<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1999
REGISTRATION NO. 333-58631
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
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>
--------------------------
100 GRAND STREET, 5TH FLOOR
NEW YORK, NEW YORK 10013
(212) 966-0400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------------
PAUL BERGER
CHIEF EXECUTIVE OFFICER
100 GRAND STREET, 5TH FLOOR
NEW YORK, NEW YORK 10013
(212) 966-0400
(Address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
GREGORY SICHENZIA, ESQ. JAY M. KAPLOWITZ, ESQ.
RICHARD A. FRIEDMAN, ESQ. GERSTEN, SAVAGE & KAPLOWITZ, LLP
SICHENZIA, ROSS & FRIEDMAN LLP 10 East 52nd Street
135 West 50th Street New York, New York 10022
20th Floor (212) 752-9700
New York, New York 10020
(212) 664-1200
</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)......... 460,000 $5.50 $2,530,000 --
Representative's Warrant......................... 40,000 $0.01 $400 --
Class A Common Stock issuable upon exercise of
Representative's Warrant....................... 40,000 $8.25 $330,000 --
Total............................................ 500,000 $2,860,000 $986.34 (3)
</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 60,000 shares of Class A Common Stock subject to the Underwriters'
over-allotment option.
(3) 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 FEBRUARY 11, 1999
PROSPECTUS
400,000 UNITS
OUTLOOK SPORTS TECHNOLOGY, INC.
SHARE OF CLASS A COMMON STOCK
Outlook Sports Technology, Inc., a Delaware corporation (the "Company"),
hereby offers 400,000 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock"). The shares of Class A Common Stock offered hereby
are sometimes hereinafter referred to as the "Securities." It is currently
estimated that the initial offering price per share will be $5.50.
Prior to this offering (the "Offering") there has been no public market for
the Class A Common Stock and there can be no assurance that any such market will
develop. The initial public offering price of the Class A Common Stock has been
determined by negotiations between the Company and Kashner Davidson Securities
Corporation, as representative of the Underwriters (the "Representative") and is
not necessarily related to net asset value, projected earnings or other
established criteria of value. See Underwriting. The Company anticipates that
the Class A Common Stock will be quoted on the OTC Electronic Bulletin Board
under the symbol TGRA.
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 New York, NY on or about
, 1999.
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
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total (3).......................................... $ $ $
</TABLE>
(1) Does not reflect additional compensation to be received by Kashner Davidson
Securities Corporation (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), (ii) an option to purchase up
to 40,000 shares of Class A Common Stock at 150% 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, and (iii) a
$75,000 consulting fee payable to the Representative upon the Closing of
this Offering. 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 60,000 shares of
Class A Common Stock, solely to cover over-allotments, if any. 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."
KASHNER DAVIDSON SECURITIES CORPORATION
The Date of this Prospectus is , 1999
<PAGE>
INSIDE FRONT COVER
On this page appears one photograph of the Tegra iron featuring its
Invisible Inset Hosel.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK 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.
INSIDE BACK COVER
Red background with Tegra logo.
<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 1998, 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 and marketer 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.
The Company anticipates that a majority of its revenue will be generated through
sales of the Tegra driver, which incorporates the Invisible Inset Hosel design.
Company testing has shown that the Tegra driver provides greater carry, roll and
overall distance than certain leading premium-priced drivers while
simultaneously increasing accuracy and reducing slice. Tegra products are now
available in over 100 golf shops nationwide and the Company expects they will be
available in over 500 golf shops by the summer of 1999.
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 golf clubs 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 competitively, (2)
raising consumer demand for and awareness of the Company's products through a
4
<PAGE>
consolidated direct marketing campaign which will incorporate infomercials and
internet (electronic commerce) sales and (3) enhancing brand recognition through
professional golf endorsements of Tegra apparel and comprehensive in-store
merchandising installations called Tegra Retail Environments ("TRE's").
The Company was founded as Hippo, Inc. in 1996 and contemporaneously
acquired a license from Hippo Holdings, Ltd., a European golf equipment
manufacturer, 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 initially focus
on golf outerwear, introducing a limited range of technical men's outerwear
which will be available to the consumer for the holiday 1999 selling season. For
the spring 2000 golf season the Company plans to expand its offering to include
a range of mens golf shirts, which can be custom embroidered for on-course golf
shops. Prior to reducing operations as a result of its cash flow
5
<PAGE>
needs, the Company had begun selling headwear featuring ergonomic closures and
intended 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 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 will allow
retailers to achieve in excess of 50% gross margin.
MARKETING. The Company's advertising focuses on the Tegra driver and its
performance enhancing benefits, including the Invisible Inset Hosel. The Company
is presently developing a long format (30 minute) infomercial which is
anticipated to air in April, 1999. This broadcast advertising is expected to be
supplemented with a direct response print campaign.
The Company anticipates that it will have a web site on the internet by
April, 1999. In addition, the Company is considering making products available
for direct internet purchases (electronic commerce), although no assurance can
be given as to when, or if, the Company will do so.
Tegra products were endorsed for the 1998 season by four touring
professionals. Tegra players won more than $2 million world-wide on tour. The
Company is revising its tour strategy in 1999 to focus on a large number of PGA
Tour professionals to endorse its products rather than signing large endorsement
contracts with one or two players. The Company has formed a unique tour program
which will begin March 1, 1999. Under this program PGA Tour professionals will
be compensated for wearing Tegra clothing and/or headgear and/or using a Tegra
driver. The Company anticipates that between 15 to 30 professional golfers will
endorse Tegra products in 1999, although no assurance can be given that the
Company will obtain such endorsements.
The Company's executive offices are located at 100 Grand Street, 5th Floor,
New York, New York 10013. The Company's telephone number is (212) 966-0400.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered (1).......... 400,000 shares of Class A Common Stock.
Securities Outstanding Prior to
the Offering (2).............. 2,294,075 shares of Class A Common Stock and 1,464,953
shares of Class B Common Stock.
Securities Outstanding
Subsequent to the Offering
(2)(3)........................ 2,694,075 shares of Class A Common Stock and 1,464,953
shares of Class B Common Stock.
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."
OTC Board Symbols............... Class A Common Stock -- TGRA
</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. Does not include an aggregate of 4,189,242 Warrants which are
comprised of (i) 2,976,757 Warrants which were issued as part of a bridge
financing and the conversion of other obligations ("Bridge and Conversion
Warrants") which are to be identical to any publicly traded Warrants the
Company may in the future issue and (ii) 1,212,485 Warrants at exercise
prices ranging from $.75 to $4.00 and which expire at times ranging from
September 25, 2001 to January 15, 2003. Does not include up to 781,309
shares of Class A Common Stock which are issuable upon the exercise of
options outstanding under the Company's stock option plans. See
"Management--Stock Option Plans."
(3) Does not include (i) 60,000 shares of Class A Common Stock issuable by the
Company upon the exercise of the Underwriters' over-allotment option and
(ii) , the 40,000 shares of Class A Common Stock issuable upon exercise of
the Representative's 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 approximately $375,000 of bridge
debt which has not been converted to equity and matured on September 30, 1998 or
October 15, 1998 has not been met. The Company has an additional obligation to
repay $250,000 plus accrued interest to certain investors on April 9, 1999, and
the Company has an additional obligation to repay $225,000 plus accrued interest
to certain investors within five business days of the closing of an initial
public offering. 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 anticipates incurring an additional $200,000 in
debt prior to the effective date of the Registration Statement. The Company
expects to repay this debt from the proceeds of this offering. See "Use of
Proceeds." The Company has not paid any of its employees since October 1998. The
Company is indebted to employees, exclusive of Messrs. Berger and Dodrill, in
the approximate aggregate amount of $450,000. The Company anticipates that it
will repay these obligations on a monthly payment schedule during 1999. 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 October, 1998, the Company has consumed all cash on hand and has
funded its operations with cash flow and loans from outside investors totaling
$225,000. Such loans shall be repaid together with accrued interest thereon from
the proceeds of this offering. See "Use of Proceeds" and "Certain Transactions."
In November 1998, the Company executed exchange agreements (the "Exchange
Agreements") with certain unaffiliated noteholders whereby such note holders
exchanged an aggregate of $5,210,236 principal amount of indebtedness plus
accrued interest for 1,042,047 shares of Common Stock and 1,042,047 Warrants. At
January 31, 1999, $375,000 of such debt had not been converted and remains due
and owing. In addition $911,048 which the Company had borrowed from certain
officers or persons affiliated with officers of the Company was also converted
in November 1998 into 182,210 shares of Common Stock and 182,210 Warrants.
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 nine months ended October 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 NINE MONTHS
(INCEPTION) TO YEAR ENDED ENDED OCTOBER 31,
JANUARY 31, JANUARY 31, ----------------------------
1997 1998 1997 1998
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................ $ -- $ 741,120 $ 555,681 $ 479,463
Total costs and expenses........................... $ 2,375,708 $ 5,190,123 $ 3,253,187 $ 5,602,274
Loss from operations............................... $ (2,375,708) $ (4,449,003) $ (2,697,506) $ (5,122,811)
Interest expense................................... $ (2,844) $ (244,648) $ (146,120) $ (495,943)
Gain on sale of license............................ $ -- $ -- $ -- $ 413,997
Net loss........................................... $ (2,378,552) $ (4,693,651) $ (2,843,626) $ (5,204,757)
Basic and diluted net loss per share (1)........... $ (3.24) $ (2.21) $ (1.38) $ (2.10)
Weighted average number of shares outstanding...... 734,330 2,120,460 2,060,182 2,483,509
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1998
JANUARY 31, ----------------------------------------------
---------------------------- AS
1997 1998 ACTUAL PRO FORMA(2) ADJUSTED(2)(3)
------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................... $ 26,850 $ 650,792 $ 383,963 $ 608,963 $ 1,547,963
Working capital deficiency......... $ (1,306,705) $ (5,056,682) $ (9,903,931) $ (3,717,650) $ (2,278,650)
Total assets....................... $ 227,347 $ 1,005,055 $ 775,631 $ 1,000,631 $ 2,014,631
Total liabilities.................. $ 1,373,555 $ 5,747,474 $ 10,327,894 $ 4,366,613 $ 3,866,613
Total shareholders' deficit........ $ (1,146,208) $ (4,742,419) $ (9,552,263) $ (3,365,982) $ (1,851,982)
</TABLE>
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(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) Gives effect to the (i) exchange of an aggregate of $6,121,284 principal
amount of indebtedness plus accrued interest (of which $25,003 was incurred
subsequent to October 31, 1998 on a pro forma basis) for an aggregate of
1,224,257 shares of Common Stock and 1,224,257 Warrants and (ii) an
aggregate of $225,000 of debt which was incurred by the Company between
October 31, 1998 and the date of this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(3) Adjusted to (i) give effect to the sale of 400,000 shares of Class A Common
Stock offered hereby at an assumed initial public offering price of $5.50
per share and the application of the net proceeds therefrom and (ii) include
repayment of $500,000 of debt after offering. See "Use of Proceeds." No
effect has been given to the exercise of (i) the Underwriter's
over-allotment option, (ii) the Representative's Warrants, or (iii) the
Bridge Warrants. See "Underwriting" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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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 $375,000 of bridge debt matured on
September 30, 1998 or October 15, 1998, an additional $225,000 of bridge debt
will become due within five business days of the closing of an initial public
offering and an additional $250,000 is due April 9, 1999. The Company has not
paid any of its employees since October 1998. The Company is indebted to its
employees, exclusive of Messrs. Berger and Dodrill, in the approximate aggregate
amount of $450,000. The Company has had discussions with its current and former
employees which it has not paid in an attempt to formulate a repayment plan,
which discussions have included a proposal by the Company to pay such persons an
amount in excess of the sums due to such persons, which additional amount may be
paid to such persons in the form of equity. The Company anticipates that the
additional equity payment will not exceed an aggregate value of $300,000. The
Company does not have sufficient cash to repay all of these obligations. The
Company expects to repay a portion of 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 nine months ended October 31, 1998, the Company incurred
net losses of $5,204,757. As of October 31, 1998, the Company had $73 in cash
and an accumulated deficit of $12,276,960. The Company's current liabilities, as
of such date, aggregated $10,287,894 and exceeded the Company's current assets
by $9,903,931. Subsequent to October 31, 1998, holders of Notes representing an
aggregate of $6,121,284 of principal and accrued interest have executed an
agreement with the Company to convert their debt to equity in the Company at the
rate of $5.00 of debt for one share of Common Stock and one Warrant. The Company
does not presently have adequate cash from operations to meet either its long
term or short term 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
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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.
HISTORY OF LOSSES; ANTICIPATION OF FUTURE LOSSES
The Company has incurred operating losses since its inception and had an
accumulated deficit of $12,276,960 as of October 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 $5,204,757 for the nine months ended October
31, 1998, as compared with a net loss of $2,843,626 for the nine months ended
October 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. 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 and cash from operations to fund
purchases of inventory and implement its marketing strategies including the
production of an infomercial. The Company also plans to use approximately
$500,000 of the proceeds of this Offering to repay indebtedness. See "Use of
Proceeds." 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."
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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 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 is a defendant in a lawsuit filed by 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 was 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 had not been paid by
the Company. The Company and Chiat have reached a settlement agreement in this
lawsuit pursuant to which the Company has agreed to pay Chiat $155,000. The
Company is currently in default of such settlement payment. See "Business --
Legal Proceedings."
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From time to time the Company has been threatened with, or named as a
defendant in, lawsuits in the ordinary course of its business. The Company's
management does not believe that any of these lawsuits are material. There can
be no assurance that one or more future lawsuits, if decided adversely to the
Company, would not have a material adverse effect on the Company's business,
financial condition and results of operations.
ARGENT LITIGATION
The Company has been named as a defendant, together with May Davis Group
("May Davis"), in a litigation brought in the United States District Court,
Southern District of New York on December 11, 1998 (Case Number 98CIV. 8772)
brought by Argent Securities, Inc. ("Argent"). Argent alleges that the Company
has breached a letter of intent with Argent whereby Argent was to act as the
underwriter of the Company's initial public offering of securities as well as a
Private Placement Agreement whereby Argent was to act as the placement agent of
the Company's private placement of securities. The complaint alleges that the
Argent is owed $20,557 by the Company for expenses and $1.5 million by the
Company for services performed by Argent for the benefit of the Company. The
complaint further alleges that May Davis was instrumental in interfering with
these contracts and Argent is seeking $1.5 million in damages from May Davis as
damages caused by such alleged tortious interference. Finally Argent is claiming
$1.5 million in damages against both the Company and May Davis, jointly and
severally, which is to equal lost revenues and future profits of Argent. The
Company believes these claims are without merit and intends to vigorously defend
itself against these claims. The Company is also considering bringing counter
claims against Argent. There can be no assurance however, that the Company will
be successful in defending itself against these claims and if the Company were
to lose such litigation it would have a materially adverse effect on the Company
and its ability to continue operations.
POTENTIAL LAWSUIT FROM IAN WOOSNAM
The Company had extensive negotiations with an entity representing
professional golfer Ian Woosnam for in excess of one year in an attempt to reach
an agreement on the terms of a long term endorsement contract under which Mr.
Woosnam would endorse Tegra golf equipment, apparel and accessories. While these
negotiations were ongoing, Mr. Woosnam used Tegra golf equipment, apparel and
accessories while competing on the US and European PGA Tours. The Company and
Mr. Woosnam have been unable to reach agreement on the terms of the endorsement
contract and at this time negotiations have stopped. The Company has made offers
to Mr. Woosnam in an attempt to compensate Mr. Woosnam for the value of the
services he rendered during 1998. Should the Company and Mr. Woosnam be unable
to amicably reach an agreement regarding the value of the services rendered by
Mr. Woosnam, Mr. Woosnam may decide to pursue legal action against the Company.
In the event that Mr. Woosnam does file a lawsuit against the Company, the
Company will assert its defenses vigorously; however, no assurance can be made
that the Company will prevail or as to the damages which a court may assess
against the Company if Mr. Woosnam were to prevail in any such action.
DEPENDENCE ON PRODUCT INTRODUCTION
The Company believes that the introduction of new, innovative golf clubs
will be crucial to its future success. Prior to reducing operations as a result
of cash flow needs, the Company had just begun to sell products to retailers.
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 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
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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.
Prior to reducing operations as a result of cash flow needs, the Company had
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 Treaty patent application,
designating all countries, that is based on such United States patent
application.
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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. As stated in "Risk
Factors--Litigation", the Company has been notified by certain parties that the
Tegra brand products infringe on patents held by such parties. 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 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
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.
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If technological advances by competitors or other competitive factors require
the Company to invest 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 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."
POSSIBLE ADVERSE EFFECT OF "PENNY STOCK" RULES ON LIQUIDITY FOR THE
COMPANY'S SECURITIES. Rule 3a51-1 under the Exchange Act categorizes any equity
security as a "penny stock" except in limited circumstances, including where the
equity security has a price of $5.00 per share of more (excluding any broker or
dealer commission, commission equivalent, mark-up or mark-down), where the
security is registered on a qualified national securities exchange or is a
reported security or where the issuer has net tangible assets (equal to total
assets less intangible assets and liabilities) exceeding $2,000,000 (as
demonstrated by financial statements dated less than 15 months prior to the date
of the transaction in question) and the issuer has been in continuous operation
for at least three years. Further, a security which is a unit composed of one or
more securities is not a penny stock under Rule 3a51-1 if the unit price divided
by the number of component shares of the unit that are not warrants is $5.00 per
share or more (excluding any broker or dealer commission, commission equivalent,
mark-up or mark-down) and any warrant component of the unit has an exercise
price of $5.00 per share of more. Rule 15g-9 under the Exchange Act imposes
17
<PAGE>
sales practice requirements of broker-dealers which sell penny stocks to person
other than established customers (as defined in Rule 15g-9) or in other limited
circumstances, including requiring the broker-dealer, prior to any transaction
in a penny stock, to make a special suitability determination for the purchaser,
to receive the purchaser's written agreement to the transaction and to deliver a
disclosure statement respecting the penny stock rules.
The initial public offering price of the Common Stock will be sufficiently
high such that the Common Stock will not initially be a "penny stock".
However, there can be no assurance that, or when, the Company will be able
to demonstrate sufficiently that it has net tangible assets exceeding $2,000,000
or that the price of the Common Stock will remain above $5.00 per share prior to
the Company doing so, if at all. Therefore, since the Common Stock will not
initially be registered on a qualified national securities exchange or be
reported securities, there can be no assurance that the Common Stock will
qualify for exemption from the penny stock rules. If the Company's securities
become subject to the penny stock rules, the ability or willingness of
broker-dealers to sell or make a market in the Company's securities may be
adversely affected, the ability of purchasers in this offering to sell in the
secondary market any of the Securities acquired hereby may be adversely affected
and the market liquidity of the Company's securities could be adversely
affected.
LIMITS ON SECONDARY TRADING; POSSIBLE ILLIQUIDITY OF TRADING MARKET. The
Company anticipates that the Common Stock will be quoted on the OTC Electronic
Bulletin Board, which is a significantly less liquid market than the Nasdaq
SmallCap Market of other stock exchanges. If, at a future date, the Company
becomes able to satisfy the quantitative and other listing requirements for
listing of the Common Stock on the Nasdaq SmallCap Market or another stock
exchange, the Company may apply for such listing, although there can be no
assurance that the Company will apply for any such listing or that its
application would be accepted. As a result of the Common Stock being quoted on
the OTC Electronic Bulletin Board, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Common
Stock than if those securities were listed on the Nasdaq SmallCap Market or
another stock exchange.
Under the blue sky laws of most states, public sales of Common Stock after
this offering by persons other than the Company in "nonissuer transactions" must
either be qualified under applicable blue sky laws, or exempt from such
qualification requirements. Applicable exemptions for secondary trading of the
Common Stock may differ from state to state depending on the particular statutes
and regulations of that state. In many states, secondary trading will be
permitted only so long as information about the Company is published in a
recognized manual such as manuals published by Moody's Investor Service or
Standard & Poor's Corporation. The Company has applied for listing in a
recognized manual and will attempt to be so listed as soon after the closing of
this offering as reasonably practicable, but secondary trading in many states
will be restricted for some period of time after the date of this Prospectus.
PAYMENTS TO AFFILIATES
The Company plans to use approximately $25,000 from the proceeds of the
Offering to repay loans to Everette Hinson the Company's Vice President of
Finance. 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
45.8% 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
18
<PAGE>
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 3,759,028 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. Pursuant to 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,
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 781,309 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 October 31, 1998,
investors in this Offering will suffer an immediate and substantial dilution of
their investment of approximately $5.95 or 108.2% in net tangible book value per
share. The cash consideration paid by new investors in this Offering is 20.30%
of the total consideration paid for the securities of the Company that will be
outstanding after this
19
<PAGE>
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
Prior to this Offering, there has been no public trading market for the
Class A Common Stock and there can be no assurances that a public trading market
for the Class A Common Stock will develop or, if developed, will be sustained.
Although the Company intends to list the Class A Common Stock on The OTC
Bulletin Board, there can be no assurance that a regular trading market will
develop for the Class A Common Stock 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 OTC Bulletin Board or a public
trading market does not develop, purchasers of the Class A Common Stock may have
difficulty selling their Class A Common Stock should they desire to do so.
ARBITRARY DETERMINATION OF OFFERING PRICE
The initial public offering price of the Common Stock has 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 Common Stock 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."
REPRESENTATIVE'S WARRANTS
In connection with the Offering, the Company will sell to the
Representative, for nominal consideration, warrants to purchase an aggregate of
40,000 shares of Class A Common Stock. 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 150% of the initial public offering price of the Class A
Common Stock. 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 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.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
of Class A Common Stock offered by the Company hereby are estimated at
approximately $1,514,000, based on an assumed initial public offering price of
$5.50 per share (approximately $1,801,100 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 PERCENTAGE
APPROXIMATE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ------------------------------------------------------------------------ -------------- ------------------------
<S> <C> <C>
Repayment of existing debt (1).......................................... $ 500,000 33.03%
Advertising and Marketing (2)........................................... 500,000 33.03%
Purchase of Inventory (3)............................................... 200,000 13.20%
Working capital and general corporate purposes (4)...................... 314,000 20.74%
-------------- --------
Total............................................................... $ 1,514,000 100.00%
-------------- --------
-------------- --------
</TABLE>
- --------------------------
(1) Of the $500,000 of Company debt to be repaid, $225,000 will be used to repay
$225,000 in bridge financing loaned at interest rates between 10% and 12%
per annum on or about January, 1999; $25,000 will be used to repay Everette
Hinson, a Company affiliate, which was loaned on or about August, 1998 at an
interest rate of 12.5%; the remainder will be used to negotiate settlements
of $625,000 of indebtedness consisting of $375,000 of bridge debts which
matured either on September 30, 1998 or October 15, 1998 and $250,000 of
debt that matures on April 9, 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Certain Transactions."
(2) Of the $500,000 allocated for advertising and marketing, approximately
$350,000 will be used in the production of a Tegra driver infomercial and
related marketing materials; $100,000 will be used for the initial purchase
of media time; and $50,000 will be used on tour endorsements.
(3) The $200,000 for the purchase of inventory will be primarily spent on the
production of Tegra drivers.
(4) Includes payroll and benefits, rent, utilities, acquisition of inventory,
distribution costs, manufacturing costs, advertising costs, other overhead
expenses and prepaid expenses to underwriters.
If the Underwriters exercise the over-allotment option in full, the Company
will realize additional net proceeds of approximately $287,100, which will be
added to the Company's working capital.
The allocation of proceeds described in "Use of Proceeds" represents the
Company's best estimate of its allocation based upon the current state of its
business, operations and plans, current business conditions and the Company's
evaluation of its industry. Future events, including problems, delays, expenses
and complications which may be encountered, changes in economic or competitive
conditions and the result of the Company's sales and marketing activities may
make shifts in the allocation of funds necessarily desirable. Management of the
Company will have broad discretion in the application of substantially all of
such proceeds. See "Risk Factors."
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 Underwriters' Warrants will be utilized for working capital and
other corporate purposes.
21
<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 October 31, 1998 the net tangible deficit of the Company was
($9,552,263), or approximately ($3.80) per share. After October 31, 1998, the
Company effected an exchange of an aggregate of $6,121,284 principal amount of
indebtedness plus accrued interest (of which $25,003 was accrued subsequent to
October 31, 1998 on a pro forma basis) for an aggregate of 1,224,257 shares of
Class A Common Stock and issued 18,000 shares of Class A Common Stock in
connection with $225,000 of indebtedness incurred after October 31, 1998, which
resulted in a decrease in net tangible deficit of $6,186,281 or $2.90 per share.
After giving effect to the sale by the Company of the 400,000 shares of Class A
Common Stock in this Offering (at an assumed offering price of $5.50 per share)
and the Company's use of the estimated net proceeds therefrom as set forth under
"Use of Proceeds," the pro forma net tangible deficit of the Company at October
31, 1998 would have been ($1,851,982) or approximately ($0.45) per share. This
represents an immediate pro forma decrease in net tangible deficit of $0.45 per
share to the Company's present shareholders attributable to new investors and an
immediate pro forma dilution of $5.95 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)......................................... $ 5.50
Net tangible deficit per share at October 31, 1998.......... ($ 3.80)
Decrease in net tangible deficit attributable to exchange of
indebtedness and additional share issuance................ $ 2.90
Decrease in net tangible deficit attributable to shares
offered hereby............................................ $ .45
---------
Pro forma net tangible deficit per share after the
Offering.................................................. ($ .45)
---------
Dilution of net tangible book value per share to purchasers
in this Offering (2)...................................... ($ 5.95)
---------
---------
</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 the Underwriters' over-allotment option. See
"Description of Securities" and "Underwriting."
The following table sets forth on a pro forma basis as of October 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 $5.50
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.......................... 3,759,028 90.38% $ 8,639,059 79.70% $ 2.20
New Shareholders............................... 400,000 9.62% $ 2,200,000 20.30% $ 5.50
---------- ---------- ------------- ----------
Total.................................... 4,159,028 100.00% $ 10,839,059 100.00% $ 2.76
---------- ---------- ------------- ----------
---------- ---------- ------------- ----------
</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.
22
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company as
of October 31, 1998, the pro forma cash and capitalization of the Company as of
October 31, 1998 assuming the exchange of an aggregate of $6,121,284 principal
amount of indebtedness plus accrued interest (of which $25,003 was accrued
subsequent to October 31, 1998 on a pro forma basis) for an aggregate of
1,224,257 shares of Class A Common Stock and 1,224,257 Warrants and the issuance
of 18,000 shares of Class A Common Stock in connection with $225,000 of
indebtedness incurred after October 31, 1998 and the pro forma cash and
capitalization as adjusted giving effect to the sale by the Company of the
400,000 shares of Class A Common Stock offered hereby. The table has not been
adjusted to give effect to the exercise of the Underwriter's over-allotment
option, 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>
OCTOBER 31,
OCTOBER 31, OCTOBER 31, 1998
1998 1998 ---------------
--------------- --------------- PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash......................................................... $ 73 $ 225,073 $ 1,164,073
--------------- --------------- ---------------
--------------- --------------- ---------------
Advances from officers....................................... $ 299,147 $ 25,000 $ --
--------------- --------------- ---------------
Notes payable................................................ 6,124,648 844,648 369,648
--------------- --------------- ---------------
Shareholders' deficit:
Common Stock, Class A, par value $0.01 per share
(15,000,000 shares authorized, 1,101,818 issued,
1,051,818 outstanding; pro forma 2,344,075 issued and
2,294,075 outstanding; as adjusted 2,744,075 issued and
2,694,075 outstanding)................................... 11,018 23,441 27,441
Common Stock, Class B, par value $0.01 per share (5,000,000
shares authorized, 1,464,953 issued and outstanding)..... 14,650 14,650 14,650
Treasury Stock, 50,000 Class A shares at cost.............. (19,300) (19,300) (19,300)
Additional paid-in capital................................. 2,718,329 8,917,190 10,427,190
Accumulated deficit........................................ (12,276,960) (12,301,963) (12,301,963)
--------------- --------------- ---------------
Total shareholder's deficit............................ (9,552,263) (3,365,982) (1,851,982)
--------------- --------------- ---------------
Total capitalization................................... $ (3,128,468) $ (2,496,334) (1,482,334)
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
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.
23
<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 nine months ended October 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 nine months ended October
31, 1998 are not necessarily indicative of future results.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 8,
1996 FOR THE YEAR FOR THE NINE MONTHS ENDED
(INCEPTION) TO ENDED OCTOBER 31,
JANUARY 31, JANUARY 31, ----------------------------
1997 1998 1997 1998
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................................ $ -- $ 741,120 $ 555,681 $ 479,463
Costs of sales..................................... -- 859,317 481,159 688,100
Research and development........................... 650,805 451,019 267,098 164,487
Stock-based compensation........................... 473,894 210,130 171,875 --
Selling, general and administrative expenses....... 1,251,009 3,669,657 2,333,055 4,749,687
Total costs and expenses........................... 2,375,708 5,190,123 3,253,187 5,602,274
Loss from operations............................... (2,375,708) (4,449,003) (2,697,506) (5,122,811)
Interest expense................................... (2,844) (244,648) (146,120) (495,943)
Gain on sale of license............................ -- -- -- 413,997
Net loss........................................... $ (2,378,552) $ (4,693,651) $ (2,843,626) $ (5,204,757)
Basic and diluted loss per share of Common Stock... $ (3.24) $ (2.21) $ (1.38) $ (2.10)
Weighted average number of common shares
outstanding (1).................................. 734,330 2,120,460 2,060,182 2,483,509
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1998
-------------------------------------
PRO AS
ACTUAL FORMA(2) ADJUSTED(2)(3)
---------- ---------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets...................................... $ 383,963 $ 608,963 $ 1,547,963
Working capital deficiency ......................... $(9,903,931) $(3,717,650) $(2,278,650)
Total assets........................................ $ 775,631 $1,000,631 $ 2,014,631
Total liabilities................................... $10,327,894 $4,366,613 $ 3,866,613
Stockholders' deficit............................... $(9,552,263) $(3,365,982) $(1,851,982)
</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) Gives effect to the (i) exchange of an aggregate of $6,121,284 principal
amount of indebtedness plus accrued interest (of which $25,003 was accrued
subsequent to October 31, 1998 on a pro forma basis) for an aggregate of
1,224,257 shares of Class A Common Stock and 1,224,257 Warrants and (ii) an
aggregate of $225,000 of debt which was incurred by the Company between
October 31, 1998 and the
24
<PAGE>
date of this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and results of Operations--Liquidity and Capital
Resources."
(3) Adjusted to (i) give effect to the sale of 400,000 shares of Class A Common
Stock offered hereby at an assumed initial public offering price of $5.50
per share and the application of the net proceeds therefrom and (ii) include
repayment of $500,000 of debt after offering. See "Use of Proceeds." No
effect has been given to the exercise of (i) the Underwriter over-allotment
option, (ii) the Representative's Warrants, or (iii) the Bridge Warrants.
See "Underwriting."
25
<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 nine month periods ended October, 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 nine months ended October 31, 1998 totaled $479,463
compared to sales of $555,681 during the same period in 1997. Of the sales
during the nine months ended October 31, 1998, $22,395 were generated by sales
of HiPPO products and $457,068 by sales of Tegra products. The sales recognized
during the nine months ended October 31, 1997 represent HiPPO club and apparel
sales of $396,371 and $85,356 respectively.
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 nine
months ended October 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 nine months ended October
31, 1998 totaled $688,100. Of this amount, $48,307 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 nine months ended October
31, 1998 were also negatively impacted by $142,157 loss for liquidation of
apparel below cost.
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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 $164,487 for the nine months ended
October 31, 1998 as compared to $267,098 for the nine months ended October 31,
1997. This 38% decrease is attributed primarily to timing of research and
development expenditures.
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 $4,749,687 for the nine
months ended October 31, 1998 as compared to $2,333,055 for the nine months
ended October 31, 1997. This 104% increase resulted primarily from increased
payroll and related expenses, advertising and promotion, travel, professional
fees and facilities, supplies and services.
FORECAST
The Company expects to commence sales of Tegra products as existing and
potential retailers and consumers gain familiarity with the Tegra brand and the
benefits offered by the Company's Tegra Driver which will be advertised
extensively through the Company's 30 minute infomercial which the Company
anticipates airing April 1999. The Company plans to use $500,000 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 5 people. Of these 5 people, 2 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 remaining new hires will work in customer service and
administrative 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 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.
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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 $1,925,500 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 $937,871 (after accrued interest) from
individuals who either are officers of the Company or are affiliated with or
related to officers of the Company.
In November 1998, the Company executed exchange agreements (the "Exchange
Agreements") with certain unaffiliated noteholders whereby such note holders
exchanged an aggregate of $5,210,236 principal amount of indebtedness plus
accrued interest for 1,042,047 shares of Common Stock and 1,042,047 Warrants. At
January 31, 1999, $375,000 of such debt had not been converted and remains due
and owing. In addition $911,048 which the Company had borrowed from certain
officers or persons affiliated to officers of the Company was also converted in
November 1998 into 182,210 shares of Common Stock and 182,210 Warrants.
The Company is negotiating settlements of $625,000 of indebtedness
consisting of $375,000 of bridge debts which matured either on September 30,
1998 or October 15, 1998 debt and $250,000 of debt that matures on March 31,
1999. The Company has allocated $250,000 of the net proceeds of this Offering
for the purpose of settling this debt. The inability of the Company to
successfully negotiate a settlement of this debt may have a material adverse
impact on the Company.
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; (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. In addition, the
Company is presently in discussions with Wisdom Industries Co., Ltd., the
Company's principal part supplier of driver heads, about exchanging up to $4
million in parts for $4 million in equity of the Company. Any equity transaction
would be valued at the market price for the Company's Common Stock at the date
of exchange. 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 12 months. If one or more of the Company's
financing plans or strategies are not successful, it may materially impact the
Company's cash flow needs during the next twelve 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.
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.
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BUSINESS
GENERAL
The Company is a designer and marketer 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. The Company anticipates
that the majority of its revenue will be generated through sales of the Tegra
driver, which incorporates the Invisible Inset Hosel design. Company testing has
shown that the Tegra driver provides greater carry, roll and overall distance
than certain leading premium-priced drivers while simultaneously increasing
accuracy and reducing slice. Tegra products are now available in over 100 golf
shops nationwide and the Company expects that they will be in over 500 shops by
the Summer of 1999.
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 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.
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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.
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
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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 designs and markets 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 Summer 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 Wisdom Industries Co., Ltd., Fu Sheng Industrial Co., Ltd. and
Zhong Shan Wei Sheng Sporting Goods Co., Ltd. True Temper Sports ("True
Temper"), the world's largest 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
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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 designs and markets a line
of men's apparel. The Company's apparel designs are intended to enhance the
Tegra brand image and be technically advanced. The Company's apparel collection
for the holiday 1999 selling season will focus on golf outerwear. The collection
will expand for the Spring 2000 to include a complete range of men's shirts.
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.
A complete range of men's shirts will be introduced for the Spring 2000
selling season. The Company's men's shirt collection will focus on offering a
limited range of updated styles in a wide variety of colors. The Tegra
collection will emphasize performance, comfort and style and are suitable for
wear on or off course. The Company will offer a custom embroidery program for
on-course golf shops and anticipates that 75% of all shirts will be custom
logoed.
ACCESSORIES. The Company 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 for the summer,
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 a direct response advertising campaign,
which will include a thirty minute infomercial, creating a unique web site which
will include electronic commerce, designing and installing TREs in golf shops
and attempting to obtain endorsements from golf professionals.
DIRECT RESPONSE ADVERTISING. The Company is presently developing a direct
response advertising campaign. The campaign will contain a long format
(30-minute) infomercial for Tegra drivers as well as 30 second, one minute and
two minute spots. 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 visibility of the features give it the potential to be a
successful direct response product. Consumers will be able to purchase Tegra
products directly by calling the Company's toll free phone number or ordering
the product on-line. The Company plans to test market the infomercial on the
Golf Channel and other cable sports channels beginning in April, 1999.
In addition to broadcast advertising, the Company will launch a direct
market print campaign. The Company plans to place Tegra driver direct response
print advertisements in national golf publications such as GOLF DIGEST, GOLF
WEEK and GOLF MAGAZINE and other targeted consumer publications.
INTERNET. The Company anticipates that it will have a web site on the
internet by April 1999. The site will contain information about Tegra products
and tour players. In addition, the Company is considering making products
available for direct internet purchases (electronic commerce), although no
assurance can be given as to when, or if, the Company will do so. The Company
foresees expanding on-line operations to maximize internet opportunities.
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TEGRA RETAIL ENVIRONMENTS. The Company has adopted 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 at point of purchase by selling
Tegra products in a branded environment. TREs are defined spaces in golf shops,
which occupy from 25 to 150 square feet and consist of a variety of elements,
which may include flooring, fixtures, graphics, and point-of-purchase materials.
Within a TRE the Company has the ability to market 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.
In the Spring, 1998, the Company began a rollout of Tegra Retail
Environments in select golf stores. The Company installed 58 TREs in golf stores
in 55 cities, including two of the nation's largest golf equipment retailers
Edwin Watts and Roger Dunn Golf Shops. This rollout demonstrated to the Company
that there is a need and an opportunity in the marketplace for in-store golf
shops. However, due to cash flow problems in 1998, the Company was unable to
support these shops and accordingly removed installations for revision and
reinstallation in 1999. Most present Tegra retailers have indicated a desire to
have updated TREs and the Company anticipates that the majority of golf shops
which retail Tegra products in the year 2000 will be included in the TRE
program.
TOUR ENDORSEMENTS. Tegra products were endorsed for the 1998 season by four
touring professionals. Tegra players won more than $2 million world-wide on
tour. The company is revising its tour strategy in 1999 to focus on a large
number of PGA Tour professionals to endorse its products rather than signing
large endorsement contracts with one or two players. The Company has formed a
unique tour program which will begin March 1, 1999. Under the program PGA
professionals will be compensated for wearing Tegra clothing and/or headgear
and/or using a Tegra driver. The Company anticipates that between 15-30
professional golfers will endorse Tegra products in 1999, although no assurance
can be given that the Company will obtain such endorsements.
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.
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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 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 2,250 square foot
facility in New York, NY. This facility accommodates the Company's corporate,
administrative, marketing and sales personnel. The lease on this facility is
month to month.
EMPLOYEES
At February 9, 1999, the Company had 8 full-time employees, all of which
were involved in executive, managerial, supervisory and sales capacities. None
of the Company's employees is covered by a collective bargaining agreement or is
a member of a union.
The Company has had discussions with its current and former employees which
it has not paid in an attempt to formulate a repayment plan, which discussions
have included a proposal by the Company to pay such persons an amount in excess
of the sums due to such persons, which additional amount may be paid to such
persons in the form of equity. The Company anticipates that the additional
equity payment will not exceed an aggregate value of $300,000.
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
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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 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 is a defendant in a lawsuit filed by 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 was 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 and Chiat have reached a settlement agreement in this
lawsuit pursuant to which the Company has agreed to pay Chiat $155,000. The
Company is currently in default of such settlement payment. See "Risk Factors --
Litigation."
The Company has been named as a defendant, together with May Davis Group
("May Davis"), in a litigation brought in the United States District Court,
Southern District of New York on December 11, 1998 (Case Number 98CIV. 8772)
brought by Argent Securities, Inc. ("Argent"). Argent alleges that the Company
has breached a letter of intent with Argent whereby Argent was to act as the
underwriter of the company's initial public offering of securities as well as a
Private Placement Agreement whereby Argent was to act as the placement agent of
the Company's private placement of securities. The complaint alleges that Argent
is owed $20,557 by the Company for expenses and $1.5 million by the Company for
services performed by Argent for the benefit of the Company. The complaint
further alleges that May Davis was instrumental in interfering with these
contracts and Argent is seeking $1.5 million in damages from May Davis as
damages caused by such alleged tortious interference. Finally Argent is claiming
$1.5 million in damages against both of the Company and May Davis, jointly and
severally, which is to equal lost revenues and future profits of Argent. The
Company believes these claims are without merit and intends to vigorously defend
itself against these claims. The Company is also considering bringing counter
claims against Argent. There can be no assurance however, that the Company will
be successful in defending itself against these claims and if the Company were
to lose such litigation it would have a materially adverse effect on the Company
and its ability to continue operations.
The Company had extensive negotiations with an entity representing
professional golfer Ian Woosnam for in excess of one year in an attempt to reach
an agreement on the terms of a long term endorsement contract under which Mr.
Woosnam would endorse Tegra golf equipment, apparel and accessories. While these
negotiations were ongoing, Mr. Woosnam used Tegra golf equipment, apparel and
accessories while competing on the US and European PGA Tours. The Company and
Mr. Woosnam have been unable to reach agreement on the terms of the endorsement
contract and at this time negotiations have stopped. The Company has made offers
to Mr. Woosnam in an attempt to compensate Mr. Woosnam for the value of the
services he rendered during 1998. Should the Company and Mr. Woosnam be unable
to amicably reach
35
<PAGE>
an agreement regarding the value of the services rendered by Mr. Woosnam, Mr.
Woosnam may decide to pursue legal action against the Company. In the event that
Mr. Woosnam does file a lawsuit against the Company, the Company will assert its
defenses vigorously; however, no assurance can be made that the Company will
prevail or as to the damages which a court may assess against the Company if Mr.
Woosnam were to prevail in any such action.
From time to time the Company has been threatened with, or named as a
defendant in, lawsuits in the ordinary course of its business. The Company's
management does not believe that any of these lawsuits are material. There can
be no assurance that one or more future lawsuits, if decided adversely to the
Company, would not have a material adverse effect on the Company's business,
financial condition and results of operations.
36
<PAGE>
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
Everette C. Hinson................................... 49 Vice President Finance
Neal J. Cohen........................................ 41 Vice President Apparel Operations
David K. Stern....................................... 34 Vice President Marketing
</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. 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 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.
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
37
<PAGE>
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
Set forth below are the names, ages and certain background information of
the two individuals the Company intends to appoint to as independent members 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.
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 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.
38
<PAGE>
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.
39
<PAGE>
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...................................... $ 32,721 -- $ 7,800 -- (3)
Chairman of the Board and Chief
Executive Officer
James G. Dodrill II................................. 32,721 -- 7,800 (4)
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) Mr. Berger deferred an additional $92,279 in compensation.
(4) 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 $92,279 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
40
<PAGE>
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.
41
<PAGE>
PRINCIPAL 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
PRIOR TO OFFERING OFFERING (1)
NAME AND ADDRESS OF ---------------------- -------------------
BENEFICIAL OWNER 5% STOCKHOLDER OR SELLING STOCKHOLDER NUMBER PERCENT PERCENT
- -------------------------------------------------------------------- ---------- ---------- -------------------
<S> <C> <C> <C>
Paul Berger (2)..................................................... 1,488,823 39.42% 35.64%
Jim Dodrill (3)..................................................... 544,812 14.42% 13.04%
Synergy Group International, Inc. (4)............................... 200,000 5.30% 4.79%
4725 East Sunrise Drive, Suite 228
Tucson, AZ 85718
All directors and executive officers of the Company as a group (7
persons) (5)...................................................... 2,055,217 54.41% 49.20%
</TABLE>
- ------------------------
(1) Assumes that all Securities offered in this Offering are purchased but that
the Underwriters' over-allotment option is not exercised.
(2) Includes 19,578 shares of Class A Common Stock issuable upon the exercise of
options exercisable within 60 days of the date of this Prospectus.
(3) Includes 336,512 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 377,673 shares of Class A Common Stock issuable upon the exercise
of options exercisable within 60 days of the date of this Prospectus.
42
<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
Since, October, 1998, the Company has consumed all cash on hand and has
funded its operations with cash flow and loans from outside investors totaling
$225,000. Such loans shall be repaid together with accrued interest thereon from
the proceeds of this offering. See "Use of Proceeds" and "Certain Transactions."
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%. In January 1999, Mr. Berger exchanged an aggregate of
$170,000 principal amount of indebtedness plus accrued interest for an aggregate
of 39,125 shares of Common Stock and 39,125 Warrants. 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,
43
<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%. In January 1999, Mr. Dodrill
exchanged an aggregate of $102,500 principal amount of indebtedness plus accrued
interest for an aggregate of 23,467 shares of Common Stock and 23,467 Warrants.
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, were exchanged in November 1998 for 102,000 shares of Common Stock and
102,000 Warrants. 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.
44
<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, 2,294,075
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."
45
<PAGE>
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 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 is Continental Stock
Transfer and Trust Company.
46
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 2,694,075
shares of Class A Common Stock (2,754,075 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 2,694,075 shares of Class A Common Stock, 2,294,075 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 41,590 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.
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."
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
each of the Underwriters' named below for whom Kashner Davidson Securities Corp.
is acting as Representative, has severally agreed to purchase from the Company
and the Company has agreed to sell to the Underwriters, on a firm commitment
basis, the respective number of shares of Common Stock set forth below opposite
each such Underwriter's name:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Kashner Davidson Securities Corp...........................................
-----------------
Total....................................................................
-----------------
-----------------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and that they may allow to selected dealers who are
members of the NASD, concessions of not in excess of $ per share, of which
not more the $ per share may be reallowed to certain other dealers who are
members of the NASD. After the initial public offering, the public offering
price, concession and reallowance may be changed.
The Underwriting Agreement further provides that the Underwriters will
receive a non-accountable expense allowance of 3% of the aggregate public
offering price on the shares sold hereunder (including any Shares sold pursuant
to the Over-Allotment Option), which allowance amounts to $ (or $ if
the Over-Allotment Option is exercised in full), of which $ has been paid
to date.
The Company has granted to the Underwriters an Over-Allotment Option, which
is exercisable for a period of 45 days after the Closing, to purchase up to
60,000 additional shares (up to 15% of the shares being offered by the Company
hereby) at the public offering price, less underwriting discounts and
commissions, solely to cover over-allotments, if any.
The Underwriters have informed the Company that they will not make sales of
the shares offered by this Prospectus to accounts over which they exercise
discretionary authority.
The Company has agreed to sell to the Underwriters for a nominal
consideration, an Underwriters' Warrant to purchase up to 40,000 shares,
exclusive of the Over-Allotment Option. The Underwriters' Warrant will be
nonexercisable for one year after the date of this Prospectus. Thereafter, for a
period of four years, the Underwriters' Warrants will be exercisable to purchase
Common Stock at $8.25 per Share (150% of the initial public offering price). The
Underwriters' Warrants will be restricted from sale, transfer, assignment,
pledge or hypothecation for a period of one year from the effective date of the
Offering except to officers and partners (not directors) of the Underwriters and
members of the selling group. The Company has agreed to file, during the four
year period beginning one year from the Effective Date of this Prospectus, on
one occasion at the Company's cost, at the request of the holders of a majority
of the Underwriters' Warrants and the underlying securities, and to use its best
efforts to cause to become effective, a post-effective amendment to the
Registration Statement or a new registration statement under the Securities Act,
as required to permit the public sale of Common Stock issued or issuable upon
exercise of the Underwriters' Warrants. In addition, the Company has agreed to
give advance notice to holders of the Underwriters' Warrants of its intention to
file certain registration statements commencing one year and ending four years
after the Effective Date, and in such case, holders of such Underwriter's
Warrants or underlying shares of Common Stock shall have the right to require
the Company to include all or part of such shares of Common Stock underlying
such Underwriters' Warrants in such registration statement at the Company's
expense.
48
<PAGE>
For the life of the Underwriter's Warrants, the holders thereof are given,
at nominal costs, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriters'
Warrants at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriters'
Warrants.
The Company has agreed to retain the Representative as the Company's
financial consultants for a period of two years to commence on the closing of
this Offering, at a monthly fee of $3,125, or an aggregate of $75,000, all of
which shall be payable in advance on the closing of the Offering. Pursuant to
this agreement, the Underwriters shall provide advisory services related to
merger and acquisition activity, corporate finance and other matters.
The public offering price of the shares offered hereby has been determined
by negotiation between the Company and the Representative. Factors considered in
determining the offering price of the shares offered hereby included the
business in which the Company is engaged, the Company's financial condition, an
assessment of the Company's management, the general condition of the securities
markets and the demand for similar securities of comparable companies.
In connection with this Offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
Common Stock for the purpose of stabilizing their respective market prices. The
Underwriters also may create a short position for the account of the
Underwriters by selling more shares of Common Stock in connection with the
Offering than they are committed to purchase from the Company, and in such case
may purchase shares of Common Stock in the open market following completion of
the Offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position by exercising the
Over-Allotment Option. Any of the transactions described in this paragraph may
result in the maintenance of the price of the Common Stock at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if they are undertaken they may be
discontinued at any time.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
The foregoing is a summary of the material terms of the Underwriting
Agreement and the Underwriter's Warrant. Reference is made to the copies of the
Underwriting Agreement, and the Underwriters' Warrant, both of which are filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
LEGAL MATTERS
The validity of the Class A Common Stock being offered hereby will be passed
upon for the Company by Sichenzia, Ross & Friedman LLP, 135 West 50th Street,
New York, NY, 10020. Certain matters are being passed upon for the Underwriters
by Gersten, Savage & Kaplowitz, LLP, 101 East 52nd Street, New York, NY 10022.
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.
49
<PAGE>
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 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.
50
<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 October 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 nine months ended October 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 nine months ended October 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.
PricewaterhouseCoopers LLP
Miami, Florida
June 9, 1998
F-2
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JANUARY 31, OCTOBER 31, 1998
------------------------ --------------------------
1997 1998 HISTORICAL PRO FORMA
----------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash............................................ $ 19,041 $ 1,367 $ 73 $ 225,073
Accounts receivable, net of allowance for
doubtful accounts of $35,000; $144,156 at
October 31, 1998 (unaudited).................. -- 167,700 25,000 25,000
Inventory....................................... -- 417,058 284,599 284,599
Prepaid expenses................................ -- 12,854 59,291 59,291
Deposits and other current assets............... 7,809 51,813 15,000 15,000
----------- ----------- ------------ ------------
Total current assets........................ 26,850 650,792 383,963 608,963
----------- ----------- ------------ ------------
Prepaid royalties............................... 150,000 133,319 -- --
Property and equipment, net..................... 31,197 201,644 391,668 391,668
License......................................... 19,300 19,300 -- --
----------- ----------- ------------ ------------
$ 227,347 $ 1,005,055 $ 775,631 $ 1,000,631
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.............................. $ 483,021 $ 1,962,657 $ 2,185,002 $ 2,185,002
Accrued expenses.............................. 12,500 340,951 576,307 169,173
Accrued wages and related expenses............ 131,530 260,217 483,492 483,492
Accrued interest payable...................... 2,844 223,011 659,298 659,298
Advances from officers........................ 588,660 255,000 299,147 25,000
Notes payable, current portion................ 115,000 2,665,638 6,084,648 804,648
----------- ----------- ------------ ------------
Total current liabilities................... 1,333,555 5,707,474 10,287,894 4,326,613
Notes payable, long term........................ 40,000 40,000 40,000 40,000
----------- ----------- ------------ ------------
1,373,555 5,747,474 10,327,894 4,366,613
----------- ----------- ------------ ------------
Commitments and contingencies................... -- -- -- --
----------- ----------- ------------ ------------
Shareholders' deficit:
Common stock; Class A, $.01 par value,
15,000,000 shares authorized; 1,118,488 and
2,324,071 shares issued and outstanding in
1997 and 1998, respectively, and 1,101,818
issued and 1,051,818 outstanding at October
31, 1998 (unaudited); pro forma, 2,344,075
issued and 2,294,075 outstanding............ 11,185 23,241 11,018 23,441
Common Stock; Class B, $.01 par value 5,000,000
shares authorized 1,464,953 shares issued and
outstanding at October 31, 1998 (unaudited)... -- -- 14,650 14,650
Treasury stock; 50,000 Class A shares at cost
(unaudited)................................. -- -- (19,300) (19,300)
Additional paid in capital.................... 1,221,159 2,306,543 2,718,329 8,917,190
Accumulated deficit........................... (2,378,552) (7,072,203) (12,276,960) (12,301,963)
----------- ----------- ------------ ------------
Total shareholders' deficit................. (1,146,208) (4,742,419) (9,552,263) (3,365,982)
----------- ----------- ------------ ------------
$ 227,347 $ 1,005,055 $ 775,631 $ 1,000,631
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</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 NINE MONTHS ENDED
TO YEAR ENDED OCTOBER 31,
JANUARY 31, JANUARY 31, ----------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.............................................. $ -- $ 741,120 $ 555,681 $ 479,463
------------- ------------- ------------- -------------
Operating expenses:
Costs of sales..................................... -- 859,317 481,159 688,100
Research and development........................... 650,805 451,019 267,098 164,487
Stock-based compensation........................... 473,894 210,130 171,875 --
Selling, general and administrative expenses....... 1,251,009 3,669,657 2,333,055 4,749,687
------------- ------------- ------------- -------------
Total costs and expenses......................... 2,375,708 5,190,123 3,253,187 5,602,274
------------- ------------- ------------- -------------
Loss from operations................................. (2,375,708) (4,449,003) (2,697,506) (5,122,811)
Interest expense..................................... (2,844) (244,648) (146,120) (495,943)
Gain on sale of license.............................. -- -- -- 413,997
------------- ------------- ------------- -------------
Net loss............................................. $(2,378,552) $ (4,693,651) $ (2,843,626) $ (5,204,757)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic and diluted loss per share..................... $ (3.24) $ (2.21) $ (1.38) $ (2.10)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares outstanding........... 734,330 2,120,460 2,060,182 2,483,509
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</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)............ -- -- -- -- (5,204,757) (5,204,757)
---------- --------- ---------- ------------ -------------- -------------
Balance, October 31, 1998
(unaudited)................... 2,566,771 $ 25,668 $ (19,300) $ 2,718,329 $ (12,276,960) $(9,552,263)
---------- --------- ---------- ------------ -------------- -------------
---------- --------- ---------- ------------ -------------- -------------
</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 NINE MONTHS ENDED
TO YEAR ENDED OCTOBER 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) $(2,843,733) $(5,204,757)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation................................................ 3,355 8,100 6,075 112,050
Stock-based compensation.................................... 473,894 210,130 171,875 --
Changes in operating assets and liabilities:
Increase in accounts receivable........................... -- (167,700) (252,479) 142,700
Increase in inventory..................................... -- (417,058) (581,710) 132,459
Increase in prepaid expenses.............................. -- (12,854) (22,198) 145,913
Increase in deposits and other current assets............. (7,809) (44,004) (26,076) 56,113
(Increase) decrease in prepaid royalties.................. (150,000) 16,681 -- 133,319
Increase (decrease) in accounts payable and accrued
expenses................................................ 629,895 2,156,941 1,368,741 1,339,126
------------- ----------- ---------- ----------
Net cash used in operating activities............................. (1,429,217) (2,943,415) (2,174,505) (3,143,077)
------------- ----------- ---------- ----------
Investing activities:
Capital expenditures............................................ (34,552) (178,547) (182,868) (302,074)
------------- ----------- ---------- ----------
Net cash used in investing activities............................. (34,552) (178,547) (182,868) (302,074)
------------- ----------- ---------- ----------
Financing activities:
Proceeds from line of credit.................................... -- 35,000 35,000 --
Advances from officers.......................................... 588,660 255,000 100,000 44,147
Proceeds from issuance of unsecured notes payable............... 190,000 2,265,500 1,995,000 3,805,000
Proceeds (payments) from (to) factor............................ -- 280,138 -- (270,490)
Repayment of unsecured notes payable............................ (35,000) (30,000) -- (115,500)
Proceeds from exercise of stock options and sale of common
stock......................................................... 739,150 298,650 234,200 --
Acquisition of treasury stock................................... -- -- -- (19,300)
------------- ----------- ---------- ----------
Net cash provided by financing activities......................... 1,482,810 3,104,288 2,364,200 3,443,857
------------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.............. 19,041 (17,674) 1,827 (1,294)
------------- ----------- ---------- ----------
Cash and cash equivalents, beginning of period.................... -- 19,041 19,041 1,367
------------- ----------- ---------- ----------
Cash and cash equivalents, end of period.......................... $ 19,041 $ 1,367 $ 20,868 $ 73
------------- ----------- ---------- ----------
------------- ----------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.......................... $ -- $ 1,868 $ 772 $ 60,079
------------- ----------- ---------- ----------
------------- ----------- ---------- ----------
</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 nine month
period ended October 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.
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,
-------------------------- OCTOBER 31,
1997 1998 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 notes payable to private investors, due April 1999, interest
at 7.5%.............................................................. -- -- 250,000
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 9,648
----------- ------------- -------------
155,000 2,705,638 6,124,648
Current portion........................................................ (115,000) (2,665,638) (6,084,648)
----------- ------------- -------------
$ 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.
F-11
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
5. NOTES PAYABLE (CONTINUED)
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.
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, 1998, the Company had accrued interest under its unsecured
notes payable in the aggregate amount of approximately $223,000.
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.
F-12
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
5. NOTES PAYABLE (CONTINUED)
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 October 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 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
F-13
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
6. SHAREHOLDERS' DEFICIT (CONTINUED)
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.
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................................................................... 384,608 286,624 $ 2.550
6.00........................................................................ 77,166 24,000 $ 6.000
----------- -----------
716,411 521,304 $ 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 AND PRO FORMA INFORMATION
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.
On October 7, 1998, the Company's President and Chief Executive Officer
converted an aggregate of 1,464,953 shares of their Class A Common Stock to the
equivalent number of Class B Common Stock. The Company has agreed not to
register the Class B Common Stock under the Securities Exchange Act of 1933 for
a period of two years. Otherwise, the rights of the holders of Class A and Class
B Common Stock are substantially the same.
In November 1998, the Company executed exchange agreements with certain
noteholders and officers which had advanced funds to the Company, whereby such
parties exchanged an aggregate of $6,121,284 of principle and interest on notes
and advances for 1,224,257 Class A shares of Common Stock and 1,224,257 warrants
to acquire Class A shares of Common Stock. Of the accrued interest converted,
$25,003 was incurred subsequent to October 31, 1998. Subsequent to such
exchange, the Company remained in default of approximately $375,000 of
indebtedness under the terms of the outstanding loan agreements.
Subsequent to October 31, 1998, the Company received $225,000 in exchange
for notes payable bearing interest at rates between 10% and 12% with an
equivalent face amount, and 18,000 shares of the Company's Class A Common Stock.
Of the notes issued, $75,000 mature from February 17 to February 23, 1999 and
$150,000 mature on the earlier of October 1, 1999 or 5 days subsequent to the
completion of an initial public offering by the Company. The Company valued the
shares issued in connection with this transaction at $90,000 based on the
exchange transactions described in the preceding paragraph.
The accompanying pro forma balance sheet information reflect the previously
described exchange agreements as well as the issuance of $225,000 of Class A
Common Stock and notes, as if such transactions had taken place on October 31,
1998.
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 is a defendant in a lawsuit alleging the breach of a letter of
intent with an underwriter. The lawsuit seeks approximately $1.5 million in
damages. The Company believes this claim is without merit and intends to
vigorously defend itself; 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>
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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................................. 21
Dilution........................................ 22
Capitalization.................................. 23
Dividend Policy................................. 23
Selected Financial Data......................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 26
Business........................................ 29
Management...................................... 37
Principal Shareholders.......................... 42
Certain Transactions............................ 43
Description of Securities....................... 45
Shares Available for Future Sale................ 47
Underwriting.................................... 48
Legal Matters................................... 49
Experts......................................... 49
Available Information........................... 50
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1999 (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.
400,000 SHARES OF
CLASS A COMMON STOCK
OUTLOOK SPORTS TECHNOLOGY, INC.
---------------------
PROSPECTUS
---------------------
KASHNER DAVIDSON
SECURITIES CORP.
, 1999
- --------------------------------------------------------------------------------
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<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.
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
II-1
<PAGE>
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.............................................................. $ 10,546
NASD Filing Fee................................................................... 4,040
Blue Sky Qualification Fees and Expenses.......................................... 30,000
Accounting Fees and Expenses...................................................... 100,000
Legal Fees and Expenses........................................................... 100,000
Transfer Agent Fees............................................................... 6,000
Printing and Engraving Expenses................................................... 125,000
Miscellaneous Expenses............................................................ 24,414
---------
TOTAL............................................................................. $ 400,000
---------
---------
</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 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.
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<PAGE>
None of the foregoing transactions involved a distribution or public offering.
The recipients of all of these securities represented that such securities were
being acquired for investment and not with a view to the distribution thereof.
In addition, the certificates evidencing these securities bear restrictive
legends. All investors represented that they were either sophisticated or
accredited investors. All investors were given full disclosure concerning the
Company and its business as well as a full opportunity to ask questions of and
receive answers from the Company and its officers and authorized representatives
regarding the terms and conditions of the offering as well as the affairs of the
Company and related matters.
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.
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
II-3
<PAGE>
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.
CONVERSION OF DEBT
In November 1998, the Company executed exchange agreements (the "Exchange
Agreements") with certain unaffiliated noteholders whereby such note holders
exchanged an aggregate of $5,210,236.29 principal amount of indebtedness plus
accrued interest for 1,052,047 shares of Common Stock and 1,052,047 Warrants. At
January 31, 1999, $375,000 of such debt had not been converted and remains due
and owing. In addition $911,047.75 which the Company had borrowed from certain
officers or persons affiliated to officers of the Company was also converted in
November 1998 into 182,210 shares of Common Stock and 182,210 Warrants.
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<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
5.1** Opinion of Sichenzia, Ross & Friedman 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
10.20* Form of Subscription Agreement signed by all investors in the Company
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
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
10.41* Form of Exchange Agreement
23.1 Consent of PricewaterhouseCoopers LLP
23.2** Consent of Sichenzia, Ross & Friedman LLP
24.1* Power of Attorney (contained on the signature page of this Registration Statement)
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
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
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 February 9,
1999.
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
OUTLOOK SPORTS TECHNOLOGY, INC.
AND
KASHNER DAVIDSON SECURITIES CORPORATION
REPRESENTATIVE'S
WARRANT AGREEMENT
REPRESENTATIVE'S WARRANT AGREEMENT dated as of ____________, 1999 by
and between OUTLOOK SPORTS TECHNOLOGY, INC., (the "Company") and KASHNER
DAVIDSON SECURITIES CORPORATION ("Representative" or "Kashner") individually
("Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative 40,000
warrants (each a "Representative's Warrant") each to purchase a share of the
Company's common stock, par value $.01 per share (the "Common Stock") .
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated _________, 1999, by and between
the Representative and the Company, to act as the Representative in connection
with the Company's proposed public offering (the "Public Offering") of 400,000
shares of Common Stock (the "Offering Securities"); and
WHEREAS, the Representative's Stock Warrants to be issued pursuant to this
Agreement will be issued on Closing Date I (as such term is defined in the
Underwriting Agreement) by the Company to the Representative in consideration
for, and as part of, the Representative's compensation in connection with the
Representative's acting as the Representative pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of Ten Dollars ($10.00), the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT. The Holder (as defined in Section 3 below) is hereby granted
the right to purchase, at any time from ____________, 2000 until 5:00 p.m., New
York time, __________, 2004, up to 40,000 shares of Common Stock, at an initial
purchase price (subject to adjustment as provided in Section 8 hereof) of $8025
per share of Common Stock (150% of the per share public
<PAGE>
offering price), subject to the terms and conditions of this Agreement. The
securities issuable upon exercise of the Representative's Warrant are sometimes
referred to herein as the "Representative's Securities."
2. WARRANT CERTIFICATES. The warrant certificate (the "Representative's
Warrant Certificate") to be delivered pursuant to this Agreement shall be in the
form set forth in Exhibit A attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF REPRESENTATIVE'S WARRANT.
(a) The Representative's Warrant is exercisable during the term set
forth in Section 1 hereof payable by certified or cashier's check or money order
in lawful money of the United States. Upon surrender of Representative's
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Purchase Price (as hereinafter defined) for the
Representative's Securities (and such other amounts, if any, arising pursuant to
Section 4 hereof) at the Company's principal office currently located at 100
Grand Street, 5th Floor, New York, New York 10013 the registered holder of a
Representative's Warrant Certificate ("Holder" or "Holders") shall be entitled
to receive a certificate or certificates for the Representative's Securities so
purchased. The purchase rights represented by each Representative's Warrant
Certificate are exercisable at the option of the Holder or Holders thereof, in
whole or in part as to Representative's Securities. The Representative's
Warrant may be exercised to purchase all or any part of the Representative's
Securities represented thereby. In the case of the purchase of less than all
the Representative's Securities purchasable on the exercise of the
Representative's Warrant represented by a Representative's Warrant Certificate,
the Company shall cancel the Representative's Warrant Certificate represented
thereby upon the surrender thereof and shall execute and deliver a new
Representative's Warrant Certificate of like tenor for the balance of the
Representative's Securities purchasable thereunder.
(b) In lieu of the payment of cash upon exercise of the
Representative's Warrant as provided in Section 3(a), the Holder may exercise
the Representative's Warrant by surrendering the Representative's Warrant
Certificate at the principal office of the Company, accompanied by a notice
stating (i) the Holder's intent to effect such exercise by an exchange, (ii)
Common Stock to be issued upon the exchange, (iii) whether Representative's
Warrants are to be surrendered in connection with the exchange, and (iv) the
date on which the Holder requests that such exchange is to occur. The Purchase
Price for the Representative's Securities to be acquired in the exchange shall
be paid by the surrender as indicated in the notice, of Representative's
Warrants, having a "Value", as defined below, equal to the Purchase Price.
"Value" as to each Representative's Warrant shall mean the difference between
the "Market Price", as hereinafter defined, of a share of Common Stock and the
then Purchase Price for a share of Common Stock.
By way of example of the application of the formula, assume that the
Market Price of the Common Stock is $8.00, the Purchase Price of the
Representative's Warrant is $6.00. On such assumptions, the Value of a
Representative's Warrant is $2.00 ($8.00-$6.00) and therefore for each
<PAGE>
three Representative's Warrants surrendered, the Holder could acquire one share
of Common Stock in the exchange. Notwithstanding the example, the Holder shall
not be limited to exchanging Representative's Warrants for Common Stock.
The Warrant Exchange shall take place on the date specified in the notice
or if the date the notice is received by the Company is later than the date
specified in the notice, on the date the notice is received by the Company.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Representative's
Warrant and payment of the Purchase Price therefor, the issuance of certificates
representing the Representative's Securities or other securities, properties or
rights underlying such Representative's Warrant, shall be made forthwith (and in
any event within five (5) business days thereafter) without further charge to
the Holder thereof, and such certificates shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Representative's Warrant Certificates and the certificates representing the
Representative's Securities or other securities, property or rights (if such
property or rights are represented by certificates) shall be executed on behalf
of the Company by the manual or facsimile signature of the then present Chairman
or Vice Chairman of the Board of Directors or President or Vice President of the
Company, attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the
Company. The Representative's Warrant Certificates shall be dated the date of
issuance thereof by the Company upon initial issuance, transfer or exchange.
5. RESTRICTION ON TRANSFER OF REPRESENTATIVE'S WARRANT. The Holder of a
Representative's Warrant Certificate (and its Permitted Transferee, as defined
below), by its acceptance thereof, covenants and agrees that the
Representative's Warrant may be sold, transferred, assigned, hypothecated or
otherwise disposed of, in whole or in part, until ____________, 2000 (one year
following the effective date of the Public Offering), only to officers and
partners of the Representatives, or any Public Offering selling group member and
their respective officers and partners, ("Permitted Transferees"). Thereafter
the Representative's Warrant may be transferred, assigned, hypothecated or
otherwise disposed of in compliance with applicable law.
6. PURCHASE PRICE.
(a) INITIAL AND ADJUSTED PURCHASE PRICE. Except as otherwise provided
in Section 8 hereof, the initial purchase price of the Representative's
Securities shall be $8.25 per share of Common Stock (150% of the per share
public offering price). The adjusted purchase price shall be the price which
shall result from time to time from any and all adjustments of the initial
purchase
<PAGE>
price in accordance with the provisions of Section 8 hereof.
(b) PURCHASE PRICE. The term "Purchase Price" herein shall mean
the initial purchase price or the adjusted purchase price, depending upon the
context.
7. REGISTRATION RIGHTS.
(a) REGISTRATION UNDER THE SECURITIES ACT OF 1933 AS AMENDED ("ACT").
The Representative's Warrant may have not been registered under the Act. The
Representative's Warrant Certificates may bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), and may not be offered
for sale or sold except pursuant to (i) an effective registration statement
under the Act, or (ii) an opinion of counsel, if such opinion and counsel shall
be reasonably satisfactory to counsel to the issuer, that an exemption from
registration under the Act is available".
(b) DEMAND REGISTRATION. (1) At any time commencing on the
first anniversary of and expiring on the fifth anniversary of the effective date
of the Company's Registration Statement relating to the Public Offering (the
"Effective Date"), the Holders of a Majority (as hereinafter defined) in
interest of the Representative's Warrant, or the Majority in interest of the
Representative's Securities (assuming the exercise of all of the
Representative's Warrant) shall have the right, exercisable by written notice to
the Company, to have the Company prepare and file with the U.S. Securities and
Exchange Commission (the "Commission"), on one (1) occasion, a registration
statement on Form SB-2, S-1 or other appropriate form, and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for the Holders, in order to comply with the provisions
of the Act, so as to permit a public offering and sale, of the Representative's
Securities by such Holders and any other Holders of the Representative's Warrant
and/or the Representative's Securities who notify the Company within fifteen
(15) business days after receipt of the notice described in Section 7(b)(2).
The Holders of the Representative's Warrant may demand registration prior to
exercising the Representative's Warrant, and may pay such exercise price from
the proceeds of such public offering.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section 7(b) by any Holders to all other
registered Holders of the Representative's Warrant and the Representative's
Securities within ten (10) calendar days from the date of the receipt of any
such registration request.
(3) For purposes of this Agreement, the term "Majority" in reference
to the Holders of the Representative's Warrant or Representative's Securities,
shall mean in excess of fifty percent (50%) of the then outstanding
Representative's Warrant or Representative's Securities that (i) are not held by
the Company, an affiliate, officer, creditor, employee or agent thereof or any
of their
<PAGE>
respective affiliates, members of their family, persons acting as nominees or in
conjunction therewith, or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
(c) PIGGYBACK REGISTRATION. (1) If, at any time within the period
commencing on the first anniversary and expiring on the sixth anniversary of the
Effective Date, the Company should file a registration statement with the
Commission under the Act (other than in connection with a merger or other
business combination transaction or pursuant to Form S-8), it will give written
notice at least twenty (20) calendar days prior to the filing of each such
registration statement to the Representative and to all other Holders of the
Representative's Warrant and/or the Representative's Securities of its intention
to do so. If a Representative or other Holders of the Representative's Warrant
and/or the Representative's Securities notify the Company within fifteen (15)
calendar days after receipt of any such notice of its or their desire to include
any Representative's Securities in such proposed registration statement, the
Company shall afford the Representative and such Holders of the Representative's
Warrant and/or Representative's Securities the opportunity to have any such
Representative's Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7(c)(1) and the provisions of
Section 7(d), the Company shall have the right at any time after it shall have
given written notice pursuant to this Section 7(c)(1) (irrespective of whether a
written request for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or to withdraw the
same after the filing but prior to the effective date thereof.
(2) If the managing underwriter of an offering to which the
above piggyback rights apply, in good faith and for valid business reasons,
objects to such rights, such objection shall preclude such inclusion.
(d) COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registrations under Sections 7(b) and 7(c) hereof, the
Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a
registration statement within thirty (30) calendar days of receipt of any demand
therefor pursuant to Section 7(b); provided, however, that the Company shall not
be required to produce audited or unaudited financial statements for any period
prior to the date such financial statements are required to be filed in a report
on Form 10-K or Form 10-Q, as the case may be. The Company shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Representative's
Securities such number of prospectuses as shall reasonably be requested.
(2) The Company shall pay all costs (excluding fees and
expenses of Holders' counsel and any underwriting discounts or selling fees,
expenses or commissions), fees and expenses in connection with any registration
statement filed pursuant to Sections 7(b) and 7(c) hereof including, without
limitation, the Company's legal and accounting fees, printing expenses,
<PAGE>
blue sky fees and expenses.
(3) The Company will use its best efforts to qualify or
register the Representative's Securities included in a registration statement
for offering and sale under the securities or blue sky laws of such states as
reasonably are requested by the Holders, provided that the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(4) The Company shall indemnify the Holders of the
Representative's Securities to be sold pursuant to any registration statement
and each person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement, but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the
Representative contained in Section 8 of the Underwriting Agreement.
(5) The Holders of the Representative's Securities to be
sold pursuant to a registration statement, and their successors and assigns,
shall indemnify the Company, its officers and directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such Holders,
or their successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 8 of the Underwriting Agreement pursuant to which the
Representative has agreed to indemnify the Company.
(6) Nothing contained in this Agreement shall be construed
as requiring the Holders to exercise their Representative's Warrant prior to the
initial filing of any registration statement or the effectiveness thereof,
provided that such Holders have made arrangements reasonably satisfactory to the
Company to pay the exercise price from the proceeds of such offering.
(7) The Company shall furnish to each Representative for
the offering, if any, such documents as such Representative may reasonably
require.
(8) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration
<PAGE>
statement.
(9) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below and
any managing Representative copies of all correspondence between the Commission
and the Company, its counsel or auditors with respect to the registration
statement and permit each Holder and Representative to do such investigation,
upon reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the National Association of
Securities Dealers, Inc. ("NASD"). Such investigation shall include access to
books, records and properties and opportunities to discuss the business of the
Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder shall
reasonably request.
(10) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders holding
a Majority of the Representative's Securities requested to be included in such
underwriting, provided, however that such managing underwriter shall be
reasonably acceptable to the Company, except that in connection with an offering
for which the Holders have piggyback rights, the Company shall have the sole
right to select the managing underwriter or underwriters. Such underwriting
agreement shall be satisfactory in form and substance to the Company, a Majority
of such Holders (in respect of a registration under Section 7(b) only) and such
managing underwriter, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Representative's Securities.
Such Holders shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
8. ADJUSTMENTS TO PURCHASE PRICE AND NUMBER OF SECURITIES.
(a) COMPUTATION OF ADJUSTED PURCHASE PRICE. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock (other than the issuances
referred to in Section 8(g) hereof), including shares held in the Company's
treasury, for a consideration per share less than the "Market Price" (as defined
in Section 8(a)(6) hereof) per share of Common Stock on the date immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon any such issuance or sale, the Purchase Price of the Common Stock
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) determined by dividing (1) the product of (a) the
Purchase Price in effect immediately before such issuance or sale and (b) the
sum of (i) the total number of shares of Common Stock outstanding immediately
prior to such issuance or sale, and (ii) the number of shares determined by
dividing (A) the aggregate consideration, if any, received by the Company upon
such sale or issuance, by (B) the Market Price, and by (2) the total number of
shares of Common Stock outstanding immediately after such issuance or sale
provided, however, that in no event shall the Purchase Price be adjusted
pursuant to this computation to an amount in excess of
<PAGE>
the Purchase Price in effect immediately prior to such computation, except in
the case of a combination of outstanding shares of Common Stock, as provided by
Section 8(c) hereof.
For the purposes of this Section 8, the term "Purchase Price" shall
mean the Purchase Price of the Common Stock forming a part of the
Representative's Securities set forth in Section 6 hereof, as adjusted from time
to time pursuant to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with this
Section 8(a), the following provisions shall be applicable:
(1) In case of the issuance or sale of shares of Common Stock (or of
other securities deemed hereunder to involve the issuance or sale of shares of
Common Stock) for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock are
offered by the Company for subscription, the subscription price, or, if such
securities shall be sold to Representatives or dealers for public offering
without a subscription offering, the initial public offering price) before
deducting therefrom any compensation paid or discount allowed in the sale,
underwriting or purchase thereof by Representatives or dealers or others
performing similar services, or any expenses incurred in connection therewith.
(2) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company, and otherwise than on the
exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(3) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(4) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in Section 8(a)(2).
(5) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares of Common Stock issued or issuable
(subject to readjustment upon
<PAGE>
the actual issuance thereof) upon the exercise of options, rights or warrants
and upon the conversion or exchange of convertible or exchangeable securities.
(6) As used herein in the phrase "Market Price" at any date shall be
deemed to be the last reported sale price, or, in the case no such reported sale
takes place on such day, the average of the last reported sales prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Common Stock is listed or admitted to
trading, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average closing bid price as furnished by the
NASD through the NASD Automated Quotation System ("NASDAQ") or similar
organization if NASDAQ is no longer reporting such information, or if the Common
Stock is not quoted on NASDAQ, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available to
it.
(b) OPTIONS, RIGHTS, WARRANT AND CONVERTIBLE AND EXCHANGEABLE
SECURITIES. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed to all the stockholders of the Company and
Holders of Representative's Warrant pursuant to Section 8(i) hereof, if the
Company shall at any time after the date hereof issue options, rights or
warrants to purchase shares of Common Stock, or issue any securities convertible
into or exchangeable for shares of Common Stock (other than the issuances
referred to in Section 8(g) hereof), (i) for a consideration per share less than
the Market Price (including the issuance thereof without consideration such as
by way of dividend or other distribution), or (ii) without consideration, the
Purchase Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making a computation in
accordance with the provisions of Section 8(a) hereof, provided that:
(1) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable under such options, rights or warrants
(assuming exercise in full even if not then currently exercisable or currently
exercisable in full) shall be deemed to be issued and outstanding at the time
such options, rights or warrants were issued, and for a consideration equal to
the minimum purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration (determined in the same
manner as consideration received on the issue or sale of shares in accordance
with the terms of the Representative's Warrant), if any, received by the Company
for such options, rights or warrants; provided, however, that upon the
expiration or other termination of such options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this Section 8(b)(1) (and for
the purposes of Section 8(a)(5) hereof) shall be reduced by such number of
shares as to which options, warrants and/or rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Purchase Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not be expired or terminated unexercised.
<PAGE>
(2) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities (assuming conversion or exchange in full even if not then currently
convertible or exchangeable in full) shall be deemed to be issued and
outstanding at the time of issuance of such securities, and for a consideration
equal to the consideration (determined in the same manner as consideration
received on the issue or sale of shares of Common Stock in accordance with the
terms of the Representative's Warrant) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
expiration or other termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason or redemption or
otherwise), the number of shares deemed to be issued and outstanding pursuant to
this Section 8(b)(2) (and for the purpose of Section 8(a)(5) hereof) shall be
reduced by such number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued or issuable upon the conversion or exchange of those
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
(3) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in Section
8(b)(1), or in the price per share at which the securities referred to in
Section 8(b)(2) are convertible or exchangeable, and if a change in the Purchase
Price has not occurred by reason of the event giving rise to the change in the
price per share of such other options, rights, warrants, or convertible or
exchangeable securities, such options, rights or warrants or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
the shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
(c) SUBDIVISION AND COMBINATION. In case the Company shall at
any time issue any shares of Common Stock in connection with a stock dividend in
shares of Common Stock or subdivide or combine the outstanding shares of Common
Stock, the Purchase Price shall forthwith be proportionately decreased in the
case of a stock dividend or a subdivision or increased in the case of
combination.
(d) ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Purchase Price pursuant to the provisions of this Section 8, the number of
Representative's Securities issuable upon the exercise of the Representative's
Warrant shall be adjusted to the nearest whole share by multiplying a number
equal to the Purchase Price in effect immediately prior to such adjustment by
the number of Representative's Securities issuable upon exercise of the
<PAGE>
Representative's Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Purchase Price.
(e) DEFINITION OF COMMON STOCK. For the purpose of this
Agreement, the term "Common Stock" shall mean the class of stock designated as
Common Stock in the Certificate of Incorporation, of the Company as it may be
amended as of the date hereof.
(f) RECLASSIFICATION, MERGER OR CONSOLIDATION. The Company will
not merge, reorganize or take any other action which would terminate the
Representative's Warrant without first making adequate provision for the
Representative's Warrant. In case of any reclassification or change of the
outstanding shares of Common Stock issuable upon exercise of the outstanding
warrants (other than a change in par value to no par value, or from nor par
value to par value, or as a result of a subdivision or combination), or in case
of any consolidation of the Company with, or merger of the Company with, or
merger of the Company into, another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Stock except
a change as a result of a subdivision or combination of such shares or a change
in par value, as aforesaid), or in the case of a sale or conveyance to another
corporation or other entity of the property of the Company as an entirety or
substantially as an entirety, the Holders of each Representative's Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Representative's Warrant) to purchase, upon exercise of such
Representative's Warrant, the kind and number of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holders were the owner of
the shares of Common Stock underlying the Representative's Warrant immediately
prior to any such events at a price equal to the product of (x) the number of
shares issuable upon exercise of the Representative's Warrant and (y) the
Purchase Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance, as if such
Holders had exercised the Representative's Warrant. In the event of a
consolidation, merger, sale or conveyance of property, the corporation formed by
such consolidation or merger, or acquiring such property, shall execute and
deliver to the Holders a supplemental Representative's warrant agreement to such
effect. Such supplemental Representative's warrant agreement shall provide for
adjustments which shall be identical to the adjustment provided for in this
Section 8. The provisions of this Section 8(f) shall similarly apply to
successive consolidations or mergers.
(g) NO ADJUSTMENT OF PURCHASE PRICE IN CERTAIN CASES. No
adjustment of the Purchase Price shall be made:
(1) Upon the issuance or sale of (i) the Representative's
Warrant or the securities underlying the Representative's Warrant, (ii) the
securities sold pursuant to the Public Offering (including those sold upon
exercise of the Representative's over-allotment option), or (iii) the shares
issuable pursuant to the options, warrants, rights, stock purchase agreements or
convertible or exchangeable securities outstanding or in effect on the date
hereof as described in the prospectus relating to the Public Offering.
<PAGE>
(2) If the amount of said adjustments shall aggregate less
than two ($.02) cents for one (1) share of Common Stock; provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall aggregate at least two ($.02) cents for one (1) share of Common
Stock. In addition, Registered Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any warrant or warrants held by
them.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each
Representative's Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holders at the principal executive office of
the Company, for a new Representative's Warrant Certificate of like tenor and
date representing in the aggregate the right to purchase the same number of
Representative's Securities in such denominations as shall be designated by the
Holders thereof at the time of such surrender.
10. LOSS, THEFT ETC. OF CERTIFICATES Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Representative's Warrant Certificate, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of the Representative's Warrant
Certificates, if mutilated, the Company will make and deliver a new
Representative's Warrant Certificate of like tenor, in lieu thereof.
11. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Representative's Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests; provided, however, that
if a Holder exercises all Representative's Warrant held of record by such Holder
the fractional interests shall be eliminated by rounding any fraction to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
12. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Representative's
Warrant, such number of shares of Common Stock or other securities and
properties or rights as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of Representative's Warrant and
payment of the Purchase Price therefor, all the shares of Common Stock issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any stockholder. As long as the
Representative's Warrant shall be outstanding, the Company shall use its best
efforts to cause the Common Stock to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock issued to the
public in connection herewith may then be listed or quoted.
13. NOTICES TO REPRESENTATIVE'S WARRANT HOLDERS. Nothing contained in
this
<PAGE>
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Representative's Warrant and their exercise, any
of the following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) calendar days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
14. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or five days after being mailed by registered or
certified mail, return receipt requested:
If to the registered Holders of the Representative's Warrant, to the address of
such Holders as shown on the books of the Company; or
(a) If to the Company to 100 Grand Street, 5th Floor, New York,
New York 10013 or to such other address as the Company may designate by notice
to the Holders, with a courtesy copy to Sichenzia, Ross & Freidman, LLP
15. SUPPLEMENTS AND AMENDMENTS. The Company and the Representative
may from time to time supplement or amend this Agreement without the approval of
any Holders of Representative's Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with
<PAGE>
any provisions herein, or to make any other provision in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Representative's Warrant
Certificates.
16. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the
Representative, the Holders and their respective successors and assigns
hereunder.
17. TERMINATION. This Agreement shall terminate at the close of
business on _____________, 2004. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on the expiration of any applicable statue of limitations.
18. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
each Representative's Warrant Certificate issued hereunder shall be deemed to be
a contract made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said state without giving
effect to the rules of said state governing the conflicts of laws.
19. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement, to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and thereof. This Agreement may not be modified or
amended except by a writing duly signed by the Company and the Holders of a
Majority in Interest of the Representative's Securities (for this purpose,
treating all then outstanding Representative's Warrants as if they had been
exercised).
20. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
21. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holders of the Representative's Warrant
Certificates or Representative's Securities any legal or equitable right, remedy
or claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Representative and any other Holders of
the Representative's Warrant Certificates or Representative's Securities.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and
<PAGE>
such counterparts shall together constitute but one and the same instrument.
24. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company, the Representative and their respective
successors and assigns and the Holders from time to time of the Representative's
Warrant Certificates or any of them.
[SIGNATURE ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
OUTLOOK SPORTS TECHNOLOGY, INC.
By:
-------------------------------------
Paul Berger, CEO
KASHNER DAVIDSON SECURITIES CORP., for itself and
as Representative of the Several Underwriters
listed On Schedule A
By:
-------------------------------------
Name: Matthew Meister
Title: CEO
<PAGE>
SCHEDULE A
TO
REPRESENTATIVE'S WARRANT AGREEMENT
BETWEEN
OUTLOOK SPORTS TECHNOLOGY, INC.
AND
KASHNER DAVIDSON SECURITIES CORPORATION
REPRESENTATIVE
Kashner Davidson Securities Corp.
UNDERWRITERS:
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED FOR SALE OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR
(ii) AN OPINION OF COUNSEL, IF SUCH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING _________, 2000 THROUGH
5:00 P.M., NEW YORK TIME ON ___________, 2004
Warrant covering 40,000 shares
of Common Stock
No. UW-1
This Warrant Certificate certifies that Kasner Davidson Securities
Corp. or registered assigns, is the registered holder of this Warrant to
purchase initially, at any time from ___________, 2000, until 5:00 p.m., New
York time on __________, 2004 (the "Expiration Date"), up to 40,000 shares of
Common Stock, $.01 par value (the "Common Stock") of Outlook Sports Technology,
Inc. ("Company") exercisable to purchase one share of Common Stock at a purchase
price of $_____ per share (150% of the per share public offering price) (the
"Purchase Price"), upon the surrender of this Warrant Certificate and payment of
the applicable Purchase Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the Representative's Warrant
Agreement, dated as of _______, 1999, by and between the Company and Kashner
Davidson Securities Corp. (the "Warrant Agreement"). Payment of the Purchase
Price shall be made by certified or cashier's check or money order payable to
the order of the Company.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrant evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrant evidenced by this Warrant Certificate is part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement between
the Company and the
<PAGE>
Representative, which Warrant Agreement is hereby incorporated by reference in
and made a part of this instrument and is hereby referred to for a description
of the rights, limitation of rights, obligations, duties and immunities
thereunder of the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Purchase Price and the type and/or number of the Company's securities
issuable upon the exercise of this Warrant, may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Purchase Price
and the number and/or type of securities issuable upon the exercise of the
Warrant; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrant shall be issued to the transferee(s) in exchange as provided herein,
without any charge except for any tax or other governmental charge imposed in
connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
____day of ________________, 1999.
OUTLOOK SPORTS TECHNOLOGY, INC.
By:
-----------------------------------
Paul Berger
CEO
<PAGE>
ATTEST:
By:
-------------------------------
Name: Greg Dukoff
Title: Secretary
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED___________________________
hereby sells, assigns and transfers unto _____________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________
Attorney, to transfer the within Warrant Certificate on the books of Outlook
Sports Technology, Inc., with full power of substitution.
Dated:
---------------------
Signature
---------------------------------
(Signature must conform in all respects to the
name of holder as specified on the face of the Warrant Certificate.)
[Signature guarantee]
----------------------------------------
(Insert Social Security or Other
Identifying Number of Holders)
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase ______ shares of Common Stock Warrant and
herewith tenders in payment for such securities a certified or cashier's check
or money order payable to the order of Outlook Technology Sports, Inc. in the
amount of $______, all in accordance with the terms hereof. The undersigned
requests that certificates for such securities be registered in the name of
___________________________ whose address is _____________________ and that such
certificates be delivered to _____________________________________ whose address
is ____________________________________________________________.
Dated:
----------------------------
Signature_______________________
(Signature must conform in all respects to the name of holder as specified on
the face of the Warrant Certificate.)
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holders)
[Signature guarantee]
<PAGE>
Exhibit 1.2
OUTLOOK SPORTS TECHNOLOGY, INC.
400,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
________________, 1999
Kashner Davidson Securities Corporation
77 South Palm Avenue
Sarasota, Florida 34326
Gentlemen:
Outlook Sports Technology, Inc., a corporation organized under the laws of
the State of Delaware (the "Company"), hereby confirms its agreement with
Kashner Davidson Securities Corporation, as representative (the "Kashner") of
the several underwriters listed on Schedule 1 annexed hereto (the
"Underwriters"), as set forth below.
The Company proposes to issue and sell to the Underwriters 400,000 shares
of the Company's common stock, $.01 par value (the "Common Stock"). The shares
of Common Stock being sold by the Company are referred to as the "Firm Shares."
In addition, for the sole purpose of covering over-allotments from the sale
of the Firm Shares the Company proposes to grant to the Underwriters an option
to purchase an additional 60,000 shares of Common Stock (the "Firm Option
Shares" or the "Option Shares"), all as provided in Section 2(c) of this
agreement (the "Agreement") and to issue to you the Representative's Warrant (as
defined in Section 2 hereof) to purchase certain further additional shares of
Common Stock. The Firm Shares and the Option Shares are collectively referred
to herein as either the "Shares" or the "Securities."
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333-63527), with
respect to the Securities and the Representative's Warrant Securities (as
hereinafter defined), including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act "), and one
<PAGE>
or more amendments to that registration statement may have been so filed. Copies
of such registration statement and of each amendment heretofore filed by the
Company with the Commission have been delivered to the Underwriters. After the
execution of this Agreement, the Company will file with the Commission either
(i) if the registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in that registration statement (or, if an amendment
thereto shall have been filed, in such amendment), with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act and as have been provided to and approved by the
Underwriters prior to the execution of this Agreement, or (ii) if that
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to that registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriters prior to the execution of this
Agreement. The Company also may file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for purposes of registering
certain additional Securities, which registration statement shall become
effective upon filing with the Commission (the "Rule 462(b) Registration
Statement"). As used in this Agreement, the term "Registration Statement" means
that registration statement, as amended at the time it was or is declared
effective, and any amendment thereto that was or is thereafter declared
effective, including all financial schedules and exhibits thereto and any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined), together with any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with the Registration Statement (including the
prospectus subject to completion, if any, included in the Registration Statement
at the time it was or is declared effective); and the term "Prospectus" means
the prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to the Underwriters copies of each Preliminary Prospectus and has consented to
the use of those copies for the purposes permitted by the Act. If the Company
has elected to rely on Rule 462(b) and the Rule 462(b) Registration Statement
has not been declared effective, then (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its receipt and (ii)
the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and
<PAGE>
regulations of the Commission thereunder and (ii) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the Prospectus and
each amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required so to be filed, when the Registration Statement containing such
Prospectus or amendment or supplement thereto was or is declared effective) and
on the Firm Closing Date and any Option Closing Date (as each such term is
hereinafter defined), the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be stated therein
in accordance with, and complied or will comply with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did not
or will not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Underwriters specifically for use
therein.
(c) The Company is duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdictions of
incorporation, and duly qualified or authorized to transact business as a
foreign corporation and is in good standing in each jurisdiction where the
ownership or leasing of its properties or the conduct of its businesses require
such qualification or authorization.
(d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(e) The Company does not own, directly or indirectly, an interest in
any corporation, partnership, limited liability company, joint venture, trust or
other business entity.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). All of the issued shares of
capital stock of the Company, have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. There are no
outstanding options, warrants or other rights granted by the Company to purchase
shares of its Common Stock or other securities, other than as described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Firm Shares have been duly authorized, by all
necessary corporate action on the part of the Company and, when the Firm Shares
are issued and delivered to and paid for by the Underwriter pursuant to this
Agreement, the Firm Shares will be validly issued, fully paid, nonassessable and
free of preemptive rights and will conform to the description thereof in the
Prospectus (and, if the Prospectus is not in existence, the
<PAGE>
most recent Preliminary Prospectus). No holder of outstanding securities of the
Company is entitled as such to any preemptive or other right to subscribe for
any of the Securities, and no person is entitled to have securities registered
by the Company under the Registration Statement or otherwise under the Act other
than as described in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been effected
pursuant to an exemption from the registration requirements of the Act. Except
as previously disclosed in writing to the Representative, no compensation was
paid to or on behalf of any member of the National Association of Securities
Dealers, Inc. ("NASD"), or any affiliate or employee thereof, in connection with
any such issuance.
(i) The financial statements of the Company included in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company as of the dates indicated and the results of operations
of the Company for the periods specified. Such financial statements have been
prepared in accordance with accounting principles generally accepted in effect
in the United States of America, consistently applied, except to the extent that
certain footnote disclosures regarding unaudited interim periods may have been
omitted in accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The financial data
set forth under the caption "Summary Financial Information" in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) fairly present, on the basis stated in the Prospectus (or such
Preliminary Prospectus), the information included therein.
(j) Pricewaterhouse Coopers, LP has audited certain financial
statements of the Company and delivered their report with respect to the
financial statements included in the Registration Statement and the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), is an independent public accountants with respect to the Company as
required by the Act and the applicable rules and regulations thereunder.
(k) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company, whether or not arising in the ordinary course of business, (ii) except
as otherwise stated therein, there have been no transactions entered into by the
Company and no commitments made by the Company that, individually or in the
aggregate, are material with respect to the Company, (iii) there has not been
any change in the capital stock or indebtedness of the Company, and (iv) there
has been no dividend or distribution of any kind declared, paid or made by the
Company in respect of any class
<PAGE>
of its capital stock.
(l) The Company has full corporate power and authority to enter into
and perform its obligations under this Agreement and the Representative's
Warrant Agreement (as hereinafter defined). The execution and delivery of this
Agreement and the Representative's Warrant Agreement have been duly authorized
by all necessary corporate action on the part of the Company and this Agreement
and the Representative's Warrant Agreement have each been duly executed and
delivered by the Company and each is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law), and except as rights to indemnity and contribution under this Agreement
may be limited by applicable law. The issuance, offering and sale by the
Company to the Underwriters of the Securities pursuant to this Agreement or the
Representative's Securities pursuant to the Representative's Warrant Agreement,
the compliance by the Company with the provisions of this Agreement and the
Representative's Warrant Agreement, and the consummation of the other
transactions contemplated by this Agreement and the Representative's Warrant
Agreement do not (i) require the consent, approval, authorization, registration
or qualification of or with any court or governmental or regulatory authority,
except such as have been obtained or may be required under state securities or
blue sky laws and, if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the time of
execution hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act, or (ii) conflict with or result in a breach or
violation of, or constitute a default under, any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument to which the Company is a party or by which the Company or any of
its property is bound or subject, or the certificate of incorporation or by-laws
of the Company, or any statute or any rule, regulation, judgment, decree or
order of any court or other governmental or regulatory authority or any
arbitrator applicable to the Company.
(m) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject, and no
such proceedings have been threatened against the Company or with respect to any
of its property, except such as are described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). No
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein (and, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) or filed as required.
(n) The Company is not in (i) violation of its certificate of
incorporation, by-laws or other governing documents, (ii) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (iii) default in any material respect in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to
<PAGE>
which it is a party or by which it or any of its property may be bound or
subject, and no event has occurred which with notice or lapse of time or both
would constitute such a default.
(o) The Company currently owns or possesses adequate rights to use
all intellectual property, including all trademarks, service marks, trade names,
copyrights, inventions, know-how, trade secrets, proprietary technologies,
processes and substances, or applications or licenses therefor, that are
described in the Prospectus (and if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and any other rights or interests in items of
intellectual property as are necessary for the conduct of the business now
conducted or proposed to be conducted by them as described in the Prospectus
(or, such Preliminary Prospectus), and, except as disclosed in the Prospectus
(and such Preliminary Prospectus), the Company is not aware of the granting of
any patent rights to, or the filing of applications therefor by, others, nor is
the Company aware of, nor has the Company received notice of, infringement of or
conflict with asserted rights of others with respect to any of the foregoing.
All such intellectual property rights and interests are (i) valid and
enforceable and (ii) to the best knowledge of the Company, not being infringed
by any third parties.
(p) The Company possesses adequate licenses, orders, authorizations,
approvals, certificates or permits issued by the appropriate federal, state or
foreign regulatory agencies or bodies necessary to conduct its business as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and,
except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of the
properties and assets reflected in the Company's financial statements or as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind, except those
reflected in such financial statements or as described in the Registration
Statement and the Prospectus (and such Preliminary Prospectus). Except as
disclosed in the Prospectus, the Company occupies its leased properties under
valid and enforceable leases conforming to the description thereof set forth in
the Registration Statement and the Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its business in
a manner in which it would be an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940 (the "Investment Company Act").
(s) Intentionally left blank.
<PAGE>
(t) No labor dispute with the employees of the Company exists, is
threatened or, to the best of the Company's knowledge, is imminent that could
result in a material adverse change in the condition (financial or otherwise),
business, prospects, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Representative's Warrant (as hereinafter defined) will
conform to the description thereof in the Registration Statement and in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and, when sold to and paid for by the Representative in
accordance with the Representative's Warrant Agreement, will have been duly
authorized and validly issued and will constitute valid and binding obligations
of the Company entitled to the benefits of the Representative's Warrant
Agreement. The shares of Common Stock issuable upon exercise of the
Representative's Warrant (the "Representative's Warrant Shares") have been duly
authorized and reserved for issuance upon exercise of the Representative's
Warrant by all necessary corporate action on the part of the Company and, when
issued and delivered and paid for upon such exercise in accordance with the
terms of the Representative's Warrant Agreement and the Representative's
Warrant, respectively, will be validly issued, fully paid, nonassessable and
free of preemptive rights and will conform to the description thereof in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(w) No person has acted as a finder in connection with, or is
entitled to any commission, fee or other compensation or payment for services as
a finder for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriter with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member and no securities of the Company have been
acquired by an NASD member, except as previously disclosed in writing to the
Representative.
<PAGE>
(x) The Company has filed all federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has received
extensions thereof, and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same are material and have
become due.
(y) Neither the Company nor any director, officer, agent, employee or
other person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the completion of the Offering, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Securities or the
Option Securities.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND THE REPRESENTATIVE'S
WARRANTS.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company, the
number of Firm Shares as set forth opposite its name on Schedule 1 annexed
hereto, at a purchase price of $5.50 per share.
(b) Certificates in definitive form for the Firm Securities that the
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriters request
upon notice to the Company at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company to the Underwriters, against
payment by or on behalf of the Underwriters of the purchase prices therefor by
wire transfer of immediately available funds to a bank account specified by the
Company. Such delivery of the Firm Securities shall be made at the offices of
Counsel for the Underwriters, 101 East 52nd Street, New York, New York at 9:30
A.M., New York City time on _________, 1999, or at such other place, time or
date as the Underwriters and the Company may agree upon, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date."
The Company will make such certificates for the Firm Securities available for
checking and packaging by the Underwriters, at such offices as may be designated
by the Representative, at least 24 hours prior to
<PAGE>
the Firm Closing Date. In lieu of physical delivery, the closing may occur by
"DTC" delivery.
(c) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the Underwriter an option to purchase
any or all of the Option Shares, which options are exercisable by the
Representative on behalf of and for the account of the Underwriters. The
purchase price to be paid for any of the Option Shares shall be the same price
per share for the Firm Securities set forth above in paragraph (a) of this
Section 2. The option granted hereby may be exercised as to all or any part of
the Option Shares from time to time within 30 calendar days after the Firm
Closing Date. The Underwriters shall not be under any obligation to purchase any
of the Option Shares prior to the exercise of such option. The Representative
may from time to time exercise the option granted hereby on behalf of the
Underwriters by giving notice in writing or by telephone (confirmed in writing)
to the Company setting forth the aggregate number of Option Shares as to which
the Underwriters are then exercising the option and the date and time for
delivery of and payment for such Option Shares. Any such date of delivery shall
be determined by the Underwriters but shall not be earlier than two business
days or later than three business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time on such other date as the
Representative and the Company may agree upon, is herein called the "Option
Closing Date" with respect to such Option Shares. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to the Underwriters,
and, subject to the terms and conditions herein set forth, each Underwriter
shall become obligated to purchase from the Company, the Option Shares as to
which the Underwriter is then exercising its option. If the option is exercised
as to all or any portion of the Option Shares, certificates in definitive form
for such Option Shares, and payment therefor, shall be delivered on the related
Option Closing Date in the manner, and upon the terms and conditions, set forth
in paragraph (b) of this Section 2, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (c), to refer to such Option Shares and Option Closing Date,
respectively.
(d) On the Firm Closing Date, the Company will further issue and sell
to the Representative or, at the direction of the Representative, to bona fide
officers of the Underwriters, for an aggregate purchase price of $10, warrants
to purchase Common Stock (the "Representative's Warrant") entitling the holders
thereof to purchase an aggregate of 40,000 shares of Common Stock for a period
of four years, such period to commence on the first anniversary of the Effective
Date. The Representative's Warrant shall be exercisable at a price equal to 150%
of the public offering price of the Common Stock, and shall contain terms and
provisions more fully described herein below and as set forth more particularly
in the warrant agreement relating to the Representative's Warrant to be executed
by the Company on the Effective Date (the "Representative's Warrant Agreement"),
including, but not limited to, (i) customary anti-dilution provisions in the
event of stock dividends, split mergers, sales of all or substantially all of
the Company's assets, sales of stock below then prevailing market or exercise
prices and other events, and (ii) prohibitions of mergers, consolidations or
other reorganizations of or by the Company or the taking by the Company of other
action during the five-year period following the Effective Date unless adequate
provision is made to preserve, in substance, the rights and powers incidental to
the Representative's Warrant. As
<PAGE>
provided in the Representative's Warrant Agreement, the Representative may
designate that the Representative's Warrant be issued in varying amounts
directly to bona fide officers of the Underwriters. As further provided, no
sale, transfer, assignment, pledge or hypothecation of the Representative's
Warrant shall be made for a period of 12 months from the Effective Date, except
(i) by operation of law or reorganization of the Company, or (ii) to the
Underwriters and bona fide partners, officers of the Underwriters and selling
group members.
3. OFFERING BY THE UNDERWRITERS. The Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus (the "Offering").
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
During any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
Section (a) (i) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriters shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Underwriters
shall not have given their consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Underwriters or counsel to the Underwriters, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the Underwriters, and will use its best
efforts to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will advise the
Underwriters, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Underwriters of each such
filing or effectiveness.
(b) The Company will advise the Underwriters, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, (ii) the
suspension of the qualification of any Securities for offering or sale in any
jurisdiction, (iii) the institution, threat or contemplation of any proceeding
for any such purpose, or (iv) any request made
<PAGE>
by the Commission for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. The Company will use
its best efforts to prevent the issuance of any such stop order and, if any such
stop order is issued, to obtain the withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the
Underwriters, arrange for the qualification of the Securities for offering and
sale under the blue sky or securities laws of such jurisdictions as the
Underwriters may designate and will continue such qualifications in effect for
as long as may be necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Underwriters thereof and, subject to Section 4(a) hereof, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
(e) Intentionally left blank.
(f) The Company will, without charge, provide to the Underwriters and
to counsel for the Underwriters (i) as many signed copies of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) as the Underwriters may
reasonably request, (ii) as many conformed copies of such registration statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriters may reasonably request, and (iii) so long as a prospectus relating
to the Securities is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as the Underwriters may reasonably request.
(g) The Company, as soon as practicable, will make generally
available to its security holders and to the Underwriters an earnings statement
of the Company that satisfies the provisions of Section 11 (a) of the Act and
Rule 158 thereunder.
(h) The Company will reserve and keep available for issuance that
maximum number of authorized but unissued shares of Common Stock which are
issuable upon exercise of any outstanding warrants and the Representative's
Warrant (including the underlying securities) outstanding from time to time.
(i) The Company will apply the net proceeds from the sale of the
Securities being sold by it as set forth under "Use of Proceeds" in the
Prospectus.
<PAGE>
(j) Intentionally left blank.
(k) Prior to the Closing Date or the Option Closing Date (if any),
the Company will not, directly or indirectly, without prior written consent of
the Representative, issue any press release or other public announcement or hold
any press conference with respect to the Company or its activities with respect
to the Offering (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).
(l) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A under the Act, then immediately following the execution of this
Agreement, the Company will prepare, and file or transmit for filing with the
Commission in accordance with Rule 430A and Rule 424(b) under the Act, copies of
the Prospectus including the information omitted in reliance on Rule 430A, or,
if required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(m) The Company will cause the Securities to be included on the OTC
Electronic Bulletin Board on the Effective Date and to maintain such listing
thereafter.
(n) During the period of five years from the Firm Closing Date, the
Company will, as promptly as possible, not to exceed 135 days, after each annual
fiscal period render and distribute reports to its stockholders which will
include audited statements of its operations and changes of financial position
during such period and its audited balance sheet as of the end of such period,
as to which statements the Company's independent certified public accountants
shall have rendered an opinion and shall timely file all reports required to be
filed under the securities laws.
(o) During a period of three years commencing with the Firm Closing
Date, the Company will furnish to the Representative, at the Company's expense,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the Commission.
(p) The Company has appointed Continental Stock Transfer & Trust
Company as transfer agent for the Common Stock, subject to the Closing. The
Company will not change or terminate such appointment for a period of three
years from the Firm Closing Date without first obtaining the written consent of
the Representative. For a period of three years after the Effective Date, the
Company shall cause the transfer agent to deliver promptly to the Underwriters a
duplicate copy of the daily transfer sheets relating to trading of the
Securities. The Company shall also provide to the Representative, on a weekly
basis, copies of the DTC special securities positions listing report.
(q) During the period of 180 days after the date of this Agreement,
the Company will not at any time, directly or indirectly, take any action
designed to or that will constitute, or that might reasonably be expected to
cause or result in, the stabilization of the price of the Common Stock to
facilitate the sale or resale of any of the Securities.
<PAGE>
(r) The Company will not take any action to facilitate the sale of
any shares of Common Stock pursuant to Rule 144 under the Act if any such sale
would violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the Company
will provide the Underwriters and their designees with four bound volumes of the
transaction documents relating to the Registration Statement and the closing(s)
hereunder, in form and substance reasonably satisfactory to the Representative.
(t) The Company shall consult with the Representative prior to the
distribution to third parties of any financial information news releases or
other publicity regarding the Company, its business, or any terms of this
offering and the Underwriters will consult with the Company prior to the
issuance of any research report or recommendation concerning the Company's
securities. Copies of all documents that the Company or its public relations
firm intend to distribute will be provided to the Representative for review
prior to such distribution.
(u) The Company and the Underwriters will advise each other
immediately in writing as to any investigation, proceeding, order, event or
other circumstance, or any threat thereof, by or relating to the Commission or
any other governmental authority, that could impair or prevent the Offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriters will acquiesce in such circumstances and each
will actively defend any proceedings or orders in that connection.
(v) The Company shall first submit to the Representative certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(w) The Company will prepare and file a registration statement with
the Commission pursuant to section 12 of the 1934 Act, and will use its best
efforts to have such registration statement declared effective by the Commission
on an accelerated basis on the day after the Effective Date. For this purpose
the Company shall prepare and file with the Commission a General Form of
Registration of Securities (Form 8-A or Form 10).
(x) For so long as the Securities are registered under the 1934 Act,
the Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(y) The Company will engage a financial public relations firm
reasonably satisfactory to the Representative on or before the Firm Closing
Date, and continuously engage such
<PAGE>
firm, or a substitute firm reasonably acceptable to the Representative, for a
period of twelve (12) months following the Firm Closing Date.
(z) The Company will take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions or other equivalent
manual and to maintain its listing therein for a period of five (5) years from
the Effective Date. Such application shall be made on an accelerated basis no
more than two days following the Effective Date.
(aa) On or prior to the Effective Date, the Company will give written
instructions to the transfer agent for the Common Stock directing said transfer
agent to place stop-order restrictions against, and appropriate legends advising
of the Lock-Up Agreements on, the certificates representing the securities of
the Company owned by the persons who have entered into the Lock-up Agreements.
4. EXPENSES
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the Registration
Statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any blue
sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, and the costs
and expenses of the Underwriters in mailing or otherwise distributing the same
including telephone charges, duplications and other accountable expenses, (iii)
the fees and disbursements of the counsel, the accountants and any other experts
or advisors retained by the Company, (iv) the preparation, issuance and delivery
to the Underwriters of any certificates evidencing the Securities, including
transfer agent's, warrant agent's and registrar's fees or any transfer or other
taxes payable thereon, (v) the qualification of the Securities under state blue
sky or securities laws, including filing fees and fees and disbursements of
counsel relating thereto and any fees and disbursements of local counsel, if
any, retained for such purpose, (vi) the filing fees of the Commission and the
NASD relating to the Securities, (vii) the inclusion of the Securities on The
Nasdaq SmallCap Market and in the Standard and Poor's Corporation Descriptions
Manual, (viii) any "road shows" or other meetings with prospective investors in
the Securities, including transportation, accommodation, meal, conference room,
audio-visual presentation and similar expenses, but not including such expenses
for the Underwriters or their representatives or designees in excess of $15,000
and (ix) the publication of "tombstone advertisements" in newspapers or other
publications selected by the Representative, and the manufacture of prospectus
memorabilia. In addition to the foregoing, the Company, shall reimburse the
Representative for its expenses on the basis of a non-
<PAGE>
accountable expense allowance in the amount of 3.00% of the gross offering
proceeds to be received by the Company. The non- accountable expense allowance,
based on the gross proceeds from the sale of the Firm Securities, shall be
deducted from the funds to be paid by the Representative in payment for the Firm
Securities, pursuant to Section 2 of this Agreement, on the Firm Closing Date.
To the extent any Option Shares are sold, any remaining non-accountable expense
allowance based on the gross proceeds from the sale of the Option Shares shall
be deducted from the funds to be paid by the Representative in payment for the
Option Shares, pursuant to Section 2 of this Agreement, on the Option Closing
Date. The Company warrants, represents and agrees that all such payments and
reimbursements will be promptly and fully made.
(b) Notwithstanding any other provision of this Agreement, if the
Offering is terminated in accordance with the provisions of Section 6 or Section
10(a)(i), the Company agrees that, in addition to the Company paying its own
expenses as described in subparagraph (a) above, the Company shall reimburse the
Representative for its actual accountable out-of-pocket expenses (in addition to
blue sky legal fees and expenses referred to in subparagraph (a) above) net of
the $15,000 which has previously been advanced to the Representative. Such
expenses shall include, but are not to be limited to, fees for the services
and time of counsel for the Underwriters to the extent not covered by
clause (a) above, plus any additional expenses and fees, including, but not
limited to, travel expenses, postage expenses, duplication expenses,
long-distance telephone expenses, and other expenses incurred by the
Representative in connection with the proposed offering.
5. Intentionally left blank.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Firm Shares shall be subject, in the
Underwriters' sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the Registration Statement, as heretofore amended, has not
been declared effective as of the time of execution hereof, the Registration
Statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 5:30 P.M., New York City time, on the date on which the amendment to
such Registration Statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriters; if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act, 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 threatened or, to the knowledge of the
Company or the Underwriters, shall be contemplated by the Commission; and the
Company shall have complied with any request of the
<PAGE>
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Underwriters shall have received an opinion, dated the Firm
Closing Date, of Sichenzia, Ross & Freidman, LLP, counsel to the Company,
substantially to the effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its organization and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other jurisdiction in
which its ownership or leasing of any properties or the conduct of its business
requires such qualification, except where the failure to be in good standing or
so qualify would not have a materially adverse effect upon the Company;
(2) the Company has full corporate power and authority to own or
lease its property and conduct its business as it is now being conducted and as
it is proposed to be conducted, as described in the Registration Statement and
the Prospectus, and the Company has full corporate power and authority to enter
into this Agreement and the Representative's Warrant Agreement and to carry out
all the terms and provisions hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no outstanding
options, warrants or other rights granted by the Company to purchase shares of
its Common Stock, preferred stock or other securities other than as described in
the Prospectus; the Shares have been duly authorized and the Representative's
Warrant Shares have been duly reserved for issuance by all necessary corporate
action on the part of the Company and the Shares when issued and delivered to
and paid for by the Representative, pursuant to this Agreement, the
Representative's Warrant when issued and delivered and paid for in accordance
with this Agreement and the Representative's Warrant Agreement by the
Underwriters, and the Representative's Warrant Shares when issued upon payment
of the exercise price specified in the Representative's Warrant, will be validly
issued, fully paid, nonassessable and free of preemptive rights and will conform
to the description thereof in the Prospectus; to the knowledge of such counsel,
no holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Shares or the
Representative's Warrant Shares; and to the knowledge of such counsel, no person
is entitled to have securities registered by the Company under the Registration
Statement or otherwise under the Act other than as described in the Prospectus;
(4) the execution and delivery of this Agreement and the
Representative's Warrant Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement and the
Representative's Warrant Agreement have been duly executed and delivered by the
Company, and each is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law) and except as rights to
<PAGE>
indemnity and contribution under this Agreement and the Representative's Warrant
Agreement may be limited by applicable securities laws and the public policy
underlying such laws;
(5) the Representative's Warrant is duly authorized and upon
payment of the purchase price therefore specified in Section 2(d) of this
Agreement will be validly issued and constitute valid and binding obligations of
the Company; and the certificates representing the Securities are in due and
proper form under law;
(6) the statements set forth in the Prospectus under the
caption "Description of Securities" insofar as those statements purport to
summarize the terms of the capital stock and warrants of the Company, provide a
fair summary of such terms; to the knowledge of such counsel, the statements set
forth in the Prospectus describing statutes and regulations and the descriptions
of the consequences to the Company under such statutes and regulations are fair
summaries of the information set forth therein and are accurate in all material
respects; to the knowledge of such counsel, the statements in the Prospectus,
insofar as those statements constitute summaries of the contracts, instruments,
leases or licenses referred to therein, constitute a fair summary in all
material respects of those contracts, instruments, leases or licenses and
include all material terms thereof, as applicable;
(7) none of (A) the execution and delivery of this Agreement and
the Representative's Warrant Agreement, (B) the issuance, offering and sale by
the Company to the Underwriters of the Securities pursuant to this Agreement and
the Representative's Warrant Shares pursuant to the Representative's Warrant
Agreement, or (C) the compliance by the Company with the other provisions of
this Agreement and the Representative's Warrant Agreement and the consummation
of the transactions contemplated hereby and thereby, to the knowledge of such
counsel (1) requires the consent, approval, authorization, registration or
qualification of or with any court or governmental authority known to us, except
such as have been obtained and such as may be required under state blue sky or
securities laws as to which we express no opinion or (2) conflicts with or
results in a breach or violation of, or constitutes a default under, any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument known to such counsel to which
the Company is a party or by which the Company or any of its property is bound
or subject, or the certificate of incorporation or by-laws of the Company, or
any material statute or any judgment, decree, order, rule or regulation of any
court or other governmental or regulatory authority known to us applicable to
the Company;
(8) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company is a party or to which
the property of the Company is subject except those arising in the ordinary
course of business and fully covered by insurance and (B) no contract or other
document is required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement that is
not described therein or filed as required;
(9) to the knowledge of such counsel, the Company possesses
adequate
<PAGE>
licenses, orders, authorizations, approvals, certificates or permits issued by
the appropriate federal, state or local regulatory agencies or bodies necessary
to conduct its business as described in the Registration Statement and the
Prospectus, and, there are no pending or threatened proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit, except as disclosed in the Registration Statement and the
Prospectus, which would have a material adverse effect on the Company;
(10) The Company is not in violation or breach of, or in
default with respect to, any term of its certificate of incorporation or
by-laws, and to the knowledge of such counsel, the Company is not in (i)
violation in any material respect of any law, statute, regulation, ordinance,
rule, order, judgment or decree of any court or any governmental or regulatory
authority applicable to it, or (ii) default in any material respect in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or instrument to which it is
a party or by which it or any of its property may be bound or subject, and no
event has occurred which with notice, lapse of time or both would constitute
such a default;
(11) the Shares have been approved for inclusion on OTC
Electronic Bulletin Board;
(12) the Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and to our knowledge,
no stop order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(13) the Registration Statement originally filed with respect to
the Securities and each amendment thereto and the Prospectus (in each case,
other than the financial statements, the notes, schedules and other financial
and statistical information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the rules and regulations of the
Commission thereunder; and
(14) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940 and, if the Company conducts
its business as set forth in the Prospectus, it will not become an "investment
company" and will not be required to register under the Investment Company.
Such counsel also shall state in its opinion that it has participated
in the preparation of the Registration Statement and the Prospectus and that
nothing has come to its attention that has caused it to believe that the
Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its date or as
of the Firm Closing Date, contained an untrue statement of material fact or
omitted 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.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriters, and, as to matters of the laws of certain
jurisdictions, on the opinions of other counsel to the Company, which opinions
shall also be delivered to the Underwriters, in form and substance acceptable to
the Underwriters, if such other counsel expressly authorize such reliance and
counsel to the Company expressly states in their opinion that such counsel's and
the Underwriters' reliance upon such opinion is justified.
(c). A. At the time this Agreement is executed, the Representative
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Representative and Representative's counsel, from Pricewaterhouse
Coopers, LP:
i. confirming that it is a independent certified public
accountant with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
ii. stating that it is their opinion that the financial
statements of the Company and Aropi included in the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations thereunder and that the
Representative may rely upon the opinion of Pricewaterhouse Coopers, LP with
respect to the financial statements included in the Registration Statement;
iii. stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, 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 (which, as to the interim financial statements included
in the Registration Statement, shall constitute a review as described in SAS No.
71, Interim Financial Statements), nothing has come to Pricewaterhouse Coopers,
LP's attention which would lead them to believe that (A) the unaudited 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 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, there has been any change
in the capital stock or long-term debt of the Company, or any decrease in the
stockholders' equity or net current assets or net assets of the Company as
<PAGE>
compared with amounts shown in the October 31, 1998 consolidated balance sheet
included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease, and (C) during
the period from October 31, 1998 to a specified date not more than five (5) days
prior to the Effective Date, there was any decrease (increase) in net revenues,
net income (loss) or in net earnings (loss) per common share of the Company, in
each case as compared with the corresponding period October 31, 1997 beginning,
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
(increase);
iv. setting forth, at a date not later than five (5) days prior
to the Effective Date, the amount of liabilities of the Company;
v. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
vi. statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
B. At the Firm Closing Date and the Option Closing Date, if
any, the Representative shall have received from Pricewaterhouse Coopers, LP, a
letter, dated as of the Firm Closing Date or the Option Closing Date, as the
case may be, to the effect that it reaffirms that statements made in the letter
furnished pursuant to subsection A of this Section 6(c), except that the
specified date referred to shall be a date not more than five (5) days prior to
the Firm Closing Date or the Option Closing Date, as the case may be, and, if
the Company has elected to rely on Rule 430A of the Rules and Regulations, to
the further effect that they have carried out procedures as specified in clause
(v) of subsection A of this Section 6(c) with respect to certain amounts,
percentages and financial information as specified by the Representative and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (v).
(d) The representations and warranties of the Company contained in
this Agreement shall be true and correct as if made on and as of the Firm
Closing Date; the Registration Statement shall not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein in order to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date, shall not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
<PAGE>
and the Company shall have performed all covenants and agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to the Firm
Closing Date.
(e) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a prospective
material adverse change, in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto).
(g) The Underwriters shall have received a certificate, dated the
Firm Closing Date, of the Chief Executive Officer and the Secretary of the
Company to the effect set forth in subparagraphs (d) through (f) above.
(h) The Common Stock shall be qualified in such jurisdictions as the
Underwriters may reasonably request pursuant to Section 4(c), and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Firm Closing Date.
(i) The Company shall have executed and delivered to the Underwriters
the Representative's Warrant Agreement and a certificate or certificates
evidencing the Representative's Warrant, in each case in a form acceptable to
the Underwriters.
(i) The Underwriters shall have received Lock-up Agreements executed
by the persons listed on Schedule 2 annexed hereto.
(j) On or before the Firm Closing Date, the Underwriters and counsel
for the Underwriters shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company and other security holders of the Company.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and counsel
for the Underwriters. The Company shall furnish to the Underwriters such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriters and counsel for the Underwriters shall reasonably
request.
The obligation of the Underwriters to purchase and pay for any Option
Shares shall be subject, in its discretion, to each of the foregoing conditions,
except that all references to the Firm Securities and the Firm Closing Date
shall be deemed to refer to such Option Shares and the related Option Closing
Date, respectively.
<PAGE>
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters within the
meaning of Section 15 of the Act or Section 20 of the 1934 Act against any
losses, claims, damages, or liabilities, joint or several, to which the
Underwriters, or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof or filed
with the Commission or any securities association or securities exchange (each
an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse, as incurred, the Underwriters and
such controlling person for any legal or other expenses reasonably incurred by
the Underwriters or such controlling person in connection with investigating or
defending against any loss, claim, damage, liability, action, investigation,
litigation or proceeding; PROVIDED, HOWEVER, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or any Application in reliance upon and in conformity
with written information furnished to the Company by the Underwriters,
specifically for use therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Underwriters, or controlling person,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Underwriters or any person who
controls the Underwriters or within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriters and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(b) The Underwriters will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the 1934 Act against, any losses,
claims, damages or liabilities to which the Company or any such director,
officer,
<PAGE>
or controlling person may become subject under the Act or otherwise, but only
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application, or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by the Underwriters
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company or any such director, officer,
or controlling person in connection with investigating or defending against any
such loss, claim, damage, liability, action investigation, litigation or
proceedings, in respect thereof. This indemnity agreement will be in addition to
any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the 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 one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 7 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
<PAGE>
(d) In circumstances in which the indemnity obligation provided for
in the preceding paragraphs of this Section 7 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities, or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the Offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault of the parties
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 the
Underwriters, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriters
shall not be obligated to make contributions hereunder that in the aggregate
exceeding the total public offering price of the Securities purchased by the
Underwriters under this Agreement, less the aggregate amount of any damages that
the Underwriters have otherwise been required to pay in respect of the same or
any substantially similar claim, and 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 is not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20 of the 1934 Act shall have the same rights to contribution as the
Underwriters, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the 1934
Act, shall have the same rights to contribution as the Company.
8. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter shall for any reason not permitted hereunder cancel its
obligations to purchase the Firm Securities hereunder, or shall fail to take up
and pay for the number of Firm Securities set forth opposite names in Schedule 1
hereto upon tender of such Firm Securities in accordance with the terms hereof,
then:
<PAGE>
(a) If the aggregate number of Firm Securities which such Underwriter
or Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Firm Securities, the other Underwriters shall be obligated to purchase
the Firm Securities which such defaulting Underwriter agreed but failed to
purchase.
(b) If any Underwriter so defaults and the agreed number of Firm
Securities with respect to which such default or defaults occurs is more than
10% of the total number of Firm Securities, the remaining Underwriters shall
have the right to take up and pay for the Firm Securities which the defaulting
Underwriter agreed but failed to purchase. If such remaining Underwriters do
not, at the Firm Closing Date, take up and pay for the Firm Securities which the
defaulting Underwriter agreed but failed to purchase, the time for delivery of
the Firm Securities shall be extended to the next business day to allow the
remaining Underwriters the privilege of substituting within twenty-four hours
(including nonbusiness hours) another underwriter or underwriters satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the Firm Securities may, at the option of the Company, be again
extended to the next following business day, if necessary, to allow the Company
the privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the Firm Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriter or substituted Underwriters to
take up the Firm Securities of the defaulting Underwriter as provided in this
section, (i) the Company or the Underwriters shall have the right to postpone
the time of delivery for a period of not more than seven business days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other document or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement or
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective numbers of Firm Securities to be purchased by the remaining
Underwriters or substituted Underwriters shall be taken as the basis of the
underwriting obligation for all purposes of this agreement.
If in the event of a default by any Underwriter and the remaining
Underwriters shall not take up and pay for all the Firm Securities agreed to be
purchased by the defaulting Underwriter or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or underwriters for such Firm Securities as aforesaid, then
this Agreement shall terminate.
If, following exercise of the option provided in Section 2(c) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Shares at the Option Closing Date, or shall
fail to take up and pay for the number of Option Shares, which it became
obligated to purchase at the Option Closing Date upon tender of such Option
Shares in accordance with the terms hereof, then the remaining Underwriters or
substituted Underwriters may take up and pay for the Option Shares of the
defaulting Underwriters in the manner provided in Section 8(b) hereof. If the
remaining Underwriters or substituted Underwriters shall not take up and pay for
all such Option Shares, the Underwriters shall be entitled to purchase
<PAGE>
the number of Option Shares for which there is no default or, at their election,
the option shall terminate, the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 8 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
9. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in Section 7 hereof, and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 4 and 7 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Shares in the sole discretion of the Representative by
notice to the Company given prior to the Firm Closing Date or the related Option
Closing Date, respectively, in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied under Section 6 hereunder at or prior
thereto or if at or prior to the Firm Closing Date or such Option Closing Date,
respectively:
(1) the Company sustains a loss by reason of explosion, fire,
flood, accident or other calamity, which, in the opinion of the Underwriter,
substantially affects the value of the properties of the Company or which
materially interferes with the operation of the business of the Company
regardless of whether such loss shall have been insured; there shall have been
any material adverse change, or any development involving a prospective material
adverse change (including, without limitation, a change in management or control
of the Company), in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(2) any action, suit or proceeding shall be threatened,
instituted or pending, at law or in equity, against the Company, by any person
or by any federal, state, foreign or other governmental or regulatory
commission, board or agency wherein any unfavorable result or decision could
materially adversely affect the business, operations, condition (financial or
otherwise), earnings or prospects of the Company;
<PAGE>
(3) trading in the Common Stock shall have been suspended by the
Commission, the NASD or on Nasdaq, or trading in securities generally on the New
York Stock Exchange shall have been suspended or minimum or maximum prices shall
have been established on either such exchange or quotation system;
(4) a banking moratorium shall have been declared by New York or
United States authorities;
(5) there shall have been (A) an outbreak of hostilities between
the United States and any foreign power (or, in the case of any ongoing
hostilities, a material escalation thereof), (B) an outbreak of any other
insurrection or armed conflict involving the United States or (C) any other
calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (5), in the sole judgment of the Underwriter makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration Statement; and
(6) termination of this Agreement pursuant to this Section 10
shall be without liability of any party to any other party, except as provided
in Section 5(b) and Section 7 hereof.
11. INFORMATION SUPPLIED BY THE UNDERWRITER. The statements set forth in
the first paragraph on page ___ , (as to the underwriting commitment of each
Underwriter) and the _____ and _______ paragraphs under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriter) constitute the only information
furnished by the Underwriter to the Company for the purposes of Section 7(b)
hereof. The Underwriter confirms that such statements (to such extent) are
correct.
12. NOTICES. All notice hereunder to or upon either party hereto shall be
deemed to have been duly given for all purposes if in writing and (i) delivered
in person or by messenger or an overnight courier service against receipt, or
(ii) send by certified or registered mail, postage paid, return receipt
requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: Outlook Sports Technology, Inc.
100 Grand Street, 5th Floor
New York, New York 10013
Attn: Paul Berger
<PAGE>
and a copy to:
Sichenzia, Ross & Freidman, LLP
135 West 50th Street, 20th Floor
New York, New York 10020
Attn: Gregory Sichenzia
To the Representative: Kasner Davidson Securities Corporation
77 South Palm Avenue
Sarasota, Florida 34326
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the case of clause (iii), the business day
next following the date such notice is sent.
13. AMENDMENT. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.
14. WAIVER. No course of dealing or omission or delay on the part of
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
15. APPLICABLE LAW. This agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York without
regard to principles of choice of law or conflict of laws.
16. JURISDICTION. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the Supreme Court of the State of
New York and the United States District Court for the Southern District of New
York in connection with any suit, action or other proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby, waives any
objection to venue in the County of New York, State of New York, or such
District and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 12.
17. REMEDIES. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any
<PAGE>
other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
18. ATTORNEYS' FEES. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
19. SEVERABILITY. The provisions hereof are severable and in the event
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.
21. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
Section 7 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the 1934 Act, and (ii) the indemnities of the Underwriter
contained in Section 7 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of Section 15 of the Act or Section 20 of the 1934 Act. No purchaser
of Securities from the Underwriter shall be deemed a successor because of such
purchase.
22. TITLES AND CAPTIONS. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
23. GRAMMATICAL CONVENTIONS. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
24. REFERENCES. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
<PAGE>
25. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, and the
Underwriter.
Very truly yours,
OUTLOOK SPORTS TECHNOLOGY, INC.
By:
----------------------------------
Name: Paul Berger
Title: CEO
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
KASHNER DAVIDSON SECURITIES CORPORATION
as representative of the several underwriters listed
on Schedule l annexed hereto
By:
--------------------------------
Name: Matthew Meister
Title: CEO
<PAGE>
Schedule 1
Underwriter Number of Shares
- ----------- ----------------
<PAGE>
Exhibit 10.41
THIS EXCHANGE AGREEMENT (this "Agreement"), dated as of November 24, 1998,
by and between Outlook Sports Technology, Inc., a Delaware corporation
("Outlook"), and the individual whose signature is set forth on the signature
page hereto ("Offeree"),
WITNESSETH THAT:
WHEREAS, Outlook plans to make an initial public offering (the "Offering")
of shares of its Class A Common Stock, $.01 par value per share ("Class A Common
Stock"), and Redeemable Class A Common Stock Purchase Warrants ("Warrants");
WHEREAS, Outlook has been informed by its underwriters that the substantial
amount of its debt (the "Bridge Debt") owed to its existing investors (the
"Bridge Debt Investors") will, as a practical matter, make it difficult or
impossible to consummate the Offering;
WHEREAS, Outlook's obligation to repay $6,062,500 of the Bridge Debt has
matured and Outlook's payments to the purchasers of such portion of the Bridge
Debt are currently past due;
WHEREAS, Outlook wishes to convert the Bridge Debt into shares of Class A
Common Stock and Warrants to be held by the current Bridge Debt Investors; and
WHEREAS, the undersigned has indicated a desire to convert its portion of
the Bridge Debt to equity in such manner;
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound hereby, the parties hereto agree as follows:
1. THE EXCHANGE. Upon execution of this Agreement by Offeree and Outlook,
the entire principal amount together with accrued interest of the Bridge Debt
held by Offeree, including all notes received by Offeree in all private
placements of Outlook in which Offeree participated, will be converted (the
"Exchange") as follows: for every five dollars of the principal amount and
interest of Bridge Debt, Offeree will receive one share of Class A Common Stock
and one Warrant to purchase one share of Class A Common Stock, which warrant
will be substantially in the form attached hereto as EXHIBIT A (the "Warrant").
2. DELIVERY OF DEBT INSTRUMENTS BY OFFEREE. Upon execution of this
Agreement, Offeree will immediately return to Outlook's counsel in the enclosed
FedEx envelope all notes that Offeree has received from Outlook as payment for
all loans made by Offeree in all the private placements in which Offeree
participated (the "Debt Instruments").
3. DELIVERY OF STOCK CERTIFICATES AND WARRANTS BY OUTLOOK. As promptly as
practicable upon receipt by Outlook of all Debt Instruments held by Offeree
prior to its execution of this Agreement, Outlook will deliver to Offeree a
Class A Common Stock certificate and a Warrant registered in the name of Offeree
and representing the number of shares of Class A Common
<PAGE>
Stock and Warrants equivalent to the total principal amount and accrued interest
of the Bridge Debt held by Offeree divided by five; PROVIDED, HOWEVER, that if
any law or regulation or order of the Securities and Exchange Commission or any
other body having jurisdiction in the premises shall require Outlook or Offeree
to take any action in connection with the shares of Class A Common Stock and
Warrants then being exchanged, the date for the delivery of such certificate and
Warrant shall be extended for the period necessary to take and complete such
action. Outlook may imprint upon said certificate the legends contemplated by
Section 6 herein or such other legends as counsel for Outlook may consider
appropriate. Delivery by Outlook of such certificate and Warrant shall be deemed
effected for all purposes when Outlook or a stock transfer agent of Outlook
shall have deposited such certificate and Warrant in the United States mail,
addressed to Offeree, at the address specified in this Agreement. Outlook will
pay all fees or expenses necessarily incurred by Outlook in connection with the
issuance and delivery of such certificate and Warrant.
4. OUTLOOK'S REPRESENTATIONS. Outlook represents to Offeree as follows:
a. Outlook is duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has all requisite corporate power
and authority to (i) own, lease and operate its properties and to carry on its
business as now being conducted, and (ii) to execute, deliver and perform its
obligations under this Agreement, and to consummate the transactions
contemplated hereby. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and where failure to so qualify could have a material
adverse effect on the business, properties, operations, condition (financial or
other), results of operations or prospects of the Company.
b. This Agreement has been duly and validly authorized, executed and
delivered by Outlook and this Agreement is the valid and binding agreement of
Outlook enforceable in accordance with its terms, subject as to enforceability
to general principles of equity and to bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally.
c. Outlook will reserve and keep available, out of shares of its
authorized and unissued Class A Common Stock or shares of Class A Common Stock
held in treasury, a sufficient number of shares of its Common Stock to satisfy
the requirements of this Agreement.
d. All shares of Class A Common Stock agreed to be issued pursuant to
this Agreement will, upon issuance, be duly and validly issued, fully paid and
non-assessable.
<PAGE>
5. OFFEREE'S REPRESENTATIONS. Offeree represents to Outlook as follows:
a. Offeree's status as an "accredited investor," as that term was
defined in the Subscription Agreements signed by Offeree in connection with all
bridge loans previously made by Offeree, has not changed.
b. Offeree has received and reviewed carefully the letter from Jim
Dodrill (the "Dodrill Letter") (enclosed herewith) and Outlook's Preliminary
Prospectus (enclosed herewith), including all risk factors therein.
c. Offeree understands that its participation in the Exchange will
result in the subordination of its interest as a creditor of Outlook to the
interests of all holders of Outlook's debt, including to those Bridge Debt
Investors who choose not to participate in the Exchange. Offeree further
understands that, in the event Outlook seeks bankruptcy or other similar
protection, Offeree's participation in the Exchange will adversely impact its
rights as a creditor as compared to its current rights as a Bridge Debt
Investor.
d. Offeree understands that there is no minimum number of participants
in the Exchange. Outlook will accept all Bridge Debt that agrees to participate
in the Exchange. There can be no assurance that a sufficient aggregate principal
amount of Bridge Debt will be exchanged to permit the Offering.
e. Offeree understands that if Outlook is not able to convert a
sufficient aggregate principal amount of Bridge Debt, Outlook may be unable to
consummate the Offering in which event Outlook may have to seek protection under
the bankruptcy laws, in which case Offeree should not expect any payment on its
securities.
f. Offeree understands that Bridge Debt Investors who choose not to
participate in the Exchange will have greater rights in a bankruptcy proceeding
or liquidation of Outlook than Bridge Debt Investors who participate.
g. Offeree understands that although Outlook intends to pursue the
Offering, there can be no assurance that it will be successful. If it is not
successful, it may have to seek protection under the bankruptcy laws (see Risk
Factors set forth in the Preliminary Prospectus enclosed herewith).
h. Offeree has had an opportunity to ask questions of and receive
answers from Outlook concerning Outlook and all other matters pertinent to the
Exchange, and all such questions have been answered to the full satisfaction of
Offeree. Offeree has been given access to Outlook's books and records and all
other documents and information that Offeree has requested relating to the
Exchange.
i. Except as set forth herein, no representations or warranties have
been made to Offeree by Outlook or any agent, employee or affiliate thereof, and
no oral or written information furnished to Offeree or its advisors, if any, was
in any way inconsistent with this Agreement, the
<PAGE>
Dodrill Letter and the Preliminary Prospectus. In entering into this
transaction, the undersigned is not relying upon any information other than that
contained in these three documents and the results of the undersigned's own
investigation.
6. OUTLOOK'S COVENANT. Outlook will file and use its best efforts to go
effective on a concurrent registration of the Class A Common Stock and Warrants
received by Offeree in the Exchange.
7. OFFEREE'S COVENANT. Offeree agrees that for a period of twelve months
following the closing of the Offering, Offeree will not sell, transfer, assign,
hypothecate, pledge or otherwise dispose of any beneficial interest in (either
pursuant to Rule 144 or the regulations under the Securities Act of 1933, as
amended, or otherwise) the Warrants and 50% of the Class A Common Stock received
by Offeree in the Exchange. In addition, Offeree agrees that for a period of six
months following the closing of the Offering, Offeree will not sell, transfer,
assign, hypothecate, pledge or otherwise dispose of any beneficial interest in
(either pursuant to Rule 144 or the regulations under the Securities Act of
1933, as amended, or otherwise) the remaining 50% of the Class A Common Stock
received by Offeree in the Exchange. Offeree understands and agrees that Outlook
will place legends in substantially the following form on all certificates for
shares of Class A Common Stock issued pursuant to this Agreement.
The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under
the provisions of any applicable state securities laws, and may not be
sold, pledged, hypothecated or otherwise transferred unless (i) a
registration statement with respect thereto is effective under the
Securities Act or (ii) the Company has received an opinion of counsel
reasonably satisfactory to the Company that such registration is not
required.
The securities represented hereby are subject to a lock-up agreement
set forth in an Exchange Agreement, dated November 24, 1998.
8. MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance
with the laws of Delaware.
b. This Agreement may be executed in counterparts and by the parties
hereto on separate counterparts, all of which together shall constitute one and
the same instrument. A facsimile transmission of this Agreement bearing a
signature on behalf of a party hereto shall be legal and binding on such party.
c. The headings, captions and footers of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
<PAGE>
d. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in any
other jurisdiction.
e. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement.
f. This Agreement sets forth the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, whether written or oral, with respect thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
------------------------------
Offeree
Name:
-------------------------
Address:
----------------------
----------------------
----------------------
OUTLOOK SPORTS TECHNOLOGY, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
<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
February 10, 1999
