<PAGE>
As Filed with the Securities and Exchange Commission on September 29, 1997.
................................................................................
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FIRST AMENDMENT TO
FORM SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
................................................................................
ACTIVE ANKLE SYSTEMS, INC.
(Name of small business issuer in its charter)
Kentucky 3842 61-1163669
- ----------------------- --------------------- ------------------------
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
................................................................................
509 Barret Avenue
Louisville, Kentucky 40204
(502) 582-2655
(Address and telephone number of principal executive offices)
................................................................................
509 Barret Avenue
Louisville, Kentucky 40204
(Address of principal place of business or intended place of business)
<PAGE>
................................................................................
Diane K. Lilly
509 Barret Avenue
Louisville, Kentucky 40204
(502) 582-2655
(Name, address and telephone number of agent for service)
Please send copies of communications to:
James N. Williams, Esq.
Middleton & Reutlinger
2500 Brown & Williamson Tower
Louisville, Kentucky 40202
(502) 584-1135
Approximate date of proposed sale to the public: As soon as practical after the
effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the 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>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
Title of each class Dollar Amount Proposed Proposed Amount of
of securities to to be maximum maximum registration fee
be registered registered offering price per aggregate
unit offering price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of $4,000,000 $40.00 $4,000,000.00(1) $1,212.12
Common Stock
with no par value
- -------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
that this registration statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
Disclosure alternative used (check one): Alternative 1 X ; Alternative 2
--- ---
(1) Before deducting offering expenses estimated to be $117,212 in the
aggregate, comprised of the following: Securities and Exchange Commission fees
($1,212), State Divisions of Securities fees ($5,000), printing and engraving
fees ($10,000), legal and accounting fees ($100,000), and escrow agent fees
($1,000). If all of the Shares being offered are not sold, the proceeds to the
Company will be reduced accordingly.
................................................................................
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE A 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.
INFORMATION CONCERNING ISSUER
The registrant is currently not a reporting company. The registrant has no
securities listed on any national securities exchange.
PURCHASES BY OFFICERS, DIRECTORS AND BENEFICIAL STOCKHOLDERS
The Company's officers, directors and beneficial stockholders may purchase in
the aggregate up to 4,500 Shares in order that the minimum number of Shares
offered herein is reached. See Risk Factor 11.
<PAGE>
PRELIMINARY PROSPECTUS DATED SEPTEMBER 29, 1997
ACTIVE ANKLE SYSTEMS, INC.
100,000 Shares of Common Stock (total maximum)
45,000 Shares of Common Stock (total minimum)
Active Ankle Systems, Inc., a Kentucky corporation (the "Company"), is
offering for sale a maximum of 100,000 and minimum of 45,000 shares of its
common stock, without par value (the "Common Stock" or the "Shares"), at a per
share offering price of $40.00 from the date this Prospectus is effective for a
period one hundred eighty (180) days thereafter.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. THE SECURITIES OFFERED HEREBY SHOULD NOT BE
PURCHASED BY ANYONE WHO CANNOT AFFORD A LOSS OF HIS ENTIRE INVESTMENT. SEE
"RISK FACTORS" ON PAGES __ THROUGH __ OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY AND SUCH AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Underwriting Discounts Proceeds to
and Issuer or
Price to Public Commissions Other Persons
----------------------------------------------------------------
Per Share $ 40.00 $ 0.00 $ 40.00
Total 4,000,000.00 0.00 4,000,000.00
Total Minimum 1,800,000.00 0.00 1,800,000.00
Total Maximum 4,000,000.00 0.00 4,000,000.00
SUBJECT TO COMPLETION
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The date of this Preliminary Prospectus is September 29, 1997.
1
<PAGE>
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT . SEE QUESTION NO. 2 FOR THE RISK FACTORS THAT
MANAGEMENT BELIEVES PRESENT THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN THIS
OFFERING.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF ANY
SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE
ACCURACY OR COMPLETENESS OF ANY PROSPECTUS OR SELLING LITERATURE.
This offering has been registered for offer and sale in the following states:
STATE STATE FILE NO. EFFECTIVE DATE
- -------------------------------------------------------------------------------
Kentucky 34089
- -------------------------------------------------------------------------------
Indiana 97-0486 RC
- -------------------------------------------------------------------------------
Ohio 10827
- -------------------------------------------------------------------------------
Illinois
- -------------------------------------------------------------------------------
California
- -------------------------------------------------------------------------------
Washington
- -------------------------------------------------------------------------------
Tennessee
- -------------------------------------------------------------------------------
Massachusetts
- -------------------------------------------------------------------------------
North Carolina
- -------------------------------------------------------------------------------
Georgia
- -------------------------------------------------------------------------------
Florida
- -------------------------------------------------------------------------------
Rhode Island
- -------------------------------------------------------------------------------
2
<PAGE>
- -------------------------------------------------------------------------------
West Virginia
- -------------------------------------------------------------------------------
PART I - NARRATIVE INFORMATION REQUIRED IN PROSPECTUS
ITEM 1. SIGNIFICANT PARTIES
(a) ISSUER'S DIRECTORS.
Full Name Business Address Residential Address
--------- ---------------- -------------------
Henry H. Porter, Jr. 5806 River Knolls Dr. 5806 River Knolls Dr.
Louisville, KY 40222 Louisville, KY 40222
Andrew Pfeifer 531 Fairfield Drive 531 Fairfield Drive
Louisville, KY 40206 Louisville, KY 40206
Gary G. Herzberg 509 Barret Avenue 2903 River's Edge Rd.
Louisville, KY 40204 Louisville, KY 40222
Ronald W. Schultz 509 Barret Avenue 6708 Foxcroft Road
Louisville, KY 40204 Prospect, KY 40059
Glen R. Snow 509 Barret Avenue 2427 East Elm St.
Louisville, KY 40204 New Albany, IN 47150
John C. Nichols, II 1510 North Wind Road 1510 North Wind Road
Louisville, KY 40207 Louisville, KY 40207
Douglas D. Stegner 1644 Cherokee Road 1644 Cherokee Road
Louisville, KY 40205 Louisville, KY 40205
James T. Crain, Jr. Day Enterprises 18 Glenwood Road
620 West Main Street Louisville, KY 40258
Suite 320
Louisville, KY 40202
(b) ISSUER'S OFFICERS.
Full Name and Position Business Address Residential Address
---------------------- ---------------- -------------------
Henry H. Porter, Jr. 5806 River Knolls Dr. 5806 River Knolls Dr.
Chairman of the Board Louisville, KY 40222 Louisville, KY 40222
3
<PAGE>
Gary G. Herzberg 509 Barret Avenue 2903 River's Edge Rd.
President and CEO Louisville, KY 40204 Louisville, KY 40222
Ronald W. Schultz 509 Barret Avenue 6708 Foxcroft Road
Treasurer and CFO Louisville, KY 40204 Prospect, KY 40059
Glen R. Snow 509 Barret Avenue 2427 East Elm St.
Senior Vice President Louisville, KY 40204 New Albany, IN 47150
Diane K. Lilly 509 Barret Avenue 3205 Edwardsville Galena Road
Secretary and Assistant Louisville, KY 40204 Georgetown, IN 47122
Treasurer
Christina B. Wessling 509 Barret Ave. 1721 Southerland Dr.
Assistant Secretary Louisville, KY 40204 Louisville, KY 40205
(c) ISSUER'S GENERAL PARTNERS.
None. Issuer is a corporation.
(d) RECORD OWNERS OF FIVE (5) PERCENT OR MORE OF ANY CLASS OF THE ISSUER'S
EQUITY SECURITIES.
Based Upon the share holdings as of 3/31/97:
Full Name Business Address Residential Address
--------- ---------------- -------------------
Henry H. Porter, Jr. 5806 River Knolls Dr. 5806 River Knolls Dr.
Louisville, KY 40222 Louisville, KY 40222
Douglas D. Stegner 1644 Cherokee Road 1644 Cherokee Road
Louisville, KY 40205 Louisville, KY 40205
Ronald W. Schultz 509 Barret Avenue 6708 Foxcroft Road
Louisville, KY 40204 Prospect, KY 40059
Andrew Pfeifer 531 Fairfield Dr. 531 Fairfield Dr.
Louisville, KY 40206 Louisville, KY 40206
John C. Nichols, II 1510 North Wind Rd. 1510 North Wind Rd.
Louisville, KY 40207 Louisville, KY 40207
Joan Cralle Day c/o Mr. James T. Crain, 509 Jarvis Lane
Jr. Louisville, KY 40207
620 West Main St., #320
Louisville, KY 40202
Assuming that all options are exercised, and that all preferred stock is
converted, the following additional shareholders would own at least Five (5)
Percent:
4
<PAGE>
Gary G. Herzberg 509 Barret Ave. 2903 River's Edge Rd.
Louisville, KY 40204 Louisville, KY 40222
Glen R. Snow 509 Barret Avenue 2427 East Elm St.
Louisville, KY 40204 New Albany, IN 47150
(e) BENEFICIAL OWNERS OF FIVE (5) PERCENT OR MORE OF ANY CLASS OF THE ISSUER'S
EQUITY SECURITIES.
Same as stated in paragraph (d) above.
(f) PROMOTERS OF THE ISSUER.
Full Name Business Address Residential Address
--------- ---------------- -------------------
Henry H. Porter, Jr. 5806 River Knolls Dr. 5806 River Knolls Dr.
Louisville, KY 40222 Louisville, KY 40222
Andrew Pfeifer 531 Fairfield Dr. 531 Fairfield Dr.
Louisville, KY 40206 Louisville, KY 40206
Gary G. Herzberg 509 Barret Avenue 2903 River's Edge Rd.
Louisville, KY 40204 Louisville, KY 40222
Glen R. Snow 509 Barret Avenue 2427 East Elm St.
Louisville, KY 40204 New Albany, IN 47150
(g) AFFILIATES OF THE ISSUER.
None.
(h) COUNSEL TO THE ISSUER WITH RESPECT TO THE PROPOSED OFFERING.
Middleton & Reutlinger, P.S.C.
2500 Brown & Williamson Tower
Louisville, KY 40202
5
<PAGE>
(i) UNDERWRITER(S) WITH RESPECT TO THE PROPOSED OFFERING.
None.
(j) UNDERWRITER'S DIRECTORS.
No Underwriters. No Directors.
(k) UNDERWRITER'S OFFICERS.
No Underwriters. No Officers.
(l) UNDERWRITER'S GENERAL PARTNERS.
No Underwriters. No General Partners.
(m) COUNSEL TO THE UNDERWRITER(S).
No Underwriter. No Counsel.
(n) The financial statements of Active Ankle Systems, Inc. at June 30, 1997
and 1996 and for the years then ended, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
6
<PAGE>
ITEM 2. RELATIONSHIP WITH ISSUER OF EXPERTS NAMED IN REGISTRATION STATEMENT
The Company is independent of all named experts and counsel in this Prospectus.
No expert or counsel has any financial interest in the Company.
ITEM 3. SELLING SECURITY HOLDERS
No security holder of the Company is offering securities.
ITEM 4. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the Company's two most recent fiscal years or any later interim period,
no principal independent accountant resigned (or declined to stand for
re-election) or was dismissed.
ITEM 5. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
There are no indemnification provisions for directors, officers and controlling
persons of the Company specifically dealing with liability under the Securities
Act. The following general provisions are applicable to indemnification of
directors, officers and controlling persons:
The Company's Articles of Incorporation and Bylaws authorize the Company to
indemnify its directors and officers to the full extent permitted by Kentucky
law.
KRS Sec. 271B.8-510 provides the authority to indemnify directors. The statute
permits corporations to indemnify an individual made a party to a proceeding
because he or she is or was a director against liability incurred in the
proceeding if:
(a) he or she conducted himself in good faith; and
(b) he or she reasonably believed:
(1) In the case of conduct in his or her official capacity with the
corporation, that his or her conduct was in the best interests; and
(2) In all other cases, that his or her conduct was at least not
opposed to its best interests; and
(c) In the case of any criminal proceedings, the director had no
reasonable cause to believe his or her conduct was unlawful.
Further, 271B.8-520 provides for mandatory indemnification for a director
who was wholly successful, or the merits or otherwise, in the defense of any
proceeding to which he was a party
7
<PAGE>
because he or she was a director of the corporation against reasonable expense
incurred by him in connection with the proceedings.
KRS 271B.8-560 provides for certain mandatory and permissive indemnification for
corporate officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to Kentucky law and the Company's Articles of
Incorporation and Bylaws, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
8
<PAGE>
TABLE OF CONTENTS
Page
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Business and Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Offering Price Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . 32
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Dividends, Distributions and Redemptions . . . . . . . . . . . . . . . . . 37
Officers and Key Personnel of the Company. . . . . . . . . . . . . . . . . 37
Directors of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 41
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Management Relationships, Transactions and Remuneration. . . . . . . . . . 46
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Federal Tax Aspects. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Miscellaneous Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Management's Discussion and Analysis of Certain Relevant Factors . . . . . 50
EXHIBITS
Exhibit 3.(i) - Articles of Incorporation, as amended
Exhibit 3.(ii) - Bylaws
Exhibit 5 - Opinion of Counsel
Exhibit 10.1 - Distribution Agreement with Cramer Products, Inc., as amended
Exhibit 10.2 - Distribution Agreement with The Volleyball Connection, Inc.
as amended
Exhibit 10.3 - Distribution Agreement with AOA Division of Kirschner
Medical Corporation
Exhibit 10.4 - License Agreement
Exhibit 23.1 - Auditor's Consent
Exhibit 23.2 - Consent of Counsel
Exhibit 27 - Financial Data Schedule
Exhibit 99.1 - Deferred Compensation Agreements
Exhibit 99.2 - Escrow Agreement
Exhibit 99.3 - Subscription Agreement
THIS PROSPECTUS CONTAINS ALL OF THE REPRESENTATIONS BY THE COMPANY CONCERNING
THIS OFFERING, AND NO PERSON SHALL MAKE DIFFERENT OR BROADER STATEMENTS THAN
THOSE CONTAINED HEREIN. INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY
INFORMATION NOT EXPRESSLY SET FORTH IN THIS PROSPECTUS.
9
<PAGE>
THE COMPANY
1. EXACT CORPORATE NAME: Active Ankle Systems, Inc.
------------------------------------------------------
STATE AND DATE OF INCORPORATION: Kentucky, June 7, 1989
-------------------------------------------
STREET ADDRESS OF PRINCIPAL OFFICE: 509 Barret Avenue, Louisville, KY 40204
----------------------------------------
COMPANY TELEPHONE NUMBER: (502) 582-2655
--------------------------------------------------
FISCAL YEAR: June 30
---------------------------------------------------------------
PERSON(S) TO CONTACT AT COMPANY WITH RESPECT TO OFFERING: Gary G. Herzberg,
------------------
President, CEO and Director; Andrew Pfeifer, Director; Glen R. Snow, Senior
---------------------------------------------------------------------------
Vice President and Director; Henry H. Porter, Jr., Chairman and Director
---------------------------------------------------------------------------
TELEPHONE NUMBER (IF DIFFERENT FROM ABOVE): ( ) Same
--------------------------------
RISK FACTORS
2. LIST IN THE ORDER OF IMPORTANCE THE FACTORS WHICH THE COMPANY CONSIDERS TO
BE THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN THIS OFFERING IN VIEW OF ALL
FACTS AND CIRCUMSTANCES OR WHICH OTHERWISE MAKE THE OFFERING ONE OF HIGH RISK OR
SPECULATIVE (I.E., THOSE FACTORS WHICH CONSTITUTE THE GREATEST THREAT THAT THE
INVESTMENT WILL BE LOST IN WHOLE OR IN PART, OR NOT PROVIDE AN ADEQUATE RETURN).
(1) ARBITRARY OFFERING PRICE. The price of the Shares offered herein
was arbitrarily determined by the Company based upon such factors as an
increase in revenues and earnings, based on the successful results of the use
of proceeds to be raised by this offering and anticipated future performance.
The pricing of these Shares does not bear any relationship to the assets,
book value, or net worth, cash flows or past operating results of the
Company, and should not be considered to be an indication of the actual value
of the Company.
(2) DILUTION. Purchasers of the Common Stock offered herein will
suffer an immediate dilution of net tangible book value per share (as of June
30, 1997, assuming conversion of the Company's preferred stock into common
stock, and assuming the tendering of an estimated 24,389 shares pursuant to a
tender offer discussed elsewhere herein). The Company's net tangible book
value based on the Company's successful conclusion of this offering is $25.02
per share (if the maximum is sold) and $16.54 (if the minimum is sold) and
the offering price for the securities offered herein is $40 per share.
Therefore, investors will suffer an immediate dilution to their investment of
$23.46 if the minimum is sold and $14.98 if the maximum is sold, based on the
pre-Offering net tangible book value of the Company, which is $7.61, as of
June 30, 1997. Additionally, holders of options and warrants have been granted
certain rights which include but are not limited to an exercise price
1
<PAGE>
significantly lower than the offering price. Further, investors will not have a
preemptive right to acquire the Company's unissued shares which could result in
additional dilution.
(3) SIGNIFICANT COMPETITION. In the ankle brace business and catalog
business there are numerous competitors, many of which are larger and with more
resources than the Company. Some companies have introduced rigid stirrup-type
braces that are similar in design and function to the Active Ankle at lower
prices. The Company intends to continue as a marketer of a line of proprietary
ankle braces and other products, as well as selling at retail the products of
other manufacturers, as described in this Prospectus. While the Company
believes it offers a significant improvement in product and delivery/sales
systems versus existing similar enterprises, the business in which the Company
competes is subject to numerous competitive factors which include, among others,
service and product design. There can be no assurance that other companies
with significantly greater financial, marketing, technological or other
resources than the Company will not develop and market products and sales
techniques similar to those of the Company, which could have an adverse effect
upon the Company's profitability. Accordingly, there can be no assurance that
the Company will be able to successfully compete in the industry.
(4) ANTICIPATED OPERATING LOSSES AND SUBSTANTIAL ACCUMULATED EARNINGS
DEFICIT. The Company anticipates operating losses in its retail and catalog
operations over the next several years, and there can be no assurance as
to when, if ever, the Company will have positive operating results and
cash flow. Further, the Company has historically incurred operating losses
resulting in a substantial accumulated deficit as the product was being
improved and channels of distribution were being developed.
(5) "FORWARD-LOOKING STATEMENTS." Information included in this
Prospectus contains "forward-looking statements" which can be identified by
the use of forward-looking terminology such as "believes," "contemplates,"
"expects," "may," "will," "should," "would," or "anticipates," or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results
encompassed within the forward-looking statements will be achieved.
Important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to vary
materially from the future results encompassed within such forward-looking
statements are discussed herein under the caption "RISK FACTORS" and in other
information included herein. Other factors could also cause actual results
to vary materially from the future results covered in such forward-looking
statements.
(6) UNPROVEN RETAIL CONCEPT. The Company's concept of marketing through
consumer resource centers selling orthopedic soft goods and training room
sundries to the general public is new and unproven.
(7) LACK OF RETAIL AND CATALOG BUSINESS EXPERIENCE. The Company has
been a marketer of ankle products, but has no track record in retail or
catalog, although Company personnel have experience in these areas. The
Company may not be able to secure acceptable locations, negotiate
commercially acceptable leases, or employ the personnel necessary to manage
the operations.
2
<PAGE>
(8) RELIANCE ON KEY PERSONNEL. The Company has a relatively small number
of key management personnel, and is reliant upon those people to fulfill its
business plan. If one or more of them should become ill, incapacitated, die or
otherwise become unavailable to the Company, it could significantly affect the
Company's ability to attain its goals. Further, no such key personnel have a
contractual employment agreement or non-competition agreement with the
Company, and the Company has no life insurance on any key personnel.
(9) ABILITY TO MAINTAIN SALES AND DISTRIBUTION. By opening retail
stores and operating a catalog, the Company will be in competition with
retail and catalog distributors of the Active Ankle. Moreover, the Company
currently relies upon a series of distributors who wholesale the Company's
product; there can be no assurance that the Company can maintain such a
relationship in the future.
(10) OFFERING NOT SUFFICIENT TO CAPTURE U.S. MARKET; WORKING CAPITAL
INSUFFICIENT IF MINIMUM SOLD. The amount to be raised in the offering is not
sufficient to saturate the U.S. Market. If the Company is successful in its
first five consumer resource centers, it will be necessary to raise additional
debt or equity capital in order to attain the long-term goals in the Company's
business plan.
If only the minimum number of shares are sold, the Company may not open
the desired number of consumer resource centers in the time period discussed
in Question 3(a). If only the minimum number of shares are sold, the Company
will be required to utilize existing working capital or funds from its
existing line of credit (on which the balance is currently zero) for funds to
implement the business plan in full. In the alternative, the Company may
delay the opening of consumer resource centers rather than utilize its
existing line of credit if the offering proceeds and working capital are
insufficient to finance these stores. If the Company is unable to expand the
scope of the consumer resource centers as extensively as planned, this will
likely reduce future income or increase losses in the future.
(11) CONTINUED CONTROL BY OFFICERS AND DIRECTORS OF THE COMPANY. Upon
completion of this offering (and assuming that 24,389 shares are tendered
pursuant to the Tender Offer, and that all options and warrants are exercised
and preferred shares are converted), officers and directors of the Company
are expected to have beneficial ownership and voting control over
approximately 55.4% of the common stock (if the minimum shares are sold) and
37.6% (if the maximum shares are sold) of the outstanding shares of the
common stock of the Company. As a result, current officers and directors may
be in a position to elect a majority of the directors of the Company and to
control decisions pertaining to financing, material expenditures, on-going
operations, investment decisions and issuance of additional securities.
Further, the Company's officers, directors and beneficial stockholders may
purchase in the aggregate 4,500 additional shares of the Company's stock
offered herein. The stock must be purchased with investment intent and may be
used to reach the established minimum of $1,800,000. No shares have been
assumed purchased in the above percentages or throughout this Prospectus.
(12) TENDER OFFER/POTENTIAL USE OF PROCEEDS. The Company in June,
1997, made a Tender Offer to its shareholders at a price of $27 per common
share. The Tender Offer was canceled by the Company prior to its completion.
However, prior to its cancellation, 24,389 Shares were tendered. The Company
may elect to initiate a similar tender offer subsequent to the closing of
this Offering. In such case, the Company anticipates that no officers will
tender shares and that two directors (17,509 shares) will tender shares.
Approximately $658,500 of the proceeds of this offering would be used to fund
the tender, assuming 24,389 shares are tendered.
(13) LACK OF A PUBLIC TRADING MARKET. No public market exists for the
Shares offered herein, and no significant market is expected to develop as a
result of this offering. Although these shares are registered and may be
freely-tradable in certain states, purchasers should view their investment in
these securities for long-range investment purposes only and not with a view to
resell or otherwise dispose of their shares in the near future. Furthermore,
the shares may not be readily accepted as collateral for a loan.
3
<PAGE>
(14) LIMITED LIQUIDITY. The Shares offered herein may be offered in
reliance on an exemption from the registration and reporting requirements
under the laws of Florida and thus may be a restricted security with respect
to Florida. It is not anticipated that the shares offered herein will be
offered in reliance upon an exemption in any other state. Further, the Shares
contained herein are registered only under the Securities laws of those
states itemized in this Prospectus and may only be bought, sold, resold or
otherwise transferred as authorized within those specific states listed.
(15) DIVIDENDS NOT ANTICIPATED. The Company has never paid a dividend.
For the foreseeable future, the Company anticipates that earnings will be
retained to be used in the business. There can be no assurance that any
dividends will be paid in the foreseeable future.
(16) RISKS INHERENT IN SELF-UNDERWRITING. Since there are no underwriters
involved in this offering, the Company will not have the benefit of the
independent due diligence examination performed by an underwriter to insure that
the disclosures are accurate and the Company may, because it is not a securities
broker, have difficulty selling the Shares.
(17) GOVERNMENT REGULATION. Medical devices in the United States are
highly regulated in such areas as product development, testing, marketing and
manufacturing. In general, these statutes and regulations require that
manufacturers adhere to certain standards designed to ensure the safety and
effectiveness of medical devices. As of July 17, 1995, Section 510 of the Food
& Drug Act requires that manufacturers must list their devices with the FDA.
The Company has listed with the FDA. Since its inception in 1989, the Company
has operated in full compliance with all applicable regulations and foresees no
reason why it cannot continue to enjoy such status. However, there can be no
assurance that the Company will remain in compliance with all regulations and
absence of such a status could have a material adverse effect on the Company's
financial position, operating results and cash flow.
(18) AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK. The
Company's Articles of Incorporation authorize the issuance of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to designate and issue
additional series 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 Company's Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
discouraging, delaying or preventing a change in control of the Company. See
Offering Price Factors.
(19) ESCROW AGREEMENT. A potential investor's investment will be
subject to the terms and conditions of the Escrow Agreement. An investment
will be illiquid during the term of the Escrow Agreement and will earn
no interest.
NOTE: IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS
NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS
PROSPECTUS POTENTIAL INVESTORS SHOULD KEEP IN MIND OTHER POSSIBLE
RISKS THAT COULD BE IMPORTANT.
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BUSINESS AND PROPERTIES
3. WITH RESPECT TO THE BUSINESS OF THE COMPANY AND ITS PROPERTIES:
(a) DESCRIBE IN DETAIL WHAT BUSINESS THE COMPANY DOES AND PROPOSES TO DO,
INCLUDING WHAT PRODUCTS OR GOODS ARE OR WILL BE PRODUCED OR SERVICES THAT ARE OR
WILL BE RENDERED:
THE CURRENT BUSINESS OF THE COMPANY
The Company markets sports medicine products. Its primary product is an ankle
orthosis (in layman's terms, a "brace") which is unique in form and purpose (the
"Active Ankle"). The Active Ankle has anatomically correct hinges which fit the
ankle and permit normal foot movement up and down but limit the movement of the
ankle from side to side. Its solid U shape cups the heel while a posterior
strap prevents the ankle brace from moving in the shoe from activity. By using
different plastic shells, padding, and strapping systems, the Active Ankle can
be tailored to needs and desires of a particular user and used as either an
injury prevention device, support for an acute ankle injury or for
rehabilitation.
The Company has research, development, and field testing programs and has a new
knee brace undergoing conceptual development.
The Company sells to the medical sector, primarily orthopedic surgeons, but
also to hospitals and other clinics where the brace is used in the treatment
of acute injuries. Sales to the medical sector are about 30% of total sales.
Approximately 30% of the Company's sales are to sports teams at all levels -
club, high school, college and professional, where the brace is used
primarily as a device to prevent ankle injuries but also is used as a
rehabilitation brace. Sales to the retail sector, primarily sporting goods
stores, total approximately 30% of sales. The Company sells internationally
in Japan, Canada, The United Kingdom, Switzerland, Norway, Germany, Taiwan,
Australia, and other foreign countries.
The Company distributes its products through three primary distributors. EBI, a
subsidiary of Biomet, Inc, distributes the Active Ankle to orthopedic surgeons,
hospitals, and sports medicine clinics. The Volleyball Connection, Inc.
distributes the Active Ankle to retail stores and consumer catalogs through a
network of manufacturers representatives. Cramer Products, Inc. distributes the
Active Ankle to professional catalogs and team dealers who sell mainly to teams
as well as to retail accounts. The Company sells directly to foreign
distributors as well as to selected domestic accounts. Written distribution
agreements, and any amendments thereto, with The Volleyball Connection, Inc.,
EBI, a subsidiary of Biomet, Inc. (surviving corporation of a merger with
Kirschner Medical Corporation) and Cramer Products, Inc. are attached as
exhibits to the Registration Statement.
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HISTORY
The Company was formed in 1989 by a group of venture investors to acquire the
product and business of Mr. Rick Peters, an athletic trainer who invented the
Active Ankle. Mr. Peters' efforts began in 1984 as a class project. After
obtaining patent protection, Mr. Peters sought financing to bring the Active
Ankle to market. The Company commenced operations in June, 1989, and spent two
years conducting market research. Sales commenced in 1990 when the Active Ankle
was positioned as a rehabilitation device for use by medical and athletic
training personnel to deal with an ankle injury. The initial distribution was
through medical distribution systems. In 1992, a contact was made with U.S.
Volleyball (the U.S. men's and women's national volleyball teams) and the brace
was tested by U.S. Volleyball. Based on feedback from customers and the
Company's experience, the Active Ankle proved to be a brace which produced
significant injury reduction rates for volleyball players. In 1992, distribution
agreements were established with The Volleyball Connection, Inc. and Cramer
Products, Inc. to distribute the Active Ankle to retail and team accounts and
medical distribution through Biomet, Inc. was expanded. In 1993, the Company
made a strategic decision to reposition the brace as a preventative device and
to expand its marketing effort to other sports such as basketball. A revised
model of the Active Ankle, the "T2", a lower profile, lighter and more
convenient brace was introduced into the market in June, 1995.
INDUSTRY OVERVIEW
The Company participates in the Orthopedic Soft Goods industry. The term
"orthopedic soft goods" is taken from a 1996 report entitled "U.S. Orthopedic
Soft Goods Product Markets" by Frost & Sullivan, an international market
research firm with offices throughout the country, including New York. All
descriptions herein of competitors and/or industries are taken from this study.
This report is referred to as the Frost & Sullivan Report. The products in this
industry are used to brace or support portions of a person's body that have been
injured, sprained or fractured or, in some cases, to prevent injury. The
industry is largely segmented by the body extremity for which a product is used.
The segments that comprise the industry include ankle, knee, wrist, back, elbow,
shoulder, cervical, etc.
According to a forecast of the U.S. Orthopedic Soft Goods market by Frost &
Sullivan, total industry revenues were approximately $661 million in 1996. For
the past two years, industry growth has averaged 4.5% annually and future growth
is forecast at 6.4%. As a percent of overall sales, ankle products represent
25% of industry sales, knee products 43% of sales and wrist and back products 9%
of sales with other categories being less than 5% of the total industry. The
majority of sales occur in the medical and institutional markets such as
orthotic and prosthetic shops, hospitals, medical clinics or medical equipment
dealers.
Industry retail sales are approximately $90 million, of which ankle products
represent 27% of sales, knee products 34% of sales and wrist products 20% of
sales. Retail outlets include drug stores, sporting goods stores, and mass
merchandisers.
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The Company participates in the Ankle Brace and Support segment of the market.
Total ankle segment sales are estimated at $164 million. The market is further
broken into three sub segments - soft ankle supports, rigid ankle stirrups and
lower leg walkers, representing 37%, 38% and 25% of the market, respectively.
Soft ankle supports are constructed from various combinations of nylon, rayon,
cotton and neoprene and use a variety of hook and loop, strap or lace closures
often with various forms of stays to provide support. The rigid stirrup brace
consists of a molded rigid shell that conforms to the ankle with various forms
of padding for compression and closure systems. Lower leg walkers are devices
like a boot into which the foot is inserted. Walkers have various forms of
padding and hinges that limit range of motion and are used primarily in acute
situations in place of casting. While the Active Ankle itself falls into the
rigid stirrup category, from a competitive situation in the medical, team and
retail markets, it is competing with the soft ankle supports.
COMPETITION
According to the Frost & Sullivan report, there are some 74 manufacturers
who compete in the ankle segment. 61 market a soft ankle support, 33 a
rigid stirrup brace and 22 a lower leg walker. In the non-retail rigid brace
category, Aircast, Inc. has approximately a 65% market share, Centec
Orthopaedics (a division of Royce Medical Company) a 15% share and the
Company an 8% share. Aircast, Inc. was the first company to develop the
rigid brace, creating the category, and is dominant in the hospital and
clinical market.
In the soft brace category, Smith & Nephew, Inc., Medical Specialties, Inc.,
Professional Products, Inc. and Zimmer, Inc. are the dominant braces in the
medical category. Swede-O, Inc. and McDavid Kneeguard, Inc. are leaders in the
team and retail business.
DISTRIBUTION
MEDICAL.
Distribution in the industry is highly fragmented with a variety of patterns,
depending upon sector. In the medical sector, most manufacturers distribute
direct with company salespeople, although several firms use manufacturers
representatives. Heavy emphasis is placed on gaining use by orthopedic surgeons
as a practice pattern and on sales to clinics and hospitals. The selling
emphasis in medical is on performance and price, supported by research.
The Company has had a distribution arrangement with Biomet, Inc. since 1992.
Initially, Active Ankles were sold by Biomet's independent distributor system
which focused on selling joint implants and soft goods to orthopedic surgeons.
When Biomet, Inc. acquired Kirschner Medical Products, Inc., Active Ankle's
distribution was transferred to the AOA division of Kirschner in 1994. AOA
focused on selling a broad line of orthopedic soft goods to surgeons, hospitals
and clinics. With the merger of AOA into EBI, Inc, another Biomet subsidiary in
1996, distribution was
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transferred to EBI. EBI's primary line of business is the sale of electronic
bone growth stimulators and external fixation devices to orthopedic surgeons
through a company sales force.
TEAM AND RETAIL.
Team and retail distribution is also highly fragmented. Most manufacturers and
distributors sell through a network of multi-line sales representatives who
place the product with team dealers, medical and sports medicine catalogs,
consumer catalogs and retail stores. A large proportion of sales to teams and
institutional customers occur through specialized catalogs which focus on
medical products. For a product like the Active Ankle, the certified athletic
trainer is the primary purchaser or influencer of purchase. For the retail
account, the sporting goods store sports medicine buyer is the key person in the
purchase process.
Cramer Products, Inc. of Gardner, KS has been an Active Ankle distributor since
1992. Through its catalog and an independent representative sales force of
about 60, Cramer distributes Active Ankle to the key catalog houses such as
Micro Bio-Medics, Inc., Sports Health, a division of School Health Corp., and
Alert Services, Inc., sporting goods stores who focus on team business and
national retail accounts.
The Volleyball Connection, Inc. of Louisville, Kentucky has been a distributor
since 1992 and distributes through an independent representative sales force to
national sporting goods chains, specialty sporting goods stores and certain
catalogs such as Eastbay and Spike Nashbar.
SEASONALITY
While the medical sector does not appear to have seasonality, the team and
retail sectors are seasonal, tied to the school year and seasonal sports
schedules. August and September are higher sales months with seasonal lows in
December, January and July.
GOVERNMENTAL REGULATION
The U.S. Food and Drug Administration (FDA) device regulations apply to firms
that make devices intended for human use. As of July 17, 1995, Section 510
of the FDA Act, manufacturers must list their devices with the FDA. The
Company has listed and complied with this requirement. The Active Ankle does
not require FDA approval, is exempt from premarket notification procedures
and is exempt from current goods manufacturing practice regulation.
MANUFACTURING
The Active Ankle is assembled in the U.S. by two contract assembly plants, using
components and parts manufactured by other vendors. One of these manufacturers,
K-P Ventures, Inc., is heavily dependent on Active Ankle. The Company owns
the molds which produce the Company's products. Accordingly, the Company is
not dependent on any particular manufacturer.
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EMPLOYEES
At June 30, 1997, the Company employed 11 management, sales and administrative
persons located at Corporate headquarters. Five of the Company's employees are
certified athletic trainers with 7 to 35 years experience as a trainer. Senior
management has from 4 to 8 years experience with the Company and industry. In
addition, the management has from 10 to 20 years experience with small
businesses.
THE MARKET OPPORTUNITY
The overall market for orthopedic soft goods has been discussed previously (see
Industry Overview). There are several trends in the retail market place which
suggest there is an opportunity for a multi-faceted marketer of orthopedic soft
goods.
Sports medicine and fitness encompass a broad range of disciplines and a wide
variety of products. The market is highly fragmented with many large and small
marketing and manufacturing companies. Historically, the sports medicine market
focused on the professional, major college or high level athlete. This is
beginning to change and the market is being driven by a number of factors:
(a) There is an increased awareness of the role of fitness in health, an
increased emphasis on exercise and sports, and an increased emphasis on
wellness.
(b) There is a desire by amateur and leisure time athletes to use the same
techniques, gear and equipment for training that high level athletes use.
(c) There is an increasing interest in self care and injury protection.
This is coming both from a more active population with an interest in
health as the "baby boomers" age, and the health care system in general is
moving towards prevention and protection as evidenced by HMO penetration,
medical practice focus, and more managed care in non hospital settings.
The emergence of sports medicine clinics, dedicated wellness clinics,
cardiac and occupational rehabilitation centers and health and fitness
clubs illustrate this trend. Management believes that a significant
percentage of injured people do not seek medical attention.
(d) The targets for any sports medicine and fitness products are expanding
from the active 16 to 22 year old group to the 35 to 55 age group, which is
growing faster than the general population.
(e) More physicians are turning toward off-the-shelf products or sending
consumers elsewhere as medical reimbursement practices change. In
addition, based on the experience of the Company, physicians are
increasingly reluctant to carry an inventory of products for patients.
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The experience of the Company in the market suggests that the average consumer
has very limited knowledge of sports medicine or orthopedic soft goods products.
In general, the products must be demonstrated or tried and recommended by a
knowledgeable person in athletic training, medicine or clinical setting. Most
orthopedic soft goods have not reached the mass market because of lack of
knowledge on the part of the buying public and wholesale and retail
distribution systems.
In the existing market, companies marketing to institutional and retail
customers are not prepared to evaluate and provide advice or recommendations on
orthopedic soft goods to their customers. Even in medical markets, few sales
people have personal knowledge to change historic practice patterns to more
effective ones. Increasingly, products to the medical trade are sold on the
basis of price and equivalency, creating a gap in the market driven by
recommendations that existing organizations are not prepared to address.
There is a gap in this overall market:
- Management believes that a significant percentage of injured persons
do not seek medical assistance; many self-prescribe.
- No distributor reaches a broad customer profile: general
consumer, senior citizen, athletes, clinics, schools and doctors,
all of whom have need for orthopedic soft goods to maintain and
increase quality of life.
- Depth and breadth of sports medicine products is limited,
particularly at retail.
- With the exception of the medical sector, there is limited
product knowledge and expertise available to the purchaser.
- Orthopedic soft goods are generally inaccessible to the general
public.
- Compared to most consumer goods, marketing and merchandising are
limited.
The Business Plan of the Company is to address this gap in the market through a
multi prong plan of product and distribution system development. One element is
the Company's product business which will focus on the development and marketing
of high value, high function sports medicine products. A second is an
institutional catalog focused on the athletic trainer and medical professional,
and the third is a consumer resource center which will offer a range of
professional products to the general consumer, recreational programs such as
Little Leagues, and serve as a referral outlet for the medical and clinic
sector.
These segments will overlap and reinforce each other. The consumer resource
center will be an outlet for medical referrals, with the catalog as an adjunct
for non stock items. The catalog will
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serve the needs of the traditional athletic program as well as serve as an
extension of the consumer resource center and as a marketing tool for the
center.
A key marketing element is a group of regional directors who will be responsible
for marketing the resource center, catalog and products to the institutional
markets and will develop special promotions and a referral network.
THE BUSINESS PLAN OF THE COMPANY
The business plan of the Company is to leverage the sales base, management and
marketing expertise of the Company to build a multi-stage business in orthopedic
soft goods and athletic trainer supplies. There are three parts to the business
plan:
PROPRIETARY PRODUCTS. The Company will continue its existing business by
aggressively marketing its products through its existing distribution
system as well as adding distribution through the new catalog and consumer
resource centers. The Company will continue its efforts to develop product
line extensions of the Active Ankle as well as the development and
marketing of additional high value, high function sports medicine products.
The Company plans to develop new products both internally as well as
through licensing and acquisition.
SPORTS MEDICINE CATALOG. The Company will develop a sports medicine
catalog which will offer a broad line of sports medicine and orthopedic
soft goods to the institutional market such as schools, teams, hospitals,
clinics and other professional outlets. This catalog will target those who
already purchase through catalogs as well as serve as a marketing device
for the product and consumer divisions. The Company may acquire an
existing catalog company to develop this business area and the Company
is exploring possible acquisitions. There are no agreements in
principle at the present time.
CONSUMER RESOURCE CENTERS. These retail centers will be located in
shopping centers, and will offer orthopedic soft goods and training room
supplies to the consumer market. They will be 1,500 to 2,500 square feet
in size, upscale in decor and treatment and will be staffed primarily by
athletic trainers who will provide the expertise for a consumer to buy the
product that best fits his or her need. In addition to selling to the
general public, the centers will be a referral resource for doctors,
clinics and athletic trainers to send their patients and athletes as well
as provide a resource for college, high school and recreational teams and
clubs, such as Little Leagues, who need sports medicine products.
PROPRIETARY PRODUCTS BUSINESS PLAN
The Company will continue to market and develop the Active Ankle, increasing
volume through additional market penetration to additional sports and broader
distribution, both domestically and internationally.
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While the Active Ankle is a patented product, it does not depend upon the
patents as a part of its competitive profile, rather focusing on its strong
features and proven functions. The Active Ankle has been positioned as a high
value, high function brace for both prevention of ankle injuries and as a
rehabilitation device. The Company has been able to maintain premium pricing on
the basis of its value. Certain competitors have announced products which
appear to look similar to the Active Ankle. The Company has not been able to
evaluate these products fully and ascertain, whether under the
law, these products infringe on Active Ankle's patent or trade style.
The Company has marketed its product through a program of grass roots marketing
based on samples. The Company advertises to consumers to create consumer demand
and provide support to its distributors and retailers. The Company plans to
continue to expand these activities.
The Company tests its products in actual use as well as in academic and medical
research. The Company has R&D arrangements with a major university
biomechanical engineer as well as with a university rapid prototyping center.
The Company is continuously reviewing and evaluating the needs in the
marketplace, as well as the cost and function of the Active Ankle. Product
improvements and enhancements are under development, particularly a lower cost
brace which can compete on a price basis in the medical market.
Design and marketing parameters are being developed for other new products and
two products developed by others are under evaluation. Assuming these products
meet the Company's market and function expectations, exclusive license
agreements will be negotiated.
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SPORTS MEDICINE CATALOG BUSINESS PLAN
The Company will publish a catalog with product offerings which will parallel
that of the consumer center but offer additional items focused on the
professional trade. In general, the products carried in the catalog will be the
same as the competition. However, as a point of difference, rather than carry
the same or similar items from a variety of vendors, the catalog will focus on a
limited number of products which offer efficacy and quality for specific needs
at different price points. In addition, the Company will focus on customer
service.
SPORTS MEDICINE CATALOG INDUSTRY OVERVIEW
The catalog operation will participate in the marketing and sales of orthopedic
soft goods and training room supplies and equipment. Its principal target
customers are the athletic trainer or coach at colleges, junior colleges and
high schools, orthopedic physicians, physical therapists as well as organized
sports activities, hospital and physical therapy clinics.
Catalog companies have historically distributed a full line of products directed
at a specific segment of the institutional market. These segments include
hospitals, nurses, and industrial markets with sports medicine in many cases
being a secondary target. For the most part, these catalogs offer a wide
variety of products in each product category with little information on quality
or efficacy, that decision being left to the purchaser. These catalogs do not
reach the general consumer, nor do they reach team or athletic activities
without a professional trainer involved, such as high school, recreational,
youth sports or club programs.
Industry size is unknown, as there is a wide variety of similar operations which
serve various facets of the institutional market, such as hospitals, industry,
clinics, nursing homes, school nurses and athletic trainers. The catalog market
directed at athletic trainers is estimated by the Company's management at $25
million with another $25 million purchased by athletic trainers from retail
dealers. There is a limited number of catalogs which offer products to the
general public. These catalogs focus more on health and beauty aids rather than
professional level products.
COMPETITION
There are approximately eleven significant companies in the U.S. who distribute
orthopedic, medical and first aid supplies to the athletic training market. Of
these, seven have catalogs, the others selling via pricing sheets and catalogs
from vendors whose products they distribute. The major companies are Micro
Bio-Medics, Inc., Sports Health, a division of School Health Corp., Alert
Services, Inc., Medco Supply, Inc., Athletic Medical, Inc., Econoline Products,
Inc., Seneca, and Mundy's, Inc. These companies range in size from less than $.5
million sales to in excess of $100 million.
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SALES, MARKETING AND DISTRIBUTION
Although all the above companies sell athletic training supplies through a
catalog, most are regionally focused and target customers in two or three
states. Most distribute the Active Ankle in addition to other ankle products.
Three of these companies distribute throughout the United States and only one
has more than one distribution center.
For the most part, these companies have limited sales forces and sell primarily
through distributing their catalog through the mail and at trade shows and
either receiving orders or, in the case of most large customers, responding to
bid requests. Marketing efforts are primarily through attendance at trade shows
focused on the athletic trainer and physical therapists.
Under the Company's business plan, there will be a regional marketing director
for the consumer resource centers, product operations and catalog operations who
would promote the entire business to athletic trainers, doctors, clinics and
other professionals via a calling program. The Company will also participate in
trade shows and other promotional efforts. Market research suggests that
calling on accounts presents a significant competitive advantage over the
competition who have limited sales forces.
In addition, because the Company already has sponsorship programs in place with
many institutions as well as endorsers, there are joint promotional
opportunities such as sponsorships and seminars. The Company is unique in that
it has a strong grass roots program in place with athletic trainers throughout
the U.S. This grass roots network offers the opportunity to capture sales to
athletic programs by offering equivalent or better sales, service and pricing.
SEASONALITY
While the medical and industrial sectors do not exhibit seasonality, sales of
athletic training products is highly seasonal, tied to the school year and sport
season. August and September are seasonal highs with seasonal lows in July,
December and January.
GOVERNMENT REGULATION
The catalog industry has no specific government regulation.
MANUFACTURING
Most catalog companies do not manufacture any products but offer the products of
a wide variety of vendors, although they may do some repackaging of vendor's
products.
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FACILITIES
The Company plans to lease approximately 5,000 square feet of warehouse space to
conduct catalog operations. The capital equipment is conventional shelving,
computer equipment and software.
PERSONNEL
The catalog operations will employ a general manager, a purchasing agent/bid
specialist, an administrative assistant, and a shipping/receiving person with
part time seasonal help. The employees are not expected to be unionized.
CONSUMER RESOURCE CENTER BUSINESS PLAN
INDUSTRY OVERVIEW
Historically, sales of orthopedic soft goods and athletic trainer supplies have
been directed to and through the institutional markets of schools, hospitals,
and clinics and have not been available to the general public. For the most
part, products available to the general public have been limited in breadth and
depth, focusing on relatively low value, low priced, low function products such
as ankle and knee sleeves, wrist braces, back braces and orthotic supplies.
The products are distributed through various retail outlets such as sporting
goods stores, mass merchants, and pharmacies with none of these outlets carrying
a complete line.
One of the characteristics of this market is that the average consumer has very
limited knowledge of orthopedic soft goods or trainer supplies, and relies on
professional advice. For this reason, only the simplest products are available
to the consumer. For the most part, the products are not advertised to the
public nor is any selling expertise available to the general public. As
previously discussed, there is consumer interest in this product category, but
lack of knowledge and distribution has limited growth of retail sales.
The consumer resource center is a new form of distribution, making available
specialty products to the general market in a conveniently accessible way
coupled with high service in the form of expertise to assist consumers in
meeting their needs.
The Company plans to open one consumer resource center within the calendar
year regardless of whether the minimum shares offered herein are sold. The
Company plans to utilize its existing working capital to finance these
expenditures. Provided that the proceeds from this offering are sufficient,
the Company plans to open four additional consumer resource centers by the
Spring of 1998. The Company may accelerate its planned expansion in the event
of a fully subscribed offering. A material portion of the proceeds of this
offering will be used to open these centers. See "Use of Proceeds." The
Company expects each center to cost approximately $250,000 to open and
intends to use the proceeds of this offering to finance these expenditures.
COMPETITION
This industry is an emerging form of distribution. A few small retailers of
orthopedic supplies have emerged across the U.S. in the past two years. One of
these retailers has two outlets, the remainder one. None is associated with
major catalog companies or product manufacturers. Sales of individual outlets
are believed by management in the $300,000 to $500,000 year range. The product
offerings are similar to those envisioned by the Company and in some cases, the
sales staff is comprised of
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athletic trainers offering sales expertise. These retailers have typically
moved from the institutional side of the business, have been founded by athletic
trainers and orthopedic surgeons, and they have not focused on the athletic
trade or general consumer, but rely primarily upon referrals from medical
professionals. These outlets are generally located in strip malls. Advertising
and marketing are generally limited.
There are several retailers who offer portions of the expected product line.
Sporting goods stores, pharmacies, and mass merchants offer limited lines of
sundry items. There are some stores focusing on backs or feet which offer
portions of the lines envisioned. Several consumer catalogs offer portions of
the product line but tend to focus more on health and beauty aids versus
orthopedic and trainer supplies.
PRODUCT LINE
The consumer resource center will offer orthopedic soft goods and trainer
supplies. Orthopedic soft goods will include bracing for various joints of the
body, cold and heat packs, safety equipment such as first aid kits and guards,
trainer sundries such as tape, balms, specialized bandages, underwrap, cinder
suds, etc. In each product category there will be one high value, high function
product, one product with a price and function orientation and one low level
product. Products will be selected on the basis of function and quality. The
product base and vendors will parallel that of the catalog operation.
MARKETING
For the most part, with the exception of the Company, manufacturers do not
consumer market, relying on trade promotions and advertising as the basis of
their marketing programs. Further, with the fragmentation of the industry, the
focus on institutional sales, and the limited resources of most manufacturers,
traditional consumer marketing has not emerged. Advertising has not been a
source of consumer information. Marketing has been directed at the
institutional trade rather than the consumer and organized recreational
activities.
The Company has a strong network of professionals and athletic trainers in
place. In addition, the Company has team and school sponsorships as well as
high profile endorsers. The consumer resource center will be able to use these
sponsorships. The resource centers will develop additional sponsorship
opportunities with various groups such as the mall walkers, club volleyball,
high school and local college teams.
In addition, the Company plans to offer a series of seminars and educational,
in-store activities such as injury management, stretching, sports technique, and
rehabilitation as a part of an in-store program.
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PHYSICAL PLANT
The consumer resource centers will be leased 1,500 to 2,500 square foot
facilities in major shopping malls. The Company believes high traffic, high
visibility locations, which are convenient to consumers, are a key to sales
volume. In addition, the stores will be both a beneficiary of and a contributor
to mall traffic with the marketing plan of education and special promotions.
The stores will project an image of professionalism. The estimated investment
in leasehold improvements will be approximately $60 per square foot. The stores
will have seating areas for trying and fitting products, and an area for
in-store seminars and promotions, autograph signings, etc.
GEOGRAPHIC LOCATION
The initial five stores will be located in cities near the Company's
headquarters in Louisville, Kentucky. Initial stores are expected in
Louisville, Kentucky; Lexington, Kentucky; Indianapolis, Indiana; and
Cincinnati, Ohio. The expected direction of growth from the initial sites will
be to Tennessee, Georgia, Florida, Ohio, Indiana, Illinois and Michigan.
STAFFING
The consumer resource centers will be staffed primarily by Certified Athletic
Trainers who are certified by state governments or by the Board of
Certification, a sister organization of the National Association of Athletic
Trainers, and by college students enrolled in a program to become Certified
Athletic Trainers. There will be a permanent full time staff of two persons per
store supplemented by qualified part time associates.
(b) DESCRIBE HOW THESE PRODUCTS OR SERVICES ARE TO BE PRODUCED OR RENDERED
AND HOW AND WHEN THE COMPANY INTENDS TO CARRY OUT ITS ACTIVITIES. IF THE
COMPANY PLANS TO OFFER A NEW PRODUCT(S), STATE THE PRESENT STAGE OF DEVELOPMENT,
INCLUDING WHETHER OR NOT A WORKING PROTOTYPE(S) IS IN EXISTENCE. INDICATE IF
COMPLETION OF DEVELOPMENT OF THE PRODUCT WOULD REQUIRE A MATERIAL AMOUNT OF
RESOURCES OF THE COMPANY, AND THE ESTIMATED AMOUNT. IF THE COMPANY IS OR IS
EXPECTED TO BE DEPENDENT UPON ONE OR A LIMITED NUMBER OF SUPPLIERS FOR ESSENTIAL
RAW MATERIALS, ENERGY OR OTHER ITEMS, DESCRIBE. DESCRIBE ANY MAJOR EXISTING
SUPPLY CONTRACTS.
The proprietary product operation has vendors who supply the parts for the
Active Ankle to the Company's specifications. The Company owns the tooling used
to injection-mold the plastic parts. As a policy, the Company out-sources as
much as it can, concentrating on management, marketing and development. While
the Company has major supply arrangements with Velcro, Inc., and High Tech Mold
and Tool, Inc., there are alternate suppliers who can meet the Company's needs.
17
<PAGE>
Design and marketing parameters are being developed for other new products.
Two products developed by others are under evaluation. Assuming these products
meet the Company's market and function expectations, exclusive license
agreements may be negotiated.
(c) DESCRIBE THE INDUSTRY IN WHICH THE COMPANY IS SELLING OR EXPECTS TO
SELL ITS PRODUCTS OR SERVICES AND, WHERE APPLICABLE, ANY RECOGNIZED TRENDS
WITHIN THAT INDUSTRY. DESCRIBE THAT PART OF THE INDUSTRY AND THE GEOGRAPHIC
AREA IN WHICH THE BUSINESS COMPETES OR WILL COMPETE.
INDICATE WHETHER COMPETITION IS OR IS EXPECTED TO BE BY PRICE, SERVICE, OR
OTHER BASIS. INDICATE (BY ATTACHED TABLE IF APPROPRIATE) THE CURRENT OR
ANTICIPATED PRICES OR PRICE RANGES FOR THE COMPANY'S PRODUCTS OR SERVICES, OR
THE FORMULA FOR DETERMINING PRICES, AND HOW THESE PRICES COMPARE WITH THOSE OF
COMPETITORS' PRODUCTS OR SERVICES, INCLUDING A DESCRIPTION OF ANY VARIATIONS IN
PRODUCT OR SERVICE FEATURES. NAME THE PRINCIPAL COMPETITORS THAT THE COMPANY
HAS OR EXPECTS TO HAVE IN ITS AREA OF COMPETITION. INDICATE THE RELATIVE SIZE
AND FINANCIAL AND MARKET STRENGTHS OF THE COMPANY'S COMPETITORS IN THE AREA OF
COMPETITION IN WHICH THE COMPANY IS OR WILL BE OPERATING. STATE WHY THE COMPANY
BELIEVES IT CAN EFFECTIVELY COMPETE WITH THESE AND OTHER COMPANIES IN ITS AREA
OF COMPETITION.
PROPRIETARY PRODUCTS
With 74 manufacturers of ankle braces in the market place, competition
occurs on two levels. One, there is a large group of essentially similar ankle
braces, which, while certain features are emphasized, largely compete on the
basis of price. There is a second group with proprietary features, such as the
Aircast and Active Ankle, which compete on the basis of product features and
function. The Company created a new category of brace and has premium-priced
the product based on function and proprietary features. With the expiration of
the patent on the Aircast brace in 1998, and with competitors introducing braces
with Active Ankle look-alike characteristics, management believes the basis of
competition in institutional markets will be price. The Company will address
future price competition in several ways. First, the Company may change its
distribution. Second, the Company has reduced product cost by approximately 11%
over the past three years and plans to continue that effort. Third, the Company
plans to develop and market new forms of the Active Ankle.
In medical markets, the principal competition is Aircast, Inc., with a
market share of approximately 65% and a long established market position,
largely in hospitals. Active Ankle's
18
<PAGE>
market share is higher in the sports medicine clinics and in orthopedic offices
than Active Ankle's market share in hospitals. The Company has successfully
competed with Aircast for the past 7 years. Management estimates Aircast has
$26-32 million in annual sales, of which $16-20 million is derived from the
sale of ankle braces. The Active Ankle generated $2.7 million in fiscal year
1997 sales.
In the team sports market, the key competitors are McDavid Knee Guard,
Inc., Swede-O, Inc., and Mueller Sports Medicine, Inc. These companies have had
strong positions with soft, lace up braces and are introducing rigid braces.
These companies are believed to be approximately the same size as the Company or
larger. The Company has built a strong brand awareness and market presence
through its marketing programs and will continue those efforts.
The Company maintains a premium pricing policy, recognizing the
high-function, high-quality features of its products. The Company's products
retail in the $29-42/unit price range, depending on the retailer's pricing
strategy. The Company's products are sold to team and medical users in the
$25-33/unit range. The products are priced to reflect the premium features
but remain price-competitive with competing manufacturers.
The Active Ankle brace is a solid, U-shaped, hinged device made of
polypropylene. The solid U-shape design surrounds the ankle in a semi-rigid
shell limiting inversion and eversion (movement from side to side) thereby
providing stability. The U-shape also transfers a small percent of body
weight from the heel and ankle to the side panels of the brace promoting
earlier activity with less of the pain that comes with an injured ankle. The
bilateral hinges are anatomically correct as well as allowing plantarflexion
and dorsiflexion (moving the foot and toes up and down) for basic normal
movement. The brace comes with a posterior strap that provides some stability
in extreme inversion and prevents forward migration of the brace in a shoe.
The Active Ankle brace fits either a left or a right ankle (universal) and
comes in four sizes to accommodate different shoe sizes. The cushioning or
padding is a systemic approach with three types including: the BubbleFlex for
acute injuries, neoprene pads for activity or the EVA pads for activity and
athletic participation. All the padding systems are interchangeable with the
various models of the Active Ankle Brace.
SPORTS MEDICINE CATALOG
The catalog operation will be competing with competitors ranging in size
from in excess of $100 million in sales to less than $500,000 in sales. Key
direct competitors include Medco Supply Company, Alert Services, Inc., and
Econoline Products, Inc. These companies are focused primarily on the school
and athletic trainer market. Micro Bio-Medics, Inc. and Sports Health, a
division of School Health Corp., focus on the hospital and school nurse market,
respectively, but also sell to the target market. Each of these competitors
sells the Active Ankle, as well as other ankle braces.
In terms of product line, the Company's product line will be similar to
that of its competitors. A key point of difference is expected to be a more
limited product line, focused on products with quality and efficacy. Posted
catalog prices will be comparable to those of the competition, and the catalog
operations will respond to requests for bid on a competitive basis.
Another difference from the competition will be the marketing effort. The
regional director of marketing, coupled with the consumer resource center, are
unique in the industry. The Company expects to have a larger sales force than
the competition in each of its regions of operation.
CONSUMER RESOURCE CENTERS
Because the consumer resource centers are a new concept, there currently
are only isolated comparable retail outlets. Portions of the product line are
available in a wide variety of retail outlets such as sporting goods stores,
mass merchants, medical equipment dealers and medical clinics. However, a large
portion of the product offerings are not available at all to the general public.
The key competitive elements will be knowledgeable service provided by trained
personnel and products not generally available in conveniently accessible form.
NOTE: BECAUSE THE PROSPECTUS FOCUSES PRIMARILY ON DETAILS CONCERNING THE
COMPANY RATHER THAN THE INDUSTRY IN WHICH THE COMPANY OPERATES OR WILL
OPERATE, POTENTIAL INVESTORS MAY WISH TO CONDUCT THEIR OWN SEPARATE
INVESTIGATION OF THE COMPANY'S INDUSTRY TO OBTAIN BROADER INSIGHT IN
ASSESSING THE COMPANY'S PROSPECTUS.
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<PAGE>
(d) DESCRIBE SPECIFICALLY THE MARKETING STRATEGIES THE COMPANY IS
EMPLOYING OR WILL EMPLOY IN PENETRATING ITS MARKET OR IN DEVELOPING A NEW
MARKET. SET FORTH IN RESPONSE TO QUESTION 4 BELOW THE TIMING AND SIZE OF THE
RESULTS OF THIS EFFORT WHICH WILL BE NECESSARY IN ORDER FOR THE COMPANY TO BE
PROFITABLE. INDICATE HOW AND BY WHOM ITS PRODUCTS OR SERVICES ARE OR WILL BE
MARKETED (SUCH AS BY ADVERTISING, PERSONAL CONTACT BY SALES REPRESENTATIVES,
ETC.), HOW ITS MARKETING STRUCTURE OPERATES OR WILL OPERATE AND THE BASIS OF ITS
MARKETING APPROACH, INCLUDING ANY MARKET STUDIES. NAME ANY CUSTOMERS THAT
ACCOUNT FOR, OR BASED UPON EXISTING ORDERS WILL ACCOUNT FOR A MAJOR PORTION (20%
OR MORE) OF THE COMPANY'S SALES. DESCRIBE ANY MAJOR EXISTING SALES CONTRACTS.
The Company's business lines will be marketed by regional marketing
directors who through a calling and special promotion program will reach
athletic trainers, schools, sports clubs, doctors and medical clinics. The
objective is to build a network of referrals to the consumer centers and catalog
and product sales. The elements of this marketing program are sampling,
education, school and club sponsorship, consumer advertising and trade shows.
The consumer resource centers will do direct newspaper and radio advertising as
well as special in-store promotions focused on athletes, education, and medical
information.
The Company currently sells through the following distributors who each
handle in excess of 20% of the Company's Sales:
<TABLE>
<CAPTION>
Year end June 30
----------------
1997 1996
---- ----
<S> <C> <C>
Volleyball Connection, Inc. 22% 30%
Biomet, Inc. 30% 28%
Cramer Products, Inc. 30% 25%
</TABLE>
(e) STATE THE BACKLOG OF WRITTEN FIRM ORDERS FOR PRODUCTS AND/OR SERVICES
AS OF A RECENT DATE (WITHIN THE LAST 90 DAYS) AND COMPARE IT WITH THE BACKLOG OF
A YEAR AGO FROM THAT DATE.
AS OF: _____/_____/_____ $____________
(A RECENT DATE)
AS OF: _____/_____/_____ $____________
(ONE YEAR EARLIER)
None, no backlog. The Company maintains sufficient out-sourcing capacity,
and the short production time allows the Company to fill orders within 30 days.
EXPLAIN THE REASON FOR SIGNIFICANT VARIATIONS BETWEEN THE TWO FIGURES, IF
ANY. INDICATE WHAT TYPES AND AMOUNTS OF ORDERS ARE INCLUDED IN THE BACKLOG
FIGURES. STATE THE SIZE OF TYPICAL ORDERS, IF THE COMPANY'S SALES ARE SEASONAL
OR CYCLICAL, EXPLAIN.
Not applicable.
20
<PAGE>
(f) STATE THE NUMBER OF THE COMPANY'S PRESENT EMPLOYEES AND THE NUMBER OF
EMPLOYEES IT ANTICIPATES IT WILL HAVE WITHIN THE NEXT 12 MONTHS. ALSO, INDICATE
THE NUMBER BY TYPE OF EMPLOYEE (I.E., CLERICAL, OPERATIONS, ADMINISTRATIVE,
ETC.) THE COMPANY WILL USE, WHETHER OR NOT ANY OF THEM ARE SUBJECT TO COLLECTIVE
BARGAINING AGREEMENTS, AND THE EXPIRATION DATE(S) OF ANY COLLECTIVE BARGAINING
AGREEMENT(S). IF THE COMPANY'S EMPLOYEES ARE ON STRIKE, OR HAVE BEEN IN THE
PAST THREE YEARS, OR ARE THREATENING TO STRIKE, DESCRIBE THE DISPUTE. INDICATE
ANY SUPPLEMENTAL BENEFITS OR INCENTIVE ARRANGEMENTS THE COMPANY HAS OR WILL HAVE
WITH ITS EMPLOYEES.
The Company has 3 employees in senior management, 3 in administration, 4 in
marketing and 1 in manufacturing and development. During the coming 12 months,
the Company expects to add 13 full time and 12 part time employees in the
consumer and catalog operations. No employees are subject to collective
bargaining agreements nor are any anticipated.
The Company offers all employees health and life insurance, a 401(k)
retirement plan, and discretionary bonuses and stock options based on
performance.
(g) DESCRIBE GENERALLY THE PRINCIPAL PROPERTIES (SUCH AS REAL ESTATE,
PLANT AND EQUIPMENT, PATENTS, ETC.) THAT THE COMPANY OWNS, INDICATING ALSO WHAT
PROPERTIES IT LEASES AND A SUMMARY OF THE TERMS UNDER THOSE LEASES, INCLUDING
THE AMOUNT OF PAYMENTS, EXPIRATION DATES AND THE TERMS OF ANY RENEWAL OPTIONS.
INDICATE WHAT PROPERTIES THE COMPANY INTENDS TO ACQUIRE IN THE IMMEDIATE FUTURE,
THE COST OF SUCH ACQUISITIONS AND THE SOURCES OF FINANCING IT EXPECTS TO USE IN
OBTAINING THESE PROPERTIES, WHETHER BY PURCHASE, LEASE OR OTHERWISE.
The Company leases 4,400 square feet of office space at a gross rent of $6
per square foot under a lease which expires in 2001. There is one five-year
renewal option. The Company owns the tooling for the Active Ankle and various
office equipment and furniture.
The sports medicine catalog will be operated in leased warehouse space
under normal commercial terms. The Company expects to invest approximately
$100,000 in equipment and computers.
The consumer resource centers will lease space in regional shopping centers
under normal commercial terms including rent, common area charges, and
percentage rent. The average consumer resource center will have approximately
$150,000 in leasehold improvements and fixed assets.
(h) INDICATE THE EXTENT TO WHICH THE COMPANY'S OPERATIONS DEPEND OR ARE
EXPECTED TO DEPEND UPON PATENTS, COPYRIGHTS, TRADE SECRETS, KNOW-HOW OR OTHER
PROPRIETARY INFORMATION AND THE STEPS UNDERTAKEN TO SECURE AND PROTECT THIS
INTELLECTUAL PROPERTY, INCLUDING ANY USE OF CONFIDENTIALITY AGREEMENTS,
COVENANTS-NOT-TO-COMPETE AND THE LIKE. SUMMARIZE THE PRINCIPAL TERMS AND
EXPIRATION DATES OF ANY SIGNIFICANT LICENSE AGREEMENTS. INDICATE THE AMOUNTS
EXPENDED BY THE COMPANY FOR RESEARCH AND DEVELOPMENT DURING THE LAST FISCAL
YEAR, THE
21
<PAGE>
AMOUNT EXPECTED TO BE SPENT THIS YEAR AND WHAT PERCENTAGE OF REVENUES RESEARCH
AND DEVELOPMENT EXPENDITURES WERE FOR THE LAST FISCAL YEAR.
Several features of the Active Ankle are patented, but the Company relies
primarily upon marketing and product features. Canadian patent No. 2,024,615
expires September 5, 2010. An EPO patent expires September 6, 2010. U.S.
patent 5,031,607 expires September 7, 2009 and U.S. patent 5,366,439 expires
November 22, 2011. The Company has four U.S. and international patents
pending. The Company expects significant competition from its competitors
upon the expiration of the patents.
There is a license agreement with the inventor of the Active Ankle under
which royalty payments of 3% of Active Ankle sales are due until the
expiration of the base patent no earlier than April 14, 2003 and no later
than September 7, 2009.
The Company invested $12,368 or 0.5% of sales in research and development
in fiscal year 1996 and spent $36,728 or 1.4% of sales in fiscal year 1997.
(i) IF THE COMPANY'S BUSINESS, PRODUCTS, OR PROPERTIES ARE SUBJECT TO
MATERIAL REGULATION (INCLUDING ENVIRONMENTAL REGULATION) BY FEDERAL, STATE, OR
LOCAL GOVERNMENTAL AGENCIES, INDICATE THE NATURE AND EXTENT OF REGULATION AND
ITS EFFECTS OR POTENTIAL EFFECTS UPON THE COMPANY.
The Company is subject to regulation by the Food and Drug Administration as
discussed under the Business of the Company. In the opinion of management,
regulation is not a material factor in the business operations.
(j) STATE THE NAMES OF ANY SUBSIDIARIES OF THE COMPANY, THEIR BUSINESS
PURPOSES AND OWNERSHIP, AND INDICATE WHICH ARE INCLUDED IN THE FINANCIAL
STATEMENTS ATTACHED HERETO. IF NOT INCLUDED, OR IF INCLUDED BUT NOT
CONSOLIDATED, PLEASE EXPLAIN.
The Company has no subsidiaries.
(k) SUMMARIZE THE MATERIAL EVENTS IN THE DEVELOPMENT OF THE COMPANY
(INCLUDING ANY MATERIAL MERGERS OR ACQUISITIONS) DURING THE PAST FIVE YEARS, OR
FOR WHATEVER LESSER PERIOD THE COMPANY HAS BEEN IN EXISTENCE. DISCUSS ANY
PENDING OR ANTICIPATED MERGERS, ACQUISITIONS, SPIN-OFFS OR RECAPITALIZATION. IF
THE COMPANY HAS RECENTLY UNDERGONE A STOCK SPLIT, STOCK DIVIDEND OR
RECAPITALIZATION IN ANTICIPATION OF THIS OFFERING, DESCRIBE (AND ADJUST
HISTORICAL PER SHARE FIGURES ELSEWHERE IN THIS PROSPECTUS ACCORDINGLY).
The Company has not made any acquisitions or spin-offs during the last five
years. There have been no dividends paid on the Common Stock.
The Company in June, 1997, made a Tender Offer to its shareholders at a
price of $27 per common share. The Tender Offer was canceled by the Company
prior to its completion. However, prior to its cancellation, 24,389 Shares
were tendered. The Company may elect to initiate a similar tender offer
subsequent to the closing of this Offering. In such case, the Company
anticipates that no officers will tender shares and that two directors (a
total of 17,509 shares) will tender shares. Approximately $658,500 of the
proceeds of this offering would be used to fund the tender assuming 24,389
shares are tendered.
22
<PAGE>
In June, 1997, the Company sold 4,125 preferred, $40 par value,
convertible, 6% non-cumulative shares. The total funds received was $165,000.
Each share may be converted into two common shares after July 1, 1999. The
purposes of this preferred offering were to provide funds for expenditures
related to this offering and the sports medicine catalog business plan.
In September, 1994, the Company raised $255,175 in a private offering of
common stock at a price of $25 per share and issuance of warrants to purchase
5,103 shares of common stock at $25 per share. $217,405 in debt was retired
out of the proceeds of this offering.
In January, 1993, the Company accomplished a ten for one stock split. This
did not change the relative percentage of ownership of shares.
4. (a) IF THE COMPANY WAS NOT PROFITABLE DURING ITS LAST FISCAL YEAR, LIST
BELOW IN CHRONOLOGICAL ORDER THE EVENTS WHICH IN MANAGEMENT'S OPINION MUST OR
SHOULD OCCUR OR THE MILESTONES WHICH IN MANAGEMENT'S OPINION THE COMPANY MUST OR
SHOULD REACH IN ORDER FOR THE COMPANY TO BECOME PROFITABLE, AND INDICATE THE
EXPECTED MANNER OF OCCURRENCE OR THE EXPECTED METHOD BY WHICH THE COMPANY WILL
ACHIEVE THE MILESTONES.
EVENT OR EXPECTED MANNER OF DATE OR NUMBER OF MONTHS
MILESTONE OCCURRENCE OR METHOD OF AFTER RECEIPT OF PROCEEDS
ACHIEVEMENT WHEN SHOULD BE ACCOMPLISHED
Not applicable. The Company was profitable during the last fiscal year.
(b) STATE THE PROBABLE CONSEQUENCES TO THE COMPANY OF DELAYS IN ACHIEVING
EACH OF THE EVENTS OR MILESTONES WITHIN THE ABOVE TIME SCHEDULE, AND
PARTICULARLY THE EFFECT OF ANY DELAYS UPON THE COMPANY'S LIQUIDITY IN VIEW OF
THE COMPANY'S THEN ANTICIPATED LEVEL OF OPERATING COSTS. (SEE QUESTION NOS. 11
AND 12.)
Not applicable.
NOTE: AFTER REVIEWING THE NATURE AND TIMING OF EACH EVENT OR MILESTONE,
POTENTIAL INVESTORS SHOULD REFLECT UPON WHETHER ACHIEVEMENT OF EACH
WITHIN THE ESTIMATED TIME FRAME IS REALISTIC AND SHOULD ASSESS THE
CONSEQUENCES OF DELAYS OR FAILURE OF ACHIEVEMENT IN MAKING AN
INVESTMENT DECISION.
As to Question 4, if more than five events or milestones exist, add
additional lines as necessary. A "milestone" is a significant point in the
Company's development or an obstacle which the Company must overcome in order to
become profitable.
23
<PAGE>
OFFERING PRICE FACTORS
IF THE SECURITIES OFFERED ARE COMMON STOCK, OR ARE EXERCISABLE FOR OR
CONVERTIBLE INTO COMMON STOCK, THE FOLLOWING FACTORS MAY BE RELEVANT TO THE
PRICE AT WHICH THE SECURITIES ARE BEING OFFERED.
5. WHAT WERE NET, AFTER-TAX EARNINGS FOR THE LAST FISCAL YEAR?
TOTAL: $204,541 ($2.77 per share) for the fiscal year ended June 30,
1997. See Risk Factor 15.
6. IF THE COMPANY HAD PROFITS, SHOW OFFERING PRICE AS A MULTIPLE OF EARNINGS.
ADJUST TO REFLECT FOR ANY STOCK SPLITS OR RECAPITALIZATION, AND USE CONVERSION
OR EXERCISE PRICE IN LIEU OF OFFERING PRICE, IF APPLICABLE.
OFFERING PRICE PER SHARE = $40/$2.77 = 14.44
----------------------------------
NET AFTER-TAX EARNINGS LAST YEAR PER SHARE
7. (a) WHAT IS THE NET TANGIBLE BOOK VALUE OF THE COMPANY? (IF DEFICIT, SHOW
IN PARENTHESIS.) FOR THIS PURPOSE, NET TANGIBLE BOOK VALUE MEANS TOTAL ASSETS
(EXCLUSIVE OF COPYRIGHTS, PATENTS, GOODWILL, RESEARCH AND DEVELOPMENT COSTS AND
SIMILAR INTANGIBLE ITEMS) MINUS TOTAL LIABILITIES.
$582,231 ($7.61 per share) (Based on historical net tangible book
value and shares of common stock outstanding as of June 30, 1997, assuming
conversion of the Company's preferred stock into shares of common stock.)
IF THE NET TANGIBLE BOOK VALUE PER SHARE IS SUBSTANTIALLY LESS THAN
THIS OFFERING (OR EXERCISE OR CONVERSION) PRICE PER SHARE, EXPLAIN THE
REASONS FOR THE VARIATION.
The net tangible book value is substantially less than the offering price.
Fixed assets are not a significant factor in the business because the Company
out-sources its manufacturing. The tooling and molding are owned by the
Company, but the fixed assets associated with the manufacturing process are not
held by the Company. The Company has expended its funds in building market
position and brand awareness.
24
<PAGE>
The Company was a start-up for its first five years. As a start-up, the
Company invested resources in only product development and marketing. Operating
losses resulted in negative retained earnings.
The Company believes its present value is attributable to product quality,
name recognition, product functionality and market share of the rigid ankle
brace segment of the market.
The Company expects to continue to minimize capital requirements by
out-sourcing and not acquiring tangible assets, but concentrating on building
sales and earnings.
(b) STATE THE DATES ON WHICH THE COMPANY SOLD OR OTHERWISE ISSUED
SECURITIES DURING THE LAST 12 MONTHS, THE AMOUNT OF SUCH SECURITIES SOLD, THE
NUMBER OF PERSONS TO WHOM THEY WERE SOLD, ANY RELATIONSHIP OF SUCH PERSONS TO
THE COMPANY AT THE TIME OF SALE, THE PRICE AT WHICH THEY WERE SOLD AND, IF NOT
SOLD FOR CASH, A CONCISE DESCRIPTION OF THE CONSIDERATION. (EXCLUDE BANK DEBT.)
The Company has a class of preferred stock which has a $40 par and
liquidation value per share, carries a 6% non-cumulative dividend, and each
share is convertible after July 1, 1999 into two shares of the Company's
Common Stock. A total of 100,000 of such preferred shares are authorized,
and a total of 4,125 shares of the preferred stock are issued and
outstanding. The 4,125 shares were sold at a cash sale price of $40 per
share on June 10, 1997 . The preferred shares were sold to six accredited
investors, all of whom are either stockholders, officers or directors of the
Company prior to the filing of this registration statement. The proceeds
from this preferred stock offering are to be used as seed money for the
development of a catalog sales division. The preferred stock offering was
an exempt offering under Rule 506 of Regulation D of the Securities Act.
During the past 12 months, the Company has issued to employees and
consultants to the Company options to purchase 4,000 and 300 shares of common
stock, respectively, at an exercise price of $25 per share.
8. (a) WHAT PERCENTAGE OF THE OUTSTANDING SHARES OF THE COMPANY WILL THE
INVESTORS IN THIS OFFERING HAVE? (ASSUME EXERCISE OF OUTSTANDING OPTIONS,
WARRANTS OR RIGHTS AND CONVERSION OF CONVERTIBLE SECURITIES, IF THE RESPECTIVE
EXERCISE OR CONVERSION PRICES ARE AT OR LESS THAN THE OFFERING PRICE. ALSO
ASSUME EXERCISE OF ANY OPTIONS, WARRANTS OR RIGHTS AND CONVERSIONS OF ANY
CONVERTIBLE SECURITIES OFFERED IN THIS OFFERING.)
IF THE MINIMUM IS SOLD: 38.5%
IF THE MAXIMUM IS SOLD: 58.2%
This assumes that 24,389 shares are tendered pursuant to a possible
post-Offering tender offer. In addition, see Risk Factor 11. The above
percentages will be lower if the Company's officers or directors purchase any
of the shares offered herein.
25
<PAGE>
(b) WHAT POST-OFFERING VALUE IS MANAGEMENT IMPLICITLY ATTRIBUTING TO THE
ENTIRE COMPANY BY ESTABLISHING THE PRICE PER SECURITY SET FORTH ON THE COVER
PAGE (OR EXERCISE OR CONVERSION PRICE IF COMMON STOCK IS NOT OFFERED)? (TOTAL
OUTSTANDING SHARES AFTER OFFERING TIMES OFFERING PRICE, OR EXERCISE OR
CONVERSION PRICE IF COMMON STOCK IS NOT OFFERED.)
IF THE MINIMUM IS SOLD: Approximately $4,675,000
IF THE MAXIMUM IS SOLD: Approximately $6,875,000
(These figures assume all preferred shares are converted, all options are
exercised [and cash received], and assumes 24,389 shares are tendered under
a possible post-Offering tender offer.)
(FOR ABOVE PURPOSES, ASSUME OUTSTANDING OPTIONS ARE EXERCISED IN
DETERMINING "SHARES" IF THE EXERCISE PRICES ARE AT OR LESS THAN THE
OFFERING PRICE. ALL CONVERTIBLE SECURITIES, INCLUDING OUTSTANDING
CONVERTIBLE SECURITIES, SHALL BE ASSUMED CONVERTED AND ANY OPTIONS,
WARRANTS OR RIGHTS IN THIS OFFERING SHALL BE ASSUMED EXERCISED.)
*THESE VALUES ASSUME THAT THE COMPANY'S CAPITAL STRUCTURE WOULD BE
CHANGED TO REFLECT ANY CONVERSIONS OF OUTSTANDING CONVERTIBLE
SECURITIES AND ANY USE OF OUTSTANDING SECURITIES AS PAYMENT IN THE
EXERCISE OF OUTSTANDING OPTIONS, WARRANTS OR RIGHTS INCLUDED IN THE
CALCULATION. THE TYPE AND AMOUNT OF CONVERTIBLE OR OTHER SECURITIES
THUS ELIMINATED WOULD BE:
19,703 shares are under stock options and warrants.
8,250 shares are subject to conversion from the preferred shares.
THESE VALUES ALSO ASSUME AN INCREASE IN CASH IN THE COMPANY BY THE AMOUNT
OF ANY CASH PAYMENTS THAT WOULD BE MADE UPON CASH EXERCISE OF OPTIONS, WARRANTS
OR RIGHTS INCLUDED IN THE CALCULATIONS. THE AMOUNT OF SUCH CASH WOULD BE:
Approximately $500,000
NOTE: AFTER REVIEWING THE ABOVE, POTENTIAL INVESTORS SHOULD CONSIDER WHETHER
OR NOT THE OFFERING PRICE (OR EXERCISE OR CONVERSION PRICE, IF
APPLICABLE) FOR THE SECURITIES IS APPROPRIATE AT THE PRESENT STAGE OF
THE COMPANY'S DEVELOPMENT.
26
<PAGE>
USE OF PROCEEDS
9. (a) THE FOLLOWING TABLE SETS FORTH THE USE OF THE PROCEEDS FROM THIS
OFFERING:
<TABLE>
<CAPTION>
If Minimum If Maximum
Sold Sold
---------- ----------
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Total Proceeds $1,800,000 100.0% $4,000,000 100.0%
LESS: OFFERING EXPENSES
Commissions and Finders Fee 0.0 0.0% 0.0 0%
Legal & Accounting 100,000 5.6% 100,000 2.5%
Copying & Advertising 10,000 0.5% 10,000 0.2%
Other (Specify):
Registration Fees 6,212 0.3% 6,212 0.2%
Escrow Fees 1,000 0.1% 1,000 0.0%
-------- ---- --------- ----
Total 117,212 6.5% 117,212 2.9%
-------- ---- --------- ----
Net Proceeds from Offering 1,682,788 93.5% 3,882,788 97.1%
Use of Net Proceeds
Fixed Assets 603,000 35.8% 603,000 15.5%
Recapitalization (1) 658,503 39.1% 658,503 16.9%
Working Capital 421,285 25.1% 2,621,285 67.6%
-------- ------ --------- -----
Total Use of Net Proceeds: $1,682,788 100.0% $3,882,788 100.0%
</TABLE>
(1) This figure assumes tender of an estimated 24,389 shares of the
Company's common stock at $27/share. This assumption is based on shares
tendered through June 30, 1997, prior to cancellation of the Tender Offer.
Note, however, that no tender offer is currently outstanding, and the Company
may or may not make a post-Offering tender offer; if it does, the figures
assume that the same number of shares will be tendered. See Risk Factor 12.
(B) IF THERE IS NO MINIMUM AMOUNT OF PROCEEDS THAT MUST BE RAISED BEFORE
THE COMPANY MAY USE THE PROCEEDS OF THE OFFERING, DESCRIBE THE ORDER OF PRIORITY
IN WHICH THE PROCEEDS SET FORTH ABOVE IN THE COLUMN "IF MAXIMUM SOLD" WILL BE
USED.
Not Applicable.
NOTE: AFTER REVIEWING THE PORTION OF THE OFFERING ALLOCATED TO THE PAYMENT
OF OFFERING EXPENSES, AND TO THE IMMEDIATE PAYMENT TO MANAGEMENT AND
PROMOTERS OF ANY FEES, REIMBURSEMENTS, PAST SALARIES OR SIMILAR
PAYMENTS, A POTENTIAL INVESTOR SHOULD CONSIDER WHETHER THE REMAINING
PORTION OF HIS INVESTMENT, WHICH WOULD BE THAT PART AVAILABLE FOR
FUTURE DEVELOPMENT OF THE COMPANY'S BUSINESS AND OPERATIONS, WOULD BE
ADEQUATE.
27
<PAGE>
10. (a) IF MATERIAL AMOUNTS OF FUNDS FROM SOURCES OTHER THAN THIS OFFERING ARE
TO BE USED IN CONJUNCTION WITH THE PROCEEDS FROM THIS OFFERING, STATE THE
AMOUNTS AND SOURCES OF SUCH OTHER FUNDS, AND WHETHER FUNDS ARE FIRM OR
CONTINGENT. IF CONTINGENT, EXPLAIN.
None
(b) IF ANY MATERIAL PART OF THE PROCEEDS ARE TO BE USED TO DISCHARGE
INDEBTEDNESS, DESCRIBE THE TERMS OF SUCH INDEBTEDNESS, INCLUDING INTEREST RATES.
IF THE INDEBTEDNESS TO BE DISCHARGED WAS INCURRED WITHIN THE CURRENT OR PREVIOUS
FISCAL YEAR, DESCRIBE THE USE OF THE PROCEEDS OF SUCH INDEBTEDNESS.
None
(c) IF ANY MATERIAL AMOUNT OF THE PROCEEDS ARE TO BE USED TO ACQUIRE
ASSETS, OTHER THAN IN THE ORDINARY COURSE OF BUSINESS, BRIEFLY DESCRIBE AND
STATE THE COST OF THE ASSETS AND OTHER MATERIAL TERMS OF THE ACQUISITIONS. IF
THE ASSETS ARE TO BE ACQUIRED FROM OFFICERS, DIRECTORS, EMPLOYEES OR PRINCIPAL
STOCKHOLDERS OF THE COMPANY OR THEIR ASSOCIATES, GIVE THE NAMES OF THE PERSONS
FROM WHOM THE ASSETS ARE TO BE ACQUIRED AND SET FORTH THE COST TO THE COMPANY,
THE METHOD FOLLOWED IN DETERMINING THE COST, AND ANY PROFIT TO SUCH PERSONS.
All proceeds will be used to acquire assets in the ordinary course of
business and no assets are being acquired from officers, directors, principal
shareholders or their associates, except that a portion of the proceeds may be
used to fund a post-Offering tender offer on terms similar to those
contained in the June, 1997 Tender Offer, which was canceled.
The fixed assets to be acquired with the proceeds of this offering
include leasehold improvements and fixtures for the consumer resource
centers, various tooling for products and computer end data processing
equipment for the sports medicine catalog, and consumer resource centers.
(d) IF ANY AMOUNT OF THE PROCEEDS ARE TO BE USED TO REIMBURSE ANY OFFICER,
DIRECTOR, EMPLOYEE OR STOCKHOLDER FOR SERVICES ALREADY RENDERED, ASSETS
PREVIOUSLY TRANSFERRED, OR MONIES LOANED OR ADVANCED, OR OTHERWISE, EXPLAIN:
None
11. INDICATE WHETHER THE COMPANY IS HAVING OR ANTICIPATES HAVING WITHIN THE
NEXT 12 MONTHS ANY CASH FLOW OR LIQUIDITY PROBLEMS AND WHETHER OR NOT IT IS IN
DEFAULT OR IN BREACH OF ANY NOTE, LOAN, LEASE OR OTHER INDEBTEDNESS OR FINANCING
ARRANGEMENT REQUIRING THE COMPANY TO MAKE PAYMENTS. INDICATE IF A SIGNIFICANT
AMOUNT OF THE COMPANY'S TRADE PAYABLES HAVE NOT BEEN PAID WITHIN THE STATED
TRADE TERM. STATE WHETHER THE COMPANY IS SUBJECT TO ANY UNSATISFIED JUDGMENTS,
LIENS OR SETTLEMENT OBLIGATIONS AND THE AMOUNTS THEREOF. INDICATE THE COMPANY'S
PLANS TO RESOLVE ANY SUCH PROBLEMS.
28
<PAGE>
The Company does not anticipate any cash flow or liquidity problems over
the next twelve months. The Company is not in default or breach of any note,
lease or other financing arrangement. The Company's trade payables are current.
There are no unsatisfied judgments, liens, or settlement obligations.
12. INDICATE WHETHER PROCEEDS FROM THIS OFFERING WILL SATISFY THE COMPANY'S
CASH REQUIREMENTS FOR THE NEXT 12 MONTHS AND WHETHER IT WILL BE NECESSARY TO
RAISE ADDITIONAL FUNDS. STATE THE SOURCE OF ADDITIONAL FUNDS, IF KNOWN.
The offering proceeds will satisfy the Company's cash needs for the
next twelve months in developing and implementing its business plan.
However, if only the minimum number of shares are sold, the Company will be
required to utilize existing working capital or funds from its existing line
of credit (on which the balance is currently zero) for funds to implement the
business plan in full. In the alternative, the Company may delay the opening
of consumer resource centers rather than utilize its existing line of credit
if the offering proceeds and working capital are insufficient to finance
these stores. If the Company is unable to expand the scope of the consumer
resource centers as extensively as planned, this will likely reduce future
income or increase losses in the future. Significant additional funds will be
required in future years to implement growth and expansion plans.
29
<PAGE>
CAPITALIZATION
13. INDICATE THE CAPITALIZATION OF THE COMPANY AS OF THE MOST RECENT BALANCE
SHEET DATE (ADJUSTED TO REFLECT ANY SUBSEQUENT STOCK SPLITS, STOCK
DIVIDENDS, RECAPITALIZATION OR REFINANCING) AND AS ADJUSTED TO REFLECT THE
SALE OF THE MINIMUM AND MAXIMUM AMOUNT OF SECURITIES IN THIS OFFERING AND
THE USE OF THE NET PROCEEDS THEREFROM:
The following table sets forth the actual capitalization of the Company
as of June 30, 1997, and as adjusted to give effect to the issuance and
sale by the Company of the minimum and maximum number of shares of common
stock in this offering (45,000 and 100,000 shares, respectively) and the
application of the net proceeds therefrom. This table should be read in
conjunction with the financial statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Amount Outstanding
----------------------------------------
As of: As Adjusted
6/30/97 Minimum Maximum
-------- ------- ----------
<S> <C> <C> <C>
Debt:
Short-term debt (average interest rate ____%) $ 0 $ 0 $ 0
---------- ---------- ----------
Long-term debt (average interest rate 9.5%) (1) $ 74,481 $ 74,481 $ 74,481
---------- ---------- ----------
Total debt $ 74,481 $ 74,481 $ 74,481
---------- ---------- ----------
Stockholders' equity (deficit):
Preferred Stock-par value
(by class of preferred in order of
preferences)
Convertible Preferred Stock,
$40 par value and liquidation
value per share, authorized
shares: 100,000, outstanding
shares: 4,125 (2) $165,000 $ 165,000 $ 165,000
Common stock, no par value,
Authorized shares: 2,000,000,
issued and outstanding shares: 68,267
(88,878 minimum, 143,878 maximum) (1) $1,049,565 $2,073,850 $4,273,850
Additional paid in capital $ 0 $ 0 $ 0
30
<PAGE>
<CAPTION>
<S> <C> <C> <C>
Retained earnings (deficit) $ (565,791) $ (565,791) $ (565,791)
---------- ---------- ----------
Total Stockholders' equity (deficit) $ 648,774 $1,673,059 $3,873,059
---------- ---------- ----------
Total Capitalization $ 723,255 $1,747,540 $3,947,540
---------- ---------- ----------
</TABLE>
(1) Reflects the sale of the minimum and maximum amount of common stock in this
offering at $40 per share and the estimated use of proceeds of : a) the
tendering of an estimated 24,389 shares of the Company's common stock at
$27/share. This assumption is based on shares tendered through June 30,
1997 prior to cancellation of the Tender Offer. Note, however, that no
tender offer is currently outstanding, and the Company may or may not make
a post-Offering tender offer; if it does, the figures assume that the same
number of shares will be tendered. See Risk Factor 12. and b) estimated
expenses of the offering of $117,212.
(2) In June, 1997, the Company issued the preferred stock for cash, which
shares are each convertible after July 1, 1999 into two shares of common
stock.
31
<PAGE>
NUMBER OF PREFERRED SHARES
AUTHORIZED TO BE OUTSTANDING:
NUMBER OF PAR VALUE
CLASS OF PREFERRED SHARES PER SHARE
- ------------------ ------ ---------
ONE CLASS 100,000 40.00
NUMBER OF COMMON SHARES AUTHORIZED: 2,000,000 shares. Par or stated value per
share, if any:
None.
There are 22 shareholders of record, including six shareholders who own both
common and preferred stock.
NUMBER OF COMMON SHARES RESERVED TO MEET CONVERSION REQUIREMENTS OR FOR THE
ISSUANCE UPON EXERCISE OF OPTIONS, WARRANTS OR RIGHTS: 19,703 shares to meet
options outstanding and 8,250 shares to meet conversion requirements.
DESCRIPTION OF SECURITIES
14. THE SECURITIES BEING OFFERED HEREBY ARE:
[X] Common Stock
[ ] Preferred or Preference Stock
[ ] Notes or Debentures
[ ] Units of two or more types of securities, composed of: ______________
[ ] Other ___________________________________
15. THESE SECURITIES HAVE:
Yes No
[X] [ ] Cumulative voting rights
[ ] [X] Other special voting rights
[ ] [X] Preemptive rights to purchase in new issues of shares
[ ] [X] Preference as to dividends or interest
[ ] [X] Preference upon liquidation
[ ] [X] Other special rights or preferences (specify): ____
Explain: _______________________________
16. ARE THE SECURITIES CONVERTIBLE? ( ) Yes (X) No
32
<PAGE>
IF SO, STATE CONVERSION PRICE OR FORMULA. N/A
DATE WHEN CONVERSION BECOMES EFFECTIVE: / /
DATE WHEN CONVERSION EXPIRES: / /
17. (a) IF THE SECURITIES ARE NOTES OR OTHER TYPES OF DEBT SECURITIES: Not
applicable.
(1) WHAT IS THE INTEREST RATE? N/A %.
IF INTEREST RATE IS VARIABLE OR MULTIPLE RATES, DESCRIBE: Not
Applicable.
(2) WHAT IS THE MATURITY DATE? N/A
IF SERIAL MATURITY DATES, DESCRIBE: Not Applicable.
(3) IS THERE A MANDATORY SINKING FUND? ( ) (X) No. Describe
Not Applicable.
(4) IS THERE A TRUST INDENTURE? ( ) Yes (X) No
NAME, ADDRESS AND TELEPHONE NUMBER OF TRUSTEE: Not Applicable.
(5) ARE THE SECURITIES CALLABLE OR SUBJECT TO REDEMPTION?
( ) Yes (X) No. DESCRIBE, INCLUDING REDEMPTION PRICES:
Not Applicable.
(6) ARE THE SECURITIES COLLATERALIZED BY REAL OR PERSONAL PROPERTY?
( ) Yes (X) No. DESCRIBE: Not Applicable.
(7) IF THESE SECURITIES ARE SUBORDINATED IN RIGHT OF PAYMENT OF
INTEREST OR PRINCIPAL, EXPLAIN THE TERMS OF SUCH SUBORDINATION.
Not applicable.
HOW MUCH CURRENTLY OUTSTANDING INDEBTEDNESS OF THE COMPANY IS SENIOR
TO THE SECURITIES IN RIGHT OF PAYMENT OF INTEREST OR PRINCIPAL? All
of the Company's debt is senior to the Securities in right of payment
of principal. The Company's debt includes a term loan in the amount
of $74,481 and the Company's general trade creditors.
HOW MUCH INDEBTEDNESS SHARES IN RIGHT OF PAYMENT ON AN EQUIVALENT
(PARI PASSU) BASIS? $0.00
HOW MUCH INDEBTEDNESS IS JUNIOR (SUBORDINATED) TO THE SECURITIES?
$0.00
33
<PAGE>
(b) IF NOTES OR OTHER TYPES OF DEBT SECURITIES ARE BEING OFFERED AND THE
COMPANY HAD EARNINGS DURING ITS LAST FISCAL YEAR, SHOW THE RATIO OF EARNINGS TO
FIXED CHARGES ON AN ACTUAL AND PRO FORMA BASIS FOR THAT FISCAL YEAR. "EARNINGS"
MEANS PRETAX INCOME FROM CONTINUING OPERATIONS PLUS FIXED CHARGES AND
CAPITALIZED INTEREST. "FIXED CHARGES" MEANS INTEREST (INCLUDING CAPITALIZED
INTEREST), AMORTIZATION OF DEBT DISCOUNT, PREMIUM AND EXPENSE, PREFERRED STOCK
DIVIDEND REQUIREMENTS OF MAJORITY OWNED SUBSIDIARY, AND SUCH PORTION OF RENTAL
EXPENSE AS CAN BE DEMONSTRATED TO BE REPRESENTATIVE OF THE INTEREST FACTOR IN
THE PARTICULAR CASE. THE PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES SHOULD
INCLUDE INCREMENTAL INTEREST EXPENSE AS A RESULT OF THE OFFERING OF THE NOTES OR
OTHER DEBT SECURITIES.
Not Applicable.
NOTE: CARE SHOULD BE EXERCISED IN INTERPRETING THE SIGNIFICANCE OF THE RATIO
OF EARNINGS TO FIXED CHARGES AS A MEASURE OF THE "COVERAGE" OF DEBT
SERVICE, AS THE EXISTENCE OF EARNINGS DOES NOT NECESSARILY MEAN THAT
THE COMPANY'S LIQUIDITY AT ANY GIVEN TIME WILL PERMIT PAYMENT OF DEBT
SERVICE REQUIREMENTS TO BE TIMELY MADE. SEE QUESTION NOS. 11 AND 12.
SEE ALSO THE FINANCIAL STATEMENTS AND ESPECIALLY THE STATEMENT OF CASH
FLOWS.
18. IF SECURITIES ARE PREFERENCE OR PREFERRED STOCK: Not Applicable.
ARE UNPAID DIVIDENDS CUMULATIVE? ( ) Yes ( ) No
ARE SECURITIES CALLABLE? ( ) Yes ( ) No Explain:
NOTE: ATTACH TO THIS PROSPECTUS COPIES OR A SUMMARY OF THE CHARTER, BYLAW OR
CONTRACTUAL PROVISION OR DOCUMENT THAT GIVES RISE TO THE RIGHTS OF
HOLDERS OF PREFERRED OR PREFERENCE STOCK, NOTES OR OTHER SECURITIES
BEING OFFERED.
19. IF SECURITIES ARE CAPITAL STOCK OF ANY TYPE, INDICATE RESTRICTIONS ON
DIVIDENDS UNDER LOAN OR OTHER FINANCING ARRANGEMENTS OR OTHERWISE:
Under the terms of the term loan described above, the Company has no
specific restrictions on dividends except as implied by covenants on debt to
worth ratio and net worth. The net worth covenant requires a tangible net
worth of $200,000. The Company had a tangible net worth of $582,231 on
June 30, 1997. See Risk Factor 18.
20. CURRENT AMOUNT OF ASSETS AVAILABLE FOR PAYMENT OF DIVIDENDS (IF DEFICIT
MUST BE FIRST MADE UP, SHOW DEFICIT IN PARENTHESIS): $204,541 as of
6/30/97. See Risk Factor 18.
34
<PAGE>
PLAN OF DISTRIBUTION
21. THE SELLING AGENTS (THAT IS, THE PERSONS SELLING THE SECURITIES AS AGENT
FOR THE COMPANY FOR A COMMISSION OR OTHER COMPENSATION) IN THIS OFFERING
ARE: NONE. (SEE RESPONSE PROVIDED TO QUESTION 24.)
22. DESCRIBE ANY COMPENSATION TO SELLING AGENTS, OR FINDERS, INCLUDING CASH,
SECURITIES, CONTRACTS OR OTHER CONSIDERATION IN ADDITION TO THE CASH
COMMISSION SET FORTH AS A PERCENT OF THE OFFERING PRICE ON THE COVER PAGE
OF THIS PROSPECTUS. ALSO INDICATE WHETHER THE COMPANY WILL INDEMNIFY THE
SELLING AGENTS OR FINDERS AGAINST LIABILITIES UNDER THE SECURITIES LAWS.
("FINDERS" ARE PERSONS WHO FOR COMPENSATION ACT AS INTERMEDIARIES IN
OBTAINING SELLING AGENTS OR OTHERWISE MAKING INTRODUCTIONS IN FURTHERANCE
OF THIS OFFERING.)
There are no selling agents or finders involved with this offering. All
sales are being conducted by Officers and Directors of the Company as
described in response to question 24 below. Those Officers and Directors
involved as Agents on behalf of the Company in consummating sales of the
securities described herein will not receive any form of additional
consideration for their efforts in respect to this offering.
23. DESCRIBE ANY MATERIAL RELATIONSHIPS BETWEEN ANY OF THE SELLING AGENTS OR
FINDERS AND THE COMPANY OR ITS MANAGEMENT.
There are no selling agents or finders involved in this offering.
NOTE: AFTER REVIEWING THE AMOUNT OF COMPENSATION TO THE SELLING AGENTS OR
FINDERS FOR SELLING THE SECURITIES, AND THE NATURE OF ANY RELATIONSHIP BETWEEN
THE SELLING AGENTS OR FINDERS AND THE COMPANY, A POTENTIAL INVESTOR SHOULD
ASSESS THE EXTENT TO WHICH IT MAY BE INAPPROPRIATE TO RELY UPON ANY
RECOMMENDATION BY THE SELLING AGENTS OR FINDERS TO BUY THE SECURITIES.
24. IF THIS OFFERING IS NOT BEING MADE THROUGH SELLING AGENTS, THE NAMES OF
PERSONS AT THE COMPANY THROUGH WHICH THIS OFFERING IS BEING MADE:
NAME: Gary G. Herzberg NAME: Glen R. Snow
ADDRESS: 509 Barret Avenue ADDRESS: 509 Barret Avenue
Louisville, Kentucky Louisville, Kentucky
Telephone No.(502) 582-2655 Telephone No. (502) 582-2655
NAME: Andrew Pfeifer NAME: Henry H. Porter, Jr.
ADDRESS: 509 Barret Avenue ADDRESS: 509 Barret Avenue
Louisville, Kentucky Louisville, Kentucky
Telephone No.(502) 582-2655 Telephone No.(502) 582-2655
35
<PAGE>
25. IF THIS OFFERING IS LIMITED TO A SPECIAL GROUP, SUCH AS EMPLOYEES OF THE
COMPANY, OR IS LIMITED TO A CERTAIN NUMBER OF INDIVIDUALS (AS REQUIRED TO
QUALIFY UNDER SUBCHAPTER S OF THE INTERNAL REVENUE CODE) OR IS SUBJECT TO
ANY OTHER LIMITATIONS, DESCRIBE THE LIMITATIONS AND ANY RESTRICTIONS ON
RESALE THAT APPLY:
This offering is not limited to any special group of individuals and there
are no restrictions on the resale of shares issued through this offering.
(See response provided to question 27 with respect to the voluntary
restriction placed on certain pre-offering shareholders.)
WILL THE CERTIFICATES BEAR A LEGEND NOTIFYING HOLDERS OF SUCH RESTRICTIONS?
( ) Yes (X) No
26. (a) NAME, ADDRESS AND TELEPHONE NUMBER OF INDEPENDENT BANK OR SAVINGS AND
LOAN ASSOCIATION OR OTHER SIMILAR DEPOSITORY INSTITUTION ACTING AS
ESCROW AGENT IF PROCEEDS ARE ESCROWED UNTIL MINIMUM PROCEEDS ARE
RAISED:
Bank One Kentucky
416 West Jefferson Street - 4th Floor
Louisville, Kentucky 40202
(502) 566-2117
Attn: Bette J. Purucker
(b) DATE AT WHICH FUNDS WILL BE RETURNED BY ESCROW AGENT IF MINIMUM
PROCEEDS ARE NOT RAISED:
180 days after the registration of this prospectus is effective.
WILL INTEREST ON PROCEEDS DURING ESCROW PERIOD BE PAID TO INVESTORS?
( ) Yes (X) No
27. EXPLAIN THE NATURE OF ANY RESALE RESTRICTIONS ON PRESENTLY OUTSTANDING
SHARES, AND WHEN THOSE RESTRICTIONS WILL TERMINATE, IF THIS CAN BE DETERMINED:
None on common shares. The 4,125 preferred shares outstanding may be
transferred only upon receipt of an opinion of counsel that such transfer will
not violate any securities laws; such shares are convertible into 8,250 shares
of common stock after July 1, 1999.
NOTE: EQUITY INVESTORS SHOULD BE AWARE THAT UNLESS THE COMPANY IS ABLE TO
COMPLETE A FURTHER PUBLIC OFFERING OR THE COMPANY IS ABLE TO BE SOLD
FOR CASH OR MERGED WITH A PUBLIC COMPANY THAT THEIR INVESTMENT IN THE
COMPANY MAY BE ILLIQUID INDEFINITELY.
36
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS
28. IF THE COMPANY HAS WITHIN THE LAST FIVE-YEARS PAID DIVIDENDS, MADE
DISTRIBUTIONS UPON ITS STOCK OR REDEEMED ANY SECURITIES, EXPLAIN HOW MUCH AND
WHEN:
The Company has not paid any dividends.
The Company made a tender offer which was subsequently withdrawn. As
such, no shares were redeemed. See Risk Factor 12.
By written agreement dated January 31, 1995, the 4,900 shares owned by Mr.
Rick Peters were redeemed at $6.00 per share. Mr. Peters also agreed to a
noncompetition covenant, received consulting fees of $7,000.00 through
December, 1995, and a patent royalty on sales of the Active Ankle. The royalty
will cease when the patent expires no earlier than April 14, 2003 and no
later than September 7, 2009. The noncompetition covenant is now expired and
is of no effect.
OFFICERS AND KEY PERSONNEL OF THE COMPANY
29. CHIEF EXECUTIVE OFFICER: TITLE: President and CEO
NAME: Gary G. Herzberg AGE: 57
Office Street Address: TELEPHONE NO.:
509 Barret Avenue (502 ) 582-2655
Louisville, Kentucky 40204
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Education (degrees, schools, and dates):
GARY G. HERZBERG
Owner of 200 common shares of Active Ankle, 1,250 preferred shares and options
to purchase 7,100 shares of common stock.
MR. HERZBERG, age 57, was elected President and Chief Executive Officer of
the Company in April, 1994. He has served on the Board since February, 1994.
From August, 1993 thru September, 1997 he was CEO of National Records
Management Corporation of Louisville, Kentucky. Prior to joining National
Records, Mr. Herzberg was a consultant affiliated with International Finance
and Management Group, Inc., Minneapolis, MN, specializing in planning,
financial and project management. From 1977-1982 he was Vice President and
Treasurer of BATUS, Inc. Prior experience includes executive
37
<PAGE>
positions with General Mills, Inc., International Multifoods, Inc., Piper,
Jaffray and Hopwood, an executive on loan to the Minnesota and Kentucky State
Governments and a shipboard officer in the U.S. Navy. Mr. Herzberg is a
graduate of the U.S. Naval Academy and holds a Masters Degree in Industrial
Administration from Carnegie Mellon University.
ALSO A DIRECTOR OF THE COMPANY (X) YES ( ) NO
INDICATE AMOUNT OF TIME TO BE SPENT ON COMPANY MATTERS IF LESS THAN FULL
TIME: 100%
30. CHIEF MARKETING OFFICER: TITLE: Senior Vice President
NAME: Glen R. Snow AGE: 47
Office Street Address: TELEPHONE NO.:
509 Barret Avenue (502) 582-2655
Louisville, Kentucky 40204
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Education (degrees, schools, and dates):
GLEN R. SNOW
Owner of 1,000 common shares of Active Ankle, 150 preferred shares and options
to purchase 4,000 shares of common stock.
MR. SNOW, age 47, is Senior Vice President of Marketing. He has served as Vice
President, Sales and Marketing of the Company since 1990 and as a director since
April, 1995. He is a certified athletic trainer and has served as an athletic
trainer for Ball State University, The University of Washington, the Seattle
Seahawks Professional Football Team, and Floyd Central High School. He has
consulted with a variety of schools and teams on athletic training services and
facilities. Mr. Snow is active in the National Athletic Trainers Association
and the NATA Education and Research Committee. He has held district offices,
committee appointments as well as being named National High School Trainer of
the Year three times. He was recently inducted into the State of Indiana
Trainers Association Hall of Fame. Prior business experience includes positions
as Director of Corporate Development for Baxter Physical Therapy, a division of
Baxter International, and Development Director at Ball State University. Mr.
Snow holds Bachelor of Science and Master of Arts degrees from Ball State
University.
ALSO A DIRECTOR OF THE COMPANY (X) YES ( ) NO
INDICATE AMOUNT OF TIME TO BE SPENT ON COMPANY MATTERS IF LESS THAN FULL
TIME: 100%
38
<PAGE>
31. CHIEF FINANCIAL OFFICER: TITLE: Chief Financial Officer
NAME: Ronald W. Schultz AGE: 64
Office Street Address: TELEPHONE NO.:
509 Barret Avenue (502) 582-2655
Louisville, Kentucky 40204
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Education (degrees, schools, and dates):
RONALD W. SCHULTZ
Owner of 6,640 common shares of Active Ankle, and options to purchase 500 shares
of common stock.
MR. SCHULTZ, age 64, is Chief Financial Officer, Treasurer and a founder of the
Company. He served as the Company's Chief Executive Officer and Treasurer from
1989 to 1993, Chief Financial Officer since June, 1995, and as a director since
1989. He was Chief Executive Officer for Innovative Computer Management
Systems, Inc., a computer software firm, from 1987 to 1988. From 1985 to 1987,
Mr. Schultz was President of Equine Dynamics Ltd., a start-up company in the
horse products industry that included four retail stores and three manufacturing
facilities. From 1985 to 1988, Mr. Schultz was also a part owner and Director
of JML Computers, Inc., a retail computer business. From 1956 to 1984, Mr.
Schultz held various executive positions in Finance, Marketing and Human
Resources Management with the General Electric Company. Mr. Schultz received
his MBA from Northwestern University in 1962, and his Bachelor of Business
Administration in 1954, from the University of Minnesota.
ALSO A DIRECTOR OF THE COMPANY (X) YES ( ) NO
Indicate amount of time to be spent on Company matters if less than full
time: 100%
32. OTHER KEY PERSONNEL:
(A) NAME: Andrew Pfeifer AGE: 40
TITLE: Director
OFFICE STREET ADDRESS: TELEPHONE NO.:
531 Fairfield Dr. (502) 895-3336
Louisville, Kentucky 40206
39
<PAGE>
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Education (degrees, schools, and dates):
ANDREW PFEIFER
Owner of 3,906 common shares of Active Ankle, 1,250 preferred shares and
warrants to purchase 1,023 shares of common stock.
MR. PFEIFER, age 40, became a Director of the Company in 1992. He retired as
a Global Partner of AMVESCAP Plc. (NYSE:AVC), a global investment management
company, in April, 1997. Mr. Pfeifer's employment began in April 1985 and
his responsibilities included CFO, Treasurer, account management, portfolio
management and credit analysis for PRIMCO Capital Management, Inc., an
AMVESCAP member company. In 1985, Mr. Pfeifer co-founded PRIMCO Capital
Management, Inc., an investment management company which was purchased by
AMVESCAP Plc. in 1990. From 1974 to 1985, Mr. Pfeifer held positions with
SCA Services, Inc., Coopers & Lybrand and William M. Mercer, Inc. He is a
Chartered Financial Analyst (CFA), Certified Public Accountant (CPA), and a
Certified Employee Benefit Specialist (CEBS). Mr. Pfeifer has been self
employed since April, 1997. Mr. Pfeifer received his Bachelor of Science
Degree from Indiana University Southeast in 1978.
ALSO A DIRECTOR OF THE COMPANY (X) YES ( ) NO
INDICATE AMOUNT OF TIME TO BE SPENT ON COMPANY MATTERS IF LESS THAN FULL
TIME: 10%
OTHER KEY PERSONNEL:
(B) NAME: Henry H. Porter, Jr. AGE: 62
TITLE: Chairman of the Board
Office Street Address: TELEPHONE NO.:
5806 River Knolls Dr. (502) 426-4161
Louisville, Kentucky 40222
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Education (degrees, schools, and dates):
HENRY H. PORTER, JR.
Owner of 19,810 common shares of Active Ankle, 1,250 preferred shares and
warrants to purchase 2,000 shares of common stock.
40
<PAGE>
MR. PORTER, age 62, is Chairman of the Board. A founder of the Company, has
served as a Director and Chairman since the Company's incorporation in 1989. He
served as the Company's President from October, 1993 to April of 1994. Since
1980, Mr. Porter has been a professional director, private investor and self
employed consultant. From 1977 to 1980, he was Senior Vice President , Chief
Financial Officer, Director and Executive Committee member of Brown and
Williamson Industries, Inc. and its successor, BATUS, Inc. From 1962 to 1976,
Mr. Porter was with General Mills, Inc. and from 1969 to 1976 was its Vice
President Finance and Treasurer. Currently, Mr. Porter is a director of SEI
Corporation (an SEC registered company) and several small private companies.
Mr. Porter received a Master's Degree in Business Administration from Harvard
Graduate School of Business Administration and a Bachelor of Arts degree from
Yale University.
ALSO A DIRECTOR OF THE COMPANY (X) YES ( ) NO
INDICATE AMOUNT OF TIME TO BE SPENT ON COMPANY MATTERS IF LESS THAN FULL
TIME: 10%
DIRECTORS OF THE COMPANY
33. NUMBER OF DIRECTORS: 8.
IF DIRECTORS ARE NOT ELECTED ANNUALLY, OR ARE ELECTED UNDER A VOTING TRUST
OR OTHER ARRANGEMENT, EXPLAIN: Not Applicable.
34. INFORMATION CONCERNING OUTSIDE OR OTHER DIRECTORS (I.E., THOSE NOT
DESCRIBED ABOVE):
Name of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Education (degrees, schools, and dates):
EDUCATION (DEGREES, SCHOOLS, AND DATES):
NAME: John C. Nichols II AGE: 65
TITLE: Director
OFFICE STREET ADDRESS: TELEPHONE NO.:
1510 North Wind Rd. (502) 896-4712
Louisville, Kentucky 40207
JOHN C. NICHOLS II
Owner of 5,900 common shares of Active Ankle. It is anticipated that the
5,900 common shares will be tendered, if the Company participates in a
post-Offering tender offer.
Mr. Nichols, a founder of the Company, has served as a director since 1989.
Since 1984, he has been President of Northdel, Inc., a financial consulting
and equipment leasing firm. Mr. Nichols has also been a self employed
consultant since 1992, and is currently a consultant to DHN Enterprises, Inc.
in Dallas, Texas. From 1974 to
41
<PAGE>
1984, Mr. Nichols was Senior Vice President and Chief Financial Officer of Conna
Corporation. From 1956 to 1974, Mr. Nichols was Vice President of the
Commercial Division of Citizens Fidelity Bank and Trust Company, Louisville,
Kentucky. Mr. Nichols received a Bachelor of Science Degree in Commerce from
the University of Kentucky and graduate degrees from Rutgers Graduate School of
Banking, the Columbia School of Banking and the Indiana Management School.
NAME: Douglas D. Stegner AGE: 68
TITLE: Director
OFFICE STREET ADDRESS: TELEPHONE NO.:
1644 Cherokee Rd. (502) 458-8017
Louisville, Kentucky 40205
DOUGLAS D. STEGNER
Owner of 11,609 common shares of Active Ankle, and warrants to purchase
954 shares of common stock. However, it is expected that the 11,609 common
shares will be tendered, if the Company participates in a post-Offering
tender offer. See Use of Proceeds footnote (1).
Mr. Stegner has served as a director of the Company since 1989. He is President
of and has been employed since 1992 by Stegner Group, Ltd., a real estate
development firm, and Chairman of Stegner Investment Associates, an investment
advisory firm. He also serves on several boards of charitable organizations in
the Louisville area. Prior to a long career of leadership in the employee
benefit services profession, Mr. Stegner attended graduate school at Butler
University and received a Bachelor of Business from the University of
Wisconsin.
NAME: James T. Crain, Jr. AGE: 58
TITLE: Director
OFFICE STREET ADDRESS: TELEPHONE NO.:
620 West Main St., #320 (502) 581-1148
Louisville, Kentucky 40202
JAMES T. CRAIN, JR.
Owner of no common shares of Active Ankle.
Mr. Crain has served as a director of the Company since 1992. He is
Executive Director of the Cralle Foundation and Day Enterprises and has been
employed in such capacity since 1992. Joan Cralle Day, the Principal of Day
Enterprises, owns 6,982 common shares and warrants to purchase 826 common
shares of the Company. Mr. Crain, for eight years, was Executive Vice
President and Group Head of the Trust and Investment Division of Liberty
National Bank. Prior to joining Liberty National Bank, Mr. Crain had, for
18 years, been associated with the Trust Departments of United
42
<PAGE>
Kentucky Bank and Louisville Trust Company. Mr. Crain is a member of the Board
of Trustees of Lindsey-Wilson College and is Chairman of the Associates Board of
Georgetown College. Mr. Crain serves on the Board of Directors of Carman
Industries, NUMA Technologies, and several other small companies. Mr. Crain
received his B.A. degree from the University of Kentucky in 1960 and his J.D.
degree in 1963 from the University of Louisville.
35(a). HAVE ANY OF THE OFFICERS OR DIRECTORS EVER WORKED FOR OR MANAGED A
COMPANY (INCLUDING A SEPARATE SUBSIDIARY OR DIVISION OF A LARGER ENTERPRISE) IN
THE SAME BUSINESS AS THE COMPANY?
( ) YES (X) NO
Explain:
(b) IF ANY OF THE OFFICERS, DIRECTORS OR OTHER KEY PERSONNEL HAVE EVER
WORKED FOR OR MANAGED A COMPANY IN THE SAME BUSINESS OR INDUSTRY AS THE COMPANY
OR IN A RELATED BUSINESS OR INDUSTRY, DESCRIBE WHAT PRECAUTIONS, IF ANY,
(INCLUDING THE OBTAINING OF RELEASES OR CONSENTS FROM PRIOR EMPLOYERS) HAVE BEEN
TAKEN TO PRECLUDE CLAIMS BY PRIOR EMPLOYERS FOR CONVERSION OR THEFT OF TRADE
SECRETS, KNOW-HOW OR OTHER PROPRIETARY INFORMATION.
Not Applicable.
(c) IF THE COMPANY HAS NEVER CONDUCTED OPERATIONS OR IS OTHERWISE IN THE
DEVELOPMENT STAGE, INDICATE WHETHER ANY OF THE OFFICERS OR DIRECTORS HAS EVER
MANAGED ANY OTHER COMPANY IN THE START-UP OR DEVELOPMENT STAGE AND DESCRIBE THE
CIRCUMSTANCES, INCLUDING RELEVANT DATES.
Not Applicable.
(d) IF ANY OF THE COMPANY'S KEY PERSONNEL ARE NOT EMPLOYEES BUT ARE
CONSULTANTS OR OTHER INDEPENDENT CONTRACTORS, STATE THE DETAILS OF THEIR
ENGAGEMENT BY THE COMPANY.
Not Applicable.
(e) IF THE COMPANY HAS KEY MAN LIFE INSURANCE POLICIES ON ANY OF ITS
OFFICERS, DIRECTORS OR KEY PERSONNEL, EXPLAIN, INCLUDING THE NAMES OF THE
PERSONS INSURED, THE AMOUNT OF INSURANCE, WHETHER THE INSURANCE PROCEEDS ARE
PAYABLE TO THE COMPANY AND WHETHER THERE ARE ARRANGEMENTS THAT REQUIRE THE
PROCEEDS TO BE USED TO REDEEM SECURITIES OR PAY BENEFITS TO THE ESTATE OF THE
INSURED PERSON OR A SURVIVING SPOUSE.
Not Applicable.
36. IF A PETITION UNDER THE BANKRUPTCY ACT OR ANY STATE INSOLVENCY LAW WAS
FILED BY OR AGAINST THE COMPANY OR ITS OFFICERS, DIRECTORS OR OTHER KEY
PERSONNEL, OR A RECEIVER, FISCAL
43
<PAGE>
AGENT OR SIMILAR OFFICER WAS APPOINTED BY A COURT FOR THE BUSINESS OR PROPERTY
OF ANY SUCH PERSONS, OR ANY PARTNERSHIP IN WHICH ANY OF SUCH PERSONS WAS A
GENERAL PARTNER AT OR WITHIN THE PAST FIVE YEARS, OR ANY CORPORATION OR BUSINESS
ASSOCIATION OF WHICH ANY SUCH PERSON WAS AN EXECUTIVE OFFICER AT OR WITHIN THE
PAST FIVE YEARS, SET FORTH BELOW THE NAME OF SUCH PERSONS, AND THE NATURE AND
DATE OF SUCH ACTION.
None.
NOTE: AFTER REVIEWING THE INFORMATION CONCERNING THE BACKGROUND OF THE
COMPANY'S OFFICERS, DIRECTORS AND OTHER KEY PERSONNEL, POTENTIAL
INVESTORS SHOULD CONSIDER WHETHER OR NOT THESE PERSONS HAVE ADEQUATE
BACKGROUND AND EXPERIENCE TO DEVELOP AND OPERATE THIS COMPANY AND TO
MAKE IT SUCCESSFUL. IN THIS REGARD, THE EXPERIENCE AND ABILITY OF
MANAGEMENT ARE OFTEN CONSIDERED THE MOST SIGNIFICANT FACTORS IN THE
SUCCESS OF A BUSINESS.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
37. PRINCIPAL OWNERS OF THE COMPANY (THOSE WHO BENEFICIALLY OWN DIRECTLY OR
INDIRECTLY 10% OR MORE OF THE COMMON AND PREFERRED STOCK PRESENTLY OUTSTANDING)
STARTING WITH THE LARGEST COMMON STOCKHOLDER. INCLUDE SEPARATELY ALL COMMON
STOCK ISSUABLE UPON CONVERSION OF CONVERTIBLE SECURITIES (IDENTIFYING THEM BY
ASTERISK) AND SHOW AVERAGE PRICE PER SHARE AS IF CONVERSION HAS OCCURRED.
INDICATE BY FOOTNOTE IF THE PRICE PAID WAS FOR A CONSIDERATION OTHER THAN CASH
AND THE NATURE OF ANY SUCH CONSIDERATION.
<TABLE>
<CAPTION>
Average No. of Shares % if All
Price No. of % of Held After Offering Securities
Name Per Share Shares Held Total if All Securities Sold Sold
- ---- --------- ----------- ----- ---------------------- ----
<S> <C> <C> <C> <C> <C>
Douglas D. Stegner $16.28 12,563 13.1% 954 0.6%
Henry H. Porter, Jr.
(Preferred)* $20.00 2,500 2.6% 2,500 1.4%
Henry H. Porter, Jr.
(Common) $15.24 21,810 22.7% 21,810 12.7%
Henry H. Porter, Jr.
(Total) $15.75 24,310 25.3% 24,310 14.1%
Gary G. Herzberg $20.00 2,500 2.6% 2,500 1.4%
(Preferred)*
Gary G. Herzberg $25.00 7,300 7.6% 7,300 4.3%
(Common)
Gary G. Herzberg
(Total) $23.72 9,800 10.2% 9,800 5.7%
</TABLE>
NOTE: Shares shown above include shares of common stock outstanding as of
June 30, 1997, shares of common stock reserved for conversion of
preferred stock and shares of common stock reserved for exercise of
currently outstanding options and warrants. The number of shares
assumes 24,389 shares are tendered pursuant to a possible
post-Offering tender offer.
38. NUMBER OF SHARES BENEFICIALLY OWNED BY OFFICERS AND DIRECTORS AS A GROUP:
BEFORE OFFERING: 82,200 common shares (85.4% OF TOTAL OUTSTANDING)
AFTER OFFERING:
45
<PAGE>
a) ASSUMING MINIMUM SECURITIES SOLD:
64,691 common shares (55.4% of total outstanding)
b) ASSUMING MAXIMUM SECURITIES SOLD:
64,691 common shares (37.6% of total outstanding)
These figures assume that 17,509 shares will be tendered by directors or
officers pursuant to a possible post-Offering tender offer. These figures
include options and warrants.
MANAGEMENT RELATIONSHIPS,
TRANSACTIONS AND REMUNERATION
39. (a) IF ANY OF THE OFFICERS, KEY PERSONNEL OR PRINCIPAL STOCKHOLDERS ARE
RELATED BY BLOOD OR MARRIAGE, PLEASE DESCRIBE.
The Company was sub-leasing office space from a business partially owned by
a stockholder of the Company until November 30, 1995. Rent expense for the
years ended June 30, 1996 and 1995 amounted to $4,600 and $11,565, respectively.
The Company owed certain stockholders during fiscal 1995 under notes
payable. Interest expense on these loans amounted to approximately $3,000 in
1995. The loans were repaid during fiscal 1995. In addition, the Company
incurred $4,105 and $7,384 in loan guarantee fees to certain stockholders during
1996 and 1995 respectively. Under the terms of the loan, no guarantee will be
required after September 30, 1997.
(b) IF THE COMPANY HAS MADE LOANS TO OR IS DOING BUSINESS WITH ANY
OF ITS OFFICERS, DIRECTORS, KEY PERSONNEL OR 10% STOCKHOLDERS, OR ANY OF
THEIR RELATIVES (OR ANY ENTITY CONTROLLED DIRECTLY OR INDIRECTLY BY ANY SUCH
PERSONS) WITHIN THE LAST TWO YEARS, OR PROPOSES TO DO SO WITHIN THE FUTURE,
EXPLAIN. (THIS INCLUDES SALES OR LEASE OF GOODS, PROPERTY OR SERVICES TO OR
FROM THE COMPANY, EMPLOYMENT OR STOCK PURCHASE CONTRACTS, ETC.) STATE THE
PRINCIPAL TERMS OF ANY SIGNIFICANT LOANS, AGREEMENTS, LEASES, FINANCING OR
OTHER ARRANGEMENTS.
None.
(c) IF ANY OF THE COMPANY'S OFFICERS, DIRECTORS, KEY PERSONNEL OR 10%
STOCKHOLDERS HAS GUARANTEED OR CO-SIGNED ANY OF THE COMPANY'S BANK DEBT OR OTHER
OBLIGATIONS, INCLUDING ANY INDEBTEDNESS TO BE RETIRED FROM THE PROCEEDS OF THIS
OFFERING, EXPLAIN AND STATE THE AMOUNTS INVOLVED.
46
<PAGE>
Certain shareholders have guaranteed a bank term loan at Bank One. The
guarantee fee is 3% annually. The balance due as of June 30, 1997, was
$74,481. No guarantee is required after September 30, 1997.
40. (a) LIST ALL REMUNERATION BY THE COMPANY TO OFFICERS, DIRECTORS AND KEY
PERSONNEL FOR THE LAST FISCAL YEAR:
Cash,
Salary & Bonus Other Stock Options
Gary G. Herzberg
Chief Executive Officer $57,775 $16,093* 1,000
Glen R. Snow
Senior Vice President, $72,500 $ 600 1,000
Marketing
Ronald W. Schultz
Chief Financial Officer $42,500 $ 390 500
Total:
Directors as a group
(number of persons: 3) $172,775 $17,083 2,500
*This includes a deferral of salary of $14,725 pursuant to a written
deferred compensation agreement with Mr. Herzberg.
(b) IF REMUNERATION IS EXPECTED TO CHANGE OR HAS BEEN UNPAID IN PRIOR
YEARS, EXPLAIN:
Beginning in Fiscal Year 1997, non-management directors receive a fee of
$500.00 per meeting attended, which may be taken in cash or stock, plus
out-of-pocket expenses.
(c) IF ANY EMPLOYMENT AGREEMENTS EXIST OR ARE CONTEMPLATED, DESCRIBE:
No current employment agreements.
41. (a) NUMBER OF SHARES SUBJECT TO ISSUANCE UNDER PRESENTLY OUTSTANDING STOCK
PURCHASE AGREEMENTS, STOCK OPTIONS, WARRANTS OR RIGHTS: 19,703 shares are
subject to issuance under outstanding options and warrants. INDICATE WHICH HAVE
BEEN APPROVED BY SHAREHOLDERS. STATE THE EXPIRATION DATES, EXERCISE PRICES AND
OTHER BASIC TERMS FOR THESE SECURITIES:
47
<PAGE>
19,703 shares are subject to options or warrants. All options or
warrants are exercisable at $25/share. 6,000 are 10 year options, and the
remainder are five year options. All 5 year options expire in fiscal years
1998 through 2001 and are exercisable on issuance. Gary G. Herzberg is the
only person holding 10 year options; he holds a total of 6,000 ten year
options, 4,000 of which were granted to him in 1994 and 2,000 in 1995; 20% of
each grant becomes exercisable each year after the grant date and expire ten
years after the grant date. The following are the persons who hold these
options and warrants:
Henry H. Porter, Jr. 2,000
Douglas D. Stegner 954
Joan Cralle Day 826
Ronald W. Schultz 500
Andrew Pfeifer 1,023
Glen R. Snow 4,000
Gary G. Herzberg 7,100
Diane Lilly 1,000
Christina Wessling 500
Greg Deuser 200
Scott Morton 1,000
Jim Whitesel 300
Ron O'Neil 300
------
19,703
(b) NUMBER OF COMMON SHARES SUBJECT TO ISSUANCE UNDER EXISTING STOCK
PURCHASE OR OPTION PLANS BUT NOT YET COVERED BY OUTSTANDING PURCHASE,
AGREEMENTS, OPTIONS OR WARRANTS:
6,400 shares.
(c) DESCRIBE THE EXTENT TO WHICH FUTURE STOCK PURCHASE AGREEMENTS, STOCK
OPTIONS, WARRANTS OR RIGHTS MUST BE APPROVED BY SHAREHOLDERS.
There are no provisions in the Company's Articles of Incorporation or
Bylaws, or in any plan or contract, which require shareholder approval of such
future transactions. The Company is subject to general corporate legal
requirements governing the necessity to obtain shareholder approval of such
transactions.
42. IF THE BUSINESS IS HIGHLY DEPENDENT ON THE SERVICES OF CERTAIN KEY
PERSONNEL, DESCRIBE ANY ARRANGEMENT TO ASSURE THAT THESE PERSONS WILL REMAIN
WITH THE COMPANY AND NOT COMPETE UPON ANY TERMINATION: None.
NOTE: AFTER REVIEWING THE ABOVE, POTENTIAL INVESTORS SHOULD CONSIDER WHETHER
OR NOT THE COMPENSATION TO MANAGEMENT AND OTHER KEY PERSONNEL DIRECTLY
OR INDIRECTLY, IS REASONABLE IN VIEW OF THE PRESENT STAGE OF THE
COMPANY'S DEVELOPMENT.
48
<PAGE>
LITIGATION
43. DESCRIBE ANY PAST, PENDING OR THREATENED LITIGATION OR ADMINISTRATIVE
ACTION WHICH HAS HAD OR MAY HAVE A MATERIAL EFFECT UPON THE COMPANY'S
BUSINESS, FINANCIAL CONDITION OR OPERATIONS, INCLUDING ANY LITIGATION OR
ACTION INVOLVING THE COMPANY'S OFFICERS, DIRECTORS OR OTHER KEY PERSONNEL.
STATE THE NAMES OF THE PRINCIPAL PARTIES, THE NATURE AND CURRENT STATUS OF
THE MATTERS, AND AMOUNTS INVOLVED. GIVE AN EVALUATION BY MANAGEMENT OR
COUNSEL, TO THE EXTENT FEASIBLE, OF THE MERITS OF THE PROCEEDINGS OR
LITIGATION AND THE POTENTIAL IMPACT ON THE COMPANY'S BUSINESS, FINANCIAL
CONDITION, OR OPERATIONS.
Except as stated below, there is no litigation, past, pending or
threatened or administrative action which has had or may have a material
effect upon the Company's business, financial condition or operations,
including any litigation or action involving the Company's Officers,
Directors or other key personnel. The Company received correspondence
October 23, 1991 implying that the Company may have infringed on a patent
held by a competitor. The cost of defending any claim, if asserted, could
have a material adverse impact on the Company's financial statements. In
view of the facts that the competitor has known about the Company and its
products since 1984, and the competitor has been wholly non-responsive to
the Company's positions of non-infringement since December of 1992,
management is of the view that the probability that the competitor will
actually assert a claim against the Company is low. Based on these
facts, and further based on the advice of outside legal counsel that the
Company's products do not infringe on the competitor's patent, it is
management's opinion that the ultimate resolution of this matter will not
have a material adverse effect on the Company's financial statements.
FEDERAL TAX ASPECTS
44. IF THE COMPANY IS AN S CORPORATION UNDER THE INTERNAL REVENUE CODE OF 1986,
AND IT IS ANTICIPATED THAT ANY SIGNIFICANT TAX BENEFITS WILL BE AVAILABLE
TO INVESTORS IN THIS OFFERING, INDICATE THE NATURE AND AMOUNT OF SUCH
ANTICIPATED TAX BENEFITS AND THE MATERIAL RISKS OF THEIR DISALLOWANCE.
ALSO, STATE THE NAME, ADDRESS AND TELEPHONE NUMBER OF ANY TAX ADVISOR THAT
HAS PASSED UPON THESE TAX BENEFITS. ATTACH ANY OPINION OR ANY DESCRIPTION
OF THE TAX CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES BY THE TAX
ADVISOR.
The Company is unaware of any tax advantages which would become available
as a result of an investment in the securities described herein.
NAME OF TAX ADVISOR: Not applicable
Address
------------------------------
--------------------------------------
Telephone No. ( )
-----------------------
NOTE: POTENTIAL INVESTORS ARE ENCOURAGED TO HAVE THEIR OWN PERSONAL TAX
CONSULTANT CONTACT THE TAX ADVISOR TO REVIEW DETAILS OF THE TAX BENEFITS AND THE
EXTENT THAT THE BENEFITS WOULD BE AVAILABLE AND ADVANTAGEOUS TO THE PARTICULAR
INVESTOR.
MISCELLANEOUS FACTORS
45. DESCRIBE ANY OTHER MATERIAL FACTORS, EITHER ADVERSE OR FAVORABLE, THAT WILL
OR COULD AFFECT THE COMPANY OR ITS BUSINESS (FOR EXAMPLE, DISCUSS ANY
DEFAULTS UNDER MAJOR
49
<PAGE>
CONTACTS, ANY BREACH OF BYLAW PROVISIONS, ETC.) OR WHICH ARE NECESSARY TO
MAKE ANY OTHER INFORMATION IN THIS DISCLOSURE DOCUMENT NOT MISLEADING OR
INCOMPLETE.
The Company is unaware of any information, either adverse or favorable
including any defaults under major contracts, breach of bylaws or any other
items which would need to be provided to make the information contained
within this Disclosure Document not misleading or incomplete.
FINANCIAL STATEMENTS
46. PROVIDE THE FINANCIAL STATEMENTS REQUIRED BY PART F/S OF THIS PROSPECTUS
SECTION FOR FORM 1-A.
See attached Exhibit C, Historical Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CERTAIN RELEVANT FACTORS
47. IF THE COMPANY'S FINANCIAL STATEMENTS SHOW LOSSES FROM OPERATIONS, EXPLAIN
THE CAUSES UNDERLYING THESE LOSSES AND WHAT STEPS THE COMPANY HAS TAKEN OR
IS TAKING TO ADDRESS THESE CAUSES.
The Company lost money during the start up but has made a profit during
each of the three years in the period ended June 30, 1997. Losses from
1990 through 1994 resulted as sales grew from zero to 78,000 braces in
1994. The Company invested heavily in marketing and staff during this
period to build the business. There were significant product refinements
made during this early period with the help of the Company athletic
trainer network, and feedback from teams wearing the product.
48. DESCRIBE ANY TRENDS IN THE COMPANY'S HISTORICAL OPERATING RESULTS.
INDICATE ANY CHANGES NOW OCCURRING IN THE UNDERLYING ECONOMICS OF THE
INDUSTRY OF THE COMPANY'S BUSINESS WHICH, IN THE OPINION OF MANAGEMENT,
WILL HAVE A SIGNIFICANT IMPACT (EITHER FAVORABLE OR ADVERSE) UPON THE
COMPANY'S RESULTS OF OPERATIONS WITHIN THE NEXT 12 MONTHS AND GIVE A ROUGH
ESTIMATE OF THE PROBABLY EXTENT OF THE IMPACT, IF POSSIBLE.
This discussion is based upon past operating experience. If the offering
is successful, the Company's operations will change significantly (as
described elsewhere in this Prospectus).
The Company anticipates operating losses in its retail and catalog
operations over the next several years, and there can be no assurance
as to when, if ever, the Company will have positive operating results and
cash flow.
FISCAL YEAR 1996 V. FISCAL YEAR 1995
The Company increased unit brace sales from 136,109 units in 1995 to
173,134 units in 1996. Cost reductions and design changes reduced average
cost per brace from $6.19 in 1995 to $5.79 in 1996 resulting in an
improvement in gross margin percent from 54.9% to
50
<PAGE>
58.3%. Sales revenue increased 29% to $2,404,236 and net income was
$140,048, up 54% over 1995.
Marketing and promotional costs increased as planned to 23.1% of sales in
1996 compared to 18.6% in 1995. These marketing investments supported the
Company's market share growth and contributed to building name and brand
awareness.
General and administrative expenses increased 24.6%, reflecting the
addition of three certified athletic trainers to the staff. This personnel
increase enables the Company to dedicate specific resources to the
medical, team, retail and international markets. The addition of these
talented people is critical to provide the human resources for future
growth.
The Company generated positive cash flow from operations enabling debt
reduction and a working capital increase. Close management of inventory
and receivables provided funds to grow and not use a working capital line
from December 1995 through June 1996. Continuing profitability and an
expanded $300,000 working capital line are providing the Company the
flexibility to continue aggressively marketing the Active Ankle brace
and to fund research and development of new products.
FISCAL YEAR 1997 V. FISCAL YEAR 1996
Unit Active Ankle brace sales for the year ending June 30, 1997 of
188,612 increased 8.9%. Average product cost is 4.8% per brace below
last year and average price is 1.3% per brace higher than last year
resulting in an increase in gross margin from 58.3% to 60.9%. Sales
revenue increased 10.4% to $2,653,217 and net income is $204,541, up
46% over 1996.
Marketing and promotional costs of 22% of sales increased 5% in line
with plans to grow market and market share. Building name and brand
awareness continues to be critical to the Company's growth.
General and administrative expenses increased 15.4%, continuing to
reflect the personnel additions in marketing in early 1996 and the
$30,000 non-operating legal expense for trademark defense. Investment in
research and development increased by approximately $24,000 in 1997
primarily to fund the development of a new generation of ankle
braces planned for introduction in mid 1998.
The Company generated positive cash flow from operations enabling debt
reduction and a working capital increase. An additional $165,000 was
generated from the sale of preferred stock. No borrowing is anticipated
against the credit line of $300,000.
The Company is currently in the process of opening a consumer resource
center in the Louisville, Kentucky area. The Company is financing this
store from working capital.
49. IF THE COMPANY SELLS A PRODUCT OR PRODUCTS AND HAS HAD SIGNIFICANT SALES
DURING ITS LAST FISCAL YEAR, STATE THE EXISTING GROSS MARGIN (NET SALES
LESS COST OF SUCH SALES AS PRESENTED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES) AS A PERCENTAGE OF SALES FOR THE LAST FISCAL YEAR:
60.9%. WHAT IS THE ANTICIPATED GROSS MARGIN FOR NEXT YEAR OF OPERATIONS?
Approximately 60% for the fiscal year ending June 30, 1998. IF THIS IS
EXPECTED TO CHANGE, EXPLAIN. ALSO, IF REASONABLY CURRENT GROSS MARGIN
FIGURES ARE AVAILABLE FOR THE INDUSTRY, INDICATE THESE FIGURES AND THE
SOURCE OR SOURCES FROM WHICH THEY ARE OBTAINED.
51
<PAGE>
Industry figures are not readily available.
50. FOREIGN SALES AS A PERCENT OF TOTAL SALES FOR LAST FISCAL YEAR: 8%.
DOMESTIC GOVERNMENT SALES AS A PERCENT OF TOTAL DOMESTIC SALES FOR LAST
FISCAL YEAR: Not material.
EXPLAIN THE NATURE OF THESE SALES, INCLUDING ANY ANTICIPATED CHANGES:
52
<PAGE>
Index to Financial Statements
Audited Page
- ------- ----
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets as of June 30 1997 and 1996. . . . . . . . . . . . . . . . . F-3
Statements of Income for the Years Ended June 30, 1997 and 1996 . . . . . . F-4
Statements of Stockholders' Equity for the Years Ended June 30, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended June 30, 1997 and 1996 . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Active Ankle Systems, Inc.
We have audited the accompanying balance sheets of Active Ankle Systems, Inc. as
of June 30, 1997 and 1996, and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Active Ankle Systems, Inc. at
June 30, 1997 and 1996, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
August 8, 1997
Louisville, Kentucky
F-2
<PAGE>
Active Ankle Systems, Inc.
Balance Sheets
JUNE 30
1997 1996
----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 336,099 $ 90,263
Trade accounts receivable 199,006 145,336
Inventories, principally raw materials 204,586 153,241
Prepaid expenses 137,017 61,950
----------------------
Total current assets 876,708 450,790
Machinery and equipment, net 122,689 151,411
Patents, net of accumulated amortization of
$13,741 in 1997 and $10,164 in 1996 51,219 43,978
Other intangible assets 15,324 20,015
----------------------
Total assets $1,065,940 $ 666,194
----------------------
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 302,896 $ 220,972
Accrued liabilities 39,789 42,194
Current portion of long-term debt 21,652 53,748
----------------------
Total current liabilities 364,337 316,914
Long-term debt 52,829 74,297
Stockholders' equity:
Preferred stock, $40 par and liquidation
value per share:
Authorized shares--100,000
Issued and outstanding shares--4,125 in 1997 165,000 -
Common stock, no par value:
Authorized shares--2,000,000
Issued and outstanding shares--68,267 in 1997
and 68,097 in 1996 1,049,565 1,045,315
Accumulated deficit (565,791) (770,332)
----------------------
Total stockholders' equity 648,774 274,983
----------------------
Total liabilities and stockholders' equity $1,065,940 $ 666,194
----------------------
----------------------
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Active Ankle Systems, Inc.
Statements of Income
YEAR ENDED JUNE 30
1997 1996
----------------------
Net sales $2,653,217 $2,404,236
Cost of sales 1,038,396 1,001,950
----------------------
Gross profit 1,614,821 1,402,286
Selling, general and administrative expenses 1,396,513 1,239,410
----------------------
Operating income 218,308 162,876
Interest expense 10,967 21,135
----------------------
Income before income tax expense 207,341 141,741
Income tax expense 2,800 1,693
----------------------
Net income $ 204,541 $ 140,048
----------------------
----------------------
Earnings per common share $ 2.77 $ 1.90
----------------------
----------------------
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Active Ankle Systems, Inc.
Statements of Stockholders' Equity
Years ended June 30, 1997 and 1996
TOTAL
PREFERRED COMMON ACCUMULATED STOCKHOLDERS'
STOCK STOCK DEFICIT EQUITY
------------------------------------------------
Balances at July 1, 1995 $ - $1,045,315 $(910,380) $134,935
Net income - - 140,048 140,048
------------------------------------------------
Balances at June 30, 1996 - 1,045,315 (770,332) 274,983
Issuance of 4,125 shares of
preferred stock 165,000 - - 165,000
Issuance of 170 shares of
common stock - 4,250 - 4,250
Net income - - 204,541 204,541
------------------------------------------------
Balances at June 30, 1997 $165,000 $1,049,565 $(565,791) $648,774
------------------------------------------------
------------------------------------------------
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Active Ankle Systems, Inc.
Statements of Cash Flows
YEAR ENDED JUNE 30
1997 1996
---------------------
OPERATING ACTIVITIES
Net income $ 204,541 $ 140,048
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 55,072 37,474
Amortization 8,627 5,508
Loss on disposal of machinery and equipment 2,212 1,607
Directors' fees 4,250 -
Changes in operating assets and liabilities:
Trade accounts receivable (53,670) (31,558)
Inventories (51,345) 90,822
Prepaid expenses (75,067) (25,892)
Trade accounts payable 81,924 (66,431)
Accrued liabilities (2,405) 2,714
---------------------
Net cash provided by operating activities 174,139 154,292
INVESTING ACTIVITIES
Payments for machinery and equipment (28,521) (57,034)
Other assets (11,218) (5,450)
---------------------
Net cash used in investing activities (39,739) (62,484)
FINANCING ACTIVITIES
Payments on notes payable to banks
and other notes payable - (55,000)
Issuance of long-term debt - 106,000
Payments on long-term debt (53,564) (109,550)
Proceeds from issuance of preferred stock 165,000 -
---------------------
Net cash provided by (used in) financing activities 111,436 (58,550)
---------------------
Net increase in cash and cash equivalents 245,836 33,258
Cash and cash equivalents at beginning of year 90,263 57,005
---------------------
Cash and cash equivalents at end of year $ 336,099 $ 90,263
---------------------
---------------------
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements
June 30, 1997
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Active Ankle System, Inc. (the Company) produces and sells various types of
ankle support orthoses (braces). The Company sells to three market segments
(athletes, teams/schools and medical providers) principally throughout the
United States, each comprising approximately one-third of net sales. The
braces are assembled by two independent companies located in Louisville and
Taylorsville, Kentucky.
A summary of the Company's significant accounting policies follows:
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Sales are recognized when customer orders are completed and shipped. Credit
is extended to customers based on an evaluation of their financial condition
and collateral is not required.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investment instruments purchased, with an original maturity of three
months or less when purchased, to be cash equivalents.
F-7
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost, determined using the first-in,
first-out cost flow method, or market.
MACHINERY AND EQUIPMENT
Machinery and equipment is stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives, which range from three to seven years
using the straight-line method.
AMORTIZATION OF PATENTS
Patents are being amortized over a seventeen year period using the straight-
line method.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $245,000 and $195,000 in 1997 and 1996, respectively.
F-8
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
2. MACHINERY AND EQUIPMENT, NET
Machinery and equipment, net consists of the following:
1997 1996
--------------------
Tooling and manufacturing equipment $ 149,433 $ 129,315
Office furniture and computer equipment 98,980 100,224
--------------------
248,413 229,539
Less accumulated depreciation (125,724) (78,128)
--------------------
$ 122,689 $ 151,411
--------------------
--------------------
3. DEBT
The Company has available $300,000 under a bank line of credit, all of which
is unused at June 30, 1997. Borrowings are limited to 80% of trade accounts
receivable less than 90 days outstanding. Advances bear interest equal to the
bank's index rate plus .5% (9.0% at June 30, 1997). The line expires October
15, 1997 and is cross collateralized with the installment note payable to the
bank.
Long-term debt consists of the following:
1997 1996
--------------------
Installment note payable to bank at the bank's index
rate plus 1% (9. 5% at June 30, 1997), monthly
principal and interest payments of $2,300 due
through August 2000 with a final balloon payment
due in September 2000, secured by substantially
all assets $ 74,481 $ 94,043
Note payable to an unrelated corporation at 8.25%,
repaid in 1997 - 34,002
--------------------
74,481 128,045
Less current portion 21,652 53,748
--------------------
$ 52,829 $ 74,297
--------------------
--------------------
F-9
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
3. DEBT (CONTINUED)
Aggregate annual maturities of long-term debt are as follows:
1998 $21,652
1999 23,741
2000 26,033
2001 3,055
-------
$74,481
-------
-------
4. INCOME TAXES
At June 30, 1997, the Company has net operating loss carryovers of
approximately $514,000 for federal income tax reporting purposes which are
available to offset any future taxable income and which expire in various
amounts in the years 2005 through 2009.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets (liabilities) are as follows:
1997 1996
---------------------------
Deferred tax assets (liabilities):
Net operating loss carryforwards $ 199,341 $ 282,634
Depreciation and amortization (15,226) (21,536)
Other 7,780 6,497
---------------------------
Net deferred tax assets 191,895 267,595
Valuation allowance for net deferred tax assets (191,895) (267,595)
---------------------------
$ - $ -
---------------------------
---------------------------
The valuation allowance was provided to offset the net deferred tax assets
principally related to federal and state net operating loss carryforwards,
the realization of which is uncertain due to the Company's accumulated
deficit.
F-10
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
Income tax expense relates to local income taxes. The significant components
of income tax expense are as follows:
1997 1996
---------------------------
Current federal, state and local tax expense $ 86,093 $ 48,927
Benefit of operating loss carryforward (83,293) (47,234)
---------------------------
$ 2,800 $ 1,693
---------------------------
---------------------------
A reconciliation of the normal statutory federal income tax on the Company's
pretax income with the Company's actual income tax expense follows:
1997 1996
---------------------------
Tax at U.S. statutory rate of 34% $ 70,496 $ 48,192
State income taxes, net of federal benefit 10,948 7,087
Reduction of valuation allowance for net
deferred tax assets (75,700) (62,972)
Other, net (2,944) 9,386
---------------------------
$ 2,800 $ 1,693
---------------------------
---------------------------
5.COMPUTATION OF EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of common
and common equivalent shares outstanding during each year. Shares of common
stock issuable under the Company's stock option plans, warrants and
convertible preferred stock issues are treated as common stock equivalents
when dilutive.
F-11
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
5. COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
A summary of the components of the weighted average shares of common and
common equivalents shares outstanding during the years ended June 30, 1997
and 1996, computed in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin No. 83, "Earnings Per Share in an
Initial Public Offering," is as follows:
1997 1996
--------------------
Weighted average number of common shares outstanding
throughout the period 68,183 68,097
Common shares issuable upon assumed conversion of
convertible preferred stock (see Note 7) 8,250 8,250
Common shares issued at $25 per share (see Note 7) 84 170
Common shares issuable upon exercise of outstanding
stock options issued at an exercise price of
$25 per share (see Note 7) 4,300 4,300
Less assumed repurchase of common shares at an
estimated IPO price of $40 per share related to:
Convertible preferred stock (4,125) (4,125)
Common shares issued (53) (106)
Stock options (2,688) (2,688)
--------------------
(6,866) (6,919)
--------------------
Total weighted average shares and equivalents outstanding 73,951 73,898
--------------------
--------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." The Company
is required to adopt SFAS 128 in December 1997, and at that time will present
earnings per share (EPS) for all prior periods using the methodology
specified by SFAS 128. Although the Company has not yet determined the full
effect of SFAS 128, it believes that basic EPS as computed under SFAS 128
will be greater than primary EPS under the prior accounting rules because
basic EPS excludes the dilutive effect of common stock equivalents (such as
stock options awarded to the Company's employees and the Company's
convertible preferred stock). Diluted EPS under SFAS 128 is computed
similarly to fully diluted EPS pursuant to prior accounting rules.
F-12
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the years ended June 30, 1997 and 1996 relating to interest
expense was $10,967 and $21,135, respectively.
7. PREFERRED AND COMMON STOCK, OPTIONS AND WARRANTS
In 1997, the Company adopted Statement of Financial Accounting Standards No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123). In accordance with
SFAS 123, the Company has elected to follow Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
Interpretations, in accounting for its stock based compensation because, as
discussed below, the alternative fair value accounting principle provided for
under SFAS 123 requires use of option valuation models that were not
developed for use in valuing stock options. Under APB 25, when the exercise
price of the Company's employee stock options is at least equal to the fair
value of the underlying stock on the date of grant, no compensation expense
is recognized.
The Company has three stock option plans that provide for both incentive and
non-qualified stock options. Stock options are granted at a price
approximating the estimated fair market value of the stock on the date of
grant. Options for a total of 6,000 shares of common stock are exercisable
equally over five years, and expire in ten years from the date of grant.
Options for a total of 600 shares are exercisable equally over three years
from the date of grant and expire in 2001. All other options granted were
exercisable at the date of grant and expire five years from the date of
grant. At June 30, 1997, a total of 21,000 shares of common stock are
reserved for issuance under the stock option plans. A summary of the
Company's stock option activity for the years ended June 30 follows:
1997 1996
---------------------------------------------
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
---------------------------------------------
Outstanding-beginning of year 10,300 $ 25 10,000 $ 25
Granted 4,300 25 300 25
---------------------------------------------
Outstanding-end of year 14,600 $ 25 10,300 $ 25
---------------------------------------------
---------------------------------------------
Exercisable at end of year 12,500 $ 25 7,200 $ 25
---------------------------------------------
---------------------------------------------
Expiration dates: December 1999 - June 2005.
F-13
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
7. PREFERRED AND COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
Pro forma information regarding net income and earnings per common share is
required by SFAS 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to June 30, 1995 under SFAS 123. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rate of
6%; no dividend yields; volatility factor of the expected market price of the
Company's common stock of .175; and weighted-average expected and contractual
life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
1997 1996
-------------------------------
Pro forma net income $ 173,333 $ 139,943
Pro forma earnings per common share $ 2.33 $ 1.89
During 1995, the Company issued stock warrants in conjunction with common
stock sold during that year. A total of 5,103 shares of common stock are
reserved for these warrants at an exercise price of $25 per share. The
warrants expire on September 1, 1999.
F-14
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
7. COMMON STOCK, OPTIONS AND WARRANTS (CONTINUED)
At a special meeting on May 29, 1997, the Company's stockholders approved:
a. new class of voting preferred shares (100,000 shares authorized);
b. an increase in the authorized number of common shares from 100,000 to
2,000,000 shares;
c. cancellation of a Shareholders Agreement dated September 30, 1995
providing for, upon the death of certain stockholders, a put option
for the estate of the deceased stockholder with respect to the
stockholders' shares of stock;
d. an initial public offering (IPO) of common shares.
The preferred stock has a $40 par and liquidation value per share; carries a
6% non-cumulative dividend; each share is convertible after July 1, 1999 into
two shares of the Company's common stock; and the shares have no voting
rights until conversion. In June 1997, 4,125 shares of the preferred stock
were sold for $40 per share to existing stockholders and/or directors of the
Company.
In June 1997, the Company filed a registration statement (Form SB-1) with the
Securities and Exchange Commission for the sale of a maximum of 100,000 and
minimum of 45,000 shares of the Company's common stock at an expected
offering price of $40 per share.
During fiscal 1997, certain directors elected to receive 170 shares of the
Company's common stock (at an estimated fair value of $25 per share) in lieu
of cash for their directors' fees.
F-15
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
8. SALES TO MAJOR CUSTOMERS
Sales to major customers as a percentage of net sales were as follows:
1997 1996
-------------------------
Customer A 22% 30%
Customer B 30 28
Customer C 30 25
Approximately 80% and 83% of the Company's trade accounts receivable balance
at June 30, 1997 and 1996, respectively, was from these customers.
9. RELATED PARTY TRANSACTIONS
The Company incurred $2,781 and $4,105 in loan guarantee fees to certain
stockholders during 1997 and 1996, respectively.
The Company was sub-leasing office space from a business partially owned by a
stockholder of the Company until November 30, 1995. Rent expense for the year
ended June 30, 1996 amounted to $4,600.
10. FOREIGN OPERATIONS
The Company had approximately $246,000 and $182,000 of net sales to
distributors in foreign countries during the years ended June 30, 1997 and
1996, respectively. All amounts collected from sales to foreign customers are
in U.S. dollars.
11. EMPLOYEE BENEFIT PLAN
In January 1996, the Company established a defined (401k) contribution plan
covering substantially all employees. In accordance with Plan provisions,
employee contributions are matched 25% for the first 4% of the employee's
contributions. Company contributions amounted to $3,091 and $390 in 1997 and
1996, respectively.
F-16
<PAGE>
Active Ankle Systems, Inc.
Notes to Financial Statements (continued)
12. COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with various individuals and sports
teams for their endorsement of the Company's products. The terms of the
agreements vary from one to three years. Future payments under these
agreements amount to $134,000 at June 30, 1997.
The Company leases office space from a third party for $2,240 per month. The
lease is noncancelable and expires February 2001, with a five-year renewal
option period. Future minimum rental payments under this operating lease are
as follows:
1998 $ 26,880
1999 26,880
2000 26,880
2001 17,920
--------
$ 98,560
--------
--------
Operating lease rental expense for the years ended June 30, 1997 and 1996 was
approximately $26,880 and $9,000, respectively (exclusive of the lease rental
expense disclosed in Note 9).
The Company is required to pay a former employee a royalty on net sales of
braces covered in whole or in part by applicable patents until the patents
expire, which is no earlier than 2003 nor later than 2009. The royalty rate
began at 5% and decreased to 3% on cumulative net sales greater than
$2,000,000.
The Company received correspondence in October 1991 which implies that the
Company may have infringed on a patent held by a competitor. In view of the
facts that the competitor has known about the Company and its products since
1984, and the competitor has been wholly non-responsive to the Company's
positions of non-infringement since December of 1992, management is of the
view that the probability that the competitor will actually assert a claim
against the Company is low. However, the cost of defending any claim is not
estimable and, if asserted, could have a material adverse impact on the
Company's financial statements. Based on these facts, and further based on
the advice of outside legal counsel that the Company's products do not
infringe on the competitor's patent, it is management's opinion that the
ultimate resolution of this matter will not have a material adverse effect on
the Company's financial statements.
F-17
<PAGE>
PART II - INFORMATION
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation and Bylaws authorize the Company to
indemnify its directors and officers to the full extent permitted by Kentucky
law.
KRS Sec. 271B.8-510 provides the authority to indemnify directors. The statute
permits corporations to indemnify an individual made a party to a proceeding
because he or she is or was a director against liability incurred in the
proceeding if:
(a) he or she conducted himself in good faith; and
(b) he or she reasonably believed:
(1) In the case of conduct in his or her official capacity with the
corporation, that his or her conduct was in the best interests; and
(2) In all other cases, that his or her conduct was at least not
opposed to its best interests; and
(c) In the case of any criminal proceedings, the director had no
reasonable cause to believe his or her conduct was unlawful.
Further, KRS 271.B.8-520 provides for mandatory indemnification for a director
who was wholly successful, or the merits or otherwise, in the defense of any
proceeding to which he was a party because he or she was a director of the
corporation against reasonable expense incurred by him in connection with the
proceedings.
KRS 271B.8-560 provides for certain mandatory and permissive indemnification for
corporate officers.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. *
Securities and Exchange Commission Fee $ 1,212
Escrow Fees 1,000
Legal and Accounting Fees 100,000
Printing Fees 10,000
State Securities Filing Fees 5,000
---------
$ 117,212
* All amounts estimated except Securities and Exchange Commission Filing Fee.
II-1
<PAGE>
ITEM 3. UNDERTAKINGS.
Not Applicable.
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
The Company has a class of preferred stock which has a $40 par and
liquidation value per share, carries a 6% non-cumulative dividend, and each
share is convertible after July 1, 1999 into two shares of the Company's
Common Stock. A total of 100,000 of such preferred shares are authorized,
and a total of 4,125 shares of the preferred stock are issued and
outstanding. The 4,125 shares were sold at a cash sale price of $40 per
share in June, 1997. The preferred shares were sold to six individuals,
all of whom are either stockholders, officers or directors of the Company
prior to the registration of this Prospectus. The proceeds of this preferred
stock offering are to be used for the costs of this offering and seed money
for the development of a catalog sales division. The preferred stock
offering was an exempt offering under Rule 506 of Regulation D of the
Securities Act.
The Company has issued during the past 12 months 4,300 options to employees
and consultants to the Company at a price of $25 per share.
During Fiscal 1997, 170 shares have been issued as directors' fees.
ITEM 5 INDEX TO EXHIBITS.
Exhibit 3.(i) - Articles of Incorporation as amended
Exhibit 3.(ii) - Bylaws
Exhibit 5 - Opinion of Counsel
Exhibit 10.1 - Distribution Agreement with Cramer Products, Inc., as amended
Exhibit 10.2 - Distribution Agreement with The Volleyball Connection,
Inc., as amended
Exhibit 10.3 - Distribution Agreement with AOA Division of Kirschener
Medical Corporation
Exhibit 10.4 - License Agreement
Exhibit 23.1 - Auditor's Consent
Exhibit 23.2 - Consent of Counsel
Exhibit 27 - Financial Data Schedule
Exhibit 99.1 - Deferred Compensation Agreements
Exhibit 99.2 - Escrow Agreement
Exhibit 99.3 - Subscription Agreement
ITEM 6 DESCRIPTION OF EXHIBITS.
Exhibit 3.(i) - Articles of Incorporation as amended
Exhibit 3.(ii) - Bylaws
Exhibit 5 - Opinion of Counsel
Exhibit 10.1 - Distribution Agreement with Cramer Products, Inc., as amended
Exhibit 10.2 - Distribution Agreement with The Volleyball Connection,
Inc., as amended
Exhibit 10.3 - Distribution Agreement with AOA Division of Kirschener
Medical Corporation
Exhibit 10.4 - License Agreement
Exhibit 23.1 - Auditor's Consent
Exhibit 23.2 - Consent of Counsel
Exhibit 27 - Financial Data Schedule
Exhibit 99.1 - Deferred Compensation Agreements
Exhibit 99.2 - Escrow Agreement
Exhibit 99.3 - Subscription Agreement
II-2
<PAGE>
SIGNATURES:
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements of filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Louisville, State of KY, on September 29, 1997.
(Registrant) ACTIVE ANKLE SYSTEMS, INC.
By: /s/ Gary G. Herzberg
---------------------------------------------------------
Gary G. Herzberg, President and CEO
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Officers Directors
- -------- ---------
/s/ Gary G. Herzberg /s/ Henry H. Porter
- ------------------------------------- -----------------------------------
Gary G. Herzberg Henry H. Porter, Jr.
President and Chief Executive Officer
Date: September 16, 1997 Date: September 11, 1997
-------------------------------- ------------------------------
/s/ Andrew Pfeifer
-----------------------------------
Andrew Pfeifer
Date: September 16, 1997
------------------------------
/s/ Ronald W. Schultz
- ------------------------------------
Ronald W. Schultz /s/ Gary G. Herzberg
Treasurer and Chief Financial Officer -----------------------------------
Gary G. Herzberg
Date: September 16, 1997
------------------------------
Date: September 16, 1997
------------------------------
/s/ Ronald W. Schultz
-----------------------------------
Ronald W. Schultz
Date: September 16, 1997
------------------------------
II-3
<PAGE>
/s/ Glen R. Snow
-----------------------------------
Glen R. Snow
Date: September 16, 1997
------------------------------
/s/ John C. Nichols II
-----------------------------------
John C. Nichols II
Date: September 16, 1997
------------------------------
/s/ James T. Crain, Jr.
-----------------------------------
James T. Crain, Jr.
Date: September 16, 1997
------------------------------
/s/ Dougles D. Stegner
-----------------------------------
Douglas D. Stegner
Date: September 16, 1997
------------------------------
II-4
<PAGE>
ARTICLES OF INCORPORATION
OF
ACTIVE ANKLE SYSTEMS, INC.
--------------------------
The undersigned, acting as the incorporator of a corporation organized
under and pursuant to the provisions of Chapter 271B of the Kentucky Revised
Statutes, hereby adopt the following Articles of Incorporation for such
corporation:
ARTICLE I
---------
The name of the corporation is Active Ankle Systems, Inc.
ARTICLE II
----------
The aggregate number of shares which the corporation shall have authority
to issue is 5,000.
ARTICLE III
-----------
The address of the initial registered office of the corporation is 601 West
Main Street, Louisville, Kentucky 40202, and the name of its initial registered
agent at such address is Michael V. Brodarick.
ARTICLE IV
----------
The mailing address of the principal office of the corporation is 3720
Hillsdale Road, Louisville, Kentucky 40222.
ARTICLE V
---------
The name and address of the incorporator is Henry H. Porter, 3720 Hillsdale
Road, Louisville, Kentucky 40222.
<PAGE>
ARTICLE VI
----------
The number of directors constituting the initial board of directors of the
corporation is 1, who shall serve as director until the first annual meeting of
the shareholders or until his successors are elected and shall qualify. His
name and address is: Henry H. Porter, Jr., 3720 Hillsdale Road, Louisville,
Kentucky 40222.
ARTICLE VII
-----------
Section 1. No director of the corporation shall be personally liable to
the corporation or its shareholders for monetary damages for any breach of
his/her duties as a director, except for liability (i) for any transaction in
which the director's personal financial interests is in conflict with the
financial interests of the corporation or its shareholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or are known
to the director to be a violation of law; (iii) for any vote for or assent to an
unlawful distribution to shareholders as prohibited under K.R.S. 271B.8-330; or
(iv) for any transaction from which the director derived an improper personal
benefit.
Section 2. If the Kentucky Business Corporation Act is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Kentucky
Business Corporation Act, as so amended, and without the necessity for further
shareholder action in respect thereof.
Section 3. Any repeal or modification of this Article by the shareholders
of the corporation shall not adversely affect any right or protection of a
director of the corporation hereunder in respect of any act or omission
occurring prior to the time of such repeal or modification.
2
<PAGE>
IN WITNESS WHEREOF, I have made, signed and acknowledged these Articles of
Incorporation in triplicate originals, this 7th day of June, 1989.
---------------------------------------
HENRY H. PORTER, Incorporator
COMMONWEALTH OF KENTUCKY )
)ss
COUNTY OF JEFFERSON )
SUBSCRIBED and SWORN to before me by Henry H. Porter, on this 7th day of
June, 1989.
My Commission Expires:--------------------------
---------------------------------------
Notary Public
State at Large, Kentucky
3
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION OF
ACTIVE ANKLE SYSTEMS, INC.
1. The name of the corporation is Active Ankle Systems, Inc.
2. The text of the Amendment adopted is
ARTICLE II
The aggregate number of shares which the corporation shall have
authority to issue is TEN THOUSAND.
3. The foregoing Amendment was adopted as of August 20, 1991.
4. Active Ankle Systems, Inc. has only one class of stock, being no par value
common stock and has 2,884 shares outstanding which are entitled to vote
on the Amendment. All 2,884 shares were represented by a Unanimous Written
Consent of the Shareholders, pursuant to which 2,884 votes were cast in
favor of the Amendment, and no votes were cast against the Amendment.
/s/ Ronald W. Schultz, CEO
------------------------------------------
RONALD W. SCHULTZ, CHIEF EXECUTIVE OFFICER
1
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION OF
ACTIVE ANKLE SYSTEMS, INC.
1. The name of the corporation is Active Ankle Systems, Inc.
2. The text of the Amendment adopted is:
ARTICLE II
The aggregate number of shares which the corporation shall have
authority to issue is ONE HUNDRED THOUSAND.
3. The foregoing Amendment was adopted as of September 24, 1992.
4. Active Ankle Systems, Inc. has only one class of stock, being no par value
common stock and has 4,186 shares outstanding which are entitled to vote
on the Amendment. 4,046 shares were represented at the meeting, pursuant
to which 4,046 votes were cast in favor of the Amendment, and no votes were
cast against the Amendment.
/s/ Ronald W. Schultz, CEO
------------------------------------------
RONALD W. SCHULTZ, CHIEF EXECUTIVE OFFICER
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION OF
ACTIVE ANKLE SYSTEMS, INC.
1. The name of the corporation is Active Ankle Systems, Inc.
2. The text of the Amendment adopted is
ARTICLE II
The aggregate number of preferred shares which the
corporation shall have authority to issue is one hundred
thousand. The terms and rights of preferred shares shall be
established from time to time by the corporation's board of
directors; such preferred shares may be issued in series, at
the discretion of the board of directors
The aggregate number of common shares which the corporation
shall have authority to issue is two million.
3. The foregoing Amendment was adopted as of May 29, 1997.
4. Active Ankle Systems, Inc. has only one class of stock, being no par value
common stock and has 68,097 shares outstanding which are entitled to vote
on the Amendment. 61,317 shares were represented at the meeting, pursuant
to which 59,597 votes were cast in favor of the Amendment, and no votes
were cast against the Amendment.
---------------------------------
GARY G. HERZBERG, President
THIS DOCUMENT PREPARED BY:
- -----------------------------
James N. Williams
MIDDLETON & REUTLINGER
2500 Brown & Williamson Tower
Louisville, Kentucky 40202
(502) 584-1135
<PAGE>
BYLAWS
OF
ACTIVE ANKLE SYSTEMS, INC.
ARTICLE I
OFFICES
The registered office of the Corporation in the Commonwealth of Kentucky
shall be at the address stated in its Articles of Incorporation, but such
address may be changed from time to time by the Board of Directors.
The Corporation shall have a principal office, and such other offices,
either within or without the Commonwealth of Kentucky, as the Board of Directors
may designate or the business of the Corporation may be, but need not be, the
same as its registered office and, until otherwise determined, shall be located
at 3720 Hillsdale Road, Louisville, Kentucky 40222.
ARTICLE II
SHAREHOLDERS
SECTION 1 - ANNUAL MEETING. The annual meeting of Shareholders shall be
held on the first Friday in March in each year, beginning with the year 1990, at
the hour of 10:00 a.m., local time, for the election of Directors and such other
business as may properly come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day. If the election of Directors shall not be held on the
day designated for any annual meeting, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
Shareholders as soon thereafter as may be practicable.
SECTION 2 - SPECIAL MEETING. Special meetings of the Shareholders may be
called by the Board of Directors, by the Chief Executive Officer or by the
holders of not less than one-third (1/3) of the outstanding shares entitled to
vote at such meeting.
SECTION 3 - PLACE OF MEETING. The Board of Directors or the Chief
Executive Officer may designate any place, either within or without the
Commonwealth of Kentucky, as the place of meeting for any annual meeting, or for
any special meeting called by the Board of Directors or by the Chief Executive
Officer, respectively. A waiver of notice signed by all Shareholders entitled
to vote at a meeting may designate any place, either within or without the
Commonwealth of Kentucky, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called the place of
meeting shall be the principal office of the Corporation, except as otherwise
provided in Section 5 of this Article.
SECTION 4 - NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called,
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shall be delivered not less than ten (10) nor more than fifty (50) days before
the date of the meeting, either personally or by mail, by or at the direction of
the Chief Executive Officer, Secretary or the persons calling the meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the Shareholders at their addresses as they appear on
the stock transfer books of the Corporation, with postage thereon prepaid.
SECTION 5 - MEETING OF ALL SHAREHOLDERS. If all of the Shareholders shall
meet at any time and place, either within or without the Commonwealth of
Kentucky, and consent to the holding of a meeting, such meeting shall be valid
without call or notice and at such meeting any corporate action may be taken.
SECTION 6 - CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining Shareholders entitled to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, or Shareholders entitled to
receive payment of any dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors of the
Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, seventy (70) days. A
determination of shareholders entitled to notice of or to vote at a
shareholders' meeting shall be effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date, which it shall do if the
meeting is adjourned to a date more than one hundred twenty (120) days after the
date fixed for the original meeting.
If a court orders a meeting adjourned to a date more than one hundred
twenty (120) days after the date fixed for the original meeting, it may provide
that the original record date continues in effect or it may fix a new record
date.
SECTION 7 - VOTING RECORD. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall use the stock transfer books
as the complete record of the Shareholders entitled to vote at each meeting of
Shareholders or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each. Such record shall be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any Shareholder during the whole time of the meeting for
the purposes thereof. The original stock transfer books shall be prima facie
evidence as to who are the Shareholders entitled to examine such list or stock
transfer books or to vote at any meeting of Shareholders.
SECTION 8 - QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noted. The Shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Shareholders to leave less than a quorum.
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SECTION 9 - PROXIES. At all meetings of Shareholders, a Shareholder may
vote in person or by proxy executed in writing by the Shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. The revocation of a proxy shall not be effective until
the Secretary of the Corporation has received written notice of the revocation.
SECTION 10 - VOTING OF SHARES. Subject to the provisions of Section 12,
each outstanding share entitled to vote shall be entitled to one vote upon each
matter submitted to a vote at a meeting of Shareholders.
SECTION 11 - VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another Corporation may be voted by either the President or such
Corporation or by proxy appointed by him/her unless the Board of Directors of
such Corporation should determine otherwise, in which event any other person
authorized to vote such shares shall produce a certified copy of a resolution of
the Board of Directors of such Corporation so indicating.
Shares held by an administrator, executor, guardian, conservator, or
committee may be voted by him/her, either in person or by proxy, without a
transfer of such shares into his/her name. Shares standing in the name of a
Trustee may be voted by him/her, either in person or by proxy, but no Trustee
shall be entitled to vote shares held by him/her without a transfer of such
shares into his/her name.
Shares standing in the joint names of three (3) or more fiduciaries shall
be voted in the manner determined by the majority of such fiduciaries, unless
the instrument or order appointing such fiduciaries otherwise directs.
Shares standing in the name of a Receiver may be voted by such Receiver,
and shares held by or under the control of a Receiver may be voted by such
Receiver without the transfer thereof into his/her name if authority so to do be
contained in an appropriate order of the Court by which such Receiver was
appointed.
A Shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
SECTION 12 - CUMULATIVE VOTING. At each election for Directors each
Shareholder entitled to vote at such election shall have the right to cast, in
person or by proxy, as many votes in the aggregate as he/she shall be entitled
to vote under the Corporation's Articles of Incorporation, multiplied by the
number of Directors to be elected at such election; and each Shareholder may
cast the whole number of votes for one (1) candidate, or distribute such votes
among two (2) or more candidates.
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SECTION 13 - INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the Shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the Shareholders entitled to vote with respect to the subject
matter thereof.
ARTICLE III
DIRECTORS
SECTION 1 - GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors.
SECTION 2 - NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of
the Corporation shall be five (5), but may be increased or decreased from time
to time by amendment to this Bylaw, but no decrease shall have the effect of
shortening the term of any incumbent Director. Each Director shall hold office
until the next annual meeting of Shareholders and until his/her successor shall
have been elected and qualified. Directors need not be a resident of Kentucky
nor a Shareholder of the Corporation.
SECTION 3 - REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw, immediately after, and at
the same place as, the annual meeting of Shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
Commonwealth of Kentucky, for the holding of additional regular meetings without
other notice than such resolution.
SECTION 4 - SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chief Executive Officer,
the President, or a majority of the Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any
place, either within or without the Commonwealth of Kentucky, as the place
for holding any special meeting of the Board of Directors called by them.
SECTION 5 - NOTICE. Notice of any special meeting shall be given at least
two (2) days previously thereto by (a) telephoned or personally delivered to
each director at least forty-eight hours before the time of the meeting; or (b)
mailed to each director at his last known address at least ninety-six hours
before the time of the meeting; or (c) by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail in a
sealed envelope, so addressed, with postage thereon prepaid. If notice be given
by telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Any Director may waive notice of any
meeting and such waiver must be in writing. A Director's attendance at or
participation in a meeting shall waive any required notice to him of the
meeting, unless the Director at the beginning of the meeting (or promptly upon
his arrival) objects to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
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SECTION 6 - QUORUM. A majority of the Board of Directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such majority is
present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
SECTION 7 - MANNER OF ACTING. The act of the majority of the Directors
present at the meeting at which a quorum is present shall be the act of the
Board of Directors.
The Board of Directors may permit any or all directors to participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may simultaneously
hear each other during this meeting. A Director participating in a meeting by
this means shall be deemed to be present in person at the meeting.
SECTION 8 - ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors, or by a committee thereof, at a meeting may
be taken without a meeting if a consent in writing, setting forth the action
taken, shall be signed by all of the Directors, or by all of the members of the
committee, as the case may be. Such consent shall have the same effect as a
unanimous vote.
SECTION 9 - VACANCIES. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors,
though less than a quorum of the Board of Directors. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of the Directors by the
Shareholders.
SECTION 10 - COMPENSATION FOR ATTENDANCE. Directors, as such, shall not
receive a stated salary for their services but, by resolution of the Board of
Directors, each Director may be paid his/her expenses, if any, of attendance at
each meeting of the Board of Directors or any committee thereof, and may be paid
a fixed sum for attendance at each such meeting, or both. No such payment shall
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.
SECTION 11 - EXECUTIVE AND OTHER COMMITTEES. The Board of Directors, by
resolution adopted by a majority of the entire Board of Directors, may designate
from among its members an executive committee and one or more other committees
each of which, to the extent provided in such resolution, shall have and may
exercise all the authority of the Board of Directors. However, such committee
shall not: (a) authorize distributions; (b) approve or propose to Shareholders
action that the Delaware Code requires be approved by Shareholders; (c) fill
vacancies on the Board of Directors or on any of its committees; (d) amend
Articles of Incorporation pursuant to K.R.S. 271B.10-020; (e) adopt, amend or
repeal bylaws; (f) approve a plan of merger not requiring Shareholder approval;
(g) authorize or approve reacquisition of shares, except according to a formula
or method prescribed by the Board of Directors; or (h) authorize or approve the
issuance
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or sale or contract for sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of shares,
except that the Board of Directors may authorize a committee (or a senior
executive officer of the Corporation) to do so within limits specifically
prescribed by the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1 - NUMBER. The officers of the Corporation shall be a Chief
Executive Officer, a President and a Secretary (who may be the same person), and
may have, one or more Vice Presidents (the number thereof to be determined by
the Board of Directors), and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. The
Corporation may have a Chairman of the Board and a Vice Chairman of the Board.
Any two or more officers may be held by the same person.
SECTION 2 - ELECTION AND TERM OF OFFICE. The officers of the Corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of Shareholders. If the election of officers shall not be held
at such meeting, such election shall be held as soon thereafter as practicable.
Each officer shall hold office until his/her successor shall have been duly
elected and shall have qualified or until his/her death or until he/she shall
resign or shall have been removed in the manner hereinafter provided.
SECTION 3 - REMOVAL. Any officer or agent may be removed by the Board of
Directors, whenever in its judgment the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
SECTION 4 - VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5 - CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
the principal executive officer of the Corporation and, subject to the control
of the Board of Directors, shall in general supervise and control all of the
business and affairs of the Corporation. He/She shall, when present, preside at
all meetings of the Shareholders and of the Board of Directors. He/She may
sign, with the Secretary or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates for shares of the
Corporation, and deeds, mortgages, bonds, contracts or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation,
or shall be required by law to be
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otherwise signed or executed; and in general shall perform all duties incident
to the office of President and such other duties as may be prescribed by the
Board of Directors from time to time.
SECTION 6 - PRESIDENT. The President shall be the Chief Executive Officer
unless another person is so designated. If another person is so designated, the
President shall be the Chief Operating Officer of the Corporation, responsible
to the Chief Executive Officer, and shall have such other duties as established
by the Board of Directors.
SECTION 7 - VICE PRESIDENTS. In the absence of the President or in the
event of his/her death, inability or refusal to act, the Vice President (or in
the event there may be more than one Vice President, the Vice Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. Any Vice President may sign, with
the Secretary or an Assistant Secretary, certificates for shares of the
Corporation; and shall perform such other duties as from time to time may be
assigned to him/her by the Chief Executive Officer or by the Board of Directors.
SECTION 8 - SECRETARY. The Secretary shall (a) keep the minutes of the
proceedings of the Shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all certificates for shares prior
to the issue thereof and to all documents, the execution of which on behalf of
the Corporation under its seal is duly authorized; (d) keep a register of the
post office address of each Shareholder which shall be furnished to the
Secretary by such Shareholder; (e) sign with the President, or a Vice President,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the Corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him/her by the Chief Executive Officer or by the Board
of Directors.
SECTION 9 - TREASURER. The Treasurer shall (a) have charge and custody of
and be responsible for all funds and securities of the Corporation; (b) receive
and give receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with the provisions of Article V of these Bylaws; and (c) in general perform all
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him/her by the Chief Executive Officer or by the Board
of Directors.
If required by the Board of Directors, the Treasurer shall give a bond for
the faithful discharge of his/her duties in such sum and with such surety or
sureties as the Board of Directors shall determine.
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SECTION 10 - ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries, when authorized by the Board of Directors, may sign with
the Chief Executive Officer, or a Vice President, certificates for shares of the
Corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors shall
determine. The Assistant Secretaries and Assistant Treasurers, in general,
shall perform such duties as shall be assigned to them by the Secretary or
Treasurer, respectively, or by the Chief Executive Officer or by the Board of
Directors.
SECTION 11 - SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he/she is also a Director of
the Corporation.
SECTION 12 - STANDARDS OF CONDUCT FOR OFFICERS. An officer with
discretionary authority shall discharge his duties under that authority in good
faith, on an informed basis, and in a manner he honestly believes to be in the
best interests of the Corporation.
An officer shall be considered to discharge his duties on an informed basis
if he makes, with the care an ordinarily prudent person in a like position would
exercise under similar circumstances, inquiry into the business and affairs of
the Corporation, or into a particular action to be taken or decision to be made.
In discharging his duties an officer shall be entitled to rely on information,
opinions, reports, or statements, including financial statements and other
financial data, if prepared or presented by (a) one (1) or more officers or
employees of the Corporation whom the officer honestly believes to be reliable
and competent in the matters presented; or (b) legal counsel, public
accountants, or other persons as to matters the officer honestly believes are
within the person's professional or expert competence.
SECTION 13 - DIRECTOR LIABILITY. No director of the Corporation shall be
personally liable to the Corporation or its Shareholders for monetary damages
for any breach of his/her duties as a director, except for liability (a) for any
transaction in which the director's personal financial interests is in conflict
with the financial interests of the Corporation of its Shareholders; (b) for
acts or omissions not in good faith or which involve intentional misconduct or
are known to the director to be a violation of law; (c) for any vote for or
assent to an unlawful distribution to Shareholders as prohibited under K.R.S.
271B-8.330; or (d) for any transaction from which the director derived an
improper personal benefit.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
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SECTION 1 - CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
SECTION 2 - LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 3 - CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents, of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 4 - DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies, or other depositaries as the Board of Directors may
select.
ARTICLE VI
CERTIFICATE FOR SHARES AND THEIR TRANSFER
SECTION 1 - CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary. The signatures of
such officers upon a certificate may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar, other than the
Corporation itself or one of its employees. Each certificate for shares shall
be consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and the date of issue, shall be entered on the stock transfer books of
the Corporation. All certificates surrendered to the Corporation for transfer
shall be canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
SECTION 2 - TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his/her legal representative, who shall furnish proper
evidence of authority to transfer, or by his/her attorney thereunto authorized
by power of attorney duly executed and filed with the Secretary of the
Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes. An
agreement among Shareholders, or an agreement between Shareholders and the
Corporation, may impose restrictions on the transfer or registration of transfer
of the Corporation.
ARTICLE VII
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FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of July and
end on June 30 in each year.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
ARTICLE IX
CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be circular
in form and shall have inscribed thereon the name of the Corporation and the
state of Incorporation and the words "CORPORATE SEAL." The corporate seal may
be used on the certificates and resolutions of the Corporation.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any Shareholder or Director
of the Corporation under the provisions of these Bylaws, or under the provisions
of the Articles of Incorporation, or under the provisions of the Kentucky
Business Corporation Act, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify each of its Directors and officers who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he/she is or was a Director or officer of the
corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another Corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he/she
acted in good faith and in a manner he/she reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
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Except as provided hereinbelow, any such indemnification shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the Director or officer is proper in the circumstances
because he/she has met the applicable standard of conduct set forth above such
determination shall be made: (a) by the Board of Directors by a majority vote of
a quorum of Directors who were or are not parties to such action, suit, or
proceeding; or (b) by the Shareholders.
Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, or proceeding if authorized by the Board
of Directors and upon receipt of an undertaking by or on behalf of the Director
or officer to repay such amount unless it shall ultimately be determined that
he/she is entitled to be indemnified by the Corporation.
To the extent that a Director or officer has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to above, or
in defense of any claim, issue or matter therein, he/she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him/her in connection therewith, without any further determination that he/she
has met the applicable standard of conduct set forth above.
ARTICLE XII
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall also keep minutes of the proceedings of its members, Board of
Directors, committees having and exercising any of the authority of the Board of
Directors, and the membership committee, and shall keep at the principal office
a record giving the names and addresses of the members entitled to vote. All
books and records of the Corporation may be inspected by any member, or his
agent or attorney, for any proper purpose at any reasonable time.
ARTICLE XIII
AMENDMENTS
The Shareholders may alter, amend or repeal the Bylaws at any annual or
special meeting of Shareholders at which a majority of the outstanding shares of
the Corporation is present by the vote of such majority, provided that the
notice of such meeting shall have included notice of such proposed amendment.
The Board of Directors shall have the power and authority to alter, amend or
repeal Bylaws of the Corporation at any regular or special meeting at which a
quorum is present by the vote of a majority of the entire Board of Directors,
subject always to the power of the Shareholders under Kentucky law to repeal or
change such Bylaws.
ARTICLE XIV
EXPENSES
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The Corporation shall reimburse each of its Directors and officers for any
and all expenses and debts incurred by said Directors and officers in the course
of their employment and usual business activities. Furthermore, each officer of
the Corporation may be paid a reasonable salary as compensation by the
Corporation. Each such reimbursement and/or salary shall be deducted as a
business expense pursuant to Section 162 of the Internal Revenue Code of 1954,
as amended, and any and all regulations appurtenant thereto. Provided, however,
that should the deductions for any such reimbursement or salary, or any portion
thereof, be disallowed by the Internal Revenue Service, said Director or officer
shall return any and all sums paid to him/her in the form of such reimbursement
of expenses or salary to the Corporation in such a manner as to allow said
Directors and officers to deduct the sums returned from their individual income,
pursuant to the provisions and regulations of the Internal Revenue Code of 1954,
as amended. It shall be the duty of the Board of Directors to enforce payment
of each such amount disallowed.
____________________________________
RONALD W. SCHULTZ
CHIEF EXECUTIVE OFFICER
____________________________________
MICHAEL V. BRODARICK
SECRETARY
DATE:________________________
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September 24, 1997
Active Ankle Systems, Inc.
509 Barret Avenue
Louisville, Kentucky 40204
Dear Sirs:
We have acted as special counsel to Active Ankle Systems, Inc. in
connection with the offering of 100,000 shares of common stock, pursuant to
the First Amendment to the Registration Statement (Form SB-1) and the related
Prospectus dated September 29, 1997 ("Prospectus").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate or
similar records and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion. In such examinations we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies or facsimiles. We have also assumed (i) the due
incorporation and valid existence of you, (ii) that you have the requisite
corporate power and authority to enter into and perform the transactions
described in the Prospectus and (iii) the due authorization, execution and
delivery of the Prospectus by you.
Based upon the foregoing, we are of opinion as follows:
Upon receipt of the consideration stated in the Prospectus (i.e. $40 in
cash per share), and upon subsequent issuance of the shares, each share will,
in our opinion, be legally issued, fully paid and nonassessable.
We are admitted to practice only in the State of Kentucky and express no
opinion as to matters governed by any laws other than the laws of the State
of Kentucky and the federal laws of the United States of America, and we
express no opinion as to the effect on the matters covered by this letter of
the laws of any other jurisdiction.
Very truly yours,
MIDDLETON & REUTLINGER
<PAGE>
DISTRIBUTOR AGREEMENT
THIS AGREEMENT, made and entered into this 26th day of June, 1992, by and
between ACTIVE ANKLE SYSTEMS, INC. ("Manufacturer"), and CRAMER PRODUCTS, INC.,
a Kansas Corporation ("Distributor"),
WITNESSETH:
In consideration of these presents and the mutual promises set out herein,
the parties hereto agree as follows:
1. RECITALS. Manufacturer is engaged in the manufacture of ankle braces
further identified as set forth on Exhibit A attached hereto and made a part
hereof (such products, together with any improvements hereafter made thereto by
Manufacturer, called the "Product") and owns those patents, patent applications,
and trademark, trade name, logo and copyright registrations and applications for
registration, if any, listed on Exhibit B attached hereto (such existing
applications and registrations, together with any other trademarks, tradenames,
logos and copyrights used with respect to the product, called the "Proprietary
Rights"). Distributor is engaged in the marketing and sale of sporting goods as
a wholesaler in the United States and overseas.
2. RIGHTS TO DISTRIBUTE. Manufacturer hereby grants to distributor the
exclusive and nontransferable right to market and sell the Product to
educational entities; or through sales to team dealers who resell to educational
entities. The Territory covered by this Agreement is defined as the Continental
United States, plus the states of Hawaii and Alaska. In the event Manufacturer
should hereafter manufacture products other than the Product, Manufacturer shall
not grant to any third party the right to market or sell such other products
unless Manufacturer first offers in writing to Distributor the exclusive right
to market and sell such other products in the Markets and the Territory. If the
Distributor fails to accept such offer within 60 days after receipt,
Manufacturer may thereafter grant to any other third party the right to market
or sell such other products, but only on terms no more favorable to such third
party than the terms offered to Distributor. Nothing in this agreement shall
restrict or prohibit Distributor from marketing and selling products not
manufactured by Manufacturer, including distributor's own ankle braces, which
may compete with the product.
(a). UNSOLICITED ORDERS RECEIVED BY MANUFACTURER. If during the term of
this agreement, Manufacturer, on an unsolicited basis, receives Product orders,
from educational and/or athletic entities, Manufacturer is authorized to sell
direct to these entities subject to the following conditions.
1. The sale price shall be the "team dealer" price, if applicable,
otherwise the Cramer "school" price to the education entities.
2. Manufacturer assumes all risk and responsibility for sale,
collection, and delivery of Product.
<PAGE>
3. Manufacturer will furnish Cramer a copy of its invoice for each
unsolicited sale. The invoice shall contain all information normally present in
an accounts receivable invoice.
4. On the 15th of each month, Manufacturer shall deliver to
Distributor:
(i) Copies of unsolicited sales invoices for the preceding
month.
(ii) Payment to Distributor of an amount equal to 60% of the
difference between the Product invoiced net price and
the Manufacturer's selling price to Distributor.
5. Manufacturer intends to refer all unsolicited calls from
educational and/or athletic entities to Distributor, or call in these orders to
Distributor by the end of six months of the date of this agreement.
(b) PRODUCT RESEARCH. For the purpose of conducting continuing Product
research, Manufacturer maintains the right to sell direct to selected
educational and athletic entities. (Exhibit C.)
3. PURCHASE AND DELIVERIES.
(a.) Distributor shall purchase all of the Distributor's requirements for
the Product from Manufacturer and Manufacturer agrees to supply such
requirements. Distributor's orders for the Product shall be made in writing to
Manufacturer, and Manufacturer shall fill and deliver distributor's orders on a
timely basis, subject only to delays described under paragraph 13. Distributor
shall not cancel all or any part of any order except to the extent Manufacturer
shall not have filled and delivered such order within 45 days after
Manufacturer's receipt of such order.
(b.) Distributor shall order, purchase and pay for a minimum of 6,000
Product units (a unit being one ankle brace) during the period commencing on the
date of this Agreement and ending on December 31, 1993 (the "initial period").
If Distributor shall fail to order purchase and pay for a minimum of 6,000
Product units during the initial period, and an additional 6,000 units during
the twelve month period ending on December 31, 1994; and a minimum of 6,000
units each calendar year subsequent; and provided that Manufacturer shall have
complied with the terms and conditions of this Agreement, then Manufacturer
shall have the right to terminate this Agreement by written notice to
Distributor given within 60 days after the end of any December 31 calendar year
in which Distributor fails to order, purchase and pay for the minimum number of
Product units specified above; provided, however, that in no event shall the
failure of Distributor to order, purchase or pay for the minimum number of
Product units specified above constitute a breach of this Agreement or obligate
Distributor to pay Manufacturer any compensation in addition to the amount which
Manufacturer will otherwise be entitled on orders actually made by Distributor.
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(c.) Manufacturer shall deliver Distributor's Product orders to Distributor
f.o.b. Louisville, Kentucky or f.o.b. such other locations as Manufacturer and
Distributor shall from time to time agree.
(d.) Each Product unit delivered to Distributor shall be prepackaged, boxed
or bagged pursuant to Distributor's instructions, by Manufacturer.
4. PRICE AND PAYMENT.
(a.) Manufacturer may from time to time change the price of each Product
unit ordered after such date, by giving Distributor 60 days notice of each
such price change. Distributor shall pay Manufacturer such changed price for
each Product unit ordered after such 60-day notice period. All Distributor
orders received by Manufacturer prior to the effective date of the price
increase shall be entitled to the price in effect before the effective date
of the price increase for which the 60-day notice was given. Delivery of
each Product ordered by Distributor shall be accepted or rejected by
Distributor within 10 days of the date the Product is delivered.
(b.) Distributor shall pay the full price of each Product unit delivered to
Distributor pursuant to subparagraph 3c hereof accepted by Distributor in cash
or equivalent within 30 days after each such delivery.
5. DISTRIBUTOR'S RESALE. Distributor shall use efforts reasonably
consistent with its resources to market and sell the Product to "team dealers"
and athletic training markets and to promote the Product to educational and
athletic entities, and other groups and institutions which include or sponsor
athletic programs, and to the team dealers which sell to these markets.
Distributor shall establish the price for all sales of the Product and shall be
solely responsible to its customers with respect to the delivery of the Product
to them, the collection of the purchase price from them, and the other terms of
such sales.
6. TERM. The initial term of this Agreement shall begin on the date
hereof and shall end, if not sooner terminated pursuant to this agreement, after
the initial term on December 31, 1995. This Agreement shall automatically renew
for successive three-year periods thereafter unless either party hereto shall by
written notice to the other party not less than 60 days prior to the end of such
initial term or any succeeding three-year term, give notice of termination of
this Agreement at the end of such initial term or three-year term, or is
terminated at any time by mutual consent of both parties.
7. PROPRIETARY RIGHTS.
(a.) Manufacturer hereby grants to Distributor the non-exclusive and
nontransferable right to use all present and future Proprietary Rights in
Distributor's promotion and sale of the Product pursuant to this Agreement;
provided, Distributor shall not knowingly alter any
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<PAGE>
Proprietary Right without prior written consent. Distributor acknowledges that
all good will associated with Distributor's use of Proprietary Rights shall
inure to Manufacturer's benefit.
(b.) Manufacturer represents and warrants to Distributor that (i) the
Proprietary Rights do not infringe on any rights to any person and, to
Manufacturer's knowledge, no person has infringed on or challenged the
Proprietary Rights, and (ii) Manufacturer is the sole legal and equitable owner
of the Proprietary Rights, subject only to Manufacturer's grants to others of
the right to use such Proprietary Rights in the promotion and sale of the
Product outside of the markets or the Territory. Distributor shall promptly
notify Manufacturer of any third party's apparent infringement of or challenge
to the proprietary rights known to Distributor. Manufacturer, at his expense,
shall defend and indemnify Distributor against any claim, loss, cost and expense
(including attorney's fees) arising out of or relating to actions, claims or
suits by any third party against Distributor with respect to Distributor's use
of the Proprietary Rights pursuant to this Agreement. Manufacturer shall
maintain all registrations relating to the Proprietary Rights, and shall not
abandon or use the Proprietary Rights in any manner that would cause them to
cease to be protected.
8. PUBLIC REQUIREMENTS. Distributor and Manufacturer shall each conduct
its business with respect to the Product and Proprietary Rights in compliance
with all laws, ordinances, regulations, orders, guidelines and other
requirements of federal, state and local governments, agencies and political
subdivisions.
9. NO AGENCY RELATIONSHIP. This agreement shall not constitute either
Manufacturer or Distributor as the agent or legal representative of the other
for any purpose. Neither Manufacturer nor Distributor shall have the right to,
and each agrees that it will not attempt to, act for or bind or obligate the
other in any manner.
10. PROMOTION OF PRODUCT BY DISTRIBUTOR. Distributor will advertise and
promote and product through the following means, on a basis generally comparable
to that for other products sold by Distributor and consistent with paragraph 5:
- Trade advertising
- Display and promotion at major sporting goods shows at which
distributor exhibits products
- Articles and advertising in publications which may be produced from
time to time by Distributor (e.g. currently "The First Aider")
- Inclusion in the Distributor's product catalog
- New product publicity
- Incorporation in Distributor's training workshops' curriculums
Promotional material produced by Distributor relating to Manufacturer's
products shall receive prior approval by Manufacturer. Written approval by FAX
will be provided to Distributor within three days of receipt by Manufacturer.
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<PAGE>
11. PRODUCT QUALITY. All Product purchased by Distributor shall be
manufactured in a good and work-man-like manner from sound materials and shall
be free from defects. Manufacturer agrees to defend and indemnify Distributor
against any claim, loss, cost and expense (including attorney's fees) arising
out of or relating to the actual or alleged failure of the product to satisfy
the standards set forth herein or any actual or alleged defect in the design or
manufacture of the product.
12. RESPONSIBILITY OF MANUFACTURER FROM MARKETING. Manufacturer shall use
its best efforts, whenever requested by Distributor, to provide marketing
information, product knowledge, or any other information Distributor may need to
adequately market and promote the Product.
13. FORCE MAJEURE. It is mutually agreed by the parties hereto that
neither party shall be held responsible for any losses resulting if the
fulfillment of any terms or provisions hereof shall be delayed or prevented by
revolution or other disorders, wars, acts of enemies, strikes, floods, acts of
God, or without limiting the foregoing, by any other cause not within control of
the party whose performance is interfered with, and which by the exercise of
reasonable diligence said party is unable to prevent, whether of the class of
causes above enumerated or not.
14. TERMINATION.
(a.) Either Manufacturer or Distributor may terminate this agreement by
giving written notice to the other party of the occurrence of any one of the
following events, provided that only Distributor may terminate this agreement if
an event described in clause (iii) occurs:
(i) The notified party shall fail to perform any agreement
made by it in this Agreement, and such agreement is not
performed or cured within 30 days after the other party
shall notify the notified party of such failure;
(ii) A petition shall be filed against the notified party
under any bankruptcy, reorganization or insolvency law
(which petition is not dismissed within 60 days of
filing) or a receiver or trustee shall be appointed to
take possession of the notified party's assets;
(iii) Any portion of the Proprietary Rights shall become the
subject and any levy, seizure, assignment, application
or sale by any court, creditor or government agency,
and such levy, seizure, assignment, application or sale
is not adjudicated or set aside within 60 days of
initial action; or
(iv) The notified party shall voluntarily petition or
otherwise voluntarily institute proceedings under any
bankruptcy or other law for the relief of debtors.
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<PAGE>
(b.) Upon termination of this Agreement, Distributor shall cease to use all
Proprietary Rights (except that Distributor may continue to use for twelve
months its current ad for the Product in its current catalog); may sell all
Product owned by it on the termination date in the ordinary course of its
business; and shall have the right to receive C.O.D. all Product ordered prior
to termination.
15. NOTICE. Any notice or other communication which either party may be
required or shall desire to give under this Agreement shall be deemed to be
fully given when mailed by certified or registered mail, postage prepaid, to the
address indicated below or such other address as either party hereinafter may
designate to the other party in writing:
If to Manufacturer: President
Active Ankle Systems, Inc.
451 Baxter Avenue
Louisville, Kentucky 40204
If to Distributor: President
Cramer Products, Inc.
153 W. Warren
P.O. Box 1001
Gardner, Kansas 66030
16. SUBLICENSES. Notwithstanding the provisions of paragraphs 2 and 7,
Manufacturer hereby acknowledges and agrees that Distributor may from time to
time engage independent sales representatives to market and sell the Product
pursuant to this Agreement and to use the Proprietary Rights in connection
therewith. Manufacturer hereby consents to such arrangements and to the grant
by Distributor of sublicenses of the Proprietary Rights to such representatives
for such purposes.
17. ASSIGNMENT, SUCCESSORS, AND ASSIGNS. This Agreement shall not be
assigned by either party hereto without the prior written consent of the non
assigning party; each party agrees, however, that such consent shall not be
unreasonably withheld. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
subject to the foregoing provisions with respect to the assignment of this
Agreement.
18. LAW GOVERNING. This agreement is a Kansas contract and shall be
construed and interpreted in accordance with the laws of that state, except to
the extent the ownership or use of the Proprietary Rights are governed by the
laws of the United States of America.
19. GENERAL PROVISIONS. This Agreement may be modified at any time or
from time to time only by the written agreement of both parties. The failure of
either party to require performance by the other party of any provision hereof,
or to enforce any remedies it may have against the other party, shall in no way
affect the right thereafter to enforce this Agreement and require full
performance by the other party. The waiver by either party of any breach of any
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<PAGE>
provision of this agreement shall not constitute a waiver of any succeeding
breach of that provision or of any other provision. This agreement cancels and
supersedes all previous agreements, written or oral, between the parties hereto
relating to the subject matter hereof and constitutes the entire Agreement
between the parties hereto, and there are no understandings, representations or
warranties expressed or implied not specifically set forth herein. This
Agreement may be executed in any number of counterparts which taken together
shall constitute one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
ACTIVE ANKLE SYSTEMS, INC.
BY:
------------------------------------------
Ronald W. Schultz
Chief Executive Officer
"Manufacturer"
CRAMER PRODUCTS, INC.
BY:
------------------------------------------
Thomas K. Rogge
President
"Distributor"
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<PAGE>
EXHIBIT A
June 1991
ACTIVE ANKLE SYSTEMS PRODUCT LIST
Active Ankle "Acute" X-Small BXS20
Active Ankle "Acute" Small BS30
Active Ankle "Acute" Medium BM40
Active Ankle "Acute" Large BL50
Active Ankle "Acute II" X-Small BXS20
Active Ankle "Acute II" Small BS30
Active Ankle "Acute II" Medium MB40
Active Ankle "Acute II" Large BL50
Active Ankle "Trainer" X-Small TXS20
Active Ankle "Trainer" Small TS30
Active Ankle "Trainer" Medium TM40
Active Ankle "Trainer" Large TL50
Neoprene "Trainer" Pads pair NP130
BubbleFlex "Acute" Pads pair BP120
BubbleFlex "Acute II" Pads pair BP120
Active Heel Cushion pair HP500
Overhaul Kit "Trainer" OK300
Dura*Kold DK200
<PAGE>
EXHIBIT B
June 1992
Domestic Patents
1. United States Patent RE33395
2. United States Patent 5,031,607
Domestic Patent Pending
1. BubbleFlex patent filed February 1991
Domestic Registered Trademarks
1. Active Ankle Logo
2. BubbleFlex
Domestic Trademarks
1. Active Ankle "name"
Foreign Patent Pending
1. European, filed September 1990
France
Italy
United Kingdom
Germany
2. Canadian, filed September 1990
3. Japan, filed September 1990
Foreign Trademarks
1. Australia
2. Canada
3. Korea
<PAGE>
EXHIBIT C
<PAGE>
AMENDMENT TO DISTRIBUTOR AGREEMENT
This Agreement, made and entered into this 10th day of March, 1995, by and
between Active Ankle Systems, Inc. ("Manufacturer") and Cramer Products, Inc., a
Kansas Corporation ("Distributor") amends the Distributor Agreement ("Prior
Agreement") entered into by Manufacturer and Distributor on June 26, 1992,
Witnesseth:
In consideration of these presents and mutual promises set out herein, the
parties hereto agree as follows:
1. Paragraph 2 of the Prior Agreement is amended as follows:
a. Manufacturer hereby grants to Distributor the non exclusive and non
transferable right to sell the Product to team dealers, educational entities,
and retail sporting good entities and catalog operations selling to the
consumer. It is understood that package graphics for each distributor will be
exclusive to that distributor.
b. The territory covered by this Agreement is defined as the Continental
United States, plus the states of Alaska and Hawaii, and U.S. Possessions.
Other foreign territories may be added by letter agreement.
c. Manufacturer agrees to sell to Distributor at the best price and terms
offered to any other distributor of the Product and in such packaging, color,
and product features as manufacturer shall offer to any distributor with the
exception that Distributor's package graphics shall be exclusive to that
distributor.
d. Manufacturer agrees to create and supply packaging exclusive to
Distributor. Distributor and Manufacturer agree to share the out of pocket
costs associated with such packaging. Distributor shall have the right to
approve all packaging created for Distributor in advance. If Distributor, at
its option, elects to create and package the Product at its expense,
Manufacturer shall have the right to approve such packaging.
e. Distributor agrees that product packaged in bulk shall be sold only to
catalog distributor or team accounts and should not be sold for resale at
retail. Distributor agrees to exercise its best efforts enforcing this
provision and to direct its sales representatives to enforce this provision as
well.
f. In the event Manufacturer should hereafter manufacturer products other
than the product, Manufacturer shall offer Distributor the non exclusive right
to market such products in the markets and territories covered by this
Agreement. If Distributor fails to accept such offer within 60 days,
Manufacturer shall have the right, in its sole discretion, to grant the right to
market and sell other such products to any third party.
<PAGE>
g. Nothing in this agreement shall restrict or prohibit Distributor from
marketing and selling products not manufactured by Manufacturer.
h. Active Ankle Systems, Inc. has the sole right to grant or withhold
distribution rights to any market or customer and shall have sole discretion and
final decision authority on all disputes between distributors.
i. Active Ankle Systems, Inc. is authorized to maintain existing house
accounts and sell direct to other distributors, dealers, retail and catalog
entities, educational entities, and consumers in order to test product
performance and marketing programs. In its direct marketing programs,
Manufacturer will focus on areas and market niches not covered by Distributor or
its representatives in their ordinary course of business.
j. All accounts being sold Active Ankle product as of February 28, 1995,
shall be exclusive to distributor for the duration of this contract. If a
conflict arises between distributors as to the right to an account, distribution
exclusivity to the account shall be determined by:
i. The date on the first invoice where the Active ankle was sold to
that account.
ii. Manufacturer may decide at its sole discretion which distributor
may be permitted to sell to customer.
k. Distributor shall provide periodic reports of retail unit sales volume
by customer and inventory levels of the Distributor and such other reports as
Manufacturer and Distributor shall mutually agree.
l. This Agreement modifies the term of the Prior Agreement. The basic
term of this Agreement shall be for a period of three (3) years from the
effective date of this Agreement or December 31, 1997, if sooner. This
Agreement shall automatically renew for a period of two (2) years unless either
party terminates this Agreement by providing the other party with written notice
at least 120 days in advance, unless terminated by mutual consent. Manufacturer
may terminate this Agreement if Distributor has not ordered any Product for 60
consecutive days.
2. Paragraph 11 of the Prior Agreement is amended to read:
11 (a) LIMITED EXPRESS WARRANTY. If during the term of this
Agreement, Distributor receives a defective product from
Manufacturer, or sells and delivers to a third party a defective
Product from its inventory which is subsequently returned to
Distributor by such third party for replacement within 90 days,
then Distributor shall immediately notify Manufacturer. The
Distributor shall return the defective Product to the
Manufacturer. If Manufacturer shall determinate that the Product
forwarded to it by Distributor is, in fact, defective by reason
of improper workmanship or
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<PAGE>
material, the Manufacturer shall, at Manufacturer's option, credit the
Distributors account in an amount equal to the purchase price paid by
Distributor for such Product. Notwithstanding the foregoing, however,
at no time shall Distributor accept or receive from any other third
party, any part taken or removed from a Product for which a claim is
being made under the Manufacturer's product warranty. In the event
Distributor encounters any attempt to return such a part, Distributor
shall notify the returning party to contact the Manufacturer direct
for such part's replacement or repair.
11 (b) DISCLAIMER OF WARRANTY. Aside from the foregoing express
limited warranty contained in paragraph 11(a) above, the Distributor
acknowledges that no warranties with regard to the Products, whether
of merchantability or otherwise are created by the Agreement and the
Manufacturer hereby disclaims and excludes all implied warranties of
merchantability or fitness of a particular purpose. Any warranty
against infringement that may be provided in Section 2-312(3) of the
Uniform Commercial Code and/or any other comparable state statute is
expressly disclaimed.
In witness hereof, the parties have caused this amendment to be duly
executed the day and year first written above.
Active Ankle Systems, Inc. Cramer Products, Inc.
By: By:
------------------------------- -------------------------------
Gary G. Herzberg, President Thomas K. Rogge, President
"Manufacturer" "Distributor"
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DISTRIBUTOR AGREEMENT
THIS AGREEMENT, made and entered into this 4th day of January, 1993, by and
between ACTIVE ANKLE SYSTEMS, INC. ("Manufacturer"), and THE VOLLEYBALL
CONNECTION, INC., a Kentucky Corporation ("Distributor"),
WITNESSETH:
In consideration of these presents and the mutual promises set out herein,
the parties hereto agree as follows:
1. RECITALS. Manufacturer is engaged in the manufacture of ankle
braces further identified as set forth on Exhibit A attached hereto and made a
part hereof (such products, together with any improvements hereafter made
thereto by Manufacturer, called the "Product") and owns those patents, patent
applications, and trademark, trade name, logo and copyright registrations and
applications for registration, if any, listed on Exhibit B attached hereto (such
existing applications and registrations, together with any other trademarks,
tradenames, logos and copyrights used with respect to the product, called the
"Proprietary Rights"). Distributor is engaged in the marketing and sale of
sporting goods as a wholesaler in the United States and overseas.
2. RIGHTS TO DISTRIBUTE. Manufacturer hereby grants to distributor the
exclusive and nontransferable right to market and sell the Product to retail
sporting goods departments within retail outlets, with the exception that Cramer
Products, Inc. has the exclusive right to market and sell the Products to
educational entities, or to team dealers and catalog operations who resell to
educational entities. The exclusive right granted to The Volleyball Connection
pertains to product packaged in a clamshell designed for resale in retail
sporting goods outlets, or sporting goods departments within retail outlets.
The exclusive right granted to Cramer Products, Inc., pertains to product
packaged in a box or plastic bag designed for resale to educational entities.
Active Ankle Systems, Inc. has the sole right to grant or withhold distribution
rights to any market or customer and its responsible for mediating disputes
between Cramer and TVC relative to distribution rights. The Territory covered
by this Agreement is defined as the Continental United States, plus the states
of Hawaii and Alaska, and U.S. Possessions. In the event Manufacturer should
hereafter manufacture products other than the Product, Manufacturer shall not
grant to any third party the right to market or sell such other products unless
Manufacturer first offers in writing to Distributor the exclusive right to
market and sell such other products in the Markets and the Territory and
Possessions. If the Distributor fails to accept such offer within 60 days after
receipt, Manufacturer may thereafter grant to any other third party the right to
market or sell such other products, but only on terms no more favorable to such
third party than the terms offered to Distributor. Nothing in this agreement
shall restrict or prohibit Distributor from marketing and selling products not
manufactured by Manufacturer.
(a). Manufacturer intends to refer all unsolicited calls from retail
dealers as defined in paragraph (2) for sale at retail to Distributor.
<PAGE>
3. PURCHASE AND DELIVERIES.
(a.) Distributor shall purchase all of the Distributor's requirements
for the Product from Manufacturer and Manufacturer agrees to supply such
requirements. Distributor's orders for the Product shall be made in writing to
Manufacturer, and Manufacturer shall fill and deliver distributor's orders on a
timely basis, subject only to delays described under paragraph 13. Distributor
shall not cancel all or any part of any order except to the extent Manufacturer
shall not have filled and delivered such order within the prescribed ordering
period requested by the customer.
(b.)
(c.) Manufacturer shall deliver Distributor's Product orders to
Distributor's customers F.O.B. Louisville, Kentucky or F.O.B. such other
locations as Manufacturer and Distributor shall from time to time agree.
(d.) Each Product unit delivered to Distributor shall be prepackaged
pursuant to Distributor's instructions, by Manufacturer.
(e.) Manufacturer shall ship units deemed to be shorted on any order at
no additional charge and replace braces failing within the warranty periods
outlined in the Manufactures warranty policy. (See fitting instructions and
paragraph 11.)
(f.) Product returned to Manufacturer for any reason requires a return
authorization number, to be obtained from Manufacturer in advance by calling
1-800-800-2896.
4. PRICE AND PAYMENT.
(a.)
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(b.)
5. DISTRIBUTOR'S RESALE. Distributor shall use efforts reasonably
consistent with its resources to market and sell the Product to retail sporting
goods dealers and to promote the Product. Distributor shall establish the price
for all sales of the Product and shall be solely responsible to its customers
with respect to the delivery of the Product to them, the collection of the
purchase price from them, and the other terms of such sales.
6. TERM. The initial term of this Agreement shall begin on the date
hereof and shall end, if not sooner terminated pursuant to this agreement, after
the initial term on December 31, 1995. This Agreement shall automatically renew
for successive three-year periods thereafter unless either party hereto shall by
written notice to the other party not less than 60 days prior to the end of such
initial term or any succeeding three-year term, give notice of termination of
this Agreement at the end of such initial term or three-year term, or is
terminated at any time by mutual consent of both parties.
7. PROPRIETARY RIGHTS.
(a.) Manufacturer hereby grants to Distributor the non-exclusive and
nontransferable right to use all present and future Proprietary Rights in
Distributor's promotion and sale of the Product pursuant to this Agreement;
provided, Distributor shall not knowingly alter any Proprietary Right without
prior written consent. Distributor acknowledges that all good will associated
with Distributor's use of Proprietary Rights shall inure to Manufacturer's
benefit.
(b.) Manufacturer represents and warrants to Distributor that (i) the
Proprietary Rights do not infringe on any rights to any person and, to
Manufacturer's knowledge, no person has infringed on or challenged the
Proprietary Rights, and (ii) Manufacturer is the sole legal and equitable owner
of the Proprietary Rights, subject only to Manufacturer's grants to others of
the
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right to use such Proprietary Rights in the promotion and sale of the Product
outside of the markets or the Territory. Distributor shall promptly notify
Manufacturer of any third party's apparent infringement of or challenge to the
proprietary rights known to Distributor. Manufacturer shall maintain all
registrations relating to the Proprietary Rights, and shall not abandon or use
the Proprietary Rights in any manner that would cause them to cease to be
protected.
8. PUBLIC REQUIREMENTS. Distributor and Manufacturer shall each
conduct its business with respect to the Product and Proprietary Rights in
compliance with all laws, ordinances, regulations, orders, guidelines and other
requirements of federal, state and local governments, agencies and political
subdivisions.
9. NO AGENCY RELATIONSHIP. This agreement shall not constitute either
Manufacturer or Distributor as the agent or legal representative of the other
for any purpose. Neither Manufacturer nor Distributor shall have the right to,
and each agrees that it will not attempt to, act for or bind or obligate the
other in any manner.
10. PROMOTION OF PRODUCT BY DISTRIBUTOR. Distributor will promote the
product through the various means, on a basis generally comparable to that for
other products sold by Distributor and consistent with paragraph 5 ie:
- Trade advertising
- Display and promotion at major sporting goods shows at which
distributor exhibits products and sponsored Volleyball matches
- Articles and advertising in publications which may be produced from
time to time by Distributor
- Inclusion in the Distributor's product catalog
- New product publicity
- Incorporation in Distributor's training workshops' curriculums
Promotional material produced by Distributor relating to Manufacturer's
products shall receive prior approval by Manufacturer. Written approval by FAX
will be provided to Distributor within three days of receipt by Manufacturer.
11. PRODUCT QUALITY. All Product purchased by Distributor shall be
manufactured in a good and work-man-like manner from sound materials and shall
be free from defects. Manufacturer agrees to defend and indemnify Distributor
against any claim, loss, cost and expense (including attorney's fees) arising
out of or relating to the actual or alleged failure of the product to satisfy
the standards set forth herein or any actual or alleged defect in the design or
manufacture of the product. Manufacturer agrees to replace parts or product
failing due to faulty materials or workmanship during the warranty period
through normal use at no cost to Distributor.
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12. RESPONSIBILITY OF MANUFACTURER FROM MARKETING. Manufacturer shall
use its best efforts, whenever requested by Distributor, to provide marketing
information, product knowledge, or any other information Distributor may need to
adequately market and promote the Product.
13. FORCE MAJEURE. It is mutually agreed by the parties hereto that
neither party shall be held responsible for any losses resulting if the
fulfillment of any terms or provisions hereof shall be delayed or prevented by
revolution or other disorders, wars, acts of enemies, strikes, floods, acts of
God, or without limiting the foregoing, by any other cause not within control of
the party whose performance is interfered with, and which by the exercise of
reasonable diligence said party is unable to prevent, whether of the class of
causes above enumerated or not.
14. TERMINATION.
(a.) Either Manufacturer or Distributor may terminate this agreement by
giving written notice to the other party of the occurrence of any one of the
following events, provided that only Distributor may terminate this agreement if
an event described in clause (iii) occurs:
(i) The notified party shall fail to perform any agreement
made by it in this Agreement, and such agreement is not
performed or cured within 30 days after the other party
shall notify the notified party of such failure;
(ii) A petition shall be filed against the notified party
under any bankruptcy, reorganization or insolvency law
(which petition is not dismissed within 60 days of
filing) or a receiver or trustee shall be appointed to
take possession of the notified party's assets;
(iii) Any portion of the Proprietary Rights shall become the
subject and any levy, seizure, assignment, application
or sale by any court, creditor or government agency,
and such levy, seizure, assignment, application or sale
is not adjudicated or set aside within 60 days of
initial action; or
(iv) The notified party shall voluntarily petition or
otherwise voluntarily institute proceedings under any
bankruptcy or other law for the relief of debtors.
(b.) Upon termination of this Agreement, Distributor shall cease to use
all Proprietary Rights (except that Distributor may continue to use for twelve
months its current ad for the Product in its current catalog); may sell all
Product owned by it on the termination date in the ordinary course of its
business; and shall have the right to receive C.O.D. all Product ordered prior
to termination.
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15. NOTICE. Any notice or other communication which either party may
be required or shall desire to give under this Agreement shall be deemed to be
fully given when mailed by certified or registered mail, postage prepaid, to the
address indicated below or such other address as either party hereinafter may
designate to the other party in writing:
If to Manufacturer: President
Active Ankle Systems, Inc.
451 Baxter Avenue
Louisville, Kentucky 40204
If to Distributor: President
The Volleyball Connection, Inc.
440 Baxter Avenue
Louisville, Kentucky 40204
16. SUBLICENSES. Notwithstanding the provisions of paragraphs 2 and 7,
Manufacturer hereby acknowledges and agrees that Distributor may from time to
time engage independent sales representatives to market and sell the Product
pursuant to this Agreement and to use the Proprietary Rights in connection
therewith. Manufacturer hereby consents to such arrangements and to the grant
by Distributor of sublicenses of the Proprietary Rights to such representatives
for such purposes.
17. ASSIGNMENT, SUCCESSORS, AND ASSIGNS. This Agreement shall not be
assigned by either party hereto without the prior written consent of the non
assigning party; each party agrees, however, that such consent shall not be
unreasonably withheld. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
subject to the foregoing provisions with respect to the assignment of this
Agreement.
18. LAW GOVERNING. This agreement is a Kentucky contract and shall be
construed and interpreted in accordance with the laws of that state, except to
the extent the ownership or use of the Proprietary Rights are governed by the
laws of the United States of America.
19. GENERAL PROVISIONS. This Agreement may be modified at any time or
from time to time only by the written agreement of both parties. The failure of
either party to require performance by the other party of any provision hereof,
or to enforce any remedies it may have against the other party, shall in no way
affect the right thereafter to enforce this Agreement and require full
performance by the other party. The waiver by either party of any breach of any
provision of this agreement shall not constitute a waiver of any succeeding
breach of that provision or of any other provision. This agreement cancels and
supersedes all previous agreements, written or oral, between the parties hereto
relating to the subject matter hereof and constitutes the entire Agreement
between the parties hereto, and there are no understandings, representations or
warranties expressed or implied not specifically set forth herein or Exhibit C
which provides a detailed list of each parties intended responsibilities. This
Agreement may be
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executed in any number of counterparts which taken together shall constitute one
and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly
executed the day and year first above written.
ACTIVE ANKLE SYSTEMS, INC.
BY:
---------------------------------------
Ronald W. Schultz
Chief Executive Officer
"Manufacturer"
THE VOLLEYBALL CONNECTION, INC.
BY:
---------------------------------------
Anne Axman
President
"Distributor"
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EXHIBIT A
January 1993
ACTIVE ANKLE SYSTEMS PRODUCT LIST
WHITE BLACK
Active Ankle "Trainer" X-Small RTD110 RTD310
Active Ankle "Trainer" Small RTD120 RTD320
Active Ankle "Trainer" Medium RTD130 RTD330
Active Ankle "Trainer" Large RTD140 RTD340
Neoprene "Trainer" Pads pair RTD70
Active Heel Cushion pair RTD90
Overhaul Kit "Trainer" RTD100 RTD300
<PAGE>
EXHIBIT B
January 1993
Domestic Patents
1. United States Patent RE33395
2. United States Patent 5,031,607
Domestic Patent Pending
1. BubbleFlex patent filed February 1991
Domestic Registered Trademarks
1. Active Ankle Logo
2. BubbleFlex
Domestic Trademarks
1. Active Ankle "name"
Foreign Patent Pending
1. European, filed September 1990
France
Italy
United Kingdom
Germany
2. Canadian, filed September 1990
3. Japan, filed September 1990
Foreign Trademarks
1. Australia
2. Canada
3. Korea
<PAGE>
EXHIBIT C
<PAGE>
16. Maintain a United Parcel Service log book at the distribution center under
The Volleyball Connection name.
17. Make alternative freight arrangements per customer request and prepay all
freight.
18. Receive all shipping information from the fulfillment center.
19. Invoice customers.
20. Collect all receivables and litigate as needed.
21. Pay all sales representatives commissions.
22. Issue return authorizations and credit customers accounts and debit sales
representative's commissions.
23. Provide monthly reports detailing:
a. Sales volume
b. Orders to be shipped
c. Items to be shipped per item (within any specified window)
24. Provide order forms for the sales representatives (3 part).
25. Provide picking tickets for orders to be shipped (2 part).
26. Provide invoices (4 part).
27. Provide credit applications.
ACTIVE ANKLE WILL PROVIDE:
1. Adequate levels of advertising as agreed to between the parties.
2. Point of purchase displayed for the retail customer. A scale will be
provided for quantity of order and type of display given.
3. Continued work in the area of new products.
4. Training for the staff of The Volleyball Connection relating to the Active
Ankle products.
5. Line sheets, price sheets, and other support materials to be part of the
sale package.
6. Assistance with any National Promotions or arrangement of pricing structure
for major retails as agreed to by both parties prior to any commitments.
<PAGE>
7. Rental of booth space and display of products at retail sportswear shows
other than those attended by The Volleyball Connection, Inc. (such as the
NSGA show and the SUPER SHOW), as agreed to by both parties prior to any
commitments.
8. Forward all leads and listing of current customers to The Volleyball
Connection as defined in paragraph 2(a) of the agreement.
9. Listing of The Volleyball Connection, Inc. as an additionally insured on
Active Ankle's insurance.
10. Direct mail to current and potential retail customers at least twice a
year.
11. Develop and maintain a competitive pricing structure with Cramer products.
12. An adequate return policy and acceptance of defective merchandise. Also,
credit The Volleyball Connection for all returned merchandise.
13. Maintain adequate production levels.
14. Assure that orders will be shipped within the given window.
15. Provide a contact person at Active Ankle Systems, Inc. to answer questions
as needed.
16. Sell samples to The Volleyball Connection for use by sales representatives
at an agreed upon discounted rate $7.00 each.
17. Invoice The Volleyball Connection for orders shipped and maintained
accurate records of sales.
<PAGE>
AMENDMENT TO DISTRIBUTOR AGREEMENT
This Agreement, made and entered into this 13th day of March, 1995, by and
between Active Ankle Systems, Inc. ("Manufacturer") and The Volleyball
Connection, Inc., a Kentucky Corporation ("Distributor") amends the Distributor
Agreement ("Prior Agreement") entered into by Manufacturer and Distributor on
January 4, 1993,
Witnesseth:
In consideration of these presents and mutual promises set out herein, the
parties hereto agree as follows:
1. Paragraph 2 of the Prior Agreement is amended as follows:
a. Manufacturer hereby grants to Distributor the non exclusive and non
transferable right to sell the Product to team dealers, educational entities,
and retail sporting good entities and catalog operations selling to the
consumer. It is understood that package graphics for each distributor will be
exclusive to that distributor.
b. The territory covered by this Agreement is defined as the
Continental United States, plus the states of Alaska and Hawaii, and U.S.
Possessions. Other foreign territories may be added by letter agreement.
c. Manufacturer agrees to sell to Distributor at the best price and
terms offered to any other distributor of the Product and in such packaging,
color, and product features as manufacturer shall offer to any distributor with
the exception that Distributor's package graphics shall be exclusive to that
distributor.
d. Manufacturer agrees to create and supply packaging exclusive to
Distributor. Distributor and Manufacturer agree to share the out of pocket
costs associated with such packaging. Distributor shall have the right to
approve all packaging created for Distributor in advance. If Distributor, at
its option, elects to create and package the Product at its expense,
Manufacturer shall have the right to approve such packaging.
e. Distributor agrees that product packaged in bulk shall be sold only
to catalog distributor or team accounts and should not be sold for resale at
retail. Distributor agrees to exercise its best efforts enforcing this
provision and to direct its sales representatives to enforce this provision as
well.
f. In the event Manufacturer should hereafter manufacturer products
other than the product, Manufacturer shall offer Distributor the non exclusive
right to market such products in the markets and territories covered by this
Agreement. If Distributor fails to accept such offer within 60 days,
Manufacturer shall have the right, in its sole discretion, to grant the right to
market and sell other such products to any third party.
<PAGE>
g. Nothing in this agreement shall restrict or prohibit Distributor
from marketing and selling products not manufactured by Manufacturer.
h. Active Ankle Systems, Inc. has the sole right to grant or withhold
distribution rights to any market or customer and shall have sole discretion and
final decision authority on all disputes between distributors.
i. Active Ankle Systems, Inc. is authorized to maintain existing house
accounts and sell direct to other distributors, dealers, retail and catalog
entities, educational entities, and consumers in order to test product
performance and marketing programs. In its direct marketing programs,
Manufacturer will focus on areas and market niches not covered by Distributor or
its representatives in their ordinary course of business.
j. All accounts being sold Active Ankle product as of February 28,
1995, shall be exclusive to distributor for the duration of this contract. If a
conflict arises between distributors as to the right to an account, distribution
exclusivity to the account shall be determined by:
i. The date on the first invoice where the Active ankle was
sold to that account.
ii. Manufacturer may decide at its sole discretion which
distributor may be permitted to sell to customer.
k. Distributor shall provide periodic reports of retail unit sales
volume by customer and inventory levels of the Distributor and such other
reports as Manufacturer and Distributor shall mutually agree.
l. This Agreement modifies the term of the Prior Agreement. The basic
term of this Agreement shall be for a period of three (3) years from the
effective date of this Agreement or December 31, 1997, if sooner. This
Agreement shall automatically renew for a period of two (2) years unless either
party terminates this Agreement by providing the other party with written notice
at least 120 days in advance, unless terminated by mutual consent. Manufacturer
may terminate this Agreement if Distributor has not ordered any Product for 60
consecutive days.
2. Paragraph 11 of the Prior Agreement is amended to read:
11 (a) LIMITED EXPRESS WARRANTY. If during the term of
this Agreement, Distributor receives a defective product
from Manufacturer, or sells and delivers to a third party a
defective Product from its inventory which is subsequently
returned to Distributor by such third party for replacement
within 90 days, then Distributor shall immediately notify
Manufacturer. The Distributor shall return the defective
Product to the Manufacturer. If Manufacturer shall
determinate that the Product forwarded to it by Distributor
is, in fact, defective by reason of improper workmanship or
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<PAGE>
material, the Manufacturer shall, at Manufacturer's option, credit
the Distributors account in an amount equal to the purchase price
paid by Distributor for such Product. Notwithstanding the
foregoing, however, at no time shall Distributor accept or receive
from any other third party, any part taken or removed from a
Product for which a claim is being made under the Manufacturer's
product warranty. In the event Distributor encounters any attempt
to return such a part, Distributor shall notify the returning party
to contact the Manufacturer direct for such part's replacement or
repair.
11 (b) DISCLAIMER OF WARRANTY. Aside from the foregoing
express limited warranty contained in paragraph 11(a) above, the
Distributor acknowledges that no warranties with regard to the
Products, whether of merchantability or otherwise are created by the
Agreement and the Manufacturer hereby disclaims and excludes all
implied warranties of merchantability or fitness of a particular
purpose. Any warranty against infringement that may be provided in
Section 2-312(3) of the Uniform Commercial Code and/or any other
comparable state statute is expressly disclaimed.
In witness hereof, the parties have caused this amendment to be duly
executed the day and year first written above.
Active Ankle Systems, Inc. The Volleyball Connection, Inc.
By: By:
------------------------------- ---------------------------------
Gary G. Herzberg, President Anne Axman, President
"Manufacturer" "Distributor"
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<PAGE>
DISTRIBUTION AGREEMENT
PARTIES: Active Ankle Systems, Inc.
AOA Division, Kirschner Medical Corporation
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE NO. DESCRIPTION
- ----------------------------------------------------------
1 .......... Reference
2 .......... Appointment
3 .......... Territory and Products
4 .......... Sales, Marketing and Development Activities
5 .......... Orders, Payments and Taxes
6 .......... Delivery
7 .......... Confidential Information
8 .......... Warranties
9 .......... Indemnification, Insurance
10 .......... Acceptance of the Products, Inspection and Return
11 .......... Changes
12 .......... Relationship between Parties
13 .......... Terms and Termination
14 .......... Force Majeure
15 .......... Waiver
16 .......... Notices
17 .......... Governing Law
18 .......... Arbitration
19 .......... Entire Agreement and Modifications
- ------------------------------------------------------------------------------
EXHIBITS
A .......... International Territories
B .......... Products Designated for Territory
C .......... Prices
D .......... Active Ankle Systems Quality Manual
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT, is made as of the 3 day of January , 1995 by and between
ACTIVE ANKLE SYSTEMS, INC., a Kentucky corporation ("Active Ankle"), and THE AOA
DIVISION OF KIRSCHNER MEDICAL CORPORATION, a Delaware corporation ("AOA"). (AOA
and Active Ankle being hereinafter sometimes called the "Parties").
RECITALS:
WHEREAS, AOA desires to market in the Territory (as hereinafter defined)
products provided by Active Ankle; and
WHEREAS, Active Ankle desires to have its products marketed and sold by AOA
in said Territory;
NOW, THEREFORE, for the mutual promises and agreements contained herein and
for the other good and valuable consideration, it is agreed by and between the
Parties hereto as follows:
1. REFERENCE
The above recitals are hereby made a part of this Agreement.
2. APPOINTMENT
2.01 Active Ankle hereby appoints AOA as its non-exclusive distributor in
the Territory for the sale and promotion of certain Active Ankle
products to primarily medically-related markets. AOA accepts such
appointment and agrees that it shall at all times carry out to the
best of its ability a merchandising policy designed to promote and
maintain the excellence of quality and to preserve the goodwill
which is now associated with the name and reputation of Active Ankle
and its products.
2.02 AOA shall have the right to appoint subdistributors in the
Territory, provided that such subdistributors shall agree in writing
to be subject to all the terms of this Agreement. AOA hereby agrees
that it shall be responsible for all the acts and omissions of such
subdistributors as if such acts and omissions had been the acts and
omissions of AOA.
3. TERRITORY AND PRODUCTS
3.01 The term "Territory" shall mean the continental United States,
Alaska, Hawaii and all U.S. possessions. Additional international
territories may be added by mutual consent of the parties, such
consent shall not be unreasonably withheld.
<PAGE>
International territories are listed in Exhibit A and may be added
from time to time by amendment of this Agreement.
The term "Product(s)" shall mean all products listed in Exhibit B
and those which may be added to Exhibit B by amendment to this
Agreement provided in 19.02 herein.
Active Ankle shall have the right to stop manufacturing, stocking
and selling, for any reason, any of the Products listed in Exhibit B
upon 60 days written notice, without incurring any obligation or
liability to AOA, unless ordered to do so by any court of competent
jurisdiction, any governmental unit or other authority outside the
control of Active Ankle, in which case Active Ankle shall be
entitled to cease immediately. Active Ankle agrees to license AOA
to manufacture and sell any discontinued Product, the terms of said
license to be mutually agreed upon by the Parties during the sixty
(60) day period prior to discontinuing the Product.
4. SALES, MARKETING AND DEVELOPMENT ACTIVITIES
4.01 AOA agrees:
A. To provide adequate sales coverage and distribution of the
Products in the Territory.
B. To bring promptly to Active Ankle's attention, any information
received by AOA which is likely to be of interest, use, or
benefit to Active Ankle in relation to the marketing of the
Products in the Territory.
C. To establish and implement any control procedures required to
conform to existing or anticipated laws or regulations covering
the Products.
D. To reimburse Active Ankle for extraordinary technical, marketing,
sales and training efforts. Such extraordinary efforts shall be
mutually agreed upon in advance and reimbursement shall be
dependent upon the timely presentation of written proof of said
expenditures.
4.02 Active Ankle agrees:
A. To provide reasonable technical, sales, marketing and sales
training support to AOA, such support to be mutually agreed upon
in advance.
B. To provide artwork and/or the actual printed promotional
materials required to promote sales of the Product in the
Territory.
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C. To provide AOA with a right of first refusal to new products,
such right to include consideration as the exclusive distributor
of such new products in the Territory.
D. To share in the costs associated with clinical studies involving
the Product, such costs to be mutually agreed upon in advance.
E. To share in the costs associated with:
1. Conversion of AOA's current stirrup ankle brace business;
2. Sampling of the current Active Ankle product line;
3. Sampling and introduction of Products developed and offered
for sale during the Term of this Agreement; and
4. Special promotional activities supporting the sale of all
Active Ankle products.
Prior to any commitments regarding the foregoing subparagraphs (A)
to (E), the parties shall mutually agree in writing to any cost
sharing in advance. Further, Active Ankle shall have the right to
approve in advance all advertising copy and material, said approval
not to be unreasonably withheld.
4.03 The parties for the products sold by Active Ankle to AOA are listed
on Exhibit C. AOA and Active Ankle agree the prices provided for
herein shall be subject to change with sixty (60) days notice.
Active Ankle agrees to sell to AOA at the best price and terms
offered to any other Distributor of the Product and in such
packaging, color, and product features as Active Ankle shall offer
to any Distributor.
Notwithstanding the foregoing, Active Ankle understands and agrees
that, from time to time, AOA may include Products listed in Exhibit
B in long-term product sales contracts and that such product sales
contracts may include provisions to guarantee pricing for the term
of the product sales contract. AOA agrees to submit product sales
contract related pricing to Active Ankle for approval prior to
submitting contract proposals. Active Ankle agrees that approval of
pricing for product sales contracts shall not be unreasonably
withheld, if commercially feasible, and that Active Ankle will not
increase its cost to AOA of Products necessary to complete the
obligations of the product sales contracts during the term of said
contracts.
5. ORDERS, PAYMENTS AND TAXES
5.01 PURCHASE ORDERS. All orders for the Products shall be subject to
the terms of this Agreement and made by AOA either orally or in
writing (facsimile is permissible) and shall set forth (i) the
identify and quantity ordered, (ii) the date of the
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<PAGE>
required delivery and (iii) any other terms not inconsistent with
the terms of this Agreement. All orders are subject to acceptance
by Active Ankle. In the case of any oral orders made by AOA
hereunder, AOA shall promptly send written confirmation of such
orders to Active Ankle (facsimile is permissible). ALL SALES OF THE
PRODUCTS BY ACTIVE ANKLE TO AOA SHALL BE SUBJECT TO AND IN
ACCORDANCE WITH THE TERMS OF (i) THIS AGREEMENT, AS THE SAME MAY BE
AMENDED BY THE PARTIES FROM TIME TO TIME, (ii) TO THE EXTENT NOT
INCONSISTENT WITH THIS AGREEMENT, THE TERMS OF THE APPLICABLE AOA
ORDER EXECUTED UNDER THIS AGREEMENT AS ACCEPTED BY ACTIVE ANKLE, AND
(iii) TO THE EXTENT NOT INCONSISTENT WITH THIS AGREEMENT, THE
PROVISIONS OF THE UNIFORM COMMERCIAL CODE, AS ENACTED IN THE STATE
OF KENTUCKY.
5.02 PAYMENT. Terms are net 30 days.
5.03 EXTRA CHARGES. Other than late payment charges, no additional
charges of any kind, including charges for boxing, packing, or
cartage, taxes, import or export duties, excises, or other extras,
will be allowed unless specifically agreed to in writing in advance
by AOA.
5.04 TAXES. Active Ankle's prices shall EXclude any Federal, State, or
local sales, use or excise taxes levied upon, or measured by the
sale, the sales price or use of the Products. All such taxes,
lawfully applicable, shall be listed separately on Active Ankle's
invoice, and paid by AOA. If such applicable taxes are not
separately listed, Active Ankle assumes responsibility for the
payment of them, and shall indemnify and hold AOA, its successors
and assigns, harmless from any and all liability in connection with
such taxes. Tax exemption certificates or other evidence of
exemption furnished by AOA, reasonably acceptable to Active Ankle,
shall be accepted by Active Ankle in lieu of such taxes.
6. DELIVERY
6.01 Active Ankle shall at no time be obligated to make any shipment if
such action would constitute a violation of any federal, state or
local laws, regulations or policies.
6.02 Delivery shall be made F.O.B. to AOA's facility in Marlow, Oklahoma.
Active Ankle shall retain ownership and responsibility for the
product and any expenses until delivery to AOA's facility in Marlow,
Oklahoma.
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7. CONFIDENTIAL INFORMATION
7.01 From time to time, the parties will have access to certain
Confidential Information relating to the other's business, including
but not limited to the internal organization; the names and
responsibilities of management, supervisory and technical employees,
operating plans, research and development activities, plans for
acquisitions and mergers, manufacturing and/or sales activities,
technical information concerning products (except as contained in
marketing or promotional literature), trade secrets, customer lists,
and names of suppliers (the "Confidential Information"). The
Parties covenant that they will hold all Confidential Information as
fiduciaries, in strict confidence and trust for the other's benefit,
and will not at any time during the term of this Agreement or
thereafter disclose any Confidential Information of which it has
knowledge, in whole or in part, to any third party, or use same for
its own benefit or for the benefit of any third party without the
prior written consent of a duly authorized officer of the other.
During the term of this Agreement, the Parties will be permitted,
however, to disclose such part of the Confidential Information to
those of its employees and/or agents as is necessary to be known by
them to assist or enable the Parties to perform their respective
services and obligations under this Agreement. At either Party's
request, the other Party will furnish the names of the employees and
agents to whom Confidential Information has been disclosed, the
extent of such disclosure, and copies of any written agreements with
those employees and agents. Both Parties will make a good faith
attempt to administer and enforce all such written agreements with
its employees and agents.
A. EXCEPTIONS
The above restrictions on disclosure of Confidential Information
shall not apply:
1. To the extent that any information imparted was in the
possession of the disclosing party prior to disclosure.
2. To the extent that the idea or information disclosed is
already in the public domain or shall thereafter fall within
the public domain without fault on the part of the
disclosing party; or
3. If the right to use such information shall be validly
obtained through or disclosure from a third party not bound
by any confidential relationship.
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<PAGE>
B. RETURN OF CONFIDENTIAL INFORMATION
Upon either Party's written demand or upon expiration or
termination of this Agreement, whether or not separate written
demand has been made, the other Party will return promptly all
Confidential Information to the other Party to the extent held in
written, graphic or other tangible form, and all copies,
summaries, notes and other write-ups thereof.
8. WARRANTIES
8.01 AOA shall have the right to all buyer's remedies and seller's
warranties to the fullest extent provided under the Uniform
Commercial Code as enacted in the State of Maryland, including, but
not limited to, warranties of merchantability and fitness for a
particular purpose. Notwithstanding the foregoing, in no event
shall Active Ankle be liable to AOA for special, incidental or
consequential damages.
9. INDEMNIFICATION, INSURANCE
9.01 Active Ankle shall indemnify AOA and the customers of AOA against
any liability arising from claims of patent, trademark or copyright
infringement on account of any composition, process, invention, or
article used or furnished by Active Ankle in the performance of this
Agreement, including, but not limited to, patents or processes for
the manufacturing, sale and delivery of the goods. Active Ankle
shall defend any action brought against AOA for any claim, shall
bear all costs, expenses and reasonable attorneys fees of AOA in the
defense of any such action, and Active Ankle shall pay any judgment
that may be awarded against AOA.
AOA shall cooperate with Active Ankle in every regard implied by the
foregoing including but not limited to making its executives and
employees available to Active Ankle as reasonably required for the
purposes of preparation for the defense of any claims and
participation at the disposition, at trial, etc. The foregoing to
be without cost to Active Ankle except for actual direct
out-of-pocket expenses incurred by AOA, and to the extent indicated
in paragraph one hereof, solely as it relates to such defense.
9.02 Active Ankle shall indemnify and hold AOA, its successors and
assigns, harmless against all loss on account of claims of injuries
to persons or damage to property based in whole or in part upon a
defect in the Products or from any act or omission of Active Ankle,
its agents, employees and subcontractors related to the Products.
Further, Active Ankle agrees to indemnify and hold harmless AOA, its
successors and assigns, against any and all claims, liabilities,
costs and expenses (including, but not limited to, court costs,
reasonable attorney's fees, inspectors' fees, or costs of testing if
the cost of such testing is approved by an
6
<PAGE>
officer of Active Ankle in advance) incurred by AOA in connection
with or related to any recall, inspection, tests, replacement or
correction of the Products or any and all parts or equipment in
which the Products are incorporated when such recall, inspection,
tests, replacement or correction result from or are related to, in
whole or in part, a defect or alleged defect in the Products.
9.03 The Parties shall each carry, maintain and keep in force during the
term of this Agreement, all such insurance, including product
liability coverage, as may be reasonably necessary to guarantee
performance by each party of its obligations to protect the other's
interest. The Parties will provide each other with proof of such
insurance.
10. ACCEPTANCE OF THE PRODUCTS, INSPECTION AND RETURN
10.01 Acceptance of the Products shall take place at the time when such
Products have been delivered to AOA and have passed AOA's
inspection and tests of the Products by AOA which may at AOA's
option be made at Active Ankle's plant and/or the point of
destination. The inspection criteria upon which acceptance shall
be based is contained in Exhibit D, Active Ankle Systems Quality
Manual. Acceptance of all or any part of any shipment of the
Products by AOA shall not relieve Active Ankle from any of its
obligations and warranties hereunder, nor will acceptance of any
part of any shipment bind AOA to accept future shipments or deprive
AOA of any right which it may have to return goods already
accepted. Acceptance of all or any part of any shipment shall not
be deemed a waiver of AOA's right either to cancel or to return all
or any portion of the Products because of failure to conform to the
order as accepted by Active Ankle or by reason of defects, latent
or patent, or other breach of warranty, or to make any claim for
damages, suffered by AOA as a result of any default of Active Ankle
hereunder.
If inspection discloses that any part of any shipment of the Products
received is not in accordance with AOA's order as accepted by Active Ankle
or if any of the Products fail to meet the warranties contained in
Paragraph 8 hereof, Active Ankle, upon notice thereof from AOA, shall
promptly correct or replace the same at Active Ankle's expense. If Active
Ankle shall fail to do so, AOA may cancel the order in question as to all
such Products. After notice to Active Ankle, all such Products will be
held at Active Ankle's risk. AOA may, and at Active Ankle's direction
shall, return such goods to Active Ankle at Active Ankle's risk, and all
transportation and handling charges, both to and from the original
destination, shall be paid by Active Ankle. Any payment for such Products
shall be refunded by Active Ankle unless Active Ankle promptly corrects or
replaces the same at its expense. Return of any nonconforming Products by
AOA shall not be deemed a waiver of any right or remedy which AOA may have
as a result of or in connection with the existence of such defect or
defects.
7
<PAGE>
If, during the term of this Agreement, AOA receives a defective Product
from Active Ankle, or sells and delivers to a third party a defective
Product from its inventory which is subsequently returned to AOA by such
third party for replacement, then AOA shall immediately notify Active
Ankle. AOA shall return the defective Product to Active Ankle, freight
collect. If Active Ankle shall determine that the Product forwarded to it
by AOA was, in fact, defective by reason of improper workmanship or
material, Active Ankle shall replace such Product or, at Active Ankle's
option, credit AOA's account in an amount equal to the purchase price paid
by AOA for such Product. Notwithstanding the foregoing, however, at no
time shall AOA accept or receive from any other third party any part taken
or removed from a Product for which a claim is being made under Active
Ankle's products warranty. In the event AOA encounters any attempt to
return such a part, AOA shall notify the returning party to contact Active
Ankle directly for such part's repair or replacement.
Notwithstanding the foregoing, AOA shall not return any Products for credit
without obtaining prior authorization from Active Ankle, said authorization
shall not be withheld in those instances where Products received are not in
accordance with AOA's order as accepted by Active Ankle or where Products
failed to meet warranties referenced in the preceding paragraph and more
fully described in Paragraph 8 hereof or in instances of customer
dissatisfaction after AOA has unsuccessfully made a good faith effort to
overcome the customer's objections.
11. CHANGES
11.01 AOA shall have the right by written notice to cancel or change any
order given to Active Ankle hereunder subject to Active Ankle's
acceptance.
11.02 In the event of cancellation of any particular order, which
cancellation has been accepted by Active Ankle, AOA shall be
responsible and liable only for the price of the Products accepted
prior to such notice plus the actual and reasonable costs incurred
by Active Ankle prior to notice of cancellation with respect to the
Products cancelled.
11.03 In the event of a modification of any particular order by AOA
(including, but not limited to, a change in the quantity of the
Products ordered), which modification has been accepted by Active
Ankle, AOA shall be responsible and liable only for the price of
the Products accepted plus the actual and reasonable costs incurred
by Active Ankle to accomplish such modification. Any increase in
the price of the Products resulting from modification of such order
is subject to the prior approval of AOA.
8
<PAGE>
12. RELATIONSHIP BETWEEN PARTIES
12.01 AOA agrees that in all matters relating to this Agreement, it shall
be acting as an independent contractor and shall bear all of its
expenses in connection with this Agreement. It shall not have any
authority to assume or create any obligation, express or implied on
behalf of Active Ankle. AOA shall not make quotations or
representations of any kind in the name of Active Ankle, but shall
in all cases use its own name.
13. TERMS AND TERMINATION
13.01 The basic term of this Agreement shall be for a period of three (3)
years from the effective date of this Agreement. Thereafter, this
Agreement shall be renewed automatically for a period of two (2)
years unless a party to this Agreement terminates this Agreement by
providing the other party with written notice of such election at
least 120 days in advance of such renewal date.
13.02 Notwithstanding the provisions of 13.01 hereof, either party may
terminate this Agreement by providing written notice (together with
thirty [30] days in which to cure) if the other party materially
breaches or fails to observe or perform any material term or
condition of this Agreement.
13.03 Notwithstanding the provisions of 13.01 or 13.02 hereof, this
Agreement shall terminate immediately upon written notice to the
other party in the event that such other party shall have (i) made
a general assignment for the benefit of creditors, or (ii) filed or
had filed against it a petition seeking the reorganization,
arrangement, composition, adjustment, liquidation, or dissolution
of such party, or seeking similar relief under any other statute,
law, or regulation, or seeking the appointment of a trustee,
receiver, assignee, liquidator or similar officer for a material
part of its properties. No exercise by either party of any right
of termination will constitute a waiver of any right of such party
for recovery of any money then due to it hereunder or any other
right or remedy such party may have by law or by this Agreement.
13.04 Termination of this Agreement in accordance with the foregoing
provisions will not affect the rights and obligations of the
Parties with respect to the right of either party to complete any
and all contracts for the sale of Products it may then have upon
its books or that it has become obligated for, and each such party
may work up and sell such uncompleted Products as it may have on
hand at such termination date; provided, however, that all such
contracts and such sales must be completed within one (1) year
after such termination or cancellation. Nothing contained in this
paragraph shall obligate Active Ankle to provide goods or services
of any kind whatsoever after the date of termination.
9
<PAGE>
13.05 Upon termination of this Agreement, AOA shall return to Active
Ankle any unused promotional materials supplied by Active Ankle.
14. FORCE MAJEURE
14.01 Neither party hereto shall be liable to the other hereunder because
of its failure to perform, or delay in the performance of, any of
its obligations hereunder if such a failure or delay is caused by
circumstances beyond its reasonable control, including but not
limited to, acts of God or the public enemy, strikes, lockouts, or
other labor trouble, fire, explosions, flood, war, insurrection,
riots, sabotage or failure of supply of fuel, electric power, raw
materials, or manufactured products or equipment.
15. WAIVER
15.01 The waiver by either party of a breach or default in any of the
provisions of this Agreement by the other party shall not be
construed as a waiver of any succeeding breach of the same or any
other provisions thereof, nor shall any delay or omission on the
part of either party in exercising or availing itself of any right,
power or privilege that it has or may have hereunder operate as a
waiver of any breach or default by the other party.
16. NOTICES
16.01 All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage
prepaid, addressed as follows:
ACTIVE ANKLE SYSTEMS, INC.
Attn: Gary G. Herzberg
451 Baxter Avenue
Louisville, KY 40204
Facsimile: (502) 585-1142
AOA DIVISION
KIRSCHNER MEDICAL CORPORATION
Attn: Warren M. Gitt
9690 Deereco Road, Suite 600
Timonium, Maryland 21093
Telephone: (410) 560-3333
Facsimile: (410) 560-3376
17. GOVERNING LAW
10
<PAGE>
17.01 All questions arising in connection with this Agreement shall be
governed by and construed according to the laws of the State of
Kentucky, without giving affect to the conflict of law provisions
thereof.
18. ARBITRATION
18.01 Any dispute or controversy arising out of or relating to this
Agreement or any agreement related hereto shall be settled in
accordance with commercial arbitration rules of the American
Arbitration Association ("AAA"), then obtaining before a panel of
three arbiters. The proceeding shall take place in Indianapolis,
Indiana. The cost of administering the arbitration and the fees
and expenses of the AAA shall be borne equally by the Parties
hereto. Each party shall bear the cost of its own legal fees
incurred during the course of the arbitration. The award rendered
in said arbitration shall be final and binding upon the Parties and
judgment thereon may be entered in any court having jurisdiction
thereof.
19. ENTIRE AGREEMENT AND MODIFICATIONS
19.01 This Agreement constitutes the entire Agreement between the Parties
with respect to the subject matter hereof and supersedes all prior
agreements between the Parties, whether written or oral, relating
to the same subject matter.
19.02 No modification, variations, amendments or supplements to this
Agreement shall be effective for any purpose whatsoever unless
reduced to writing and signed by each party. Approvals or consent
hereunder of the party shall also be in writing.
19.03 Exhibits A, B, C and D form an integral part of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
officers of each of the Parties as of the day and year first above written.
ATTEST AOA DIVISION
KIRSCHNER MEDICAL CORPORATION
BY:
- --------------------- --------------------------
Warren M. Gitt
ATTEST ACTIVE ANKLE SYSTEMS, INC.
11
<PAGE>
BY:
- --------------------- --------------------------
Gary G. Herzberg
12
<PAGE>
EXHIBIT A
INTERNATIONAL TERRITORIES
Austria
Canada
China
Germany
Hong Kong
Italy
Mexico
Switzerland
Taiwan R.O.C.
<PAGE>
EXHIBIT B
ACTIVE ANKLE PRODUCTS DESIGNATED
FOR DISTRIBUTION IN THE TERRITORY
CATALOG NO. DESCRIPTION
1750 Active Ankle Acute
1752 Active Ankle Trainer
1750-40 Bubbleflex Pads (Pair)
1752-40 Neoprene Pads (Pair)
1750-30 Acute Overhaul Kit
1752-30 Trainer Overhaul Kit
1755 Active Ankle CF Pro
<PAGE>
EXHIBIT C
<PAGE>
EXHIBIT D
ACTIVE ANKLE SYSTEMS
QUALITY MANUAL
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT made this 28th day of July, 1989, by and between RICK
E. PETERS ("Grantor"), and ACTIVE ANKLE SYSTEMS, INC., a Kentucky Corporation
("Licensee").
WHEREAS, Grantor has developed certain inventions, including U.S. Patent
No. 4510927 entitled "Ankle Brace" and a to-be-filed U.S. Patient application
for improvements thereto, and has developed and is in possession of certain
know-how for an ankle brace system (collectively "Ankle System"); and
WHEREAS, Licensee desires to acquire the right to make, use and sell the
Ankle System within the License Area described below; and
NOW, THEREFORE, Grantor and Licensee, in consideration of the mutual
agreements herein contained, and for other good and valuable consideration,
agree as follows:
I. LICENSE
Grantor hereby grants to Licensee, subject to the terms, conditions and
limitations set forth herein, an exclusive license to make, have made, use and
sell the Ankle System for the term hereof.
II. LICENSE AREA
Licensee shall have the exclusive right to design, manufacture and
distribute the Ankle System within a geographic area extending throughout the
world (the "License Area").
III. CONFIDENTIAL RELATIONSHIP
Licensee acknowledges it has had no part in the creation or development of
U.S. Patient No. 4510927.
During the term of this Agreement, Grantor and Licensee and after the
termination of this Agreement, Licensee shall treat as confidential and shall
not divulge or disclose to, or use for the benefit of, any other person or
entity, any proprietary and not publicly available information supplied by
Grantor to Licensee.
Licensee and Grantor agree that damages would be an insufficient remedy for
the unauthorized use or disclosure of such information. Licensee and Grantor
hereby agree that in addition to any other available legal or equitable
remedies, each are entitled to injunctive relief in order to prevent any such
use or disclosure. The non-breaching party shall be entitled to
<PAGE>
receive, in addition to any other relief or remedy granted, its costs and
expenses incurred in seeking to enforce the terms of this Agreement, including
reasonable attorneys' fees.
IV. INFRINGEMENT
Licensee and Grantor shall promptly give written notice and full
information to each other concerning any infringement or alleged infringement of
the Ankle System, and of any and all legal proceedings, suits, actions,
controversies and/or claims which are brought, made or threatened affecting or
relating to the Ankle System. Licensee shall in the exercise of its reasonable
business judgment enforce all proprietary rights in and to the Ankle System and
defend all patents relating to the Ankle System against any such proceedings,
suits, actions, controversies and/or claims. Grantor shall assist Licensee in
the prosecution of any claim, proceeding or action intended to enforce or
protect Grantor's and/or Licensee's rights to the Ankle System. Grantor shall
have the duty to defend claims of infringement by third parties only to the
extent of the consideration (or its value) received herein by Grantor as of the
time the claim is asserted.
V. FEES
In consideration of the issuance of this License and the services and
covenants of Grantor set forth herein, Licensee shall transfer 490 shares of
Active Ankle Systems, Inc.'s stock to Grantor, and shall pay the Grantor's
reasonable attorney fees related to this license.
VI. ASSIGNMENT
Except as provided herein, Licensee may not voluntarily, or by operation of
law, sell, assign, transfer, convey, pledge, hypothecate or otherwise encumber
this Agreement or any right or interest thereunder without Grantor's written
consent, which will not be unreasonably withheld.
VII. TERM OF AGREEMENT
This Agreement shall remain in effect from the effective date hereof until
expiration of the last patent relating to the Ankle System as granted hereunder,
unless sooner terminated, and notwithstanding any event which would deem the
patents invalid.
VIII. TERMINATION
A. GROUNDS. At its option and without prejudice to any remedies it may
otherwise have, Grantor may terminate this Agreement:
1. Upon the breach of any of the provisions of this Agreement by
Licensee, should such breach not be remedied within thirty (30) days after
written notice of same has been given to Licensee.
2
<PAGE>
2. Upon the commencement of any liquidation proceeding by or against
Licensee, or the appointment of a receiver for the assets of Licensee; the
making of an assignment for the benefit of creditors of Licensee; or a
determination by any professional or governmental body suspending or terminating
the rights to distribute the Ankle System by Licensee or any of its employees.
3. Upon failure of Licensee to sell, distribute, issue or otherwise
promote the Ankle System for one hundred eighty (180) consecutive working days,
except if such failure is caused by an Act of God, force majeure or other
unforeseeable event beyond Licensee's control, in which event the cause thereof
shall be remedied by Licensee as promptly as possible.
B. OBLIGATIONS ON TERMINATION. Immediately upon termination of this
Agreement for any reason:
1. All Licensee's rights as a Licensee shall terminate, and Licensee
shall discontinue all development, advertising, distribution or other use of the
Ankle System except that Licensee may sell its then remaining inventory.
2. All rights, title and interest in and to the use of the Ankle
System shall revert to and vest in Grantor.
3. In addition to the provisions herein, it is agreed that following
any termination of this Agreement by Grantor or Licensee, at Grantor's option
and upon Grantor's transfer to Licensee of the 490 shares received in paragraph
V hereof, the exclusive license covering U.S. Patent No. 4510927, entitled,
"Ankle Brace" and to be filed a U.S. Patent application for improvements
therein, shall become royalty bearing and Grantor shall be entitled to the
following:
5% of the first $1,000,000 net sales
4% of the net sales between $1,100,001 - $2,000,000
3% of the net sales greater than $2,000,001
IX. GOVERNING LAW AND REMEDIES
Any controversy or claim arising out of or relating to this Agreement, or
its interpretation or enforcement, shall be interpreted in accordance with the
Laws of the Commonwealth of Kentucky. Grantor shall be entitled to receive its
costs and expenses incurred in bringing or defending any claim arising hereunder
in which Grantor prevails, such costs and expenses to include reasonable
attorneys' fees.
3
<PAGE>
X. WAIVER
No failure of Grantor to exercise, or the partial exercise of, any right or
power given to it hereunder or failure to demand strict compliance by Licensee
with any term, condition, covenant or other obligation hereof, and no practice
of the parties at variance with the terms hereof, shall constitute a waiver of
Grantor's rights to demand exact compliance with the terms hereof or preclude
Grantor from the exercise of any other right or remedy. Any waiver of a default
hereunder shall be in writing and shall not operate as a waiver of any other
default or the same default on a future occasion.
XI. INVALID PROVISION
If any covenant or other provision of this Agreement is invalid, illegal,
or incapable of being enforced, by reason of any rule of law, administrative
order, judicial decision or public policy, all other conditions and provisions
of this Agreement shall, nevertheless, remain in full force and effect.
XII. NOTICE
All notices hereunder shall be in writing and shall be deemed to have been
given when deposited in the United States mail by registered or certified mail,
return receipt requested, if to Grantor addressed to his home or such other
address as Grantor shall designate in writing and if to Licensee and/or its
partners or shareholders at the address(es) of Licensee herein set forth or such
other address(es) as Licensee or such partner or shareholder shall designate to
Grantor in writing.
XIII. BENEFITS AND BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the heirs,
representatives, successors and assigns of Licensee and Grantor, except as
otherwise expressly provided herein.
XIV. NOT A SECURITY AND NO BUSINESS REPRESENTATIONS
Licensee understands that the success of the business venture undertaken by
Licensee hereunder depends largely upon the ability of Licensee and Licensee's
partners, stockholders, officers, directors, employees and/or agents to operate
as independent businessmen. Licensee expressly disclaims receipt of any
warranty, claim or representation, express or implied, as to the potential
success or profitability of the business venture herein contemplated, or as to
the efficacy of the Ankle System in making the business venture profitable
without substantial effort by Licensee and/or Licensee's partners, stockholders,
officers, directors, employees and agents.
Licensee acknowledges that no person has made any other representation
which is not expressly set forth herein in order to induce Licensee to execute
this Agreement. Licensee
4
<PAGE>
recognizes and acknowledges that any financial and sales information regarding
Grantor's existing licenses provided to Licensee by Grantor is not indicative of
performance to be attained by Licensee.
XV. REPRESENTATIONS AND WARRANTIES
Grantor hereby warrants and represents that:
(1) To the knowledge and belief of Grantor, it has the exclusive
rights in and for the use of the Ankle System, including the right to license
others and to enter into this Agreement;
(2) To the knowledge and belief of Grantor, such rights of Grantor
and the exclusive license and rights granted to Licensee hereunder, do not
infringe upon any rights whatsoever of any person or, to the knowledge of
Grantor any claimed rights whatsoever of any person;
(3) Grantor has not granted or permitted, and during the term of this
Agreement, Grantor will not grant or permit to any person other than Licensee,
any license or right, whether or not exclusive, and Grantor has not, and during
the term of this Agreement, will not, enter into any Agreement or arrangement
with any such person, to use the Ankle System in any way which conflicts with
the exclusive license and rights granted to Licensee hereunder;
(4) To the knowledge and belief of Grantor, no person is presently
using the Ankle System for any purpose which conflicts with the exclusive
license and right granted to Licensee hereunder, and Grantor does not know of
any actual or threatened infringement or violation by any person of Grantor's
rights in the Ankle System or of the exclusive license and rights granted to
Licensee hereunder, or any imitation by any person of the Ankle System; and
(5) Grantor will use its best efforts to maintain and protect the
Ankle System and his rights therein.
The warranties, representations and undertakings in Article XV shall
survive the expiration or any termination of this Agreement.
XVI. ENTIRE AGREEMENT
This License Agreement contains the entire understanding of the parties,
and no representations, inducements, promises or agreements, oral or otherwise,
between the parties not embodied herein shall be given any force and effect. No
representations or warranties except those contained herein have been made.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in multiple
copies, each of which shall be deemed an original.
GRANTOR:
____________________________________
RICK E. PETERS
LICENSEE:
ACTIVE ANKLE SYSTEMS, INC.
BY:_________________________________
ATTEST:
BY:______________________________
6
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 8, 1997 First Amendment to the
Registration Statement (Form SB-1) and the related Prospectus of Active Ankle
Systems, Inc. for the registration of 100,000 shares of its common stock.
Louisville, Kentucky
September 24, 1997
<PAGE>
CONSENT OF COUNSEL
We consent to the use of our Opinion of Counsel in the Registration Statement
(Form SB-1) and the related Prospectus of Active Ankle Systems, Inc. for the
registration of 100,000 shares of its common stock.
Louisville, Kentucky
September 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACTIVE ANKLE
SYSTEMS, INC.'S FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 336,099
<SECURITIES> 0
<RECEIVABLES> 199,006
<ALLOWANCES> 0
<INVENTORY> 204,586
<CURRENT-ASSETS> 876,708
<PP&E> 248,413
<DEPRECIATION> 125,724
<TOTAL-ASSETS> 1,065,940
<CURRENT-LIABILITIES> 364,337
<BONDS> 52,829
0
165,000
<COMMON> 1,049,565
<OTHER-SE> (565,791)
<TOTAL-LIABILITY-AND-EQUITY> 1,065,940
<SALES> 2,653,217
<TOTAL-REVENUES> 2,653,217
<CGS> 1,038,396
<TOTAL-COSTS> 1,038,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,967
<INCOME-PRETAX> 207,341
<INCOME-TAX> 2,800
<INCOME-CONTINUING> 204,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204,541
<EPS-PRIMARY> 2.77
<EPS-DILUTED> 2.77
</TABLE>
<PAGE>
ACTIVE ANKLE/HERZBERG
DEFERRED COMPENSATION AGREEMENT
THIS DEFERRED COMPENSATION AGREEMENT ("Agreement"), entered into as of the
8th day of November, 1995, between ACTIVE ANKLE SYSTEMS, INC., a Kentucky
corporation having its principal office and place of business in Louisville,
Kentucky ("Company") and GARY G. HERZBERG, of Louisville, Kentucky
("Executive").
RECITALS:
A. Executive desires to provide for the deferral of a portion of his
salary and of any incentive cash bonus to which he may be entitled for services
rendered to the Company pursuant to plans and resolutions adopted by the Board
of Directors of the Company.
B. Company believes that such deferral will be in its best interests as
it will increase Executive's financial ability to meet certain of his financial
needs, thereby enabling Executive to better perform his services to company
while employed.
AGREEMENT:
NOW, THEREFORE, in consideration of the recitals, and for other good and
valuable consideration, the receipt, mutuality and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following words and
phrases shall have the meanings set forth below:
a. ACCOUNT. The Herzberg Deferred Compensation Account established
pursuant to Section 2.
b. BENEFIT. An amount equal to the credit balance of the Account.
c. COMMITTEE. The Compensation Committee provided for in
Section 12.
d. COMPANY. Company and any subsidiary or sub-subsidiary of Company
or any successor to Company, whether by merger, purchase of assets or otherwise.
e. DEFERRED AMOUNT. That portion of the salary or incentive cash
bonus which would otherwise be paid to the Executive by Company for a period or
periods after Executive elects to defer hereunder. Initially, the Deferred
Amount shall be $ of Executive's periodic salary. If
<PAGE>
the Executive elects to defer a different amount pursuant to Section 2, then the
term Deferred Amount shall mean such different amount.
f. RETIREMENT. Termination of Executive's employment with Company
for any reason.
2. ELECTION TO CHANGE DEFERRED AMOUNT.
a. TIMING OF ELECTION. Executive may elect, to any period of
service for which compensation is payable, to defer a different Deferred Amount
which will be payable for the subsequent period(s) of service.
b. FORM OF ELECTION. Each such election shall be in writing, shall
be addressed to the Compensation Committee, shall state the Deferred Amount
(whether in a dollar amount, or in a percentage, of Executive's salary or
incentive cash bonus or both) Executive elects to defer and shall be effective
for succeeding period(s) of service of the Company unless revoked or modified by
Executive before a period of service.
3. DEFERRED COMPENSATION ACCOUNT. Company shall, upon execution of this
Agreement, create on its books and records a special account to be called the
"Herzberg Deferred Compensation Account" to which Account it shall annually
credit (i) the Executive's Deferred Amount and (ii) the amounts, if any, which
the Company would have contributed to any qualified "employee pension benefit
plan" which it maintains if the Deferred Amount had been paid in cash to
Executive. Each credit to the Account representing a Deferred Amount shall be
made at the time Company would have made cash payments to Executive of amounts
constituting a Deferred Amount or would have made contributions to the qualified
plan(s) on behalf of the Executive.
4. INVESTMENT OF ACCOUNT. The amounts credited to the Account shall be
invested by the Company in accordance with instructions of the Committee and
such investments shall be made from time to time, in such securities and in such
proportions and amounts as the Committee, in its sole discretion, but after
consultation with Executive, shall determine, except that the Account shall at
all times be invested in common stocks, preferred stocks, corporate bonus or
debentures (whether or not convertible) mutual funds, United States Treasury
obligations, municipal or other tax exempt bonds, bank savings accounts or other
cash equivalents or in such other investments as the Committee shall, from time
to time, determine (except that uninvested amounts of cash may be retained from
time to time between investments).
5. IDENTIFICATION AND ANNUAL VALUATION OF ACCOUNT INVESTMENTS.
a. RECORDKEEPING OF ACCOUNT. The Company shall keep books and
records showing the investments made with Deferred Amounts and other credits to
the Account, and any and all other investments made from gains, dividends and
other amounts credited to the Account.
2
<PAGE>
b. VALUATION. At least once a year during the time the Account is
maintained, Company will notify Executive in writing of the identity and
approximate value, as of the immediately preceding June 30, of the investments
which have been made under the terms of this Agreement.
6. STATUS OF INVESTMENTS. All Account investments made by the Company
shall be deemed to be made solely for the purpose of aiding Company in measuring
and meeting its obligations under this Agreement. The Company shall be named
the sole owner of all such investments and of all rights and privileges
conferred by the terms of the instruments evidencing such investments. Except
as provided in Section 4, the terms of this Agreement place no obligation upon
Company to invest or to continue to invest any portion of the amount in the
Account, to invest in or to continue to invest in any specific asset, to
liquidate any particular investment, or to apply in any specific manner the
proceeds from the sale, liquidation, or maturity of any particular investment.
No provision or clause of this Agreement shall cause such investments to be
treated as anything but part of the general assets of company, nor shall
anything stated herein cause such investments to represent the vested, secured
or preferred interest of Executive, his beneficiary, surviving spouse, heirs or
estate.
7. PAYMENT OF BENEFIT TO EXECUTIVE FOLLOWING RETIREMENT.
a. DEFAULT PAYMENT OF BENEFIT. Commencing not later than six months
following Executive's Retirement, Company agrees to commence payment of the
Benefit to Executive, if living, otherwise to his beneficiary, and if no such
beneficiary is designated, or if the designated beneficiary shall predecease the
Executive, to his surviving spouse, heirs or estate, as the Committee, in its
sole discretion, shall determine; provided, if Executive's Retirement occurs
prior to his age 65 for a reason other than death or total and permanent
disability (as determined by the Committee) the committee may, in its sole
discretion, direct the Company to commence payment of the Benefit to the
Executive when he attains AGE 65 OR AT ANY EARLIER DATE. The Benefit shall be
paid in installments no less frequently than monthly over a 15-year period. The
amount of the installments to be paid in the first year shall be determined by
dividing the Benefit on the date the first installment is to be paid by 15, and
paying that amount in 12 equal monthly installments. The amount of the
installments to be paid in each of the succeeding 14 years shall be determined
by dividing the remaining Benefit by the number of years remaining over which
the Benefit is to be paid, and paying that amount in 12 equal monthly
installments.
b. EXECUTIVE ELECTION OF PAYMENT OF BENEFIT. Notwithstanding the
provisions of Section 7.a., the Executive may, upon the execution of this
Agreement and at the time he makes an election under Section 2.a. to defer a
different amount, direct that the Benefit be paid in amounts, and over periods,
including a one-term cash payment, other than as set forth in Section 7.a.
c. INVESTMENTS CONTINUE DURING PERIOD BENEFIT BEING PAID. During
the period the Benefit is being paid by the Company under this Section 7, the
balance of the Benefit remaining in the Account shall continue to be credited to
the Account.
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<PAGE>
8. ACCELERATION OF PAYMENT OF BENEFIT TO EXECUTIVE.
a. REQUEST OF THE ACCELERATION. The Benefit payable to Executive,
his beneficiary, surviving spouse or estate pursuant to Section 7 may, in the
sole discretion of the Committee, be accelerated in whole or in part, but only
(i) upon the written request of Executive, if living, or by his beneficiary,
surviving spouse, heirs or estate, as the case may be, and (ii) to enable the
Executive or his beneficiary, surviving spouse, heirs or estate to meet
situations of financial hardship, emergency or necessity. No such written
request shall obligate the Company to accelerate the payment of the Benefit
hereunder.
b. UNFORESEEN EMERGENCY. Notwithstanding the provisions of 8.a., in
the event of an "unforeseeable emergency," the Company shall make a payment from
the Benefit to Executive, if living, or to his beneficiary, surviving spouse,
heirs or estate, as the case may be, in an amount not to exceed the amount
reasonably needed to satisfy the unforeseeable emergency. As used herein, the
term "unforeseeable emergency" shall have the meaning set forth in Treas. Regs.
Section 1.457-2(h)(4), a copy of which is attached hereto as Exhibit A.
may, upon the execution of this Agreement and at the time he makes an election
under Section 2.a. to defer a different amount, direct that the Benefit be paid
in amounts, and over periods, including a one-time cash payment, other than as
set forth in Section 7.a.
9. DESIGNATION OF BENEFICIARY. Executive shall designate in writing,
upon the form attached hereto as Exhibit B, a beneficiary or beneficiaries of
the Benefit which may be payable in the event of his death, which designation
may include the designation of contingent beneficiary or beneficiaries and
Executive may from time to time change such designation of beneficiary or
beneficiaries (or contingent beneficiary or beneficiaries).
10. NO CONTRACT OF EMPLOYMENT. This Agreement does not constitute a
contract of employment between Executive and Company, and Company reserves the
right to terminate Executive's employment for any reason, at any time,
notwithstanding the existence of this Agreement. Conversely, this Agreement
does not obligate Executive to remain in the employ of Company, and he reserves
the right, at any time, to terminate his employment for any reason.
11. ASSIGNMENT OR ANTICIPATION. Neither Executive nor his beneficiary,
surviving spouse nor estate shall have any right to commute, sell, assign,
transfer or otherwise convey the right to receive the Benefit hereunder, which
Benefit and all the rights thereto are expressly declared to be nonassignable
and non-transferrable, and in the event of any attempted assignment or transfer,
the Company shall have no further liability hereunder. The Benefit shall not,
in any manner, be subject to garnishment, attachment, execution, levy, debts,
contracts, liabilities, engagements or torts of the person or estate entitled to
such Benefit, provided that the Benefit shall in all respects be subject to
offset against any indebtedness due the Company by Executive, his beneficiary,
surviving spouse or estate and shall be subject to offset against any and all
other claims, demands and causes of action the Company may have against the
Executive, his beneficiary, surviving spouse or estate.
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<PAGE>
12. COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors, or if the Compensation Committee is not at any time constituted, the
Board of Directors as a whole, shall constitute the Committee. Every decision
or action of the Committee shall be valid if concurred in by a majority of the
members then in office, which concurrence may be had without a formal meeting.
Members of the Committee shall not be liable to any person for any actions or
omissions in connection with their duties upon the Committee, except for fraud
or willful misconduct. The Committee shall have the powers and duties conferred
upon it under this Agreement.
13. PARTIES AFFECTED. All of the terms, provisions and conditions of this
Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto, and their respective heirs, personal
representatives, successors and assigns.
14. NOTICE. Any notice, demand or other communication to either party
under this Agreement shall be in writing and shall be deemed to have been duly
given if (i) delivered personally against a receipt, or (ii) deposited in the
United States mail, postage prepaid, return receipt requested, addressed if to
Executive, as follows:
Gary G. Herzberg
451 Baxter Avenue
Louisville, Kentucky 40204
and if to Company, as follows:
Active Ankle Systems, Inc.
451 Baxter Avenue
Louisville, Kentucky 40204
Attention of the Chairman of the Board
15. TERMINATION OF THE AGREEMENT. The Board of Directors of Company
reserves the right to terminate this Agreement at any time, provided that the
exercise of such right shall not have the effect of terminating the obligation
of the Company to pay Executive the Benefit determined as of the date of
termination of this Agreement.
16. HEADINGS. The headings in this Agreement are included for purposes of
convenience only and shall not be considered a part of this Agreement in
construing or interpreting any provision hereof.
17. GOVERNING LAW. This Agreement shall be interpreted under, and
governed by, the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as of
the day, month and year first above written.
5
<PAGE>
ACTIVE ANKLE SYSTEMS, INC.
By:_______________________________________
Title:____________________________________
("Company")
_______________________________________
GARY G. HERZBERG
("Executive")
6
<PAGE>
EXHIBIT A
(4) UNFORESEEABLE EMERGENCY. For purposes of this paragraph (h), an
unforeseeable emergency is, and if the plan provides for payment in the case of
an unforeseeable emergency must be defined in the plan as, severe financial
hardship to the participant resulting from a sudden and unexpected illness or
accident of the participant or of a dependent (as defined in section 152(a)) of
the participant, loss of the participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the participant. The circumstances that will
constitute an unforeseeable emergency will depend upon the facts of each case,
but, in any case, payment may not be made to the extent that such hardship is or
may be relieved --
(i) Through reimbursement or compensation by insurance or
otherwise,
(ii) By liquidation of the participant's assets, to the extent
the liquidation of such assets would not itself cause severe
financial hardship, or
(iii) By cessation of deferrals under the plan.
Examples of what are not considered to be unforeseeable emergencies include
the need to send a participant's child to college or the desire to purchase a
home.
<PAGE>
EXHIBIT B
DESIGNATION OF BENEFICIARY
The undersigned does hereby designate the following person or persons to be
the beneficiary of the Benefits to be received under the Deferred Compensation
Agreement between the undersigned and Active Ankle Systems, Inc. dated November
8, 1995, in the event of the undersigned's death prior to the time that the
entire Benefit has been paid to him:
----------------------------------------------
In the event that the above designated beneficiary is not living at the
time when Benefits under the Agreement would be payable to such beneficiary, the
undersigned does hereby designate the following person to be the contingent
beneficiary of the Benefits:
----------------------------------------------
Date:
-------------------- ------------------------------------------
Gary G. Herzberg
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of the ___ day
of June, 1997, by and between ACTIVE ANKLE SYSTEMS, INC. a Kentucky corporation
("Issuer") and BANK ONE KENTUCKY, NA ("Escrow Agent").
RECITALS:
A. Issuer proposes to offer for sale to subscribers an aggregate of
100,000 shares (the "Shares") at a price of $40.00 per Share, payable at the
time of subscribing for a Share. The payment will be paid into the escrow
created by this Agreement.
B. Issuer intends to sell the Shares on a best-efforts "minimum or none"
basis in a registered offering (the "Offering") by delivering to each subscriber
a Prospectus (the "Prospectus") describing the Offering.
C. Issuer desires to establish an escrow account in which funds received
from subscribers would be deposited pending completion of the Escrow Period (as
defined below). Bank One Trust Company, NA agrees to serve as Escrow Agent in
accordance with the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. APPOINTMENT OF ESCROW AGENT. Issuer hereby appoints Bank One
Kentucky, NA as Escrow Agent and Escrow Agent shall establish an escrow account
(the "Escrow Account") on its books named "Active Ankle 1997 Public Offering
Escrow Account." Commencing upon the execution of this Agreement, Escrow Agent
shall act as Escrow Agent and hereby agrees to receive and disburse the proceeds
from the offering of the Shares in accordance with the terms herewith. Issuer
agrees to notify the Escrow Agent promptly of the closing of the offering and
sale of the Shares.
2. PAYMENTS INTO ESCROW. Issuer shall cause all checks received from
subscribers for Shares to be promptly deposited into the Escrow Account.
Issuer shall deliver to the Escrow Agent checks of the subscribers made
payable to the order of "Active Ankle 1997 Public Offering Escrow Account."
Any checks that are received by Escrow Agent that are not made payable to the
Escrow Account shall be returned to the Issuer. Issuer shall furnish to the
Escrow Agent at the time of each deposit of the above-mentioned funds a list
containing the name of each subscriber, the subscriber's address, the number
of Shares purchased, and the amount of the check being delivered to the
Escrow Agent (see Exhibit A for the form to be used). Prior to the receipt
of the Minimum (as described below), the Issuer is aware and understands that
it is not entitled to any proceeds from subscriptions deposited into the
Escrow Account and no amounts
<PAGE>
deposited in the Escrow Account during the Escrow Period shall become the
property of the Issuer or any other entity, or be subject to the debts of the
Issuer or any other entity.
3. TERMINATION OF ESCROW. The Escrow Period shall commence on the date
hereof and shall terminate ten (10) business days following the earlier to occur
of the following dates:
(a) The date upon which Escrow Agent confirms upon written request of the
Issuer that it has received into the Escrow Account and collected gross
subscription proceeds from the sale of 45,000 Shares, aggregating in
deposited funds the total amount of at least $1,800,000.00 (the "Minimum");
or
(b) The "Cessation Date," which for the purposes of this Agreement shall
be 180 days after the date on which the U.S. Securities and Exchange
Commission authorizes the sale of Shares, unless Issuer elects to continue
to offer the Shares for sale until some later date, as permitted by the
Prospectus but no later than March 31, 1998; or
(c) The date upon which a determination is made by the Issuer to terminate
the Offering prior to the sale of the Minimum, as communicated to Escrow
Agent in writing.
Notwithstanding anything to the contrary contained herein, the Cessation
Date is intended to signify the date of the cessation of the Offering as
provided in the Prospectus, and not the termination of the Escrow Period of this
Agreement; and upon the occurrence of any of the events described in (a), (b) or
(c) above, the Escrow Period shall continue for such ten (10) business-day
period solely for the limited purposes of collecting subscribers' checks that
have been deposited prior to such event and disbursing funds from the Escrow
Account as provided herein. Escrow Agent will not accept deposits of
subscribers' checks after notice that any of the events described in
subparagraphs (a), (b) and (c) has occurred.
4. DUTIES OF ESCROW AGENT. The Escrow Agent will deposit the
subscribers' checks for collection and credit the proceeds to the Escrow Account
to be held by it under the terms of this Agreement. Notwithstanding anything to
the contrary contained herein, Escrow Agent is under no duty or responsibility
to enforce collection of any checks delivered to Escrow Agent hereunder. The
Escrow Agent hereby is authorized to forward each check for collection and
deposit the proceeds in the Escrow Account. As an alternative, the Escrow Agent
may telephone the bank on which the check is drawn to confirm that the check has
been paid. Additionally, to insure that such funds have cleared normal banking
channels for collection, Escrow Agent is authorized to hold for ten (10)
business days funds to be released. Issuer shall immediately reimburse Escrow
Agent any monies paid to it if thereafter the subscriber's check is returned
unpaid. Any item returned unpaid to the Escrow Agent on its first presentation
for payment shall be returned to Issuer and need not be again presented by the
Escrow Agent for collection. Issuer agrees to reimburse Escrow Agent for the
cost incurred with any returned check. For purposes of this Agreement, the term
"collected funds" or the term "collected" when referring to the proceeds of
subscribers' checks shall mean all funds received by Escrow Agent that have
cleared normal banking channels and are in the form of cash. The Escrow Agent
shall invest the funds deposited
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<PAGE>
in the Escrow Account as instructed in writing by Issuer, and shall in no
event be liable for any investment loss. Upon termination of the escrow, all
earnings shall belong to and be paid to Issuer.
5. PROCEDURE UPON TERMINATION OF ESCROW. If prior to the Cessation Date,
subscriber's checks in an amount of at least the Minimum have been deposited in
the Escrow Account, upon request from Issuer, Escrow Agent will confirm the
amounts collected by it from subscriber's checks. If such amount is at least
equal to the Minimum, the Issuer may send Escrow Agent a written notice
providing a list of all accepted subscribers, specifying the total amount of
their subscription to be remitted to Issuer, and containing a request to
terminate the Escrow Period and remit such amount, less any fees or other
amounts then owing from Issuer to Escrow Agent hereunder, to the Issuer as
promptly as possible, but in no event later than ten (10) business days after
such termination, by issuing its bank check payable to the Issuer or by
depositing such amount directly into the account of Issuer maintained with Bank
One Kentucky, NA, as designated in writing by Issuer to Escrow Agent. The
Escrow Period shall not terminate upon receipt by Escrow Agent of such notice,
but shall continue for such (10) business-day period solely for the limited
purposes of collecting subscribers' checks that have been deposited prior to
Escrow Agent's receipt of such notice and disbursing funds from the Escrow
Account as provided herein. Escrow Agent will not accept deposits of
subscriber's checks after receipt of such notice.
If, on the Cessation Date, the Minimum Amount has not been deposited with
the Escrow Agent and collected, or if Issuer notifies the Escrow Agent in
writing that Issuer elects to terminate the Offering as provided in paragraph
3(c) above, the Escrow Agent shall then issue and mail its bank checks to the
subscribers in the amount of the subscribers' respective checks, without
deduction, penalty or expense to the subscriber, and shall, for this purpose, be
authorized to rely upon the names and addresses of subscribers furnished it as
contemplated above. No subscriber shall be paid interest with respect to such
deposited funds. The purchase money returned to each subscriber shall be free
and clear of any and all claims of the Issuer and any of its creditors. For
each subscription for which the Escrow Agent has not collected funds but has
submitted the subscriber's check for collection, the Escrow Agent shall promptly
issue a check to such subscriber in the amount of the collected funds from such
subscriber's check after the Escrow Agent has collected such funds. If Escrow
Agent has not yet submitted such subscriber's check for collection, the Escrow
Agent shall promptly remit the subscriber's check directly to such subscriber.
At such time as Escrow Agent shall have made the payments and remittances
provided in the Agreement, the Escrow Agent shall be completely discharged and
released of any and all further liabilities and responsibilities hereunder.
6. FEES TO ESCROW AGENT. As consideration for its agreement to act as
Escrow Agent as herein described, Issuer agrees to pay the Escrow Agent its fees
described on the attached fee schedule (Exhibit B). Further, Issuer agrees to
pay all disbursements and advances incurred or made by the Escrow Agent in
performance of its duties hereunder, including reasonable fees, expenses and
disbursements of its counsel, all in accordance with the attached fee schedule
or the
3
<PAGE>
other provisions of this Agreement. No such fees or reimbursements shall
be paid out of or chargeable to the funds on deposit in the Escrow Account until
such time as the Minimum has been collected.
Escrow Agent shall promptly issue a check in the amount of the collected
funds from the subscriber's check to the rejected subscriber after the Escrow
Agent has cleared such funds. If Escrow Agent has not yet submitted a rejected
subscriber's check for collection, the Escrow Agent shall promptly remit the
subscriber's check directly to the subscriber.
7. TERMINATION OF THIS AGREEMENT. This Agreement shall automatically
terminate upon the earlier of (i) twenty (20) days after the Cessation Date or
(ii) twenty (20) days after the date upon which the Escrow Agent has delivered
the final portion of Escrow Account funds pursuant to the terms of this
Agreement.
8. RESIGNATION BY ESCROW AGENT. Escrow Agent reserves the right to
resign hereunder, upon ten (10) days prior written notice to Issuer. In the
event of said resignation, and prior to the effective date thereof, Issuer, by
written notice to Escrow Agent, shall designate a successor escrow agent to
assume the responsibilities of Escrow Agent under this Agreement, and Escrow
Agent immediately shall deliver any undisbursed Escrow Account funds to such
successor escrow agent. If Issuer shall fail to designate such a successor
escrow agent within such time period, the Escrow Agent may deliver any
undisbursed funds into the registry of any court having jurisdiction.
9. RIGHTS, ETC. OF ESCROW AGENT. The parties hereto agree that the
following provisions shall control with respect to the rights, duties,
liabilities, privileges and immunities of the Escrow Agent:
(a) Escrow Agent shall have no obligation to invest the Escrow Account
without the written direction of Issuer.
(b) The Escrow Agent shall have no responsibility except for the
safekeeping and delivery of the amounts deposited in the Escrow Account in
accordance with this Agreement. The Escrow Agent shall not be liable for
any act done or omitted to be done under this Agreement or in connection
with the amounts deposited in the Escrow Account, except as a result of the
Escrow Agent's gross negligence or willful misconduct. The Escrow Agent is
not a party to, nor is it bound by, nor need it give consideration to, the
terms or provisions of, even though it may have knowledge of, (i) any
agreement or undertaking by, between or among the Issuer and any other
party, except this Agreement, (ii) any agreement or undertaking that may be
evidenced by this Agreement, (iii) any other agreements that may now or in
the future be deposited with the Escrow Agent in connection with this
Agreement. The Escrow Agent is not a party to, is not responsible for, and
makes no representation with respect to the offer, sale or distribution of
the Shares including, but not limited to, matters set forth in any offering
documents prepared and distributed in connection with the offer, sale and
distribution of the Shares. The Issuer covenants that it will not commence
any action against the Escrow Agent at law, in
4
<PAGE>
equity, or otherwise as a result of any action taken or thing done by the
Escrow Agent pursuant to this Agreement, or for any disbursement made as
authorized herein upon failure of the Issuer to give the notice within the
times herein prescribed. The Escrow Agent has no duty to determine or
inquire into any happening or occurrence of or of any performance or
failure of performance of the Issuer or of any other party with respect to
agreements or arrangements with any other party. If any question, dispute
or disagreement arises among the parties hereto and/or any other party with
respect to the funds deposited in the Escrow Account or the proper
interpretation of this Agreement, the Escrow Agent shall not be required to
act and shall not be held liable for refusal to act until the question or
dispute is settled, and the Escrow Agent has the absolute right at its
discretion to do either or both of the following:
(i) withhold and/or stop all further performance under this
Agreement until the Escrow Agent is satisfied, by receipt of a
written document in form and substance satisfactory to the Escrow
Agent and executed and binding upon all interested parties hereto
(who may include the subscribers), that the question, dispute, or
disagreement had been resolved; or
(ii) file a suit in interpleader and obtain by final judgment,
rendered by a court of competent jurisdiction, an order binding all
parties interested in the matter. In any such suit, or should the
Escrow Agent become involved in litigation in any manner whatsoever
on account of this Agreement or the Escrow Account, the Escrow Agent
shall be entitled to recover from the Issuer its attorneys' fees and
costs.
The Escrow Agent shall never be required to post a bond in
connection with any services hereunder. The Escrow Agent may consult
with counsel of its own choice and shall have full and complete
authorization and protection for and shall not be liable for any action
taken or suffered by it hereunder in good faith and believed by it to be
authorized hereby, nor for action taken or omitted by it in accordance
with the advice of such counsel (who shall not be counsel for the Issuer).
(c) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth in this Agreement and may rely and
shall be protected in acting or refraining from acting upon any written
notice, instruction or request furnished to it hereunder and believed by it
to be genuine and to have been signed or presented by the proper party or
parties and to take statements made therein as authorized and correct
without any affirmative duty of investigation.
(d) The Issuer hereby agrees to indemnify the Escrow Agent for, and to
hold it harmless against, any loss, liability, or expense (including,
without limitation, all legal expenses incurred in enforcing any of the
provisions of this Agreement or otherwise in connection herewith) incurred
without gross negligence or willful misconduct on the part of the Escrow
Agent, arising out of or in connection with its entering into this
Agreement
5
<PAGE>
and carrying out its duties hereunder, including the costs and expenses of
defending itself against any claim of liability hereunder or arising out of
or in connection with the sale of the Shares. This covenant shall survive
the termination of this Agreement.
(e) The Escrow Agent shall not be bound by any modification, amendment,
termination, cancellation, rescission or supersession of this Agreement
unless the same shall be in writing and signed by all of the other parties
hereto and, if its duties as Escrow Agent hereunder are affected thereby,
unless it shall have given prior written consent thereto.
10. NOTICES. Notices required to be sent hereunder shall be delivered by
hand, sent by an express mail service or sent via United States mail, postage
prepaid, certified, return receipt requested, to the following address:
If to Issuer:
Active Ankle Systems, Inc.
509 Barret Avenue
Louisville, Kentucky 40204
Attention: Gary G. Herzberg, President
If to Escrow Agent:
Bank One Kentucky, NA
416 West Jefferson Street - 4th Floor
Louisville, KY 40202
Attention: Bette J. Purucker
No notice to the Escrow Agent shall be deemed to be delivered until
actually received by the Escrow Agent. From time to time any party hereto may
designate an address other than the address listed above by giving the other
parties hereto not less than five (5) days advance notice of such change in
address in accordance with the provisions hereof.
11. GOVERNING LAWS. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Kentucky.
EXECUTED on the date first written above.
ISSUER: By:___________________________
Gary G. Herzberg, President
ACTIVE ANKLE SYSTEMS, INC.
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<PAGE>
ESCROW AGENT:
BANK ONE KENTUCKY, NA
By: /s/ Bette J. Purucker
-------------------------------
Title: Client Service Officer
----------------------------
<PAGE>
EXHIBIT A
FORM TO ACCOMPANY SUBSCRIBERS' CHECKS
ACTIVE ANKLE 1997 PUBLIC OFFERING
- --------------------------------------------------------------------------------
NAME AND ADDRESS OF SUBSCRIBER AMOUNT OF CHECK NUMBER OF
SHARES
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
FEE SCHEDULE
<PAGE>
BANK ONE, KENTUCKY, NA
ESCROW FEE PROPOSAL
JULY 7, 1997
RE: ACTIVE ANKLE SYSTEMS, INC. ESCROW
ACCEPTANCE FEE..........................................................$ 500
ANNUAL ADMINISTRATION FEE...............................................$1,125
INVESTMENT FEES (EACH INVESTMENT TRANSACTION, BUY OR SELL)..............$ 30
DEPOSIT OR WITHDRAWAL OF FUNDS..........................................$ 20
WIRE TRANSFER (PER TRANSFER)............................................$ 25
TAX REPORTING (PER PARTICIPANT, $100.00 ANNUAL MINIMUM).................$ 4
OUT-OF-POCKET EXPENSES:
A CHARGE OF 8% OF THE TOTAL FEES WILL BE ADDED TO COVER ORDINARY
BUSINESS EXPENSES FOR POSTAGE, CHECKS, STATIONERY, PRINTING, MESSENGER
DELIVERIES, AND TELEPHONE. EXPENSES FOR EXTRAORDINARY SERVICES, SUCH AS,
BUT NOT LIMITED TO, TRAVEL, LEGAL, SECURITIES DELIVERY, AND LEGAL NOTICE
PUBLICATION MAY ALSO BE ADDED.
EXTRAORDINARY TIME CHARGES:......................... $150 per hour (see below)
ADDITIONAL TERMS AND CONDITIONS:
AFTER INITIAL REVIEW AND COMMENT ON THE ESCROW DOCUMENT, ANY ADDITIONAL
REVIEW, COMMENT AND NEGOTIATION ON MATERIAL CHANGES TO THE DOCUMENT WILL
BE BILLED AS EXTRAORDINARY TIME CHARGES. IF DOCUMENT REVIEW AND CLOSING
ARE REQUIRED IN LESS THAN 72 HOURS, THE ACCEPTANCE FEE WILL BE INCREASED
TO A MINIMUM OF $2,500.
IF BANK ONE ENGAGES LEGAL COUNSEL TO REVIEW ANY DOCUMENTS RELATED TO
THIS TRANSACTION AND THE ESCROW DOES NOT CLOSE, THE CLIENT IS REQUIRED TO
PAY ANY LEGAL FEES INCURRED. FOR THIS REASON, BANK ONE MAY REQUEST A
RETAINER FEE IN THE AMOUNT OF $1,000 PRIOR TO THE REVIEW OF ANY DOCUMENT.
THE FEES QUOTED IN THIS LETTER APPLY TO SERVICES ORDINARILY RENDERED IN
THE ADMINISTRATION OF AN ESCROW ACCOUNT AND ARE SUBJECT TO REASONABLE
ADJUSTMENT FROM TIME TO TIME BASED ON FINAL REVIEW OF DOCUMENTS, OR WHEN
THE AGENT IS CALLED UPON TO UNDERTAKE UNUSUAL DUTIES OR RESPONSIBILITIES,
OR AS CHANGES IN LAW, PROCEDURES, OR THE COST OF DOING BUSINESS DEMAND.
SERVICES IN ADDITION TO AND NOT CONTEMPLATED IN THE AGREEMENT, INCLUDING
BUT NOT LIMITED TO DOCUMENT AMENDMENTS AND REVISIONS, NON-STANDARD CASH.
<PAGE>
Active Angle Systems, Inc.
Fee Proposal (continued)
SERVICES IN ADDITION TO AND NOT CONTEMPLATED IN THE AGREEMENT, INCLUDING
BUT NOT LIMITED TO DOCUMENT AMENDMENTS AND REVISIONS, NON-STANDARD CASH
AND/OR INVESTMENT TRANSACTIONS, CALCULATIONS, NOTICES, AND REPORTS, WILL
BE BILLED AS EXTRAORDINARY TIME CHARGES.
DISBURSEMENTS UNDER THE DOCUMENT REQUIRE 72 HOURS PREPARATION;
EXCEPTIONS FROM THIS POLICY MAY RESULT IN THE APPLICATION OF
EXTRAORDINARY TIME CHARGES.
UNLESS OTHERWISE INDICATED, THE ABOVE FEES PROVIDE FOR THE ESTABLISHMENT
OF ONE ACCOUNT. ADDITIONAL SUB-ACCOUNTS GOVERNED BY THE SAME ESCROW
AGREEMENT MAY BE ESTABLISHED AT AN ADDITIONAL CHARGE OF $250 PER ACCOUNT.
THE ACCEPTANCE FEE AND THE FIRST YEAR ANNUAL ADMINISTRATION FEE ARE
PAYABLE UPON EXECUTION OF THE ESCROW DOCUMENTS. IN THE EVENT THE ESCROW
IS NOT FUNDED, THE ACCEPTANCE FEE AND ALL RELATED EXPENSES WILL NOT BE
REFUNDED. ANNUAL ADMINISTRATION FEES COVER A FULL YEAR IN ADVANCE, OR
ANY PART THEREOF, AND THUS ARE NOT PRO-RATED IN THE YEAR OF TERMINATION.
UPON A CLIENT'S DIRECTION, CASH BALANCES WILL BE INVESTED IN ANY ONE OF
THE FOLLOWING:
CASH BALANCES MAY BE INVESTED ON A DAILY BASIS IN A TIME DEPOSIT
ACCOUNT WITH A BANC ONE AFFILIATE BANK IN WHICH EVENT BANK ONE
WILL WAIVE ITS CASH MANAGEMENT FEE.
CASH BALANCES MAY BE INVESTED IN THE ONE GROUP-Registered Trademark-
MONEY MARKET FUNDS IN WHICH EVENT BANK ONE WILL CHARGE A 50 BASIS
POINT (.005) CASH MANAGEMENT FEE. THE ONE GROUP WILL PAY BANC ONE
INVESTMENT ADVISORS CORPORATION, AN AFFILIATE OF BANC ONE, AN
INVESTMENT ADVISORY FEE AS DESCRIBED IN THE PROSPECTUSES.
CASH BALANCES MAY BE INVESTED IN AN ALTERNATIVE SHORT-TERM
INVESTMENT FUND IN WHICH EVENT BANK ONE WILL CHARGE A 50 BASIS
POINT (.005) CASH MANAGEMENT FEE.
IN DETERMINING THE GENERAL SCHEDULE OF FEES, BANK ONE TAKES INTO
CONSIDERATION THE VARIOUS INCIDENTAL BENEFITS ACCRUING TO IT FROM THE
OPERATION OF THE ACCOUNTS. COLLECTED FUNDS MUST BE ON DEPOSIT PRIOR TO
DISBURSEMENT OF PAYMENTS. IN ADDITION, BANK ONE HAS THE USE OF FUNDS
DEPOSITED TO PAY CHECKS THAT HAVE NOT YET BEEN PRESENTED FOR PAYMENT.
NO INTEREST SHALL BE PAID TO THE CLIENT ON THESE FUNDS, IT BEING
UNDERSTOOD THAT THE FLOAT ON THESE FUNDS IS CONSIDERED IN THE
CALCULATION OF OUR FEES.
SHOULD YOU ELECT TO APPOINT BANK ONE AS YOUR ESCROW AGENT, WE REQUEST THAT
YOU SIGN AND RETURN THE ENCLOSED COPY OF THIS ATTACHMENT ACKNOWLEDGING YOUR
AGREEMENT TO THESE FEES, TERMS, AND CONDITIONS.
ACKNOWLEDGEMENT AND ACCEPTANCE
The undersigned agrees to the above-quoted fees, terms, and conditions.
By: /s/ Gary M. Hezberg Date: 6/16/97
- ---------------------------------
Gary M. Hezberg
<PAGE>
ACTIVE ANKLE SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
September __, 1997
ACTIVE ANKLE SYSTEMS, INC.
ATTN: Gary G. Herzberg
509 Barret Avenue
Louisville, Kentucky 40204
Phone: (502) 582-2655
Ladies and Gentlemen:
1. PURCHASE OF COMMON STOCK.
Intending to be legally bound , I hereby agree to purchase ________ shares
of voting, no par value common stock (the "Shares") of Active Ankle Systems,
Inc. (the "Corporation") for ______________ U.S. Dollars (number of Shares to be
purchased multiplied by $40). This offer to purchase is submitted in accordance
with and subject to the terms and conditions described in this Subscription
Agreement (the "Agreement"). I acknowledge that the Corporation reserves the
right, in its sole and absolute discretion, to accept or reject this
subscription and the subscription will not be binding until accepted by the
Corporation in writing.
2. PAYMENT.
I agree to deliver to the Corporation immediately available funds in the
full amount due under this Agreement, by certified or cashier's check payable to
the "Active Ankle 1997 Public Offering Escrow Account." The Corporation shall
promptly deposit the funds into the Escrow Account.
3. ISSUANCE OF SHARES.
The Shares subscribed for herein will only be issued upon acceptance by the
Corporation as evidenced by the Corporation returning to the investor an
executed Agreement acknowledging acceptance and upon satisfaction of the terms
and conditions of the Escrow Agreement.
4. REPRESENTATION AND WARRANTIES.
A. I understand that the offering and sale of the Shares is registered
under (i) the Securities Act of 1933, as amended (the "Securities Act"), and
(ii) various States' Divisions of Securities in compliance with their
administration and enforcement of the
<PAGE>
Active Ankle Systems, Inc.
ATTN: Gary G. Herzberg
September ___, 1997
Page 2
respective States' Blue Sky Laws and Regulations. In accordance therewith and
in furtherance thereof, I represent and warrant to and agree with the
Corporation as follows:
[1] I am a resident of the State of ________________ as of the date
of this Agreement and I have no present intention of becoming a resident of
any other state or jurisdiction;
[2] I have received and have reviewed the Corporation's Prospectus
dated September ____, 1997;
[3] I have had a reasonable opportunity to ask questions of and
receive answers from a person or persons acting on behalf of the
Corporation concerning this investment, including the terms and conditions
of this offering, and all such questions have been answered to my full
satisfaction;
[4] No oral or written representations have been made or oral or
written information furnished to me or to my advisors in connection with
the offering of Shares which was in any way inconsistent with the
information stated in the Prospectus;
[5] I have reached the age of majority, have adequate means of
providing for my current needs and personal contingencies, am able to bear
the substantial economic risks of an investment in the Shares for an
indefinite period of time, have no need for liquidity in such an investment
and, at the present time, could afford a complete loss of such investment;
[6] I have such knowledge and experience in financial, tax and
business matters in general, so as to enable me to utilize the information
made available to me in connection with the offering of Shares in order to
evaluate the merits and risks of an investment in the Corporation and am
qualified by training and experience in business and financial matters to
evaluate the merits and risks of an investment such as the purchase of the
Shares; and
[7] I have been advised by my purchaser representative, if I have
one, that no material relationship exists between the Corporation and my
purchaser representative, nor has an material relationship existed between
such parties for at least the past two years, nor will any compensation be
paid to my purchaser representative.
B. Within five (5) days after receipt of a request from the Corporation,
I hereby agree to provide such information and to execute and deliver such
documents as
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Active Ankle Systems, Inc.
ATTN: Gary G. Herzberg
September ___, 1997
Page 3
may reasonably be necessary to comply with any and all laws, regulations or
ordinances to which the Corporation is subject.
C. The foregoing representations, warranties and agreements, together
with all other representations and warranties made or given by me to the
Corporation in any other written statement or document delivered in connection
with the transaction contemplated hereby shall be true and correct in all
respects on and as of the date of the Closing as if made on and as of such date
and shall survive the date of the Closing.
5. INDEMNIFICATION.
I agree to indemnify and hold harmless the Corporation, the officers,
directors, agents, employees and affiliates of any thereof against any and all
loss, liability, claim or damage, (including attorney's fees and disbursements)
together with all costs and expense whatsoever arising out of or based upon any
false representation or warranty or breach or failure by me to comply with any
representation, warranty, covenant or agreement made by me herein or in any
other document furnished by me of the foregoing in connection with this
transaction.
6. IRREVOCABILITY; BINDING EFFECT.
I hereby acknowledge and agree that the purchase hereunder is irrevocable,
that I am not entitled to cancel, terminate or revoke this Agreement or any
agreements of the undersigned hereunder and that this Agreement and such other
agreements shall survive my death or disability and shall be binding upon and
inure to the benefit of the parties and their heirs, executor, administrators,
successors, legal representatives and assigns. If the undersigned is more than
one person, the obligations of the undersigned hereunder shall be joint and
several, and the agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and are binding upon each such
person and his heirs, executors, administrators, successors, legal
representatives and assigns.
7. MODIFICATION.
Neither this Agreement not any provisions hereof shall be waived, modified,
discharged or terminated except by an instrument in writing signed by the party
against whom any such waiver, modification, discharge or termination is sought.
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<PAGE>
Active Ankle Systems, Inc.
ATTN: Gary G. Herzberg
September ___, 1997
Page 4
8. NOTICES.
Any notice, demand or other communication which any party hereto may
require, or may elect to give to anyone interested hereunder shall be
sufficiently given if [a] deposited, postage prepaid, in a United States mail
box, stamped registered or certified mail, return receipt requested addressed to
such address as may be listed on the books of the Corporation, [b] delivered
personally at such address, or [c] delivered (in person, or by a facsimile
transmission, telex or similar telecommunications equipment) against receipt.
9. COUNTERPARTS.
This Agreement may be executed through the use of separate signature pages
or in any number of counterparts, and each of such counterparts shall, for all
purposes, constitute one agreement binding on all parties, notwithstanding that
all parties are not signatories to the same counterpart.
10. ENTIRE AGREEMENT.
This Agreement contains the entire agreement of the parties with respect to
the subject matter hereof, and there are no representations, covenants or other
agreements except as stated or referred to herein.
11. SEVERABILITY.
Each provision of the Agreement is intended to be severable from every
other provision, and the invalidity or illegality of any portion hereof shall
not affect the validity or legality of the remainder hereof.
12. ASSIGNABILITY.
This Agreement is not transferable or assignable by the undersigned except
as may be provided herein.
13. APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Kentucky as applied to residents of that state
executing contracts wholly to be performed in that state.
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<PAGE>
Active Ankle Systems, Inc.
ATTN: Gary G. Herzberg
September ___, 1997
Page 5
INDIVIDUAL(S) SUBSCRIBER
IN WITNESS WHEREOF, I have executed this Agreement as of the ______ day of
September, 1997.
- -------------------------------------
Signature of Purchaser
- -------------------------------------
Name(s) of Purchaser (Please print or type)
- -------------------------------------
Purchaser(s) Social Security Number
STATE OF ______________)
) SS
COUNTY OF _____________)
On the ________day of August, 1997, before me personally appeared
___________________________________________, known to me to be the individual(s)
described herein and who acknowledged the foregoing instruments and swore and
acknowledged that (he)(she)(they) executed the same as (his)(her)(their) free
act and deed.
----------------------------------
Notary Public, State at Large
My commission expires:
---------------
ENTITY SUBSCRIBER
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<PAGE>
Active Ankle Systems, Inc.
ATTN: Gary G. Herzberg
September ___, 1997
Page 6
IN WITNESS WHEREOF, I have executed this Agreement as of the ______ day of
September, 1997.
- -------------------------------------
Entity
- -------------------------------------
Signed By
Its:
--------------------------------
- -------------------------------------
Date
STATE OF ______________)
) SS
COUNTY OF _____________)
On the _____day of September, 1997, before me personally appeared
___________________________________________, known to me to be the individual
described herein and who acknowledged the foregoing instruments and swore and
acknowledged that (he)(she) executed the same as (his)(her) free act and deed.
----------------------------------
Notary Public, State at Large
My commission expires:
---------------
PURCHASE ACCEPTED FOR _________ SHARES:
ACTIVE ANKLE SYSTEMS, INC.
By: ________________________________
Gary G. Herzberg, CEO
Date: _______________________________
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<PAGE>
Active Ankle Systems, Inc.
ATTN: Gary G. Herzberg
September ___, 1997
Page 7
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