<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ____________.
Commission File Number 0-6106
UNITED LEISURE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2652243
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
18081 Magnolia Avenue, Fountain Valley, California 92708
(Address of Principal Executive Offices) (Zip Code)
714/378-8761
(Registrant's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports to be filed by Section
13 or 15(d) during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 16, 1998
-------------------- --------------------------------
<S> <C>
Common Stock, par 14,068,850 shares
value $.01 per share
</TABLE>
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,754,758 $ 152,770
Receivables 10,853 21,732
Prepaid expenses and other current assets 111,815 59,690
------------ ------------
TOTAL CURRENT ASSETS 1,877,426 234,192
PROPERTY AND EQUIPMENT, Net 2,049,756 2,172,569
INVESTMENT IN UNITED HOTEL - RELATED PARTY 3,482,820 3,633,800
INVESTMENT IN HEP II - RELATED PARTY 1,120,500 1,120,500
INVESTMENT IN GRAND HAVANA - RELATED PARTY 136,300 340,025
LOANS RECEIVABLE FROM GRAND HAVANA - RELATED PARTY 603,280 681,643
INVESTMENT IN GENISYS - RELATED PARTY 459,666 -
DUE FROM OFFICER 252,224 12,567
DEPOSITS AND OTHER ASSETS 79,147 82,043
------------ ------------
$ 10,061,119 $ 8,277,339
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,900,000 $ 1,925,000
Accounts payable and accrued expenses 826,021 1,387,039
Deferred revenues 40,791 32,710
Deposits and other 9,927 43,426
------------ ------------
TOTAL CURRENT LIABILITIES 2,776,739 3,388,175
LONG-TERM DEBT 842,000 842,000
COMMON STOCK SUBJECT TO REPURCHASE -150,001 shares 42,000 -
STOCKHOLDERS' EQUITY
Preferred stock, $100 par value; authorized - 100,000
shares; issued and outstanding - none - -
Common stock, $.01 par value; authorized - 30,000,000
shares; issued and outstanding - 13,918,849 shares at
September 30, 1998 and 12,618,849 shares at December 31, 1997 139,188 126,188
Additional paid-in capital 24,880,168 24,587,188
Accumulated deficit (18,618,976) (19,923,806)
Accumulated other comprehensive loss - Unrealized loss on investment - (742,406)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,400,380 4,047,164
------------ ------------
$ 10,061,119 $ 8,277,339
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
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UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE
Children's recreational activities $ 816,438 $ 1,123,752 $ 1,747,931 $ 2,294,528
Licensing fees - - 410,817 -
Rentals - - - 79,383
----------- ----------- ----------- -----------
TOTAL REVENUE 816,438 1,123,752 2,158,748 2,373,911
DIRECT OPERATING EXPENSES 954,059 1,279,514 2,387,640 3,201,062
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 233,348 465,514 534,589 860,982
DEPRECIATION AND AMORTIZATION 42,387 183,101 127,901 556,673
----------- ----------- ----------- -----------
1,229,794 1,928,129 3,050,130 4,618,717
----------- ----------- ----------- -----------
LOSS BEFORE OTHER INCOME (EXPENSE) (413,356) (804,377) (891,382) (2,244,806)
OTHER INCOME (EXPENSE)
Litigation settlement 4,043,020 - 4,043,020 -
Legal costs (340,190) (47,288) (590,640) (518,710)
Equity in net loss of United Hotel (61,000) 22,000 (176,000) 22,000
Realized loss from write-down of investment
in Grand Havana - - (946,131)
Interest income 40,243 105,992 108,951 276,940
Interest expense (97,081) (86,827) (288,306) (128,954)
Sub-lease income 11,717 - 24,696 -
Other, net 6,808 57,411 20,622 164,797
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 3,603,517 51,288 2,196,212 (183,927)
----------- ----------- ----------- -----------
NET INCOME (LOSS) 3,190,161 (753,089) 1,304,830 (2,428,733)
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) on securities
arising during the period - 445,126 (203,725) 109,484
Less: reclassification adjustment for loss
realized in net loss - - 946,131 -
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS) - 445,126 742,406 109,484
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ 3,190,161 $ (307,963) $ 2,047,236 $(2,319,249)
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE
Basic $ 0.23 $ (0.06) $ 0.10 $ (0.19)
=========== =========== =========== ===========
Diluted $ 0.23 $ (0.06) $ 0.10 $ (0.19)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,918,000 12,792,000 13,508,000 12,792,000
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
UNITED LEISURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
September 30, September 30,
1998 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $1,304,830 $(2,428,733)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 127,901 556,673
Issuance of common stock and warrants for services 118,300 63,000
Write-down of investment in Grand Havana 946,131 -
Licensing fees (410,817) -
Equity in net loss of United Hotel 176,000 (22,000)
Accrual of interest income on restricted cash - (9,434)
Accrual of interest income on loans receivable 93,878 -
Changes in operating assets and liabilities:
Receivables 11,364 112,031
Prepaid expenses and other current assets (52,125) 12,352
Deposits (1,335) 73,361
Accounts payable and accrued expenses (561,018) 617,150
Accrued expenses due to (from) related part (255,657) (198,284)
Deferred revenues 8,081 (186,531)
---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,505,533 (1,410,415)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (49,706) (155,507)
Investment in Grand Havana - (575,000)
Loans receivable from Grand Havana - (775,000)
Investment in HEP II - 275,000
Collection of loan receivable from Grand Havana - (3,751,500)
Additional investment in United Hotel (25,020)
Deposits and other (33,499) -
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (108,225) (4,982,007)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable (25,000) 2,800,000
Sale of common stock 229,680 -
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 204,680 2,800,000
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,601,988 (3,592,422)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 152,770 3,845,653
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,754,758 $ 253,231
========== ===========
CASH PAID FOR:
Interest $ 29,400 $ 128,954
========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
UNITED LEISURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been prepared
by United Leisure Corporation (the "Company") without audit and, in the
opinion of the management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of (a) the consolidated results of
operations for the three and nine months ended September 30, 1998 and 1997,
(b) the consolidated financial position at September 30, 1998 and (c) the
consolidated cash flows for the nine months ended September 30, 1998 and
1997. Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of December 31, 1997 has been
derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The consolidated financial
statements and notes are condensed as permitted by Form 10-QSB and do not
contain certain information included in the annual financial statements and
notes of the Company. The consolidated financial statements and notes
included herein should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-KSB.
2. COMPREHENSIVE INCOME
The Company adopted SFAS No. 131, "Reporting Comprehensive Income"
effective January 1, 1998. Components of comprehensive income (loss) for
the Company include net income (loss) and changes in the value of
available-for-sale securities. The interim statements of operations for the
three and nine months ended September 30, 1997 were reclassified for
comparative purposes.
During the three months ended June 30, 1998, the Company realized a loss of
$946,131 from the write-down of its investment in restricted common stock
of Grand Havana Enterprises, Inc., an affiliated company.
3. INVESTMENT IN GENISYS
As of June 30, 1998, the Company's wholly owned subsidiary, United Internet
Technologies, Inc. (formerly known as United Leisure Interactive, Inc.)
("UIT") granted to NetCruise Interactive, Inc. ("NetCruise"), a wholly
owned subsidiary of Genisys Reservation Systems, Inc. ("Genisys"), an
exclusive and worldwide and perpetual license for travel related
applications of certain interactive technology. In addition, the Company
sold certain related intellectual properties and computer equipment.
5
<PAGE>
As consideration for the sale, UIT received (i) 2,000,000 of unregistered
shares of common stock of Genisys, (ii) a warrant to purchase up to
800,000 shares of Genisys common stock at $2.50 per share if the total
pretax profits of NetCruise for the years 1999, 2000 and 2001 equal or
exceed $5,000,000 and (iii) a warrant to purchase up to 800,000 shares of
Genisys common stock at $6.00 per share if the total pretax profits of
NetCruise for the years 1999, 2000 and 2001 equal or exceed $10,000,000.
UIT's investment in Genisys common stock was accounted for under the equity
method. UIT's investment represents 29.61% of the outstanding common stock
of Genisys.
For a period of three years, Harry Shuster will serve as Chairman and Brian
Shuster will serve as President of NetCruise. In addition, both Harry
Shuster and Brian Shuster will serve on the Board of Directors of Genisys
for the same period. Harry Shuster is the Chairman of the Board, President,
Chief Executive Officer and a director of the Company and Brian Shuster is
Executive Vice President, Secretary and a director of the Company. Brian
Shuster is the son of Harry Shuster. Brian Shuster was issued warrants to
purchase Genisys common stock on the same terms as the warrants issued to
UIT, except that each of the two warrants issued to Brian Shuster
represents the right to purchase up to 200,000 shares of Genisys common
stock.
NetCruise also assumed the UIT's lease at 1990 Westwood Boulevard,
Penthouse, Los Angeles, California.
Subsequent to the date of the transaction described above, Genisys informed
the Company and UIT of the following. Genisys was notified by The Nasdaq
Stock Market, Inc. ("Nasdaq") that the issuance of the 2,000,000 shares of
Genisys Common Stock and the Warrants to UIT caused Genisys to be
inadvertently in violation of a certain Nasdaq Marketplace Rule (the
"Nasdaq Rule"), because the issuance of the 2,000,000 shares of Genisys
Common Stock and the Warrants amounted to more than 20% of the issued and
outstanding shares of Genisys and the issuance thereof was not approved by
Genisys' stockholders as required by the Nasdaq Rule. Genisys has been
informed that Nasdaq intends to delist Genisys' Common Stock as a result of
its noncompliance with the Nasdaq Rule, unless Genisys takes curative
action acceptable to Nasdaq. Pending the full implementation of the
proposed curative action described below, Genisys has appealed Nasdaq's
determination. A hearing on the proposed delisting is pending.
As a result of the Nasdaq notification, UIT, Genisys and certain of
Genisys' principal stockholders have entered into an agreement dated
October 28, 1998 (the "Agreement") for the purpose of restructuring their
transaction, and Genisys is in the process of calling a meeting of its
stockholders to seek the stockholder approval required by the Nasdaq Rule.
Under the terms of the Agreement, UIT will return to Genisys (i) 1,100,000
shares of Genisys Common Stock (retaining
6
<PAGE>
900,000 shares of Genisys Common Stock (the "Retained Shares")) and (ii)
the Warrants. Genisys will promptly issue to UIT 1,100,000 shares of
Genisys Convertible Series B Preferred Stock, par value $.0001 per share
(the "Genisys Preferred Shares"), which, among other things, are
automatically convertible into 1,100,000 shares of Genisys Common Stock
upon Genisys' obtaining stockholder approval as required by the Nasdaq
Rule. In addition, upon obtaining the requisite stockholder approval,
Genisys will reissue the Warrants to UIT.
Among other things, the Genisys Preferred Shares carry a mandatory dividend
of $275,000, payable on September 30, 1999, and mandatory quarterly
dividends of $68,750, commencing with the quarter ending December 31, 1999.
No dividend is payable if the Genisys stockholders approve the issuance of
the 1,100,000 shares of Genisys Common Stock and the Warrants to UIT, and
the Genisys Preferred Shares have been converted into 1,100,000 shares of
Genisys Common Stock, prior to June 30, 1999. The Genisys Preferred Shares
are non-voting, unless voting is required by New Jersey law. The Genisys
Preferred Shares also carry a mandatory liquidation preference of
$2,750,000 plus all accrued and unpaid dividends. UIT has agreed not vote
the Retained Shares and may not vote the Genisys Preferred Shares at the
Genisys stockholders' meeting. Certain principal stockholders of Genisys
have agreed to vote their shares of Genisys Common Stock in favor of the
issuance of the 1,100,000 shares of Genisys Common Stock and the Warrants.
If, for any reason, the 1,100,000 shares of Genisys Common Stock and the
Warrants are not issued to UIT on or before June 30, 1999, then, in
addition to any and all rights and remedies available to UIT, UIT at its
option, may appoint up to four members of the Board of Directors of
Genisys.
4. RELATED PARTY TRANSACTIONS
Due from officer consisted of the following at September 30, 1998:
Harry Shuster, Chairman of the Board, President and Chief Executive Officer
of the Company:
Advances, including accrued interest $ 1,071,558
Accrued interest payable (789,649)
Accrued consulting fees (29,685)
--------------
Net due from officer $ 252,224
==============
Loans Receivable from Grand Havana ("GHEI") - On September 30, 1998, the
Company agreed to make a new installment loan to GHEI in the amount of up
to $1,250,000. GHEI executed a Secured Promissory Note dated September 30,
1998 (the "GHEI Note"). The GHEI Note bears interest at 8% per annum and is
due and payable in full on March 31, 1999. The GHEI Note is secured
pursuant to a Security Agreement dated September 30, 1998 (the "GHEI
Security Agreement"), in which GHEI granted the Company a second lien
security interest in certain collateral. Presently, this
7
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security interest is subordinate to a security interest in the same
collateral granted in favor of Harry Shuster, securing payment of a
promissory note in the principal amount of $300,000. Mr. Shuster intends to
subordinate his position to that of the Company.
The initial loan advance under the GHEI Note on September 30, 1998 was
$603,279.71, which represents the principal amount due under the previous
note of $536,000, together with accrued interest of $67,279,91. The
Company may from time to time, but shall not be obligated, to make future
advances under the GHEI Note up to a total amount of $1,250,000.
5. STOCKHOLDERS' EQUITY
In February 1998, the Company issued 100,000 shares of its common stock to
Transit Securities, Inc. for advisory services rendered to the Company. The
shares were valued at $31,300, its fair value at the date of issuance.
In April 1998, the Company sold 10 Units at $26,400 per Unit in an offering
of securities exempt from registration under the Securities Act of 1933.
Each Unit consists of 120,000 shares of the Company's common stock and
warrants to purchase 60,000 shares at $.27 per share. The Company received
net proceeds of $229,680 from this offering.
In June 1998, the Company issued five-year warrants to purchase up to
250,000 shares of common stock for services. The warrants were valued at
$45,000.
In September 1998, the Company granted to Brian Shuster, a director of the
Company, option to purchase up to 300,000 shares of the Company's common
stock at an exercise price of $.25 per share, exercisable until September
21, 2003. The option was granted to recognize the contributions made by Mr.
Shuster in the development of the Company's interactive technology business
through UIT and to provide him additional incentive to remain an officer of
UIT.
In September 1998, the Company granted to Harry Shuster option to purchase
up to 2,100,000 shares of the Company's common stock at an exercise price
of $.625 per share, exercisable until September 29, 2003. The option was
granted in recognition of a personal guarantee of certain of the Company's
indebtedness made by Mr. Shuster on July 30, 1997, and in recognition of
Mr. Shuster's substantial contributions to the development of the Company's
business.
6. COMMON STOCK SUBJECT TO REPURCHASE
In August 1998, the Company issued 150,001 shares of common stock with a
fair value of $.28 per share as payment of legal fees. The Company agreed
to repurchase the shares, one year from August 1998, at such stockholders'
election, at a cash price of $1.00 per share. If the Company is legally
unable or otherwise fails to make such purchase when due, Harry Shuster
agreed to make such purchase at the same price per share.
8
<PAGE>
7. OTHER SIGNIFICANT TRANSACTIONS
On July 30, 1998, the Company's "Secured Convertible Promissory Note" dated
as of July 29, 1997 of $1,900,000 to Westminster Capital, Inc.
("Westminster") became payable on demand.
On August 6, 1998, United Hotel, LLC ("United Hotel"), a Company's equity
investee, borrowed $1,100,000 from Westminster. The Company and two other
members of United Hotel executed a non-recourse secured guaranty under
which each entity pledged their interests in United Hotel as collateral
under the guaranties. Harry Shuster and two other individuals personally
guaranteed the loan. A default under this loan shall constitute a default
under the "Secured Convertible Promissory Note" dated as of July 29, 1997.
The conversion rights granted to Westminster under the "Secured
Convertible Promissory Note" dated as of July 29, 1997 was extended until
July 31, 2001.
8. LEGAL PROCEEDINGS
In September 1998, the Company and its subsidiary, Lion Country Safari,
Inc. - California, and The Irvine Company have settled their long-standing
litigation and have dismissed all superior court and appellate court
actions pending between them, i.e. The Splash v. The Irvine Company, et al.
----
(Case No. 491202), Lion Country Safari, Inc.--California v. The Irvine
Company (OCSC Case No. 743669), Lion Country Safari, Inc.--California v.
The Irvine Company (OCSC Case No. 775923) and The Irvine Company v. Lion
Country Safari, Inc. - California (OCSC Case No. 776187).
Pursuant to the terms of the settlement agreement between the parties, The
Irvine Company paid the Company $4.0 million without admitting any
liability on the part of The Irvine Company.
The Company has also settled the lawsuit titled The Splash dba Wild Rivers
v. Harry Shuster, et al. (OCSC Case No. 771810) and the parties have
dismissed that suit. No payments were made by either party in connection
with the settlement of the lawsuit.
The lawsuit titled Irvine Meadows v. Shuster, et al. (OCSC Case No. 771509)
is not affected by the foregoing settlements and the Company is pursuing
its appeal of the judgment of the trial court in that matter. On October
27, 1998, the plaintiffs, as the prevailing party in this matter, were
awarded costs in the amount of approximately $545,000. The Company is also
appealing this award. Due to the inherent uncertainties regarding
litigation, it is not possible to assess the likelihood that the Company
will prevail on appeal.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Quarterly Report on Form 10-QSB. Certain statements contained herein that
are not related to historical results, including, without limitation, statements
regarding the Company's business strategy and objectives, future financial
position, expectations about pending litigation and estimated cost savings, are
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") and involve risks and
uncertainties. Although the Company believes that the assumptions on which these
forward-looking statements are based are reasonable, there can be no assurance
that such assumptions will prove to be accurate and actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
the risks, uncertainties, costs and outcome of pending litigation in which the
Company is involved, costs and uncertainties associated with future
developments, concerns regarding the Company's liquidity and financial
condition, regulatory policies, competition from other similar businesses, and
market and general economic factors. All forward-looking statements contained in
this Quarterly Report on Form 10-QSB are qualified in their entirety by this
statement
OVERVIEW
During the quarter ended September 30, 1998, the Company's operations were
primarily focused in three areas: (i) children's recreational activities, which
includes the operation of the Company's "Camp Frasier" locations, "Planet Kids"
locations and "Frasier's Frontier," all located in Southern California; (ii) the
development of the Company's proprietary interactive Internet technology; and
(iii) investments in affiliated companies. Unless the context otherwise
indicates, the term the "Company" as used herein includes United Leisure
Corporation, a Delaware corporation, and its consolidated subsidiaries.
Children's Recreational Activities. The Company currently operates two Camp
----------------------------------
Frasier day camp locations, which operated from the last week of June through
late August, 1998; three Planet Kids, an indoor multimedia interactive play
learning center for children; and one Frasier's Frontier, an amusement park, all
of which are
10
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located in Southern California. The Company does not currently anticipate that
it will expand any of its children's educational and recreational activities.
The Frasier's Frontier amusement park was closed in Spring 1998 and there are
no plans to reopen it at present.
Interactive Technology. Through its wholly-owned subsidiary, United
----------------------
Internet Technologies, Inc. (formerly known as United Leisure Interactive, Inc.)
("UIT"), the Company has continued to develop its proprietary Internet
technology (the "Technology"). The first such interactive multimedia products
were developed as Netcruise, which allows a person to view and book various
travel products on the Internet. On July 23, 1998, the Company, UIT, Genisys
Reservation Systems, Inc. ("Genisys") and its wholly-owned subsidiary Netcruise
Interactive, Inc. ("NII"), entered into an agreement pursuant to which UIT
granted to NII an exclusive, world-wide and perpetual license to the travel-
related applications of the Technology and sold to NII certain tangible assets
and intellectual property to be used in connection with the exploitation of the
licensed Technology. In consideration therefor, UIT received (i) 2,000,000
shares of restricted common stock of Genisys, (ii) a warrant to purchase up to
800,000 shares of Genisys common stock at $2.50 if the total pretax profits of
NII ("Total Pretax Profits") for the years 1999, 2000 and 2001 equal or exceed
$5,000,000 and (iii) a warrant to purchase up to 800,000 shares of Genisys
common stock at $6.00 if the Total Pretax Profits of NII for the years 1999,
2000 and 2001 equal or exceed $10,000,000.
Subsequent to the date of the transaction described above, Genisys informed
the Company and UIT of the following. Genisys was notified by The Nasdaq Stock
Market, Inc. ("Nasdaq") that the issuance of the 2,000,000 shares of Genisys
Common Stock and the Warrants to UIT caused Genisys to be inadvertantly in
violation of a certain Nasdaq Marketplace Rule (the "Nasdaq Rule"), because the
issuance of the 2,000,000 shares of Genisys Common Stock and the Warrants
amounted to more than 20% of the issued and outstanding shares of Genisys and
the issuance thereof was not approved by Genisys' stockholders as required by
the Nasdaq Rule. Genisys has been informed that Nasdaq intends to delist
Genisys' Common Stock as a result of its noncompliance with the Nasdaq Rule,
unless Genisys takes curative action acceptable to Nasdaq. Pending the full
implementation of the proposed curative action described below, Genisys has
appealed Nasdaq's determination. A hearing on the proposed delisting was held on
November 20, 1998 (the "Nasdaq Hearing") and a decision is pending.
As a result of the Nasdaq notification, UIT, Genisys and certain of
Genisys' principal stockholders have entered into an agreement dated October 28,
1998 (the "Agreement") for the purpose of restructuring their transaction, and
Genisys is in the process of calling a meeting of its stockholders to seek the
stockholder approval required by the Nasdaq Rule. Under the terms of the
Agreement, UIT will return to Genisys (i) 1,100,000 shares of Genisys Common
Stock (retaining 900,000 shares of Genisys Common
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Stock (the "Retained Shares")) and (ii) the Warrants. Genisys will promptly
issue to UIT 1,100,000 shares of Genisys Convertible Series B Preferred Stock,
par value $.0001 per share (the "Genisys Preferred Shares"), which, among other
things, are automatically convertible into 1,100,000 shares of Genisys Common
Stock upon Genisys' obtaining stockholder approval as required by the Nasdaq
Rule. In addition, upon the requisite stockholder approval, Genisys will reissue
the Warrants to UIT.
Among other things, the Genisys Preferred Shares carry a mandatory dividend
of $275,000, payable on September 30, 1999, and mandatory quarterly dividends of
$68,750, commencing with the quarter ending December 31, 1999. No dividend is
payable if the Genisys stockholders approve the issuance of the 1,100,000 shares
of Genisys Common Stock and the Warrants to UIT, and the Genisys Preferred
Shares have been converted into 1,100,000 shares of Genisys Common Stock, prior
to June 30, 1999. The Genisys Preferred Shares are non-voting, unless voting is
required by New Jersey law. The Genisys Preferred Shares also carry a mandatory
liquidation preference of $2,750,000 plus all accrued and unpaid dividends.
UIT has agreed not vote the Retained Shares and may not vote the Genisys
Preferred Shares at the Genisys stockholders' meeting. Certain principal
stockholders of Genisys have agreed to vote their shares of Genisys Common Stock
in favor of the issuance of the 1,100,000 shares of Genisys Common Stock and the
Warrants.
The Agreement also currently provides that, if, for any reason, the
1,100,000 shares of Genisys Common Stock and the Warrants are not issued to UIT
on or before June 30, 1999, then, in addition to any and all rights and remedies
available to UIT, UIT at its option, may appoint up to four members of the Board
of Directors of Genisys. As a result of the Nasdaq Hearing, this provision will
be eliminated.
Investments in and Loans to Grand Havana Enterprises, Inc. The Company has
---------------------------------------------------------
an investment in the common stock of, and has made loans to, Grand Havana
Enterprises, Inc. ("GHEI"), an affiliate of company. Harry Shuster is the
Chairman of the Board, President, Chief Executive Officer and a principal
stockholder of GHEI.
In February 1997, the Company entered into a financing agreement with GHEI
pursuant to which the Company agreed to loan GHEI up to $1,250,000 in order to
fund the development of two private membership and cigar clubs being developed
by GHEI. The loan bears interest at the rate of 8% per annum on the outstanding
principal amount. This loan was not repaid when due on September 30, 1997. The
financing agreement provided that if the loan was not repaid by September 30,
1997, it would become payable on demand and the Company would then be entitled
to receive an additional 25,000 shares of the common stock of GHEI. In February
1998, GHEI issued 25,000 shares of its common stock to the Company pursuant to
the terms of this financing agreement, which was valued by the Company at
$38,691, and which number of shares is
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included in the number of shares of GHEI common stock indicated above as held by
the Company as of March 31, 1998. The parties agreed to extend the maturity date
of advances made under this financing agreement to September 30, 1998.
On September 30, 1998, the Company agreed to make a new installment loan to
GHEI in the amount of up to $1,250,000 in replacement of the previous loan. GHEI
executed a Secured Promissory Note dated September 30, 1998 (the "GHEI Note").
The GHEI Note bears interest at 8% per annum and is due and payable in full on
March 31, 1999. The GHEI Note is secured pursuant to a Security Agreement dated
September 30, 1998 (the "GHEI Security Agreement"), in which GHEI granted the
Company a second lien security interest in certain collateral. Presently, this
security interest is subordinate to a security interest in the same collateral
granted in favor of Harry Shuster, securing payment of a promissory note in the
principal amount of $300,000. Mr. Shuster intends to subordinate his position to
that of the Company.
The initial loan advance under the GHEI Note on September 30, 1998 was
$603,279.71, which represents the principal amount due under the previous note
of $536,000, together with accrued interest of $67,279.71. The Company may from
time to time, but shall not be obligated, to make future advances under the GHEI
Note up to a total amount of $1,250,000.
As of September 30, 1998, the Company held 966,666 shares of GHEI's common
stock. Management of the Company estimated the fair value of the investment in
GHEI of approximately $136,300 at September 30, 1998. Because Management of the
Company does not believe that it will recover the original cost of its
investment in GHEI, it has realized loss on this investment in the amount of
$946,131. On October 27, 1998, the common stock of GHEI was delisted from the
Nasdaq SmallCap Market and is presently being quoted on the OTC Bulletin Board.
Investments in United Hotel & Casino L.L.C. In January 1997, the Company
-------------------------------------------
and two California limited liability companies formed United Hotel & Casino,
L.L.C., a Delaware limited liability company ("UHC"). The Company currently has
a 50% membership interest in UHC. The Company has the right to appoint one
member (who has two votes), and the remaining members have the right, in the
aggregate, to appoint two members (each of whom has one vote), of the three
member Management Committee of UHC.
On July 29, 1997, UHC acquired approximately 8.5 acres of partially
developed land on the Las Vegas Strip in Las Vegas, Nevada (the "Las Vegas
Property"). The Las Vegas Property is located at 3025 Las Vegas Boulevard. Upon
the acquisition of the Las Vegas Property, UHC became the lessor of a shopping
center consisting of approximately 20 retailers and The Silver City Casino,
which is currently responsible for approximately 50% of the rental income
received by UHC from the Las Vegas Property. The Silver City Casino is owned and
operated by Circus Circus Enterprises, Inc. ("Circus Circus") and it is
anticipated that Circus Circus will continue to operate this casino on the Las
Vegas
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Property. The lease for The Silver City Casino is due to expire in October,
1999. UHC currently intends to continue to lease the existing shopping center on
the Las Vegas Property. The Company is evaluating various alternatives with
respect to its investment in UHC, including further development of the Las Vegas
Property. No assurance can be given that any particular alternative will be
pursued or that any agreement will be entered into on terms favorable to the
Company.
The aggregate purchase price for the Las Vegas Property was approximately
$23,200,000, which was paid in the form of (i) cash in the amount of
approximately $5,590,000, (ii) a one-year note in the amount of $1,250,000 and
(iii) assumption of a first deed of trust on the Las Vegas Property in the
principal amount of approximately $16,360,000. The Company contributed
approximately $3,800,000 to the cash payment, which cash came in part from its
working capital and in part from two different loans, the First Westminster Loan
and the Bibicoff Loan (as defined below).
Concurrently with the closing of UHC's purchase of the Las Vegas Property,
Westminster made a loan of $1,900,000 to the Company (the "First Westminster
Loan") to enable the Company to meet a portion of its additional capital
contribution obligation to UHC. The First Westminster Loan was evidenced by a
Secured Convertible Promissory Note (the "First Westminster Note") made by the
Company. The First Westminster Loan, which bears interest at the rate of 15% per
annum, is due on the earlier to occur of (i) the demand of Westminster (which
demand may be made at any time after July 29, 1998) or (ii) July 29, 1999 (the
"Maturity Date"). The holder of the First Westminster Note has the right, at any
time prior to the Maturity Date, to convert the entire outstanding principal
balance of the First Westminster Note into one-half of the Company's membership
interest in UHC. The conversion feature of the First Westminster Note has been
amended to extend the conversion date, as described below. The First Westminster
Note may be prepaid by the Company at any time prior to conversion and after
July 29, 1998. One-half of any cash distributions which may be made by UHC to
the Company prior to the repayment of the First Westminster Note are required to
be paid to Westminster as a prepayment on the First Westminster Note.
The First Westminster Loan is secured by, among other things, a pledge of
stock, pursuant to which the Company has pledged 408,333 of the 966,666 shares
it owns in GHEI. As additional security, the Company has granted a security
interest to Westminster, pursuant to a Security Agreement dated as of July 29,
1997, in the Company's 50% membership interest in UHC and in the receivables and
certain indebtedness due to the Company from GHEI. Harry Shuster serves as a
member of the Management Committee of UHC; and also is the Chairman of the
Board, President and Chief Executive Officer, and is a principal stockholder of,
GHEI. In addition, Harry Shuster and his spouse, Nita Shuster, provided certain
other security individually and jointly with respect to the First Westminster
Loan.
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As additional consideration for Westminster making the First Westminster
Loan, the Company granted Westminster a three-year warrant to purchase 150,000
shares of the common stock of the Company at a per share price equal to the
lesser of $.40 or 75% of the average of the last trade prices for the ten
trading days immediately preceding the exercise of the warrants. At the request
of Westminster, the Company has filed a registration statement to register the
shares of common stock underlying the warrants, which registration statement has
been declared effective by the Securities and Exchange Commission (the "SEC").
The Company additionally arranged for GHEI to grant to Westminster a three-year
warrant to purchase 150,000 shares of the common stock of GHEI exercisable at a
per share price equal to the lesser of $.75 or 75% of the average of the last
trade prices for the ten trading days immediately preceding the exercise of the
warrants.
On August 6, 1998, Westminster made a loan of $1,100,000 to UHC (the
"Second Westminster Loan"). The Second Westminster Loan is evidenced by a
promissory note in the amount of $1,100,000, which bears interest at the rate of
15% per annum and matures on August 1, 1999 (the "Second Westminster Note"). In
order to induce Westminster to make the Second Westminster Loan, the Company
agreed to amend the First Westminster Note to provide that the holder of the
First Westminster Note now has the right, at any time prior to July 31, 2001, to
convert the entire outstanding principal balance of the First Westminster Note
into one-half of the Company's membership interest in UHC. It was also agreed by
the parties that a default by UHC under the Second Westminster Note will be
deemed to be a default by the Company under the First Westminster Note. Harry
Shuster personally guaranteed the obligations of UHC under the Second
Westminster Loan and the Company issued a non-recourse guaranty with joint and
several liability, limited to the Company's interest in UHC.
On July 29, 1997, Harvey Bibicoff, a director of GHEI, made a short-term
loan to the Company in the amount of $900,000 (the "Bibicoff Loan"). The
Bibicoff Loan is evidenced by a promissory note and bears interest at the rate
of 10% per annum. On September 16, 1998, the Company paid Mr. Bibicoff $40,000,
consisting of $25,000 principal amount of the loan outstanding and $15,000
accrued interest. As of September 30, 1998, the Bibicoff Loan was repaid in
full.
As of September 30, 1998, the Company's investment in UHC was $3,482,820.
Investments in HEP II L.P. In April 1996, the Company acquired 50% of the
--------------------------
limited partnership interests in HEP II L.P., a California limited partnership
("HEP II"), which was formed in March 1996, for a capital contribution in the
amount of $1,500,000. HEP II is engaged in the motion picture production
business. The general partner of HEP II is United Film Distributors, Inc., a
California corporation ("UFD"), formerly known as Hit Entertainment, Inc. As of
September 30, 1998, the balance of the
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Company's investment in HEP II was $1,120,500. Harry Shuster, the Chairman of
the Board, President and Chief Executive Officer of the Company is the Chairman
of the Board of UFD as well as one of its principal stockholders. Brian Shuster,
a director of the Company, is the President and a principal stockholder of UFD,
and the son of Harry Shuster.
Rental Activities. Until February 28, 1997, when its Ground Lease with the
-----------------
Irvine Company (the "Irvine Company"), as landlord (the "Ground Lease"),
expired, the Company's primary business had been to act as a developer and
manager (rather than as an operator) of approximately 300 acres of real estate
in Irvine, California (the "Irvine Property"). From 1986 until September 1998,
the Company was engaged in protracted and expensive litigation involving the
Ground Lease with the Irvine Company (the "Irvine Company Litigation"). Most of
the Irvine Company Litigation was settled in September 1998. See Part II, Item
1, "Legal Proceedings."
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
The Company's business has historically been highly seasonal, with the
second and third quarters of each year being the strongest quarters of
operation. The Company had total revenue of $816,438 in the quarter ended
September 30, 1998, compared to total revenue of $1,123,752 for the quarter
ended September 30, 1997, a decrease of $307,314 or approximately 27.3%. This
decrease results from lower revenue from children's recreational activities, due
primarily to a decline in admissions at the Company's Planet Kids locations, as
well as the fact that Frasier's Frontier amusement park did not operate at all
during the third quarter of 1998. All of the Company's revenue in the quarter
ended September 30, 1998 was provided by children's recreational activities.
Total operating expenses decreased from $1,928,129 for the quarter ended
September 30, 1997 to $1,229,794 for the quarter ended September 30, 1998, a
decrease of $698,335 or approximately 36.2%. This decrease was due to decreases
in direct operating expenses; selling, general and administrative expenses
associated with the Company's Ground Lease operations which terminated in
February 1997; and depreciation on property and equipment because of the write-
down of certain Planet Kids assets during the year ended December 31, 1997.
For the quarter ended September 30, 1998, the Company had net income of
$3,190,161 or $.23 per share, as compared to a net loss of $(753,089) or ($0.06)
per share for the quarter ended September 30, 1997. This increase in net income
is primarily a result of the settlement of significant litigation which resulted
in a payment to the Company of $4.0 million, less legal costs incurred during
said quarter of approximately $340,000, and a decrease in operating loss
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of approximately $391,000 compared to the comparable quarter in fiscal 1997.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
The Company had total revenue of $2,158,748 in the nine-month period ended
September 30, 1998, compared to total revenue of $2,373,911 for the nine-month
period ended September 30, 1997, a decrease of $215,163 or approximately 9.1%.
This decrease results primarily from a decrease in revenue from children's
recreational activities and the elimination of rental income, partially offset
by the recognition of one-time licensing fees in connection with the licensing
of travel-related applications of the Company's interactive technology. There
were no licensing fees received in the nine months ended September 30, 1997.
Total operating expenses decreased from $4,618,717 for the nine-month
period ended September 30, 1997 to $3,050,130 for the nine-month period ended
September 30, 1998, a decrease of $1,568,587 or approximately 34.0%. This
decrease was due to decreases in direct operating expenses; selling, general and
administrative expenses associated with the Company's Ground Lease operations
which terminated in February 1997; and depreciation on property and equipment
because of the write-down of certain Planet Kids assets during the year ended
December 31, 1997.
For the nine months ended September 30, 1998, the Company had net income of
$1,304,830 or $.10 per share, as compared to a net loss of $(2,428,733) or
($0.19) per share for the nine months ended September 30, 1997. This increase in
net income is primarily a result of the settlement of significant litigation
which resulted in a payment to the Company of $4.0 million, less legal costs
incurred during said quarter of approximately $340,000; the recognition of one-
time licensing fees in connection with the licensing of travel-related
applications of the Company's interactive technology; and a decrease in
operating loss of approximately $1,353,000 compared to the comparable nine-month
period in fiscal 1997; partially offset by a decrease in revenue from children's
recreational activities and the elimination of rental income.
Liquidity and Financial Condition
The Company has relied primarily on cash flows from operations as well as
from proceeds of its public offering in 1994 to finance working capital,
acquisitions and improvements in the past several years. The proceeds from the
Company's 1994 public offering have been exhausted and at September 30, 1998 the
Company had cash and cash equivalents in the amount of $1,754,758 and a working
capital deficit of $899,798. The majority of the cash and cash equivalents on
hand comes from the settlement of significant litigation, which resulted in a
payment to the Company of $4.0 million.
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Due to the fact that the trading price of the Company's common stock has
fallen during recent months, there can be no assurance that the Company will be
able to sell its securities on terms that are acceptable to the Company. In
addition, the Company does not currently meet the new minimum bid listing
requirements (the "New Listing Requirements") for maintenance of the Company's
common stock on the SmallCap Market of The Nasdaq Stock Market ("Nasdaq"). The
New Listing Requirements became effective in February 1998. In June 1998, the
Company was notified that Nasdaq intended to delist the Company's common stock
for failure to meet the New Listing Requirements. The Company has appealed the
proposed Nasdaq delisting, which appeal is pending. However, the Company expects
that Nasdaq will order the Company's stock delisted. If the Company's common
stock is delisted from Nasdaq, it may be automatically eligible to trade on the
OTC Bulletin Board. Nonetheless, such a development could result in the
Company's having difficulty in offering and selling its securities to
prospective investors.
If the Company is unable to raise additional funds, when needed, through
the private placement of its securities, it may seek financing from affiliated
or unaffiliated third parties. There can be no assurance, however, that such
financing would be available to the Company when and if it is needed, or that if
it is available, that it will be available on terms acceptable to the Company.
If the Company is unable to sell its securities or obtain financing to meet its
working capital needs and to repay indebtedness as it becomes due, the Company
may have to consider such alternatives as selling or pledging portions of its
assets, among other possibilities, in order to meet such obligations.
On July 28, 1997 UHC acquired the Las Vegas Property. The Company was
required to make an additional capital contribution to UHC of approximately
$3,800,000 in connection with the acquisition of the Las Vegas Property and in
connection therewith obtained two loans, one for $1,900,000 from Westminster and
one for $900,000 from Harvey Bibicoff, the latter of which has been repaid. The
Company also obtained the Second Westminster Loan. The First Westminster Loan is
secured by a significant amount of the Company's assets, including its 50%
membership interest in UHC and a significant portion of GHEI's common stock
which the Company owns. Although the Company believes that it will be able to
meet these loan obligations as they mature from additional financing from
affiliated or unaffiliated sources, there is no agreement in place to provide
such financing. If the Company is unable to meet the obligation under First
Westminster Loan as it becomes due, the collateral pledged by the Company could
be foreclosed upon. In addition, the Company issued a non-recourse guaranty with
joint and several liability, limited to the Company's interest in UHC, in
connection with the Second Westminster Loan made by Westminster to UHC.
As of September 30, 1998, investments in and loans to affiliated companies,
GHEI, HEP II, UHC and Genisys, totaled approximately $5,802,566 or approximately
57.7% of total assets.
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All of the affiliated companies have had substantial losses and have working
capital deficits (except that Genisys does not have a working capital deficit),
creating liquidity risks for the Company. If these losses continue, a
substantial portion of the Company's net worth would be impaired or at risk.
Although Management believes that it is more likely than not that the
investments and receivables with related companies are not impaired, the
cumulative losses and liquidity problems of the affiliated companies create an
inherent risk in these assets. In addition, at September 30, 1998, the Company
had a net receivable from officer of $252,224.
Although the Company believes that its current cash and income from
operations, and repayment to the Company of amounts previously advanced by the
Company to GHEI, will provide the Company with sufficient funds to meet the
Company's anticipated need for working capital and capital expenditures for at
least the next 12 months, there can be no assurance that this will be the case.
If the Company is in need of additional financing, there can be no assurance
that the Company will be able to acquire additional financing, or that if such
financing is available, that it will be available to the Company on favorable
terms.
Year 2000 Compliance
The Company has recently initiated a Year 2000 project designed to identify
and assess the risks associated with its information systems, operations,
infrastructure and technology products, and customers and suppliers, that are
not Year 2000 compliant, and to develop, implement, and test remediation and
contingency plans to mitigate these risks. The project comprises four phases:
(1) identification of risks, (2) assessment of risks, (3) development of
remediation and contingency plans, and (4) implementation and testing.
The Company's Year 2000 project is being overseen by a senior member of
Company staff. The Company's Year 2000 project is currently in the assessment
phase. During an initial assessment, the Company determined that although
several applications being used may be Year 2000 compliant, operating systems
such as Microsoft DOS, Windows 3.11, and Windows 95, and Windows NT are not Year
2000 compliant. The Company will make a determination as to which operating
systems will need to be replaced entirely and which will be upgraded to become
Year 2000 compliant. It is the Company's expectation that a final determination
on these matters will be made by March 31, 1999. Because this assessment is
still in a preliminary phase, it is not known at this time if the cost of any
such upgrades or replacements will be material.
The Company believes that software products currently produced by Company
are Year 2000 compliant; however, additional testing is in progress. It is not
believed that the there will be any adverse effects on the ability to use the
interactive products being developed by the Company.
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The Company expects to have completed by March 31, 1999 a full assessment
of all hardware, operating systems and software applications in use on a
Company-wide basis. Some upgrading is expected to be required, including
upgrading to a uniform operating system on a Company-wide basis. In addition,
the hardware used in connection with the children's recreational activities
business conducted by the Company will have to be replaced. The costs of all
such assessments and upgradings or replacements are not expected to be material.
Required upgrading is expected to be completed on or before June 30, 1999. In
addition, the Company is in the process of obtaining Year 2000 compliance
statements from the manufacturers of the Company's hardware and software
products.
The Company believes that its greatest potential risks are associated with
(i) its information systems and systems embedded in its operations and
infrastructure; and (ii) its reliance on Year 2000 compliance by the Company's
vendors and suppliers of operating systems and software applications. The
Company is at the beginning stage of assessments for its operations and
infrastructure, and cannot predict whether significant problems will be
identified. The Company is asking its critical vendors and suppliers to provide
information on the status of their Year 2000 compliance in order to assess the
effect it could have on the Company. The Company expects that all such requests
will be supplied to vendors by December 31, 1998. The Company has not yet
determined the full extent of contingency planning that may be required. Based
on the status of the assessments made and remediation plans developed to date,
the Company is not in a position to state the total cost of remediation of all
Year 2000 issues. Costs identified to date have not been material. However, the
Company has not yet completed its assessments, developed remediations for all
problems, developed any contingency plans, or completely implemented or tested
any of its remediation plans.
Based on the Company's current analysis and assessment of the state of its
Year 2000 compliance, the Company's most reasonably likely worst case scenario
involves delays in shipping of products by its vendors and suppliers. Such
delays could cause the Company to experience delays in delivering its own
products. No major interruptions are expected in connection with the Company's
children's recreational activities business. Specific contingency plans will be
formulated after the Company has received information on the status of vendor
and supplier Year 2000 compliance.
As the Year 2000 project continues, the Company may discover additional
Year 2000 problems, may not be able to develop, implement, or test corrections
or contingency plans, or may find that the costs of these activities exceed
current expectations and become material. In many cases, the Company is relying
on assurances from suppliers that new and upgraded information systems and other
products will be Year 2000 compliant. The Company plans to test such third-party
products, but cannot be sure that its tests will be adequate or that, if
problems are identified, they will be addressed in a timely and satisfactory
way. Because the
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Company uses a variety of information systems and has additional systems
embedded in its operations and infrastructure, the Company cannot be sure that
all its systems will work together in a Year 2000 compliant fashion.
Furthermore, the Company cannot be sure that it will not suffer business
interruptions, either because of its own Year 2000 problems, or those of its
customers or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the Company. If the Company
fails to satisfactorily resolve Year 2000 issues related to its product in a
timely manner, it could be exposed to liability to third parties. The Company is
continuing to evaluate Year 2000 related risks and will take such further
corrective actions as may be required.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In September 1998, the Company and its subsidiary, Lion Country
Safari, Inc. - California, and The Irvine Company settled their long-standing
litigation and have dismissed all superior court and appellate court actions
pending between them, i.e. The Splash v. The Irvine Company, et al.
----
(Case No. 491202), Lion Country Safari, Inc.--California v. The Irvine Company
(OCSC Case No. 743669), Lion Country Safari, Inc.--California v. The Irvine
Company (OCSC Case No. 775923) and The Irvine Company v. Lion Country Safari,
Inc. - California (OCSC Case No. 776187).
Pursuant to the terms of the settlement agreement between the parties,
The Irvine Company paid the Company $4.0 million without admitting any liability
on the part of The Irvine Company.
The Company has also settled the lawsuit titled The Splash dba Wild
Rivers v. Harry Shuster, et al. (OCSC Case No. 771810) and the parties have
dismissed that suit. No payments were made by either party in connection with
the settlement of the lawsuit.
The lawsuit titled Irvine Meadows v. Shuster, et al. (OCSC Case No.
771509) is not affected by the foregoing settlements and the Company is pursuing
its appeal of the judgment of the trial court in that matter. On October 27,
1998, the plaintiffs, as the prevailing party in this matter, were awarded costs
in the amount of approximately $545,000. The Company is also appealing this
award. Due to the inherent uncertainties regarding litigation, it is not
possible to assess the likelihood that the Company will prevail on appeal.
Item 2. Changes in Securities
In July 1998, the Company issued stock purchase warrants (the
"Warrants") to Sands Brothers & Co., Ltd. ("Sands Brothers"). The Warrants are
for 250,000 shares of the Company's Common Stock at an exercise price of $.25
per share. The Warrants are exercisable at any time commencing June 25, 1998
until June 25, 2003. The Company may redeem the Warrants for $.10 per Warrant
under certain circumstances, including (i) the Company has an effective
Registration Statement covering the shares of the Company's common stock
issuable upon exercise of the Warrants, and (ii) the Company's common stock has
been trading at or above $2.50 per share for the previous thirty business days.
The holder of the Warrants has "piggyback" registration rights with respect to
the shares of common stock issuable upon exercise of the Warrants for five years
commencing June 25, 1998, and one "demand" registration right with respect
thereto. The Warrants have anti-dilution protection. The Warrants were issued
in connection with financial advisory services being rendered to the Company by
Sands Brothers. The Company received no proceeds from this issuance.
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On September 22, 1998, the Company granted to Brian Shuster, a
director of the Company and a director and President of the Company's wholly-
owned subsidiary, UIT, an option to purchase up to 300,000 shares of the
Company's common stock at $.25 per share, which was the fair market value of the
common stock on such date. The option is exercisable at any time commencing
September 22, 1998 until September 21, 2003. The option contains anti-dilution
protection. The option was granted to recognize the contributions made by Mr.
Shuster in the development of the Company's interactive technology business
through UIT and to provide him additional incentive to remain an officer of UIT.
On September 30, 1998, the Company granted to Harry Shuster, Chairman
of the Board, President and Chief Executive Officer of the Company, an option to
purchase up to 2,100,000 shares of the Company's common stock at $.625 per
share, which was the fair market value of the common stock on July 30, 1997.
The option is exercisable at any time commencing September 30, 1998 until
September 29, 2003. The option contains anti-dilution protection. The option was
granted in recognition of a personal guarantee of certain of the Company's
indebtedness made by Mr. Shuster on July 30, 1997, and in recognition of Mr.
Shuster's substantial contributions to the development of the Company's
business.
On October 8, 1998, the Company issued 150,001 shares of common stock
to six stockholders in the professional corporation of Call, Clayton & Jensen,
for legal services rendered to the Company in connection with the settlement of
the Irvine Company Litigation. These shares were valued at the price of the
Company's stock on August 27, 1998, which was $.28 per share, for a total value
of $42,000. The Company received no proceeds from this issuance. The Company
further agreed to repurchase, on or after August 27, 1999, from any of the
individuals to whom shares of the Company's common stock were issued, any or all
of his or her shares at a cash price of $1.00 per share. If the Company is
legally unable or otherwise fails to repurchase such shares, Harry Shuster,
Chairman of the Board, President and Chief Executive Officer of the Company, has
agreed to personally purchase such shares at such price.
Each of the foregoing offerings was (i) made directly by the officers
and directors of the Company and no underwriting discounts or commissions were
paid, and (ii) exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof, for transactions by an issuer not involving
any public offering.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4-5) Warrant Agreement dated as of June 25, 1998 between
United Leisure Corporation and Sands Brothers & Co., Ltd.
(10-45) Option Agreement dated as of September 22, 1998 between
United Leisure Corporation and Brian Shuster
(10-46) Option Agreement dated as of September 30, 1998 between
United Leisure Corporation and Harry Shuster
(27) Financial Data Schedule
(b) Reports on Form 8-K
During the period covered by this Quarterly Report on Form 10-Q, the
Company filed (i) a Current Report on Form 8-K and Amendment No.1 thereto, with
respect to the sale by the Company's wholly-owned subsidiary, United Internet
Technologies, Inc. (formerly known as United Leisure Interactive, Inc.) of
certain assets and the licensing of certain technology; and (ii) a Current
Report on Form 8-K, with respect to the settlement of certain pending litigation
discussed in Part II, Item 1 of this Quarterly Report on Form 10-QSB.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 20, 1998 UNITED LEISURE CORPORATION
By: Harry Shuster
-------------
Chairman of the Board and
Chief Executive Officer
(Principal Financial Officer)
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EXHIBIT 4.5
WARRANT AGREEMENT dated as of June 25, 1998 between UNITED LEISURE
CORPORATION, a Delaware corporation (the "Company") and Sands Brothers & Co.,
Ltd. (hereinafter referred to variously as the "Holder" or "Sands Brothers").
W I T N E S S E T H:
-------------------
WHEREAS, the Company and Sands Brothers have entered into a certain
financial advisory agreement of even date herewith (hereinafter the "Advisory
Agreement"), pursuant to which Sands Brothers and its designees are entitled to
receive, among other things, warrants ("Warrants") to purchase 250,000 shares of
the Company's common stock, par value $.01per share ("Common Stock").
NOW, THEREFORE, in consideration of the premises, the payment by the Holder
to the Company of TWENTY FIVE ($25.00) DOLLARS, the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agrees as follows:
1. Grant. The Holder and its designees is hereby granted the right to
-----
purchase, at any time from June 25, 1998, until 5:30 p.m., New York time, on
June 25, 2003, up to an aggregate of 250,000 shares of Common Stock at the
initial exercise price per share (subject to adjustment as provided in Section 8
hereof) as provided in Section 6 hereof.
Subject to the provisions hereof, on thirty (30) notice given at any time
commencing December 25, 1998, if and only if the Company has an effective
Registration Statement under the Securities Act of 1933, as amended ("Securities
Act")
<PAGE>
covering the sale by the Holder of his shares of Common Stock of the Company
issuable upon conversion of this Warrant, as provided in Section 7 hereof, this
Warrant may be redeemed, at the option of the Company, at a redemption price
equal to $.10 per Warrant (the "Redemption Price"), provided, however, that in
order for the Company to so redeem the Warrant, the Closing Bid Price of the
Common Stock issuable upon conversion of this Warrant shall be required to equal
or exceed $2.50 for thirty (30) consecutive business days, ending within 15 days
of the notice of redemption, which notice shall be mailed no later than five
days thereafter, subject to adjustment as set forth below. For purposes of this
Warrant, "Closing Bid Price" shall mean (i) the average of the closing bid price
of the Common Stock as reported by the Nasdaq Small-Cap Market or (ii) the
average of the last reported sale prices, on the primary exchange on which the
Common Stock is traded, if the Common Stock is traded on a national securities
exchange, including the Nasdaq National Market. All Warrants must be redeemed if
any are redeemed. The date fixed for redemption of the Warrants is referred to
herein as the "Redemption Date." The notice of redemption shall specify (i) the
Redemption Date, (ii) the place where the Warrants shall be delivered and the
Redemption Price paid and (iii) that the right to convert the Warrant shall
terminate at 5:00 P.M. (New York time) on the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of the proceedings for such redemption except as to a Holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Secretary or an Assistant Secretary of the Company that notice of redemption
has been mailed shall, in the absence of fraud, be prima facie evidence of
2
<PAGE>
the facts stated therein. Any right to convert a Warrant shall terminate at 5:00
P.M. (New York time) on the Redemption Date. After the Redemption Date, Holders
of the Warrants shall have no further rights except to receive, upon surrender
of the Warrant, the Redemption Price. After the Redemption Date, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of one or more
Warrants to be redeemed, deliver or cause to be delivered to or upon the written
order of such Holder a sum in cash equal to the Redemption Price of each such
Warrant. From and after the Redemption Date such Warrants shall expire and
become void and all rights hereunder except the right to receive payment of the
Redemption Price, shall cease. If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, or if the
Company shall declare a dividend of Common Stock on its Common Stock, the
Redemption Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
2. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
-------------------
3
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(S)3.1 Method of Exercise. The Warrants initially are exercisable at an
------------------
initial exercise price (subject to adjustment as provided in Section 8 hereof)
per share of Common Stock set forth in Section 6 hereof payable by certified or
official bank check in New York Clearing House funds, subject to adjustment as
provided in Section 8 hereof. Upon surrender of a Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the shares of Common Stock purchased
at the Company's principal offices (presently located at 18081 Magnolia Avenue,
Fountain Valley, CA 92708) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock underlying the Warrants). Warrants may be exercised to purchase all
or part of the shares of Common Stock represented thereby. In the case of the
purchase of less than all the shares of Common Stock purchasable under any
Warrant Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the shares of Common Stock.
(S)3.2 Exercise by Surrender of Warrant.
--------------------------------
(a) In addition to the method of payment set forth in Section 3.1 and in
lieu of any cash payment required thereunder, the Holder(s) of the Warrants
shall have the right at any time and from time to time exercise the Warrants in
full or in part by
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surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of shares of Common Stock equal to the product of (x)
the number of shares to which the Warrants are being exercised multiplied by (y)
a fraction, the numerator of which is the Market Price (as defined in Section
8.1 (vi) hereof) of the Common Stock less the Exercise Price and the denominator
of which is such Market Price.
(b) Solely for the purposes of this Section 3.2, Market Price shall be
calculated either (i) on the date on which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 13 hereof
("Notice Date") or (ii) as the average of the Market Price for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying such Warrants, shall be made forthwith (and in
any event such issuance shall be made within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance 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
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<PAGE>
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 Warrant Certificates and the certificates representing the shares of
Common Stock (and/or other securities, property or rights issuable upon exercise
of the Warrants) 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 under its corporate
seal reproduced thereon, attested to by the manual or facsimile signature of the
then present Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
-----------------------------------
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof.
6. Exercise Price.
--------------
(S)6.1 Initial and Adjusted Exercise Price. Except as otherwise provided
-----------------------------------
in Section 8 hereof, the initial exercise price of each Warrant shall be $0.25
per share of Common Stock. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof.
(S)6.2 Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
-------------------
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<PAGE>
(S)7.1 Registration Under the Securities Act of 1933. The Warrants and
---------------------------------------------
the shares of Common Stock issuable upon exercise of the Warrants and any of the
other securities issuable upon exercise of the Warrants have not been registered
under the Securities Act of 1933, as amended (the "Act") for public resale. Upon
exercise, in part or in whole, of the Warrants, certificates representing the
shares of Common Stock and any other securities issuable upon exercise of the
Warrants (collectively, the "Warrant Securities") shall bear the following
legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act") for public resale, and
may not be offered or sold except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable, Rule 144 under the
Act (or any similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
(S)7.2 Piggyback Registration. If, at any time during the five year
----------------------
period commencing after the date hereof, the Company proposes to register any of
its securities under the Act (other than in connection with a merger or pursuant
to Form S-8, S-4 or comparable registration statement) it will give written
notice by registered mail, at least thirty (30) days prior to the filing of each
registration statement, to Sands Brothers and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If Sands
Brothers or other Holders of the Warrants and/or Warrant Securities notify the
Company within twenty (20) days after receipt of any such notice of its or their
desire to include any such securities in such proposed registration statement,
the Company shall afford Sands Brothers and such Holders of the Warrants and/or
Warrant Securities the
7
<PAGE>
opportunity to have any such Warrant Securities registered under such
registration statement.
(S)7.3 Demand Registration.
-------------------
At any time during the term of this Warrant that the Company is eligible to
utilize Form S-3 (or any successor form) on a re-sale basis, but in any event by
no later than December 31, 1999, the Holders of the Warrants and/or Warrant
Securities representing a "Majority" (as hereinafter defined) of such securities
(assuming the exercise of all of the Warrants) shall have the right (which right
is in addition to the registration rights under Section 7.2 hereof), exercisable
by written notice to the Company, to have the Company prepare and file with the
Commission, on one occasion, a registration statement and such other documents,
including a prospectus, as may be necessary in the opinion of both counsel for
the Company and counsel for Sands Brothers and Holders, in order to comply with
the provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Securities for nine (9) consecutive months by such Holders
and any other Holders of the Warrants and/or Warrant Securities who notify the
Company within ten (10) days after receiving notice from the Company of such
request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within (10)
days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within
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<PAGE>
the time period specified in Section 7.4(a) hereof pursuant to the written
notice specified in Section 7.3(a) of a Majority of the Holders of the Warrants
and/or Warrant Securities, the Company agrees that upon the written notice of
election of a Majority of the Holders of the Warrants and/or Warrant Securities
it shall repurchase (i) any and all Warrant Securities at higher of the Market
Price (as defined in Section 8.1(vi)) per share of Common Stock on (x) the date
of the notice sent pursuant to Section 7.3(a) or (y) the expiration of the
period in Section 7.4(a) and (ii) any and all Warrants at such Market Price less
the exercise price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(d).
(S)7.4 Covenants of the Company With Respect to Registration. In
-----------------------------------------------------
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within sixty (60) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish the Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding any underwriting or selling
commissions or other charges of any broker-dealer acting on behalf of Holders),
fees and expenses in connection with all registration statements filed pursuant
to Sections
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<PAGE>
7.2 and 7.3(a) hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses. If the Company
shall fail to comply with the provisions of Section 7.4(a), the Company shall,
in addition to any other equitable or other relief available to the Holder(s),
be liable for any or all damages due to loss of profit sustained by the
Holder(s) requesting registration of its Warrant Securities.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of the
state requested by the Holder.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holder within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement.
(e) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(f) The Company shall not permit the inclusion of any securities other
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<PAGE>
than the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof without the prior written consent of the Holders
of the Warrants and Warrant Securities representing a Majority of such
securities (assuming an exercise of all of the Warrants).
(g) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering; a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to agents
subsequent to the date of such financial statements, are as customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offering of securities.
(h) 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
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<PAGE>
and covering a period of at least 12 consecutive months beginning after the
effective date of the registration agreement.
(i) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit the Holder and underwriter 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
as it deems necessary to comply with applicable securities laws or NASD rules.
(j) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation,
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
(k) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%)
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of the then outstanding Warrants or Warrant Securities that (i) are not held by
the Company, an affiliate, officer, creditor, employee or agent thereof or any
of their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith or (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under the Act.
8. Adjustments to Exercise and Number of Securities.
------------------------------------------------
(S)8.1 Computation of Adjusted Exercise 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 or sales referred to
in Section 8.7 hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants, to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock, for a consideration per share less than the Exercise
Price in effect immediately prior to the issuance or sale of such shares or the
"Market Price" (as defined in Section 8.1(vi) 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 such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (a) the lower of (i) the Exercise
Price in effect immediately prior to such issuance or sale and (ii) the Market
Price per share of Common Stock on the date immediately prior to the issuance or
sale of such shares, in either event, reduced, but not
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<PAGE>
to a number which is below .001, by the positive difference, if any, between the
(u) Market Price per share of Common Stock on the date immediately prior to the
issuance or sale and (v) the amount per share received in connection with such
issuance or sale, multiplied by (b) the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale, plus (Y) the aggregate
of the amount of all consideration, if any, received by the Company upon such
issuance or sale, by (B) the total number of shares of Common Stock outstanding
immediately after such issuance or sale; provided, however, that in no event
shall the Exercise Price be adjusted pursuant to this computation to an amount
in excess of the Exercise Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
provided by Section 8.3 thereof.
For the purposes of this Section 8 the term Exercise Price shall mean the
Exercise Price per share of Common Stock 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 8.1, the following provisions shall be applicable:
(i) In case of the issuance or sale or 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 either of such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before
14
<PAGE>
deducting therefrom any compensation paid or discount allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or others performing
similar services, or any expenses incurred in connection therewith and less any
amounts payable to security holders or any affiliate thereof, including without
limitation, any employment agreement, royalty, consulting agreement, covenant
not to compete, earned or contingent payment right or similar arrangement,
agreement or understanding, whether oral or written; all such amounts shall be
valued at the aggregate amount payable thereunder whether such payments are
absolute or contingent and irrespective of the period or uncertainty of payment,
the rate of interest, if any, or the contingent nature thereof.
(ii) In case of the issuance or sale (otherwise then as a dividend or other
distribution on any stock of the Company) 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.
(iii) 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.
(iv) The reclassification of securities of the Company other than 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
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<PAGE>
fixed for the determination of security holders entitled to receive such shares,
and the value of the consideration allocable to such shares of Common Stock
shall be determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(vi) As used herein, the phase "Market Price" at any date shall be deemed
to be the last reported sale price, or, in case no such reported sale takes
place on such day, the average of the last reported sale prices for the last
three (3) trading days, in either case as officially reported by the principal
securities exchange on which the Common Stock is listed or admitted to trading,
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, the average closing bid price as furnished by the NASD
through NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or if the Common stock is not quoted on NASDAQ, as determined in
good faith by resolution of the Board of Directors of the Company, based on the
best information available to it.
(S)8.2 Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof issue
- ----------
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share less than the Exercise Price in effect or the Market
Price immediately prior to the
16
<PAGE>
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration, the Exercise 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 8.1 hereof, provided that:
(l) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable under such options, rights or warrants 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 Warrants), if any,
received by the Company for such options, rights or warrants.
(m) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities 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 Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof.
(n) If any change shall occur in the price per share provided for in any
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of the options, rights or warrants referred to in subsection (a) of this Section
8.2, or in the price per share at which the securities referred to in subsection
(b) of this Section 8.2 are convertible or exchangeable, such options, rights or
warrants or conversion or exchange rights, as the case may be, 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 shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
(S)8.3 Subdivision and Combination. In case the Company shall at any time
---------------------------
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(S)8.4 Adjustment in Number of Securities. Upon each adjustment of the
----------------------------------
Exercise Price pursuant to the provisions of this Section 8, the number of
Securities issuable upon the exercise of each Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Securities
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(S)8.5 Definition of Common Stock. For the purpose of this Agreement, the
--------------------------
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term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as may be amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that the Company shall after the date hereof issue securities with
greater or superior voting rights than the shares of Common Stock outstanding as
of the date hereof, the Holder, at its option, may receive upon exercise of any
Warrant either shares of Common Stock or a like number of such securities with
greater or superior voting rights.
(S)8.6 Merger or Consolidation. 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 which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
Subsection shall
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similarly apply to successive consolidations or mergers.
(S)8.7 No Adjustment of Exercise Price in Certain Cases. No adjustment of
------------------------------------------------
the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of Common Stock
issuable upon the exercise of the Warrants; or
(b) If the amount of said adjustment shall be less than 2 cents ($.02) per
Security, provided, however, that in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to at least 2 cents ($.02)
per Security; or
(c) Upon the sale of shares of Common Stock at or below Market Price in an
underwritten public offering for the benefit of the Company.
(S)8.8 Dividends and Other Distributions. In the event that the Company
---------------------------------
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether issued by
the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the
20
<PAGE>
Warrants had been exercised immediately prior to such dividend or distribution.
At the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
Subsection 8.8.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Securities in such denominations as shall
be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any 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 Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. 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 Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
21
<PAGE>
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use reasonable efforts to cause all shares of Common Stock
issuable upon the exercise of the Warrants to be listed (subject to official
notice of issuance) on all securities exchanges on which the Common Stock issued
to the public in connection herewith may then be listed and/or quoted on NASDAQ
SmallCap or National Market.
12. Notice to Warrant Holders. Nothing contained in this Agreement shall
-------------------------
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other manner, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such
22
<PAGE>
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 exchange 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 notice of such event at
least fifteen (15) days prior to the date fixed as a record date or the date of
the 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.
13. 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 mailed by registered or certified mail, return receipt requested:
(a) If to the Holders, Sands Brothers & Co., Ltd., 90 Park Avenue, 39th
23
<PAGE>
Floor, New York, New York 10016 as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or to
such other address as the Company may designate by notice to the Holders.
14. Supplements and Amendments. Except as otherwise expressly provided
--------------------------
herein, the provisions of this Agreement may be amended or waived at any time
only by the written agreement of the parties hereto. Any waiver, permit, consent
or approval of kind or character on the part of each Company or the Holder of
any provisions or conditions of this Agreement must be made in writing and shall
be effective only to the extent specifically set forth in such writing.
15. Successors. All the covenants and provisions of this Agreement shall
----------
be binding upon and inure to the benefit of the Company, the Holder and their
respective successors and assigns hereunder.
16. Governing Law; Submission to Jurisdiction. This Agreement and each
-----------------------------------------
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all the 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.
The Company and the Holder hereby agree that any action, proceeding or
claim against it arising out of, or relating in any way to, this Agreement shall
be brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, and
the Holder hereby irrevocably
24
<PAGE>
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company and the Holder (at
the option of the party bringing such action, proceeding or claim) may be served
by transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address as set forth in
Section 13 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company and the Holder agree that the prevailing party(ies) in any such
action or proceeding shall be entitled to recover from the other party(ies) all
of its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
17. Entire Agreement; Modification. This Agreement and the Purchase
------------------------------
Agreement (to the extent portions thereof are referred to herein) contain the
entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought.
18. Severability. If any provision of this Agreement shall be held to be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
19. 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.
20. Benefits of this Agreement. Nothing in this Agreement shall be
--------------------------
25
<PAGE>
construed to give to any person or corporation other than the Company and the
Holder 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 Holder.
26
<PAGE>
21. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL]
United Leisure Corporation
By: /s/ Harry Shuster
---------------------------------
Title:
Attest:
Secretary
SANDS BROTHERS & CO., LTD
By: /s/ Mark G. Hollo
---------------------------------
Authorized Officer
27
<PAGE>
EXHIBIT A-1
FORM OF WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, JUNE 25, 2003
No. SB-1 250,000 Warrants
WARRANTS CERTIFICATE
This Warrant Certificate certifies that __________________________, or
registered assigns, is the registered holder of ___________ Warrants to purchase
initially, at any time from June 25, 1998, until 5:30 p.m. New York time on June
25, 2003 ("Expiration Date"), up to 250,000 fully-paid and non-assessable shares
of common stock, $.01par value per share ("Common Stock") of United Leisure
Corporation, a Delaware corporation (the "Company"), at an initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $0.25
per share of Common Stock, upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, or by
surrender of this Warrant Certificate in lieu of cash payment, but subject to
the conditions set forth herein and in the warrant agreement dated as of June
25, 1998 between the Company and Sands Brothers & Co., Ltd. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
1
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
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 Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; 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 Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax in 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 numbered 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 to them in the Warrant Agreement.
-A-2-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of June 25, 1998
United Leisure Corporation
[SEAL] By: _________________________________
Title:
Attest:
Secretary
-A-3-
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ shares of Common
Stock at an exercise price of $_______ per share and herewith tenders in payment
for such Securities a certified or official bank check payable in New York
Clearing House Funds to the order of ______________ in the amount of $____, all
in accordance with the terms hereof. The undersigned requests that a
certificate for such Securities be registered in the name of _____________ whose
address is _____________ and that such Certificate be delivered to _____________
whose address is _____________.
Signature __________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
-A-4-
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _______ shares of Common
Stock in accordance with the terms of Section 3.2 of that certain Warrant
Agreement dated as of June 25, 1998 between UNITED LEISURE CORPORATION and SANDS
BROTHERS & CO., LTD. The Undersigned requests that a certificate for such
Securities be registered in the name of _____________ whose address is
_____________ and that such Certificate be delivered to _____________ whose
address is _____________.
Signature __________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
________________________________
(Insert Social Security or Other Identifying
Number of Holder)
-A-5-
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ________________ here sells, assigns and transfers
unto
(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 the within-named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
(Insert Social Security or other
Identifying Number of Assignee)
-A-6-
<PAGE>
ACTUAL WARRANT FOLLOWS:
-A-7-
<PAGE>
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, JUNE 25, 2003
No. SB-1 125,000 Warrants
WARRANTS CERTIFICATE
This Warrant Certificate certifies that Sands Brothers & Co., Ltd., or
registered assigns, is the registered holder of 125,000 Warrants to purchase
initially, at any time from June 25, 1998, until 5:30 p.m. New York time on June
25, 2003 ("Expiration Date"), up to 125,000 fully-paid and non-assessable shares
of common stock, $.01par value per share ("Common Stock") of United Leisure
Corporation, a Delaware corporation (the "Company"), at an initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $0.25
per share of Common Stock, upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, or by
surrender of this Warrant Certificate in lieu of cash payment, but subject to
the conditions set forth herein and in the warrant agreement dated as of June
25, 1998 between the Company and Sands Brothers & Co., Ltd. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
-A-1-
<PAGE>
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
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 Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; 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 Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax in 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 numbered 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 to them in the Warrant Agreement.
-A-2-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of June 25, 1998
United Leisure Corporation
[SEAL] By: _________________________________
Title:
Attest:
Secretary
-A-3-
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ shares of Common
Stock at an exercise price of $_______ per share and herewith tenders in payment
for such Securities a certified or official bank check payable in New York
Clearing House Funds to the order of ______________ in the amount of $____, all
in accordance with the terms hereof. The undersigned requests that a
certificate for such Securities be registered in the name of _____________ whose
address is _____________ and that such Certificate be delivered to _____________
whose address is _____________.
Signature __________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
-A-4-
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _______ shares of Common
Stock in accordance with the terms of Section 3.2 of that certain Warrant
Agreement dated as of June 25, 1998 between UNITED LEISURE CORPORATION and SANDS
BROTHERS & CO., LTD. The Undersigned requests that a certificate for such
Securities be registered in the name of _____________ whose address is
_____________ and that such Certificate be delivered to _____________ whose
address is _____________.
Signature __________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
-A-5-
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ________________ here sells, assigns and transfers
unto
(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 the within-named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
(Insert Social Security or other
Identifying Number of Assignee)
-A-6-
<PAGE>
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, JUNE 25, 2003
No. SB-2 125,000 Warrants
WARRANTS CERTIFICATE
This Warrant Certificate certifies that Mark G. Hollo, or registered
assigns, is the registered holder of 125,000 Warrants to purchase initially, at
any time from June 25, 1998, until 5:30 p.m. New York time on June 25, 2003
("Expiration Date"), up to 125,000 fully-paid and non-assessable shares of
common stock, $.01par value per share ("Common Stock") of United Leisure
Corporation, a Delaware corporation (the "Company"), at an initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), of $0.25
per share of Common Stock, upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, or by
surrender of this Warrant Certificate in lieu of cash payment, but subject to
the conditions set forth herein and in the warrant agreement dated as of June
25, 1998 between the Company and Sands Brothers & Co., Ltd. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
-A-1-
<PAGE>
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
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 Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; 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 Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax in 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 numbered 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 to them in the Warrant Agreement.
-A-2-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of June 25, 1998
United Leisure Corporation
[SEAL] By: ________________________________
Title:
Attest:
Secretary
-A-3-
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ shares of Common
Stock at an exercise price of $_______ per share and herewith tenders in payment
for such Securities a certified or official bank check payable in New York
Clearing House Funds to the order of ______________ in the amount of $____, all
in accordance with the terms hereof. The undersigned requests that a
certificate for such Securities be registered in the name of _____________ whose
address is _____________ and that such Certificate be delivered to _____________
whose address is _____________.
Signature __________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
-A-4-
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _______ shares of Common
Stock in accordance with the terms of Section 3.2 of that certain Warrant
Agreement dated as of June 25., 1998 between UNITED LEISURE CORPORATION and
SANDS BROTHERS & CO., LTD. The Undersigned requests that a certificate for such
Securities be registered in the name of _____________ whose address is
_____________ and that such Certificate be delivered to _____________ whose
address is _____________.
Signature __________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
-A-5-
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ________________ here sells, assigns and transfers
unto
(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 the within-named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
(Insert Social Security or other
Identifying Number of Assignee)
-A-6-
<PAGE>
EXHIBIT 10.45
OPTION AGREEMENT
AGREEMENT, dated as of September 22, 1998, between UNITED LEISURE
CORPORATION, a Delaware corporation (the "Company"), and BRIAN SHUSTER (the
"Optionee"), a Director of the Company and President and a Director of the
Company's wholly-owned subsidiary, United Internet Technologies, Inc., a
Delaware corporation ("UIT").
W I T N E S S E T H:
-------------------
WHEREAS, the Optionee is Executive Vice President and a Director of the
Company and President of UIT, and is considered by the Board of Directors of the
Company to have substantially contributed to the development of the Company's
business through his efforts on behalf of UIT;
WHEREAS, the Company desires to provide the Optionee with such compensation
and to otherwise provide him with incentive to remain as Executive Vice
President of UIT and to continue to work for the Company's best interests in the
future.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants hereinafter contained, the Company and the Optionee hereby agree
as follows:
1. Grant of Option. The Company hereby grants to the Optionee the
---------------
irrevocable option (the "Option") to purchase, on the terms and conditions
herein set forth, up to 300,000 of
<PAGE>
the Company's fully paid and nonassessable shares of Common Stock, par value
$.01 per share, at an option price determined as set forth in Section 2 of this
Agreement.
2. Option Price. The option price for any shares of Common Stock of the
------------
Company to be purchased pursuant to the Option by valid exercise from time to
time during the term thereof by the Optionee shall be $0.25, the estimated fair
market value of such Common Stock as of September 22, 1998.
3. Period of Option. The Option is exercisable at any time during a
----------------
period of five years commencing September 22, 1998 and ending September 21,
2003. The Option may be exercised from time to time during the option period as
to the total number of shares covered thereby or any lesser amount thereof. The
Option is nonexercisable after September 21, 2003. Termination of the Optionee's
relationship with the Company shall not affect the ability of Optionee to
exercise the Option.
4. Adjustments. If each of the outstanding shares of Common Stock of the
-----------
Company (other than shares held by dissenting stockholders) shall be changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation (whether by reason of
agreement, consolidation, recapitalization, reclassification, split-up,
combination of the shares or otherwise), then there shall be substituted for
each share covered by the Option, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock of the
Company (other than shares held by dissenting stockholders) shall be so changed
or for which each such share shall be changed. If there shall
-2-
<PAGE>
be any other change in the number or kind of the outstanding shares of Common
Stock of the Company, or any stock or securities into which such Common Stock
shall have been changed, or for which it shall have been exchanged, then if the
Board of Directors of the Company shall, in its sole discretion, determine that
such change equitably requires an adjustment in the number or kind or option
price of the shares covered by the Option, or an adjustment in the number or
kind of other shards subject, or which may be subject, to the Option, such
adjustment shall be made in accordance with such determination. Fractional
shares resulting from any adjustment in the Option pursuant to this Section 4
may be settled in cash or otherwise as the Board of Directors of the Company
shall determine. Notice of any adjustment shall be given by the Company to the
Optionee and such adjustment (whether or not such notice is given or received)
shall be effective and binding for all purposes of the Option.
5. Reservation of Shares. The Company covenants and agrees that it has
---------------------
reserved and shall at all times, so long as the Option is outstanding, reserve
and keep available out of its authorized but unissued Common Stock, par value
$.01 per share, solely for the purpose of issuing Common Stock upon the exercise
of the Option, the full number of shares of Common Stock deliverable upon the
exercise of the Option.
6. Stockholder's Rights. The Optionee shall not, based on his being
--------------------
Optionee hereunder, be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other security of the Company which may at any
time be issuable on the exercise of the Option for any purpose, nor shall
anything contained herein be construed to confer upon the Optionee, as such, any
of the rights of a stockholder of the Company or any right to vote for the
-3-
<PAGE>
election of Directors on any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issue of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Option shall have been exercised and
the Common Stock purchasable upon the exercise hereof shall have become
deliverable as provided herein.
7. Transferability. The Option is not transferable by the Optionee
---------------
otherwise than by will or the laws of descent or distribution, and is
exercisable during the Optionee's lifetime only by the Optionee.
8. Method of Exercise of Option. The Option may be exercised in whole or
----------------------------
in part by the Optionee's giving written notice, specifying the number of shares
which the Optionee elects to purchase and the date on which such purchase is to
be made, to the Company by mail, postage prepaid, or delivering such notice
addressed to the Company, at its principal office in Fountain Valley,
California, attention of the President, at least ten and not more than thirty
days prior to the date specified in such notice as the date on which such
purchase is to be made. Such notice shall contain (if required by the Company
so that the Company, on issuing the shares to the Option, will comply with the
applicable securities laws) a written representation by the Optionee that (i) he
is acquiring the shares to be so purchased for investment and not with a view to
distribution to the public and (ii) he will not dispose of the shares so
purchased except in compliance with the Securities Act of 1933, as amended, and
the rules and regulations (such as
-4-
<PAGE>
Rule 144) promulgated thereunder applicable at the time to such disposition.
The Company may require further assurances that the acquisition of the shares
will not involve any violations of law.
If such exercise shall be in accordance with the provisions of the Option,
the Company shall, on the date specified in the notice and against receipt from
the Optionee of the option price, deliver, at its principal office in Fountain
Valley, California, a certificate or certificates for the shares of Common Stock
so purchased and shall pay all stamp taxes payable in connection therewith. For
purposes of this Section 9, a person to whom the Option is transferred by will
or the laws of descent and distribution, as contemplated by Section 7, shall be
deemed the Optionee.
Each stock certificate for shares issued on exercise of the Option shall
bear the following legend:
"The Shares represented by this Certificate have not been registered
under the Securities Act of 1933. The Shares may not be sold or offered
for sale in the absence of an effective Registration Statement for the
Shares under the Securities Act of 1933 or an option of counsel of the
Company that such registration is not required."
9. Binding Agreement. This Option Agreement shall be binding upon and
-----------------
shall inure to the benefit of any successor or assign of the Company and the
Optionee's legal representatives.
-5-
<PAGE>
10. Entire Agreement. This Agreement contains the entire agreement of the
----------------
parties with respect to the Option and may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
change, modification or extension is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the day and year first above written.
UNITED LEISURE CORPORATION
By /s/ Harry Shuster
-----------------------------------------------
Harry Shuster
Chairman of the Board, President and Chief
Executive Officer
AGREED TO AND ACCEPTED:
/s/ Brian Shuster
- -------------------------------
Brian Shuster
-6-
<PAGE>
EXHIBIT 10.46
OPTION AGREEMENT
AGREEMENT, dated as of September 30, 1998, between UNITED LEISURE
CORPORATION, a Delaware corporation (the "Company"), and HARRY SHUSTER, Chairman
of the Board, President and Chief Executive Officer of the Company (the
"Optionee").
W I T N E S S E T H:
-------------------
WHEREAS, the Optionee is the Chairman of the Board, President and Chief
Executive Officer of the Company and is considered by the Board of Directors of
the Company to have substantially contributed to the development of the
Company's business;
WHEREAS, the Optionee has personally guaranteed certain indebtedness of the
Company or provided other credit accommodations and extraordinary benefits to
the Company and is entitled to be compensated for undertaking such liabilities
or providing such benefits; and
WHEREAS, the Company desires to provide the Optionee with such compensation
and to otherwise provide him with incentive to remain as Chairman of the Board,
President and Chief Executive Officer of the Company and to continue to work for
its best interest in the future.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants hereinafter contained, the Company and the Optionee hereby agree
as follows:
<PAGE>
1. Grant of Option. The Company hereby grants to the Optionee the
---------------
irrevocable option (the "Option") to purchase, on the terms and conditions
herein set forth, up to 2,100,000 of the Company's fully paid and nonassessable
shares of Common Stock, par value $.01 per share, at an option price determined
as set forth in Section 2 of this Agreement.
2. Option Price. The option price for any shares of Common Stock of the
------------
Company to be purchased pursuant to the Option by valid exercise from time to
time during the term thereof by the Optionee shall be $0.625, the estimated fair
market value of such Common Stock as of July 30, 1997.
3. Period of Option. The Option is exercisable at any time during a
----------------
period of five years commencing September 30, 1998 and ending September 29,
2003. The Option may be exercised from time to time during the option period as
to the total number of shares covered thereby or any lesser amount thereof. The
Option is nonexercisable after September 29, 2003. Termination of the Optionee's
relationship with the Company shall not affect the Optionee's ability to
exercise the Option.
4. Adjustments. If each of the outstanding shares of Common Stock of the
-----------
Company (other than shares held by dissenting stockholders) shall be changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation (whether by reason of
agreement, consolidation, recapitalization, reclassification, split-up,
combination of the shares or otherwise), then there shall be substituted for
each share covered by the Option, the number and kind of shares of stock or
other securities into which each
-2-
<PAGE>
outstanding share of Common Stock of the Company (other than shares held by
dissenting stockholders) shall be so changed or for which each such share shall
be changed. If there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Company, or any stock or securities
into which such Common Stock shall have been changed, or for which it shall have
been exchanged, then if the Board of Directors of the Company shall, in its sole
discretion, determine that such change equitably requires an adjustment in the
number or kind or option price of the shares covered by the Option, or an
adjustment in the number or kind of other shards subject, or which may be
subject, to the Option, such adjustment shall be made in accordance with such
determination. Fractional shares resulting from any adjustment in the Option
pursuant to this Section 4 may be settled in cash or otherwise as the Board of
Directors of the Company shall determine. Notice of any adjustment shall be
given by the Company to the Optionee and such adjustment (whether or not such
notice is given or received) shall be effective and binding for all purposes of
the Option.
5. Reservation of Shares. The Company covenants and agrees that it has
---------------------
reserved and shall at all times, so long as the Option is outstanding, reserve
and keep available out of its authorized but unissued Common Stock, par value
$.01 per share, solely for the purpose of issuing Common Stock upon the exercise
of the Option, the full number of shares of Common Stock deliverable upon the
exercise of the Option.
6. Stockholder's Rights. The Optionee shall not, based on his being
--------------------
Optionee hereunder, be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other security of the Company which may at any
time be issuable on the exercise of the
-3-
<PAGE>
Option for any purpose, nor shall anything contained herein be construed to
confer upon the Optionee, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of Directors on any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Option shall have been exercised and the Common Stock purchasable upon the
exercise hereof shall have become deliverable as provided herein.
7. Transferability. The Option is not transferable by the Optionee
---------------
otherwise than by will or the laws of descent or distribution, and is
exercisable during the Optionee's lifetime only by the Optionee.
8. Method of Exercise of Option. The Option may be exercised in whole or
----------------------------
in part by the Optionee's giving written notice, specifying the number of shares
which the Optionee elects to purchase and the date on which such purchase is to
be made, to the Company by mail, postage prepaid, or delivering such notice
addressed to the Company, at its principal office in Fountain Valley,
California, attention of the President, at least ten and not more than thirty
days prior to the date specified in such notice as the date on which such
purchase is to be made. Such notice shall contain (if required by the Company
so that the Company, on issuing the shares to the Option, will comply with the
applicable securities laws) a written representation by the Optionee that (i) he
is acquiring the shares to be so purchased for investment and not with a view to
distribution to the public and (ii) he will not dispose of the shares so
purchased except in
-4-
<PAGE>
compliance with the Securities Act of 1933, as amended, and the rules and
regulations (such as Rule 144) promulgated thereunder applicable at the time to
such disposition. The Company may require further assurances that the
acquisition of the shares will not involve any violations of law.
If such exercise shall be in accordance with the provisions of the Option,
the Company shall, on the date specified in the notice and against receipt from
the Optionee of the option price, deliver, at its principal office in Fountain
Valley, California, a certificate or certificates for the shares of Common Stock
so purchased and shall pay all stamp taxes payable in connection therewith. For
purposes of this Section 9, a person to whom the Option is transferred by will
or the laws of descent and distribution, as contemplated by Section 7, shall be
deemed the Optionee.
Each stock certificate for shares issued on exercise of the Option shall
bear the following legend:
"The Shares represented by this Certificate have not been registered
under the Securities Act of 1933. The Shares may not be sold or offered
for sale in the absence of an effective Registration Statement for the
Shares under the Securities Act of 1933 or an option of counsel of the
Company that such registration is not required."
-5-
<PAGE>
9. Binding Agreement. This Option Agreement shall be binding upon and
-----------------
shall inure to the benefit of any successor or assign of the Company and the
Optionee's legal representatives.
10. Entire Agreement. This Agreement contains the entire agreement of the
----------------
parties with respect to the Option and may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
change, modification or extension is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the day and year first above written.
UNITED LEISURE CORPORATION
By /s/ Harry Shuster
-----------------------------------------------
Harry Shuster
Chairman of the Board, President and Chief
Executive Officer
AGREED TO AND ACCEPTED:
/s/ Harry Shuster
- ----------------------------------
Harry Shuster
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-QSB FOR THE
QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,754,758
<SECURITIES> 0
<RECEIVABLES> 10,853
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,877,426
<PP&E> 2,049,756
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,061,119
<CURRENT-LIABILITIES> 2,776,739
<BONDS> 842,000
0
0
<COMMON> 139,188
<OTHER-SE> 6,261,192
<TOTAL-LIABILITY-AND-EQUITY> 10,061,119
<SALES> 0
<TOTAL-REVENUES> 2,158,748
<CGS> 0
<TOTAL-COSTS> 3,050,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288,306
<INCOME-PRETAX> 1,304,830
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,304,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,304,830
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
