Common Stock equal to the number of shares as to
which such option shall be so exercised; (ii) the Plan Administrator may
accelerate the time for exercise of this option, so that from and after a date
prior to the effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, specified by the Plan Administrator, such
accelerated options shall be exercisable in full; or (iii) this option may be
canceled by the Plan Administrator as of the effective date of any such merger,
consolidation, liquidation, sale or disposition provided that (x) notice of such
cancellation shall be given to the Holder and (y) the Holder shall have the
right to exercise this option to the extent that the same is then exercisable
or, if the Plan Administrator shall have accelerated the time for exercise of
this option pursuant to clause (ii) above, in full during the 10-day period
preceding the effective date of such merger, consolidation, liquidation, sale or
disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding options.
FIFTH: No person shall, by virtue of the granting of this option to the
Holder, be deemed to be a holder of any shares purchasable under this option or
to be entitled to the rights or privileges of a holder of such shares unless and
until this option has been exercised with respect to such shares and they have
been issued pursuant to that exercise of this option.
The Company shall, at all times while any portion of this option is
outstanding, reserve and keep available, out of shares of its authorized and
unissued stock or reacquired shares, a sufficient number of shares of its Common
Stock to satisfy the requirements of this option; shall comply with the terms of
this option promptly upon exercise of the option rights; and shall pay all fees
or expenses necessarily incurred by the Company in connection with the issuance
and delivery of shares pursuant to the exercise of this option.
4
<PAGE>
SIXTH: This option is not transferable by the Holder otherwise than by
will or under the laws of descent and distribution.
This option is exercisable, subject to the vesting rate and certain
other terms and conditions contained in Schedule A attached hereto and
incorporated herein, at any time prior to the date of expiration of this option
and during the Holder's lifetime, only by the Holder, and by the Holder only
while the Holder is an Outside Director (as that term is defined in the Plan) of
the Company, except that in the event the Holder ceases to serve as an Outside
Director to the Company for any reason other than death, this option shall
terminate immediately.
In the event of the death of the Holder while the Holder is serving as
an Outside Director to the Company (or any parent or subsidiary of the Company)
and before the expiration date of this option, this option shall terminate on
the earlier of its expiration date and a date 180 days after his death. After
the death of the Holder, the Holder's executors, administrators or any person or
persons to whom the Holder's option has been transferred by will or by the laws
of descent and distribution shall have the right, at any time prior to such
termination, to exercise this option to the extent the Holder was entitled to
exercise this option at the time of his death.
SEVENTH: Any notice to be given to the Company hereunder shall be
deemed sufficient if addressed to the Company and delivered by hand or by mail
to the Treasurer of the Company, 428 Plaza Real, Suite 410, Boca Raton, Florida
33432 or such other address as the Company may hereafter designate.
Any notice to be given to the Holder hereunder shall be deemed
sufficient if addressed to and delivered in person to the Holder or when
deposited in the mail, postage prepaid, addressed to the Holder at the Holder's
address furnished to the Company.
EIGHTH: This option is subject to all laws, regulations and orders of
any governmental authority which may be applicable thereto and, notwithstanding
any of the provisions hereof, the Holder agrees that the Holder will not
exercise the option granted hereby nor will the Company be obligated to issue or
sell any shares of stock hereunder if the exercise thereof or the issuance or
sale of such shares, as the case may be, would constitute a violation by the
Holder or the Company of any such law, regulation or order or any provision
thereof. The Company shall not be obligated to take any affirmative action in
order to cause the exercise of this option or the issuance or sale of shares
pursuant hereto to comply with any such law, regulation, order or provision.
NINTH: This option shall be governed by, and construed and enforced in
accordance with, the substantive laws of the State of Delaware.
* * * * *
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed in its name and on its behalf as of the date first written above.
OUTLOOK SPORTS TECHNOLOGY, INC.
By:
-------------------------------
Its:
----------------------------
ATTEST: (Seal)
- ------------------------------
Secretary or
Assistant Secretary
6
<PAGE>
Schedule A
OUTLOOK SPORTS TECHNOLOGY, INC.
Nonqualified Stock Option
Date of Grant:
-------------------------------
Name of Holder:
------------------------------------------------------------
Address:
------------------------------------------------------------
City, State, Zip:
------------------------------------------------------------
Social Security Number:
-------------------------------
Maximum number of shares for which
this option is exercisable:
-------------------------------
Exercise (purchase) price per Share:
-------------------------------
Expiration date of option:
-------------------------------
Vesting Rate:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Position in, or relationship to, the Company: Outside Director
Other terms and conditions: The Holder agrees that upon request of the Company
or the underwriters managing any underwritten offering of the Company's
securities, the Holder shall agree in writing that for a period of time not to
exceed one hundred eighty (180) days from the effective date of any registration
of securities of the Company the Holder will not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any shares
of Common Stock issued pursuant to the exercise of this option without the prior
written consent of the Company or such underwriters, as the case may be.
* * *
The undersigned Holder acknowledges receipt of the stock option of which this
Schedule A is a part and agrees to its terms.
-------------------------------------
Holder's Signature
Print Name:
7
<PAGE>
Exhibit 10.39
Outlook Sports Technology, Inc.
4400 N. Federal Highway, Suite 410, Boca Raton, Florida 33431
Tel 561 750 7528 Fax 561 750 7529
[Logo]
Tegra
Dan Snider
Head Golf Professional
Chenal Country Club
Little Rock, Arkansas
August 6, 1998
Dear Dan:
As we have discussed, Outlook Sports Technology, Inc. (the "Company") is
extremely pleased that you have consented to being named to the Company's
board of directors. However, because it is both your and the Company's desire
for you to serve as an independent director we have mutually agreed that your
position as an advisory staff member should be terminated and that the shares
of common stock granted to you previously will constitute your sole
compensation for the services you have provided the Company. We appreciate
your contributions as an advisory staff member.
Please indicate your understanding as to the termination of your role as an
advisory staff member by signing and dating the enclosed copy of this letter
and returning it to me.
Very truly yours,
Outlook Sports Technology, Inc.
/s/ Jim Dodrill
-------------------------------
Jim Dodrill
President
Understood and Agreed to:
/s/ Dan Snider Date: 9-1-98
- ------------------------- -----------------
Dan Snider
<PAGE>
Exhibit 10.40
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of _______________,1998 (and effective as of
______________, 1998) between Outlook Sports Technology, Inc., a corporation
organized under the laws of the State of Delaware (the "Company"), and American
Stock Transfer and Trust Company (the "Warrant Agent").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell to the public in a
initial public offering (the "Initial Offering") 2,500,000 shares of the
Company's Class A Common Stock at $7.00 per share, $0.01 par value per share
(the "Shares"), and 1,000,000 Redeemable Class A Common Stock Purchase Warrants
(the "Public Warrants");
WHEREAS, the Company and Selling Shareholders propose to issue and sell
to Argent Securities, Inc. ("Argent"), and each of the other underwriters named
in Schedule I hereto (collectively, the "Underwriters"), for whom Argent is
acting as representative (the "Representative") in the Initial Offering an
option to purchase an additional 375,000 Shares (100,000 of the additional
Shares to be purchased from the Company and 275,000 of the additional Shares to
be purchased from the Selling Shareholders) and 150,000 Public Warrants (all
such Public Warrants to be purchased from the Company) solely to cover
over-allotments, if any;
WHEREAS, the Company also proposes to issue and sell to the
Representative in the Initial Offering an option to purchase 250,000 Shares of
Class A Common Stock and 50,000 Class A Common Stock Purchase Warrants (the
"Underwriter's Warrants" together with the Public Warrants sometimes hereinafter
referred to as the "Warrants");
WHEREAS, the Warrants shall be evidenced by certificates substantially
in the form of Exhibit "A" annexed hereto (the "Warrant Certificate"), each
Warrant entitling the holder thereof to purchase one share of Class A Common
Stock;
WHEREAS, the Warrants will have an exercise price of $8.05 per share of
Class A Common Stock, subject to certain adjustments (the "Warrant Price"), will
be exercisable commencing thirteen months after the effective date of the
Initial Offering (the "First Exercise Date") until a date which is the second
anniversary of the First Exercise Date (the "Last Exercise Date"), unless
extended by the Company, and, except for the Underwriter's Warrants, will be
exercisable during any period of time fixed for that Warrant's redemption in a
Redemption Notice (hereinafter defined in Section 2.03), which period of time
will terminate on a stated Redemption Date (hereinafter defined in Section
2.03);
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act in connection with the
issuance, registration, transfer, exchange and replacement of the Warrant
Certificates and exercise of the Warrants; and
WHEREAS, the Company and the Warrant Agent desire to set forth in this
Agreement the terms and conditions upon which the Warrant Certificates shall be
issued, transferred,
<PAGE>
exchanged and placed and the Warrants exercised, and to provide for the rights
of the holders of the Warrants;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and the respective undertakings herein below set forth, the
Company and the Warrant Agent agree as follows:
ARTICLE I
ISSUANCE AND EXECUTION OF WARRANTS
Section 1.01. The Company hereby appoints the Warrant Agent to act on
behalf of the Company in accordance with the terms and conditions herein set
forth, and the Warrant Agent hereby accepts such appointment and agrees to
perform the same in accordance with such provisions.
Section 1.02. The Warrant Certificates for the Warrants shall be issued
in registered form only. The text of the Warrant Certificate, including the form
of assignment and subscription printed on the reverse side thereof, shall be
substantially in the form of Exhibit "A" annexed hereto, which text is hereby
incorporated in this Agreement by reference as though fully set forth herein and
to whose terms and conditions the Company and the Warrant Agent hereby agree.
Each Warrant Certificate shall evidence the right, subject to the provisions of
this Agreement and of such Warrant Certificate, to purchase the number of
validly issued, fully paid and non-assessable shares of Class A Common Stock, as
that term is defined in Section 1.05 of this Agreement, stated therein, free of
preemptive rights, subject to adjustment as provided in Article III of this
Agreement.
Section 1.03. Upon the written order of the Company, signed by the
President or any Vice President, and the Secretary, Treasurer, Assistant
Secretary or Assistant Treasurer of the Company, the Warrant Agent shall issue
and register Warrants in the names and denominations specified in that order,
and will countersign and deliver Warrant Certificates evidencing the same in
accordance with that order. Each Warrant Certificate shall be dated the date of
its countersignature. Each Warrant Certificate shall be executed on behalf of
the Company by the manual or facsimile signature of the President of the
Company, under its corporate seal, affixed or facsimile, attested by the manual
or facsimile signature of the Secretary of the Company and shall be
countersigned manually by the Warrant Agent. The Warrant Certificates shall not
be valid for any purpose unless so countersigned. In case any officer whose
facsimile signature has been placed upon any Warrant Certificate shall have
ceased to be such before such Warrant Certificate is issued, it may be issued
with the same effect as if such officer had not ceased to be such on the date of
issuance.
1.04. Except as otherwise expressly stated herein, all terms used in
the Warrant Certificate have the meanings provided in this Agreement.
1.05. As used herein, the term "Class A Common Stock" shall mean the
aggregate number of shares that the Company, by its Certificate of
Incorporation, as from time to time amended, is authorized to issue, which are
not limited by its Certificate of Incorporation to a
2
<PAGE>
fixed sum or percentage of the book value in respect of the rights of the
holders thereof to participate in dividends or in distribution of assets upon
the voluntary or involuntary liquidation, dissolution, or winding up the
Company.
1.06. The Warrant Agent understands and agrees that the Warrants and
shares of Class A Common Stock are being sold separately in the Initial Offering
and that the Shares and the Warrants shall be detachable and will be traded
separately immediately upon the closing of the Initial Offering.
ARTICLE II
WARRANT PRICE, DURATION AND EXERCISE OF WARRANTS,
CALL OF WARRANTS AND TRADING OF WARRANTS
Section 2.01.
(a) Each Warrant shall entitle the person in whose name at the
time the Warrant shall be registered upon the books to be maintained by
the Warrant Agent for that purpose (the "Warrant Holder"), subject to
the provisions of the Warrant Certificates and of this Agreement, to
purchase from the Company any time on or after the First Exercise Date
but at or before the Last Exercise Date, up to the number of shares of
Class A Common Stock stated therein, as adjusted, at the Warrant Price
in effect at such date, payable in full at the time of purchase in the
manner provided in Section 2.02 of this Agreement.
(b) Each Warrant shall be exercisable in accordance with the
terms herein and in the Warrant Certificate which, among other things,
contains certain terms as to the Warrant Price.
Section 2.02.
(a) The Warrant Holder may exercise a Warrant, in whole or in
part, by surrender of the Warrant Certificate, with the form of
subscription thereon duly executed by the Warrant Agent at its
corporate office, together with the Warrant Price for each share of
Class A Common Stock to be purchased in lawful money of the United
States, or by certified check, bank draft, or postal or express money
order payable in United States Dollars to the order of the Company.
(b) Upon receipt of a Warrant Certificate with the form of
election to purchase thereon duly executed and accompanied by payment
of the aggregate Warrant Price for the shares of Class A Common Stock
for which the Warrant is then being exercised, the Warrant Agent shall
requisition from the transfer agent certificates for the total number
of the shares of Class A Common Stock for which the Warrant is being
exercised in such names and denominations as are required for delivery
to the Warrant Holder, and the Warrant Agent shall thereupon deliver
such certificates to or in accordance with the instructions of the
Warrant Holder. The Company covenants and agrees that it has duly
authorized and directed its transfer agent (and will authorize and
direct all its future transfer agents) to comply with all such requests
of the Warrant Agent.
3
<PAGE>
(c) In case any Warrant Holder shall exercise his Warrant with
respect to less than all of the shares of Class A Common Stock that may
be purchased under the Warrant, a new Warrant Certificate for the
balance shall be countersigned and delivered to or upon the order of
the Warrant Holder.
(d) The Company covenants and agrees that it will pay when due
and payable any and all taxes which may be payable in respect to the
issuance of Warrants, or the issuance of any shares of Class A Common
Stock upon the exercise of Warrants. However, neither the Company nor
the Warrant Agent shall be required to issue or deliver any Warrant
Certificate or shares of Class A Common Stock in a name other than that
of the Warrant Holder at the time of surrender if any tax is payable in
respect of such transfer until the person requesting the same has paid
to the Company the amount of such tax or has established to the
Company's satisfaction that such tax has been paid or shall not be due
and payable. In the event that any transfer tax is due and payable, the
Warrant Agent shall be under no obligation to issue or deliver any
Warrant Certificate or shares of Class A Common Stock in a name other
than that of the Warrant Holder until the Company has notified the
Warrant Agent that the transfer tax, if any, has been paid, or in the
alternative, that no transfer tax is due and payable by reason of an
exemption.
(e) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently account to the
Company for all moneys received by the Warrant Agent for the purchase
of shares of Class A Common Stock upon the exercise of Warrants.
(f) The Warrant Agent covenants and agrees that upon the
exercise of any of the Warrants, the Warrant Agent shall provide
written notice to the Company at Suite 410, 4400 North Federal Highway,
Boca Raton, Florida 33431, and to the Representative at its office at
3340 Peachtree Street, NE, Suite 900, Atlanta, Georgia 30326, the
expense of which notice shall be borne by the Company. Each notice
shall contain the name of the exercising Warrant Holder, the number of
shares of Class A Common Stock that the Warrant Holder has elected to
purchase, the purchase price paid on a per share basis and the
cumulative number of Warrants exercised by all of the Warrant Holders
as of the date of the transaction which is the subject of the aforesaid
notice. Such notice shall be made on the date of the exercise of the
Warrant. Nothing contained herein shall be construed so as to prevent
the Warrant Agent from providing the information required in this
Section 2.02 (f) in a consolidated or tabular form, provided that all
other provisions of this Section are complied with.
(g) The Warrant Agent covenants and agrees that it shall
provide a list of each and every holder of the Warrants to the Company
and the Underwriters at such time or from time to time as shall be
required by the Company or the Underwriters, but in no event shall such
a list be provided less frequently than once per annum at a date as
shall be determined by the Company.
Section 2.03.
4
<PAGE>
(a) Commencing on the First Exercise Date, the Company may,
subject to the conditions set forth herein, redeem all, but not less
than all, the Warrants then outstanding at a redemption price of $.125
per Warrant upon not less than thirty (30) days prior written notice
(the "Redemption Notice") to the holders thereof provided that the
average closing price of the Class A Common Stock for the 10
consecutive trading days ending one (1) day prior to the date of the
Redemption Notice is at least $8.05 per share, subject to adjustment
for stock dividends, stock splits and other anti-dilution provisions as
provided for under Article III herein. For purposes of this Section
2.03, "closing price" at any date shall be deemed to be: (i) the last
sale price regular way as reported on the principal national securities
exchange on which the Class A Common Stock is listed or admitted to
trading, or (ii) if the Class A Common Stock is not listed or admitted
to trading on any national securities exchange, the average of the
closing bid and asked prices regular way for the Class A Common Stock
as reported by the Nasdaq National Market or Nasdaq Small Cap Market of
the Nasdaq Stock Market, Inc. ("NASDAQ") or (iii) if the Class A Common
Stock is not listed or admitted for trading on any national securities
exchange, and is not reported by NASDAQ, the average of the closing bid
and asked prices in the over-the-counter market as furnished by the
National Quotation Bureau, Inc. or if no such quotation is available,
the fair market value of the Class A Common Stock as determined in good
faith by the Board of Directors of the Company. The Redemption Notice
shall be deemed effective upon mailing and the time of mailing is the
"Effective Date of the Notice". The Redemption Notice shall state a
redemption date not less than thirty (30) days from the Effective Date
of the Notice (the "Redemption Date") . No Redemption Notice shall be
mailed unless all funds necessary to pay for redemption of all Warrants
then outstanding shall have first been set aside by the Company in
trust with the Warrant Agent for the benefit of all Warrant Holders so
as to be and continue to be available therefor. The redemption price to
be paid to the Warrant Holders will be $0.125 for each share of the
Class A Common Stock of the Company to which the Warrant Holder would
then be entitled upon exercise of the Warrant being redeemed, as
adjusted from time to time as provided herein (the "Redemption Price").
In the event the number of shares of Class A Common Stock issuable upon
exercise of the Warrant being redeemed are adjusted pursuant to Article
III hereof, then upon each such adjustment the Redemption Price will be
adjusted by multiplying the Redemption Price in effect immediately
prior to such adjustment by a fraction, the numerator of which is the
number of shares of Class A Common Stock issuable upon exercise of the
Warrant being redeemed immediately prior to such adjustment and the
denominator of which is the number of shares of Class A Common Stock
issuable upon exercise of such Warrant being redeemed immediately after
such adjustment. The Warrants may only be redeemed if the Company has
in effect a current Registration Statement or post-effective amendment
covering the shares underlying the Warrants. The Warrant Holders may
exercise their Warrants between the Effective Date of the Notice and
the Redemption Date, such exercise being effective if done in
accordance with Section 2.02 (a), and if the Warrant Certificate, with
form of election to purchase duly executed and the Warrant Price, as
applicable for such Warrant subject to redemption for each share of
Class A Common Stock to be purchased is actually received by the
Warrant Agent at its office located at 40 Wall Street, 46th Floor, New
York, N.Y. 10005, no later than 5:00 P.M. New York time on the
Redemption Date.
5
<PAGE>
(b) If any Warrant Holder does not wish to exercise any
Warrant being redeemed, the Warrant Holder should mail such Warrant to
the Warrant Agent at its office located at 40 Wall Street, 46th Floor,
New York, N.Y. 10005 after receiving the Redemption Notice required by
this Section. If such Redemption Notice shall have been so mailed, and
if on or before the Effective Date of the Notice all funds necessary to
pay for redemption of all Warrants then outstanding shall have been set
aside by the Company in trust with the Warrant Agent for the benefit of
all Warrant Holders so as to be and continue to be available therefor,
then, on and after said Redemption Date, notwithstanding that Warrant
subject to redemption shall not have been surrendered for redemption,
the obligation evidenced by all Warrants not surrendered for redemption
or effectively exercised shall be deemed no longer outstanding, and all
rights with respect thereto shall forthwith cease and terminate, except
only the right of the holder of each Warrant subject to redemption to
receive the Redemption Price for each share of Class A Common Stock to
which he would be entitled if he exercised the Warrant upon receiving
the Redemption Notice of the Warrant subject to redemption held by the
Holder hereof.
(c) Notwithstanding anything contained in this Article II, the
Underwriter's Warrants shall not be eligible for redemption by the
Company.
ARTICLE III
ADJUSTMENT OF SHARES OF CLASS A COMMON STOCK
PURCHASABLE AND OF WARRANT PRICE
Section 3.01. In case the Company shall at any time after the date of
this Agreement (i) declare a dividend on the outstanding Class A Common Stock in
shares of its capital stock, (ii) subdivide the outstanding Class A Common
Stock, (iii) combine the outstanding Class A Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Class A Common Stock (including any such reclassification in connection with
a consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Warrant Price, and the number and kind of shares of
Class A Common Stock receivable upon exercise, in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination, or reclassification shall be proportionately adjusted so that the
holder of any Warrant exercised after such time shall be entitled to receive the
aggregate number and kind of shares which if such Warrant had been exercised
immediately prior to such time, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination, or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
Section 3.02. In case the Company after the date hereof shall issue
rights, options, or warrants to all holders of Class A Common Stock entitling
them to subscribe for or purchase Class A Common Stock (or securities
convertible into or exchangeable for Class A Common Stock) at a price per share
(or having a conversion price per share, if a security convertible into or
exchangeable for Class A Common Stock) less than the "current market price" (as
defined in Section 3.04 hereof) per share of Class A Common Stock on the record
date established for the issuance of such rights, options or warrants, then, in
such case, the Warrant Price shall be adjusted by multiplying the Warrant Price
in effect on the record date of such issuance by a
6
<PAGE>
fraction, of which the numerator shall be the number of shares of Class A Common
Stock outstanding on the record date for such issuance plus the number of shares
of Class A Common Stock which the aggregate offering price of the total number
of shares of Class A Common Stock so to be issued (or the aggregate initial
conversion price of the convertible securities to be issued or sold) would
purchase at such "current market price" and of which the denominator shall be
the number of shares of Class A Common Stock outstanding on the record date for
such issuance plus the number of additional shares of Class A Common Stock to be
issued (or into which the convertible or exchangeable securities to be issued or
sold are initially convertible or exchangeable). Such adjustment shall become
effective at the close of business on such record date; provided, however, that,
to the extent the shares of Class A Common Stock (or securities convertible to
or exchangeable for shares of Class A Common Stock) are not delivered, the
Warrant Price shall be readjusted after the expiration of such rights, options,
or warrants (but only with respect to Warrants exercised after such expiration),
to the Warrant Price which would then be in effect had the adjustments made upon
the issuance of such rights or warrants been made upon the basis of delivery of
only the number of shares of Class A Common Stock or securities convertible into
or exchangeable for shares of Class A Common Stock actually issued. In case any
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Class A
Common Stock owned by or held for the account of the Company or any
majority-owned subsidiary shall not be deemed outstanding for the purpose of any
such computation.
Notwithstanding the foregoing, no adjustment in the Warrant Price or
the number of shares of Class A Common Stock issuable upon exercise of the
Warrants shall be made upon (i) the issuance of options (or upon exercise
thereof) by the Company pursuant to its Stock Option Plans, (ii) the issuance of
the Underwriter's Warrants, or (iii) any other options and warrants outstanding
as of the date hereof.
Section 3.03. In case the Company shall distribute to all holders of
Class A Common Stock (including any such distribution made to the stockholders
of the Company in connection with a consolidation or merger in which the Company
is the continuing corporation) evidences of its indebtedness or assets (other
than cash dividends distributions and dividends payable in shares of Class A
Common Stock), subscription rights, options, or warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Class A Common Stock (excluding those referred to in Section 3.02 hereof),
then, in each case, the Warrant Price shall be adjusted by multiplying the
Warrant Price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the "current market price" per share of
Class A Common Stock on such record date, less the fair market value (as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error) of the portion of the
evidences of indebtedness or assets so to be distributed, or of such
subscription rights, options, or warrants, convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Class A
Common Stock, applicable to the share, and of which the denominator shall be
such "current market price" per share of Class A Common Stock. Such adjustment
shall be made whenever any such distribution is made, and shall become
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<PAGE>
effective on the date of such distribution retroactive to the record date for
the determination of stockholders entitled to receive such distribution.
Section 3.04. For the purpose of any computation under sections 3.02
and 3.03 hereof, the "current market price" per share of Class A Common Stock on
any date shall be deemed to be the average of the daily closing prices for the
20 consecutive trading days ending three (3) days prior to such date. The
closing price for each day shall be the last reported sales price regular way
or, in case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange on
which the Class A Common Stock is listed or admitted to trading or, if the Class
A Common Stock is not listed or admitted to trading on any national securities
exchange, the highest reported bid price as furnished by NASDAQ. If on any such
date the Class A Common Stock is not quoted on NASDAQ or any such organization,
the closing price shall be deemed to be the average of the closing bid and asked
prices in the over-the-counter market as reported by the National Quotation
Bureau or if no such quotation is available, the fair value of the Class A
Common Stock on such date, as determined in good faith by the board of directors
of the Company, whose determination shall be conclusive absent manifest error.
Section 3.05. No adjustment in the Warrant Price shall be required if
such adjustment is less than $0.01; provided, however, that any adjustments
which by reason of this Section 3.05 are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Article III shall be made to the nearest cent or to the
nearest one-thousandth of a share, as the case may be.
Section 3.06. In any case in which this Article III shall require that
an adjustment in the Warrant Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the holder of any Warrant exercised after such record date,
the shares, if any, issuable upon such exercise over and above the shares, if
any, issuable upon such exercise on the basis of the Warrant Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
Section 3.07. Upon each adjustment of the Warrant Price as a result
of the calculations made in Section 3.01, 3.02, or 3.03 hereof, each Warrant
outstanding prior to the making of the adjustment in the Warrant Price shall
thereafter evidence the right to purchase, at the adjusted Warrant Price,
that number of shares (calculated to the nearest thousandth) obtained by
dividing (A) the product obtained by multiplying the number of shares
purchasable upon exercise of a Warrant prior to adjustment of the number of
shares by the Warrant Price in effect prior to adjustment of the Warrant
Price by (B) the Warrant Price in effect after such adjustment of the Warrant
Price.
Section 3.08. In case of any capital reorganization of the Company, or
of any reclassification of the Class A Common Stock (other than a
reclassification of the Class A Common Stock referred to in Section 3.01
hereof), or in the case of the consolidation of the Company with or the merger
of the Company into any other corporation or of the sale, transfer, or lease of
the properties and assets of the Company as, or substantially as, an entirety to
any
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<PAGE>
other corporation or other entity, each Warrant shall after such capital
reorganization, reclassification of Class A Common Stock, consolidation, merger,
sale, transfer, or lease, be exercisable, on the same terms and conditions
specified in this Agreement, for the number of shares of stock or other
securities, assets, or cash to which a holder of the number of shares
purchasable (at the time of such capital reorganization, reclassification of
Class A Common Stock, consolidation, merger, sale, transfer, or lease) upon
exercise of such Warrant would have been entitled upon such capital
reorganization, reclassification of Class A Common Stock, consolidation, merger,
sale, transfer, or lease; and in any such case, if necessary, the provisions set
forth in this Article III with respect to the rights and interests thereafter of
the holders of the Warrants shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock, other
securities, assets, or cash thereafter deliverable on the exercise of the
Warrants. The subdivision or combination of shares of Class A Common Stock at
any time outstanding into a greater or lesser number of shares shall not be
deemed to be a reclassification of the Class A Common Stock for the purposes of
this subsection. The Company shall not effect any such consolidation, merger,
transfer, or lease, unless prior to or simultaneously with the consummation
thereof, the successor corporation (if other than the Company) resulting from
such consolidation or merger or the Corporation purchasing, receiving, or
leasing such assets or other appropriate corporation or entity shall expressly
assume, by written instrument in form satisfactory to the Underwriters, the
obligation to deliver to the holder of each Warrant such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase and to perform the other obligations of the
Company under this Agreement.
Section 3.09. The Company may make such reductions in the Warrant
Price, in addition to those required by this Article III, as it shall, in it
sole discretion, determine to be advisable.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF WARRANT HOLDERS
Section 4.01. No Warrant Holder, as such, shall be entitled to vote or
receive dividends or be deemed the holder of shares of Class A Common Stock for
any purposes, nor shall anything contained in any Warrant Certificate be
construed to confer upon any Warrant Holder, as such, any of the rights of a
shareholder of the Company or any right to vote, give or withhold consent to any
action by the Company, whether upon any recapitalization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise,
receive dividends or subscription rights, or otherwise, until in connection with
the exercise of any Warrant, such Warrant shall have been surrendered and the
purchase price or the shares of Class A Common Stock for which such Warrant is
being exercised shall have been received by the Warrant Agent; provided,
however, that any such surrender and payment on any date when the stock transfer
books of the Company shall be closed shall constitute the person or persons in
whose name or names the certificate or certificates for those shares of Class A
Common Stock are to be issued as the record holder or holders thereof for all
purposes at the opening of business on the next succeeding day on which such
stock transfer books are open and the Warrant surrendered shall not be deemed to
have been exercised, in whole or in part, as the case maybe, until such next
succeeding day on which stock transfer books are open.
9
<PAGE>
Section 4.02. The Company covenants and agrees that it shall
contemporaneously provide to all Warrant Holders of record any publication,
mailing or notice of an event which it shall provide to all of its shareholders
of record and which event shall result in the adjustment to the Warrant Price as
provided in Article III hereof. For purposes of this Section 4.02, the Warrant
Holders of record shall be those Warrant Holders who are of record on a date
even with the date chosen by the Company for the purpose of determining the
shareholders of record who shall be entitled to receive such publication,
mailing or notice.
Section 4.03. If any Warrant Certificate is lost, stolen, mutilated or
destroyed, the Company and the Warrant Agent may, on such terms as to indemnity
or otherwise as they may in their discretion reasonably impose, which shall, in
the case of a mutilated Warrant Certificate, include the surrender thereof,
issue a new Warrant Certificate of like denomination and tenor as, and in
substitution for, the Warrant Certificate so lost, stolen mutilated or
destroyed.
Section 4.04.
(a) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise of outstanding
Warrants such number of authorized shares of Class A Common Stock and
the aggregate number and kind of any other securities which the
Warrants are exercisable for, pursuant to the provisions of Article III
hereof, as are sufficient to permit the exercise in full of such
Warrants and that it will make available to the Warrant Agent from time
to time a number of duly executed certificates representing shares of
Class A Common Stock and other securities, sufficient therefor.
(b) The Company shall use its best efforts to secure the
listing, upon official notice of issuance, of the shares of Class A
Common Stock issuable upon exercise of Warrants upon any securities
exchange upon which the Class A Common Stock becomes listed.
(c) The Company covenants that all shares of Class A Common
Stock issued on exercise of Warrants shall be validly issued, fully
paid, non-assessable and free of preemptive rights.
(d) The Company has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (Registration No.
333-58631) for the registration of, among other things, the sale of the
Warrants and the shares of Class A Common Stock issuable upon exercise
thereof under the Securities Act of 1933, as amended (the "Act") which
was declared effective by the Securities and Exchange Commission at
4:00 p.m. Eastern Daylight Time on __________________, 1998. The
"Effective Date" of the Registration Statement for purposes of this
Agreement is ____________________, 1998. The Company has undertaken to
register or qualify the Class A Common Stock, Warrants and shares of
Class A Common Stock underlying the Warrants under the laws of any
states in which the sale of the Warrants and shares of Class A Common
Stock was registered or qualified at the time of the Initial Offering
and shall use its reasonable good faith efforts to register and qualify
such Class A Common Stock, Warrants and shares of Class A Common Stock
underlying the Warrants in such additional states and jurisdictions as
may be appropriate. The Company further agrees to use its best efforts
to
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<PAGE>
maintain the effectiveness of such Registration Statement and such
state qualifications, as aforesaid, by the filing of any and all
amendments to the Registration Statement and such state qualifications
as may be required from time to time under the Act or the laws of the
various states until the expiration or termination of all the Warrants
in accordance herewith.
(e) The Company will furnish to the Warrant Agent, upon
request, an opinion of counsel satisfactory to the Warrant Agent to the
effect that (i) a Registration Statement under the Act is then in
effect with respect to the Warrants and shares of Class A Common Stock
issuable upon the exercise of the Warrants and that the prospectus
included therein complies as to form in all material respects, (except
as to financial statements, including schedules, and other accounting
and financial data, as to which such counsel need express no opinion),
with the requirements of the Act and the rules and regulations of the
Commission thereunder; or a Registration Statement under the Act with
respect to said Warrants and shares of Class A Common Stock is not
required. In the event that said opinion states that such a
Registration Statement is in effect, the Company will from time to time
furnish the Warrant Agent with current prospectuses meeting the
requirements of the Act and such rules and regulations in sufficient
quantity to permit the Warrant Agent to deliver a prospectus
("Prospectus") to each Warrant Holder upon exercise thereof. The
Company further agrees to pay all fees, costs and expenses in
connection with the preparation and delivery to the Warrant Agent of
the foregoing opinions and Prospectuses and the above mentioned
registrations and other actions, and to immediately notify the Warrant
Agent in the event that (i) the Commission shall have issued or
threatened to issue any order preventing or suspending the use of any
Prospectus; (ii) at any time any Prospectus shall contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; or (iii) for any reason it shall be necessary
to amend or supplement any Prospectus in order to comply with the Act.
Section 4.05. If the number of shares purchasable upon the exercise of
each Warrant is adjusted pursuant to Section 3.07 hereof, the Company shall not
be required to issue fractions of shares upon exercise of the Warrants or to
distribute share certificates which evidence fractional shares. In lieu of
fractional shares, the Company, in its sole discretion, may pay to the
registered holders of Warrant Certificates at the time such Warrants are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of a share. For purposes of this Section 4.05, the current
market value of a share issuable upon the exercise of a Warrant shall be the
closing price of a share of Class A Common Stock, as determined pursuant to the
second and third sentences of Section 3.04, for the trading day immediately
prior to the date of such exercise.
ARTICLE V
TREATMENT OF WARRANT HOLDERS
Section 5.01. Prior to due presentment for registration of transfer of
any Warrant, the Company and the Warrant Agent may deem and treat the Warrant
Holder as the absolute owner of such warrant, notwithstanding any notation of
ownership or other writing thereon, for the
11
<PAGE>
purpose of any exercise thereof and for all other purposes, and neither
the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
ARTICLE VI
CONCERNING THE WARRANT AGENT AND OTHER MATTERS
Section 6.01. The Company will from time to time promptly pay, subject
to the provisions of Section 2.02 (d) of this Agreement, all taxes and charges
that may be imposed upon the Company or the Warrant Agent in respect of the
issuance or delivery of shares of Class A Common Stock upon the exercise of the
Warrants.
Section 6.02.
(a) The Warrant Agent may resign and be discharged from its
duties under this Agreement upon sixty (60) days notice in writing,
mailed to the Company by registered or certified mail, and to each
Warrant Holder. The Company may remove the Warrant Agent or any
successor warrant agent upon sixty (60) days notice in writing, mailed
to the Warrant Agent or successor Warrant Agent, as the case may be, by
registered or certified mail, and to each Warrant Holder; provided,
however, the Company shall appoint a new Warrant Agent as hereinafter
provided and such removal shall not become effective until a successor
Warrant Agent has been appointed and has accepted such appointment. If
the Warrant Agent shall resign or shall otherwise become capable of
acting, the Company shall appoint a successor to the Warrant Agent. If
the Company shall fail to make such appointment within a period of
sixty (60) days after it has been notified in writing of such
resignation or incapability by the Warrant Agent by a Warrant Holder,
who shall, with such notice, submit his Warrant Certificate for
inspection by the Company, then any Warrant Holder may apply to any
court of competent jurisdiction or the appointment of a successor to
the Warrant Agent. Any successor Warrant Agent, whether appointed by
the Company or by such a court shall be a registered transfer agent,
bank or trust company, subject to the terms and conditions of this
Section 6.02, in good standing and incorporated under the laws of any
State of the United States, having its principal office in the United
States of America. After appointment, the successor Warrant Agent shall
be vested with the same powers, rights, duties and responsibilities as
if it had been originally named as Warrant Agent without further act or
deed. The former Warrant Agent shall deliver and transfer to the
successor Warrant Agent any property at the time held by it hereunder
and execute and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Failure to give any notice provided for in
this Section, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent
or the appointment of the successor Warrant Agent, as the case may be.
(b) Any corporation into which the Warrant Agent may be merged
or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Warrant Agent shall be a
party, or any corporation succeeding to the corporate trust business of
the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further
act on the
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<PAGE>
part of any of the parties hereto. In case at the time such successor
to the Warrant Agent shall succeed to the agency created by this
Agreement, any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant
Agent may adopt the countersignature of the original Warrant Agent and
deliver such Warrant Certificates so countersigned, and in case at that
time any of the Warrant Certificates shall not have been countersigned,
any successor to the Warrant Agent may countersign such Warrant
Certificate in its own name or in the name of the successor Warrant
Agent; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under this prior
name and deliver Warrant Certificates so countersigned; and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
Section 6.03. The Company agrees to pay the Warrant Agent a reasonable
fee for all services rendered by it hereunder. The Company also agrees to
indemnify the Warrant Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without gross negligence, willful misconduct or
bad faith on the part of the Warrant Agent, arising out of or in connection with
the acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
Section 6.04. The Company covenants and agrees that it shall, at the
Company's expense, provide to the Warrant Agent copies of its current
prospectus, if any, in such quantity as to enable the Warrant Agent to deliver
one copy of such current prospectus to such Warrant Holder who shall exercise
his rights under a Warrant. Notwithstanding anything else contained in this
Section 6.04, the Company shall not be obligated to provide copies of its
current prospectus for the purpose of allowing the Warrant Agent to deliver such
copies to any Warrant Holder who delivers all of his redeemable warrants for
redemption pursuant to Section 2.03 or who shall notice the Company of his
intent to permit redemption of all of his Warrants pursuant to Section 2.03
herein or to any person who shall hold any Warrant subject to the terms of this
Agreement after the earlier of the Redemption Date or the Last Exercise Date of
the Warrants.
Section 6.05. The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Warrant certificates, by their acceptance
thereof, shall be bound:
(a) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, that fact or matter, unless
other evidence in respect thereof be herein specifically prescribed,
may be deemed to be conclusively proved and established by a
certificate signed by the President or the Secretary of the Company and
delivered to the Warrant Agent. That certificate
13
<PAGE>
shall be full authorization to the Warrant Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement
in reliance upon that certificate.
(b) The Warrant Agent shall be liable hereunder only for its own gross
negligence, willful misconduct or bad faith.
(c) The Warrant Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Warrant
Certificates, except its countersignature thereof, or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(d) The Warrant Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof, except
the due execution hereof by the Warrant Agent, or in respect of the validity or
execution of any Warrant Certificate, except its countersignature thereof; nor
shall it be responsible for any Warrant Certificate; nor shall it be responsible
for the adjustment of the Warrant Price or the making of any change in the
number of shares of Class A Common Stock required under the provisions of
Article III of this Agreement or responsible for the manner, method or amount of
any such change or the ascertaining of the existence of facts that would require
any such adjustment or change except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Warrant Price; nor
shall it by any act under this Agreement be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Class A Common
Stock to be issued pursuant to this Agreement or any Warrant Certificate or as
to whether any share of Class A Common Stock will when issued be validly issued,
fully paid, non-assessable and free of preemptive rights.
(e) The Warrant Agent and any shareholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrant
Certificates or other securities of the Company to retain a pecuniary interest
in any transaction in which the Company may be interested or contract with or
lend money to or otherwise act as fully and freely as though it was not the
Warrant Agent or subject to this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any other
legal entity.
(f) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
officer or assistant officer of the Company, and to apply to any such officer or
assistant officer for advice or instructions in connection with its duties, and
shall not be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer or assistant officer.
(g) The Warrant Agent may consult with its counsel or other counsel
satisfactory to it, including counsel for the Company, and the opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, offered, or omitted by it hereunder in good faith and in
accordance with the opinion of such counsel.
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<PAGE>
(h) The Warrant Agent shall incur no liability to the Company or to any
holder of any Warrant for any action taken by it in reliance upon any Warrant
Certificate or certificate for Class A Common Stock, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed, and where necessary, certified or
acknowledged, by the proper person or persons.
Section 6.06. The Warrant Agent may, without the consent or concurrence
of the Warrant Holders, by supplemental agreement or otherwise, concur with the
Company in making any changes or corrections in this Agreement that (i) it shall
have been advised by counsel, who may be counsel for the Company, are required
to cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error herein contained, or (ii) as
provided in Section 3.09, the Company deems necessary of advisable and which
shall not be inconsistent with the provisions of the Warrant Certificates,
provided such changes or corrections do not adversely affect the privileges or
immunities of the Warrant Holders.
Section 6.07. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
Section 6.08. Forthwith upon the appointment after the date thereof
of any transfer agent for the Class A Common Stock, or of any subsequent
transfer agent for the Class A Common Stock, the Company will file with the
Warrant Agent a statement setting forth the name and address of such transfer
agent.
Section 6.09. Notice or demand pursuant to this Agreement to be
given or made by the Warrant Agent or by any Warrant Holder to or on the
Company shall be sufficiently given or made and effective on the third
business day after posting thereof, unless otherwise provided in this
Agreement, if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
Outlook Sports Technology, Inc.
Suite 410
4400 North Federal Highway
Boca Raton, Florida 33431
notice or demand pursuant to this Agreement to be given or made by the Company
or any Warrant Holder to or on the Warrant Agent shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:
15
<PAGE>
American Stock Transfer & Trust Co.
46th Floor
40 Wall Street
New York, NY 10005
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on the Underwriters shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the
Underwriters with the Company) as follows:
Argent Securities, Inc.
3340 Peachtree Street, Suite 900
Atlanta, Georgia 30326
Attn: L. Phillips Reames
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on any Warrant Holder shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed to such Warrant Holder at his last known address as it shall
appear in the records of the Company, if such notice shall be given by the
Company, or, if such notice shall be given by the Warrant Agent, as it shall
appear on the register maintained by the Warrant Agent.
A copy of any Notice or demand given or made pursuant to this Agreement
on the Warrant Agent, Company or Underwriters shall be promptly forwarded by the
recipient thereof to each of the Company, Warrant Agent or Underwriters who
shall not have received or made such demand or Notice.
Section 6.10. The validity, interpretation and performance of this
Agreement and the Warrants shall be governed by the law of the State of Georgia.
Section 6.11. Nothing in this Agreement shall be construed to give to
any person or corporation other than the parties hereto and the Warrant Holders
any right, remedy or claim under promise or agreement hereof. All covenants,
conditions, stipulations, promises and agreements contained in this Agreement
shall be for the sole and exclusive benefit of the Company and the Warrant Agent
and their successors and of the Warrant Holders, and their heirs,
representatives, successors, assigns and transferees.
Section 6.12. A copy of this Agreement shall be available for
inspection by any Warrant Holder during the regular business hours and at the
corporate office of the Warrant Agent in New York, New York, at which time the
Warrant Agent may require any Warrant Holder to submit his Warrant Certificate
for inspection by it.
Section 6.13. This Agreement shall terminate on the Last Exercise Date,
or such earlier date upon which all Warrants have been exercised or redeemed,
except that the Warrant Agent
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shall account to the Company pursuant to Section 2.02 (e) of this Agreement for
all cash held by it. The provisions of Section 6.03 and 6.04 of this Agreement
shall survive such termination.
Section 6.14. The Article headings in this Agreement are for
convenience only and are not part of this Agreement and shall not affect the
interpretation thereof.
Section 6.15. This Agreement may be executed in any number
counterparts, each of which is so executed shall be deemed to be an original,
and all such counterparts shall together constitute but one and the same
agreement.
OUTLOOK SPORTS TECHNOLOGY. INC.
By:
------------------------------
Jim G. Dodrill II, President
ATTEST:
-----------------------
Secretary
AMERICAN STOCK TRANSFER AND TRUST COMPANY
By:
---------------------------
Name:
---------------------------
Its:
---------------------------
ATTEST:
-----------------------
Secretary
17
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SCHEDULE I
SELLING SHAREHOLDERS
Paul H. Berger
Jim G. Dodrill II
Gary M. Treater
Everette C. Hinson
Neal J. Cohen
David K. Stern
James J. Henley
18
<PAGE>
EXHIBIT "A"
FORM OF WARRANT CERTIFICATE
19
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated June 9, 1998 relating to
the financial statements of Outlook Sports Technology, Inc., which appears in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Miami, Florida
October 7, 1998
<PAGE>
June 19, 1998
Outlook Sports Technology, Inc.
4400 North Federal Highway, Suite 410
Boca Raton, FL 33431
Attention: Jim Dodrill, President
Gentlemen:
As we discussed, I am pleased to inform you that, if nominated, I would
be happy and willing to serve as a Director for Outlook Sports Technology, Inc.
I am ready to begin serving in such position as soon as needed.
I understand the need for, and consent to disclosure of my name,
biography and agreement to serve on the Board in your soon to be filed
Registration Statement, Prospectus and in any ancillary documentation relating
to Outlook's initial public offering. I have prepared a biography for you which
is being sent to you with this letter.
Please contact me with any questions. I look forward to serving on the
Board of Directors with you.
Sincerely,
/s/ Dan Snider
-----------------------
Dan Snider
<PAGE>
June 23, 1998
Mr. James G. Dodrill II
President
Outlook Sports Technology, Inc.
4400 North Federal Highway, Suite 410
Boca Raton, FL 33431
Dear Jim:
As we discussed, I am pleased to inform you that, if nominated, I would be happy
and willing to serve as a Director for Outlook Sports Technology, Inc. I am
ready to begin serving in such position as soon as needed.
I understand the need for, and consent to disclosure of my name, biography and
agreement to serve on the Board in your soon to be filed Registration Statement,
Prospectus and in any ancillary documentation relating to Outlook's initial
public offering. I have prepared a biography for you which is being sent to you
with this letter.
Please contact me with any questions. I look forward to serving on the Board of
Directors with you.
Sincerely,
/s/ Kim C. Haskell
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Kim C. Haskell
