<PAGE>
As filed with the Securities and Exchange Commission on April 21, 1995
Registration No. 33-________
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
_______________
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933*
_______________
AJAY SPORTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
39-1644025
(I.R.S. Employer Identification No.)
1501 E. WISCONSIN STREET, DELAVAN, WISCONSIN 53115
(414) 728-5521
(Address, including zip code, and telephone number, including area code, of
registrant's
principal executive offices)
THOMAS W. ITIN, PRESIDENT
AJAY SPORTS, INC.
1501 E. WISCONSIN STREET, DELAVAN, WISCONSIN 53115
(414) 728-5521
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
FAY M. MATSUKAGE, ESQ. HAROLD M. GOLZ, ESQ.
LAW OFFICES OF FAY M. MATSUKAGE KRYS BOYLE GOLZ REICH
STANFORD PLACE 3, SUITE 201 FREEDMAN BEAN & SCOTT, P.C.
4582 SOUTH ULSTER STREET PARKWAY DOMINION PLAZA, SUITE 2700 SOUTH TOWER
DENVER, COLORADO 80237 600 SEVENTEENTH STREET
(303) 721-9495 DENVER, COLORADO 80202-5427
(303) 893-2300
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [x]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
*Pursuant to Rule 429, this Registration Statement on Form S-2 also constitutes
Post-Effective Amendment No. 5 to Registration Statement No. 33-30760.
Exhibit index on consecutive page _____ Consecutive page 1 of ____
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURI- AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series C 10% Cumulative 603,750 $10.00 $6,037,500 $2,081.90
Convertible Preferred Stock, shares
including shares covering the
Over-Allotment option
- ----------------------------------------------------------------------------------------------------------
Common Stock underlying (1) (2) (2) (2)
Series C 10% Cumulative
Convertible Preferred Stock
conversion
- ----------------------------------------------------------------------------------------------------------
Common Stock Purchase 603,750 $0.10 $60,375 $20.82
Warrants, including warrants warrants
covering the Over-Allotment
option
- ----------------------------------------------------------------------------------------------------------
Common Stock issuable up- 1,487,220 $1.00 $1,487,220 $512.83
on exercise of Common shares (3)
Stock Purchase Warrants (4)
==========================================================================================================
Underwriter's Warrants to 52,500 $0.00095 $50 $0.02
purchase Series C 10% Cu- warrants
mulative Convertible Preferred
Stock
- ----------------------------------------------------------------------------------------------------------
Series C 10% Cumulative 52,500 $12.00 $630,000 $217.24
Convertible Preferred Stock shares (3)
underlying Underwriter's War-
rants
- -----------------------------------------------------------------------------------------------------------
Common Stock underlying (1)(3) (2) (2) (2)
Series C 10% Cumulative
Convertible Preferred Stock
conversion
- -----------------------------------------------------------------------------------------------------------
Underwriter's Warrants to 52,500 $0.00095 $50 $0.02
purchase Common Stock warrants
Purchase Warrants
- -----------------------------------------------------------------------------------------------------------
Common Stock Purchase 52,500 $0.12 $6,300 $2.17
Warrants underlying warrants (3)
Underwriter's Warrants
- -----------------------------------------------------------------------------------------------------------
Common Stock issuable up- 52,500 $1.00 $52,500 $18.10
on exercise of Common shares (3)
Stock Purchase Warrants
- -----------------------------------------------------------------------------------------------------------
Total $8,273,995 $2,853.10
===========================================================================================================
</TABLE>
<PAGE>
(1) The conversion rate will be determined prior to effectiveness by an
amendment.
(2) Pursuant to Rule 457(i), the registration fee has been calculated based on
the proposed offering price of the Series C 10% Cumulative Convertible
Preferred Stock.
(3) An indeterminate number of additional securities are registered hereunder
which may be issued, as provided in the Underwriter's Warrants and Warrant
Agreement, in the event provisions against dilution become operative. No
additional consideration will be received by the registrant upon issuance
of such additional securities.
(4) The prospectus included herein covers the securities being registered
hereunder, plus 883,470 shares of Common Stock registered by the
Registrant on Registration Statement No. 33-30760 on Form S-18. The
registration fee for 883,470 of the shares registered hereunder ($304.64)
was paid in connection with the filing of Registration Statement No. 33-
30760.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
<S> <C>
1. Forepart of the Registration Outside Front Cover
Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover and Outside Back
Cover Pages of Prospectus Cover
3. Summary Information, Risk Factors Prospectus Summary; Risk Factors
and Ratio of Earnings to Fixed
Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Underwriting
9. Description of Securities to be Description of Securities
Registered
10. Interests of Named Experts and Not applicable
Counsel
11. Information with Respect to the Business; Market for the Company's
Registrant Common Stock and Related Stockholder
Matters; Selected Financial
Information; Management's Discussion
and Analysis of Financial Condition
and Results of Operations; Changes in
and Disagreements with Accountants on
Accounting and Financial Disclosure
12. Incorporation of Certain Incorporation of Certain Documents by
Information by Reference Reference
13. Disclosure of Commission Not applicable
Position on Indemnification for
Securities Act Liabilities
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR +
+MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion, dated April 21, 1995
- ----------
AJAY SPORTS, INC.
525,000 SHARES OF SERIES C 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK
525,000 COMMON STOCK PURCHASE WARRANTS
All of the securities offered hereby are being sold by Ajay Sports, Inc.
(the "Company"). The Series C 10% Cumulative Convertible Preferred Stock (the
"Series C Preferred Stock") and Common Stock Purchase Warrants (the "Warrants")
offered hereby must be purchased together on the basis of one share of Series C
Preferred Stock and one Warrant. The Series C Preferred Stock and Warrants will
be separately transferable immediately. Each share of Series C Preferred Stock
is convertible into shares of the Company's Common Stock. The Series C Preferred
Stock will be redeemable at any time at the stated value of $10.00 per share
plus all accrued and unpaid cumulative dividends. See "Description of
Securities - Series C Preferred Stock."
Each Warrant entitles the holder thereof to purchase, at a price of
$1.00 (the "Warrant Exercise Price"), one share of Common Stock at any time
through December 31, 1996. The Warrants are subject to redemption by the
Company at $.05 per Warrant at any time on 45 days' prior written notice
provided that the closing high bid price of the Common Stock has exceeded the
Warrant Exercise Price by 50% or more for 20 consecutive trading days. The
Company must have on file a current registration statement pertaining to the
Common Stock underlying the Warrants in order for a holder to exercise the
Warrants or in order for the Warrants to be redeemed by the Company. See
"Description of Securities - Warrants."
Prior to this offering, there has been no public market for the Series C
Preferred Stock or Warrants. The Company's Common Stock is traded on the NASDAQ
Small-Cap Market under the symbol "AJAY". On April __, 1995, the closing high
bid price for the Common Stock on NASDAQ was $.53.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
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.
<TABLE>
<CAPTION>
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....... $10.00 $1.00 $9.00
Per Warrant..... $.10 $.01 $.09
Total (3)....... $5,302,500 $530,250 $4,772,250
================================================================================
</TABLE>
(1) The Company has agreed to pay the Representative a nonaccountable expense
allowance, to pay a financial consulting fee, and to issue warrants to
the Representative (the "Representative's Warrants"). The Company has
also agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933 (the "Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $325,000,
including the nonaccountable expense allowance payable to the
Representative. See "Underwriting."
(3) The Company has granted the Representative an option for 45 days to
purchase up to 78,750 additional shares of Series C Preferred Stock and
up to 78,750 additional Warrants on the same terms set forth above,
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts, and Proceeds to
Company will be $6,097,875.00, $609,787.50, and $5,488,087.50,
respectively. See "Underwriting."
The Series C Preferred Stock and Warrants are offered severally by the
Underwriters, subject to prior sale when, as and if accepted by the Underwriters
and subject to the right to reject orders in whole or in part and certain other
conditions. It is expected that delivery of certificates representing the
Series C Preferred Stock and Warrants will be made on or about ,
1995.
SCHNEIDER SECURITIES, INC.
_____________, 1995
<PAGE>
[photographs of golf products here]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES C
PREFERRED STOCK, COMMON STOCK, OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS, SELLING GROUP MEMBERS
AND THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
SERIES C PREFERRED STOCK, COMMON STOCK, OR WARRANTS ON NASDAQ IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus.
THE COMPANY
Ajay Sports, Inc. (the "Company") markets and distributes golf bags, golf
accessories, and hand-pulled carts through its wholly-owned subsidiary, Ajay
Leisure Products, Inc. ("Ajay"). The golf products are sold by Ajay under the
Spalding(R), Ajay(R), Pro Classic(R), and Private Pro(R) brand names, primarily
to large retailers, such as discount stores, department stores, catalog
showrooms, and other mass merchandise outlets. Ajay has the exclusive right to
market and distribute golf bags, hand-pulled carts, gloves, and other golf
accessories under the Spalding(R) brand name through the mass merchandise
channel. This channel includes national retailers, such as Wal-Mart, K-Mart,
and Target. Based on industry reports, management believes that sales through
the mass merchandise channel will experience continued growth.
Ajay designs and manufactures its golf bags. The preliminary production
of the golf bags is undertaken at its Delavan, Wisconsin facility, where raw
materials are designed and fabricated in preparation for sewing and assembly at
its Mexicali, Mexico facility. Final manufacturing, assembly, and distribution
occur at Ajay's Delavan, Wisconsin facility. Ajay believes that this
manufacturing arrangement enables the Company to manufacture products of high
quality while maintaining competitive costs.
Ajay sells its products through a recently strengthened network of
independent sales representatives throughout the United States. This network
was upgraded in 1994, under new management, through additional sales coverage in
key markets and a focus on representatives that concentrate principally on the
sports business.
The Company also designs, manufactures, and markets casual living
furniture through another wholly-owned subsidiary, Leisure Life, Inc. ("Leisure
Life"). Leisure Life's products are sold under the In-Motion(R) name. The
products utilize a patented design which emphasizes comfort, adjustability,
durability, and value for the porch and patio. The Company expects sales by
Leisure Life, which was acquired in August 1994, to become significant as a
percentage of total sales in 1995. Leisure Life plans to develop an economical
line of indoor furniture later in 1995 for introduction in 1996.
In the last quarter of 1994, new management, experienced in "turnaround"
situations, implemented a plan of action to attain profitability. Management
instituted a cost reduction program which included a reduction in salary and
labor positions, along with related fringe benefits. The Company also obtained
more favorable material costs, enhanced its material utilization methods, and
instituted more efficient manufacturing techniques. The Company strengthened
its sales coverage by appointing additional experienced independent sales
representatives and increased its emphasis on product development, which
resulted in several new product introductions in late 1994. See "Business."
Based on preliminary results of operations for the first quarter of 1995,
management believes that its plan of action will be successful. In 1994,
entities with whom management of the Company is affiliated made an additional
commitment to the Company by providing the Company with its credit facility and
$2,400,000 in new equity. See "Management" and "Certain Transactions."
The Company intends to use the proceeds of this offering to implement its
growth strategy. Following this offering, the enhanced financial resources
available to the Company will permit it to improve and enhance its manufacturing
capabilities, provide working capital for its anticipated growth for the near-
term, develop new products, and possibly acquire companies or product lines
compatible with or complementary to its present products. See "Use of Proceeds."
3
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities offered (1)................ 525,000 shares of Series C Preferred
Stock and 525,000 Warrants. Each
share of Series C Preferred Stock is
convertible into shares of the
Company's Common Stock. Cumulative
dividends are payable on the Series C
Preferred Stock. Each Warrant
entitles the holder to purchase one
share of Common Stock at any time
through December 31, 1996 at a price
of $1.00. The Warrants are
redeemable by the Company at $.05 per
Warrant under certain conditions.
The terms of these Warrants are
identical to publicly-held warrants
to purchase Common Stock.
Accordingly, "Warrants" refers to
those offered hereby and the
outstanding publicly-held warrants.
See "Description of Securities."
Common Stock outstanding:
Before the Offering (2)............. 22,545,537
After the Offering assuming
full conversion of Preferred
Stock (2)....................... ____________
NASDAQ symbols
Common Stock........................ AJAY
Preferred Stock..................... AJAYP (Proposed)
Warrants............................ AJAYW
Use of net proceeds................... The Company intends to use the
proceeds of this offering to improve
and enhance its manufacturing
capabilities, provide working capital
for its anticipated growth for the
near-term, develop new products, and
possibly acquire companies or product
lines compatible with or
complementary to its present products
in order to expand its leisure and
recreational business. See "Use of
Proceeds."
________________
</TABLE>
(1) Does not include up to 78,750 shares of Series C Preferred Stock and
78,750 Warrants that may be sold by the Company pursuant to the
Representative's over-allotment option. See "Underwriting."
(2) Assumes no exercise of (i) the Warrants offered hereby, (ii) the over-
allotment option, (iii) presently outstanding Series B Preferred Stock,
warrants and options, and (iv) the Representative's Warrants. See
"Description of Securities" and "Underwriting."
RISK FACTORS
This Offering involves substantial risks associated with the Company and its
business including, among others, risks associated with substantial industry
competition, significant indebtedness, reliance on a few significant customers
and dependence on management. See "Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
STATEMENT OF OPERATIONS: 1990 1991 1992 1993 1994
---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales....................... $16,937 $20,049 $21,014 $15,902 $12,899
Gross profit.................... 2,519 3,914 3,858 1,730 608
Operating income (loss)......... (344) 677 962 (1,104) (2,139)
Net income (loss)............... (1,080) (2,121) 381 (1,921) (3,080)
Net income (loss)
per common share.............. (.14) (.26) .02 (.24) (.27)
Weighted average common and
common stock equivalent shares
outstanding................... 7,602 8,270 8,457 8,812 12,218
DECEMBER 31, 1994
---------------------------
(in thousands)
BALANCE SHEET DATA: AS
--
ACTUAL ADJUSTED (1)
------ ------------
Working capital............................................... $ 593 $ 5,040
Total assets.................................................. 9,365 13,812
Long-term debt................................................ 121 121
Stockholders' equity.......................................... 2,035 6,482
- ----------------------
</TABLE>
(1) Adjusted to reflect the sale by the Company of 525,000 shares of Series C
Preferred Stock and 525,000 Warrants for net proceeds of $4,447,250 and
the application of the estimated net proceeds of this offering as
indicated under "Use of Proceeds."
The operating and balance sheet data shown above were derived from
audited financial statements of the Company. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as the Consolidated Financial Statements of
the Company and notes thereto, included elsewhere in the Prospectus.
5
<PAGE>
THE COMPANY
The Company was organized under Delaware law on August 18, 1988.
Principal manufacturing, distribution and executive offices are located at 1501
E. Wisconsin Street, Delavan, Wisconsin 53115, and its telephone number is (414)
728 5521. The Company's administrative office is at 7001 Orchard Lake Road,
Suite 424, West Bloomfield, Michigan 48322. The Company has an additional
manufacturing and distribution facility at 215 4th Avenue North, Baxter,
Tennessee 38544, headquarters for its Leisure Life subsidiary, and a
manufacturing facility in Mexicali, Mexico.
RISK FACTORS
This Offering involves substantial risks associated with the Company and
its business including, among others, risks associated with substantial industry
competition, significant indebtedness, reliance on significant customers and
dependence on management.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, AMONG OTHER FACTORS, THE
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS RELATING TO THE COMPANY AND THIS
OFFERING SET FORTH BELOW.
THE COMPANY
LOSSES FROM OPERATIONS; QUALIFIED AUDITORS' OPINIONS. With the exception
of the 1992 fiscal year, the Company has incurred losses from operations since
its inception. At December 31, 1994, the accumulated deficit was $8,401,000 and
the net loss for the 1994 fiscal year was $3,080,000. The report of the
Company's auditors on the financial statements for the last fiscal year contains
an explanatory paragraph related to substantial doubt regarding the Company's
ability to continue as a going concern due to the Company's significant losses
for the 1994 and 1993 fiscal years and its reliance upon affiliated companies to
fund cash flow deficiencies through equity infusions. Although results for the
first two months of 1995 are promising, there is no assurance that the Company
will be profitable in 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements.
SIGNIFICANT INDEBTEDNESS. Ajay has a current indebtedness at December 31,
1994 of $5.4 million due February 1, 1996 under a Loan Agreement with Williams
Controls Industries, Inc. ("Williams Controls"), which is secured by
substantially all of the assets of Ajay. While Ajay continues to work on the
refinancing of its working capital loan, there is no assurance that such
financing can be accomplished on acceptable terms. The Company has guaranteed
payment of this loan and has pledged all of the outstanding stock of Ajay. In
addition, Williams Controls was granted options which can increase its stock
ownership to 45.2% of the Company's then outstanding Common Stock (without
giving effect to this offering) if the loan is repaid in full by August 1, 1995,
or 56.3% if the loan is not repaid in full by August 1, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships."
PRICE SENSITIVITY. Sales of golf accessories, golf bags, hand-pulled golf
carts, billiard accessories, indoor and outdoor leisure furniture to mass
merchandisers and regional retailers are highly price-sensitive. Increases in
labor, material and manufacturing costs could adversely affect the Company's
margins and, therefore, its profits. See "Business."
RELIANCE ON FOREIGN SUPPLIES AND THE CONDUCT OF BUSINESS IN FOREIGN
JURISDICTIONS. Ajay purchases certain parts, components, and products abroad.
Accordingly, the relative value of the U.S. dollar against foreign currencies,
the imposition of tariffs, import and export controls, and changes in
governmental policies could significantly affect its margins and, therefore, its
profits. Furthermore, a portion of its manufacturing operations are conducted in
Mexico, where such operations may be subject
6
<PAGE>
to local economic, social and political influences, including but not limited
to, transportation delays and interruptions, political and economic uncertainty
and disruptions, and labor strikes, any of which could adversely affect its
operations. See "Business - Competition."
COMPETITION. Ajay competes with other manufacturers of golf accessories,
golf bags, hand-pulled golf carts and related sports accessories, some of which
have greater assets, name recognition, broader product lines, distribution
networks, and financial, managerial, and marketing resources than the Company.
Leisure Life, the other operating subsidiary of the Company, has had only
limited operations and sales to date. At this time, as compared to the large
number of manufacturers of indoor and outdoor furniture, it is not a significant
competitor. See "Business - Competition."
RELIANCE ON SIGNIFICANT CUSTOMERS. During the years ended December 31,
1993 and 1994 approximately 70% and 72%, respectively, of the Company's sales
were attributable to its top ten customers, most of whom were mass
merchandisers. Furthermore, Ajay's largest customer accounted for approximately
41% of Ajay's sales in 1994. The Company has experienced the loss of a
significant customer in the past, resulting in a marked decrease in sales. The
loss of any of these customers could adversely affect the Company's business.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations" and "Business -Marketing and Distribution."
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING. Over 92% of the Company's
sales in 1994 were related to sales of golf products. The demand for golf
products is related to the number of persons playing golf and the number of
rounds of golf played, as well as the amount of discretionary spending by
consumers. Each of these factors may be adversely affected by general economic
conditions. A decrease in consumer spending on golf could have an adverse effect
on the Company's financial condition and results of operations. Seasonal weather
condition patterns can significantly affect the golf business and all products
involved. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations" and "Business."
DEPENDENCE ON MANAGEMENT. The Company is dependent upon the management of
Ajay and Leisure Life for the day-to-day operation of its business and in
particular is dependent upon the services of Mr. Thomas W. Itin, Chairman and
President of the Company, and Mr. Clarence H. Yahn, President of Ajay and
Leisure Life. The loss of services of either of these officers for any reason
could have a material adverse effect on the Company's business. The Company has
entered into an employment agreement with Mr. Itin under which he will be paid
$1 per year for fiscal 1994 and 1995. Although the Company has entered into this
agreement with Mr. Itin, no assurance can be given that the Company would be
able to replace either of these men should the Company lose their services. See
"Management and Key Personnel."
PRODUCT LIABILITY. The Company faces the risk of exposure to product
liability claims if consumers using its products are injured in connection with
their use. While the Company will continue to attempt to take appropriate
precautions, there can be no assurance that they will avoid significant product
liability exposure. Although management believes that the Company has adequate
product liability insurance based on its historical coverage, there can be no
assurance that its current insurance coverage is adequate, that economically
affordable insurance coverage can be maintained or will be available at all in
the future, or that a product liability claim would not materially adversely
affect the business or financial condition of the Company. See "Business - Legal
Proceedings."
DEPENDENCE ON LICENSE AGREEMENTS. A significant portion of the Company's
revenues result from the sale of products manufactured and sold pursuant to
various license agreements. No assurance can be given that the Company will be
able to remain a licensee under such agreements and the loss of any such license
could have a material adverse effect on the Company's business. See "Business -
Licensing." In July, 1994, the Company signed a license extension with Spalding
Sports Worldwide, under
7
<PAGE>
which the Company will continue to manufacture and market golf products. The
license was extended through June, 1996.
ALLOCATION OF WORKING CAPITAL AND POTENTIAL ACQUISITIONS. The net
Offering proceeds have been allocated for the improvement and enhancement of the
Company's manufacturing capabilities, working capital for the Company's
anticipated growth for the near-term, the development of new products, and,
possibly, the acquisition of companies or product lines compatible with or
complementary to its present products. Investors in this Offering will not be
able to directly control the use of such funds or have any opportunity to review
any such acquisition before the occurrence of such an event. Accordingly,
investors must therefore rely on management of the Company for directing the
expenditure of these funds. Further, there can be no assurance that any such
acquisition will prove successful. See "Use of Proceeds."
GOVERNMENTAL REGULATIONS. The Company is subject to a variety of
regulations at the state, local and federal level and also operates under the
jurisdiction of foreign governments in countries in which the Company does
business. Adverse changes in these regulations could seriously impact the
Company's operations and profits. See "Business."
THE OFFERING
CONTROL BY MANAGEMENT. Following completion of this Offering, the present
management of the Company will own, assuming no exercise of the Warrants or
other stock options and no conversion of the outstanding Preferred Stock,
approximately 68% of the outstanding Common Stock. Given the magnitude of
convertible securities owned by management, the lack of cumulative voting, and
the fact that one-third of the Company's outstanding Common Stock constitutes a
quorum, persons not affiliated with management may not have the power to elect a
single director. As a practical matter, the current management will continue to
effectively control the Company. See "Principal Shareholders."
ABSENCE OF A PUBLIC MARKET. While there currently is a public market for
the Common Stock and the Warrants of the Company, there is no public market for
the Series C Preferred Stock, and no assurance can be given that a market will
develop subsequent to this Offering or that purchasers will be able to resell
their securities at the public offering price, or that a purchaser will be able
to liquidate his/her investment without considerable delay, if at all. If a
market does develop, the price may be highly volatile. Factors such as those
discussed in this "Risk Factors" section may have a significant effect on the
market price of the securities being offered. See "Market for the Company's
Stock and Related Stockholder Matters."
ACQUISITION BY OTHER STOCKHOLDERS AT LESS COST THAN INVESTORS IN THIS
OFFERING. The holder of the Series B Preferred Stock has acquired its shares of
Common Stock at a cost substantially less than that which the investors will be
able to convert their Series C Preferred Stock to Common Stock. Additionally,
certain outstanding options and warrants are exercisable to purchase Common
Stock at a price less than the Warrant Exercise Price. To the extent that shares
of Common Stock are issued pursuant to the conversion of the Series B Preferred
Stock or the exercise of these other options and warrants, investors in this
Offering will experience dilution in ownership of the Company and in their
investment.
POTENTIAL FUTURE SALES UNDER RULE 144; EXERCISE OF REGISTRATION RIGHTS.
Of the 22,545,537 shares of Common Stock currently outstanding, 14,411,353 are
"restricted securities" and may in the future be sold in compliance with Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"). Rule
144 generally provides that beneficial owners of shares who have held such
shares for two years may sell within a three-month period a number of shares not
exceeding 1% of the total outstanding shares or the average trading volume of
the shares during the four calendar weeks preceding such sale. Sales of
substantial amounts of Common Stock in the public market after the Offering
pursuant to Rule 144 or otherwise, or the perception that such sales could occur
may adversely affect prevailing market prices
8
<PAGE>
of the Common Stock. With regard to the restricted shares, 702,489 are currently
eligible for sale under Rule 144, 1,650,000 will become eligible in August 1996,
and 12,058,864 will become eligible for sale in October 1996. See "Shares
Eligible for Future Sale."
Whenever the Company proposes to register shares of Common Stock under
the Securities Act, either for its own account or for the account of
stockholders exercising registration rights, holders subject to outstanding
options may require the Company, subject to certain limitations, to include all
or part of their shares in the registration. The exercise of any of these
registration rights may hinder the Company in making public offerings of its
securities in the future and may adversely affect the market price of the Common
Stock.
DIVIDENDS. The Company expects to pay dividends on the Series B Preferred
Stock and Series C Preferred Stock, which have a preference as to the payment of
any dividend on any other shares of capital stock of the Company. In addition,
Ajay's Loan Agreement with Williams Controls restricts Ajay from paying
dividends to the Company except in certain circumstances. Accordingly, the
Company does not contemplate paying cash dividends on Common Stock in the
foreseeable future since it will use all of its earnings, if any, after the
payment of dividends on the Series B Preferred Stock and Series C Preferred
Stock, to finance expansion of its operations. See "Dividend Policy" and
"Description of Securities."
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant amount of the Series
C Preferred Stock and Warrants may be sold to customers of the Underwriters.
Such customers subsequently may engage in transactions for the sale or purchase
of such securities through or with the Underwriters. Although they have no legal
obligation to do so, the Underwriters from time to time in the future may make a
market in and otherwise effect transactions in the Company's securities. To the
extent the Underwriters do so, they may be a dominating influence in any market
that might develop and the degree of participation by the Underwriters may
significantly affect the price and liquidity of the Company's securities. Such
market making activities, if commenced, may be discontinued at any time or from
time to time by the Underwriters without obligation or prior notice. If a
dominating influence at such time, the Underwriters' discontinuance of market
making activities could adversely affect the price and liquidity of the
securities.
LIMITATIONS ON CHANGE OF CONTROL. The "takeover" statute of the Delaware
General Corporation Law to which the Company is subject could have the effect of
delaying, deferring or preventing a change of control of the Company or the
removal of existing management and, as a result, could prevent the stockholders
of the Company from being paid a premium for their shares of Common Stock. See
"Description of Securities - Certain Provisions of Delaware Law and the
Company's Certificate of Incorporation."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS.
Holders of Warrants may exercise them only if a current prospectus relating to
the Common Stock underlying the Warrants is then in effect and only if such
shares are qualified for sale or exempt from qualification under applicable
state securities laws of the states in which holders of the Warrants reside.
Although the Company has undertaken to make a good faith effort to maintain the
effectiveness of a current prospectus covering the Common Stock underlying the
Warrants and to register or qualify the shares for sale in jurisdictions where
the holders of Warrants reside, there can be no assurance that the Company will
be able to do so. The Company may determine not to register or qualify the
shares underlying the warrants in certain jurisdictions where the time and
expense involved would not justify such registration and qualification. The
Warrants may be deprived of any value in the event this Prospectus or another
prospectus covering the shares issuable upon exercise of the Warrants is not
kept effective or if such shares are not registered in the states in which
holders of the Warrants reside. See "Description of Securities - Warrants."
OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES; POTENTIAL DILUTION AND
ADVERSE IMPACT ON ADDITIONAL FINANCING. As of April 5, 1995, the Company had
outstanding options, warrants, and
9
<PAGE>
convertible securities to acquire an aggregate of 18,142,843 shares of Common
Stock. In addition, upon the conclusion of this offering, additional convertible
shares of Series C Preferred Stock and Warrants will be issued. To the extent
that the outstanding options, warrants, and convertible securities are exercised
or converted, dilution to the interests of the Company's shareholders may occur.
For the life of the options, warrants, and convertible securities described
above, the holders will have the opportunity to profit from a rise in the price
of the underlying Common Stock. The existence of such options, warrants, and
convertible securities may adversely affect the terms on which the Company can
obtain additional financing, and the holders of such options, warrants, and
convertible securities can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain additional capital by an
offering of its unissued capital stock on terms more favorable to the Company
than those provided by such options, warrants, and convertible securities. See
"Description of Securities" and "Shares Eligible for Future Sale."
MARKET FOR THE COMPANY'S STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded over-the-counter since
November 1989 and is reported by Nasdaq. The following table sets forth the
range of high and low bid quotations given quarterly by Nasdaq for the last two
years. These over-the-counter market quotations reflect inter-dealer prices
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1993 HIGH BID LOW BID
<S> <C> <C>
First Quarter..................... $.69 $.47
Second Quarter.................... .69 .38
Third Quarter..................... .47 .31
Fourth Quarter.................... .41 .31
1994
First Quarter..................... $.44 $.31
Second Quarter.................... .44 .13
Third Quarter..................... .59 .25
Fourth Quarter.................... .59 .34
1995
First Quarter..................... $.59 $.38
</TABLE>
On April 19, 1995, the closing high bid price for the Common Stock on
NASDAQ was $.53.
The number of record holders of the Company's Common Stock as of February
28, 1995 was 307 according to the Company's transfer agent.
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company (assuming the Representative's over-
allotment option is not exercised) will be approximately $4,447,250 after
deduction of underwriting discounts, the Representative's nonaccountable expense
allowance and consulting fee, and other expenses of this Offering.
The Company anticipates such net proceeds will be utilized substantially
as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT
<S> <C>
Inventory and accounts receivable financing..............$ 1,000,000
Enhancement/improvement of manufacturing capabilities.... 300,000
Working capital.......................................... 3,147,250
----------
Total...............................................$ 4,447,250
==========
</TABLE>
The Company anticipates that conventional revolving credit facilities,
which are generally based on a percentage of existing accounts receivable and
inventory, will not provide sufficient working capital for expansion. Such
financing tends to lag behind a company whose sales are increasing. Accordingly,
$1,000,000 of the proceeds from this offering will be needed to furnish
additional working capital for the Company's anticipated growth. The $300,000
allocated for enhancement/improvement of manufacturing capabilities will be used
to acquire additional sewing equipment for the Mexicali facility which will
reduce manufacturing costs and increase production capability, to purchase
additional equipment for Leisure Life's manufacturing operations, to construct
additional storage for Leisure Life's finished product inventory, and to acquire
special carts for the transport of work in process inventory between the
Delavan, Wisconsin facility and the Mexicali facility. The amount allocated for
working capital will be used for general corporate purposes, including expanding
the Company's product lines and developing additional markets for its products.
The proceeds from this Offering are expected to be adequate to meet the
Company's cash requirements during the one year period following this Offering.
The amounts set forth above merely indicate the Company's present intentions for
the use of proceeds. However, future events may require a change in the
allocation of funds. The Company's business plan contemplates that the Company
may acquire companies or product lines compatible with or complementary to the
Company's present products. Although the Company has had and will have
discussions with potential acquisition candidates, it does not have any plans,
agreements or understandings with respect to any acquisitions. Moreover, it may
not be able to consummate any such transaction. The amount, if any, to be
applied to any acquisition cannot be determined at this time. Any changes in
proposed expenditures will be made at the discretion of the Board of Directors
of the Company.
The proceeds from the exercise of the Representative's over-allotment
option and Warrants, if any, will be added to working capital.
To the extent that the net proceeds of this Offering are not used
immediately, they will be invested in certificates of deposit, savings deposits,
short-term obligations of the United States Government, other suitable money
market instruments or shares of regulated investment companies investing in such
instruments; or they will be left in checking accounts bearing interest. The
Company does not intend to engage in the business of investing, reinvesting,
owning, holding or trading in securities or otherwise engaging in activities
which would render the Company an "investment company" as that term is defined
in the Investment Company Act of 1940.
11
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of December 31, 1993 and 1994, and as adjusted to give effect to
the sale by the Company of 525,000 shares of Series C Preferred Stock and
525,000 Warrants for net proceeds of $4,447,250. The table should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER DECEMBER 31, 1994
31, -----------------
1993 ACTUAL AS ADJUSTED
---- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term obligations........................... $ 8,544 $ 7,209 $ 7,209
======= ======= =======
Long-term debt................................... $ -- $ 121 $ 121
------- ------- -------
Stockholders' equity:
Preferred stock, $.01 par value per share;
10,000,000 shares authorized; 29,500 and
12,500 shares issued at liquidation value,
537,500 issued as adjusted for the offering
at liquidation value...........................
Common stock, $.01 par value per share; 2,950 1,250 6,500
50,000,000 shares authorized, 8,824,773 and
22,533,637 shares issued, 22,545,537 issued
as adjusted for the offering................... 88 225 225
Additional paid-in capital...................... 4,246 8,961 8,158
Accumulated deficit............................. (5,321) (8,401) (8,401)
----- ----- -----
Total stockholders' equity....................... 1,963 2,035 6,482
----- ----- -----
Total capitalization............................. $1,963 $2,156 $6,603
====== ====== ======
</TABLE>
DIVIDEND POLICY
Holders of shares of Common Stock are entitled to dividends when, and if,
declared by the Board of Directors out of funds legally available therefor. The
Company has never paid any cash dividends on its Common Stock and intends to
retain future earnings, if any, to finance the development and expansion of its
business. The Company's future dividend policy is subject to the discretion of
the Board of Directors and will depend upon a number of factors, including
future earnings, capital requirements, limitation on distributions from Ajay to
the Company, and the financial condition of the Company.
Holders of both the Series B Preferred Stock and Series C Preferred Stock
have a right to dividends in preference to the payment of any dividend on any
other shares of capital stock of the Company. See "Description of Securities."
In addition, Ajay's Loan Agreement with Williams Controls restricts Ajay from
paying dividends to the Company except (1) to the extent required to satisfy tax
obligations for the combined operations of Ajay and the Company, and (2) in an
amount not to exceed $100,000 in the aggregate to cover legal, accounting, and
other operating expenses, so long as Ajay is not in default under the Loan
Agreement. This restriction may have the effect of reducing the amount of cash
available to the Company to pay any dividends.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The operating and balance sheet data shown below were derived from
audited financial statements of the Company. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as the Consolidated Financial Statements of
the Company and notes thereto, included elsewhere in the Prospectus.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
STATEMENT OF OPERATIONS: 1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.......................... $16,937 $20,049 $21,014 $15,902 $12,899
Cost of sales...................... 14,418 16,135 17,156 14,172 12,291
------- ------- ------- ------- -------
Gross profit....................... 2,519 3,914 3,858 1,730 608
Selling, general and administrative
expenses.......................... 2,863 3,237 2,896 2,834 2,747
------- ------- ------- ------- -------
Operating income (loss)............ (344) 677 962 (1,104) (2,139)
Non-operating income (expense): ------- ------- ------- ------- -------
Interest expense - net.............
Loss on write-down of investment (780) (854) (906) (697) (614)
in affiliate......................
Gain on disposition of investment.. (36) (2,014) -- (123) --
Other, net......................... -- -- 275 -- (38)
80 70 50 3 (289)
------- ------- ------- ------- -------
Income (loss) from operations
before income taxes............... (1,080) (2,121) 381 (1,921) (3,080)
Income tax expense (benefit)....... -- -- -- -- --
------- ------- ------- ------- -------
Net income (loss).................. $(1,080) $(2,121) $ 381 $(1,921) $(3,080)
======= ======= ======= ======= =======
Net income (loss)
per common share.................. $(.14) $(.26) $.02 $(.24) $(.27)
Weighted average common and ====== ====== ==== ====== ======
common stock equivalent shares
outstanding......................
7,602 8,270 8,457 8,812 12,218
===== ===== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
BALANCE SHEET DATA: 1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital.................... $ 1,434 $ 6,954 $ 2,754 $ 903 $ 593
Total assets....................... 11,959 11,792 12,783 10,507 9,365
Long-term debt..................... 2,450 8,254 -- -- 121
Stockholders' equity............... 1,680 (51) 3,855 1,963 2,035
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company was formed in 1988 to acquire certain assets, liabilities and
operations of the sports accessory business of Roadmaster Corporation
("Roadmaster"). The Company was capitalized initially through a private
placement of stock and an initial public offering (approximately $3.1 million),
a long-term debt of $4 million owed to Roadmaster for the purchase of the
business, and a revolving credit facility guaranteed by Equitex, Inc., an
affiliate of Roadmaster.
Until October 1993, the Company was controlled, in part, by Roadmaster
and Equitex. TICO, an entity controlled by Thomas W. Itin, obtained control from
Roadmaster and Equitex in October 1993. Since that date, Mr.Itin has obtained a
new credit facility from an affiliate, brought in new management with experience
in "turnaround" situations, and provided additional capital through various
affiliated entities. Management, through the capital it has provided and the
efforts it has expended, is committed to reversing the losses that occurred in
1993 and 1994, obtaining a credit facility from an asset-based lender, and
improving the financial condition of the Company.
RESULTS OF OPERATIONS
In 1994 the Company's net sales were $12.9 million, or a decrease of $3.0
million, or 18.9% compared to 1993. The overall sales decline occurred
throughout all of the Company's product lines and with respect to both major and
secondary customers categories. Sales declines reflected the trend of major
customers reducing the number of their suppliers. Billiard accessories increased
by $155,000 as a result of increased emphasis on distribution of this product
line.
In 1993 the Company's net sales were $15.9 million, or a decrease of $5.1
million, or 24.3% compared to 1992. Management believes this decline was
attributable to poor weather conditions, purchasing delays as major customers
stretched out their buying programs and one customer discontinuing purchases of
two product lines. In the first quarter of 1993 one of the Company's major
customers began purchasing directly from the manufacturer two product lines
which the Company had previously sold to this customer. The sales to this
customer for these two products were $200,000 for the twelve months ended
December 31, 1993, compared to sales of $3,000,000 to that customer in those
product lines during the same period in 1992.
NET SALES BY PRODUCT LINE
(in thousands)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Golf bags $ 9,135 $ 8,047 $ 6,003
Golf accessories 5,842 4,215 3,720
Golf gloves 3,821 2,030 1,553
Golf carts 1,651 938 642
Billiard accessories 565 672 827
Leisure furniture 0 0 154
------ ------ ------
Total $21,014 $15,902 $12,899
====== ====== ======
</TABLE>
Ajay has undertaken steps to improve results in its 1995 sales programs.
With new product designs, new sales representation, and improved product lines,
management is optimistic that customers will increase their share of Ajay
product purchases for the 1995 season. Based on preliminary results of
operations for the first two months of 1995, management believes its plan of
action will be successful. The acquisition of Leisure Life in August 1994 had
minimal impact on the sales and gross profit results for 1994.
14
<PAGE>
Operating loss for the Company was $2.1 million for 1994, a decrease of
$1.0 million, compared to an operating loss of $1.1 million in 1993. The higher
loss directly resulted from reduced net sales and losses from closeout sales
tied to the decision to reduce inventory levels plus write-off of $120,000 of
tooling on a discontinued product. A charge off in the amount of $115,000 was
also necessary to write off royalties that were under-absorbed on the reduced
sales volume. Operating loss for the Company was $1.1 million for 1993, a
decrease of $2.0 million, compared to operating income of $0.9 million for 1992.
The decrease in operating earnings attributed to lost sales was $1.0 million.
Additional contributing factors were increased closeout sales resulting in a
$300,000 loss, excessive inventory carrying costs of $100,000, excessive loan
fees of $100,000, and inventory write-offs of $200,000.
Selling, general and administrative expenses were $2.7 million and $2.8
million, representing 21.1% and 17.8% of sales in 1994 and 1993, respectively.
This reflects the acquisition of Leisure Life, which contributed $110,000 to
selling, general and administrative expenses, along with special consulting and
termination allowances of $107,000 during 1994. The 18.9% sales volume decline
in 1994 was not equivalently matched by expense reductions due to expenses being
more fixed than variable. Selling, general and administrative expenses for the
Company were $2.8 million for 1993, a decrease of $0.1 million compared to 1992.
In an effort to create additional sales momentum in 1993, the Company increased
sales personnel and also experienced costs of new product introductions, which
resulted in a higher fixed sales, general and administrative expenses in 1993,
as compared to 1992. In an effort to stimulate sales volume, certain advertising
expenses were increased, which did not result in a corresponding sales increase.
The decrease in interest expense in 1994 was a result of less debt to
finance inventory. The decrease in 1993 was a result of eliminating a temporary
increase in letter of credit financing in 1992 to finance inventory purchases.
In 1991 based upon consideration paid by new shareholders, the Company
reduced the carrying value of its investment in affiliate by $2,014,000. In 1992
the Company transferred shares of its investment to Roadmaster in satisfaction
of various obligations in the amount of $376,000 and in exchange for machinery
and equipment previously leased from Roadmaster with an appraised value of
$490,000. A gain of $275,000 was recognized as a result of these transactions in
1992. In 1993 the Company wrote off $123,000 of advances to affiliates as
uncollectible.
The Company provides severance pay to certain employees. Currently, the
liability for such compensation is reflected when the event giving rise to such
payments is known. Under Statement of Financial Accounting Standards No. 112,
Employers' Accounting for Postemployment Benefits, which must be applied in the
preparation of the Company's 1994 financial statements, these liabilities must
be accrued over employees' service lives. The adoption of this new standard did
not significantly impact the Company's financial statements.
The Company had no income tax liability for 1994, 1993 and 1992. The
Company had net operating loss carryforwards for federal tax purposes of
approximately $5,293,000 at December 31, 1994, which expire in varying amounts
in the years 2006 through 2009. Operating loss carryforwards totaling $845,000
and $4,248,000 are available to offset future state taxable income of Sports and
Ajay, respectively, which expire in varying amounts in the years 2006 through
2009.
FINANCIAL CONDITION
At December 31, 1994 the Company had working capital of $593,000,
compared with $903,000 at December 31, 1993. This reflects a reduction in
inventories of $1.6 million and a reduction of $1.3 million in payables and
debt. The ratio of current assets to current liabilities at December 31, 1994
was 1.1, which was unchanged from the December 31, 1993 ratio.
15
<PAGE>
Inventories at December 31, 1994 were $5,786,000 compared to $7,381,000
at December 31, 1993. The decrease was a result of management's efforts to
reduce inventory levels to more appropriately correspond to the lower sales
base. This has been accomplished through disposal of excess inventories and an
emphasis on working closely with customers and resulting forecasts to more
appropriately access, communicate, and commit to their needs.
Trade accounts receivable were $1,700,000 at December 31, 1994 compared
to $1,975,000 at December 31, 1993. The lower trade accounts receivable are
principally due to lower fourth quarter sales.
Net machinery and equipment at December 31, 1994 and 1993 were $1,357,000
and $778,000, respectively. As of September 30, 1992 the Company purchased
machinery and equipment at the appraised value of $490,000 from Roadmaster and
cancelled operating leases for these respective assets. The consideration given
in the transaction was 250,000 shares of common stock of MacGregor Sports and
Fitness, Inc. ("MacGregor").
In June 1992 the Company transferred 188,100 shares of MacGregor common
stock and assigned advances due from MacGregor to Roadmaster in satisfaction of
obligations to Roadmaster of $376,000. Also in 1992 additional shares of
MacGregor common stock were transferred to Roadmaster in exchange for machinery
and equipment previously leased from Roadmaster with an appraised value of
$490,000. A gain of $275,000 was recognized as a result of this transaction. See
"Certain Transactions" and Notes 3 and 5 of the Notes to the Consolidated
Financial Statements.
CAPITAL RESOURCES
The Company expended $115,000 in 1994 for capital expenditures, which was
used principally for tooling of new products introduced in 1994. The Company's
capital expenditures for 1993 were $226,000, principally for tooling of new
products introduced in 1993. Capital expenditures for 1995 will be similar to
1994 and financed from operations.
LIQUIDITY
Cash flow from operations was negative by $2,618,000. This reflects a net
loss of $3,080,000. The net loss was primarily a result of reduced sales volume
and liquidation of certain inventory items at prices which resulted in losses.
Also contributing were substantial legal and financing fees connected to
financing matters as described in Note 3 of the Notes to the Consolidated
Financial Statements. An inventory reduction of $1,595,000 has helped to
generate funds to reduce accounts payable and partially offset the net loss.
The Company's liquidity is primarily affected by its financing
requirements. The seasonal nature of the Company's sales creates fluctuating
demands on its cash flow, due to the temporary build-up of inventories in
anticipation of, and receivables subsequent to, the peak seasonal period which
historically has been from February through May of each year. The Company has
relied and continues to rely heavily on revolving credit facilities for its
working capital requirements.
On April 14, 1992, Ajay entered into an amended lending arrangement with
BankAmerica (the "Total Credit Facility"), which included a revolving credit
facility of the lesser of $10,000,000 (including $2.5 million for the purchase
of finished goods and component parts inventory), or an amount based on eligible
accounts receivable and raw materials and finished goods inventories, along with
a seasonal inventory subline of up to $500,000. The Total Credit Facility
contained various wide-ranging restrictive covenants, including restrictions on
capital expenditures, dividends and limitations on distributions to the Company.
16
<PAGE>
On April 14, 1994, the Company was advised by BankAmerica that the Total
Credit Facility had been purchased by Roadmaster Industries, Inc.
("Roadmaster"). On May 5, 1994, Ajay paid Roadmaster in full all outstanding
obligations under the Total Credit Facility and entered into a Loan and Security
Agreement ("Loan Agreement") with Williams Controls Industries, Inc.
("Williams") for a term loan of up to $7,000,000. On October 3, 1994 the
outstanding balance was reduced by $1,400,000 as a result of the election by
Williams to exercise its option to purchase 4,117,647 shares of the Company's
Common Stock. At December 31, 1994 Ajay had $5,369,000 outstanding under this
agreement. The Loan Agreement requires monthly interest only payments at the
prime rate of First Interstate Bank of Oregon plus 2% and was originally
scheduled to expire on November 4, 1994 and has been extended to February 1,
1996. The terms and conditions of the Loan Agreement are substantially the same
as the prior Total Credit Facility with BankAmerica, except that the Loan
Agreement is a term loan. The Loan Agreement is secured by a lien on
substantially all of the assets of Ajay and is guaranteed by the Company. The
guaranty is secured by a pledge of all of the outstanding stock of Ajay.
If Williams were not to refinance or extend maturity on February 1, 1996,
the Company would not have sufficient funds to repay the outstanding balance,
which would affect the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might be
necessary if the Company was unable to continue as a going concern.
The Company is continuing to work on the refinancing of its working
capital loan with asset based lenders to put this financing in place, however,
no commitment for an extension or refinancing has been given.
The Company received an equity infusion in early October 1994 of
$2,400,000, as a result of a private placement of 2,941,177 shares of Common
Stock for $1,000,000 and the exercise of options by Williams for 4,117,647
shares. Proceeds from the Williams Common Stock purchase were used to reduce its
loan balance to the Company by $1,400,000. Also in early October 1994, the
holder of the Company's Series B Preferred Stock converted 17,000 shares of
Series B Preferred Stock into 5,000,040 shares of Common Stock.
Additionally, management, recognizing the narrow profit margins which
exist in the mass merchandise market segment, has instituted a cost reduction
program which includes a reduction in salary and labor positions, along with
related fringe benefits. The Company has also obtained more favorable material
costs, enhanced its material utilization methods and instituted more efficient
manufacturing techniques. The Company has strengthened its sales coverage by
appointment of additional experienced independent sales representatives and
increased its emphasis of product development which will result in several new
product line introductions for the 1995 and 1996 selling seasons. Management
believes these factors will contribute to achieving profitability.
17
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH THE ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 21, 1994, the Company engaged Hirsch & Silberstein, P.C., as the
independent accountants to audit the Company's financial statements for the year
ending December 31, 1994. Hirsch & Silberstein replaced Coopers & Lybrand,
L.L.P. ("Coopers") which, on June 3, 1994, informed the Company that the client-
auditor relationship between the Company and Coopers had ceased.
The report of Coopers on the Company's financial statements for the
fiscal year ended December 31, 1993 included an explanatory paragraph related to
an uncertainty concerning the Company's ability to continue as a going concern
due to significant losses during 1993 and the Company not being in compliance
with certain debt covenants under its bank loan. The bank loan was subsequently
repaid in full on May 5, 1994, at which time the Company entered into the new
loan agreement with Williams Controls Industries, Inc. See Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity."
In connection with the audit for the years ended December 31, 1992 and
1993, there were no disagreements with Coopers on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which if not resolved to the satisfaction of Coopers would have
caused them to make reference to the matter in their report. The same was true
as of June 3, 1994, the date that the client-auditor relationship between the
Company and Coopers had ceased.
18
<PAGE>
BUSINESS
GENERAL
Ajay Sports, Inc. (the "Company") markets and distributes golf bags, golf
accessories, golf gloves, hand-pulled golf carts, and additional items such as
billiard accessories (such lines of business hereinafter collectively referred
to as the "Sports Business" or "Sports"). The Company operates the sports
business through Ajay Leisure Products, Inc. ("Ajay") a wholly owned subsidiary.
Leisure Life, Inc. ("Leisure Life"), another operating subsidiary, manufactures
and markets casual living furniture for the porch and patio. All references to
the Company include Ajay and Leisure Life unless otherwise specified. Leisure
Life was acquired August 1, 1994.
Ajay designs and manufactures its golf bags. The preliminary production
of the golf bags is undertaken at its Delavan, Wisconsin facility, where raw
materials are designed and fabricated in preparation for sewing and assembly at
its Mexicali, Mexico facility. Final manufacturing, assembly, and distribution
occur at Ajay's Delavan, Wisconsin facility. Ajay believes that this
manufacturing arrangement enables the Company to manufacture products of high
quality while maintaining competitive costs.
Ajay's products primarily are sold nationwide to large retailers such as
Wal-Mart, K-Mart, and Target, discount stores, department stores, catalog
showrooms and other mass merchandise outlets. The products manufactured by the
Company are sold primarily under the Spalding(R), Ajay(R), Pro Classic(R), and
Private Pro(R) brand names. Leisure Life's products are sold through independent
retailers and larger chains of home and garden stores.
BUSINESS STRATEGY
The Company's strategy is to maintain and improve its position as a
leading supplier of golf bags, golf accessories, golf gloves, golf carts, and
billiard accessories to the mass merchandise distribution channel. The Company
believes that the following competitive strengths contribute to its position as
a significant competitor in the Sports Business in this market segment:
STRONG BRAND RECOGNITION. Spalding(R), Ajay(R), Pro Classic(R), and
Private Pro(R) are highly recognized names in the golf accessory industry and
the Company believes that many of its products hold strong market positions. The
Company believes that its brand recognition and market position enhance its
ability to sell products through both mass merchandisers and regional retailers.
A significant portion of the Company's revenues result from the sale of products
manufactured and sold pursuant to a license agreement with Spalding Sports
Worldwide ("Spalding"), the loss of which could have a material adverse effect
on Ajay's business. The Company has been selling golf bags, golf carts, golf
gloves and a broad range of general sports accessories pursuant to this
agreement, which expires June 30, 1996. The predecessor business to the Company
originally obtained its license with Spalding in 1983 and has renewed the
license a number of times since that time through the current June 1996
expiration.
REPUTATION FOR QUALITY. The Company believes that the performance of its
products equals or exceeds the performance of its competitors' products marketed
through the mass merchandise distribution channel. To assure the quality of its
products, the Company continually invests in technical design and support, and
tests and monitors the performance of its products. At its own facilities, the
Company relies on its skilled and experienced work force. To assure the quality
of products sourced from third-party manufacturers, the Company has established
and works to maintain close, long-term sourcing relationships that emphasize
service, quality, reliability, loyalty and commitment.
EMPHASIS ON INNOVATION. Management of the Company is dedicated to working
with its customers to design and maintain a current line of products. A new cart
line, new bag styles, and new product designs for 1995 are current examples of
the Company's commitment in this area.
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BREADTH OF PRODUCT LINES. The Company offers a broad selection of golf
bags, golf carts, golf accessories and billiard accessories. Through its broad
product lines, the Company offers mass merchants and regional retailers the
ability to fulfill product demands and needs from a single source. The Company's
product lines have established its strong position among manufacturers of golf
bags and suppliers of golf related accessories category. Its models of golf bags
consist of over 50 models which vary by size, color, type of material and
related features. The line of golf related accessories consists of mainly
consumable items such as tees, head covers, golf ball retrievers, umbrellas and
golf training devices. The accessory category includes over 100 individual
items.
Golf bags, golf carts, and related accessories historically account for
approximately 96% of Ajay's gross sales. Billiard accessories account for
approximately 4%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations." The Company
expects sales by Leisure Life, which was acquired in August 1994, to become a
more significant percentage of total sales for the Company over the next three
to five years.
With regard to the leisure furniture business, the Company believes that
the following factors have contributed to Leisure Life's success to date and
will position Leisure Life for future growth: the simplified design of the
furniture permitting ease of assembly, the quality and durability of the
construction, the versatility of the furniture to indoor or outdoor uses, and
the ease of manufacturing which can permit the establishment of satellite
factories in strategic geographic locations and in turn provide nationwide
distribution with the lowest possible freight costs.
The Company believes that the strengths described above, combined with
its management team which is experienced in turnaround situations, as well as
manufacturing, marketing, and distribution, should position it for future
growth.
GROWTH OPPORTUNITIES
The Company believes that its strong brand recognition, reputation for
quality, tradition of innovation and breadth of product lines position it to
take advantage of opportunities for future growth including:
INCREASED DISTRIBUTION. The Company's products are currently sold to
customers through mass merchants and regional retailers. Management believes
that those who purchase golf products from mass merchants and regional retailers
generally play golf at municipal and other public golf courses. Based on the
increase in these types of courses in the last few years and the growth in sales
of golf equipment through the mass merchandiser channel, management believes
that this market segment will experience continued growth in the near future.
The Company also believes that many of its principal competitors service
substantially more accounts, primarily those of smaller stores. Accordingly, the
Company intends to focus on increasing its direct sales efforts to include
smaller stores where it has historically had limited marketing emphasis, but
where better profit margins can generally be realized, while continuing to
maintain and build upon its strong position with mass merchandisers and regional
retailers.
NEW PRODUCT DEVELOPMENT. The Company believes that it is possible to
increase its sales of products through design improvements and modifications to
existing products as well as the development and introduction of new products.
With regard to existing products, the Company uses its own designer to work with
a customer to create a customized look to its golf bags, using design features,
such as color, decals, specialized components and decorative accessories. By
working with the customer, management believes that this builds enhanced
commitment for the resulting product.
The Company is working on new products for sports other than golf that
utilize the Company's existing manufacturing capabilities, specifically its cut
and sew operations, and that may result in sales during the summer and fall to
offset the seasonality of the golf lines. Management believes that it will be
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able to determine the market acceptance for these new products without incurring
a significant amount of expense.
SPORTS BUSINESS
Golf, which is the primary market of Ajay's product and accessory
business, continues to be a popular form of recreation. According to the
National Golf Foundation ("NGF"), a trade association, there were 2.5% more
rounds of golf played in 1994 than 1993. The pace of golf course development
also continues to grow steadily. NGF reports that 381 golf courses were opened
for play in 1994, versus 345 in the previous record year of 1993. This marks the
------
fourth straight year that the number of courses opened increased from the
previous year.
Ajay's products include golf bags, golf accessories, golf gloves, hand-
pulled golf carts, and billiard accessories. Ajay has over 50 models of golf
bags which vary by size, color, type of material and related features. The line
of golf related sports accessories consists mainly of consumable items such as
tees, spikes, gloves, head covers, golf ball retrievers, umbrellas and consists
of over 100 individual items. Its line of golf carts consists of 4 models which
differ by frame style, size, color, handle, and wheels.
LICENSING. A significant portion of Ajay's revenues result from the sale
of products manufactured and sold pursuant to various agreements, the loss of
which could have a material adverse effect on the Company's business.
Ajay has been selling golf bags, hand-pulled golf carts and a broad range
of general sports accessories through a license agreement with Spalding. The
current agreement expires June 30, 1996. As consideration for this license, Ajay
is required to pay royalties to Spalding based on a percentage of sales, subject
to annual minimums of $600,000, $650,000, $500,000 and $550,000, for the years
ended June 30, 1993, 1994, 1995 and 1996, respectively. Other conditions of the
agreement require Ajay to expend 2% of sales under the agreement on advertising
and related costs, with 1% remitted to Spalding. Ajay must also maintain a ratio
of total current assets to total liabilities on a monthly basis of 1.0 to 1.0.
Spalding has the right to terminate the license agreement in the event of any
substantial change in the ownership, control, officership or management of Ajay.
The license agreement also prohibits Ajay from acquiring any new companies
without the prior approval of Spalding. Approximately 61%, 61%, and 68% of
Ajay's total sales related to products sold under the Spalding license agreement
during the years ended December 31, 1994, 1993, and 1992, respectively.
MANUFACTURING AND DESIGN. The preliminary production of Ajay's golf bags
is undertaken at its Delavan, Wisconsin facility, where raw materials are
fabricated in preparation for sewing and assembly at its Mexicali, Mexico
facility. In addition, Ajay supplements in-house production through utilization
of subcontractors to produce products according to its specifications. Final
manufacturing, assembly and distribution occur at its facility located in
Delavan, Wisconsin.
Design features, such as color, decals, specialized components and
decorative accessories, often determine whether a model is successful. In order
to attract and retain consumers the Company updates and refines its designs on a
continuous basis.
The Company's lines of various accessory products are acquired primarily
from foreign sources, principally from the Pacific Rim, and repackaged at the
Company's Delavan, Wisconsin facility for domestic distribution. The packaging
designed by Ajay highlights the various features of the products. Ajay's hand-
pulled golf carts are manufactured overseas. Ajay is responsible for all
warehousing and shipping of the golf carts. The Company is not dependent upon
any single source for any of its significant products.
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MARKETING AND DISTRIBUTION. Ajay's product lines traditionally have been
distributed primarily through discount stores, department stores, catalog stores
and other mass merchandise outlets. The Company also sells through most major
chain retailers. Ajay's largest customer accounted for approximately 41% of
Ajay's sales in 1994.
Except for certain major accounts, the majority of the Company's accounts
are serviced exclusively by approximately 40 manufacturers' representatives
working on a commission basis. These representatives concentrate principally on
the sports business. Ajay services its major accounts through a combination of
manufacturers' representatives and its own in-house sales force. Ajay's
management regularly consults with major customers to discuss merchandising
plans and programs, anticipated needs and product development.
The Company believes it has good name recognition in the industry and
attempts to expand that recognition through participation in trade shows,
advertising in trade publications and supplying large numbers of catalogs to the
retail trade and consumers.
LEISURE FURNITURE BUSINESS
Demographic changes have driven a shift for the last ten years toward a
casual living lifestyle, as evidenced by the proliferation of decks, patios, and
sunrooms. Americans are spending more time at home in a relaxed casual manner.
Home Furnishings Daily reported that for the year ended December 31, 1992, the
largest 25 outdoor furniture retailers sold $517 million of product. Adding the
2,000 plus other retailers of outdoor furniture to those selling porch and great
room sets, the market is believed by management to exceed $2.5 billion annually.
Leisure furniture, used on porches, decks and patios, and in sunrooms and
yards has principally consisted of aluminum, resin, wrought iron and low to
medium priced wood products. The designs of wood products have not been stylish
nor particularly comfortable for seating. Management believes that Leisure
Life's "In Motion(R)" furniture products, which feature adjustability and
comfort, have the potential to be received favorably in the leisure furniture
market.
Leisure Life's furniture is constructed of a high grade of pine which is
pressure-treated and kiln-dried to prevent deterioration, warping, and bending
and to withstand varying climate conditions. The seating products utilize a
patented suspension seating system which permits simple adjustment to
accommodate users of different heights and weights. This system also
incorporates an ergonomically designed sling and deep cushion seating to provide
lower back support. Management believes that its seating products are superior
in comfort to any other leisure furniture product. The patented system is used
on swings, rocking chairs, stationary chairs, love seats, and couches.
In addition to the seating products, Leisure Life also manufactures
matching dining tables, cocktail and end tables, a bench, ottoman, and stool to
comprise a coordinated line of leisure furniture. Management believes that a
coordinated casual wood furniture line can be marketed for indoor as well as
outdoor use.
MANUFACTURING. The pressure treated pine purchased by Leisure Life is
planed, cut, drilled, and sanded in the Baxter, Tennessee facility to form the
frames and tables. A small portion of the wood pieces used in the frame are
purchased pre-manufactured. Fabric for pillows and slings are cut and partially
sewn primarily by a third party subcontractor in Alabama and then shipped back
to Baxter, Tennessee, where the pillows are stuffed and finally sewn and
assembly takes place. Furniture items are packaged in kits containing the wood
frame pieces, slings, pillows, and necessary hardware, requiring the customer to
assemble the final product.
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MARKETING AND DISTRIBUTION. Initially, marketing focused on individual
retailers of outdoor and unfinished furniture within a 300-mile radius of the
manufacturing facility. Currently, Leisure Life supplies nearly 600 selected
small dealers, several with multiple stores. As opposed to Ajay's distribution
through mass merchandise outlets, Leisure Life distributes through specialty
stores, such as nurseries, hardware stores, pool and patio dealers, and garden
shops. Leisure Life services its accounts primarily through two in-house sales
people.
Since management believes that the comfort of its seating products is
what Leisure Life from other manufacturers, it is important for prospective
customers to sit in the furniture. Accordingly, Leisure Life has two display
trucks containing samples of its furniture line, which are used to attract more
dealers. Sales are being developed with regional chains. In addition, more
national coverage is being developed through the use of 15 manufacturers'
representatives on a commission basis and through exhibits at trade shows
targeted at hardware and nursery stores.
INVENTORIES AND BACKLOG
Due to the relatively short lapse of time between placement of orders for
products and shipments, Ajay and Leisure Life normally do not consider their
backlog of orders to be significant to their business. Because of rapid delivery
requirements of its customers, Ajay and Leisure Life maintain significant
quantities of finished goods inventories to provide acceptable service levels to
its customers. The majority of Ajay's products are shipped directly from its
Delavan plant.
Ajay's products tend to have varying degrees of seasonality. Shipments
from February to May historically have been significantly higher than the rest
of the year, due to the nature of the golf business.
Shipments of Leisure Life's outdoor furniture line tend to be higher from
February to May than the rest of the year. Management expects that the indoor
line being developed will have higher shipments in the fall.
COMPETITION
Within the mass merchandise distribution segment where Ajay presently has
the majority of its sales, Ajay competes in the golf bag, cart and accessory
business with several other domestic companies including in particular, Voit,
Wilson, MacGregor, Dunlop, Korex and others. While increased imports of low cost
competitive products, primarily from the Pacific Rim, continue to subject
domestic producers to intense price competition and have created extreme price
sensitivity, it also provides a source of competitive products for the Company
to offer. As Ajay increases sales to smaller retailers, it is anticipated that
it will compete with different companies.
There are no dominant furniture manufacturers supplying, on a national
basis, products specifically targeted for porches, decks, patios, and sunrooms.
There are small firms supplying on a regional basis. Management does not believe
that there are any other wood furniture products that are adjustable. However,
there is competition for display space in stores, along with competition from
other wood, resin, aluminum, cushion, and plastic furniture products.
RAW MATERIALS AND COMPONENTS
Basic materials such as vinyl, nylon, steel and aluminum tubing, plastics
and paint used in the golf bag manufacturing and assembly process are purchased
primarily from domestic sources. Many of the component parts such as golf
headcovers, golf gloves, billiard cues, billiard accessories, light weight carry
golf bags and various other golf accessories are obtainable economically only
from foreign suppliers and, therefore, are subject to changes in price as a
result of fluctuations in foreign currencies against the U.S. dollar.
Alternative sources for raw materials and component supplies are available and
Ajay
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anticipates no significant difficulty in obtaining raw materials or components,
although some such purchases may be at increased prices.
Leisure Life purchases pressure treated pine, fabric, pillow stuffing,
and miscellaneous hardware used in the manufacturing and assembly process from
domestic sources. Alternative sources for raw materials are available and
Leisure Life does not experience difficulty in obtaining raw materials.
PATENTS
Ajay and Leisure Life own numerous patents and have proprietary knowledge
relating to their product lines. Except for the patented suspension seating
system used by Leisure Life, management does not believe that the loss of any of
its patents would have a material adverse effect on its business.
EMPLOYEES
As of March 17, 1995, the Company, Ajay and Leisure Life had a total of
333 employees: 98 employees at the Delavan, Wisconsin facility, 190 employees at
the Mexicali, Mexico facility, and 45 employees at the Baxter, Tennessee
facility. The Company's employees are not covered by any collective bargaining
agreement and management considers its current relations with its employees to
be good.
PROPERTIES
The Company's executive, and Ajay's primary manufacturing, assembly and
warehouse facility, is located in Delavan, Wisconsin, and consists of 186,300
square feet of manufacturing and warehousing space. This space is leased from an
unaffiliated third party under a long term lease arrangement expiring June 2001,
with an option to renew for an additional ten-year period. The monthly rental is
$27,623, net of the Company's obligation to pay property taxes and all
utilities. The Company has an option to purchase the property at its fair market
value at the end of either the initial or renewal lease term.
Through its wholly-owned subsidiary, Ajay de Mexico, S.A. de C.V., Ajay
leases an additional manufacturing facility consisting of approximately 31,500
square feet in Mexicali, Mexico. The lease expires on January 14, 1998, but is
automatically renewed for an additional five-year period if Ajay does not give
written notice six months prior to January 14, 1998. The monthly rent until
January 15, 1996 is $11,173 and subsequent years are subject to annual Consumer
Price Index adjustment with an annual cap of 4%.
Leisure Life owns its manufacturing, assembly, and warehouse facility in
Baxter, Tennessee, which consists of approximately 32,000 square feet of
manufacturing and warehousing space, located on 2.8 acres.
These facilities adequately meet the Company's production capacity
requirements. The Company, on average, utilizes approximately 70% of its
facility square footage in Delavan and Mexicali. In order to avoid periodic
total plant shutdowns, the Company adjusts its product production schedules to
maintain sufficient inventory levels and to maintain a full work force.
Recognizing the excess capacity which currently exists at the Mexicali,
Mexico facility, the Company granted Williams Controls the right, until August
1, 2002, to establish a manufacturing operation in that facility, subject to the
availability of space. If a manufacturing operations is established, Williams
Controls would have to pay its pro rata share of the space occupied in the plant
and personnel costs, as well as all incremental expenses to modify the plant,
obtain permits, hire personnel, and perform other tasks to suit its
requirements. See "Certain Transactions."
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LEGAL PROCEEDINGS
The Company, through its operating subsidiaries, Ajay and Leisure Life,
are involved in various legal proceedings which are normal to its business,
including product liability and workers' compensation claims. The Company
believes that none of this litigation is likely to have a material adverse
effect on its financial condition or operations. Ajay faces the risk of exposure
to product liability claims if consumers using Ajay's products are injured in
connection with their use. While Ajay will continue to attempt to take
appropriate precautions, there can be no assurance that it will avoid
significant product liability exposure. Based on historical experience, Ajay and
Leisure Life have product liability coverage which the Company believes is
adequate.
On July 7, 1994, Ajay filed a complaint in Walworth County Circuit Court,
State of Wisconsin, against Roadmaster Industries, Inc., Roadmaster Corporation,
Henry Fong, Edward E. Shake and Charles Sanders, seeking damages for claims
arising out of the defendants' alleged misappropriation and/or conversion of
Ajay's confidential business information. The lawsuit is in its early stages and
no prediction can be made of the outcome of this matter at this time.
MANAGEMENT AND KEY PERSONNEL
OFFICERS AND DIRECTORS
The officers and directors of the Company, Ajay and of Leisure Life are as
follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Thomas W. Itin 60 Chairman of the Board, President, Chief Executive Officer
and Treasurer
Clarence H. Yahn 58 Director, President of Ajay and Leisure Life
Duane R. Stiverson 53 Chief Financial Officer of the Company, Ajay and Leisure
Life; Director of Leisure Life
Stanley V. Intihar 61 Director
Anthony B. Cashen 60 Director
Robert R. Hebard 42 Director and Secretary
Robert D. Newman 53 Director, Vice President of Leisure Life
</TABLE>
The directors of the Company and Ajay are elected to hold office until
the next annual meeting of stockholders and until their respective successors
have been elected and qualified. Officers of the Company, Ajay and Leisure Life
are elected annually by the Board of Directors and hold office until their
successors are duly elected and qualified.
Thomas W. Itin. Mr. Itin was elected Chairman of the Board and President
of the Company in June of 1993. Mr. Itin provides the Company with expertise on
long term strategic planning, financing and mergers/acquisitions. Mr. Itin has
served as Chairman of the Board, Chief Executive Officer and Chief Operating
Officer of LBO Capital Corp. since its inception, and is the Company's largest
single
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stockholder. In 1987, Mr. Itin was a co-founder of Roadmaster Industries, Inc.
and helped to build it into what is now a $750 million sporting Company.
Mr. Itin has been Chairman, President and Owner of TWI International,
Inc. ("TWI") since he founded the firm in 1967. TWI acts as a consultant for
mergers, acquisitions, financial structuring, new ventures and asset management.
Mr. Itin also has been the Owner and Principal Officer of Acrodyne Corporation
since 1962. Mr. Itin is Chairman, President, Treasurer, Chief Executive Officer,
and Chief Operating Officer of Williams Controls Industries, Inc., a publicly
held corporation from March 1989 to the present. From August 1989 to February
1991, Mr. Itin has been an officer and director of MacGregor Sporting Goods
Corporation ("MacGregor Corporation"), formerly MGS Acquisitions, Inc. a
privately held company which acquired substantially all of the assets of
MacGregor Sporting Goods, Inc. from a filing of Chapter 11 Bankruptcy. In
February 1991, MacGregor Sports, Inc., the wholly-owned operating subsidiary of
MacGregor Corporation, filed for protection under Chapter 11 of the United
States Bankruptcy Code. Mr. Itin was a co-founder of Roadmaster Industries, Inc.
in 1987 and served as a director thereof from October 1987 until June 1993. From
December 1987 until October 1993, Mr. Itin was an officer and director of
CompuSonics Video Corporation, a publicly held company. Mr. Itin received a B.S.
degree from Cornell University and was awarded a Masters of Business
Administration degree from New York University.
Clarence H. Yahn. Mr. Yahn is the President of both Ajay and Leisure
Life. He has experience in manufacturing, marketing and general management at
the organizations in which he has worked, and has substantial experience in the
management of company turnarounds for such firms as Wesray Capital Corporation
and Leach McMicking and Company.
Mr. Yahn became a director of the Company in September 1994, and has
served as director of Ajay, since September 1993 and as Ajay Leisure's President
since January 1994. Mr. Yahn is on the Board of Directors of Leisure Life, Inc.,
a subsidiary of the Company. Mr. Yahn received his Bachelor's degree in
mathematics and physics from the University of Wisconsin in 1959 and his Masters
in International Business from the American Graduate School of International
Management in 1962, where he currently serves on their Board of Trustees. He
worked for various divisions of the Sunbeam Corporation including Vice President
of Manufacturing for the Sunbeam Appliance Company and Group President of
European Operations, while resident in London, England. In 1982 he was
transferred by Sunbeam to Aircap Industries as President. From 1988 to May 1991,
Mr. Yahn served as President of Gold Medal, Inc., a manufacturer of
leisure/lifestyle furniture based on Richmond, Virginia. He was a consultant to
Blount Lumber Co., located in Lacona, New York, which manufactured wood products
and was a millwork distributor. Prior to joining Ajay Leisure Products, Mr. Yahn
served as Chief Executive Officer of Melnor, Inc., Moonachie, New Jersey, from
May 1992 to June 1993. Melnor manufactured and distributed lawn and garden
products.
Duane R. Stiverson has been Chief Financial Officer since July 19, 1994.
Prior to joining the Company, Mr. Stiverson was the Vice President of Operations
for VariQuest Technologies, Inc. and held that position since 1991. From 1987 to
1990, Mr. Stiverson was Vice President of Materials for the Ambrosia Chocolate
Company. From 1978-1987 he was the Vice President of Finance for Ambrosia, and
from 1976-78 was its Controller. Mr. Stiverson held various controller and
corporate finance positions with the Bendix Corporation. Mr. Stiverson has a
Bachelor of Science from the University of Nebraska and was later awarded a
Master of Business Administration from Michigan State University.
Stanley V. Intihar. Mr. Intihar became a director of the Company in
September 1994, having been appointed as the designee of Williams Controls,
pursuant to its right granted in the Loan Agreement to have one member on the
board. From March 1994 to the present, Mr. Intihar has been Senior Vice
President of Williams Controls Industries, Inc. and has been a director of
Williams Controls Industries, Inc. since December of 1992. From 1992 to 1994, he
was an independent consultant for Williams. From 1988 to 1991, Mr. Intihar held
various offices with Park Ohio Industries, Inc., including President and Chief
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Operating Officer and most recently Chairman of the Board and Chief Executive
Officer. From 1958 to 1988, Mr. Intihar was employed by TRW, Inc., a publicly-
held corporation, in a variety of executive positions including Vice President
and General Manager Engine Components Worldwide, and Vice President, Corporate
Planning and Development Staff. Since 1978, Mr. Intihar has been a director of
Horsburgh & Scott Co., a private company. Mr. Intihar received a B.S. degree in
Mechanical Engineering from Cornell University and graduated from the Harvard
School of Business, Advanced Management Program.
Anthony B. Cashen. Mr. Cashen has served as director of the Company and
Ajay since November 1993. Mr. Cashen has served as Secretary, Treasurer and
director of LBO Capital Corp., since inception. He is currently a Managing
Partner in Lamalie Amrop International, a management consulting and executive
recruiting firm located in New York City. Prior to his joining Lamalie Amrop
International (formerly Flanagan & Webster), he was President and owner of
Elliott Hardwood, an integrated lumber manufacturer located in upstate New York.
Previously, Mr. Cashen had been an officer and principal of the investment firms
of A.G. Becker, Inc. and Donaldson, Lufkin & Jenrette, Inc. He serves as
director of PW Communications and Immucell Corporation, both of which are
publicly-held companies. Mr. Cashen is also President of the Sagamore Institute.
Mr. Cashen has an MBA from the Graduate School of Management (1958) and a B.S.
degree from Cornell University.
Robert R. Hebard. Mr. Hebard has served as a director of the Company and
Ajay Leisure Products, Inc. since June 1989 and as Secretary of the Company
since September of 1990. After receiving a Bachelors Degree in
Marketing/Management from Cornell University in 1975, Mr. Hebard held various
marketing/product management positions with Goldome Bank, a $10 billion savings
bank in Buffalo, N.Y. While there, he received his MBA in 1982 from Canisius
College. Mr. Hebard joined Comerica Bank, Detroit, Michigan as an Assistant Vice
President in September 1982. In July 1984 he became Vice President of Marketing
for U.S. Mutual Financial Corporation, then returned to Comerica as Vice
President and Group Product Manager for Consumer Products. In June 1986 he was
named First Vice President/Director of Product Management for Comerica and in
February 1992 was named director of Retail Marketing for the merged
Comerica/Manufacturers Bank. Mr. Hebard is also currently serving as Vice
President of Woodward Partners, Inc., a real estate development company in
suburban Detroit, Michigan. In June 1993, he was named Chairman of the Board and
President of Enercorp, Inc., a publicly traded business development company
under the Investment Company Act of 1940, as amended, a shareholder of the
Company. In 1993, Mr. Hebard was also named Chief Executive Officer, Chief
Financial Officer, and Treasurer of CompuSonics Video Corporation, a publicly
held company. From December 1993 to August 1994 Mr. Hebard served as director of
Kimbro Imaging Systems, Inc.
Robert D. Newman. Mr. Newman became a director of the Company in August
1994. Mr. Newman has served as General Manager of Leisure Life, Inc., a wholly
owned subsidiary of the Company since August 1994. Mr. Newman founded Leisure
Life, Inc. in October, 1990 and has served as President since its inception,
until its purchase by the Company in August 1994. Mr. Newman was President and
Chief Executive Officer of Stone Mountain Millworks from 1985 to 1989. Mr.
Newman served as director of Product Development for Gold Medal, Inc. from 1989
to October 1990. Mr. Newman was owner and President of three Atlanta based
consumer products sales agencies: 1981 to 1985 - Southeastern Regional
Representatives, 1979 to 1980 - Newman, Jamison, and Associates, from 1969 to
1979 - Bob Newman Sales. Mr. Newman worked in several sales positions for Ekco
Housewares Company during the period of 1961 to 1969. He attended Northern
Illinois University.
Robert R. Hebard is the son-in-law of Thomas W. Itin. Other than this
relationship, there are no other family relationships between any director or
executive officer.
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EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ending December 31, 1994,
1993 and 1992, the cash compensation paid by the Company and its subsidiaries,
as well as certain other compensation paid or accrued for those years, to each
of the executive officers of the Company in all capacities in which they serve:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
============================================================================================================
Long-Term
Annual Compensation Compensation
-------------------------------------------
Awards
------------------
Securities All Other
Underlying Op- Compen-
Name and Principal Position Year Salary $ Bonus $ tions (#) sation
============================================================================================================
<S> <C> <C> <C> <C> <C>
Thomas W. Itin (1) 1994 $ 1 $ --- --- $ ---
President, Treasurer and Director of 1993 $ --- $ --- --- $ ---
the Company and Treasurer and 1992 $ --- $ --- --- $ ---
Director of Ajay
- -------------------------------------------------------------------------------------------------------------
Clarence H. Yahn (2) 1994 $101,000 $ --- 350,000 $ ---
Director of the Company and 1993 $ --- $ --- --- $ ---
President of Ajay 1992 $ --- $ --- --- $ ---
- -------------------------------------------------------------------------------------------------------------
Duane R. Stiverson (3) 1994 $ 28,000 $ --- 45,000 $ ---
Chief Financial Officer of the Company 1993 $ --- $ --- --- $ ---
and Vice President and Chief Financial 1992 $ --- $ --- --- $ ---
Officer of Ajay
=============================================================================================================
</TABLE>
(1) On June 21, 1993 Mr. Itin was elected Chairman of the Board, President,
Treasurer and Director of the Company, and Chairman of the Board,
Treasurer and Director of Ajay.
(2) Mr. Yahn joined the Company at year-end 1993.
(3) Mr. Stiverson joined the Company in July 1994.
The following table sets forth information with respect to the named
executives concerning individual grants of stock options made during the last
fiscal year.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
====================================================================================================================================
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
- ------------------------------------------------------------------------------------------------------------------------------------
Number of % of Total Op-
Securities Un- tions Granted to
derlying Options Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Itin 0 0 N/A N/A N/A N/A
CEO
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
- ------------------------------------------------------------------------------------------------------------------------------------
Number of % of Total Op-
Securities Un- tions Granted to
derlying Options Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clarence H. Yahn 66,667 (a) 7.9% $.40 12/31/99 $ (3,300) $ 2,000
President, Ajay 66,667 (b) 7.9% $.40 12/31/99 $ (3,300) $ 2,000
66,666 (c) 7.9% $.40 12/31/99 $ (3,300) $ 2,000
50,000 (a) 6.0% $.45 12/31/99 $ (5,000) $ (1,000)
50,000 (b) 6.0% $.45 12/31/99 $ (5,000) $ (1,000)
50,000 (c) 6.0% $.45 12/31/99 $ (5,000) $ (1,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Duane R. Stiverson 15,000 (a) 1.8% $.40 12/31/96 $ 800 $ 1,600
VP & CFO 15,000 (b) 1.8% $.40 12/31/97 $ 1,100 $ 2,400
15,000 (c) 1.8% market 12/31/96 12/31/98 $ 700 $ 1,600
15,000 (d) 1.8% market 12/31/97 12/31/99 $ 700 $ 1,800
15,000 (e) 1.8% market 12/31/98 12/31/00 $ 800 $ 1,900
- ------------------------------------------------------------------------------------------------------------------------------------
Robert D. Newman 100,000 (b) 11.9% $.60 12/31/97 $(27,000) $(21,000)
General Manager 100,000 (c) 11.9% $.80 12/31/98 $(45,000) $(37,000)
of Leisure Life
====================================================================================================================================
</TABLE>
(a) Vesting 12/31/94 (c) Vesting 12/31/96 (e) Vesting 12/31/98
(b) Vesting 12/31/95 (d) Vesting 12/31/97
The following table sets forth information with respect to the named
executives concerning the unexercised warrants to purchase the Company's Common
Stock held as of the end of the fiscal year. No such executives exercised any
warrants in the last fiscal year.
AGGREGATED OPTION EXERCISES
IN 1994 AND DECEMBER 31, 1994 OPTION VALUES
<TABLE>
<CAPTION>
====================================================================================================================================
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at FY-End (#) Options at FY-End ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Acquired
Name on Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Itin 0 0 0 0 N/A N/A
CEO
- ------------------------------------------------------------------------------------------------------------------------------------
Clarence H. Yahn 0 0 66,667 133,333 $2,666 $5,333
President, Ajay 50,000 100,000 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Duane R. Stiverson 0 0 15,000 60,000 $ 600 $ 600
VP & CFO
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at FY-End (#) Options at FY-End ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Acquired
Name on Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert D. 0 0 0 200,000 -- --
Newman
General Manager
of Leisure Life
====================================================================================================================================
</TABLE>
BENEFIT PLANS
During April 1992, Ajay implemented a 401(K) benefit plan to cover all
employees with one year of service and had attained 18 years of age. On July 1,
1994, the plan was amended to allow employees with six months of service to
enroll in the plan. Employees may contribute up to 15% of compensation and the
Company has a discretionary matching contribution which will be determined on an
annual basis. The Company's matching contribution for 1992, 1993, and 1994 was
25% of the first 6% of employee contributions.
The Company has no retirement, pension, profit sharing or insurance or
medical reimbursement plans, exclusively covering its officers and directors.
EMPLOYMENT AND CONSULTING AGREEMENTS
On April 14, 1992, Ajay entered into an employment agreement with L. Dean
Cassell, then President of Ajay. Under the terms of the agreement, Mr. Cassell
was to receive an annual salary of $140,000 from June 30, 1992 through June 30,
1994 . Mr. Cassell was also to receive an incentive bonus equal to 8% of Ajay's
operating profits in excess of $500,000 and other fringe benefits as determined
by the Board of Directors. This employment agreement was terminated as of
February 26, 1994 and the Company entered into a consulting agreement with Mr.
Cassell for the period of February 27, 1994 through June 30, 1995. Under the
consulting agreement, Mr. Cassell was to provide a minimum of 4 days of service
per month for $4,000 per month during the period from February 27, 1994 through
June 30, 1994. During the period from July 1, 1994 through June 30, 1995, he is
to provide a minimum of 27 days of service for $27,000. On January 1, 1995, the
consulting agreement was changed to $1,000 per month.
The Company entered into an employment agreement with Robert D. Newman
effective July 31, 1994, pursuant to which Mr. Newman is paid an annual salary
of $65,000 for serving as the Vice President and General Manager of Leisure
Life. If Mr. Newman's employment is terminated within the first year of the
agreement, he is to be paid six months of severance pay. If termination occurs
after the first year of the agreement, he is to be paid nine months of severance
pay. The agreement continues unless and until terminated by Ajay or Leisure
Life.
DIRECTORS' COMPENSATION
The directors receive no compensation for their services as such, but are
reimbursed for reasonable costs incurred on behalf of the Company.
STOCK OPTION PLAN
On October 31, 1994, the shareholders of the Company adopted the 1994
Stock Option Plan, which provides for the granting of both incentive stock
options and non-qualified options to eligible
30
<PAGE>
employees, officers, and directors of the Company. an aggregate of 2,100,000
shares of Common Stock have been reserved for issuance pursuant to the exercise
of stock options under this Plan. The Plan is administered by the Compensation
Committee of the Board of Directors.
The Plan provides that disinterested directors, defined as non-employee
directors, will receive automatic option grants to purchase 5,000 shares of
Common Stock beginning with the 1994 annual shareholders meeting, and on the
date of each subsequent annual shareholders meeting. Options shall have an
option price equal to 100% of the fair market value of the Common Stock on the
grant date and shall vest in 33-1/3% installments commencing on the first
anniversary of the grant date.
Each option granted under the Plan will be evidenced by a written option
agreement between the Company and the optionee. Incentive stock options may be
granted only to employees (as defined by the Internal Revenue Code). The option
price of any incentive stock option may not be less than 100% of the fair market
value per share on the date of grant of the option; provided, however, that any
incentive stock option granted under the Plan to a person owning more than 10%
of the total combined voting power of the Common Stock will have an option price
of not less than 110% of the fair market value per share on the date of grant of
the incentive stock option. Each non-qualified stock option granted under the
Plan will be at a price no less than 80% of the fair market value per share on
the date of grant thereof, except that the automatic stock option grants to
disinterested directors will be at a price equal to the fair market value per
share on the date of grant. The exercise period of options granted under the
Plan may not exceed ten years from the date of grant thereof. Incentive stock
options granted to a person owning more than 10% of the total combined voting
power of the Common Stock will be for no more than five years.
An option may not be exercised unless the optionee then is an employee,
officer, or director of the Company or a subsidiary of the Company, and unless
the optionee has remained continuously as an employee, officer, or director of
the Company since the date of grant of the option. If the optionee ceases to be
an employee, officer, or director of the Company or subsidiary of the Company
other than by reason of death, disability, retirement, or for cause, all options
granted to such optionee, fully vested to such optionee but not yet exercised,
will terminate three months after the date the optionee ceases to be an
employee, officer, or director of the Company. All options which are not vested
to an optionee, under the conditions stated in this paragraph for which
employment ceases, will immediately terminate on the date the optionee ceases
employment or association.
During 1994, 840,000 options were granted and at December 31, 1994,
131,667 were vested and became exercisable.
CONFLICTS OF INTEREST
As described more fully in "Certain Transactions," Thomas W. Itin, the
Chairman and President of the Company, is also the chairman, president,
treasurer, chief executive officer, chief operating officer, and a 26.4%
beneficial owner of Williams Controls. Ajay has a current indebtedness at
December 31, 1994 of $5.4 million due February 1, 1996 pursuant to a Loan
Agreement with Williams Controls. The Company has guaranteed payment of this
loan and has pledged all of the outstanding stock of Ajay. In addition, Williams
Controls was granted options which can increase its stock ownership to
15,228,520 shares (45.2%) of the Company's then outstanding Common Stock
(without giving effect to this offering) if the loan is repaid in full by August
1, 1995, or 23,714,641 shares (56.3%) if the loan is not repaid in full by
August 1, 1995. Mr. Itin has indicated that he, as well as the other officers of
the Company, intend to pay the loan to Williams Controls in full by August 1,
1995, even though this would reduce the number of options available to Williams
Controls.
The Bylaws of the Company permit the Company to buy from, sell to, or
otherwise deal with the officers and directors of the Company and firms,
partnerships, associations, or corporations of which the
31
<PAGE>
directors and officers of the Company may be members, directors, or officers, or
in which they have pecuniary interests. Further, the Bylaws provide that no
contract or other transaction between the Company and its directors, or any
other corporation, firm, association, or entity in which one or more of the
directors are officers or directors or are financially interested, shall be void
or voidable solely because of such relationship or interest, solely because such
directors are present at the meeting of the Company's Board of Directors which
authorizes, approves, or ratifies such contract or transaction, or solely
because their votes are counted for such purpose if any of the following exist:
(1) the fact of such relationship or interest is disclosed or known to the Board
of Directors which authorizes, approves, or ratifies the contract or transaction
by a sufficient vote without counting the votes or consents of the interested
directors; (2) the fact of such relationship is disclosed or known to the
stockholders entitled to vote and the stockholders authorize, approve, or ratify
such contract or transaction; or (3) the contract or transaction is fair and
reasonable to the Company.
PRINCIPAL SHAREHOLDERS
The following table sets forth information, as of April 5, 1995 with
respect to the beneficial ownership of shares of Common Stock of the Company,
its only class of voting securities outstanding, by each person known by the
Company to be the beneficial owner of more than five percent thereof, by its
directors, and by its officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS (1)
<S> <C> <C>
Thomas W. Itin 13,281,225 47.4%
7001 Orchard Lake Road (2)(3)
Suite 424
West Bloomfield, MI 48322
Williams Controls Industries, Inc. 15,228,520 45.2%
14100 S.W. 72nd Avenue (4)
Portland, OR 97204
TICO 8,676,540 33.1%
7001 Orchard Lake Road (5)
Suite 424
West Bloomfield, MI 48322
Acrodyne Profit Sharing Trust 2,773,471 11.5%
7001 Orchard Lake Road (6)
Suite 424
West Bloomfield, MI 48322
Robert R. Hebard 1,799,706 8.0%
7001 Orchard Lake Road (7)
Suite 426
West Bloomfield, MI 48322
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS (1)
<S> <C> <C>
Enercorp, Inc. 1,764,706 7.8%
7001 Orchard Lake Road
Suite 426
West Bloomfield, MI 48322
LBO Capital Corp. 1,680,000 7.4%
7001 Orchard Lake Road (8)
Suite 424
West Bloomfield, MI 48322
Robert D. Newman 1,426,000 6.3%
215 4th Avenue North (9)
P.O. Box 60
Baxter, TN 38544
Clarence H. Yahn 266,667 0.7%
(10)
Duane R. Stiverson 35,000 0.2%
(11)
Stanley V. Intihar 20,000 0.1%
Anthony B. Cashen 0 --
All officers and directors as a 32,057,118 80.8%
group (seven persons) (2)(4)(7)
(9)(10)(11)
</TABLE>
- ---------------
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
April 5, 1995, these additional shares are deemed to be outstanding for
the purpose of computing the percentage of Common Stock owned by such
persons, but are not deemed to be outstanding for the purpose of
computing the percentage owned by any other person. Percentages are based
on 22,545,537 shares outstanding.
(2) Includes Common Stock and shares of Common Stock issuable upon the
exercise of presently exercisable warrants and the conversion of
presently convertible Preferred Stock beneficially owned by Mr. Itin's
spouse and affiliates of Mr. Itin as follows:
<TABLE>
<S> <C> <C>
TICO 5,000,040 Common Stock
First Equity Corporation 151,214 Common Stock
Acrodyne Profit Sharing Trust 2,773,471 Common Stock and Warrants
LBO Capital Corp. 1,680,000 Common Stock and Warrants
----------
9,604,725
TICO (12,500 shares of Series B Preferred Stock
convertible at one share for 294.12 shares of Common Stock 3,676,500 Preferred Stock Conversion
----------
13,281,225
==========
</TABLE>
Mr. Itin disclaims beneficial ownership in the securities owned by LBO
Capital Corp. and First Equity Corporation in excess of his pecuniary
interest.
33
<PAGE>
(3) Does not include 4,117,647 shares of Common Stock and 11,110,873 warrants
owned by Williams Controls Industries, Inc. Mr. Itin is Chairman of the
Board, President, Chief Executive Officer, Chief Operating Officer,
Treasurer and 26.4% beneficial owner of Williams Controls Industries,
Inc. Mr. Itin has agreed to abstain from participating in voting Company
shares owned by Williams. If the shares and warrants owned by Williams
were included, the number of shares beneficially owned would be
28,509,745 and the percentage of class would be 72.9%.
(4) Includes 11,110,873 shares of Common Stock issuable upon exercise of
certain options. See "Certain Transactions."
(5) Includes 3,676,500 shares of Common Stock issuable upon conversion of
12,500 shares of presently convertible Series B Preferred Stock, at a
rate of 294.12 shares of Common Stock for every one share of Preferred
Stock. TICO is a Michigan partnership of which Mr. Itin is the Managing
Partner.
(6) Includes 1,597,000 shares of Common Stock issuable upon exercise of
options. Mr. Itin is trustee and beneficiary of Acrodyne Profit Sharing
Trust.
(7) Includes 1,764,706 shares owned by Enercorp, Inc., a Colorado corporation
of which Mr. Hebard is Chairman of the Board of Directors and President.
(8) Includes 200,000 shares of Common Stock issuable upon exercise of
warrants. LBO Capital Corp. is a Colorado corporation of which Mr. Itin
is a 51% shareholder, Chairman of the Board of Directors, and president.
(9) Includes 400,000 shares of Common Stock being held in escrow pending
release subject to subsequent conditions.
(10) Includes 116,667 shares of Common Stock issuable upon the exercise of
outstanding stock options.
(11) Includes 15,000 shares of Common Stock issuable upon the exercise of
outstanding stock options.
CHANGES IN CONTROL
The Company entered into a Joint Venture Implementation Agreement with
Williams Controls Industries, Inc. ("Williams Controls"), concurrently with the
execution of its Loan Agreement with Williams Controls. Pursuant to the Joint
Venture Implementation Agreement, the Company granted to Williams Controls the
option to purchase shares of the Common Stock of the Company at various option
prices. See "Certain Transactions" for more information on the Joint Venture
Implementation Agreement.
CERTAIN TRANSACTIONS
TICO/ROADMASTER EXCHANGE
The Company was formed in 1988 to acquire certain assets, liabilities and
operations of the sports accessory business of Roadmaster Corporation
("Roadmaster"). The Company was capitalized initially through a private
placement of stock and an initial public offering (approximately $3.1 million),
a long-term debt of $4 million owed to Roadmaster for the purchase of the
business, and a revolving credit facility guaranteed by Equitex, Inc., an
affiliate of Roadmaster. Until October 1993, the Company was controlled, in
part, by Roadmaster and Equitex. TICO, an entity controlled by Thomas W. Itin,
obtained control from Roadmaster and Equitex in October 1993, pursuant to the
terms of an Exchange Agreement.
In the Exchange Agreement, Roadmaster and Equitex agreed to substantially
divest all of their interest in the Company by transferring to TICO all of the
Company's outstanding Common Stock purchase warrants held by them, a $217,000
principal amount note payable to Roadmaster, 29,500 shares of the Company's
Series A 8% cumulative convertible preferred stock, and all outstanding accounts
receivable due Roadmaster. Additionally, Roadmaster agreed to transfer to TICO
all marketing and distribution rights for golf products in Canada, all tooling
exclusively associated with the manufacture of hand-pulled golf carts, the
"Ajay" name and agreed to grant TICO a ten year exclusive license for the use of
the "Ajay" trademark and trade name. The Company and TICO agreed to obtain the
release and satisfaction in full of any and all obligations, guarantees, and
collateral of Equitex under the credit facility,
34
<PAGE>
including the release of 1,000,000 shares of Roadmaster common stock owned by
Equitex and pledged to a bank as collateral. The Company's president and TICO
further agreed to transfer to Roadmaster all the Roadmaster common stock
purchase warrants held by the Company's president, along with TICO's payment of
$200,000 to Roadmaster.
Based upon completion of the Exchange Agreement and refinancing of debt
obligations, the Board of Directors of the Company approved a plan to convert
the value of instruments transferred to TICO, into preferred stock, which could
be converted to Common Stock of the Company at a price of $.34 per share. The
Board further approved a reduction in the price of the Common Stock purchase
warrants received by TICO under the Exchange Agreement to $.34 per share and to
issue warrants in like amount of warrants received at the date of exchange that
had subsequently expired.
In accordance with the refinancing plan previously approved by the Board
of Directors, on August 12, 1994, the Board authorized a new Series B 8%
Cumulative Convertible Preferred Stock issue (the "Series B Preferred Stock"),
which contains a provision whereby holders of the Series A 8% Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock") could exchange
shares, on a one-for-one share basis, for Series B shares. Holders of the Series
B Preferred Stock may convert one share of the Series B Preferred Stock for
294.12 shares of the Common Stock of the Company. On October 3, 1994 the Company
was notified by TICO, the only holder of the Series A Preferred Stock, that it
wished to exchange its 29,500 Series A shares for the same number of Series B
shares. In addition, the holder then converted 17,000 shares of the Series B
Preferred Stock into 5,000,040 shares of the Common Stock of the Company.
WILLIAMS CONTROLS INDUSTRIES, INC.
On April 14, 1994 the Company was advised by BankAmerica that the Second
Amended Restated Loan and Security Agreement ("Credit Agreement") between
BankAmerica and the Company's wholly-owned subsidiary, Ajay, had been purchased
by Roadmaster Industries, Inc. On May 5, 1994, Ajay paid Roadmaster Industries
in full all outstanding obligations due under its Credit Agreement and entered
into a Loan and Security Agreement ("Loan Agreement") with Williams Controls
Industries, Inc. ("Williams") for a term loan of up to $7,000,000. The Loan
Agreement requires monthly interest only payments at the prime rate of First
Interstate Bank of Oregon plus 2% and was originally scheduled to expire on
November 4, 1994 and was extended to May 5, 1995. Effective February 1995, the
interest rate was increased to prime plus 3.25%. The terms and conditions of the
Loan Agreement are substantially the same as the prior Credit Agreement with
BankAmerica, except that the Loan Agreement is a term loan. The Loan Agreement
is secured by a lien on substantially all of the assets of Ajay and is
guaranteed by the Company. The guaranty is secured by a pledge of all of the
outstanding stock of Ajay.
In addition, concurrent with the establishment of the Loan Agreement with
Williams, the Company and Ajay entered into a Joint Venture Implementation
Agreement with Williams in which the Company granted Williams an option to
purchase up to 51% of the Common Stock of the Company at various option prices,
together with a one-time right to demand registration of the shares underlying
the options and a piggy-back registration right.
On April 5, 1995, the Company and Williams agreed to modifications of the
terms of the Loan Agreement and the Joint Venture Implementation Agreement. The
changes include (1) a waiver of Williams' preemptive right to purchase up to 51%
so long as the Company complete this Offering by May 31, 1995 (which date may be
extended for up to 120 days), (2) an extension of the loan term until February
1, 1996, (3) a reduction in the maximum loan amount from $7.0 million to $5.6
million as of August 1, 1995, (4) a reduction in the number of $1.00 options
granted to Williams from 1,394,979 to 348,745 if the loan is repaid by August 1,
1995, (5) a reduction in the exercise price of the $1.00 options granted to
Williams to $.50, (6) an extension of the expiration date of all options granted
to Williams from
35
<PAGE>
May 5, 1998 to August 1, 1999, and (7) an additional four-year extension of the
manufacturing joint venture at the Company's Mexicali, Mexico, facility.
The agreement, with the modifications, provides Williams with the
following options to purchase the Company's Common Stock:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS IF NUMBER OF OPTIONS IF
OPTION PRICE LOAN IS REPAID BY 8/1/95 LOAN IS NOT REPAID BY 8/1/95
<S> <C> <C>
$ .34 8,834,866 (1) 8,834,866 (1)
$ .40 3,487,447 6,974,894
$ .50 2,906,207 7,904,881
</TABLE>
_____________________
(1) On October 3, 1994, Williams exercised its option to purchase 4,117,647
shares of the Company's Common Stock at a price of $.34 per share and, in
so doing, reduced its loan to the Company by $1,400,000. Williams
retains the right to purchase another 4,717,219 shares of the Company's
Common Stock at $.34 per share.
Mr. Itin, the Chairman and President of the Company, is, and was at the
time of the Loan Agreement, chairman, president, treasurer, chief executive
officer, and chief operating officer of Williams, a publicly-held corporation.
OTHER TRANSACTIONS
On October 3, 1994, the Acrodyne Profit Sharing Trust, an entity
controlled by Mr. Itin, purchased 1,176,471 shares of Common Stock for $400,000.
Also on that date, Enercorp, Inc., a business development company purchased
1,764,706 shares of Common Stock for $600,000. Robert R. Hebard, the Secretary
and a Director of the Company, is chairman of the board of directors and
president of Enercorp, Inc. Mr. Itin is a principal shareholder of Enercorp,
Inc.
In December 1993, First Equity Corporation established a letter of credit
on behalf of the Company, which was amended during 1994, totaling $271,000. This
letter of credit was used to purchase inventory. In addition, First Equity
Corporation advanced the Company $250,000 during January 1994 and was repaid in
June 1994. First Equity Corporation is a Michigan corporation of which Mr.
Itin's wife is a shareholder, president, and chairman of the board of directors.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of $.01 par value
common stock (the "Common Stock") and 10,000,000 shares of $.01 par value
preferred stock. The Company is proposing at its annual meeting scheduled for
May 24, 1995, to increase the authorized capital stock to 100,000,000 shares of
Common Stock.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of the Common Stock
are entitled to receive dividends when, as, and if declared by the Board of
Directors out of funds legally available therefor, and to share ratably in the
assets of the Company legally available for distribution to the common
shareholders in the event of liquidation or dissolution. The Common Stock does
not have cumulative voting rights, which means the holder or holders of more
than half of the shares voting for the election of directors can elect all the
directors then being elected. The holders of Common Stock do not have preemptive
or other rights to acquire or subscribe for additional unissued or treasury
shares. All outstanding shares of Common Stock,
36
<PAGE>
and shares of Common Stock issuable upon conversion of the Series C Preferred
Stock or exercise of the Warrants, when issued and paid for, will be fully paid
and not liable for further call or assessment.
PREFERRED STOCK
Under the Company's Certificate of Incorporation, the Company is
authorized to issue up to 10,000,000 shares of preferred stock, in one or more
series, with such rights, preferences, qualifications, limitations, and
restrictions as shall be set forth in the Certificate of Designation authorizing
the issuance of such stock. The Company has established a Series A 8% Cumulative
Convertible Preferred Stock consisting of 100,000 shares (the "Series A
Preferred Stock), a Series B 8% Cumulative Convertible Preferred Stock
consisting of 100,000 shares (the "Series B Preferred Stock"), and a Series C
10% Cumulative Convertible Preferred Stock consisting of 700,000 shares (the
"Series C Preferred Stock").
As described in "Certain Transactions - TICO/Roadmaster Exchange," all of
the issued and outstanding shares of Series A Preferred Stock were exchanged for
shares of Series B Preferred Stock. Accordingly, there are no shares of Series A
Preferred Stock issued or outstanding. Although the Company can issue shares of
Series A Preferred Stock, it has no plans to issue any such shares. There are
issued and outstanding 12,500 shares of Series B Preferred Stock. Prior to this
offering, no shares of Series C Preferred Stock were issued or outstanding.
SERIES B PREFERRED STOCK
DIVIDENDS. The holders of Series B Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds legally available therefor, cumulative dividends at the rate of 8% per
annum on the stated value of $100.00 per share, or $8.00 per share per annum,
and no more, such dividends to accrue from the date of first issuance. Such
dividends shall be payable in equal preference and priority to the obligation to
pay dividends on the Company's Series C Preferred Stock, and in preference to
any payment of any dividend on any other shares of capital stock of the Company.
To the extent that the Company does not have a sufficient amount of cash to pay
any dividends declared on both the Series B and Series C Preferred Stock, the
Series C Preferred Stock shall have priority as to payment in cash and dividends
may be paid to holders of the Series B Preferred Stock in additional shares of
Series B Preferred Stock, based on the stated value of $100.00 per share.
LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary of involuntary, any holder of the
Series B Preferred Stock shall, for each share of Series B Preferred Stock, be
entitled to receive a distribution of $100.00 plus any accrued and unpaid
dividends out of the assets of the Company, on an equal preference basis to the
Series C Preferred Stock, except that such Series C Preferred Stock is entitled
to a distribution of $10.00 per share, but prior to any distribution of assets
with respect to any other shares of capital stock of the Company other than the
Series C Preferred Stock, as a result of such liquidation, distribution or
winding up of the Company.
CONVERSION. Each share of Series B Preferred Stock is convertible into
294.12 shares of Common Stock at the sole discretion of the holder.
OPTIONAL REDEMPTION. The Company shall have the right and option upon
notice to the holders of the Series B Preferred Stock to call, redeem and
acquire any or all of the shares of Series B Preferred Stock at a price equal to
$100.00 per share, plus any accrued and unpaid dividends, at any time to the
extent such shares have not been previously converted to Common Stock pursuant
to the terms described above; provided, however, that the holders of the Series
B Preferred Stock shall, in any event, have the right during the 30-day period
immediately following the date of the Notice of Redemption, which shall fix the
date for redemption (the "Redemption Date"), to convert their shares of Series B
Preferred Stock in accordance with the terms described above. If the shares are
converted during such 30-day
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period, this call option shall be deemed not to have been exercised by the
Company with respect to such shares so converted. Said Notice of Redemption
shall require the holders to surrender to the Company, on or before the
Redemption Date, to the Company's transfer agent, the certificates representing
the shares of Series B Preferred Stock to be redeemed. Notwithstanding the fact
the certificates representing the shares called for redemption have not been
surrendered for redemption and cancellation on or after the Redemption Date,
such shares shall be deemed to be expired and all rights of the holders thereof
shall cease and terminate.
VOTING AND PREEMPTIVE RIGHTS. The holders of the Series B Preferred
Stock shall have no voting rights except to the extent required by the Delaware
General Corporation Law and the Series B Preferred Stock shall be entitled to no
preemptive rights.
SERIES C PREFERRED STOCK
DIVIDENDS. The holders of Series C Preferred Stock will be entitled to
receive, out of assets legally available for such purpose, in equal preference
and priority to the obligations to pay dividends on the Series B Preferred
Stock, but before any distributions shall be declared, paid, or set aside, or
any other distribution shall be declared or made, upon any other shares of
capital stock of the Company, distributions in cash at the rate of 10% per annum
on the stated value of $10.00 per share, or $1.00 per share per annum. Such
dividend shall be paid on or before the 30th day after the last day of the
fiscal quarter with respect to which such distribution shall be payable
commencing April 1, 1995, such dividends to accrue from the date of first
issuance. If any distributions payable on any share of Series C Preferred Stock
shall not be paid for any reason, the right of the holders of such shares of
Series C Preferred Stock to receive payment of such distribution shall not lapse
or terminate, but each such unpaid distribution (the "Unpaid Dividends") shall
accumulate and shall be paid without interest to such holders, when and as
authorized by the Board of Directors of the Company. To the extent that the
Company does not have a sufficient amount of cash to pay any dividends declared
on both the Series B and Series C Preferred Stock, the Series C Preferred Stock
shall have priority as to payment in cash and dividends may be paid to holders
of the Series B Preferred Stock in additional shares of Series B Preferred
Stock, based on the stated value of $100.00 per share. Holders of shares of
Series C Preferred Stock are not entitled to any dividend, whether payable in
cash, property, or stock, in excess of full cumulative dividends. No
distribution shall be declared, ordered, or made upon any other class of stock
of the Company, nor shall any sums be set aside for or applied to the purchase
or redemption of any shares of any other class of stock of the Company, unless
and until all Unpaid Dividends payable upon each issued and outstanding share of
Series C Preferred Stock shall have been fully paid or a distribution shall have
been declared and a sum sufficient for full payment of the Unpaid Dividends set
apart therefor.
LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary of involuntary, any holder of the
Series C Preferred Stock shall, for each share of Series C Preferred Stock, be
entitled to receive a distribution of $10.00 plus any accrued and unpaid
dividends out of the assets of the Company, on an equal preference basis to the
Series B Preferred Stock, except that such Series B Preferred Stock is entitled
to a distribution of $100.00 per share, but prior to any distribution of assets
with respect to any other shares of capital stock of the Company other than the
Series B Preferred Stock, as a result of such liquidation, distribution or
winding up of the Company.
CONVERSION. Each share of Series C Preferred Stock shall be convertible
into shares of Common Stock. Should the price of the Company's Common Stock
reach or exceed a closing high bid price of $ for ten (10) consecutive
business days (the "Mandatory Conversion Event"), each share of the Series C
Preferred Stock shall automatically convert to shares of Common Stock of
the Company. The effective date of such automatic conversion shall be the day
following the Mandatory Conversion Event for the purpose of determining
dividends payable and other rights and preferences. Upon the occurrence of the
Mandatory Conversion Event, and the subsequent automatic conversion, all
dividends
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accruing as of the Mandatory Conversion Event shall become payable within 30
days of such date, and additional dividends shall not accrue nor require payment
subsequent to such date.
OPTIONAL REDEMPTION. The Company shall have the right and option upon
notice to the holders of the Series C Preferred Stock to call, redeem and
acquire any or all of the shares of Series C Preferred Stock at a price equal to
$10.00 per share, plus any accrued and unpaid dividends, at any time to the
extent such shares have not been previously converted to Common Stock pursuant
to the terms described above; provided, however, that the holders of the Series
C Preferred Stock shall, in any event, have the right during the 30-day period
immediately following the date of the Notice of Redemption, which shall fix the
date for redemption (the "Redemption Date"), to convert their shares of Series C
Preferred Stock in accordance with the terms described above. If the shares are
converted during such 30-day period, this call option shall be deemed not to
have been exercised by the Company with respect to such shares so converted.
Said Notice of Redemption shall require the holders to surrender to the Company,
on or before the Redemption Date, to the Company's transfer agent, the
certificates representing the shares of Series C Preferred Stock to be redeemed.
Notwithstanding the fact the certificates representing the shares called for
redemption have not been surrendered for redemption and cancellation on or after
the Redemption Date, such shares shall be deemed to be expired and all rights of
the holders thereof shall cease and terminate.
VOTING AND PREEMPTIVE RIGHTS. The holders of the Series C Preferred
Stock shall have no voting rights except to the extent required by the Delaware
General Corporation Law and the Series C Preferred Stock shall be entitled to no
preemptive rights.
WARRANTS
The Warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement (the "Warrant Agreement") between
the Company and American Securities Transfer, Inc. as warrant agent (the
"Warrant Agent"). The following statements are brief summaries of certain
provisions of the Warrant Agreement. Copies of the Warrant Agreement may be
obtained from the Company or the Warrant Agent and have been filed with the
Securities and Exchange Commission as an exhibit to the Registration Statement
of which this Prospectus is a part. See "Additional Information."
The Company has authorized the issuance of Warrants to purchase an
aggregate of up to 603,750 shares of Common Stock (including Warrants to
purchase up to 78,750 shares of Common Stock issuable pursuant to the
Underwriters' over-allotment option but excluding Warrants underlying the
Representative's Warrants) and has reserved an equivalent number of shares of
Common Stock for issuance upon exercise of such Warrants.
The terms of these Warrants are identical to outstanding publicly-held
warrants to purchase an aggregate of 883,470 shares of Common Stock, which were
sold in the Company's initial public offering. Accordingly, "Warrants" refers to
those offered hereby and the outstanding publicly-held warrants.
The Warrants are subject to redemption by the Company at $.05 per Warrant
at any time on forty-five (45) days written notice provided that the closing
high bid price of the Common Stock has exceeded the Warrant Exercise Price by
50% or more for twenty (20) consecutive trading days within twenty (20) calendar
days preceding the mailing of the notice of redemption. In addition, the Company
must have on file a current registration statement pertaining to the Common
Stock underlying the Warrants in order for the Warrants to be redeemed by the
Company.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $1.00 (the "Warrant Exercise Price"). The right to exercise
the Warrants will commence immediately and will terminate at the close of
business on December 31, 1996. The Warrants contain provisions that protect the
Warrant holders against dilution by adjustment of the exercise price in certain
events including,
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<PAGE>
but not limited to, stock dividends, stock splits, reclassifications, or
mergers. A Warrant holder will not possess any rights as a stockholder of the
Company. The shares of Common Stock, when issued upon the exercise of the
Warrants in accordance with the terms thereof, will be fully paid and non-
assessable.
At any time when the Warrants are exercisable and as a condition to
redemption of the Warrants, the Company is required to have a current
registration statement on file with the Securities and Exchange Commission and
to effect appropriate qualifications under the laws and regulations of the
states in which the holders of Warrants reside in order to comply with
applicable laws in connection with the exercise of the Warrants and the resale
of the Common Stock issued upon such exercise. So long as the Warrants are
outstanding, the Company will undertake to file all post-effective amendments to
the registration statement required to be filed under the Securities Act, and to
take appropriate action under federal and state securities laws to permit the
issuance and resale of Common Stock issuable upon exercise of the Warrants. In
the Warrant Agreement, the Company has agreed to register or qualify the shares
in all of the jurisdictions in which the securities offered hereby are
registered or qualified. The Company may determine not to register or qualify
the shares underlying the warrants in certain other jurisdictions where the time
and expense involved would not justify such registration and qualification.
There can be no assurance that the Company will be in a position to effect such
action under the federal and applicable state securities laws, and the failure
of the Company to effect such action may cause the exercise of the Warrants and
the resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants but only by
extending the termination date or lowering the exercise price. The Company has
no present intention of amending such terms.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION
TAKEOVER STATUTE. Section 203 of the Delaware General Corporation Law
prohibits business combinations between a public corporation and an "interested
stockholder" for a period of three years subsequent to the interested
stockholder becoming such. An "interested stockholder" is defined as the owner
of 15 percent or more of the outstanding voting stock of the corporation and
includes affiliates and associates of a 15 percent owner, so as to prevent
business combinations with entities related to an interested stockholder.
Prohibited business combinations include a wide range of transactions with or
caused by an interested stockholder in which the interested stockholder receives
or could receive something the other stockholders do not.
The statute contains a number of ways by which one intending to become,
or who has become, an interested stockholder may avoid the three-year
proscription. The following are applicable to the Company: (1) the board of
directors of the corporation approves either the business combination or the
stockholder becoming an interested stockholder prior to his acquiring 15 percent
of the voting stock; (2) the stockholder acquires 85 percent or more of the
outstanding voting stock of the corporation in the transaction by which the
stockholder becomes an interested stockholder; or (3) the combination is
approved by the board of directors of the corporation and is approved by the
holders of two-thirds of the outstanding voting stock of the corporation which
is not owned by the interested stockholder at an annual or special meeting of
stockholders.
Section 203 may deter any potential unfriendly offers or other efforts to
obtain control of the Company that are not approved by the Board of Directors.
Such provisions could also deprive the stockholders of opportunities to realize
a premium on their Common Stock. At the same time, these provisions may have the
effect of inducing any persons seeking control of the Company or a business
combination with the Company to negotiate terms acceptable to the Board of
Directors.
"COMPROMISE" PROVISION. The Company's Certificate of Incorporation
contains a provision pursuant to which application may be made to a court of
equitable jurisdiction in the State of Delaware to order a meeting of the
stockholders of the Company for the purpose of approving a compromise or
arrangement between the Company and its stockholders. Such compromise or
arrangement may be
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binding on all stockholders if sanctioned by the court and if holders
representing three-fourths of the outstanding shares agree to any compromise or
arrangement. This provision is also applicable to a compromise or arrangement
with creditors or any class of creditors or any class of stockholders of the
Company.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Company's Common and Preferred Stock and the
Warrant Agent is American Securities Transfer, Inc., 938 Quail Street, Suite
101, Lakewood, Colorado 80215.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 22,545,537 shares of Common Stock will
be outstanding. Of these shares, 8,134,184 shares are freely tradable without
restriction under the Act and 14,411,353 are restricted. Of the restricted
shares, 13,634,864 are held by "affiliates" of the Company. An "affiliate" of an
issuer is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. Shares held by an "affiliate" may be sold only if registered under
the Act or pursuant to an applicable exemption from registration, including the
applicable provisions of Rule 144. With respect to the remaining 776,489
restricted shares, 702,489 are currently eligible for sale under Rule 144 and
74,000 will become eligible in August 1996.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years, is entitled to sell, within any three-month period, that number
of shares that does not exceed the greater of one percent of the then
outstanding shares or the average weekly trading volume of the then outstanding
shares during the four calendar weeks preceding each such sale. Furthermore, a
person who is not deemed an "affiliate" of the Company and who has beneficially
owned shares for at least three years is entitled to sell such shares under Rule
144 without regard to the volume limitations described above.
The Representative has required in the underwriting agreement that sales
of the outstanding restricted Common Stock held by officers, directors, and
holders of 5% or more of the outstanding Common Stock may not commence until 12
months from the date of this Prospectus, without the prior written consent of
the Representative. Of the restricted shares held by persons who are officers,
directors, and holders of 5% or more of the outstanding Common Stock, 1,576,000
shares will become eligible for sale under Rule 144 in August 1996 and
12,058,864 shares will become eligible for sale in October 1996.
There are also outstanding as of the date of this Prospectus, Warrants to
purchase 883,470 shares of Common Stock and options to purchase 2,472,000 shares
of Common Stock, of which 1,978,667 options vested are currently exercisable,
and the remaining 493,333 options will vest and become exercisable at various
times beginning December 31, 1995. Williams Controls Industries, Inc. has a
conditional right to purchase up to 19,596,994 shares of Common Stock. See
"Certain Transactions."
In addition, the 12,500 outstanding shares of Series B Preferred Stock
may be converted into 3,676,500 shares of Common Stock at any time.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. The Company is unable to
estimate the number of shares that may be sold in the public market under Rule
144, since this will depend on the trading volume, the market price for the
Common Stock, and other factors. Nevertheless, sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could have a
material adverse effect on prevailing market prices.
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UNDERWRITING
The Underwriters named below, for whom Schneider Securities, Inc., is
acting as Representative, have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Series C Preferred Stock and Warrants set forth opposite
their names in the table below:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
<S> <C> <C>
Schneider Securities, Inc...............
------- -------
Total................................... 525,000 525,000
======= =======
</TABLE>
The Series C Preferred Stock and Warrants are being offered by the
several Underwriters, when, as and if delivered to and accepted by the
Underwriters and subject to their rights to reject orders in whole or in part
and subject to approval of certain legal matters by counsel and to various other
conditions.
The Company has been advised by the Representative that the Underwriters
propose to offer the Series C Preferred Stock and Warrants purchased by them
directly to the public at the initial public offering prices set forth on the
cover of this Prospectus and to certain selected dealers at those prices less a
concession within the discretion of the Representative. The Underwriters may
allow, and such dealers may reallow, a concession within the discretion of the
Representative. The Underwriters are committed to purchase and pay for all of
the Series C Preferred Stock and Warrants (other than the Series C Preferred
Stock and Warrants subject to the over-allotment option) if any are purchased.
There are no restrictions on the purchase of Series C Preferred Stock and
Warrants by affiliates or persons otherwise associated with the Company or any
subsidiary. The Underwriters do not intend to sell any Series C Preferred Stock
or Warrants offered hereby through the use of discretionary authority. After the
initial public offering, the offering prices and the selling terms may be
changed by the Underwriters.
The Company has granted the Representative an over-allotment option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to a maximum of an additional 78,750 shares of Series C Preferred
Stock and/or 78,750 Warrants on the same terms as the Series C Preferred Stock
and Warrants being purchased by the Underwriters from the Company. The
Representative may exercise the over-allotment option only to cover over-
allotments in the sale of the Series C Preferred Stock and Warrants offered
hereby.
The Underwriters will purchase the Series C Preferred Stock and Warrants
(including the Series C Preferred Stock and Warrants subject to the over-
allotment option) from the Company at prices per share of Series C Preferred
Stock and per Warrant representing a discount of 10% from the public offering
prices. In addition, the Company has agreed to pay the Representative a
nonaccountable expense allowance of 3% of the aggregate public offering price of
the Series C Preferred Stock and Warrants, which will include the over-allotment
option, if exercised. The payment of this allowance at closing will be reduced
by $35,000 previously advanced to the Representative.
The Company has agreed to enter into a financial consulting agreement
with the Representative at the Closing, pursuant to which the Company will agree
to pay the Representative $2,291.67 per month for a period of 24 months, with
the entire consulting fee payable in advance upon the Closing. The consulting
services shall include, but shall not be limited to, advising the Company in
connection with business and financial planning, corporate organization and
structure, financial matters in connection with the operation of the business of
the Company, private and public equity and debt financing, acquisitions,
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<PAGE>
mergers, and other similar business combinations, the Company's relations with
its stockholders, preparation and distribution of periodic reports, and analysis
of the Company's financial statements.
The Company has entered into a corporate consulting agreement with the
Representative pursuant to which the Company has paid $35,000 for the services
described in the agreement. At the time of Closing, the $35,000 payment shall be
deducted from the non-accountable expense allowance due the Underwriter,
described above.
If, upon request by the Company, the Representative arranges for equity
or debt financing accepted by and closed with the Company (other than this
Offering) at any time prior to December 9, 1997, the Company has agreed to pay a
10% or 5% commission, respectively, to the Representative based on the amount of
equity or debt financing. If the Representative obtains an increase in the
Company's line of credit, which is accepted by and closed with the Company, the
Company has agreed to pay the Representative a fee equal to 1% of the amount of
increase. If the Representative arranges for the purchase or sale of assets, for
a merger, acquisition, or joint venture accepted by and closed with the Company,
at any time prior to December 9, 1997, the Company has agreed to pay the
Representative a fee based on the value of the transaction ranging from 5% for
the first $1,000,000 to 1% in excess of $4,000,000.
The Company has also agreed to indemnify the Underwriters against certain
liabilities that may be incurred in connection with the Offering, including
liabilities under the Securities Act of 1933, or to contribute the payments that
the Underwriters may be required to make in respect thereof.
The Company's directors, officers, and each holder of 5% or more of the
Company's Common Stock have agreed not to sell their shares of Common Stock in
the Company without the Representative's prior written consent for a period of
one year from the date of this Prospectus.
In connection with this Offering, the Underwriters may engage in passive
market making transactions in the Series C Preferred Stock, the Common Stock, or
the Warrants on the NASDAQ Small-Cap Market in accordance with Rule 10b-6A under
the Exchange Act.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which is filed as an exhibit to the Registration
Statement. See "Additional Information."
REPRESENTATIVE'S WARRANTS
The Company has agreed to sell to the Representative at the close of this
offering, for $100, Warrants to purchase 52,500 shares of Series C Preferred
Stock and 52,500 Warrants at 120% of the public offering prices set forth on the
cover page of this Prospectus (the "Representative's Warrants"). The
Representative's Warrants will not be transferable or assignable except to the
officers of the Representative, or to selected dealers and their officers or
partners and will not be exercisable for a period of one year after the date of
this Prospectus. After such one year period, the Representative's Warrants will
be assignable and transferable and will be exercisable for a period of four
years, except that the Representative's Warrants to purchase Warrants will be
exercisable during the period provided in the Warrant. If the Representative's
Warrants are not exercised during their term, they will automatically expire.
The Company has agreed to set aside and at all times have available a sufficient
number of shares of Series C Preferred Stock and Warrants to be issued upon the
exercise of the Representative's Warrants.
The Representative's Warrants provide that during the period commencing
one year after the date of this Prospectus and ending five years after the date
of this Prospectus, the Company will, upon written request by the holders of at
least _________ of the Representative's Warrants or the Series C Preferred
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<PAGE>
Stock or Warrants issuable on exercise of the Representative's Warrants, file
one registration statement or Regulation A offering statement under the
Securities Act of 1933, as amended with the Securities and Exchange Commission
and certain states to permit the public sale of such Representative's Warrants,
Series C Preferred Stock or Warrants.
In addition, the holders of the Representative's Warrants and securities
issued upon exercise of the Representative's Warrants will be entitled,
commencing one year after the date of this Prospectus and ending five years
after the date of this Prospectus, to include all or any portion of the
securities issued upon exercise of the Representative's Warrants in any
registration statement (except for registration statements filed by the Company
on Form S-4, Form S-8, or any other inappropriate form), or in any offering
statement on Form 1-A to the maximum extent permissible, filed by the Company.
In no event will the Company be required to pay any selling commissions
or nonaccountable expenses relating to the sale of such securities.
Holders of the Representative's Warrants are protected against dilution
of the equity interest represented by the underlying securities upon the
occurrence of certain events, including, but not limited to, stock dividends.
Holders of the Representative's Warrants shall have no voting rights, dividend
rights, or any other rights of any equity holder of the Company's securities. In
the event of liquidation, dissolution, or winding up of the Company, holders of
the Representative's Warrants are not entitled to participate in the Company's
assets.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by counsel to the Company, Fay M. Matsukage, and the Company's
in house general counsel, Thomas K. Ziegler. The legality of the Series C
Preferred Stock will be passed upon for the Company by Fay M. Matsukage, the
Company's securities counsel. Krys Boyle Golz Reich Freedman Bean & Scott, P.C.
has acted as counsel to the Representative in connection with certain legal
matters relating to this Offering.
EXPERTS
The consolidated financial statements of Ajay Sports, Inc. and subsidiary
for the year ended December 31, 1994 included herein and elsewhere in the
Registration Statement have been included herein and in the Registration
Statement in reliance upon the report of Hirsch & Silberstein, P.C., independent
certified public accountants, whose report, which includes an explanatory
paragraph related to substantial doubt about the Company's ability to continue
as a going concern, has been included in the Prospectus and elsewhere in the
Registration Statement upon the authority of that firm as experts in accounting
and auditing.
The consolidated financial statements of Ajay Sports, Inc. and subsidiary
for the years ended December 31, 1992 and 1993 included herein and elsewhere in
the Registration Statement have been included herein and in the Registration
Statement in reliance upon the report of Coopers & Lybrand, L.L.P., independent
certified public accountants, whose report, which includes an explanatory
paragraph related to substantial doubt about the Company's ability to continue
as a going concern, has been included in the Prospectus and elsewhere in the
Registration Statement upon the authority of that firm as experts in accounting
and auditing.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Commission Form 10-K for the fiscal year
ended December 31, 1994 (the "Annual Report"), filed pursuant to Section 13 of
the Exchange Act by the Company with the Commission is incorporated herein by
reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the securities being offered hereby shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on written or oral request of such person, a copy
(without exhibits) of any or all documents incorporated by reference in this
Prospectus. Requests for such copies should be addressed to Ajay Sports, Inc.,
Attention: Duane R. Stiverson, CFO, 1501 E. Wisconsin Street, Delavan, WI 53115,
(414) 728 5521.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements, and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, New York, New
York 10048, and at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-
2511. Copies of such materials can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Company has filed with the Commission a registration
statement on Form S-2 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission.
The Company furnishes its stockholders with annual reports containing
financial statements audited by its independent certified public accountants and
intends to distribute quarterly reports for the first three quarters of each
fiscal year containing unaudited interim financial information.
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[LETTERHEAD OF HIRSCH & SILBERSTEIN, P.C.]
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
Ajay Sports, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ajay
Sports, Inc. and Subsidiaries as of December 31, 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year 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 audit. The financial statements of Ajay
Sports, Inc. and Subsidiaries as of December 31, 1993 and 1992 were audited by
other auditors whose report dated March 25, 1994, included an explanatory
paragraph related to substantial doubt about the Company's ability to continue
as a going concern, as discussed in Note 1 to the consolidated financial
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ajay Sports, Inc. and Subsidiaries as of December 31, 1994, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
significant losses in the years ended December 31, 1994 and 1993. The Company
has also relied upon affiliated companies to fund it's cash flow deficiencies
through equity infusions. Those conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Hirsch & Silberstein
- -----------------------------------
Hirsch & Silberstein, P.C.
Farmington Hills, Michigan
March 7, 1995
F-1
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareholders and
Board of Directors
Ajay Sports, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Ajay
Sports, Inc. and Subsidiary as of December 31, 1993 and 1992, and the related
consolidated statements of operations, 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. The consolidated financial statements
of Ajay Sports, Inc. and Subsidiary for the year ended December 31, 1991, were
audited by other auditors, whose report dated April 14, 1992, expressed an
unqualified opinion on those statements.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ajay Sports, Inc. and Subsidiary as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has suffered significant
losses in the current year and is not in compliance with certain of its debt
covenants, which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ COOPERS & LYBRAND LLP
Milwaukee, Wisconsin
March 25, 1994
F-1 (a)
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1994 and 1993
(in thousands, except share and per share amounts)
--------
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 105 $ 2
Accounts receivable, net of allowance of
$101 and $230 respectively 1,700 1,975
Inventories 5,786 7,381
Prepaid expenses and other 211 89
-------- --------
Total current assets 7,802 9,447
Fixed assets, net 1,357 778
Investments in and advances to affiliates - 125
Other assets 206 157
-------- --------
Total assets $ 9,365 $10,507
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to affiliate $ 5,369 $ -
Notes payable to banks 12 5,019
Current portion of capital lease 9 -
Accounts payable 1,329 2,813
Accrued expenses 490 472
Due to affiliates - 240
-------- --------
Total current liabilities 7,209 8,544
Notes payable - long term 121 -
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares
authorized, 12,500 and 29,500 shares
issued, respectively, at liquidation value 1,250 2,950
Common stock, $.01 par value, 50,000,000
shares authorized, 22,533,637 and 8,824,773
shares outstanding, respectively 225 88
Additional paid-in capital 8,961 4,246
Accumulated deficit (8,401) (5,321)
-------- --------
Total stockholders' equity 2,035 1,963
-------- --------
Total liabilities and stockholders'
equity $ 9,365 $10,507
======== ========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-2
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the years ended December 31, 1994, 1993, and 1992
(in thousands, except share and per share amounts)
--------
<TABLE>
<CAPTION>
Year Ended
------------------------------
Dec. 31, Dec. 31, Dec. 31,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating data:
Net sales $ 12,899 $ 15,902 $ 21,014
Cost of sales 12,291 14,172 17,156
-------- -------- --------
Gross profit 608 1,730 3,858
Selling, general and
administrative expenses 2,747 2,834 2,896
-------- -------- --------
Operating income (loss) (2,139) (1,104) 962
-------- -------- --------
Nonoperating income (expense):
Interest expense-net (614) (697) (906)
Loss on write down of investment
in affiliate - (123) -
Gain (loss) on disposition
of investment ( 38) - 275
Other, net (289) 3 50
-------- -------- --------
(941) (817) (581)
-------- -------- --------
Income (loss) from operations
before income taxes (3,080) (1,921) 381
Income tax expense (benefit) - - -
-------- -------- --------
Net income (loss) $ (3,080) $ (1,921) $ 381
======== ======== ========
Net income (loss) per share $ (.27) $ (.24) $ .02
======== ======== ========
Weighted average common and
common stock equivalent
shares outstanding 12,218 8,812 8,457
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-3
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1994, 1993 and 1992
(in thousands, except share amounts)
--------
<TABLE>
<CAPTION>
Total
Additional Unamortized Stockholders'
Preferred Stock Common Stock Paid-In Accumulated Compensation Equity
--------------- ---------------------
Shares Amount Shares Amount Capital Deficit Expense (Deficit)
------ ------ ----------- ------ ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1992 - $ - 8,278,675 $ 83 $3,848 $(3,781) $(201) $ (51)
Subordinated note
converted into
preferred stoc k 29,500 2,950 - - - - - 2,950
Shares forfeited upon
termination
of employment of former
officer - - (233,333) (2) (136) - 138 -
Amortization of
compensation
expense - - - - - - 63 63
Private placement issue,
net of
fees of $107 - - 729,431 7 505 - - 512
Net income - - - - - 381 - 381
--------- ---------- ---------- ------ ------ ------------- --------- -------
Balances at December 31,
1992 29,500 2,950 8,774,773 88 4,217 (3,400) - 3,855
Common stock grant to
management - - 50,000 - 29 - - 29
Net loss - - - - - (1,921) - (1,921)
--------- ---------- ---------- ------ ------ ------------- --------- -------
Balances at December 31,
1993 29,500 2,950 8,824,773 88 4,246 (5,321) - 1,963
Common stock issued to
fund acquisition - - 1,500,000 15 685 - - 700
Common stock issued in lieu
of wages to officer - - 150,000 2 50 - - 52
Preferred stock converted
into common stock (17,000) 5,000,040 50 1,650 - - -
(1,700)
Stock issued to affiliate
to reduce debt - - 4,117,647 41 1,359 - - 1,400
Common stock sold to
affiliates - - 2,941,177 29 971 - - 1,000
Net loss - - - - - (3,080) - (3,080)
--------- ---------- ---------- ------ ------ ------------- --------- -------
Balances at December 31,
1994 12,500 $ 1,250 22,533,637 $ 225 $8,961 $(8,401) $ - $ 2,035
========= ========== ========== ====== ====== ============= ========= =======
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-4
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the years ended December 31, 1994, 1993 and 1992
(in thousands)
--------
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(3,080) $(1,921) $ 381
Adjustments to reconcile to net
cash flows from operating activities:
Loss on sale of assets 162 - -
(Gain) on disposition of
investment in affiliate - - (275)
(275)
Depreciation and amortization 129 128 86
86
Loss on write down of investment in
and advances to affiliate - 123 -
-
Stock issued to officer in lieu of
compensation 52 - -
Changes in assets [(increase)/decrease] &
liabilities [increase/(decrease)]:
Accounts receivable, net 299 980 (116)
Inventories 1,662 1,144 (903)
Prepaid expenses (112) 114 (98)
Other assets 22 - -
Accounts payable (1,530) 611 250
Accrued expenses 18 (108) (57)
Due to affiliates (240) (17) (337)
-------- -------- --------
Net cash flows provided by (used
in) operating activities (2,618) 1,054 (1,069)
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant
and equipment (115) (226) (161)
Proceeds from sale of equipment 4 - -
Proceeds from sale of investment 86 - -
Investments in and advances
to affiliates - 15 151
-------- -------- --------
Net cash (used in) investing
activities ( 25) (211) (10)
-------- -------- --------
Cash flows from financing activities:
Cash acquired in acquisition via non-cash
financing 2 - -
Proceeds from note payable to
affiliate 6,770 - -
Increase (decrease) in bank notes
payable (5,026) (841) 556
Proceeds from private placements,
net of related costs 1,000 - 512
-------- -------- --------
Net cash provided by (used in)
financing activities 2,746 (841) 1,068
-------- -------- --------
Net increase (decrease) in cash 103 2 (11)
Cash at beginning of period 2 - 11
-------- -------- --------
Cash at end of period $ 105 $ 2 $ -
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-5
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
1. GOING CONCERN PRESENTATION
--------------------------
As discussed in Note 6 to the consolidated financial statements, as of
December 31, 1993 the Company was not in compliance with certain of its debt
covenants. In May, 1994 the existing borrowings were replaced by a Loan
Agreement with an affiliate due November 1, 1994, which has been extended to
May 5, 1995. If this financing had not been replaced or extended, the
Company would not have had sufficient funds to repay the outstanding balance.
The Company has suffered declines in sales and significant net losses in 1994
and 1993. These factors raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
The Company continues to work on the refinancing of its working capital
loan and is negotiating with asset based lenders to put this financing in
place. The Company received an equity infusion in October, 1994 of
$2,400,000 as a result of a private placement of 2,941,177 shares of common
stock with affiliated Companies and through the exercise of options to
purchase 4,117,647 shares by a related party, Williams Controls, Inc. Also
in October, 1994 the holder of the Company's Series B 8% Cumulative
Convertible Preferred Stock (the "Series B Preferred Stock") converted 17,000
shares of Series B Preferred Stock into 5,000,040 shares of common stock.
Additionally, late in the third quarter of 1993, management instituted a
cost reduction program which included a reduction in salary and labor
positions, along with related fringe benefits. The Company also obtained
more favorable material costs, enhanced its material utilization methods and
instituted more efficient manufacturing techniques. The Company strengthened
its sales coverage by appointment of additional experienced independent sales
representatives and increased its emphasis on product development which
resulted in several new product introductions in late 1994. Management feels
these factors will contribute to achieving future profitability.
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Ajay Sports, Inc. ("Sports") and its wholly-owned operating
company subsidiaries, Ajay Leisure Products, Inc. ("Ajay") and Leisure Life,
Inc. ("Leisure"), collectively referred to herein as the "Company". All
significant intercompany balances and transactions have been eliminated.
F-6
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
2. SIGNIFICANT ACCOUNTING POLICIES, Continued
-------------------------------
INVENTORIES - Inventories are stated at the lower of cost or market with cost
determined using the first-in, first-out method.
FIXED ASSETS - Fixed assets are stated at cost, less accumulated depreciation
of $181,000 and $144,000 as of December 31, 1994 and 1993 respectively.
Fixed assets of the Company consist primarily of machinery and equipment,
office equipment, and a building. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which
range from four to thirty-nine years.
OTHER ASSETS - Other assets at December 31, 1994 consists of patents and
trademarks held and applied for by Leisure Life (See Note 8c). Other assets
at December 31, 1993 consists primarily of a receivable of $318,000, less an
allowance for estimated uncollectibility of $162,000, from a customer then
operating under Chapter 11 of the U.S. Bankruptcy Code. This receivable was
collected in June, 1994.
PRODUCT LIABILITY AND WARRANTY COSTS - Product liability exposure is insured
with insurance premiums provided during the year. Product warranty costs are
based on experience and attempt to match such costs with the related product
sales.
REVENUE RECOGNITION - The Company recognizes revenue when goods are shipped.
INCOME TAXES - Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences of temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities, using
enacted statutory rates applicable to future years.
RECLASSIFICATION - Certain amounts as originally reported in the 1992
financial statements were reclassified to conform with the 1993 presentation.
F-7
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
3. RELATED PARTY TRANSACTIONS
--------------------------
The Company's related parties include the following:
Roadmaster Industries, Inc. ("Roadmaster") - Prior to June 1989, all the
Company's common stock was owned by Roadmaster and the companies had common
investors. Roadmaster owned all of the Company's preferred stock prior to
the consummation of the Exchange Agreement.
Pro Mark, Inc. ("Pro Mark") - The Company owns 40% of the outstanding shares
of Pro Mark.
Equitex, Inc. ("Equitex") - Prior to the consummation of the Exchange
Agreement, Equitex owned 189,000 shares of the Company's common stock and
1,100,000 warrants to purchase additional common stock. Additionally, the
chairman of Roadmaster is the president of Equitex.
First Equity Corporation ("First Equity") - First Equity is owned by a family
member of the president, chief executive officer, and chairman of the
Company.
TICO - TICO is controlled by the Company's president, chief executive
officer, and chairman.
ACRODYNE PROFIT SHARING TRUST - ("Acrodyne") is a profit sharing trust. The
Company's president, chief executive officer and chairman is trustee and
beneficiary of the trust. The trust acquired 1,176,471 common shares on
October 3, 1994.
ENERCORP, INC. - ("Enercorp") is a business development company engaged in
the business of investing in and providing managerial assistance to
developing companies. The Company's president, chief executive officer,
chairman and principal shareholder is a major shareholder in Enercorp and its
president is a Director of the Company. Enercorp acquired 1,764,706 common
shares on October 3, 1994.
WILLIAMS CONTROLS, INC. - ("Williams") - Williams has the same chairman as
the Company, which individual is a major shareholder of each company.
F-8
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
3. RELATED PARTY TRANSACTIONS, Continued
--------------------------
(a) Roadmaster
Ajay purchased various finished goods inventory, primarily hand-pulled
golf carts, from Roadmaster. Purchases in 1993 and 1992 were
approximately $123,000 and $788,000, respectively. Prior to 1993, Ajay
leased certain machinery and equipment from Roadmaster. Rent expense to
Roadmaster was $139,000 for the year ended December 31, 1992. The net
result of this activity represented amounts due to Roadmaster of $42,000
and $39,000 at December 31, 1993 and 1992, respectively. The December
31, 1993 balance was transferred to TICO as part of the Exchange
Agreement and paid during the six months ended June 30, 1994.
During 1992, approximately $2,431,000 in letters of credit were opened by
Roadmaster for inventory purchases by Ajay. Consideration paid to
Roadmaster for use of these facilities totaled $200,000 in 1992.
In June, 1992, the Company transferred 188,100 shares of MacGregor Sports
and Fitness, Inc. ("MacGregor") common stock and assigned advances due
from MacGregor to Roadmaster in satisfaction of obligations to Roadmaster
of $376,000.
Also in 1992, 250,000 shares of MacGregor common stock were transferred
to Roadmaster in exchange for machinery and equipment previously leased
from Roadmaster with an appraised value of $490,000. A gain of $275,000
was recognized as a result of this transaction.
Prior to its conversion to preferred stock (as described in Note 8), the
Company owed Roadmaster $2,950,000 under a subordinated note, and
interest expense on the note for the year ended December 31, 1992 was
$61,000.
During 1993, the Company entered into an agreement with certain parties
(as described in Note 3c), whereby the promissory note owed to Roadmaster
in the amount of $217,000 on December 31, 1992 would be transferred to
TICO. As of December 31, 1993, Ajay owed $197,000 on the promissory note
with accrued interest of $17,000. During the year ended December, 1994
the $197,000 and interest of $24,719 were paid to TICO.
F-9
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
3. RELATED PARTY TRANSACTIONS, Continued
--------------------------
(b) Pro Mark, Inc.
On April 2, 1991, the Company executed a letter of intent with Pro Mark
for the sale of the Company's "Double Eagle" brand of golf products for
$300,000 ($210,000, net of expenses) and 1,000,000 shares of restricted
common stock of Pro Mark. In order to permit Pro Mark to commence
marketing this product line at the earliest possible date and to allow
time for the completion of the sale, the parties on May 3, 1991 entered
into an exclusive sales representation agreement pursuant to which, for
the same consideration, Pro Mark was provided the exclusive right to
market the "Double Eagle" product line. The exclusive sales
representation agreement was subsequently replaced by an exclusive
marketing agreement for an initial 20 year period with renewal clauses.
Due to operating losses of Pro Mark, the Company did not assign any value
to the shares of Pro Mark common stock received in the transaction and no
gain or loss was recognized on this transaction.
During 1993, the Company wrote off advances to Pro Mark, Inc. totaling
$87,000.
(c) Exchange Agreement
During 1993, the Company entered into an agreement, whereby Roadmaster
and Equitex agreed to substantially divest of all their interest in the
Company by transferring to TICO all of the Company's outstanding common
stock purchase warrants held by them, the $217,000 principal amount note
payable to Roadmaster, the 29,500 shares of the Company's Series A 8%
Cumulative Convertible Preferred Stock and all Roadmaster's outstanding
accounts receivable due from the Company.
Additionally, Roadmaster agreed to transfer to TICO all marketing and
distribution rights for golf products in Canada, all tooling exclusively
associated with the manufacture of hand-pulled golf carts, the "Ajay"
name and agreed to grant TICO a 10 year exclusive license for the use of
the "Ajay" trademark and tradename.
F-10
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
3. RELATED PARTY TRANSACTIONS, Continued
--------------------------
The Company and TICO agreed to obtain the release and satisfaction in
full of any and all obligation, guarantees and collateral of Equitex
under the revolving credit facility, described in Note 6 including the
release of 1,000,000 shares of Roadmaster common stock owned by Equitex
and pledged to a bank as collateral. The Company's president and TICO
further agreed to transfer to Roadmaster all the Roadmaster common stock
purchase warrants held by the Company's president along with TICO's
payment of $200,000 to Roadmaster.
Based upon completion of the Exchange Agreement in 1994 and refinancing
of debt obligations, the Board of Directors of the Company approved a
plan to, at the option of TICO or its assigns, convert the value of
instruments transferred to TICO under the Exchange Agreement, in whole or
in part, into Preferred Stock, which could be converted to Common Stock
of the Company at a price $.34 per share. On October 3, 1994 the Company
created a new class of Series B 8% Cumulative Convertible Preferred Stock
and allowed for its exchange, on a share-for-share basis, with the
Company's Series A Preferred Stock. On that same day, TICO notified the
Company that it wished to exchange the 29,500 shares of Series A
Preferred Stock for 29,500 shares of the newly issued Series B Preferred
Stock, as was permitted under the Certificate of Designations of Rights
and Preferences of the Series B Preferred Stock. On that same day, TICO
notified the Company that it wished to convert 17,000 shares of its
Series B Preferred Stock for 5,040,000 shares of the Common Stock of the
Company, as the Series B Preferred Stock allows for a conversion rate of
1 share of Series B Preferred Stock for 294.12 shares of the Company's
Common Stock. If TICO were to convert the remaining instruments acquired
under the Exchange Agreement, other than the Preferred Stock, TICO would
receive over 1.4 million additional Common Shares.
(d) Other
In May, 1994 Williams Controls, Inc. entered into a Loan Agreement with
the Company (See Note 6).
In 1992, the Company paid Equitex $100,000 for services rendered and
reimbursement of costs associated with the private placement. In 1994,
Equitex earned a fee of
F-11
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
3. RELATED PARTY TRANSACTIONS, Continued
--------------------------
$40,000 as a result of the extension of the revolving credit facility
with the bank. As part of the Exchange Agreement this amount was
transferred to TICO and paid in June, 1994.
First Equity established a letter of credit on behalf of the Company in
December, 1993, which was amended during 1994, totaling $271,200. This
letter was established to purchase inventory. In addition, First Equity
advanced the Company $250,000 during January, 1994 which was repaid in
June, 1994.
4. INVENTORIES
-----------
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
------------------------
<S> <C> <C>
Raw materials $ 2,901 $ 4,014
Work-in-progress 919 1,010
Finished goods 1,966 2,357
------ ------
$ 5,786 $ 7,381
====== ======
</TABLE>
5. INVESTMENT IN AND ADVANCES TO AFFILIATES
----------------------------------------
Investment in and advances to affiliates includes the following as of
December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Investment in MacGregor $ - $ 107
Interest receivable - MacGregor $ - $ -
Advances to:
Pro Mark, Inc. $ - $ -
Roadmaster $ - $ 18
---- ----
$ - $ 125
==== ====
</TABLE>
The investment in MacGregor represented 125,106 shares of MacGregor
(which was less than 5% of MacGregor's outstanding stock) as of December 31,
1993. A former officer of the Company is an officer of MacGregor, and
MacGregor and the Company have common investors. During 1992, as disclosed in
Notes 3 and 13,
F-12
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
5. INVESTMENT IN AND ADVANCES TO AFFILIATES, Continued
----------------------------------------
the Company disposed of 188,100 and 250,000 shares of this investment in
satisfaction of payables to Roadmaster and to acquire equipment from
Roadmaster, respectively. In conjunction with the disposition of the 188,100
shares of MacGregor, the Company assigned, to Roadmaster, its rights to
collection of amounts due from MacGregor totalling $215,000. During the year
ended December 31, 1994 the remaining 125,106 shares were disposed of for
$69,000, resulting in a loss of $38,000.
6. DEBT
----
The December 31, 1993 note payable to bank represented Ajay's revolving
credit facility with BankAmerica Business Credit, Inc. ("BankAmerica"),
maturing April 30, 1994, not to exceed the lesser of $7.5 million or an
amount based on eligible trade accounts receivable and inventories, including
a letter of credit facility not to exceed $2.5 million. Borrowings under the
revolving credit facility bore interest at prime plus 2%. A $500,000
seasonal subline bore interest at prime plus 3%. This subline was cancelled
in the fourth quarter of 1993. The letter of credit facility required a fee
of 1.5% per annum on outstanding letters of credit. A commitment fee of .5%
per year on the unused balance of the revolving credit facility and the
letter of credit facility was required. The note contained certain
restrictions on the payment of dividends. The note was collateralized by
substantially all assets of Ajay and was guaranteed by the Company and up to
$1.5 million by Equitex, Inc.
Primarily as a result of net losses experienced in 1993, the Company was
not in compliance with financial covenants regarding interest coverage ratios
and adjusted tangible net worth under its revolving credit facility. As a
result, the revolving credit facility was reduced to $6 million effective
April 1, 1994.
On April 14, 1994 the Company was advised by BankAmerica that the Second
Amended Restated Loan and Security Agreement ("Credit Agreement") between
BankAmerica and Ajay had been purchased by Roadmaster. On May 5, 1994 Ajay
paid Roadmaster in full all outstanding obligations due under its Credit
Agreement and entered into a Loan and Security Agreement ("Loan Agreement")
with Williams for a term loan of up to $7,000,000. The Loan Agreement
requires monthly interest only payments at
F-13
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
6. DEBT, Continued
----
the prime rate of First Interstate Bank of Oregon plus 2%, was originally
scheduled to expire on November 4, 1994, and has been extended to May 5,
1995. The terms and conditions of the Loan Agreement are substantially the
same as the prior Credit Agreement with BankAmerica, except that the Loan
Agreement is a term loan. The Loan Agreement is secured by a lien on
substantially all of the assets of Ajay and is guaranteed by the Company. The
guaranty is secured by a pledge of all of the outstanding common stock of
Ajay. At December 31, 1994 the borrowing under the loan was $5,369,000.
Ajay's borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
----------- -----------
<S> <C> <C>
Revolving credit facility:
Balance $5,369,000 $5,019,000
Interest rate 10.5% 8.0%
Unused amount of facility $1,631,000 $2,481,000
Average amount outstanding
during the period $5,626,861 $6,100,261
Weighted average interest
rate 8.0% 8.3%
Maximum amount outstanding
during the period $6,651,341 $7,748,959
</TABLE>
Ajay had outstanding commercial letters of credit totaling approximately
$1,100,000 and $62,000 at December 31, 1994 and 1993 respectively.
The seasonal nature of the Company's sales creates fluctuating demands on
its cash flow, due to the temporary build-up of inventories in anticipation
of, and receivables subsequent to, the peak seasonal period which
historically has been from February through May of each year. The Company
has relied and continues to rely heavily on its revolving credit facility for
its working capital requirements.
7. INCOME TAXES
------------
As discussed in Note 2, the Company adopted SFAS No. 109 at the beginning
of 1992. There was no cumulative effect of this accounting change and its
adoption had no impact on 1992 net income.
F-14
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
The actual income tax expense (benefit) differs from the statutory income
tax expense (benefit) as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Statutory tax expense
(benefit) at 34% $(1,047) $ (653) $ 130
Utilization of net
operating loss
carryforward - - (130)
Loss producing no current
tax benefit 1,047 653 -
------ ------ ------
$ - $ - $ -
======= ======= =======
</TABLE>
The components of the net deferred tax asset/liability were as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1993 1994
------ ------
<S> <C> <C>
Deferred tax asset,
principally accrued
expenses, reserves
and loss carryforwards $ 2,116 $ 1,086
Deferred tax liability,
principally depreciation (68) (52)
Valuation allowance (2,048) (1,034)
------ ------
Net $ - $ -
======= =======
</TABLE>
The Company had net operating loss carryforwards for Federal tax
purposes of approximately $5,293,000 at December 31, 1994, which expire in
varying amounts in the years 2006 through 2009. Operating loss carryforwards
totaling $845,000 and $4,248,000 are available to offset future state taxable
income of Sports and Ajay, respectively, which expire in varying amounts in
the years 2006 through 2009.
F-15
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
8. STOCKHOLDERS' EQUITY
--------------------
(a) Preferred Stock
Effective March 31, 1992, the Company designated 100,000 shares of its
$.01 par value preferred stock as Series A 8% Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock"). The Series A Preferred
Stock was convertible into the Company's common stock at a conversion price
of $2.25 per share beginning January 1, 1994. Beginning January 1, 1994, the
Series A Preferred Stock was entitled to receive annual dividends of 8% per
share that are cumulative from the date of issuance, and it participated
equally in any dividends on common stock. Cumulative dividends as of
December 31, 1993 totaled $413,000. The Series A Preferred Stock, which had
no voting rights, had a liquidation preference value of $100 per share plus
accrued and unpaid dividends. The Company had the right to redeem the Series
A Preferred Stock at a price equal to $100 per share plus accrued and unpaid
dividends.
Effective March 31, 1992, 29,500 shares of Series A Preferred Stock were
issued to Roadmaster in full satisfaction of the remaining balance due on a
$2,950,000 subordinated note due to Roadmaster. No gain or loss was recorded
as a result of this debt restructuring.
During 1993, the Company entered into an agreement, finalized in 1994,
whereby Roadmaster transferred to TICO the 29,500 shares of the Company's
Series A Preferred Stock.
On October 3, 1994 the Company created a new class of Series B 8%
Cumulative Convertible Preferred Stock and allowed for its exchange, on a
share-for-share basis, with the Company's Series A Preferred Stock. On that
same day, TICO notified the Company that it wished to exchange the 29,500
shares of Series A Preferred Stock for 29,500 shares of the newly issued
Series B Preferred Stock, as was permitted under the Certificate of
Designations of Rights and Preferences of the Series B Preferred Stock. On
that same day, TICO notified the Company that it wished to convert 17,000
shares of its Series B Preferred Stock for 5,040,000 shares of the Common
Stock of the Company, as the Series B Preferred Stock allows for a conversion
rate of 1 share of Series B Preferred Stock for 294.12 shares of the
Company's Common Stock.
F-16
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
8. STOCKHOLDERS' EQUITY, Continued
--------------------
(b) Stock issued to officers
In 1992, the Company established a stock incentive plan for an
officer of the Company, under which up to 150,000 shares of the Company's
stock may be granted. During 1993, 50,000 shares were issued under this
plan. In 1994, the Company issued 150,000 shares of common stock to an
officer in lieu of compensation.
(c) Stock Issued for Acquisition
On August 1, 1994 the Company reached an agreement in principle to
acquire the outstanding common stock of Leisure Life, Inc. In exchange
for acquiring all the common stock of Leisure Life, the Company issued
1,500,000 shares of its common stock to the owners of Leisure Life, with
400,000 of those shares being issued subject to certain performance
requirements being met by Leisure Life.
(d) Warrants and Options
A summary of activity related to warrants and options to purchase
Company common stock is as follows:
<TABLE>
<CAPTION>
Warrants Price
and Options Per Share
----------- ----------
<S> <C> <C>
Balance, January 1, 1992 2,585,970 $.34-1.00
Issued 250,000 .34 (i)
Issued 250,000 .34 (i)
Issued 270,217 .34 (ii)
Issued 94,500 .34 (iii)
--------- ---------
Balance, December 31, 1992 3,450,687 .34-1.00
Expired 564,717 .34
--------- ---------
Balance, December 31, 1993 2,885,970 .34-1.00
Expired 450,000 .80-1.00
Reissued 200,000 .34 (iv)
Reissued 94,500 .34 (v)
Issued to Employees 840,000 .40- .80 (vi)
--------- ---------
Balance, December 31, 1994 3,570,470 $.34-1.00
========= =========
</TABLE>
F-17
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
8. STOCKHOLDERS' EQUITY, Continued
--------------------
(i) Warrants originally issued to Equitex which were transferred to
Acrodyne Profit Sharing Trust ("APST") under the Exchange
Agreement (as described in Note 3c) and subsequently assigned to
the Acrodyne Profit Sharing Trust, exercisable through December
2000, replacing the previously issued warrants to purchase
2,500,000 shares at an exercise price of $1.50 to $1.00, subject
to adjustment. During 1994, the exercise price was adjusted to
.34.
(ii) Warrants issued in connection with the Company's private
placement. As a result of the reset provision provided for in
the Warrant Agreement, the exercise price dropped from $1.00 to
$.33 per share. The warrants expired in October, 1993.
(iii) Warrants originally issued to Equitex in connection with the
Company's private placement. Warrants were transferred to
Acrodyne Profit Sharing Trust ("APST") under the Exchange
Agreement (as described in Note 3c), and subsequently assigned
to the Acrodyne Profit Sharing Trust. The exercise price was
adjusted to .34 in 1994.
(iv) Warrants originally issued to Roadmaster in 1990. Transferred to
APST under the Exchange Agreement, expired and reissued.
(v) Warrants originally issued to Equitex in connection the
Company's private placement. Transferred to APST, expired and
reissued.
(vi) Employee stock options of which 131,667 shares have vested.
(d) Private Placements
In 1992, the Company issued, via private placement, 729,431
shares of common stock and warrants to purchase 364,717 shares and
received proceeds of $512,000, net of related costs.
F-18
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
8. STOCKHOLDERS' EQUITY, Continued
--------------------
In 1994, the Company issued to related parties, via private
placement, 2,941,177 shares of common stock and received proceeds of
$1,000,000. The Company also issued 4,117,647 shares of common stock
to a related party in in exchange for a reduction of debt totalling
$1,400,000.
9. MAJOR CUSTOMERS
---------------
The Company operates in two lines of business, the manufacture and
distribution of sports equipment and in outdoor leisure furniture. The
Company's customers are principally in the retail sales market.
To reduce credit risk, the Company performs ongoing credit evaluations of
its customers' financial conditions and does not generally require
collateral.
Sales to customers which represent over 10% of the Company's net sales
are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
Customer 1994 1993 1992
-------- ---- ---- ----
<S> <C> <C> <C>
A 41% 32% 25%
B * * 20%
C * 12% 19%
</TABLE>
* Amounts are less than 10% of net sales.
10. SPALDING LICENSE AGREEMENT
--------------------------
Ajay has a license from Spalding Sports Worldwide to utilize the Spalding
trademark in conjunction with the sale and distribution of golf bags, golf
gloves, hand pulled golf carts and certain other golf accessories in the
United States. As consideration for this license, Ajay is required to pay
royalties to Spalding based on a percentage of sales, subject to annual
minimums of $650,000, $500,000 and $550,000, for the years ended June 30,
1994, 1995 and 1996, respectively. The current agreement expires June 30,
1996. Other conditions of the agreement require the Company to expend 2% of
sales under the agreement on advertising and related costs, with 1%
F-19
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
10. SPALDING LICENSE AGREEMENT, Continued
--------------------------
remitted to Spalding. The Company must also maintain a current ratio of 1.0 to
1.0. Approximately 61% of the Company's 1994 and 1993 sales were Spalding
products.
Royalty expense due Spalding was $494,000, $702,000, and $735,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
11. LEASES
------
Future aggregate minimum lease payments under noncancelable operating
leases with initial or remaining terms in excess of one year are as follows
(in thousands):
<TABLE>
<S> <C>
1995 $ 518
1996 378
1997 352
1998 337
1999 336
2000 and thereafter 497
------
$2,418
======
</TABLE>
Total rental expense (in thousands) under operating leases (net of
sublease rental income from an affiliate of $8, $38 and $37, respectively)
was $556, $409 and $524 for the years ended December 31, 1994, 1993 and
1992, respectively.
12. NET INCOME (LOSS) PER COMMON SHARE
----------------------------------
Earnings or loss per share has been computed by dividing net income or
loss, after reduction for preferred stock dividends in 1994 ($202,000),
1993 ($236,000) and 1992 ($177,000), by the weighted average number of
common shares outstanding. No exercise of warrants outstanding was assumed
in 1994, 1993, or 1992, since any exercise of warrants would be
antidilutive.
F-20
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
13. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash paid for interest was $607,000, $633,000, and $876,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
Noncash financing and investing transactions were as follows:
. As discussed in Note 3, the Company exchanged 250,000 shares of
MacGregor in 1992 for certain machinery and equipment with an appraised
value of $490,000. A gain of $275,000 was recognized on the
transaction.
. The Company also settled certain obligations to Roadmaster totaling
$376,000 by transferring 188,100 shares of MacGregor to those affiliates
in 1992. The book value of the shares was $161,000 (see Note 3.)
Additionally, in conjunction with this transaction, the Company assigned
its rights to collection of amounts due from MacGregor totalling
$215,000.
. A subordinated note payable to Roadmaster of $2,950,000 was converted to
29,500 shares of preferred stock during 1992.
. During 1993, 50,000 shares of the Company's common stock valued at
$29,500 were issued to an officer of the Company. This was recorded in
accrued expenses at December 31, 1992.
. During 1994, 150,000 shares of the Company's common stock were issued to
an officer of the Company in lieu of wages.
. In exchange for acquiring in 1994 all of the common stock of Leisure
Life, Inc. the Company issued 1,500,000 shares of its common stock to
the owners of Leisure Life.
. During 1994, 4,117,647 shares of the Company's common stock were issued
to a related party in exchange for a reduction in debt totaling
$1,400.000.
14. CONTINGENCIES
-------------
The Company is subject to certain claims in the normal course of
business which management intends to vigorously contest. The outcomes of
these claims are not expected to have a material adverse affect on the
Company's consolidated financial position or results of operations.
F-21
<PAGE>
Schedule VIII
AJAY SPORTS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1994, 1993, and 1992
(Amounts in Thousands)
-------
<TABLE>
<CAPTION>
Balance Charged to Balance
beginning costs and Deductions at end
expenses expenses (describe) of period
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Reserve for Product Warranty:
Year ended:
December 31, 1994 $ 112 $ 276 $ 249 (1) $ 139
December 31, 1993 105 360 353 112
December 31, 1992 165 297 357 105
Allowance for Doubtful Receivables:
Year ended:
December 31, 1994 $ 230 $ 62 $ 191 (2) $ 101
December 31, 1993 150 159 79 230
December 31, 1992 150 40 40 150
Reserve for Inventory Obsolescence:
Year ended:
December 31, 1994 $ 160 $ 430 $ 160 $ 430
December 31, 1993 150 87 77 160
December 31, 1992 210 84 144 150
</TABLE>
Notes:
- -----
(1) Represents amounts paid for product warranty claims.
(2) Represents amounts charged off as uncollectible.
F-22
<PAGE>
[photographs of leisure furniture products here]
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. ANY INFORMATION OR REPRESENTATIONS NOT HEREIN CONTAINED, IF GIVEN OR
MADE, MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
_______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY.......................... 3
THE COMPANY................................. 6
RISK FACTORS................................ 6
MARKET FOR THE COMPANY'S STOCK AND RELATED
STOCKHOLDER MATTERS......................... 10
USE OF PROCEEDS............................. 11
CAPITALIZATION.............................. 12
DIVIDEND POLICY............................. 12
SELECTED CONSOLIDATED FINANCIAL
AND OPERATING DATA......................... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 14
CHANGES IN AND DISAGREEMENTS WITH
THE ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE....................... 18
BUSINESS.................................... 19
MANAGEMENT AND KEY PERSONNEL................ 25
PRINCIPAL SHAREHOLDERS...................... 32
CERTAIN TRANSACTIONS........................ 34
DESCRIPTION OF SECURITIES................... 36
SHARES ELIGIBLE FOR FUTURE SALE............. 41
UNDERWRITING................................ 42
LEGAL MATTERS............................... 44
EXPERTS..................................... 44
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.................................. 45
ADDITIONAL INFORMATION...................... 45
FINANCIAL STATEMENTS........................ F-1
</TABLE>
525,000 SHARES OF SERIES C
10% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
AND
525,000 COMMON STOCK
PURCHASE WARRANTS
AJAY SPORTS, INC.
_______________
PROSPECTUS
_______________
SCHNEIDER SECURITIES, INC.
APRIL __, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
CATEGORY OF EXPENSE
AMOUNT
<S> <C>
Registration fee.............................................$ 2,550
NASD filing fee.............................................. 1,328
NASDAQ listing fee...........................................
Blue sky filing fees.........................................
Transfer agent fees..........................................
Printing costs...............................................
Engraving costs..............................................
Legal fees...................................................
Accounting fees..............................................
Road Show expenses...........................................
Representative's nonaccountable expense allowance............ 159,075
Financial consulting fee payable to Representative........... 55,000
Total........................................................$ 325,000
=========
</TABLE>
_____________
*Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Delaware and Article 11 of the Registrant's
Restated Certificate of Incorporation permit the Registrant to indemnify its
officers and directors and certain other persons against expenses in defense of
a suit to which they are parties by reason of such office, so long as the
persons conducted themselves in good faith and the persons reasonably believed
that their conduct was in the corporation's best interests, not opposed to the
corporation's best interests, or unlawful. Indemnification is not permitted in
connection with a proceeding by or in the right of the corporation in which the
officer or director was adjudged liable to the corporation or in connection with
any other proceeding charging that the officer or director derived an improper
personal benefit, whether or not involving action in an official capacity, in
which proceeding the officer or director was adjudged liable on the basis that
he or she derived an improper personal benefit.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT CONSECUTIVE
NUMBER EXHIBIT PAGE NUMBER
<C> <S> <C>
1.1 Form of Underwriting Agreement (8) N/A
1.2 Form of Agreement Among Underwriters (8) N/A
1.3 Form of Underwriter's Warrants (8) N/A
2.1 Agreement of Purchase and Sale of Business, Including Purchase N/A
of Stock dated July 31, 1994 between Robert Newman and Ajay
Sports, Inc. (1)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT CONSECUTIVE
NUMBER EXHIBIT PAGE NUMBER
<C> <S> <C>
4.1 Certificate of Designation of Rights and Preferences of the Series N/A
B 8% Cumulative Convertible Preferred Stock of Ajay Sports, Inc.
(1)
4.2 Certificate of Designation of Rights and Preferences of the Series N/A
C 10% Cumulative Convertible Preferred Stock (8)
4.3 Form of Warrant Agreement ___
5.1 Opinion Regarding Legality (8) N/A
10.1 License Agreement dated April 14, 1992 between Spalding Sports N/A
Worldwide and Ajay Leisure Products, Inc. (2)
10.2 Employment Agreement dated April 14, 1992 between Ajay Lei- N/A
sure Products, Inc. and L. Dean Cassell (2)
10.3 Second Amended and Restated Loan and Security Agreement N/A
dated April 14, 1992 between Ajay Leisure Products, Inc. and
Security Pacific Business Credit, Inc. (2)
10.4 Allocation Agreement dated April 14, 1992 between Roadmaster N/A
Corporation, Roadmaster Leisure Inc. and Ajay Leisure Products,
Inc. and Security Pacific Business Credit, Inc. (2)
10.5 Second Amended and Restated Guaranty dated April 14, 1992 N/A
between Ajay Sports, Inc. and Security Pacific Business Credit,
Inc. (2)
10.6 Second Amended and Restated Pledge Agreement dated April 14, N/A
1992 between Ajay Sports, Inc. and Security Pacific Business
Credit, Inc. (2)
10.7 Letter Agreement dated November 18, 1992 between Ajay Sports, N/A
Inc., Ajay Leisure Products, Inc., Equitex, Inc. and Roadmaster
Industries, Inc. (3)
10.8 Dennis L. Carnes Stock Incentive Plan of Ajay Sports, Inc. dated N/A
February 9, 1993 (4)
10.9 Licensing Agreement dated June 15, 1989 between Roadmaster N/A
Corporation and Ajay Leisure Products, Inc. (5)
10.10 First Amendment to the April 14, 1992 Spalding License Agree- N/A
ment dated April 2, 1993 (4)
10.11 Exchange Agreement dated October 13, 1993 between TICO, Ajay N/A
Sports, Inc., Ajay Leisure Products, Inc., Roadmaster Industries,
Inc., Roadmaster Corporation and Equitex, Inc. (6)
10.12 Loan and Security Agreement Dated as of May 5, 1994 between N/A
Ajay Leisure Products, Inc. and Williams Controls Industries, Inc.,
together with Guaranty, Pledge Agreement and Collateral Assign-
ment of Loan Agreement, Promissory Note, Pledge Agreement
and Other Loan Documents (1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT CONSECTIVE
NUMBER EXHIBIT PAGE NUMBER
<C> <S> <C>
10.13 Williams/Ajay Loan and Joint Venture Implementation Agreement N/A
dated May 6, 1994 (1)
10.14 Second Amendment to the April 14, 1992 Spalding License Agree- N/A
ment dated July 1, 1994 (1)
10.15 Employment Agreement dated July 31, 1994 between Robert D. N/A
Newman, Leisure Life, Inc. and Ajay Sports, Inc. (1)
10.16 1994 Stock Option Plan (7) N/A
10.17 1995 Stock Bonus Plan (7) N/A
23.1 Consent of Hirsch & Silberstein, P.C. ___
23.2 Consent of Coopers & Lybrand, L.L.P. ___
</TABLE>
_______________
(1) Previously filed with and incorporated by reference from the Registrant's
Form 10-K filed for December 31, 1994 (SEC File No. 0-18204).
(2) Previously filed with and incorporated by reference from the Registrant's
Form 10-K filed for December 31, 1991 (SEC File No. 0-18204).
(3) Previously filed with and incorporated by reference from the Registrant's
Form 10-Q filed for September 30, 1992 (SEC File No. 0-18204).
(4) Previously filed with and incorporated by reference from the Registrant's
Form 10-K filed for December 31, 1992 (SEC File No. 0-18204).
(5) Previously filed with and incorporated by reference from the Registrant's
Registration Statement on Form S-18 (File No. 33-30760).
(6) Previously filed with and incorporated by reference from the Registrant's
Form 10-K filed for December 31, 1993 (SEC File No. 0-18204).
(7) Previously filed with and incorporated by reference from the Registrant's
Registration Statement on Form S-8 (File No. 33-89650).
(8) To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(h) 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 registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Delavan, State of Wisconsin, on April 20, 1995.
AJAY SPORTS, INC.
By: /s/ Thomas W. Itin
------------------------------------
Thomas W. Itin, President
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 indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President, Chief Executive
Officer and Director (Principal
/s/ Thomas W. Itin Executive April 20, 1995
- --------------------------------- ------------------
Thomas W. Itin
/s/ Robert R. Hebard Secretary and Director April 20, 1995
- --------------------------------- ------------------
Robert R. Hebard
Chief Financial Officer (Principal
/s/ Duane R. Stiverson Financial and Accounting Officer) April 20, 1995
- --------------------------------- ------------------
Duane R. Stiverson
/s/ Clarence H. Yahn Director April 20, 1995
- --------------------------------- ------------------
Clarence H. Yahn
/s/ Stanley V. Intihar Director April 20, 1995
- --------------------------------- ------------------
Stanley V. Intihar
/s/ Anthony B. Cashen Director April 20, 1995
- -------------------------------- ------------------
Anthony B. Cashen
/s/ Robert D. Newman Director April 20, 1995
- -------------------------------- ------------------
Robert D. Newman
</TABLE>
II-5
<PAGE>
Exhibit 4.3
WARRANT AGREEMENT
THIS AGREEMENT is dated this _____ day of ________________, 1995, between
AJAY SPORTS, INC., a Delaware corporation (the "Company"), and AMERICAN
SECURITIES TRANSFER, INC., Denver, Colorado, as agent for the issuance,
registration, transfer, and exchange of certain warrant certificates, the
exercise of certain warrants, and thereupon, the issuance of common stock
certificates as provided below (the "Warrant Agent").
In connection with a public offering of the Company's securities, the
Company proposes to issue up to 656,250 Warrants to purchase initially up to an
aggregate of 656,250 shares of Common Stock, such amounts including up to 52,500
Warrants issuable to the Underwriter. Each Warrant may be exercised to purchase
one share of Common Stock through December 31, 1996 (the "Warrant Exercise
Period"), upon payment of $1.00. The Warrants will be separately tradable.
The Company desires the Warrant Agent to act on behalf of the Company and
the Warrant Agent is willing to so act in connection with the issuance,
registration, transfer, and exchange of the Warrant Certificates, the exercise
of the Warrants, and the issuance of the Warrant Stock upon such exercise.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, and for the purpose of defining the terms and provisions
of the Warrants and the Warrant Certificates and the respective rights and
obligations thereunder of the Company, the Registered Holders, and the Warrant
Agent, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. As used herein:
(a) "Warrant Agent" shall mean American Securities Transfer,
Inc. (or its successor), as agent for the issuance, registration, transfer, and
exchange of the Warrant Certificates, the exercise of the Warrants, and,
thereupon, the issuance of the Warrant Stock.
(b) "Business Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business in
Denver, Colorado, shall be administered, which office is located on the date
hereof at 1825 Lawrence Street, Suite 444, Denver, Colorado 80202-1817.
(c) "Common Stock" shall mean the Common Stock, $.01 par value,
of the Company.
(d) "Warrant" shall mean the right to purchase one share of
Common Stock at $1.00 per share through the close of business on December 31,
1996.
(e) "Warrant Certificate" shall mean a Certificate representing
the Warrant described in Section 1(d) above.
(f) "Exercise Period" shall mean the period commencing as of the
date of the Company's definitive Prospectus and ending upon the close of
business on December 31, 1996 during which the Warrants may be exercised.
(g) "Exercise Price" shall mean $1.00 per share of Warrant
Stock, or as adjusted pursuant to Section 8 hereof.
(h) "Exercise Date" shall mean the date of surrender for
exercise of a Warrant Certificate with the exercise form thereon duly executed
by the Registered Holder thereof or his attorney duly authorized in writing,
together with payment made payable and sent to the Warrant Agent, in cash or by
official bank or certified check, of an amount in lawful money of the United
States equal to the Exercise Price of the Warrants to be exercised.
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(i) "Expiration Date" shall mean 3:30 p.m. (Denver time) on
December 31, 1996, or if any such day shall be in the State of Colorado a
holiday or a day on which banks are authorized to close, then 3:30 p.m. (Denver
time) on the next following day which in the State of Colorado is not a holiday
or a day on which banks are authorized to close, after which date the Warrants
may not be exercised.
(j) "Redemption Price" shall mean $.05 per Warrant.
(k) "Redemption Date" shall mean the date fixed for any
redemption of the Warrants.
(l) "Warrant Stock" shall mean and include (i) up to 656,250
shares of authorized and unissued Common Stock initially reserved for issuance
upon exercise of the Warrants; and (ii) any additional shares of Common Stock or
other property which may hereafter be issuable or deliverable upon exercise of
the Warrants pursuant to Section 8 hereof.
(m) "Registered Holder" shall mean the person in whose name any
Warrant Certificate shall be registered on the books maintained by the Warrant
Agent pursuant to Section 6 hereof.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES. One Warrant
initially shall entitle the Registered Holder of the Warrant Certificate
representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, subject to modification and adjustment as provided in Section
8 hereof. Upon execution of this Agreement, Warrant Certificates representing up
to an aggregate of 656,250 Warrants to purchase an aggregate of 656,250 shares
of Warrant Stock shall be executed by the Company and delivered to the Warrant
Agent and, after the corresponding certificates for the Warrant Stock shall have
been duly countersigned by a Transfer Agent of the Company's Common Stock, shall
be countersigned, issued, and delivered by the Warrant Agent upon written order
of the Company signed by its President or a Vice President and its Treasurer or
an assistant treasurer or its Secretary or an assistant secretary.
From time to time, up to the Expiration Date, the Warrant Agent shall
countersign and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement. Except as provided in Section 7
hereof, no Warrant Certificates shall be issued except (i) Warrant Certificates
initially issued hereunder, (ii) Warrant Certificates issued during the Exercise
Period upon the partial exercise of the Warrants represented thereby to evidence
the portion of such Warrants not exercised, and (iii) Warrant Certificates
issued upon any transfer or exchange of Warrants.
SECTION 3. FORM AND EXECUTION OF THE WARRANT AND CERTIFICATES. The
Warrant Certificates shall be substantially in the form annexed hereto as
Exhibit A (the provisions of which are incorporated herein by this reference)
and may have such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage. The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer, or exchange
or in lieu of mutilated, lost, stolen, or destroyed Warrant Certificates).
The Warrant Certificates initially shall be issued only in a number equal
to the number of certificates for shares of Common Stock sold in the public
offering. Such Warrant Certificates shall be numbered serially with the letter
"W" on Warrants of all denominations.
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The Warrant Certificates shall be executed on behalf of the Company by its
President or Vice President and by its Treasurer or an assistant treasurer or
its Secretary or an assistant secretary, by manual or facsimile signatures
printed thereon, and shall have imprinted thereon a facsimile of the Company's
seal. The Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. If any
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be such officer of the Company before the date of issuance of the
Warrant Certificates or before countersignature by the Warrant Agent and issue
and delivery thereof, such Warrant Certificates nevertheless may be
countersigned by the Warrant Agent, issued, and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company.
SECTION 4. EXERCISE OF THE WARRANTS. Each Warrant may be exercised to
purchase one share of Common Stock, upon payment of the Exercise Price, at any
time during the Exercise Period, but not after the Expiration Date, upon the
terms and subject to the conditions set forth herein and in the Warrant
Certificate. A Warrant shall be deemed to have been exercised immediately prior
to the close of business on the Exercise Date and the person entitled to receive
the Warrant Stock deliverable upon such exercise shall be treated for all
purposes as the holder thereof as of the close of business on the Exercise Date.
Any transfer fees with respect to such exercises shall be paid by the presenters
of the Warrants. Other expenses incurred by the Warrant Agent, including
expenses incurred to establish new accounts, to deliver exercised share
certificates, and to reconcile accounts, shall be paid by the Company. The
Company shall not be obligated to issue any fractional share interests in
Warrant Stock issuable or deliverable upon the exercise of any Warrants. As
soon as practicable on or after the Exercise Date and in any event within 30
days after such date, the Warrant Agent, on behalf of the Company, shall cause a
certificate or certificates for the Warrant Stock to be issued to the person or
persons entitled to receive the same, and the Warrant Agent shall deliver the
same to the person or persons entitled thereto. No adjustment shall be made in
respect of dividends on Warrant Stock delivered upon exercise of any Warrants.
Upon the exercise, or conversion as provided for in Section 8 hereof, of
any Warrants, the Warrant Agent shall promptly deposit the payment therefor into
an escrow account established by mutual agreement of the Company and the Warrant
Agent at a federally insured commercial bank. All funds deposited in the escrow
account, less expenses to be paid by the Company, will be disbursed to the
Company on a weekly basis once determined by the Warrant to be collected funds.
Once the funds are determined to be collected, the Warrant Agent shall cause the
share certificates representing the Warrant Stock to be issued. An accounting
relating to the number of Warrants exercised and the amount of exercise funds
remitted will be made by the Warrant Agent to the Company, with each payment to
the Company of exercise funds, which will serve as an interim accounting during
the Exercise Period. A complete accounting concerning all exercises of the
Warrants will be made to the Company at the completion of the Exercise Period.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC. The
Company covenants that it will at all times reserve and keep available out of
its authorized Common Stock, solely for the purpose of issuance upon exercise of
the Warrants as herein provided, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Warrant Stock which shall be so issuable shall be
duly and validly issued and fully paid and nonassessable and free from all
taxes, liens, and charges with respect to the issuance thereof and that, upon
issuance, such shares shall be listed on each national securities exchange, if
any, on which the other Common Stock outstanding of the Company is then listed.
If any shares of Common Stock reserved for the purpose of exercise of
Warrants hereunder require registration with or approval of any governmental
authority under any federal or state law before such shares may be validly
issued or delivered upon such exercise, then the Company covenants that
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it will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be; provided however, that the Company
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shall have the authority to suspend the exercise of any Warrants until such
registration or approval has been obtained, and provided further, that no
-------- -------
Warrants may be exercised by, or shares issued to, any Registered Holder in any
state in which such exercise would be unlawful. The Company shall secure such
registration or approval in all of the jurisdictions in which the Warrants are
initially registered or qualified. The Company may determine not to register or
qualify the Warrant Stock in certain other jurisdictions where the time and
expense involved do not justify such registration or qualification. All Warrants
submitted for exercise during any period of suspension shall be exercisable at
the Exercise Price when registration or approval of the Warrant Stock is
obtained. If any period of suspension continues beyond the Expiration Date, all
Warrants submitted for exercise prior to the Exercise Date shall be exercisable
at the Exercise Price upon removal of the suspension.
The Company shall pay all documentary, stamp, or similar taxes and other
governmental charges that may be imposed with respect of the issuance of the
Warrants, or the issuance, transfer, or delivery of the Warrant Stock upon
exercise of the Warrants; provided, however, that if a certificate for Warrant
-------- -------
Stock is to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrants being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of any such taxes or charges incident thereto, if
any. Any transfer fees payable to the Warrant Agent for the transfer, exchange,
or exercise of any certificate issued pursuant to this Agreement shall be paid
by the presenter of such certificate.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER. The Warrant
Certificates may be exchanged for other Warrant Certificates representing an
equal aggregate number of the same series of Warrants or may be transferred, in
whole or in part. Warrant Certificates to be so exchanged shall be surrendered
to the Warrant Agent at its Business Office, and the Company shall execute and
the Warrant Agent shall countersign, issue, and deliver in exchange therefor the
Warrant Certificates which the Registered Holder making the exchange shall be
entitled to receive.
The Warrant Agent shall keep, at its Business Office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
the Warrants and the transfer thereof. Upon due presentment for registration of
transfer of any Warrant Certificate at such office, the Company shall execute
and the Warrant Agent shall issue and deliver to the transferee a new Warrant
Certificate representing an equal aggregate number of Warrants.
All Warrant Certificates presented for registration of transfer or for
exchange or exercise, and the subscription form on the reverse thereof, shall be
duly endorsed or be accompanied by a written instrument of transfer and
subscription in form satisfactory to the Company and the Warrant Agent duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing.
A transfer fee shall be charged for any exchange or registration of
transfer of a Warrant Certificate. In addition, the Company may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
All Warrant Certificates surrendered for transfer or exercise, or for
exchange in the case of mutilated Warrant Certificates, shall be promptly
cancelled by the Warrant Agent and thereafter retained by the Warrant Agent for
the duration of the agency.
From time to time, but not less frequently than twice a year, the Warrant
Agent shall provide the Company with a list of the Registered Holders of the
Warrants.
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Prior to due presentment for registration of transfer thereof, the Company
and the Warrant Agent may deem and treat the Registered Holder of any Warrant
Certificate as the absolute owner thereof and of each Warrant represented
thereby (notwithstanding any notations of ownership or writing thereon by anyone
other than the Company or the Warrant Agent) for all purposes and shall not be
affected by any notice to the contrary.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction, or mutilation of any Warrant Certificate and, in the case of
loss, theft, or destruction, of indemnity satisfactory to them, or, in the case
of mutilation, upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall countersign and deliver in lieu thereof a
new Warrant Certificate representing an equal aggregate number of Warrants.
Applicants for substitute Warrant Certificates also shall comply with such other
reasonable regulations and pay such other reasonable charges as the Warrant
Agent may prescribe.
SECTION 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES
DELIVERABLE. After each adjustment of the Exercise Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be the number derived by dividing such adjusted Exercise
Price into the original Exercise Price as defined in Section 1(j) above. The
Exercise Price shall be subject to adjustment as follows:
(a)(i) If the Company hereafter shall (A) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock (whether Common
Stock or any other class of capital stock), (B) subdivide its outstanding shares
of Common Stock, (C) combine its outstanding shares of Common Stock into a
smaller number of shares, or (D) issue by reclassification of its Common Stock
any shares of capital stock of the Company, then the Exercise Price in effect
immediately prior to such action shall be adjusted so that the Registered Holder
of any Warrant thereafter exercised shall be entitled to receive the number of
shares of capital stock of the Company which he would have owned immediately
following such action had such Warrant been exercised immediately prior thereto.
An adjustment made pursuant to this subsection shall become effective
immediately after the record date in the case of a dividend and shall become
effective immediately after the effective date in the case of a subdivision,
combination, or reclassification. If, as a result of an adjustment made
pursuant to this subsection, the holder of any Warrants thereafter exercised
shall become entitled to receive shares of two or more classes of the Common
Stock of the Company, the Company's Board of Directors (whose determination
shall be conclusive and shall be described in a statement filed with the Warrant
Agent) shall determine the allocation of the adjusted Exercise Price between or
among shares of such classes of Common Stock.
(ii) In any case in which this Section 8(a) shall require that an
adjustment to the Exercise Price be made immediately following a record date,
the Company may elect to defer (but only until five business days following the
filing by the Company with the Warrant Agent of the certificate of independent
public accountants described in subsection (i) of Section 8(d)) issuing to the
Registered Holder of any Warrants exercised after such record date the Common
Stock and other capital stock of the Company issuable upon such exercise over
and above the Common Stock and other capital stock of the Company issuable upon
such exercise on the basis of the Exercise Price prior to adjustment.
(iii) No adjustment in the Exercise Price shall be required to be
made unless such adjustment would require an increase or decrease of at least
$.05; provided, however, that any adjustments which by reason of this subsection
-------- -------
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 8 shall be made
to the nearest cent or to the nearest whole share, as the case may be, and in no
event shall the Company be obligated to issue fractional shares upon the
exercise of any Warrants.
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<PAGE>
(iv) No adjustment of the Exercise Price shall be made as a result
of or in connection with (A) the issuance of Common Stock of the Company
pursuant to options, warrants, and stock purchase agreements outstanding or in
effect on the date hereof, (B) the granting of additional options by separate
agreements or pursuant to the stock option plans of the Company as currently or
hereafter in effect or as hereafter modified, renewed, or extended, or the
issuance of Common Stock of the Company upon exercise of any such options, or
(C) the issuance of Common Stock in connection with compensation arrangements
with officers, employees, or agents of the Company or any subsidiary, or under
any circumstances other than those set forth in subsection (i) of this Section
8(a).
(v) If at any time as a result of an adjustment made pursuant to
subsection (i) of this Section 8(a), the Registered Holder of any Warrants
thereafter exercised shall become entitled to receive any shares of the Company
other than its Common Stock, then the Exercise Price of such other shares so
receivable upon exercise of any Warrants shall be subject thereafter to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in
subsections (i) through (iv) of this Section 8(a).
(b) In case of any reclassification or change of the Common
Stock issuable upon exercise of the Warrants (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in the case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a subsidiary in which merger the Company is the continuing corporation and which
does not result in any reclassification or change of the then outstanding Common
Stock or other capital stock issuable upon exercise of the Warrants (other than
a change in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination)), or in case of
any sale or conveyance to another corporation of the property of the Company as
an entirety or substantially as an entirety, then, as a condition of such
reclassification, change, consolidation, merger, sale, or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holders of all
Warrants then outstanding shall have the right thereafter to receive on exercise
of such Warrants the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale, or conveyance by a holder of the number of shares of Common Stock issuable
upon exercise of such Warrant immediately prior to such reclassification,
change, consolidation, merger, sale, or conveyance, and shall forthwith file at
the Business Office of the Warrant Agent a statement signed by its President or
a Vice President and by its Treasurer or an assistant treasurer or its Secretary
or an assistant secretary evidencing such provisions. Such provisions shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 8. The provisions of
this Section 8(b) shall similarly apply to successive reclassifications and
changes of Common Stock and to successive consolidations, mergers, sales, or
conveyances.
(c) Before taking any action which would cause an adjustment
reducing the Exercise Price below the then par value of the Common Stock
issuable upon exercise of the Warrants, the Company will take any corporate
action which, in the opinion of its counsel, may be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such Common Stock at such adjusted Exercise Price.
(d)(i) Upon any adjustment of the Exercise Price required to be
made pursuant to this Section 8, the Company within 30 days thereafter shall (A)
cause to be filed with the Warrant Agent a certificate of a firm of independent
accountants setting forth the Exercise Price after such adjustment and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based, which certificate shall be conclusive evidence of the
correctness of such adjustment, and (B) cause to be mailed to each of the
Registered Holders of the Warrant Certificates then unexercised written
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notice of such adjustment. Where appropriate, such notice may be given in
advance and included as a part of the notice required to be mailed under the
provisions of subsection 8(d)(ii).
(ii) If at any time:
(A) the Company shall declare any dividend upon its
Common Stock payable otherwise than in cash or in Common Stock of the Company;
or
(B) the Company shall offer for subscription to the
holders of its Common Stock any additional shares of stock of any class or any
other securities convertible into shares of stock or any rights to subscribe
thereto; or
(C) there shall be any capital reorganization or
reclassification of the Common Stock of the Company, or a sale of all or
substantially all of the assets of the Company, or a consolidation or merger of
the Company with another corporation (other than a merger with a subsidiary in
which merger the Company is the continuing corporation and which does not result
in any reclassification or change of the then outstanding Common Stock or other
capital stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of subdivision or combination)); or
(D) there shall be a voluntary or involuntary
dissolution, liquidation, or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
each of the Registered Holders of the Warrant Certificates then unexercised, at
the earliest practicable time (and, in any event, not less than 20 days before
any record date or other date set for definitive action), written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution, or subscription rights or such reorganization,
reclassification, sale, consolidation, merger, dissolution, liquidation, or
winding up shall take place, as the case may be. Such notice shall also set
forth such facts as shall indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Exercise Price and the
kind and amount of the shares of stock and other securities and property
deliverable upon exercise of the Warrants. Such notice shall also specify the
date as of which the holders of the Common Stock of record shall participate in
said dividend, distribution, or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation, or winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation, or winding up of the Company,
the right to exercise the Warrants shall terminate).
(iii) Without limiting the obligation of the Company to provide
notice to the Registered Holders of the Warrant Certificates of corporate
actions hereunder, it is agreed that failure of the Company to give notice shall
not invalidate such corporate action of the Company.
SECTION 9. REDEMPTION. Upon the resolution of its Board of Directors,
at any time prior to the Expiration Date the Company may, but shall not be
required to, call for redemption of the Warrants so long as adequate provision
for redemption has been made and so long as the closing high bid price of the
Common Stock has exceeded the Exercise Price by 50% or more for the twenty (20)
consecutive trading days within twenty (20) calendar days preceding the mailing
of the notice of redemption described herein. In such an event, the Company
shall cause to be filed with the Warrant Agent a certified copy of such
resolution and cause to be mailed to each of the Registered Holders of the
Warrant Certificates to be redeemed written notice of such redemption at least
45 days prior to the Redemption Date. Such notice shall identify the Warrants to
be redeemed; state the Redemption Date, the Redemption Price, and
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the date upon which the Registered Holder's right to exercise the Warrants will
terminate; and describe the manner in which Warrant Certificates are to be
surrendered.
On or before the Redemption Date, the Registered Holders of the Warrants to
be redeemed, unless a Registered Holder previously has exercised or will
exercise such Warrants by the Redemption Date, shall surrender the Warrant
Certificates representing such Warrants to the Warrant Agent. The Warrants to
be redeemed shall be exercisable up to and including the Redemption Date. Upon
receipt of such Warrant Certificates, the Warrant Agent, as paying agent, shall
pay the Redemption Price for such Warrants to the order of the Registered
Holders thereof, and shall cancel the surrendered Warrant Certificates. After
the Redemption Date, all rights with respect to such Warrants shall cease,
except for the right to receive the Redemption Price of the Warrants.
Upon or prior to the mailing of the notice to the Registered Holders, the
Company shall deposit in trust with the Warrant Agent a sum equal to the
Redemption Price of all Warrants called for redemption, with irrevocable
instructions and authority to the Warrant Agent to pay, on and after the
Redemption Date, the Redemption Price to the Registered Holders upon the
surrender of the Warrant Certificates. The deposit shall constitute full payment
of the Warrants to the Registered Holders and, from and after the date of the
deposit, the Warrants shall be deemed to be no longer outstanding. The balance
of the deposit remaining unclaimed at the end of one year from the Redemption
Date shall be released to the Company, after which the holders of Warrants
called for redemption shall be entitled to receive payment of the Redemption
Price only from the Company.
SECTION 10. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any stock or other property deliverable upon exercise of the Warrants or
whether any such stock is fully paid and nonassessable. The Warrant Agent shall
not at any time be under any duty or responsibility to any Record Holder to make
or cause to be made any adjustment of the Exercise Prices provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of fact contained herein or for
any action taken, suffered, or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or the Warrant
Certificates, or (iii) be liable for any act or omission in connection with this
Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered, or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
President, a Vice President, the Secretary, an assistant secretary, the
Treasurer or an assistant treasurer of the Company (unless other evidence in
respect thereof is herein specifically prescribed). The Warrant Agent shall not
be liable for any action taken, suffered, or omitted by it in accordance with
such notice, statement, instruction, request, direction, order, or demand.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse it for its reasonable expenses hereunder; it
further agrees to indemnify the
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Warrant Agent and save it harmless against any and all losses, expenses, and
liabilities, including judgments, costs, and reasonable counsel fees, for
anything done or omitted by the Warrant Agent in the execution of its duties and
powers hereunder except losses, expenses, and liabilities arising as a result of
the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or willful misconduct) after giving 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to each Registered Holder at the Company's
expense. Upon such resignation the Company shall appoint in writing a new
warrant agent. If the Company shall fail to make such appointment within a
period of 30 days after it has been notified in writing of the resignation of
the Warrant Agent, then the Registered Holder of any Warrant Certificate may
apply to any court of competent jurisdiction for the appointment of a new
warrant agent. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with the same powers, rights, duties, and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act, or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act, or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment, the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may
be converted or merged, or any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act;
provided that such corporation is eligible for appointment as successor to the
- --------
Warrant Agent under the provisions of the preceding paragraph. Any such
successor Warrant Agent shall promptly cause notice of its succession as Warrant
Agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate then unexercised.
The Warrant Agent, its subsidiaries and affiliates, and any of its or their
officers or directors, may buy and hold or sell Warrants or other securities of
the Company and otherwise deal with the Company in the same manner and to the
same extent and with like effect as though it were not Warrant Agent. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
SECTION 11. MODIFICATION OF AGREEMENT. The Warrant Agent and the
Company by supplemental agreement may make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; (ii) to extend the Exercise Period or lower the Exercise Price
of the Warrants; or (iii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the Registered Holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
-------- -------
modified, supplemented, or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not less
than a majority of the outstanding Warrants to be affected by any such change.
In no event shall any change in the number or nature of the Warrant Stock
purchasable upon the exercise of the Warrants, or increase in the Exercise Price
thereof, or acceleration of the Expiration Date of the Warrants be made without
the consent in writing of the Registered Holders of Warrant Certificates
representing not less than a majority of the outstanding Warrants to be affected
by any such change, other than such changes as are specifically prescribed by
this Agreement as originally executed.
9
<PAGE>
SECTION 12. NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class, postage prepaid, or delivered to a
telegraph office for transmission:
(i) if to the Registered Holder of a Warrant Certificate, at the
address of such Registered Holder as shown on the registry books maintained by
the Warrant Agent; or
(ii) if to the Company, at 7001 W. Orchard Lake Road, Suite 424,
W. Bloomfield, Michigan 48322-3608, to the attention of the President, or at
such other address as may have been furnished to the Warrant Agent in writing by
the Company; or
(iii) if to the Warrant Agent, at its Business Office.
SECTION 13. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware.
SECTION 14. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent, and their respective
successors and assigns, and the Registered Holders from time to time of the
Warrant Certificates or any of them. Nothing in this Agreement is intended or
shall be construed to confer upon any other person any right, remedy, or claim
or to impose upon any other person any duty, liability, or obligation.
SECTION 15. EXECUTION. This Agreement may be executed in several
counterparts which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
"Company"
AJAY SPORTS, INC.
By:_____________________________________
Thomas W. Itin, President
"Warrant Agent"
AMERICAN SECURITIES TRANSFER, INC.
By:_____________________________________
Authorized Officer
10
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W-__________ _________ Warrants
CUSIP No. __________
VOID AFTER ______________ ___, ________
AJAY SPORTS, INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that ________________________________________ or registered
assigns ("Registered Holder"), is the registered owner of the above-indicated
number of Warrants expiring at 3:30 p.m., Denver, Colorado time, on December 31,
1996 ("Expiration Date"). Each Warrant entitles the Registered Holder to
purchase from AJAY SPORTS, INC., a Delaware corporation ("Company"), on or
before the Expiration Date, one fully-paid and nonassessable share of the $.01
par value Common Stock of the Company at the purchase price of $1.00 per share,
or as may be adjusted by the Company ("Exercise Price"), upon surrender of this
Warrant Certificate with the exercise form hereon duly completed and executed
with payment of the Exercise Price at the office of American Securities
Transfer, Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202
("Warrant Agent"), but only subject to the conditions set forth herein and in a
Warrant Agreement dated ____________, 1995 ("Warrant Agreement") between the
Company and the Warrant Agent. The Exercise Price, the number of shares
purchasable upon exercise of each Warrant, the number of Warrants outstanding,
and the Expiration Date are subject to adjustments upon the occurrence of
certain events. The Registered Holder may exercise all or any number of
Warrants resulting in a purchase of a whole number of shares. Reference is made
to the provisions on the reverse side of this Warrant Certificate and to the
provisions of the Warrant Agreement, all of which are incorporated by reference
in and made a part of this Warrant Certificate and which shall for all purposes
have the effect as so fully set forth herein.
The Warrants represented hereby may be redeemed at the election of the
Company upon 45 days' notice by mail to the Registered Holder hereof, at a
redemption price of $.05 per share, so long as the closing bid price of the
Common Stock has exceeded the Exercise Price by 50% or more for twenty (20)
consecutive trading days within twenty (20) calendar days preceding the mailing
of the notice of redemption. After the Redemption Date, all rights of the
Registered Holder hereof shall terminate (except for the right to receive the
redemption price of the Warrants represented hereby), but only if on or prior to
the mailing of the notice to the Registered Holders the Company shall have
deposited in trust with the Warrant Agent, an amount sufficient to pay the
redemption price of all Warrants called for redemption on the redemption date
and shall have made other adequate provisions for redemption, as are set forth
in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent, a new Warrant Certificate of
like tenor and evidencing in the aggregate a like number of Warrants, subject to
any adjustments made in accordance with the provisions of the Warrant Agreement,
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, upon payment of a
transfer fee by the Registered Holder per Warrant Certificate and any tax or
governmental charge imposed in connection with such transfer.
The Registered Holder of the Warrants evidenced by this Warrant Certificate
may exercise all or any number of such Warrants prior to the Expiration Date and
in the manner stated hereon. The Exercise Price shall be payable in lawful
money of the United States of America, in cash or by official bank or certified
check made payable to the order of the Company. If upon any exercise of any
Warrants evidenced by this Warrant Certificate, the number of Warrants exercised
shall be less than the total number of Warrants so evidenced, there shall be
issued to the Registered Holder a new Warrant Certificate evidencing the number
of Warrants not so exercised. No adjustment shall be made for any dividends on
any shares issued upon exercise of this Warrant.
No Warrant may be exercised after the Expiration Date and any Warrant not
exercised by such time shall become void.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its president and by its secretary, each by a facsimile of his
signature, and has caused a facsimile of its corporate seal to be imprinted
hereon.
AJAY SPORTS, INC.
Date:_____________________ By:_____________________________________
Thomas W. Itin, President
(S E A L)
By:_____________________________________
Robert R. Hebard, Secretary
Countersigned:
AMERICAN SECURITIES TRANSFER, INC., as warrant agent
By:_______________________
Authorized Officer
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $_____ PER CERTIFICATE ISSUED)
Each Warrant evidenced by this Warrant Certificate is part of a duly authorized
issue of Warrants to purchase shares of the $.01 par value Common Stock of the
Company.
This Warrant Certificate, when surrendered to the Warrant Agent at its principal
office by the Registered Holder, in person or by attorney duly authorized in
writing in the manner and subject to the limitations provided in the Warrant
Agreement, may be exchanged upon payment of a transfer fee by the Registered
Holder per Warrant Certificate or Warrant Certificates of like tenor and
evidencing in the aggregate a like number of Warrants, subject to any
adjustments made in accordance with the provisions of the Warrant Agreement.
The Company and the Warrant Agent may deem and treat the Registered Holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for all purposes
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary. No Registered Holder, as such, shall have any rights of a
shareholder of the Company, either at law or at equity, and the rights of the
Registered Holders, as such, are limited to those rights expressly provided in
the Warrant Agreement and in the Warrant Certificates.
The Exercise Price and the number of shares purchasable under this Warrant are
subject to adjustment if the Company shall prior to the exercise of any
Warrants, effect one or more stock splits, stock dividends, or other increases
or reductions of the number of shares of its $.01 par value Common Stock
outstanding without receiving compensation therefor in money, services, or
property.
The Company shall not be required to issue fractions of Warrants upon any such
adjustment or to issue fractions of shares upon issuance of any Warrants after
any such adjustment, but the Company, in lieu of issuing any such fractional
interest, shall round up or down to the nearest whole Warrant.
ASSIGNMENT
(Form of Assignment to be Executed if the Registered Holder Desires to Transfer
Warrants Evidenced Hereby)
FOR VALUE RECEIVED, _____________________hereby sells, assigns, and transfers
unto:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Type or Print Name and Address)(Social Security or Tax
Identification Number)
_______________ Warrants represented by this Warrant Certificate and does
hereby irrevocably constitute and appoint ______________________ Attorney to
transfer said Warrants on the books of the Warrant Agent with full power of
substitution in the premises.
Dated:_____________________ Signature:____________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant Certificate)
Signature Guaranteed:______________________________
EXERCISE
(Form of Exercise to be Executed if the Registered Holder Desires to Exercise
Warrants Evidenced Hereby)
Please insert Social Security or Other Identifying Number ______________________
The undersigned hereby irrevocably elects to exercise Warrants represented by
this Warrant Certificate and to purchase thereunder the full Shares issuable
upon exercise of said Warrants and requests that certificates for such Shares
shall be issued in the name of:
________________________________________________________________________________
________________________________________________________________________________
(Please Print Name and Address Including Zip Code)
and, if said number of Warrants shall not be all of the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the unexercised
number of Warrants may be assigned under the form of Assignment appearing
hereon.
Dated: ____________________ Signature:____________________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
this Warrant Certificate)
<PAGE>
[LETTERHEAD OF HIRSCH & SILBERSTEIN, P.C. APPEARS HERE]
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the use in this Registration Statement of Ajay Sports,
Inc. and Subsidiaries on Form S-2 of our report dated March 7, 1995, appearing
in the Prospectus, which is part of this Registration Statement. Such report
includes an explanatory paragraph relating to Ajay Sports, Inc. and
Subsidiaries' ability to continue as a going concern.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ HIRSCH & SILBERSTEIN
Farmington Hills, Michigan
April 20, 1995
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
Consent of Independent Accountants
----------------------------------
We consent to the inclusion in this registration statement on Form S-2 of our
report, which includes an explanatory paragraph related to substantial doubt
about the Company's ability to continue as a going concern, dated March 25,
1994, on our audits of the financial statements and the financial statement
schedules of Ajay Sports, Inc. and Subsidiary. We also consent to the reference
to our firm under the captions "Experts" and "Changes in and Disagreements with
Accountants or Accounting and Financial Disclosures."
/s/ COOPERS & LYBRAND LLP
Coopers & Lybrand L.L.P.
Milwaukee, WI
April 20, 1995
