<PAGE>
As filed with the Securities and Exchange Commission on October 17, 1996
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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BULLET SPORTS INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
Delaware 13-3561882
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2803 South Yale Street Mr. John A. Haas
Santa Ana, California 92704 President
(714) 966-0310 Bullet Sports
(Address, including zip International, Inc.
code, and telephone number, 2803 South Yale Street
including area code, of Santa Ana, California 92704
registrant's principal (714) 966-0310
executive offices) (Name, address, including zip
code, and telephone number,
including area code, of agent
for service
Copy to:
Harry S. Stahl, Esq.
McKenna & Stahl
2603 Main Street, Suite 1010
Irvine, California 92714-6232
(714) 752-2800
[Page 1 of Facing Page]
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or investment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 ("Securities Act"), other than securities offered in connection with
dividend or investment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Offering Aggregate Amount of
Shares to be Amount to be Price Per Offering Registration
Registered Registered (1) Share (2) Price (2) Fee (2)
- ------------ -------------- --------- ----------- ------------
Common Stock $ 3,773,905 $ 2.6875 $10,142,370 $ 3,498
($.001 Par
Value)
TOTAL DUE $ 3,498
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(1) Of the 3,773,905 shares of Common Stock being registered hereby (a)
12,500 shares of Common Stock, $.001 par value per share ("Common Stock"), of
Bullet Sports International, Inc., a Delaware corporation ("Company")
represents shares of Common Stock which may be sold by a selling stockholder
that may be acquired upon conversion of the Company's Series A 6% Non-Voting
Cumulative Convertible Preferred Stock ("Series A Preferred Stock"); (b)
1,397,500 shares of Common Stock of Company represents shares of Common Stock
which may be sold by certain selling stockholders that may be acquired upon
conversion of the Company's Series B 8.75% Non-Voting Cumulative Convertible
Preferred Stock ("Series B Preferred Stock"); (c) 966,500 shares represents
shares of Common Stock which may be sold by certain selling stockholders that
may be acquired upon conversion of the Company's Series C 8.75% Non-Voting
Cumulative Convertible Preferred Stock ("Series C Preferred Stock"); (d)
380,000 shares represent shares of Common Stock which may sold by certain
selling stockholders that may be acquired upon conversion of the Company's
Series D 8.75% Non-Voting Cumulative Convertible Preferred Stock ("Series D
Preferred Stock"); (e) 200,000 shares represents shares of Common Stock
issued upon exercise of 200,000 shares Redeemable Common Stock Purchase
Warrants; (f) 492,405 shares represents shares of Common Stock which may be
sold by certain selling stockholders that may be acquired upon exercise of
the Company's Redeemable Common Stock Purchase Warrants which were issued to
purchasers and placement agents of the Company's Series B Preferred Stock and
Series C Preferred Stock; (g) 125,000 shares represents shares which may be
sold by certain selling stockholders that may be acquired upon exercise
non-plan options; and (h) 200,000 shares represents shares of Common Stock
previously issued to directors of the Company, of which 150,000 shares were
acquired by the exercise of non-plan options. No other shares of the
Company's Common Stock are being registered pursuant to this offering.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(c) of the Securities Act of 1933, as amended, (the "Act"),
the registration fee has been calculated based upon a price of $2.6875 per
share, the average of the closing bid and asked prices as reported by NASDAQ
Small Cap for the Company's Common Stock on October 10, 1996.
(3) Pursuant to Rule 416 of the Act, there are also being registered
hereunder such additional shares as may be issued to the selling stockholders
because of future stock dividends, stock distributions, stock splits or similar
capital readjustments.
The Company hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Company 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.
SEE "RISK FACTORS" AT PAGE 6
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BULLET SPORTS INTERNATIONAL, INC.
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information
Required by Items of Form S-3
Form S-3 Item Caption or Location
Number and Caption in Prospectus
------------------ -------------------
1. Forepart of the Registration
Statement and Front Cover
Page of Prospectus........ Forepart of the Registration Statement;
Outside Front Cover
2. Inside Front and Outside
Back Cover Pages of
Prospectus............... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed
Charges................. The Company; Summary of the Offering;
Risk Factors (see page 6)
4. Use of Proceeds ........... Use of Proceeds
5. Determination of Offering
Price................... Not Applicable
6. Dilution .................. Dilution
7. Selling Security Holders... Selling Stockholders
8. Plan of Distribution ...... Plan of Distribution
9. Description of Securities
to be Registered........ Not Applicable
10. Interests of Named Experts
and Counsel............. Not Applicable
11. Material Changes .......... Risk Factors (see page 6);
Incorporation of Certain Information
by Reference
12. Incorporation of Certain Incorporation of Certain Information
Information by Reference by Reference
13. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities ............ Not Applicable
<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 a sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
DATED __________, 1996
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BULLET SPORTS INTERNATIONAL, INC.
COMMON STOCK
($.001 PAR VALUE)
3,773,905 SHARES OF COMMON STOCK
Of the 3,773,905 shares of Common Stock being registered hereby (a)
12,500 shares of Common Stock, $.001 par value per share ("Common Stock"), of
Bullet Sports International, Inc., a Delaware corporation ("Company")
represents shares of Common Stock which may be sold by a selling stockholder
that may be acquired upon conversion of the Company's Series A 6% Non-Voting
Cumulative Convertible Preferred Stock ("Series A Preferred Stock"); (b)
1,397,500 shares of Common Stock of Company represents shares of Common Stock
which may be sold by certain selling stockholders that may be acquired upon
conversion of the Company's Series B 8.75% Non-Voting Cumulative Convertible
Preferred Stock ("Series B Preferred Stock"); (c) 966,500 shares represents
shares of Common Stock which may be sold by certain selling stockholders that
may be acquired upon conversion of the Company's Series C 8.75% Non-Voting
Cumulative Convertible Preferred Stock ("Series C Preferred Stock"); (d)
380,000 shares represent shares of Common Stock which may sold by certain
selling stockholders that may be acquired upon conversion of the Company's
Series D 8.75% Non-Voting Cumulative Convertible Preferred Stock ("Series D
Preferred Stock"); (e) 200,000 shares represents shares of Common Stock
issued upon exercise of 200,000 shares Redeemable Common Stock Purchase
Warrants; (f) 492,405 shares represents shares of Common Stock which may be
sold by certain selling stockholders that may be acquired upon exercise of
the Company's Redeemable Common Stock Purchase Warrants which were issued to
purchasers and placement agents of the Company's Series B Preferred Stock and
Series C Preferred Stock; (g) 125,000 shares represents shares which may be
sold by certain selling stockholders that may be acquired upon exercise
non-plan options and (h) 200,000 shares represents shares of Common Stock
previously issued to directors of the Company, of which 150,000 shares were
acquired by the exercise of non-plan options. No other shares of the
Company's Common Stock are being registered pursuant to this offering.
Unless the context otherwise requires, all of the persons referred to
above shall be referred to collectively as the "Selling Stockholders".
The Common Stock may be offered from time to time by the Selling
Stockholders through ordinary brokerage transactions in the over-the-counter
market, in negotiated transactions or otherwise, at market prices prevailing
at the time of sale or at negotiated prices. The Company will not realize
any proceeds from the sale of the Common Stock by the Selling Stockholders.
See "Selling Stockholders" and "Plan of Distribution".
The Company's Common Stock is traded in the over-the-counter market and
is quoted on the small cap market of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") under the symbol "PARR". On
October 10, 1996, as quoted on the NASDAQ Small Cap Market, the closing price
for the Common Stock in the over-the-counter market was $2.6875.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE
PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS" AT PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ________________, 1996
<PAGE>
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TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 3
THE COMPANY 4
SUMMARY OF THE OFFERING 5
RISK FACTORS 6
RECENT OPERATING RESULTS 10
CAPITALIZATION 11
USE OF PROCEEDS 12
MARKET FOR COMMON EQUITY 13
SELLING STOCKHOLDERS 14
PLAN OF DISTRIBUTION 15
RIGHTS OF CERTAIN HOLDERS OF COMMON STOCK 15
LEGAL MATTERS 16
ADDITIONAL INFORMATION 16
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. 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 OR THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 5th Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at 13th Floor, Seven World
Trade Center, New York, New York 10048; 10960 Wilshire Boulevard, Suite 1710,
Los Angeles, California 90024, and 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material may be obtained from the Commission at
450 5th Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
reports, proxy statements and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"). 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. For further information, reference is made to
the Registration Statement.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 0-25682) under the Exchange Act are incorporated in this Prospectus by
reference:
1. Annual Report on Form 10-KSB for the fiscal year ended February 29,
1996 (filed with the Commission on June 13, 1996);
2. Quarterly Report on Form 10-QSB for the fiscal quarter ended May 31,
1996 (filed with the Commission on July 19, 1996);
3. Current Reports on Form 8-K dated April 26, 1996 (filed with the
Commission on April 27, 1996), July 24, 1996 (filed with the Commission on
July 26, 1996), and October 11, 1996 (filed with the Commission on October
15, 1996), respectively;
4. The description of the Company's $.001 par value Common Stock
contained in the Company's Registration Statement on Form S-18 (File
No. 33-34095), including any amendments or reports filed for the purpose of
updating such description;
5. The description of the Company's Series B 8.75% Non-Voting Cumulative
Convertible Preferred Stock and the Company's Series C 8.75% Non-Voting
Cumulative Convertible Preferred Stock contained in the Company's Form 10-KSB
for the fiscal year ended February 29, 1996 (filed with the Commission on
June 13, 1996), including any amendments or reports filed for the purpose of
updating such description.
6. All other documents filed by the Company pursuant to Section 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 Common Stock.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
request of such person, a copy of any or all of the documents which are
incorporated by reference herein, other than exhibits to such documents
(unless such exhibits are specifically incorporated by reference therein).
Written or telephone requests should be directed to Bullet Sports
International, Inc., 2803 South Yale Street, Santa Ana, California 92704,
Attention: Vicki Myers; telephone (714) 966-0310.
3
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THE COMPANY
The Company was organized under the laws of the state of Delaware on March
19, 1990, under the name Merchant Capital Enterprises, Inc. The Company later
changed its name to International Telecom Services, Inc. On January 18, 1995,
the Company acquired the golf business and related assets of Roger Dunn Golf
Shops, Inc. ("RDGS"). Prior to acquiring RDGS, the Company had no operations.
On March 31, 1995, the stockholders of the Company voted to change the name of
the Company to Bullet Sports International, Inc. in order to better reflect the
Company's newly acquired business. The business of the Company, since January
18, 1995, has been to design, develop, assemble and market golf clubs, golf
bags, golf balls and related equipment and accessories and to seek out golf
business opportunities which in the opinion of management will provide a profit
to the Company.
[THIS LEFT BLANK INTENTIONALLY]
4
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SUMMARY OF THE OFFERING
The following summary information is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus or which is
incorporated herein by reference.
Securities Offered ............ 3,773,905 shares of Common Stock
Shares of Common Stock
Outstanding (1) .......... 4,278,867 shares
Use of Proceeds ............... The Company will not receive any of the
proceeds from the sale of stock by the
Selling Stockholders.
There can be no assurance that any or a
substantial portion of the Warrants will be
exercised.
Risk Factors.................. The securities offered hereby involve a high
degree of risk and should not be purchased by
investors who cannot afford the loss of their
entire investment. See "Risk Factors".
NASDAQ symbol................. PARR
____________
(1) Outstanding as of October 10, 1996. Does not include: (a) 100,000
shares of Common Stock reserved for issuance upon exercise of stock options
granted under the Company's 1994 Compensatory Stock Option Plan; (b) 945,000
shares of Common Stock reserved for issuance under the Company's 1995
Employee Compensatory Stock Option Plan; (c) 12,500 shares of Common Stock
reserved for issuance upon conversion of the Company's Series A Preferred
Stock; (d) 1,397,500 shares of Common Stock reserved for issuance upon
conversion of the Company's Series B Preferred Stock; (e) 966,500 shares of
Common Stock reserved for issuance upon conversion of the Company's Series C
Preferred Stock; (f) 380,000 shares of Common Stock reserved for issuance
upon conversion of the Company's Series D Preferred Stock; and (g) 874,372
shares of Common Stock reserved for issuance upon exercise of non-plan stock
options and warrants.
5
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RISK FACTORS
The securities offered hereby involve a high degree of risk, including, but
not necessarily limited to, the risk factors described below. Each prospective
investor should carefully consider the following risk factors inherent in and
affecting the business of the Company and this offering before making an
investment decision.
1. LIMITED OPERATING HISTORY/SIGNIFICANT OPERATING LOSSES. The
Company was incorporated in March 1990, and had no operations until it
acquired the golf business and related assets of Roger Dunn Golf Shops in
January 1995. The Company has incurred significant losses in all of its
prior periods and the Company's results of operations for the fiscal year
ended February 29, 1996 reflected a loss of $6,764,147 or $2.63 per share.
For the six months ended August 31, 1996, the Company incurred an unaudited
net loss of $2,233,000 or $.64 per share. In addition, the Company has
continued to experience significant losses through the date of this Prospectus.
There can be no assurance that the Company will be profitable in the future.
2. LIQUIDITY AND CAPITAL RESOURCES. The Company is exploring
financing and capital options to fund ongoing operations.
Management is also attempting to reduce selling, general and administrative
expenses of the golf business as a percentage of net sales and is
restructuring its market focus in an effort to attain profitability.
Management believes that unless the Company is able to restructure its credit
facility, reduce collateral requirements pledged on its line of credit,
improve profitability by increasing operating margins while at the same time
maintaining or increasing sales volume, and reduce selling, general and
administrative expenses as a percentage of sales, the Company will not have
sufficient cash to meet minimum operating requirements in fiscal 1997 without
obtaining additional capital from the sale of shares of common or preferred
stock. If management's plans in connection with these matters are not
successful, it would have a material adverse effect on the Company's
financial condition.
3. VARIABILITY OF OPERATING RESULTS. The Company has experienced
significant fluctuations in its operating results and anticipates that these
fluctuations will continue. Operating results may fluctuate due to factors such
as the demand for the Company's products, the timing of the introduction of new
products, and price reductions by the Company and its competitors, delay,
cancellation or rescheduling of orders, purchasing patterns in the distribution
channel, performance of third party manufacturers, inventory levels,
availability of key components for the Company's products, the Company's ability
to develop and market new products, the timing and amount of sales and marketing
expenditures and general economic conditions. In addition, the Company
anticipates that its business will be affected by seasonal purchasing patterns.
6
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4. COMPETITION. The market for moderately priced and low priced golf
clubs and balls is highly competitive and is served by many well-established,
well-financed companies with recognized brand names. There has been widespread
imitation of popular club designs in the industry. The preferences of golf club
purchasers may also be subject to rapid and unanticipated changes. While the
Company has no single direct competitor in the golf club business, the Company
believes that its principal competitors include Tommy Armour, Cleveland,
Powerbilt, RAM, Nicklaus and Wilson. The Company also competes, to a lesser
degree, with Callaway, Cobra, Lynx and Taylor Made, all of whom also produce
premium golf club lines. There can be no assurance as to how long the Company's
golf clubs will maintain market acceptance. A decline in the size of the golf
club market, whether from a decrease in the popularity of golf or otherwise,
could have a material, adverse effect on the Company's business.
5. SOURCES AND AVAILABILITY OF RAW MATERIALS. The Company is vulnerable
to shortages of materials from vendors in various Asian countries. Such
shortages could potentially limit production by the Company's vendors in those
countries. Moreover, if any of the Company's suppliers is subject to a raw
materials shortage, the Company's deliveries to its customers may be delayed,
which could adversely affect the Company's business. However, the Company does
not rely directly on the availability of raw materials in order to assemble its
products. The golf clubs are assembled at the Company's plant in Santa Ana,
California.
6. DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the
management and leadership skills of the members of its senior management team.
The loss of key personnel or the inability to attract, retain and motivate key
personnel could adversely affect the Company's business. There can be no
assurance that the Company will be able to retain its existing senior management
personnel or attract additional qualified personnel.
7. NO DIVIDENDS AND RESTRICTIONS ON DIVIDENDS. To date, the Company has
not paid any dividends on its Common Stock and does not intend to declare any
dividends in the foreseeable future. The Company intends to retain earnings, if
any, for the future operation and development of its business. In addition, the
payment of such dividends is prohibited by the terms of the Company's credit
facility.
8. SHARES ELIGIBLE FOR FUTURE SALE. As of October 10, 1996 the
Company had a total of 4,428,867 shares of Common Stock issued and
outstanding. If all options, warrants, and conversion privileges outstanding
as at October 10, 1996 were exercised (subject to the limitations on
conversion set forth in certificates of designation governing the issuance
of the various classes of convertible stock), the Company would have
7,802,772 shares of Common stock outstanding.
7
<PAGE>
As of October 10, 1996, options to purchase a total of 1,045,000 shares
of Common Stock, all of which have been registered under the Securities Act,
were outstanding with a weighted average exercise price of $4.86 per share,
of which options to purchase 45,000 shares were exercisable as of October 10,
1996. An additional 75,000 shares of Common Stock were available for future
option grants under the Company's stock option plans.
Pursuant to a number of consulting agreements, the Company has granted
non-plan options to purchase shares of Common Stock. As of October 10, 1996,
non-plan options to purchase a total of 275,000 shares of Common Stock were
outstanding and immediately exercisable, with a weighted average exercise
price of $2.00 per share.
The Company has also granted warrants to purchase shares of Common
Stock. As of October 10, 1996, warrants to purchase 599,372 shares of Common
stock were outstanding, with a weighted average exercise price of $2.91 per
share.
9. NO ASSURANCE OF PROCEEDS. A major source of potential capital to
the Company is the proceeds from the exercise of the Warrants. The Company,
however, has received no firm commitment for the exercise of the Warrants.
Thus, there can be no assurances that the Company will realize material
proceeds, if any, from the exercise of such Warrants.
10. POSSIBLE DILUTION. The Company is authorized to issue 10,000,000
shares of Common Stock, of which 4,428,867 shares were outstanding as of
October 10, 1996. Assuming full exercise of all outstanding warrants and
options and conversions of preferred shares (subject to the limitations on
conversion set forth in certificates of designation governing the issuance of
the various classes of convertible stock), 7,802,772 shares will be
outstanding. Furthermore, in connection with other business matters deemed
appropriate by the Company's management, there can be no assurances that the
Company will not, in fact, undertake the issuance of more shares of Common
Stock without notice to then existing
8
<PAGE>
stockholders. This may be done in order to, among other things, facilitate a
business combination, acquire assets or stock of another business, generate
debt or equity financing, reward employees or consultants, or for other valid
business reasons in the discretion of the Company's Board of Directors.
11. POSSIBLE STATE AND FEDERAL RESTRICTIONS ON EXERCISE OF WARRANTS.
Holders of Warrants will be able to sell the underlying Common Stock issuable
upon exercise of the Warrants only if a current registration statement relating
to such underlying Common Stock is then in effect and on file with the
Securities and Exchange Commission and only if such Common Stock is qualified
for sale or exempt from qualification under the applicable securities laws of
the states in which the various holders of Warrants reside. The warrant
agreements relating to the Warrants contain certain provisions requiring the
Company to file for and endeavor to secure, such current and effective
registration of the shares of Common Stock issuable upon exercise of the
Warrants. If such shares are not registered, it is unlikely that the holders of
Warrants will exercise the Warrants, in which case the Company would not receive
any funds.
12. EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. As of February 29, 1996,
the Company had outstanding options and warrants ("Outstanding Options") to
purchase 1,211,600 shares of Common Stock upon exercise of the Outstanding
Options. To the extent that the shares underlying the Outstanding Options enter
the market, the price of the Common Stock in the market may be substantially
reduced. Moreover, for the term of the Outstanding Options, the holders thereof
are given an opportunity to profit from a rise in the market price of the
Company's Common Stock, with a resulting dilution in the interest of the other
stockholders. Further, the terms on which the Company may obtain additional
financing during that period may be adversely affected by the existence of such
Outstanding Options. The holders of such Outstanding Options may exercise them
at a time when the Company might be able to obtain additional capital through a
new offering of securities on terms more favorable than those provided therein.
13. LIMITED MARKET AND POSSIBLE ILLIQUIDITY OF SHARES. The market price
for the Company's securities may be significantly affected by such factors as
the Company's financial results, the introduction of new products by the
Company's competitors, and various factors affecting the golf industry
generally. Additionally, in recent years, the stock market has experienced a
high level of price and volume volatility and market prices for many companies,
particularly small and emerging growth companies the common stock of which trade
in the over-the-counter market, have experienced wide fluctuations not
necessarily related to the operating performance of such companies. Also, the
market price for the Company's Common Stock may be affected by general stock
market volatility.
9
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RECENT OPERATING RESULTS
On October 11, 1996, the Company announced its unaudited operating
results for the second quarter of fiscal 1997, which ended August 31, 1996.
Revenues for the three months ended August 31, 1996, were $1,730,000 compared
to $4,272,000 for the same period of the prior year. Net loss for the three
months ended August 31, 1996, was $1,480,000, or $.41 per common share net of
the provision for preferred stock dividends, compared to a net loss of
$741,000, or $.29 per common share for the comparable prior year. Per share
data is based on 4,086,000 and 2,717,000 weighted average common and common
equivalent shares, respectively, outstanding during the current and prior
year's fiscal quarter.
Revenues for the six months ended August 31, 1996, were $4,174,000
compared to $8,895,000 for the same period of the prior year. Net loss for
the six months ended August 31, 1996, was $2,233,000 or $.64 per common share
net of the provision for preferred stock dividends, compared to a net loss of
$842,000 or $.53 per common shares in the same period of the prior year. Per
share data is based on 3,918,000 and 1,794,000 weighted average common and
common equivalent shares, respectively, outstanding during the current and
prior year six month periods.
The Company noted in its announcement of second quarter operating
results that its level of marketing activities continued to be unfavorably
impacted during the second quarter as a result of restrictions in its
principal lending agreement limiting available working capital. The Company
continues to pursue alternative financing sources. Additionally, substantial
charges totaling $498,000 were recorded during the second quarter relating to
payments which may be claimed by various preferred stockholders holding
registration rights relating to convertible preferred stock issued during the
first quarter, as the Company did not meet certain deadlines with respect to
filing and gaining effectiveness of the registration statement with the
Securities and Exchange Commission ("Commission") of which this prospectus is
a part, covering the underlying shares of Common Stock. Unless the Company is
successful in getting these payments waived or substantially reduced,
additional charges will be incurred during the third quarter of the current
fiscal year, until the registration statement becomes effective with the
Commission. No assurance can be given as to when the registration statement
will become effective with the Commission.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company:
Six Months
Fiscal Year August 31, 1996
Feb. 29, 1996 (Unaudited)
------------- ---------------
Long-Term debt,
excluding current maturities: $ 84,307 $ 75,533
Stockholders' Equity:
Series A 8.75% Non-Voting Cumulative
Convertible Preferred Stock 2,137,950 22,500
Series B 8.75% Non-Voting Cumulative
Convertible Preferred Stock 3,024,269 5,359,959
Series C 8.75% Non-Voting Cumulative
Convertible Preferred Stock -0- 1,815,727
Series D 8.75% Non-Voting Cumulative
Convertible Preferred Stock -0- 791,975
Common stock, par value $.001
per share; 10,000,000 shares
authorized; 3,748,867 shares
issued and outstanding 3,749 4,279
Additional paid-in capital 3,306,429 4,534,649
Accumulated deficit (6,996,124) (9,592,968)
Subscription Receivable (Series B
Preferred (1,261,157) -0-
------------ -----------
Total stockholders' equity 215,116 2,936,121
------------ -----------
Total capitalization $ 299,423 $ 3,011,654
------------ -----------
------------ -----------
- --------------
On September and October 10, 1996, the Company received $100,000 and $50,000,
respectively, upon the exercise of options to purchase 100,000 common shares
and 30,000 common shares, respectively.
11
<PAGE>
USE OF PROCEEDS
The Company will not realize any proceeds from the sale of shares of Common
Stock by the Selling Stockholders. See "Selling Stockholders."
The gross proceeds which may be realized by the Company upon the exercise
of one hundred percent (100%) of the Warrants will be $1,743,198. Inasmuch
as the Company has received no firm commitments for their exercise, there can be
no assurance that any or a substantial portion of the Warrants will be
exercised.
Management cannot predict with any certainty the amount of proceeds, if
any, which may be generated from the exercise of Warrants. The net proceeds
which may be realized by the Company, if any, upon the exercise of the Warrants
will not be utilized for any specific purpose other than to contribute to the
Company's working capital and be used to continue the operations of the Company
in accordance with the business strategy identified by management. Based upon
this strategy, assuming that proceeds, net of costs of this offering, are
realized by the Company upon the exercise of Warrants within a period of twenty-
four (24) months, management would reasonably expect to utilize such proceeds
for working capital purposes.
12
<PAGE>
MARKET FOR COMMON EQUITY
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock trades on the NASDAQ Small Cap under the symbol
"PARR"(1) maintained by the National Association of Securities Dealers, Inc.
("NASD"). Prior to November 17, 1995, the Company's Common Stock traded on
the OTC (Over the Counter) Electronic Bulletin Board. The following table
sets forth the closing high and low bid prices of the Common Stock for the
period indicated, as reported by the NASD and NASDAQ. These prices are
believed to be representative inter-dealer quotations, without retail
mark-up, mark-down or commissions and may not represent prices at which
actual transactions occurred. Trading volumes have been sporadic.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 28, 1995 February 29, 1996 February 28, 1997
Bid Bid Bid
- --------------------------------------------------------------------------------------------
High Low High Low High Low
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter * * $5.625 $4.25 $2.594 $1.875
- --------------------------------------------------------------------------------------------
2nd Quarter * * $5.875 $5.00 $5.125 $2.125
- --------------------------------------------------------------------------------------------
3rd Quarter * * $5.625 $3.50 $5.125** $2.00**
- --------------------------------------------------------------------------------------------
4th Quarter $4.50 $1.13 $4.875 $1.688
- --------------------------------------------------------------------------------------------
</TABLE>
* There were no quotations found for this period.
** The prices for the third quarter are through October 10, 1996 with a
closing price of $2.6875 on October 10, 1996.
HOLDERS
At July 16, 1996, there were approximately 1600 record holders of the
Company's Common Stock, one record holder of its Series A, 6.0% Non-Voting
Cumulative Convertible Preferred Stock, five record holders of its Series B,
6.0% Non-Voting Cumulative Convertible Preferred Stock and four record holders
of its Series C, 8.75% Non-Voting Cumulative Convertible Preferred Stock. The
number of holders of the Company's Common Stock may not include stockholders
whose shares are held in street or nominee names.
- ----------------
(1) Prior to April 6, 1995, the Company's Common Stock traded under the
symbol "ITCSA".
13
<PAGE>
SELLING STOCKHOLDERS
The shares of Common Stock of the Company offered by this Prospectus are
being sold for the account of the persons named herein ("Selling Stockholders").
The shares of Common Stock offered by the Selling Stockholders may be
offered for sale from time to time at market prices prevailing at the time of
sale or at negotiated prices, and without payment of any underwriting discounts
or commissions except for usual and customary selling commissions paid to
brokers or dealers.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of October 10, 1996, and as
adjusted to reflect the sale of the securities offered hereby, by the Selling
Stockholders.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Number of Shares of
Common Stock Number of Shares of
Beneficially Owned Common Stock to be
Name of Selling Stockholders October 10, 1996 Offered
- -------------------------------------------------------------------------------
GFL Performance Fund Limited 580,000 580,000
- -------------------------------------------------------------------------------
GFL Ultra Fund 12,500 12,500
- -------------------------------------------------------------------------------
Givigest Finance (Overseas) N.V. 1,412,276 1,412,276
- -------------------------------------------------------------------------------
The Gifford Fund Ltd. 140,000 140,000
- -------------------------------------------------------------------------------
Bank Lombard Odier & Cie 261,250 261,250
- -------------------------------------------------------------------------------
Societe Financiers Privee S.A. 261,250 261,250
- -------------------------------------------------------------------------------
Gotthard Bank - Nassau (Bahamas) 352,967 352,967
- -------------------------------------------------------------------------------
Patricia Mooneyham 29,305 29,305
- -------------------------------------------------------------------------------
Coutts & Co. (Bahamas) Ltd. 293,052 293,052
- -------------------------------------------------------------------------------
Givigest Fiduciaria S.A. 102,500 102,500
- -------------------------------------------------------------------------------
Century City Securities 3,805 3,805
- -------------------------------------------------------------------------------
Douglas L. Hawthorne 100,000 100,000
- -------------------------------------------------------------------------------
Leonard K. Nave 50,000 50,000
- -------------------------------------------------------------------------------
Rick G. Avare 50,000 50,000
- -------------------------------------------------------------------------------
Andrew J. Kacic 100,000 100,000
- -------------------------------------------------------------------------------
SCF Societe Di Consulenza 25,000 25,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals 3,773,905 3,773,905
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
14
<PAGE>
PLAN OF DISTRIBUTION
The Common Stock to be sold by the Selling Stockholders may be sold from
time to time as market conditions permit in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the then-
current market price, or in negotiated transactions. The shares of Common Stock
offered hereby may be sold by one or more of the following methods, without
limitation: (a) a block trade in which a broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits Purchasers; and (d) face-to-face transactions between
sellers and Purchasers without a broker-dealer. In effecting sales, brokers or
dealers engaged by the Selling Stockholders may arrange for other brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act") in connection with such sales. In addition, any securities
covered by this Prospectus that qualify for sale pursuant to Rule 144
promulgated thereunder might be sold under Rule 144 rather than pursuant to this
Prospectus.
The Selling Stockholders will comply with Rule 10b-6 promulgated under the
Securities Exchange Act of 1934, as amended, in connection with all resales of
Common Stock offered hereby.
RIGHTS OF CERTAIN HOLDERS OF COMMON STOCK
The agreements under which certain shareholders privately purchased their
Common Stock provide that in certain instances these shareholders have the right
to: (i) require that the Company file a registration statement under the
Securities Act covering their shares; and (ii) include their shares in a
registration statement filed by the Company under such Act.
15
<PAGE>
EXPERTS
The financial statements of Bullet Sports International, Inc. as of
February 29, 1996, and for the years ended December 31, 1995 and 1994 have been
incorporated by reference herein and in the registration statement in reliance
upon the report of Arthur Andersen LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon by
McKenna & Stahl, 2603 Main Street, Suite 1010, Irvine, California, Irvine,
92714.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-3
(herein, together with all amendments, if any, thereto, called the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered by this Prospectus. For further information with respect to the Company
and such shares of Common Stock, reference is made to the Registration Statement
and to the exhibits, if any, filed therewith which are available for inspection
at the office of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such documents may be obtained therefrom at
prescribed rates and a copy of the Registration Statement may be obtained from
the principal office of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
Securities and Exchange Commission filing
fee.................................... $ 3,498
Transfer Agent's and Registrar's Fees..... 4,000
Legal fees and expenses................... 25,000
Accounting fees and expenses.............. 3,000
Miscellaneous ............................ 1,000
-------
Total................................. $36,498
-------
-------
All amounts estimated except for Securities and Exchange Commission filing
fee.
- ----------------
(1) As required by agreements between the Company and the Selling
Stockholders, all of these expenses of issuance and distribution will be paid by
the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation and Amended and Restated Bylaws
of the Company and Sections 145 of the General Corporation Law of the State of
Delaware provide for indemnification of directors and officers under certain
conditions and subject to certain limitations.
Section 145 of the General Corporation Law of the State of Delaware
empowers the Company to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid in settlement
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful except that, in the case of an action or suit by or in the
right of the Company, no indemnification may be made
II-1
<PAGE>
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Company unless the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all of
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Court of Chancery or such other
court shall deem proper. Article Seventh of the Certificate of Incorporation
and Article VII of the Amended and Restated Bylaws of the Company provide for
indemnification of persons to the fullest extent authorized by the General
Corporation Law of the State of Delaware.
In accordance with the General Corporation Law of the State of Delaware,
the Company has adopted a provision in its Certificate of Incorporation to limit
the personal liability of its directors for violations of their fiduciary duty.
The provision eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under the section of the Delaware law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director derived an
improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed 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.
II-2
<PAGE>
ITEM 16. LIST OF EXHIBITS
EXHIBIT DESCRIPTION
NUMBER
3.1 Certificate of Incorporation of Merchant Capital Enterprises,
Inc., dated March 19, 1990 (incorporated by reference to
Exhibit 3(a) to the Company's Registration Statement on
Form S-18, File No. 33-34095).
3.2 Certificate of Amendment to Certificate of Incorporation of
International Telecom Services, Inc., dated March 31, 1995
(incorporated by reference to identical exhibit number in the
Company's Annual Report on Form 10-KSB/A for the fiscal year
ended February 28, 1995).
3.3 Bylaws of the Company (incorporated by reference to Exhibit 3(b)
to the Company's Registration Statement on Form S-18, File
No. 33-34095).
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4(a) to the Company's Registration Statement on
Form S-18, File No. 33-34095).
4.2 Specimen Series A, 6% Non-Voting Cumulative Convertible Preferred
Stock Certificate (incorporated by reference to Exhibit 4.2 to
the Company's Current Report on Form 8-K dated February 18,
1995).
4.3 Certificate of Designation establishing the Series A, 6% Non-
Voting Cumulative Convertible Preferred Shares as filed with the
Delaware Secretary of State on December 22, 1994 (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated February 18, 1995).
4.4 Specimen Series B, 8.75% Non-Voting Cumulative Convertible
Preferred Stock Certificate (incorporated by reference to
identical exhibit number in the Company's Annual Report on
Form 10-KSB for the fiscal year ended February 29, 1996).
4.5 Certificate of Designation establishing the Series B, 8.75% Non-
Voting Cumulative Convertible Preferred Stock as filed with the
Delaware Secretary of State on March 6, 1996 (incorporated by
reference to identical exhibit number in the Company's Annual
Report on Form 10-KSB for the fiscal year ended February 29,
1996).
II-3
<PAGE>
4.6 Specimen Series C, 8.75% Non-Voting Cumulative Convertible
Preferred Stock Certificate (incorporated by reference to
identical exhibit number in the Company's Annual Report on
Form 10-KSB for the fiscal year ended February 29, 1996).
4.7 Certificate of Designation establishing the Series C, 8.75% Non-
Voting Cumulative Convertible Preferred Stock as filed with the
Delaware Secretary of State on April 18, 1996 (incorporated by
reference to identical exhibit number in the Company's Annual
Report on Form 10-KSB for the fiscal year ended February 29,
1996).
4.8 Specimen of 8.75% Convertible Subordinated Debenture due
October 15, 1999 (incorporated by reference to identical exhibit
number in the Company's Annual Report on Form 10-KSB for the
fiscal year ended February 29, 1996).
4.9 Copy of Terms and Conditions for the 8.75% Convertible
Subordinated Debentures due October 15, 1999 (incorporated by
reference to identical exhibit number in the Company's Annual
Report on Form 10-KSB for the fiscal year ended February 29,
1996).
4.10 Specimen Series D, 8.75% Non-Voting Cumulative Convertible
Preferred Stock Certificate.
4.11 Certificate of Designation establishing the Series D, 8.75%
Non-Voting Cumulative Convertible Preferred Stock as filed
with the Delaware Secretary of State on July 19, 1996.
5 Opinion of McKenna & Stahl as to the legality of
securities being registered.*
10.1 Purchase Agreement dated December 7, 1994, among the Company,
Roger Dunn Golf Shops, Inc., and Steven Dunn individually
(incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated February 18, 1995).
10.2 Bill of Sale from Roger Dunn Golf Shops, Inc. to the Company
dated January 18, 1995 (incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K dated February 18,
1995, as amended).
10.3 Non-Competition and Non-Use Agreement dated January 18, 1995
among the Company, Roger Dunn Golf Shops, Inc. and Steve Dunn,
individually (incorporated by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K dated February 18, 1995).
10.4 Release and Quit-Claim from Roger Dunn Golf Shops, Inc. and
Steven Dunn, individually, dated January 18, 1995 (incorporated
by reference to Exhibit 10.4 to the Company's Current Report on
Form 8-K dated February 18, 1995).
II-4
<PAGE>
10.5 Assumption of Liabilities by the Company and Bullet-Cougar Golf
Corporation dated January 18, 1995 (incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K dated
February 18, 1995).
10.6 Agreement dated January 18, 1995, among the Company, Roger Dunn
Golf Shops, Inc. and Steven Dunn, individually (incorporated by
reference to Exhibit 10.6 to the Company's Current Report on
Form 8-K dated February 18, 1995).
10.7 Assumption and Confirmation Agreement dated January 17, 1995,
among Wells Fargo Bank, N.A., Roger Dunn Golf Shops, Inc.,
Steven B. Dunn, individually, the Company, and Bullet-Cougar Golf
Corporation (incorporated by reference to Exhibit 10.7 to the
Company's Current Report on Form 8-K dated February 18, 1995).
10.8 Second Amended and Restated Revolving Line of Credit Note dated
January 17, 1995, executed by Roger Dunn Golf Shops, Inc., the
Company and Bullet-Cougar Golf Corporation in favor of Wells
Fargo Bank, N.A. (incorporated by reference to Exhibit 10.8 to
the Company's Current Report on Form 8-K dated February 18,
1995).
10.9 Continuing Security Agreement dated January 18, 1995, executed by
the Company in favor of Wells Fargo Bank, N.A. (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K dated February 18, 1995).
10.10 Security Agreement (Equipment and Fixtures) dated January 18,
1995, executed by the Company in favor of Wells Fargo Bank, N.A.
(incorporated by reference to Exhibit 10.10 to the Company's
Current Report on Form 8-K dated February 18, 1995).
10.11 General Pledge Agreement dated January 18, 1995, executed by
Roger Dunn Golf Shops, Inc. in favor of Wells Fargo Bank, N.A.
(incorporated by reference to Exhibit 10.11 to the Company's
Current Report on Form 8-K dated February 18, 1995).
10.12 Modification Letter dated January 17, 1995, among the Company,
Bullet-Cougar Golf Corporation, Roger Dunn Golf Shops, Inc. and
Wells Fargo Bank, N.A. (incorporated by reference to
Exhibit 10.12 to the Company's Current Report on Form 8-K dated
February 18, 1995).
II-5
<PAGE>
10.13 1994 Compensatory Stock Option Plan (incorporated by reference to
identical exhibit number in the Company's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1995, filed on
June 13, 1995).
10.14 1994 Employee Stock Option Plan (incorporated by reference to
identical exhibit number in the Company's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1995, filed on
June 13, 1995).
10.15 Agreement of Purchase and Sale of Assets dated June 13, 1995
between the Company and Otey Crisman Golf Company and W. O.
Crisman, III (incorporated by reference to identical exhibit
number in the Company's Annual Report on Form 10-KSB for the
fiscal year ended February 29, 1996).
10.16 Business Financing Agreement dated August 25, 1995, between
Bullet-Cougar Golf Corporation and Deutsche Financial Services
Corporation (incorporated by reference to identical exhibit
number in the Company's Annual Report on Form 10-KSB for the
fiscal year ended February 29, 1996).
10.17 Notes Payable Subordination Agreement dated August 25, 1995,
between Bullet-Cougar Golf Corporation and Deutsche Financial
Services Corporation (incorporated by reference to identical
exhibit number in the Company's Annual Report on Form 10-KSB for
the fiscal year ended February 29, 1996).
10.18 Guaranty dated August 25, 1995, by Company to Deutsche Financial
Services Corporation (incorporated by reference to identical
exhibit number in the Company's Annual Report on Form 10-KSB for
the fiscal year ended February 29, 1996).
10.19 Letter of Intent dated May 9, 1996 between the Company and Quick
Silver Sport-Tech (incorporated by reference to identical exhibit
number in the Company's Annual Report on Form 10-KSB for the
fiscal year ended February 29, 1996).
10.20 1995 Compensatory Stock Option Plan (incorporated by reference to
identical exhibit number in the Company's Annual Report on
Form 10-KSB for the fiscal year ended February 29, 1996).
21.0 Subsidiaries of Bullet Sports International, Inc. (incorporated
by reference to identical exhibit number in the Company's Annual
Report on Form 10-KSB for the fiscal year ended February 28,
1995).
II-6
<PAGE>
23.1 Consent of Arthur Andersen LLP, independent public accountants.
24.2 Consent of McKenna & Stahl (included in Exhibit 5)*
25 Power of Attorney
- ------------
* To be filed by Amendment.
Item 17. Undertakings.
A. RULE 415 UNDERTAKINGS.
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;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, and the information required to
be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Company pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference 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 herein, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
B. SUBSEQUENT EXCHANGE ACT FILINGS UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of
II-7
<PAGE>
1933, each filing of the Company's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
C. INCORPORATED ANNUAL AND QUARTERLY REPORTS UNDERTAKINGS.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus.
D. INDEMNIFICATION UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, 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 against the Registrant 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-8
<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 for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Ana, State of California, on the 16 day of
October, 1996.
BULLET SPORTS INTERNATIONAL, INC.
By:
--------------------
John A. Haas
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
Chairman of the Board October 16, 1996
- -----------------------------
Richard P. Crane, Jr.
President and Chief October 16, 1996
- ----------------------------- Executive Officer
John A. Haas
Director and Chief October 16, 1996
- ----------------------------- Financial Officer
Mark Green
Director and October 16, 1996
- ----------------------------- Senior Vice President
Daniel Chandler
Director October 16, 1996
- -----------------------------
Douglas Hawthorne
Director October 16, 1996
- -----------------------------
Leonard Nave
Director October 16, 1996
- -----------------------------
Robert Courtney
Controller (Principal October 16, 1996
- ----------------------------- Accounting Officer)
William Slater
II-9
<PAGE>
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Richard P. Crane,
Jr. and John A. Haas, or either or them, each with full power of substitution
and resubstitution, such person's true and lawful attorney-in-fact and agent,
in such person's name and on such person's behalf, in any and all capacities,
to sign any and all amendments to this Registration Statement, including any
post-effective amendments, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
Chairman of the Board October 16, 1996
- -----------------------------
Richard P. Crane, Jr.
President and Chief October 16, 1996
- ----------------------------- Executive Officer
John A. Haas
Director and Chief October 16, 1996
- ----------------------------- Financial Officer
Mark Green (Principal Accounting
Officer)
Director and October 16, 1996
- ----------------------------- Senior Vice President
Daniel Chandler
Director October 16, 1996
- -----------------------------
Douglas Hawthorne
Director October 16, 1996
- -----------------------------
Leonard Nave
Director October 16, 1996
- -----------------------------
Robert Courtney
Controller (Principal October 16, 1996
- ----------------------------- Accounting Officer)
William Slater
II-10
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
3.1 Certificate of Incorporation of Merchant Capital
Enterprises, Inc., dated March 19, 1990 (incorporated by
reference to Exhibit 3(a) to the Company's Registration
Statement on Form S-18, File No. 33-34095).
3.2 Certificate of Amendment to Certificate of Incorporation of
International Telecom Services, Inc., dated March 31, 1995
(incorporated by reference to identical exhibit number in
the Company's Annual Report on Form 10-KSB/A for the fiscal
year ended February 28, 1995).
3.3 Bylaws of the Company (incorporated by reference to
Exhibit 3(b) to the Company's Registration Statement on
Form S-18, File No. 33-34095).
4.1 Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4(a) to the Company's Registration Statement on
Form S-18, File No. 33-34095).
4.2 Specimen Series A, 6% Non-Voting Cumulative Convertible
Preferred Stock Certificate (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K
dated February 18, 1995).
4.3 Certificate of Designation establishing the Series A, 6%
Non-Voting Cumulative Convertible Preferred Shares as filed
with the Delaware Secretary of State on December 22, 1994
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated February 18, 1995).
4.4 Specimen Series B, 8.75% Non-Voting Cumulative Convertible
Preferred Stock Certificate (incorporated by reference to
identical exhibit number in the Company's Annual Report on
Form 10-KSB for the fiscal year ended February 29, 1996).
II-11
<PAGE>
4.5 Certificate of Designation establishing the Series B, 8.75%
Non-Voting Cumulative Convertible Preferred Stock as filed
with the Delaware Secretary of State on March 6, 1996
(incorporated by reference to identical exhibit number in
the Company's Annual Report on Form 10-KSB for the fiscal
year ended February 29, 1996).
4.6 Specimen Series C, 8.75% Non-Voting Cumulative Convertible
Preferred Stock Certificate (incorporated by reference to
identical exhibit number in the Company's Annual Report on
Form 10-KSB for the fiscal year ended February 29, 1996).
4.7 Certificate of Designation establishing the Series C, 8.75%
Non-Voting Cumulative Convertible Preferred Stock as filed
with the Delaware Secretary of State on April 18, 1996
(incorporated by reference to identical exhibit number in
the Company's Annual Report on Form 10-KSB for the fiscal
year ended February 29, 1996).
4.8 Specimen of 8.75% Convertible Subordinated Debenture due
October 15, 1999 (incorporated by reference to identical
exhibit number in the Company's Annual Report on Form 10-KSB
for the fiscal year ended February 29, 1996).
4.9 Copy of Terms and Conditions for the 8.75% Convertible
Subordinated Debentures due October 15, 1999 (incorporated
by reference to identical exhibit number in the Company's
Annual Report on Form 10-KSB for the fiscal year ended
February 29, 1996).
4.10 Specimen Series D, 8.75% Non-Voting Cumulative Convertible
Preferred Stock Certificate.
4.11 Certificate of Designation establishing the Series D. 8.75%
Non-Voting Cumulative Convertible Preferred Stock as filed with
the Delaware Secretary of State on July 19, 1996.
5 Opinion of McKenna & Stahl as to the legality of securities
being registered.*
10.1 Purchase Agreement dated December 7, 1994, among the
Company, Roger Dunn Golf Shops, Inc., and Steven Dunn
individually (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K dated February 18,
1995).
10.2 Bill of Sale from Roger Dunn Golf Shops, Inc. to the Company
dated January 18, 1995 (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K dated
February 18, 1995, as amended).
10.3 Non-Competition and Non-Use Agreement dated January 18, 1995
among the Company, Roger Dunn Golf Shops, Inc. and Steve
Dunn, individually (incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form 8-K dated
February 18, 1995).
II-12
<PAGE>
10.4 Release and Quit-Claim from Roger Dunn Golf Shops, Inc. and
Steven Dunn, individually, dated January 18, 1995
(incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K dated February 18, 1995).
10.5 Assumption of Liabilities by the Company and Bullet-Cougar
Golf Corporation dated January 18, 1995 (incorporated by
reference to Exhibit 10.5 to the Company's Current Report on
Form 8-K dated February 18, 1995).
10.6 Agreement dated January 18, 1995, among the Company, Roger
Dunn Golf Shops, Inc. and Steven Dunn, individually
(incorporated by reference to Exhibit 10.6 to the Company's
Current Report on Form 8-K dated February 18, 1995).
10.7 Assumption and Confirmation Agreement dated January 17,
1995, among Wells Fargo Bank, N.A., Roger Dunn Golf Shops,
Inc., Steven B. Dunn, individually, the Company, and Bullet-
Cougar Golf Corporation (incorporated by reference to
Exhibit 10.7 to the Company's Current Report on Form 8-K
dated February 18, 1995).
10.8 Second Amended and Restated Revolving Line of Credit Note
dated January 17, 1995, executed by Roger Dunn Golf Shops,
Inc., the Company and Bullet-Cougar Golf Corporation in
favor of Wells Fargo Bank, N.A. (incorporated by reference
to Exhibit 10.8 to the Company's Current Report on Form 8-K
dated February 18, 1995).
10.9 Continuing Security Agreement dated January 18, 1995,
executed by the Company in favor of Wells Fargo Bank, N.A.
(incorporated by reference to Exhibit 10.5 to the Company's
Current Report on Form 8-K dated February 18, 1995).
10.10 Security Agreement (Equipment and Fixtures) dated
January 18, 1995, executed by the Company in favor of Wells
Fargo Bank, N.A. (incorporated by reference to Exhibit 10.10
to the Company's Current Report on Form 8-K dated February 18,
1995).
10.11 General Pledge Agreement dated January 18, 1995, executed by
Roger Dunn Golf Shops, Inc. in favor of Wells Fargo Bank, N.A.
(incorporated by reference to Exhibit 10.11 to the Company's
Current Report on Form 8-K dated February 18, 1995).
10.12 Modification Letter dated January 17, 1995, among the
Company, Bullet-Cougar Golf Corporation, Roger Dunn Golf
Shops, Inc. and Wells Fargo Bank, N.A.
II-13
<PAGE>
(incorporated by reference to Exhibit 10.12 to the
Company's Current Report on Form 8-K dated February 18,
1995).
10.13 1994 Compensatory Stock Option Plan (incorporated by
reference to identical exhibit number in the Company's
Annual Report on Form 10-KSB for the fiscal year ended
February 28, 1995, filed on June 13, 1995).
10.14 1994 Employee Stock Option Plan (incorporated by reference
to identical exhibit number in the Company's Annual Report
on Form 10-KSB for the fiscal year ended February 28, 1995,
filed on June 13, 1995).
10.15 Agreement of Purchase and Sale of Assets dated June 13, 1995
between the Company and Otey Crisman Golf Company and W. O.
Crisman, III (incorporated by reference to identical exhibit
number in the Company's Annual Report on Form 10-KSB for the
fiscal year ended February 29, 1996).
10.16 Business Financing Agreement dated August 25, 1995, between
Bullet-Cougar Golf Corporation and Deutsche Financial
Services Corporation (incorporated by reference to identical
exhibit number in the Company's Annual Report on Form 10-KSB
for the fiscal year ended February 29, 1996).
10.17 Notes Payable Subordination Agreement dated August 25, 1995,
between Bullet-Cougar Golf Corporation and Deutsche
Financial Services Corporation (incorporated by reference to
identical exhibit number in the Company's Annual Report on
Form 10-KSB for the fiscal year ended February 29, 1996).
10.18 Guaranty dated August 25, 1995, by Company to Deutsche
Financial Services Corporation (incorporated by reference to
identical exhibit number in the Company's Annual Report on
Form 10-KSB for the fiscal year ended February 29, 1996).
10.19 Letter of Intent dated May 9, 1996 between the Company and
Quick Silver Sport-Tech (incorporated by reference to
identical exhibit number in the Company's Annual Report on
Form 10-KSB for the fiscal year ended February 29, 1996).
10.20 1995 Compensatory Stock Option Plan (incorporated by
reference to identical exhibit number in the Company's
Annual Report on Form 10-KSB for the fiscal year ended
February 29, 1996).
II-14
<PAGE>
21.0 Subsidiaries of Bullet Sports International, Inc.
(incorporated by reference to identical exhibit number in
the Company's Annual Report on Form 10-KSB for the fiscal
year ended February 28, 1995).
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
24.2 Consent of McKenna & Stahl (included in Exhibit 5)*
25 Power of Attorney
- ------------
* To be filed by Amendment.
II-15
<PAGE>
SPECIMEN
ONLY
1990
INCORPORATED UNDER THE LAWS [LOGO] OF THE STATE OF DELAWARE
NUMBER SHARES
BULLET SPORTS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
12,500,000 SHARES COMMON STOCK 500,000 SHARES SERIES A 6% NON-VOTING
CUMULATIVE CONVERTIBLE PREFERRED STOCK
25,000 SHARES SERIES B 8.75% NON-VOTING 25,000 SHARES SERIES C 8.75% NON-VOTING 25,000 SHARES SERIES D 8.75% NON-VOTING
CUMULATIVE CONVERTIBLE PREFERRED STOCK CUMULATIVE CONVERTIBLE PREFERRED STOCK CUMULATIVE CONVERTIBLE PREFERRED STOCK
</TABLE>
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD
ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL
AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION
OR QUALIFICATION IS APPLICABLE
THIS CERTIFIES THAT____________________________________________IS THE REGISTERED
HOLDER OF_________________________________________________________________SHARES
OF SERIES D, 8.75% NON-VOTING CUMULATIVE CONVERTIBLE PREFERRED
STOCK TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
A CERTIFICATE OF THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS GRANTED TO
OR IMPOSED UPON EACH CLASS OR SERIES OF SHARES OF STOCK OF THE CORPORATION AND
UPON THE HOLDERS THEREOF MAY BE OBTAINED BY ANY STOCKHOLDER, UPON REQUEST AND
WITHOUT CHARGE, AT THE PRINCIPAL OFFICE OF THE CORPORATION.
In Witness Whereof, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL HEREUNTO AFFIXED
THIS___________DAY OF __________________ A.D. 19__
[SEAL]
__________________________ _________________________
SECRETARY PRESIDENT
<PAGE>
BULLET SPORTS INTERNATIONAL, INC.
CERTIFICATE OF DESIGNATIONS
OF
SERIES D, 8.75% NON-VOTING CUMULATIVE
CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation Law
of the State of Delaware)
------
Bullet Sports International, Inc., a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation, as amended, of the Corporation,
the Board of Directors of the Corporation, by unanimous written consent, dated
July 17, 1996, adopted a resolution providing for the creation of a series of
the Corporation's Preferred Stock, $.001 par value, which series is designated
"Series D, 8.75% Non-Voting Cumulative Convertible Preferred Stock", which
resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of Directors
of the Corporation by the Certificate of Incorporation, as amended, the Board of
Directors does hereby provide for the creation of a series of the Preferred
Stock, $.001 par value (hereafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Certificate of Incorporation, as amended, of the
Corporation, does hereby fix the same as follows:
SERIES D, 8.75% NON-VOTING CUMULATIVE CONVERTIBLE PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series D, 8.75% Non-Voting Cumulative Convertible
Preferred Stock" (the "Series D Convertible Preferred Stock"), and the number of
shares constituting the Series
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<PAGE>
D Convertible Preferred Stock shall be 25,000 and shall not be subject to
increase unless approved as provided in Section 10.
SECTION 2. STATED CAPITAL. The amount to be represented in stated
capital at all times for each share of Series D Convertible Preferred Stock
shall be the sum of (i) $100, (ii) to the extent legally available, the accrued
but unpaid dividends on such share of Series D Convertible Preferred Stock, and
(iii) to be determined on at least a quarterly basis, an amount equal to the
accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series D Convertible Preferred Stock shall
rank senior to the Common Stock, par value $.001 per share (the "Common Stock"),
of the Corporation, now or hereafter issued, as to payment of dividends and
distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, both as to payment of dividends
and as to distributions of assets upon liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of
shares of Series D Convertible Preferred Stock shall be entitled to receive,
when, as, and if declared by the Board of Directors of the Corporation (the
"Board of Directors" or the "Board") out of funds legally available for such
purpose, dividends at the rate of $8.75 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest from the date of
original issuance and shall be payable in cash quarterly on February 1, May 1,
August 1, and November 1 of each year commencing November 1, 1996 (except that
if any such date is a Saturday, Sunday, or legal holiday, then such dividend
shall be payable on the next succeeding day that is not a Saturday, Sunday, or
legal holiday) to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than 20 nor less than 10 days
preceding the payment dates for such dividends, as shall be fixed by the Board.
Dividends on the Series D Convertible Preferred Stock shall be paid in cash or,
subject to the limitations in Section 4(b) hereof, shares of Common Stock or any
combination of cash and shares of Common Stock, at the option of the Corporation
as hereinafter provided. The amount of the dividends payable per share of
Series D Convertible Preferred Stock for each quarterly dividend period shall be
computed by dividing the annual dividend amount by four. The amount of
dividends payable for the initial dividend period and any period shorter than a
full quarterly dividend period shall be computed on the basis of a 360-day year
of twelve 30-day months. Dividends not paid on a payment date, whether or not
such dividends have been declared, will bear interest at the rate of 12% per
annum until paid. No dividends or other distributions, other than dividends
payable
-2-
<PAGE>
solely in shares of Common Stock or other capital stock of the Corporation
ranking junior as to dividends to the Series D Convertible Preferred Stock
(collectively, the "Junior Dividend Stock"), shall be paid or set apart for
payment on, and, except for the use by optionees of Common Stock to pay for the
exercise price of stock options granted pursuant to employee stock option plans
of the Corporation and its subsidiaries, no purchase, redemption, or other
acquisition shall be made by the Corporation of, any shares of Junior Dividend
Stock unless and until all accrued and unpaid dividends on the Series D
Convertible Preferred Stock and interest on dividends in arrears at the rate
specified herein shall have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation
ranking senior as to dividends to the Series D Convertible Preferred Stock (the
"Senior Dividend Stock") shall be in default, in whole or in part, no dividend
shall be paid or declared and set apart for payment on the Series D Convertible
Preferred Stock unless and until all accrued and unpaid dividends with respect
to the Senior Dividend Stock, including the full dividends for the then current
dividend period, shall have been paid or declared and set apart for payment,
without interest. No full dividends shall be paid or declared and set apart for
payment on any class or series or the Corporation's capital stock ranking, as to
dividends, on a parity with the Series D Convertible Preferred Stock (the
"Parity Dividend Stock") for any period unless all accrued but unpaid dividends
(and interest on dividends in arrears at the rate specified herein) have been,
or contemporaneously are, paid or declared and set apart for such payment on the
Series D Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series D Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series D Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series D
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series D Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series D
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4 shall not
be deemed to include any stock dividend or
-3-
<PAGE>
distributions made in connection with any liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary.
(b) If the Corporation elects to issue shares of Common Stock in
payment of dividends on the Series D Convertible Preferred Stock, the
Corporation shall issue and dispatch, or cause to be issued and dispatched, to
each holder of such shares a certificate representing the number of whole shares
of Common Stock arrived at by dividing the per share Computed Price of such
shares of Common Stock into the total amount of cash dividends such holder would
be entitled to receive if the aggregate dividends on the Series D Convertible
Preferred Stock held by such holder which are being paid in shares of Common
Stock were being paid in cash; PROVIDED, HOWEVER, that if certificates
representing shares of Common Stock are issued and dispatched to holders of
Series D Convertible Preferred Stock subsequent to the third trading day after a
dividend payment date, the percentage used to calculate the Computed Price will
be reduced by one for each trading day after the third trading day following
such dividend payment date to the date of dispatch of shares of Common Stock.
No fractional shares of Common Stock shall be issued in payment of dividends.
In lieu thereof, the Corporation may issue a number of shares of Common Stock to
each holder which reflects a rounding up to the nearest whole number of shares
of Common Stock or may pay cash. The Corporation shall not exercise its right
to issue shares of Common Stock in payment of dividends on shares of Series D
Convertible Preferred Stock unless the Corporation shall, contemporaneously with
such issuance, deliver to each holder of record of shares of Series D
Convertible Preferred Stock a copy, certified by the Secretary or an Assistant
Secretary of the Corporation, of a resolution duly adopted by the Board of
Directors of the Corporation within 30 days prior to such issuance setting forth
a determination by the Board of Directors of the Corporation that the
Corporation's cash flow has not been adequate to permit the Corporation to make
payment in cash of the portion of such dividend to be paid by issuance of shares
of Common Stock. The Corporation shall not exercise its right to issue shares
of Common Stock in payment of dividends on Series D Convertible Preferred Stock
if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held in the Corporation's
treasury, is insufficient to pay the portion of such dividends to be paid
in shares of Common Stock;
(ii) the issuance or delivery of shares of Common Stock as a dividend
payment would require registration with or approval of any governmental
authority under any law or regulation, and such registration or approval
has not been effected or obtained;
-4-
<PAGE>
(iii) the shares of Common Stock to be issued as a dividend payment
have not been authorized for listing, upon official notice of issuance, on
any securities exchange or market on which the Common Stock is then listed;
or have not been approved for quotation if the Common Stock is traded in
the over-the-counter market;
(iv) the Computed Price is less than the par value of the shares of
Common Stock;
(v) the shares of Common Stock (A) cannot be sold or transferred
without restriction by unaffiliated holders who receive such shares of
Common Stock as a dividend payment or (B) are no longer listed on a
national securities exchange or on the Nasdaq National Market or on the
Nasdaq Small Cap Market; or
(vi) the issuance of shares of Common Stock in payment of dividends
on Series D Convertible Preferred Stock held by any Performance Person (as
defined in Section 9(a) hereof) would result in any Performance Person
beneficially owning more than 4.9% of the Common Stock, determined as
provided in the proviso to the second sentence of Section 9(a) hereof.
Shares of Common Stock issued in payment of dividends on Series D
Convertible Preferred Stock pursuant to this Section shall be, and for all
purposes shall be deemed to be, validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation; the issuance and delivery thereof is
hereby authorized; and the dispatch thereof, together with cash, if any, paid in
lieu of fractional shares of Common Stock will be, and for all purposes shall be
deemed to be, payment in full of the cumulative dividends to which holders are
entitled on the applicable dividend payment date.
"Computed Price" of shares of Common Stock means the price equal to 85
percent of the arithmetic mean of the per share Closing Price (as defined in
Section 9(b)) of the Common Stock for the ten consecutive trading days ending on
the fifth trading day prior to a dividend payment date; PROVIDED HOWEVER, THAT,
notwithstanding the foregoing, in no event shall the Computed Price be less than
$.001 per share.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series D Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series D Convertible
Preferred Stock equal to the sum of (i) all dividends accrued and
-5-
<PAGE>
unpaid thereon to the date of final distribution to such holders, (ii) accrued
and unpaid interest on dividends in arrears to the date of distribution, and
(iii) $1,000.00 (collectively, "the Liquidation Preference"), and no more,
before any payment shall be made or any assets distributed to the holders of
Common Stock or any other class or series of the Corporation's capital stock
ranking junior as to liquidation rights to the Series D Convertible Preferred
Stock (collectively, the "Junior Liquidation Stock"); PROVIDED, HOWEVER, that
such rights shall accrue to the holders of Series D Convertible Preferred Stock
only in the event that the Corporation's payments with respect to the
liquidation preference of the holders of capital stock of the Corporation
ranking senior as to liquidation rights to the Series D Convertible Preferred
Stock (the "Senior Liquidation Stock") are fully met. After the liquidation
preferences of the Senior Liquidation Stock are fully met, the entire assets of
the Corporation available for distribution shall be distributed ratably among
the holders of the Series D Convertible Preferred Stock and any other class or
series of the Corporation's capital stock having parity as to liquidation rights
with the Series D Convertible Preferred Stock (the "Parity Liquidation Stock")
in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of
the liquidation price of the shares of the Series D Convertible Preferred Stock
and the Parity Liquidation Stock, the holders of such shares shall not be
entitled to any further participation in any distribution of assets by the
Corporation. Neither a consolidation or merger of the Corporation with another
corporation nor a sale or transfer of all or part of the Corporation's assets
for cash, securities, or other property in and of itself will be considered a
liquidation, dissolution, or winding up of the Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series D
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series D Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is in
compliance in all material respects with its obligations to the holders of
shares of Series D Convertible Preferred Stock, the Corporation shall have the
right, exercisable on not less than 15 days or more than 20 days written notice
to the holders of record of the shares of Series D Convertible Preferred Stock
to be redeemed, at any time to redeem all of the shares or any part of not less
than 1,000 shares (or such lesser number of shares of Series D Convertible
Preferred Stock as shall remain outstanding at the time of exercise of such
redemption right) of
-6-
<PAGE>
Series D Convertible Preferred Stock in accordance with this Section 8. Any
notice of redemption (a "Notice of Redemption") under this Section shall be
delivered to the holders of the shares of Series D Convertible Preferred Stock
at their addresses appearing on the records of the Corporation; PROVIDED,
HOWEVER, that any failure or defect in the giving of notice to any such holder
shall not affect the validity of notice to or the redemption of shares of Series
D Convertible Preferred Stock of any other holder. Any Notice of Redemption
shall state (1) that the Corporation is exercising its right to redeem all or a
portion of the outstanding shares of Series D Convertible Preferred Stock
pursuant to this Section 8, (2) the number of shares of Series D Convertible
Preferred Stock held by such holder which are to be redeemed, (3) the Redemption
Price (as hereinafter defined) per share of Series D Convertible Preferred Stock
to be redeemed, determined in accordance with this Section, and (4) the date of
redemption of such shares of Series D Convertible Preferred Stock, determined in
accordance with this Section (the "Redemption Date"). On the Redemption Date,
the Corporation shall make payment in immediately available funds of the
applicable Redemption Price (as hereinafter defined) to each holder of shares of
Series D Convertible Preferred Stock to be redeemed to or upon the order of such
holder as specified by such holder in writing to the Corporation at least one
business day prior to the Redemption Date. If the Corporation exercises its
right to redeem all or a portion of the outstanding shares of Series D
Convertible Preferred Stock, the Corporation shall make payment to the holders
of the shares of Series D Convertible Preferred Stock to be redeemed in respect
of each share of Series D Convertible Preferred Stock to be redeemed of an
amount equal to the greater of (1) the product obtained by multiplying (A) the
number of shares of Common Stock into which such shares of Series D Convertible
Preferred Stock would be convertible on the Redemption Date in accordance with
Section 9 (determined without regard to the limitation on conversion in the
proviso to the second sentence of the first paragraph of Section 9(a)) TIMES (B)
$5.125 (subject to equitable adjustments for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events occurring
after the issuance of any shares of Series D Convertible Preferred Stock) and
(2) the product obtained by multiplying (X) the number of shares of Common Stock
into which such shares of Series D Convertible Preferred Stock would be
convertible on the Redemption Date in accordance with Section 9 (determined
without regard to the limitations on conversion in the proviso to the second
sentence of the first paragraph of Section 9(a)) TIMES (Y) 111% of the
arithmetic average of the Closing Price (as defined in Section 9(b)) of the
Common Stock on the three consecutive trading days ending one trading day prior
to the Redemption Date. Upon redemption of less than all of the shares of
Series D Convertible Preferred Stock evidenced by a particular certificate,
promptly, but in no event later than three
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<PAGE>
business days after surrender of such certificate to the Corporation, the
Corporation shall issue a replacement certificate for the shares of Series D
Convertible Preferred Stock which have not been redeemed. Only whole shares
of Series D Convertible Preferred Stock may be redeemed. If the Corporation
exercises its right to redeem less than all outstanding shares of Series D
Convertible Preferred Stock, then such redemption shall be made, as nearly as
practical, pro rata among the holders of record of the Series D Convertible
Preferred Stock. Notwithstanding any other provision of this Certificate of
Designations, no share of Series D Convertible Preferred Stock as to which
the holder has exercised the right of conversion pursuant to Section 9 hereof
may be redeemed by the Corporation on or after the date of exercise of such
conversion right.
SECTION 9. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER. The holders of the Series D
Convertible Preferred Stock may, upon surrender of the certificates therefor,
convert their shares of Series D Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock and such other securities and property as
hereinafter provided. Commencing on the date of initial issuance of shares of
Series D Convertible Preferred Stock (such date of initial issuance being
referred to herein as the "Issuance Date") and at any time thereafter, each
share of Series D Convertible Preferred Stock initially may be converted at the
office of any transfer agent for the Series D Convertible Preferred Stock, if
any, the office of any transfer agent for the Common Stock or at such other
office or offices, if any, as the Board of Directors may designate, into whole
shares of Common Stock at the rate equal to the number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (y) the sum of (i) the
Conversion Amount, (ii) accrued but unpaid dividends to the Conversion Date, and
(iii) accrued but unpaid interest on the dividends in arrears to the Conversion
Date by (z) 90% of the arithmetic average of the Closing Price of the Common
Stock on the three consecutive trading days immediately preceding the Conversion
Date (but in no event shall the amount determined pursuant to this clause (z) be
more than $5.00 (subject to equitable adjustments for stock splits, stock
dividends, combinations, recapitalizations, reclassifica-tions and similar
events occurring after the issuance of any shares of Series D Convertible
Preferred Stock) regardless of the actual amount otherwise determined pursuant
to this clause (z)), subject to adjustment as hereinafter provided (the
"Conversion Rate"); PROVIDED, HOWEVER, that in no event shall GFL Performance
Fund Limited ("Performance") be entitled to convert any shares of Series D
Convertible Preferred Stock in excess of that number of shares of Series D
Convertible Preferred Stock upon conversion of which the
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sum of (1) the number of shares of Common Stock beneficially owned by
Performance or any person associated or affiliated with, or serving as an
adviser to, Performance (each a "Performance Person" and collectively, the
"Performance Persons") (other than shares of Common Stock deemed beneficially
owned through the ownership of unconverted shares of Series D Convertible
Preferred Stock and unexercised Redeemable Common Stock Purchase Warrants issued
by the Company in connection with the issuance of shares of Series D Convertible
Preferred Stock) and (2) the number of shares of Common Stock issuable upon the
conversion of the number of shares of Series D Convertible Preferred Stock with
respect to which the determination in this proviso is being made, would result
in beneficial ownership by any Performance Person of more than 4.9% of the
outstanding shares of Common Stock; and PROVIDED FURTHER, HOWEVER, that in no
event shall any holder of shares of Series D Convertible Preferred Stock other
than a Performance Person be entitled to convert any shares of Series D
Convertible Preferred Stock in excess of that number of shares of Series D
Convertible Preferred Stock upon conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned by such holder or any person
associated or affiliated with, or serving as an adviser to, such holder (each a
"Restricted Person" and collectively, the "Restricted Persons") (other than
shares of Common Stock deemed beneficially owned through the ownership of
unconverted shares of Series D Convertible Preferred Stock and unexercised
Redeemable Common Stock Purchase Warrants issued by the Company in connection
with the issuance of shares of Series D Convertible Preferred Stock) and (2) the
number of shares of Common Stock issuable upon the conversion of the number of
shares of Series D Convertible Preferred Stock with respect to which the
determination in this proviso is being made, would result in beneficial
ownership by any Restricted Person of more than 4.9% of the outstanding shares
of Common Stock. For purposes of the provisos to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder, except as otherwise provided in clause (1) of the proviso to the
immediately preceding sentence. The "Conversion Price" shall be equal to the
Conversion Amount divided by the Conversion Rate.
(b) CERTAIN DEFINITIONS.
As used herein, the "Closing Price" of any security on any date shall
mean the closing bid price of such security on such date on the principal
securities exchange or market on which such security is traded.
As used herein, the "Conversion Amount" initially shall be equal to
$100.00, subject to adjustment as hereinafter provided.
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<PAGE>
As used herein, "Conversion Date" shall mean the date on which the
notice of conversion is actually received by the Corporation (whether by mail,
courier, personal service, telephone line facsimile transmission or other
means), in case of a conversion at the option of the holder pursuant to Section
9(a).
(c) OTHER PROVISIONS. Notwithstanding anything in this Section 9 to
the contrary, no change in the Conversion Amount shall actually be made until
the cumulative effect of the adjustments called for by this Section 9 since the
date of the last change in the Conversion Amount would change the Conversion
Amount by more than 1%. However, once the cumulative effect would result in
such a change, then the Conversion Rate shall actually be changed to reflect all
adjustments called for by this Section 9 and not previously made.
Notwithstanding anything in this Section 9, no change in the Conversion Amount
shall be made that would result in a Conversion Price of less than the par value
of the Common Stock into which shares of Series D Convertible Preferred Stock
are at the time convertible.
The holders of shares of Series D Convertible Preferred Stock at the
close of business on the record date for any dividend payment to holders of
Series D Convertible Preferred Stock shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; PROVIDED, HOWEVER, that shares of Series D Convertible Preferred
Stock surrendered for conversion during the period between the close of business
on any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must be accompanied by payment of an amount
equal to the dividend payable on such shares on such dividend payment date. A
holder of shares of Series D Convertible Preferred Stock on a record date for a
dividend payment who (or whose transferee) tenders any of such shares for
conversion into shares of Common Stock on or after such dividend payment date
will receive the dividend payable by the Corporation on such shares of Series D
Convertible Preferred Stock on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of shares of
Series D Convertible Preferred Stock for conversion. Except as provided above,
no adjustment shall be made in respect of cash dividends on Common Stock or
Series D Convertible Preferred Stock that may be accrued and unpaid at the date
of surrender for conversion.
The right of the holders of Series D Convertible Preferred Stock to
convert their shares shall be exercised by delivering to the Corporation or its
agent, as provided above, a written notice, duly signed by or on behalf of the
holder, stating
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the number of shares of Series D Convertible Preferred Stock to be converted.
Promptly, but in no event later than 10 business days after delivery of a notice
of conversion, such holder shall surrender for such purpose to the Corporation
or its agent, as provided above, certificates representing shares to be
converted, duly endorsed in blank or accompanied by proper instruments of
transfer. If such holder shall fail to deliver certificates representing shares
to be converted in such form on or prior to such tenth business day, such notice
of conversion shall not be effective, unless otherwise agreed by the
Corporation, but such failure shall not affect such holder's right to convert
such shares at a date after the date such notice of conversion was given. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of the Series D Convertible Preferred Stock being
converted, and the Corporation shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all action
necessary so that a number of shares of the authorized but unissued Common Stock
(or common stock in the case of any successor corporation) sufficient to provide
for the conversion of the Series D Convertible Preferred Stock outstanding upon
the basis hereinbefore provided are at all times reserved by the Corporation (or
any successor corporation), free from preemptive rights, for such conversion,
subject to the provisions of the next succeeding paragraph. If the Corporation
shall issue any securities or make any change in its capital structure which
would change the number of shares of Common Stock into which each share of the
Series D Convertible Preferred Stock shall be convertible as herein provided,
the Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series D Convertible Preferred Stock on the new basis. If at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all of the outstanding shares of Series D
Convertible Preferred Stock, the Corporation promptly shall seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
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<PAGE>
In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly-owned subsidiary of the Corporation) in
which the Corporation is not the surviving corporation, or in case of any sale
or transfer of all or substantially all of the assets of the Corporation, or in
the case of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that each holder of shares of Series D Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares of Series D
Convertible Preferred Stock into the kind and amount of shares of stock and
other securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of the number of shares of Common Stock
into which such shares of Series D Convertible Preferred Stock could have been
converted immediately prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder of shares
of Common Stock is entitled to elect to receive either securities, cash, or
other assets upon completion of such transaction, the Corporation shall provide
or cause to be provided to each holder of Series D Convertible Preferred Stock
the right to elect the securities, cash, or other assets into which the Series D
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The Corporation shall not effect any such transaction unless the
provisions of this paragraph have been complied with. The above provisions
shall similarly apply to successive consolidations, mergers, sales, transfers,
or share exchanges.
Upon surrender of certificates representing shares of Series D
Convertible Preferred Stock for conversion, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three business days after such surrender and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided.
No fractional shares of Common Stock shall be issued upon conversion
of Series D Convertible Preferred Stock but, in lieu of any fraction of a share
of Common Stock which would otherwise be issuable in respect of the aggregate
number of such shares
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<PAGE>
surrendered for conversion at one time by the same holder, the Corporation at
its option (a) may pay in cash an amount equal to the product of (i) the
arithmetic average of the Closing Price of a share of Common Stock on the five
consecutive trading days before the Conversion Date and (ii) such fraction of a
share or (b) may issue an additional share of Common Stock.
As used in this Section 9(c), the term "Closing Price" shall have the
meaning provided in Section 9(b).
The Conversion Amount shall be adjusted from time to time under
certain circumstances, subject to the provisions of the first three sentences of
the first paragraph of this Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants to all
holders of the Common Stock entitling such holders to subscribe for or
purchase Common Stock on the record date referred to below at a price per
share less than the average daily Closing Prices of the Common Stock on the
30 consecutive business days commencing 45 business days before the record
date (the "Current Market Price"), then in each such case the Conversion
Amount in effect on such record date shall be adjusted in accordance with
the formula
C(1) = C x O + N
-----------
O + (N X P)
------
( M )
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the
record date
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants)
M = the Current Market Price per share of Common Stock on the
record date
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<PAGE>
Such adjustment shall become effective immediately after the record date
for the determination of stockholders entitled to receive such rights or
warrants. If any or all such rights or warrants are not so issued or
expire or terminate before being exercised, the Conversion Amount then in
effect shall be readjusted appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined)
evidences of its indebtedness or assets (including securities, but
excluding any warrants or subscription rights referred to in subparagraph
(i) above and any dividend or distribution paid in cash out of the retained
earnings of the Corporation), then in each such case the Conversion Amount
then in effect shall be adjusted in accordance with the formula
C(1) = C x M
-----
M - F
where
C(1) = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on the
record date mentioned below
F = the aggregate amount of such cash dividend and/or the fair
market value on the record date of the assets or securities
to be distributed divided by the number of shares of Common
Stock outstanding on the record date. The Board of Directors
shall determine such fair market value, which determination
shall be conclusive.
Such adjustment shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution. For purposes of this subparagraph (ii), "Junior Stock" shall
include any class of capital stock ranking junior as to dividends or upon
liquidation to the Series D Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to the
fifth paragraph of this section 9(c), the
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<PAGE>
holder of any Series D Convertible Preferred Stock thereafter surrendered
for conversion shall become entitled to receive securities, cash, or assets
other than Common Stock, the number or amount of such securities or
property so receivable upon conversion shall be subject to adjustment from
time to time in a manner and on terms nearly equivalent as practicable to
the provisions with respect to the Common Stock contained in subparagraphs
(i) to (iii) above.
Except as otherwise provided above in this Section 9, no adjustment in
the Conversion Amount shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Amount is adjusted as herein provided, the
Corporation shall send to each transfer agent, if any, for the Series D
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series D Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq National Market if the Series D
Convertible Preferred Stock or Common Stock is admitted for a quotation thereon,
a statement signed by the Chairman of the Board, the President, or any Vice
President of the Corporation and by its Treasurer or its Secretary or Assistant
Secretary stating the adjusted Conversion Amount determined as provided in this
Section 9, and any adjustment so evidenced, given in good faith, shall be
binding upon all stockholders and upon the Corporation. Whenever the Conversion
Amount is adjusted, the Corporation will give notice by mail to the holders of
record of Series D Convertible Preferred Stock, which notice shall be made
within 45 days after the effective date of such adjustment and shall state the
adjustment and the Conversion Amount. Notwithstanding the foregoing notice
provisions, failure by the Corporation to give such notice or a defect in such
notice shall not affect the binding nature of such corporate action of the
Corporation.
Whenever the Corporation shall propose to take any of the actions
specified in the fifth paragraph of this Section 9(c) or in subparagraphs (i) or
(ii) of the ninth paragraph of this Section 9(c) which would result in any
adjustment in the Conversion Amount under this Section 9(c), the Corporation
shall cause a notice to be mailed at least 30 days prior to the date on which
the books of the Corporation will close or on which a record will be taken for
such action, to the holders of record of the outstanding Series D Convertible
Preferred Stock on the date of such notice. Such notice shall specify the
action proposed to be taken by the Corporation and the date as of which holders
of record of the Common Stock shall participate in any such actions or be
entitled to exchange their Common Stock for securities or other property, as the
case may be. Failure by the Corporation to mail the notice or
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<PAGE>
any defect in such notice shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 9, no adjustment
in the Conversion Amount need be made (a) for a transaction referred to in
subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) if holders
of Series D Convertible Preferred Stock are to participate in the transaction or
distribution on a basis and with notice that the Board of Directors determines
such transaction to be fair to the holders of the Series D Convertible Preferred
Stock and appropriate in light of the basis on which holders of the Common Stock
or, in the case of a transaction referred to in said subparagraph (ii), holders
of Junior Stock participate in the transaction; (b) for sales of Common Stock
pursuant to a plan for reinvestment of dividends and interest, PROVIDED that the
purchase price in any such sale is at least equal to the fair market value of
the Common Stock at the time of such purchase, or pursuant to any plan adopted
by the Corporation for the benefit of its employees, directors, or consultants;
or (c) after the Series D Convertible Preferred Stock becomes convertible into
cash (no interest shall accrue on the cash).
SECTION 10. VOTING RIGHTS. Except as otherwise required by law,
shares of Series D Convertible Preferred Stock shall not be entitled to vote on
any matter.
The affirmative vote or consent of the holders of two-thirds of the
outstanding shares of the Series D Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series D
Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; PROVIDED, HOWEVER, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
Stock or any other capital stock of the Corporation ranking on a parity with the
Series D Convertible Preferred Stock shall not be deemed to affect materially
and adversely such powers, preferences, or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this Certificate
of Designations, all shares of Series D Convertible Preferred Stock shall be
deemed outstanding except (i) from the date of surrender of certificates
representing shares of Series D Convertible Preferred Stock for conversion into
Common Stock, all shares of Series D Convertible Preferred Stock converted into
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Common Stock; and (ii) from the date of registration of transfer, all shares of
Series D Convertible Preferred Stock held of record by the Corporation or any
subsidiary or Affiliate (as defined herein) of the Corporation. For the
purposes of this Certificate of Designations, "Affiliate" means any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Corporation. "Control" is the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise.
(Signature page on page 17)
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IN WITNESS WHEREOF, Bullet Sports International, Inc. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by John
Haas, its President as of the 18th day of July, 1996.
BULLET SPORTS INTERNATIONAL, INC.
By______________________________
Name: John A. Haas
Title: President
\ \ \ \ \ \ \
(Signature page to Certificate of Designations
of Series D Preferred Stock)
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[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
which includes an explanatory paragraph that describes an uncertainty with
respect to the Company's ability to continue as a going concern, as discussed in
Note 1 to the financial statements (and to all references to our Firm) included
in or made a part of this registration statement.
/s/ Arthur Andersen LLP
-----------------------------
ARTHUR ANDERSEN LLP
Orange County, California
October 14, 1996
