As filed with the Securities and Exchange Commission on June 30, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CEC PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
7997
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBERS)
13-1919940
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
1500 W. BALBOA BOULEVARD, SUITE 201
NEWPORT BEACH, CALIFORNIA 92663
(714) 673-2282
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAUL BALALIS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CEC PROPERTIES, INC.
1500 W. BALBOA BOULEVARD, SUITE 201
NEWPORT BEACH, CALIFORNIA 92663
(714) 673-2282
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JEFFREY L. LINDEN, ESQ.
COHEN & LORD, A PROFESSIONAL CORPORATION
4720 LINCOLN BOULEVARD, SUITE 200
MARINA DEL REY, CALIFORNIA 90292
TELEPHONE: (310) 821-1163
TELECOPIER: (310) 821-7828
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
(continued on following page)
<PAGE>
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. X
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities Amount To Offering Price Aggregate Offering Registration
To Be Registered Be Registered (1) Per Share(2) Price Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 2,835,500 shares $1.72 $4,877,060 $1,438.72
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</TABLE>
(1) In the event of a stock split, stock dividend, or similar
transaction involving common stock, par value $.01 per share
(the "Common Stock") of the Registrant, in order to prevent
dilution, the number of shares registered shall be
automatically increased to cover the additional shares of
Common Stock in accordance with Rule 416(a) under the
Securities Act of 1933, as amended (the "Securities Act").
(2) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) under the Securities
Act. Represents the average of the high and low bid prices
(rounded to the nearest tenth) of the Common Stock as of June
25, 1998, as reported by the National Quotation Bureau, Inc.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time that the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
Subject to Completion, Dated June 30, 1998
2,835,500 SHARES OF COMMON STOCK
CEC PROPERTIES, INC.
This Prospectus relates to an aggregate of 2,835,500 shares of common
stock, par value $.01 per share (the "Common Stock"), of CEC Properties, Inc.
(the "Company"), consisting of (i) the proposed offer and resale from time to
time by certain stockholders of the Company (the "Selling Stockholders"),
subject to certain restrictions and limitations, of an aggregate of up to
2,233,000 shares of Common Stock (the "Resale Shares") which will be acquired
by the Selling Stockholders upon the conversion of Series A Convertible
Preferred Stock issued in connection with shares acquired pursuant to a
private placement by the Company of its Series A Convertible Preferred Stock
(1,485,500 shares) purchased by the Selling Stockholders and in connection
with a financial consulting arrangement (625,000 shares), and (ii) the
possible issuance by the Company and resale by the recipient(s), subject to
certain restrictions and limitations, of 602,500 shares of Common Stock in
connection with the exercise of Warrants to purchase shares of Common Stock
acquired as part of the private placement or as a portion of the fee of the
selling agent in connection with the private placement (the "Warrant Shares"
and, together with the Resale Shares, the "Shares"). See "PLAN OF
DISTRIBUTION." The Shares registered hereby have been registered pursuant to
the Company's obligations contained in a written agreement with the Selling
Stockholders. The Company is registering the Resale Shares which are issued
upon conversion of the outstanding Preferred Stock and the Warrant Shares to
provide the holders of such Shares, other than affiliates of the Company,
upon issuance, with fully tradeable shares of Common Stock. There can be no
assurance, despite registration of the Shares hereunder, that any of the
Resale Shares will be sold by the Selling Stockholders or that the Warrant
Shares will be issued by the Company or be offered and sold by the holder(s)
thereof. The holders of the Preferred Stock have advised the Company that
they intend to convert their Preferred Stock upon or shortly after this
registration becomes effective.
The Company will not receive any proceeds from the sale of the Resale
Shares by the Selling Stockholders or from the resale of the Warrant Shares,
when and if issued, by the holder thereof, although the Company will receive
up to $1,820,313 upon the exercise of the Warrant Shares. The Company will
pay all of the expenses, estimated to be approximately $35,000, in connection
with this offering, other than underwriting and brokerage commissions,
discounts, fees and counsel fees and disbursements and expenses attributed
solely to the Selling Stockholders. See "USE OF PROCEEDS," "SELLING
STOCKHOLDERS" and "PLAN OF DISTRIBUTION."
The Company's publicly traded Common Stock is currently quoted by the
National Quotation Bureau, Inc. under in the OTC Electronic Bulletin Board
under the symbol "CECI." On June 25, 1998, the last reported high and low bid
price of the Common Stock as quoted by the National Quotation Bureau, Inc.
was $1.72 per share.
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<PAGE>
The Company has registered (i) 2,233,000 Resale Shares under the
Securities Act of 1933, as amended (the "Securities Act"), for possible
issuance of up to 1,485,500 of such shares in connection with the conversion
of the outstanding Series A Convertible Preferred Stock and subsequent resale
thereof and 625,000 shares issued or to be issued to a financial consultant
for resale by the Selling Stockholders, and (ii) 602,500 Warrant Shares for
the possible issuance thereof by the Company in connection with the exercise
of outstanding warrants and the subsequent resale thereof by the recipient(s)
after such exercise. The Selling Stockholders have advised the Company that
they intend to convert their shares of Preferred Stock upon or shortly after
this registration becomes effective and may from time to time sell all or
part of the Shares in one or more transactions on the OTC Bulletin Board. The
Resale Shares may also be offered in negotiated transactions, at fixed prices
which may be changed, at market prices prevailing at the time of sale, or at
negotiated prices. The Selling Stockholders may effect such transactions by
selling the Resale Shares in negotiated transactions, on the OTC Bulletin
Board or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Resale Shares for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). Alternatively, the Selling Stockholders may from time
to time offer the Resale Shares through underwriters, dealers or agents, who
may receive compensation in the form of underwriting discounts, concessions
or commissions from the Selling Stockholders and/or the purchasers of
securities for whom they act as agents. See "SELLING STOCKHOLDERS" and "PLAN
OF DISTRIBUTION."
The Resale Shares being offered hereby by the Selling Stockholders have
not been registered for sale under the securities laws of any state or
jurisdiction as of the date of this Prospectus. Brokers or dealers effecting
transactions in the Resale Shares should confirm the registration thereof
under the securities laws of the state in which such transactions occur, or
the existence of any exemption from registration.
FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK,
SEE "RISK FACTORS" COMMENCING ON PAGE __ HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE nOF THIS PROSPECTUS IS _______, 1998
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<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A
SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, ANY SECURITIES IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information filed by the Company may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such materials can be obtained
upon written request from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") under the Securities Act. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement. Each statement made in this Prospectus
concerning a document filed as part of the Registration Statement is
qualified in its entirety by reference to such document for a complete
statement of its provisions. Copies of the Registration Statement may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission, at the
address set forth above, or on the World Wide Web through the Commission's
Internet address at "http://www.sec.gov."
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THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE
COMPANY, INCLUDING STATEMENTS UNDER THE CAPTION "SUMMARY." THESE
FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO
ASSURANCE CAN BE GIVEN THAT ANY SUCH MATTERS WILL BE REALIZED. FACTORS THAT
MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING
POSSIBILITIES: (I) COMPETITIVE CONDITIONS IN THE INDUSTRIES IN WHICH THE
COMPANY OPERATES; AND (II) GENERAL ECONOMIC CONDITIONS THAT ARE LESS
FAVORABLE THAN EXPECTED. FURTHER INFORMATION ON OTHER FACTORS WHICH COULD
AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING
STATEMENTS IS INCLUDED IN THE SECTION HEREIN ENTITLED "RISK FACTORS."
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-188)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Reports on Form 10-KSB for the fiscal years
ended October 31, 1996 and October 31, 1997; and
2. All other reports filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since October 31, 1997, consisting of
(i) the Company's Quarterly Reports on Form 10-QSB for the fiscal
quarters ended January 31, 1998, and April 30, 1998, and (ii) the
Company's Amendment Number 1 to its 10-QSB for the fiscal quarter
ended January 31, 1998, dated June 15, 1998, and
All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering made hereby shall be deemed
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference, or contained in this Prospectus, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified shall not
be deemed to constitute a part of this Prospectus except as so modified, and any
statement so superseded shall not be deemed to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person, including any
beneficial owner of the Shares, to whom a copy of this Prospectus is delivered,
upon the written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference (other than exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests for such copies should be directed to: Stockholder
Relations Department, CEC Properties, Inc. 1500 W. Balboa Blvd., Suite 201
Newport Beach, CA 92663.
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<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. INVESTORS
SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK
FACTORS." ALL REFERENCES TO FISCAL YEARS REFER TO THE FISCAL YEAR OF THE COMPANY
ENDING OCTOBER 31. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES IN THIS
PROSPECTUS TO THE "COMPANY" REFER TO CEC PROPERTIES, INC., ITS SUBSIDIARIES AND
PREDECESSORS.
THE COMPANY
The Company is currently engaged in the management of golf courses with
a current portfolio of two golf properties consisting of public (or daily fee)
courses. The Company's courses are in the Atlanta, Georgia area, which has a
large golfing population and an attractive climate. Additionally, the Company
has an option to enter into a 40 year lease with the County of Ventura,
California for the construction and the management of an 18 hole golf course
known as the "Camarillo Creek" course and has entered into a 50 year lease to
construct an 18 hole golf course in the Cherokee County area of Atlanta,
Georgia. The Company also maintains a driving range in the Atlanta area for
which it receives a monthly fee. The clustering in the Atlanta, Georgia area
enables the Company to efficiently manage its courses and improve profitability
by sharing many administrative functions and capitalizing on joint marketing
opportunities and economies of scale.
The Company was incorporated in Delaware in 1960. Prior to 1995, the
Company then known as Ben Wa International, Inc., was largely inactive for many
years. In 1995, Paul Balalis, president, chief executive officer and chairman of
the Board of Directors, acquired control of the Company, changed its name and
was principally responsible in causing the Company to embark upon its current
strategy. The Company's principal office is located at 1500 West Balboa
Boulevard, Suite 201, Newport Beach, California 92663, and its telephone number
is 714-673-2282.
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<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
-------------------------------------------------------- ---------------------------------------------------------------
<S> <C>
SECURITIES OFFERED.................................... 2,835,500 shares of Common Stock, consisting of (i) 2,233,000
shares of Common Stock for sale by the Selling Stockholders;
and (ii) 602,500 shares of Common Stock for possible
issuance by the Company in connection with the exercise of
outstanding Warrants. See "DESCRIPTION OF COMMON STOCK."
COMMON STOCK OUTSTANDING PRIOR
TO THE OFFERING (1)................................... 12,676,724 shares of Common Stock
CONVERTIBLE PREFERRED STOCK OUTSTANDING, PRIOR TO THE
OFFERING (2) 1,005,000 shares of Convertible Preferred Stock
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING (1)................................ 15,512,224 shares of Common Stock
CONVERTIBLE PREFERRED STOCK TO BE OUTSTANDING
AFTER THE OFFERING( 2) None
USE OF PROCEEDS....................................... The Company will not receive any proceeds from the sale of
the Resale Shares by the Selling Stockholders or from the
resale of the Warrant Shares, when and if issued, by the
holder thereof (although it will receive up to $1,820,313
upon exercise of the Warrant Shares). See "USE OF PROCEEDS."
TRADING SYMBOL........................................ The Common Stock is traded on the OTC Bulletin Board under
the symbol CECI.
</TABLE>
- --------------------------
1 Does not include, as of June ___, 1998, or 155,000 shares of Common Stock
issuable upon exercise of certain options but does include the Preferred
Shares as if fully converted at the maximum conversion amount permitted
pursuant to the terms of the Preferred Stock and the Warrant Shares, as if
exercised.
2. Assumes all Preferred Stock will be converted to the Common Stock offered
hereby, at the maximum rate.
7
<PAGE>
RISK FACTORS
IN CONSIDERING THE MATTERS SET FORTH IN THIS PROSPECTUS, PROSPECTIVE
PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH BELOW AS WELL AS
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
WORKING CAPITAL DEFICIT; ADDITIONAL PROCEEDS REQUIRED
As of April 30, 1998, the Company had a working capital deficit of
$403,061 primarily due to the costs of the Company's recent acquisitions, which
the Company eliminated in late May with the proceeds from an approximately
$1,000,000 private placement. However, there can be no assurance that the
Company will be able to successfully operate its current business and other
operations that may be acquired in the future. The Company believes that the net
proceeds of the private placement (approximately $850,000), debt financing of
approximately $8,000,000 in connection with the construction of new golf courses
and cash flow from operations, will be sufficient to allow the Company to
conduct its operations as currently contemplated for a period of approximately
18 months from the date of this Prospectus. The Company has not yet obtained the
$8,000,000 of construction financing and there can be no assurance said funds or
other funds which may be required will be available and if available will be on
terms and conditions acceptable to the Company. In the event that the Company
plans change or prove to be inaccurate, the Company would be required to seek
partners, or additional financing sooner than currently anticipated or may be
required to curtail its activities.
LIMITED OPERATING HISTORY; NET LOSSES
Since its reorganization in April, 1995, the Company has been in an
early development stage in which its activities have been concentrated first on
the acquisition of single family commercial residential properties and since
late 1997, on the acquisition, lease and management of golf course properties.
The Company has experienced net losses since its inception. Net losses for the
fiscal years ended October 31, 1996, and 1997 were approximately $72,000 and
$94,000, respectively, and net losses for the six months ended April 30, 1998
were $15,750. There can be no assurance that the Company's future operations
will generate operating income or net income or sufficient cash flow to pay its
obligations. The Company is subject to all of the risks inherent in the
operation of a recently established business enterprise. The likelihood of the
success of the Company must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in the
construction and opening of new golf courses.
SHORT-TERM LEASES; LEASES WITH MUNICIPALITIES
The Company's leases with municipalities at the two courses it
currently operates are subject to provisions which restrict the Company's
ability to increase greens fees and other charges. Absent modifications, such
restrictions will have an adverse effect on the Company's ability to increase
revenue and improve operating cash flow at those courses. It is probable that
any new leases with municipalities will also include similar restrictions.
Additionally, the two courses currently managed by the Company are leased for
short terms of two to four years requiring continual renewal. While the Company
believes that historical precedent favors renewal there is no guaranty of such
renewal or that renewal will be at rates and on terms which are acceptable or
economic. In any event, the municipalities retain the right to terminate the
leases at any time on 60 days prior notice. The termination of either of the
Company's leases would have a material adverse effect on the Company. If any of
the Company's leases were terminated there can be no assurance that the Company
would be able to enter into leases for comparable facilities on favorable terms,
or at all.
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CORPORATE STRUCTURE, EFFECTS OF ASSETS ENCUMBRANCES
Substantially all of the Company's operating income is generated by two
golf courses, which have only recently been acquired. As a result, the Company
will rely on cash received from these courses to provide the majority of the
funds necessary to meet its debt service obligations and operating expenses.
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
The Company's ability to significantly increase revenues and operating
cash flow over time depends in large part upon its success in leasing and
constructing or acquiring additional golf courses upon satisfactory terms. The
Company is currently involved in the investigation and evaluation of potential
golf course acquisitions. Acquisitions consist of a number of risks, including
the diversion of management's attention from day-to-day operations. Certain
acquisitions may consume a substantial portion of the Company's financial
resources. Since its reorganization in April, 1995, the Company has made
acquisitions for an aggregate purchase price of approximately $800,000. The
Company historically has financed its acquisitions through borrowing from Paul
Balalis, its majority stockholder, president and chairman of the Board of
Directors, internally-generated cash flow and the issuance of equity securities.
The acquisition of golf courses may become more expensive in the future to the
extent that demand and competition increases. The construction of new golf
centers is subject to all the delays and uncertainties associated with
construction projects generally. There can be no assurance that the Company will
be able to consummate leasing transactions or acquisitions of additional golf
courses on satisfactory terms, or that the Company will be effective in managing
its future growth or in assimilating acquisitions, or that any failure to manage
growth or successfully assimilate such acquisitions will not have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company's ability to effect its growth strategy depends to a
significant degree on its ability to obtain additional long-term debt or equity
capital. The Company has no commitments for additional borrowings or sales of
equity, and there can be no assurance that the Company will be successful in
consummating any such future financing transactions on terms favorable to the
Company or that any contractual arrangements or acquisition will not result in
the Company incurring any additional indebtedness.
UNCERTAINTIES SURROUNDING DILUTIVE IMPACT OF AND CAPITAL REQUIREMENTS RELATING
TO GROWTH STRATEGY
In order to grow its business by means of acquisitions, the Company
will require significant capital resources, both for the payment of the cost of
acquiring businesses, and for the effective integration, operation and expansion
of the acquired businesses. In the past, the Company has utilized its Common
Stock as a means of making payment for acquired businesses. Depending on the
agreed-upon value of the acquired business and the value of the Common Stock,
the Company may be required to issue a large number of additional shares of
Common Stock, thereby diluting existing stockholders. Alternatively, to avoid
such dilution, or if the acquisition candidate is unwilling to accept Common
Stock as all or part of the consideration for the transaction, the Company might
be required to utilize more of its cash resources (if available), or may be
required to seek additional capital. There can be no assurance that such
additional capital, if and when required, will be available on terms acceptable
to the Company, if at all. If the Company is unable to obtain required capital
resources, its growth could be limited, and its existing operations could be
impaired.
COMPETITION; SUITABLE LOCATIONS
The Company competes for the purchase, lease and management of golf
courses with national and regional golf course companies. Many of the Company's
competitors have larger staffs and more golf courses currently owned, leased or
under management than does the Company. In addition, many of the Company's
competitors may have significantly greater financial resources, experience and
customer recognition than does the Company.
9
<PAGE>
Golf courses are also subject to competition for players and members
from other golf courses located in the same geographic areas. The Company
believes that the location of the golf course is one of the most important
factors in the success of such a course. The number and quality of golf courses
in a particular area could have a material effect on the revenue of a golf
course. The availability of sufficient acreage often limits the number of
competing courses, particularly in metropolitan areas. However, the parts of
Georgia and California in which the Company's existing and planned properties
are clustered have significant open land available, and there has been continued
construction of both public and private golf facilities in those areas. The
Company carefully evaluates these and other factors before acquiring a golf
course, and tailors its marketing strategy to fit the demographic and
competitive characteristics of the community. However there can be no assurance
that the Company will be able to obtain additional suitable locations on
favorable terms or at all.
RELIANCE ON KEY PERSONNEL
The success of the Company is largely dependent upon the expertise and
abilities of Milton Abell and to a lesser extent Thomas Quinn as well as its
ability to attract and retain qualified golf course general managers and
superintendents. There is significant competition in the golf course management
industry for qualified personnel, and there can be no assurance that the Company
will be able to retain its existing senior management or golf course personnel
or recruit new personnel to support its acquisition plans.
FACTORS AFFECTING GOLF PARTICIPATION; COURSE CONDITIONS
The success of efforts to increase the number of rounds played at a
public golf course have historically been dependent upon discretionary spending
by consumers, which may be adversely affected by general and regional economic
conditions, particularly those that affect southern California, and the Atlanta,
Georgia areas. Golf participation has increased significantly since 1970.
Although the Company believes that demographic trends indicate that it will be
well positioned to grow its business and improve its financial performance, a
decrease in the number of golfers or their rates of participation or in consumer
spending on golf could have an adverse effect on the Company's financial
condition and results of operations.
General turf grass conditions must be satisfactory to attract play on
the Company's courses. Severe weather or other factors, including disease, could
cause unexpected problems with turf grass conditions at any golf course or at
courses located in the same geographic region. Turf grass conditions at each of
the Company's golf courses also depend to a large extent on the quality and
quantity of available water. The availability of sufficient water is affected by
various factors, many of which are not under the Company's control. The Company
believes that it has access to sufficient water to operate its courses in the
manner in which they are currently operated. However, there can be no assurance
that certain conditions, including weather, government regulation or
environmental concerns, which could adversely affect the supply of water to a
particular golf course, may not arise in the future.
The Company will operate golf courses in at least one state which has
experienced natural conditions which are beyond its control (such as periods of
extraordinarily dry, wet, hot or cold weather, or unforeseen natural events such
as storms, hurricanes, fires, floods or earthquakes). These conditions may occur
at any time and may have a significant impact on the condition and availability
of one or more golf courses for play and on the number of customers a golf
course can attract. Except for fire insurance, the Company does not carry
insurance against the effect of such conditions, which the Company believes to
be consistent with standard practice in the industry. However, the occurrence or
recurrence of any such conditions may require increased capital expenditures by
the Company to the extent the Company is not insured and have a material adverse
effect on the Company's financial condition and results of operations.
10
<PAGE>
GOVERNMENTAL REGULATION
Operations at the Company's golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
oil and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removing such hazardous substances that are released on or in its
property and for remediation of its property. Such laws often impose liability
regardless of whether a property owner or operator knew of, or was responsible
for, the release of hazardous materials. In addition, the presence of such
hazardous substances, or the failure to remediate the surrounding soil when such
substances are released, may adversely affect the ability of a property owner to
sell such real estate or to pledge such property as collateral for a loan. The
Company has not been informed by any governmental authority of any
non-compliance or violation of any environmental or other laws, ordinances or
regulations and the Company believes that it is in substantial compliance with
all such laws, ordinances or regulations applicable to its properties or
operation. However, the Company has not performed invasive procedures such as
soil sampling or ground water analysis on any of the golf courses it operates,
and there may be potential environmental liabilities or conditions of which the
Company is not aware.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING
The amount spent by consumers on discretionary items, such as family
and entertainment activities like those offered by the Company's golf courses,
have historically been dependent upon levels of discretionary income, which may
be adversely affected by general economic conditions. A decrease in consumer
spending on golf could have an adverse effect on the Company's financial
condition and results of operation.
SEASONAL RESULTS
While this Company's two present golf courses and the two additional
courses which it is presently contemplating are not normally materially impacted
by weather, nevertheless, future golf courses which the Company may consider
might be located in areas which are so impacted. In such event, the Company
anticipates that the second and third quarters of the year would then account
for a greater portion of the Company's operating revenue than would the first
and fourth quarters of the year. This would be primarily due to an outdoor
playing season limited by weather conditions. Also, golfers are less inclined to
play when weather conditions limit their ability. This seasonal pattern may then
cause the Company's result of operations to vary significantly from quarter to
quarter.
FUTURE SALES OF COMMON STOCK
110,000 shares of Common Stock currently outstanding (not including the
Shares covered by this Prospectus), are "restricted securities" as that term is
defined in Rule 144 promulgated under the 1933 Act, and under certain
circumstances may be sold without registration pursuant to such Rule. Further,
in the event this registration is not effected by December 31, 1998, the Company
has agreed to issue an additional ten percent of the shares of Common Stock to
each holder of the Preferred Stock, or if previously converted, to the holder of
the underlying Common Stock. All of those shares, will become publicly tradeable
over the next one year. The Company is unable to predict the effect that sales
made under Rule 144, or otherwise, may have on the then-prevailing market price
of the Common Stock, although any substantial sale of restricted securities
pursuant to Rule 144 may have an adverse effect. The sale, or the availability
for sale, of additional securities in the public market at any time subsequent
to this offering could adversely affect the prevailing market price of the
Company's securities.
NO ANTICIPATED DIVIDENDS
The Company does not anticipate paying any cash dividends in the
foreseeable future, but rather intends to retain future earnings for
reinvestment in the Company's business.
11
<PAGE>
POSSIBLE VOLATILITY OF PRICES
There can be no assurance as to the liquidity of investments in the
Shares, or as to the price holders may realize upon the sale of the Shares.
These prices are determined in the market place and may be influenced by many
factors, including variations in the quarterly operating results of the Company,
fiscal trends in the golf industry (including legislative and regulatory
proposals and changes), the depth and liquidity of the market for the Common
Stock, the market price of the Common Stock, interest rates, investor perception
of the Company and general economic and market conditions. The market price of
the Common Stock may be highly volatile.
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
For the respective terms of the 155,000 outstanding warrants and
options (not including the Warrant Shares), the holders thereof are given an
opportunity to profit from a rise in the market price of the Company's Common
Stock with a resulting dilution in the interests of the other stockholders.
Further, the terms on which the Company may obtain additional financing during
that period may be adversely affected by the existence of such options. The
holders of such securities may exercise them at a time when the Company might be
able to obtain additional capital through a new offering of securities on terms
more favorable than those provided by therein.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
6,000,000 shares of "blank check" preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. There are presently 1,005,000 of such shares outstanding.
Accordingly, the Board of Directors is empowered, without stockholder approval
(but subject to applicable government regulatory restrictions and the rights of
the holders of the Preferred Stock), to issue up to an additional 4,995,000
shares of preferred stock with dividend, liquidation, conversion, voting or
other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. In the event of issuance, the preferred stock
could be utilized, under certain circumstance, as a method of discouraging,
delaying or preventing a change in control of the Company. Although the Company
has no present intention to issue any additional shares of its preferred stock,
there can be no assurance that the Company will not do so in the future.
OTC ELECTRONIC BULLETIN BOARD
The Common Stock is traded in the over-the-counter market and is quoted
on the OTC Electronic Bulletin Board, an NASD-sponsored and operated
inter-dealer automated quotation system for equity securities not included in
the Nasdaq SmallCap Market or Nasdaq National Market. There can be no assurance
that the Company's Common Stock will be eligible for quotation on any market
which affords, among other things, greater liquidity, at any time in the
foreseeable future.
12
<PAGE>
PENNY STOCK REGULATIONS
Shares of the Common Stock are subject to Rule 15g-9 under the
Securities Exchange Act of 1934, as amended, (the "1934 Act"), which imposes
certain sales practice requirements on broker-dealers which sell such securities
to persons other than established customers and "accredited investors"
(generally, individuals with net worths in excess of $1,000,000 or annual
incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. The Commission has adopted
regulations which define a "penny stock" to be an equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, unless exempt, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative, and of current quotations
for the securities. Finally, monthly statements are required to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stock. Consequently, the rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers of the Shares to sell any of
the Shares acquired hereby in the secondary market. Accordingly, the liquidity
of the Company's securities could be impaired, not only in the number of
securities which could be bought and sold, but also through delays in the timing
of the transactions, reduction in security analysts' and the news media's
coverage of the Company, and lower prices for the Company's securities than
might otherwise be attained.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Resale
Shares being offered by the Selling Stockholders hereunder nor will it receive
any proceeds from the resale of the Warrant Shares, when and if issued, by the
holder(s) thereof. The Warrant Shares will, upon exercise produce an aggregate
$1,820,313 for the Company which the Company will utilize for acquisition of
additional golf course properties and working capital. Because the exercise
prices presently significantly exceed the public market value of the Company's
Common Stock it is impossible to predict if or when such Warrant Shares will be
exercised. Accordingly, since the Company is unaware of the timing of the
various Warrant exercises it is impossible to presently precisely determine the
use of proceeds. Expenses expected to be incurred by the Company in connection
with this offering are estimated at approximately $25,000.
13
<PAGE>
SELLING STOCKHOLDERS
Of the 2,835,000 Shares offered hereby, 1,005,000 shares of Series A
Convertible Preferred Stock is outstanding, which is convertible into the shares
of Common Stock registered hereby which together with 625,000 shares of Common
Stock issued or to be issued to a financial consultant constitute 2,333,000
Resale Shares issued by the Company to the Selling Stockholders. The following
table sets forth (i) the description of the Selling Stockholders, (ii) the
maximum aggregate number of Shares of Common Stock into which the outstanding
Series A Convertible Preferred Stock can be converted and the Common Stock held
or to be held by the financial consultant, beneficially owned by the Selling
Stockholders as of June 25, 1998, (iii) the aggregate number of Shares of Common
Stock which may be offered for sale for the account of the Selling Stockholders
from time to time pursuant to this Prospectus, and (iv) the amount and
percentage of Shares of Common Stock which would be beneficially owned by the
Selling Stockholders pursuant to this Prospectus, if they are all offered and
sold, and assuming the Selling Stockholders do not acquire any additional shares
of Common Stock. Unless otherwise indicated, all beneficial ownership consists
solely of Resale Shares and Warrant Shares. Because the Selling Stockholders may
offer all, some or none of the Shares it holds, and because there are currently
no agreements, arrangements or understandings with respect to the sale of the
Shares, no definitive estimate as to the number of Shares that will be held by
the Selling Stockholders after such offering can be provided, and the following
table was prepared on the assumption that all Shares sold under this Prospectus
will be sold to parties unaffiliated with the Selling Stockholders.
Pursuant to Rule 416 of the Securities Act, the Selling Stockholders
may also offer and sell shares of Common Stock issued as a result of stock
splits, stock dividends and anti-dilution provisions. To the knowledge of the
Company, the Selling Stockholders referred to herein have not held any position,
office or had any other material relationship with the Company or any
predecessor in the past three years, except that Equisource, Inc. serves as a
financial consultant to the Company and Earnhardt Co., Inc. served as the
placement agent for the Company's recently completed private placement.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK TO BE
BENEFICIAL OWNERSHIP OFFERED FOR THE SELLING BENEFICIAL OWNERSHIP
STOCKHOLDERS' ACCOUNT
---------------------
PRIOR TO OFFERING AFTER OFFERING (2)
----------------- ------------------
NAME OR DESCRIPTION SHARES PERCENTAGE (1) SHARES PERCENTAGE SHARES PERCENTAGE
------------------- ------ -------------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
12 persons or entities 2,110,500 (3) 13.6% 2,110,500(3) 13.6% 0 0
Equisource, Inc. 625,000 3.9% 625,000 3.9% 0 0
Earnhardt Co., Inc. 100,000(4) (5) 100,000(4) (5) 0 0
</TABLE>
- ---------------------------
(1) Percentage based on 15,512,224 shares of Common Stock outstanding as of
June 30, 1998.
(2) Assumes the Selling Stockholders disposes of all Resale Shares and
Warrant Shares covered by this Prospectus and does not acquire any
additional shares of Common Stock.
(3) Includes 1,005,000 shares of Series A Convertible Preferred Stock on
conversion and 502,500 Warrant Shares.
(4) 100,000 Warrant Shares
(5) Less than 1%.
14
<PAGE>
PLAN OF DISTRIBUTION
The Company has registered under the Securities Act (i) 2,233,000
Resale Shares for resale by the Selling Stockholders, and (ii) 602,500 Shares
for possible issuance by the Company in connection with the outstanding warrants
and subsequent resale by the recipient(s).
The Resale Shares and Warrant Shares registered hereby have been
registered pursuant to the Company's obligations contained in a written
agreement with the Selling Stockholders. The Company has agreed to keep the
Registration Statement of which this Prospectus is a part effective for a period
of not less than nine months after the Resale Shares and the Warrant Shares may
first be publicly sold. In connection with this offering, the Company has agreed
to indemnify the Selling Stockholders against certain liabilities, including
certain liabilities under the Securities Act.
The Selling Stockholders may be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases and
sales of any of the Resale Shares or the Warrant Shares by the Selling
Stockholders. The foregoing may limit the marketability of the Shares.
In order to comply with the securities laws of certain states, if
applicable, the Resale Shares and Warrant Shares will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Resale Shares and Warrant Shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available.
The Resale Shares and Warrant Shares offered hereby may, upon
compliance with applicable state securities laws, be sold from time to time to
purchasers directly by the Selling Stockholders or by pledgees, donees,
transferees or other successors in interest, or in negotiated transactions and
on the OTC Bulletin Board through brokers or dealers, or otherwise. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders for whom such broker-dealers may act
as agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). In
addition, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus.
Alternatively, subject to the selling restrictions described above
(including volume restrictions and use of designated brokers), the Selling
Stockholders may from time to time offer the Resale Shares and the Warrant
Shares offered hereby through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholders and/or the purchasers of Resale Shares and Warrant
Shares for whom they may act as agents.
The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of Resale Shares and Warrant Shares offered
hereby may be deemed to be "underwriters" within the meaning of the Securities
Act, and any profit on the sale of such Resale Shares and Warrant Shares by them
and any discounts, commissions or concessions received by any such underwriters,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act.
At the time a particular offer of Resale Shares and Warrant Shares is
made, to the extent required, a supplement to this Prospectus, if required, will
be filed with the Commission which will set forth the aggregate amount of Resale
Shares and Warrant Shares being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, and discounts,
commissions and other items constituting compensation from the Selling
Stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to dealers.
15
<PAGE>
The Resale Shares and Warrant Shares offered hereby may be sold from
time to time in one or more transactions at market prices prevailing at the time
of sale, at a fixed offering price, which may be changed, at varying prices
determined at the time of sale or at negotiated prices. The Selling Stockholders
will pay the commissions and discounts of underwriters, dealers or agents, if
any, incurred in connection with the sale of the Resale Shares and Warrant
Shares.
The Company may issue 602,500 Warrant Shares in connection with the
exercise of warrants by certain parties. The Company is registering the Warrant
Shares to provide the holder(s) of such Shares upon issuance, with freely
tradeable shares of Common Stock..
The Company will not receive any proceeds from the sale of the Resale
Shares and Warrant Shares being offered by the Selling Stockholders hereunder
nor will it receive any proceeds from the resale of the Shares, when and if
issued, by the holder(s) thereof. There can be no assurance that any of the
Resale Shares and Warrant will be sold by the Selling Stockholders or that the
Warrant Shares will be issued by the Company or resold by the holder(s) thereof.
The Company has agreed to pay all of the expenses, estimated to be
approximately $35,000, in connection with this offering, other than underwriting
and brokerage commissions, discounts, fees and counsel fees and disbursements
attributed solely to the Selling Stockholders and any recipient(s) of Warrant
Shares.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company's Certificate of Incorporation authorizes the issuance of
30,000,000 shares of Common Stock, par value $.01 per share and 6,000,000 shares
of Preferred Stock, per value $.90 par share. As of June 30, 1998, an aggregate
of 12,706,724 shares of Common Stock and 1,005,000 shares of Preferred Stock was
outstanding.
16
<PAGE>
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. In addition, such
holders are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the dissolution, liquidation or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of all liabilities of the Company. All
outstanding shares of Common Stock are fully paid and nonassessable.
The holders of Common Stock do not have any subscription, redemption or
conversion rights, nor do they have any preemptive or other rights to acquire or
subscribe for additional, unissued or treasury shares. Accordingly, if the
Company were to elect to sell additional shares of Common Stock following this
offering, persons acquiring Common Stock in this offering would have no right to
purchase additional shares, and as a result, their percentage equity interest in
the Company would be reduced.
Pursuant to the Company's By-Laws, except for any matters which,
pursuant to the Delaware General Corporation Law ("Delaware Law"), require a
greater percentage vote for approval, the holders of one-half of the outstanding
Common Stock, if present in person or by proxy, are sufficient to constitute a
quorum for the transaction of business at meetings of the Company's
stockholders. Holders of shares of Common Stock are entitled to one vote per
share on all matters submitted to the vote of Company stockholders. Except as to
any matters which, pursuant to Delaware Law, require a greater percentage vote
for approval, the affirmative vote of the holders of a majority of the Common
Stock present in person or by proxy at any meeting (provided a quorum as
aforesaid is present thereat) is sufficient to authorize, affirm or ratify any
act or action, including the election of directors.
The holders of Common Stock do not have cumulative voting rights.
Accordingly, the holders of more than half of the outstanding shares of Common
Stock can elect all of the Directors to be elected in any election, if they
choose to do so. In such event, the holders of the remaining shares of Common
Stock would not be able to elect any Directors. The Board is empowered to fill
any vacancies on the Board created by the resignation, death or removal of
Directors.
In addition to voting at duly called meetings at which a quorum is
present in person or by proxy, Delaware Law and the Company's By-Laws provide
that stockholders may take action without the holding of a meeting by written
consent or consents signed by the holders of a majority of the outstanding
shares of the capital stock of the Company entitled to vote thereon. Prompt
notice of the taking of any action without a meeting by less than unanimous
consent of the stockholders will be given to those stockholders who do not
consent in writing to the action. The purposes of this provision are to
facilitate action by stockholders and to reduce the corporate expense associated
with annual and special meetings of stockholders. Pursuant to the rules and
regulations of the Commission, if stockholder action is taken by written
consent, the Company will be required to send to each stockholder entitled to
vote on the matter acted on, but whose consent was not solicited, an information
statement containing information substantially similar to that which would have
been contained in a proxy statement.
PREFERRED STOCK
The Company, subject to the rights of the holders of Series A Preferred Stock,
is authorized to issue up to 6,000,000 Shares of Preferred Stock, par value $.90
per share. The Preferred Stock may be issued in one or more series.
17
<PAGE>
The Board of Directors of the Company is, subject to the rights of the holders
of Series A Preferred Stock, authorized, without further action of the
stockholders, to provide for the issuance of Preferred Stock in one or more
additional series and to fix, in respect of each such series, variations on the
number, designation, dividend rights, voting rights, sinking funds requirements,
conversion rights, redemption rights, liquidation rights and any other rights,
preferences, qualifications, restrictions or limitations on the shares of such
series. Any such series may be in a preference with respect to the Common Stock
as to dividends, distribution of assets upon liquidation or otherwise, voting
rights or sinking fund requirements and may be convertible into any series or
class of stock, including Common Stock, if the Board of Directors so determines.
The number of shares of Common Stock upon conversion of the Preferred Stock are
subject to adjustment upon the occurrence of certain events, including the
issuance of Common Stock as a dividend to the holders of all outstanding shares
of Common Stock or for cash in an amount per share less than the conversion
price per share; subdivisions, combinations, or certain reclassifications of
Common Stock; or certain issuances of rights, options, or warrants to subscribe
for Common Stock. No adjustment in the conversion price will be required to be
made with respect to the Preferred Stock until cumulative adjustments amount to
$.01 or more; however, any such adjustment not required to be made will be
carried forward and taken into account in any subsequent adjustment.
In the event of any reclassification, capital reorganization, or other similar
change of outstanding Common Stock, any consolidation or merger involving the
Company (other than a consolidation or merger which does not result in any
reclassification, capital reorganization or other similar change in the
outstanding shares of Common Stock), or a sale or conveyance to another
corporation of the property of the Company, as or substantially as, an entirety,
each number of shares of stock or other securities, assets or cash to which a
holder of the number of shares of Common Stock purchasable (at the time of such
reclassification, reorganization, consolidation, merger or sale.
The Board of Directors has established the Series A Preferred Stock of which
there are 1,005,000 shares outstanding. Each share of Series A Preferred Stock
receives a five percent (5%) dividend, is entitled to one-half vote with the
Common Stock on any matters submitted to the stockholders generally; is
redeemable after the third anniversary of its issuance at one dollar per share
plus any accrued and unpaid dividends, has a liquidation preference of one
dollar per share; is convertible at the option of the holder of such shares into
Common Stock on the basis of each share of Preferred Stock shall be convertible
into that number of shares of Common Stock as shall equal an amount equal to
$1.00 divided by 75% of the average bid price for the Common Stock in the public
market in which it trades for the three (3) days prior to the date of conversion
(but in no event less than 0.625 per share of Common Stock) (the "Conversion
Price"), subject to certain adjustments. No more than 400,000 shares of
Preferred Stock (i.e. one dollar per Preferred Share) may be converted in any
one week period (on a first come, first served basis). In the event this
registration has not become effective by December 31, 1998, then the Company
will issue an additional ten percent (10%) of shares of Common Stock to each
then holder of the Preferred Stock, or if previously converted, to the holder of
the underlying Common Stock.
WARRANTS
The Company has (i) 502,500 Warrants outstanding, and each of which entitles the
registered holder to purchase from the Company one Common Share of the Company
at $3.125 through 2003, and (ii) 100,000 Warrants outstanding which entitle the
registered holder to purchase from the Company one Common Share of the Company
at $2.50 per share through 2003.
The exercise price and the number of Common Shares or other securities
purchasable upon exercise of any Warrants and the number of Warrants are subject
to adjustment upon the occurrence of certain events, including the issuance of
Common Stock for a consideration of less than the Market Price of the shares of
Common Stock or as a dividend to the holders of all outstanding Common Stock; or
subdivide, combine, the Common Stock. No adjustment in the exercise price will
be required to be made with respect to the Warrants until cumulative adjustments
amount to $0.01 or more; however, any such adjustment not required to be made
will be carried forward and taken into account in any subsequent adjustment.
18
<PAGE>
In the event of any reclassification, capital reorganization, or other similar
change of outstanding Common Stock, any consolidation or merger involving the
Company (other than a consolidation or merger which does not result in any
reclassification, capital reorganization or other similar change in the
outstanding Common Stock), or a sale or conveyance to another corporation of the
property of the Company, as or substantially as, an entirety, each Warrant will
thereupon become exercisable only for the kind and number of shares of stock or
other securities, assets, or cash to which a holder of the number of shares
Common Stock purchasable (at the time of such reclassification, reorganization,
consolidation, merger or sale) upon exercise of such Warrant would have been
entitled upon such reclassification, reorganization, consolidation, merger or
sale. In the case of a cash merger of the Company into another corporation or
any other cash transaction of the type mentioned above, the effect of these
provisions would be in that the holder of a Warrant would thereafter be limited
to exercising such Warrant at the exercise price in effect at such time for the
amount of cash per share that a Warrant holder would have received had such
holder exercised such Warrant and received Common Stock immediately prior to the
effective date of such cash merger or transaction. Depending upon the terms of
such cash merger or transaction, the aggregate amount of cash so received could
be more or less than the exercise price of the Warrant.
The Warrant Agreement contains provisions permitting the Company without the
consent of any Warrant holder to supplement the Warrant Agreement in order to
cure any ambiguity, to correct any provision contained therein which may be
defective or inconsistent with any other provisions therein, or to make any
other provisions which the Company may deem necessary or desirable and which
does not adversely affect the interests of the Warrant holders.
For the life of the Warrants, the Warrant holders have the opportunity to profit
from a rise in the market value of the Common Stock of the Company, with
resulting dilution in the interests of the Company's stockholders by reason of
exercise of Warrants at a time when the exercise price is less than the market
price for the Common Stock. Further, the terms on which the Company could obtain
additional capital during the life of the Warrants may be adversely affected.
The Warrant holders may be expected to exercise their Warrants at a time when
the Company would, in all likelihood, be able to obtain any needed equity
capital by an offering of Common Stock on terms more favorable than those
provided for by the Warrants.
The holders of the Warrants do not have any of the rights or privileges of the
stockholders of the Company, including voting rights and rights to receive
dividends, prior to exercise of the Warrants.
TRANSFER AGENT
The transfer agent for the Common Stock is U.S. Stock Transfer &
Transfer Corporation, Glendale, California.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Cohen & Lord, a Professional Corporation, Los Angeles,
California.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company and its
subsidiaries as of October 31, 1997 and 1996, have been incorporated by
reference in this Prospectus and Registration Statement from the Company's
Annual Report on Form 10-KSB for the fiscal year ended October 31, 1997, in
reliance upon the report of Starr & Walters, independent certified public
accountants, which is incorporated herein by reference, and upon the authority
of said firm as independent certified public accountants.
19
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to make any representation not contained in this Prospectus in
connection with this offering, and any information or representation not
contained herein must not be relied upon as having been authorized by the
Company or any other person. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates or an offer to or solicitation of any
person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus at any time nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein contained is correct as of any time subsequent to the date of
this Prospectus.
-------------
TABLE OF CONTENTS
PAGE
----
Available Information...............................3
Incorporation of Certain
Documents by Reference.........................4
Summary.............................................5
Risk Factors........................................8
Use of Proceeds....................................12
Selling Stockholder................................13
Plan of Distribution...............................14
Description of Common Stock........................15
Legal Matters......................................17
Independent Accountants............................17
20
<PAGE>
2,835,500 SHARES
CEC PROPERTIES, INC.
COMMON STOCK
--------------------------
PROSPECTUS
--------------------------
________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates (subject to future contingencies) that expenses
in connection with the offering described in this Registration Statement other
than underwriting and brokerage discounts, commissions and fees and counsel fees
and disbursements attributed solely to the Selling Stockholders, if any, payable
by such Selling Stockholders will be as follows:
Securities and Exchange Commission registration fee....... $ 1,438.72
Legal fees and expenses................................... 17,500.00*
Accounting fees and expenses.............................. 5,000.00*
Printing expenses ........................................ 2,285.00*
Miscellaneous............................................. 1,000.00*
------------
Total............................................ $25,223.72*
============
- ------------------------
* All amounts are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation limits, to the fullest extent now or
hereafter permitted by the Delaware General Corporation Law, liability of the
Company's directors to the Company or its stockholders for monetary damages
arising from a breach of their fiduciary duties as directors in certain
circumstances. This provision presently limits a director's liability except
where a director (1) breaches his or her duty of loyalty to the Company of its
stockholders, (2) fails to act in good faith or engages in intentional
misconduct or a knowing violation of the law, (3) authorizes payment of an
unlawful dividend or stock purchase or redemption, or (4) obtains an improper
personal benefit. This provision does not prevent the Company or its
stockholders form seeking equitable remedies, such as injunctive relief or
rescission. If equitable remedies are found not to be available to stockholders
in any particular case, stockholders may not have any effective remedy against
actions taken by directors that constitute negligence or gross negligence.
The Certificate of Incorporation also authorizes the Company to
indemnify its directors, officers or other persons serving at the request of the
Company against liabilities arising from their services in such capacities to
the fullest extent permitted by law, including payment in advance of a final
disposition of a director's or officer's expenses or attorneys' fees incurred in
defending any action, suit or proceeding, other than in the case of an action,
suit or proceeding brought by the Company on its own behalf against an officer.
Presently, Delaware General Corporation Law provides that to be entitled to
indemnification an individual must have acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the Company's best
interest.
The Company believes that these charter provisions are consistent with
certain provisions of the Delaware General Corporation Law which are designed,
among other things, to encourage qualified individuals to serve as directors and
officers of Delaware corporations. The Company also believes these provisions
will assist in maintaining and securing services of qualified directors and
officers.
2
<PAGE>
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
5.1 Opinion of Cohen & Lord, a Professional Corporation
23.1 Consent of Cohen & Lord, a Professional Corporation (included
in Exhibit 5.1).
23.2 Consent of Starr & Walters
- -------------
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Newport Beach, California on this 26th day of
June, 1998.
CEC PROPERTIES, INC.
By: /s/ Paul Balalis
----------------------------
Paul Balalis
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement on Form S-3 has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Paul Balalis
----------------------------
Paul Balalis Chairman of the Board, President and Chief 6/26, 1998
Executive Officer (principal executive officer)
/s/ Don Norbury Chief Financial Officer and Chief Accounting 6/26, 1998
----------------------------- Officer
Don Norbury
/s/ Charles Packard
----------------------------- Director 6/26, 1998
Charles Packard
/s/ Frank Barbaro
----------------------------
Frank Barbaro Director 6/26, 1998
/s/ Frederick Meyer
----------------------------
Frederick Meyer Director 6/26, 1998
</TABLE>
