-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SdvgCv3CgSaOS3fvxmE87gRY8RMFlWL9KZg1ljnnq87EvQSQNXZPquJxDHuXQ8f+ Y9HRLkGPjux38lejSN2G4g== 0000950116-96-000631.txt : 19960711 0000950116-96-000631.hdr.sgml : 19960711 ACCESSION NUMBER: 0000950116-96-000631 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19960710 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VISUAL EDGE SYSTEMS INC CENTRAL INDEX KEY: 0001015172 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEMBERSHIP SPORTS & RECREATION CLUBS [7997] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-05193 FILM NUMBER: 96592864 BUSINESS ADDRESS: STREET 1: 7 W 51ST ST CITY: NEW YORK STATE: NY ZIP: 10019 MAIL ADDRESS: STREET 2: 7 WEST 51ST STREET CITY: NEW YORK STATE: NY ZIP: 10019 SB-2/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996 REGISTRATION NO. 333-5193 ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------ AMENDMENT NO. 1 to FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------ VISUAL EDGE SYSTEMS INC. (Exact name of registrant as specified in its charter) Delaware 7999 13-377-8895 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification Number)
7 West 51st Street New York, New York 10019 (212) 765-1284 (Address and telephone number of registrant's principal executive offices) ------ Earl T. Takefman Chief Executive Officer Visual Edge Systems Inc. 7 West 51st Street New York, New York 10019 (212) 765-1284 (Name, address and telephone number of agent for service) ------ Copies to: David W. Pollak, Esq. Robert J. Mittman, Esq. Morgan, Lewis & Bockius LLP Tenzer Greenblatt LLP 101 Park Avenue 405 Lexington Avenue New York, New York 10178 New York, New York 10174-0208 Tel: (212) 309-6000 Tel: (212) 885-5555 Fax: (212) 309-6273 Fax: (212) 885-5001 ------ Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. 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. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ ------ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ============================================================================= VISUAL EDGE SYSTEMS INC. CROSS-REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-B SHOWING LOCATION IN THE PROSPECTUS OF THE INFORMATION REQUIRED BY ITEMS OF FORM SB-2
Form SB-2 Item Number and Heading Caption or Location in Prospectus ------------------------------------------------------- ------------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus .................... Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus.......................................... Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors .............. Prospectus Summary; Risk Factors 4. Use of Proceeds ................................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price .................... Outside Front Cover Page of Prospectus; Underwriting 6. Dilution .......................................... Dilution 7. Selling Securityholders ........................... Prospectus Summary; Principal Stockholders; Selling Stockholders and Plan of Distribution; Underwriting 8. Plan of Distribution .............................. Outside Front Cover Page of Prospectus; Underwriting 9. Legal Proceedings ................................. Business 10. Directors, Executive Officers, Promoters and Control Persons ........................................... Management 11. Security Ownership of Certain Beneficial Owners and Management ........................................ Management; Principal Stockholders 12. Description of Securities ......................... Outside Front Cover Page of Prospectus; Prospectus Summary; Description of Securities 13. Interests of Named Experts and Counsel ............ Legal Matters; Experts 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities .................... Not Applicable 15. Organization Within Five Years .................... Certain Transactions 16. Management's Discussion and Analysis or Plan of Operation .......................................... Plan of Operation; Proposed Business 17. Description of Property ........................... Business 18. Certain Relationships and Related Transactions. ... Certain Transactions 19. Market For Common Equity and Related Stockholder Matters ............................................ Description of Securities 20. Executive Compensation ............................ Management 21. Financial Statements .............................. Financial Statements 22. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ............... Not Applicable
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PRELIMINARY PROSPECTUS DATED JULY 10, 1996 SUBJECT TO COMPLETION LOGO 1,300,000 Shares of Common Stock and Redeemable Warrants to Purchase 1,300,000 Shares of Common Stock The Company is offering hereby 1,300,000 shares of Common Stock and redeemable warrants to purchase 1,300,000 shares of Common Stock (the "Warrants"). The shares of Common Stock and Warrants may be purchased separately and will be separately transferable immediately upon issuance. Each Warrant entitles the registered holder thereof to purchase one share of Common Stock at a price of $5.00, subject to adjustment in certain circumstances, at any time commencing , 1997 through and including , 2000. The Warrants are redeemable by the Company, upon the consent of the Underwriter, at any time commencing , 1997, upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 30 of the trading days ending on the third day prior to the day on which the Company gives notice has been at least 150% (currently $7.50, subject to adjustment) of the then effective exercise price of the Warrants. See "Description of Securities." Prior to this offering, there has been no public market for the Common Stock or the Warrants and there can be no assurance that any such market will develop. It is anticipated that the Common Stock and the Warrants will be quoted on the Nasdaq SmallCap Market under the symbols "EDGE" and "EDGEW," respectively. The offering prices of the Common Stock and the Warrants, and the exercise price of the Warrants, were determined pursuant to negotiations between the Company and the Underwriter and do not necessarily relate to the Company's book value or any other established criteria of value. For a discussion of the factors considered in determining the offering prices, see "Underwriting." This Prospectus also relates to the offer and sale by certain persons (the "Selling Stockholders") of 220,000 shares of Common Stock. The shares offered by the Selling Stockholders are not part of the underwritten offering and may not be offered or sold prior to twelve months from the date of this Prospectus without the prior written consent of the Underwriter. See "Selling Stockholders and Plan of Distribution." ------ THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF $3.92 PER SHARE AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 7 AND "DILUTION." ------ 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. ============================================================================= Underwriting Price to Discounts Proceeds to Public and Commissions(1) Company(2) - ----------------------------------------------------------------------------- Per Share ..................... $5.00 $.50 $4.50 - ----------------------------------------------------------------------------- Per Warrant ................... $.10 $.01 $.09 - ----------------------------------------------------------------------------- Total(3) ...................... $6,630,000 $663,000 $5,967,000 ============================================================================= (1) In addition, the Company has agreed to pay to the Underwriter a 3% non-accountable expense allowance, to grant to the Underwriter warrants (the "Underwriter's Warrants") to purchase 130,000 shares of Common Stock and/or 130,000 warrants and to retain the Underwriter as a financial consultant. The Company has also agreed to indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses, including the non-accountable expense allowance in the amount of $198,900 ($228,735 if the Underwriter's over-allotment option is exercised in full), estimated at $660,000, payable by the Company. The Selling Stockholders will not bear any expenses of this offering. (3) The Company has granted the Underwriter an option, exercisable within 45 days from the date of this Prospectus, to purchase up to 195,000 additional shares of Common Stock and/or 195,000 additional Warrants, on the same terms as set forth above, solely for the purpose of covering over-allotments, if any. If the Underwriter's over-allotment option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $7,624,500, $762,450 and $6,862,050, respectively. See "Underwriting." ------ The shares of Common Stock and Warrants are being offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify the offering and to reject any order in whole or in part. It is expected that delivery of certificates representing the shares of Common Stock and the Warrants will be made against payment therefor at the offices of the Underwriter, 650 Fifth Avenue, New York, New York 10019, on or about , 1996. Whale Securities Co., L.P. The date of this Prospectus is , 1996. ------ The Company is not currently subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As of the date of this Prospectus, the Company will become subject to the reporting requirements of the Exchange Act, and in accordance therewith will file reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional offices: Northeast Regional Office, 7 World Trade Center, 13th Floor, and Midwest Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois and copies of such material can be obtained from the Public Reference Section of the Commission at prescribed rates. The Company intends to furnish its stockholders with annual reports containing audited financial statements and other reports as the Company deems appropriate or as may be required by law. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND WARRANTS AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Prospective investors are urged to read this Prospectus in its entirety. Unless otherwise indicated, all share and per share data and information in this Prospectus relating to the number of shares of Common Stock outstanding (i) has been adjusted to give retroactive effect to a recapitalization effective May 2, 1996 (the "Recapitalization") pursuant to which each outstanding share of Class A Common Stock of the Company was converted into approximately .49 shares of Common Stock and each outstanding share of Class B Common Stock of the Company was converted into 4,882.68 shares of Common Stock and (ii) assumes no exercise of the Underwriter's over-allotment option to purchase up to 195,000 additional Shares and/or 195,000 additional Warrants. See "Certain Transactions" and "Underwriting." THE COMPANY Visual Edge Systems Inc. (the "Company"), a development stage company, was organized to develop and market personalized videotape golf lessons featuring One-on-One instruction by leading professional golfer Greg Norman. To date, the Company has focused its efforts on developing computer software which digitally combines actual video footage of a golfer's swing with a synchronized "split-screen" comparison to Greg Norman's golf swing to produce a 45-minute One-on-One videotape golf lesson. The Company's proposed One-on-One video golf lesson analyzes a golfer's swing by comparing it to Greg Norman's swing at several different club positions from two camera angles using Greg Norman's pre-recorded instructional commentary and analysis and computer graphics to highlight important golf fundamentals intended to improve a golfer's performance. Pursuant to a license agreement with Greg Norman and Great White Shark Enterprises, Inc. (the "Greg Norman License"), Greg Norman agreed to grant to the Company a worldwide license to use his name, likeness and endorsement in connection with the production and promotion of the Company's proposed products. The agreement provides that the continued use of the license by the Company is conditioned upon guaranteed payments aggregating $3,300,000 during the three-year period commencing July 1, 1996 to be applied against a royalty equal to 8% of the Company's net revenues from product sales. The Company's proposed business and prospects are dependent upon the Company's continued association with Greg Norman. In 1995, the Company developed the software necessary to operate a video editing and videotape production process and an initial version of a right-handed, full swing videotape golf lesson. In September 1995, the Company conducted preliminary market testing of such videotape at a public driving range in New York where approximately 175 golfers used the One-on-One concept at no charge. Based on favorable consumer reaction to the videotape, in November and December 1995 the Company engaged in expanded market testing activities at various public and private golf courses, driving ranges and retailers in Florida and California, including the PGA National Golf Course, during which a limited number of videotapes were sold. The market tests were intended to provide information on the product's acceptance among golfers and to test the technical aspects of the Company's video editing and production process. The Company intends to design, develop and test production versions of One-on-One video golf lessons. The production versions are expected to provide enhanced pre-recorded instructional commentary and analysis of a golfer's swing at various club positions. The Greg Norman License provides that the Company has the right to require Greg Norman to be available, subject to his commitments to the PGA Tour and other golf tours and contractual commitments, to produce the Company's proposed products and make promotional appearances to market such products. The Company currently anticipates that, subject to Greg Norman's availability, it will script, film, edit and produce production versions of various right and left handed, full swing, standard, advanced, senior and female One-on-One videotape golf lessons by late 1996. The Company also plans to develop additional videotape golf lessons, such as short game, sand play and putting lessons. 3 In the event of successful completion of production versions of One-on-One videos, the Company anticipates that it will seek to enter selected target markets. The Company's primary marketing strategy is to sell One-on-One videotapes on a prearranged basis to various organizers of amateur corporate, charity and member golf tournaments (who typically offer gifts to tournament participants) and golf professionals at private and daily fee golf courses and driving ranges. The Company may also seek to enter into strategic relationships with third parties relating to product marketing and distribution. The Company's objective is to develop mobile One-on-One vans equipped with video and personal computer equipment to market, promote and produce the Company's proposed products. The Company will seek to position such vans in selected geographic areas that will service golf courses and driving ranges throughout the United States, initially in Florida, the Carolinas and California. The Company anticipates that a Company employee will operate videotaping equipment at the first tee, driving range or other suitable location to videotape a golfer's swing which would be edited inside a One-on-One van to create a personalized videotape golf lesson in approximately 25 minutes. Golf has become an increasingly popular form of sport and entertainment in recent years. According to the National Golf Foundation, consumer spending on golf-related activities, including green fees, golf equipment and related merchandise, has increased from approximately $12.7 billion in 1989 to approximately $15.1 billion in 1994. The number of golfers and golf courses and driving ranges has also increased and golf industry participants have sought to increase public awareness and provide greater access to golfers of all ages and income levels. It is estimated that golfers spend approximately $440 million annually on golf lessons. The Company believes that the capabilities of its software, including its ability to produce instructional commentary by Greg Norman and synchronized, "split-screen" comparisons with Greg Norman's swing, coupled with the consumer recognition and appeal of Greg Norman, differentiate the Company's proposed products from competing products and position the Company to capitalize on the growing popularity of golf. Since its inception, the Company has engaged in only limited operations and has not yet generated any operating revenues, other than limited revenues from market testing activities, and requires the proceeds of this offering to implement its proposed plan of operation. The Company expects to incur substantial up-front expenses in connection with product development and commercialization (including the payment of license fees and the purchase and/or lease of One-on-One vans and video and computer equipment), which will result in significant losses for the foreseeable future. There can be no assurance that the Company will be able to successfully implement its business plan. See "Risk Factors." The Company was incorporated under the laws of the State of Delaware in July 1994 under the name Golf Vision, Inc. The Company changed its name to Visual Edge Systems Inc. in March 1995. The Company's executive offices are currently located at 7 West 51st Street, New York, New York 10019, and its telephone number is (212) 765-1284. BRIDGE FINANCING In May 1996, the Company consummated a bridge financing (the "Bridge Financing") pursuant to which it issued to 29 unaffiliated investors an aggregate of (i) $1,100,000 principal amount of promissory notes (the "Bridge Notes") which bear interest at the rate of 8% per annum and are due on the earlier of the consummation of this offering or May 31, 1997 and (ii) 220,000 shares of Common Stock. The Underwriter acted as placement agent in connection with the Bridge Financing. The Company intends to use a portion of the proceeds of this offering to repay the entire principal amount of and accrued interest on the Bridge Notes. See "Use of Proceeds" and "Selling Stockholders and Plan of Distribution." 4 THE OFFERING Securities offered by the Company...................... 1,300,000 shares of Common Stock and Warrants to purchase 1,300,000 shares of Common Stock. Securities offered by the Selling Stockholders ........ 220,000 shares of Common Stock. Such shares are not part of the underwritten offering and may not be offered or sold prior to twelve months from the date of this Prospectus without the prior written consent of the Underwriter. See "Selling Stockholders and Plan of Distribution." Common Stock to be outstanding after the offering(1)........ 4,520,000 shares. Warrants: Number to be outstanding after the offering...... 1,300,000 Warrants. Exercise terms.......... Exercisable commencing , 1997, each to purchase one share of Common Stock at a price of $5.00, subject to adjustment in certain circumstances. See "Description of Securities -- Redeemable Warrants." Expiration date......... , 2000. Redemption.............. Redeemable by the Company, upon the consent of the Underwriter, at any time commencing , 1997, upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 30 trading days ending on the third day prior to the day on which the Company gives notice has been at least 150% (currently $7.50, subject to adjustment) of the then effective exercise price of the Warrants. The Warrants will be exercisable until the close of business on the date fixed for redemption. See "Description of Securities -- Redeemable Warrants." Use of Proceeds................ The Company intends to use the net proceeds from this offering for van development; repayment of the Bridge Notes; repayment of bank indebtedness; marketing and promotion; and the balance for working capital and general corporate purposes. See "Use of Proceeds." Risk Factors................... The securities offered hereby are speculative and 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" and "Dilution." Proposed Nasdaq Symbols ....... Common Stock -- EDGE Warrants -- EDGEW - ------ (1) Does not include (i) 1,300,000 shares of Common Stock reserved for issuance upon the exercise of the Warrants; (ii) an aggregate of 260,000 shares of Common Stock reserved for issuance upon the exercise of the Underwriter's Warrants and the warrants included therein; (iii) 767,871 shares of Common Stock which may be issued upon the exercise of outstanding options under the Company's 1996 Stock Option Plan (the "Plan"), including up to 500,000 shares of Common Stock which may be issued upon the exercise of options granted to Earl T. Takefman and Alan L. Lubell, Chief Executive 5 Officer and Chairman of the Board of the Company, respectively, subject to certain stock performance levels; and (iv) 32,129 shares of Common Stock reserved for issuance upon the exercise of options available for future grant under the Plan. See "Management -- Employment and Consulting Agreements," "-- Stock Option Plan," "Certain Transactions," "Description of Securities" and "Underwriting." SUMMARY FINANCIAL DATA The summary financial information set forth below is derived from and should be read in conjunction with the financial statements, including the notes thereto, appearing elsewhere in this Prospectus. STATEMENT OF OPERATIONS DATA:
Year Ended Three Months Ended December 31, 1995 March 31, 1996 ----------------- ------------------ Net revenues ................................ $ 132,267 $ 3,848 Net loss .................................... (464,963) (131,299) Pro forma net loss (1) ...................... (1,054,963) (222,549) Pro forma net loss per share (1) ............ (.33) (.07) Weighted average number of shares outstanding . 3,220,000 3,220,000
BALANCE SHEET DATA:
March 31, 1996 December 31, ------------------------------------------------- 1995 Actual Pro Forma(2) As Adjusted(2)(3) -------------- ------------- ------------- ----------------- Working capital (deficit) .... $ (682,422) $ (789,556) $ (640,210) $ 4,312,444 Total assets ................. 633,477 609,587 1,709,587 5,204,587 Total liabilities ............ 682,980 790,389 1,556,043 283,389 Deficit accumulated during the development stage ........... (464,963) (596,262) (596,262) (1,135,608)(4) Stockholders' equity (deficit) . (49,503) (180,802) 153,544 4,921,198
- ------ (1) See Note 1(f) to Notes to Financial Statements. (2) Gives effect to the Bridge Financing in May 1996. (3) Gives effect to the sale of the Common Stock and Warrants offered hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds." (4) Gives effect to a non-recurring charge of $539,346 relating to the Bridge Financing. Does not give effect to a non-recurring charge of $600,000 relating to the transfer of Common Stock to Greg Norman pursuant to the terms of the Greg Norman License, which will be recorded in the three-month period ending June 30, 1996. See Notes 2 and 9 to Notes to Financial Statements. 6 RISK FACTORS The securities offered hereby are speculative and involve a high degree of risk. Prospective investors should carefully consider the following risk factors before making an investment decision. 1. Development Stage Company. The Company was organized in July 1994 and is in the development stage. Since its inception, the Company has been engaged principally in organizational activities, including developing a business plan, entering into the Greg Norman License, engaging in product development and market testing and undertaking preliminary activities for the commencement of operations. Accordingly, the Company has no relevant operating history upon which an evaluation of its performance and prospects can be made. The Company will be subject to all of the risks, expenses, delays, problems and difficulties frequently encountered in the establishment of a new business and the development and commercialization of new products. See "Proposed Business." 2. No Operating Revenues. The Company has not yet generated any operating revenues, other than limited revenues from market testing activities, and will not generate any meaningful revenues until after the Company successfully completes development of its proposed One-on-One videotapes and develops and operates a number of One-on-One vans, which the Company does not anticipate will occur until several months following the consummation of this offering. There can be no assurance that the Company will ever generate meaningful revenues. See Financial Statements. 3. Significant and Continuing Losses; Going Concern. For the period from July 15, 1994 (inception) to March 31, 1996, the Company incurred a cumulative net loss of $596,262. Since March 31, 1996, the Company has continued to incur losses and anticipates that it will continue to incur significant losses until, at the earliest, the Company generates sufficient revenues to offset the substantial up-front capital expenditures and operating costs (including salaries of executives officers) associated with developing and commercializing its proposed products. The Company will also incur non-recurring charges aggregating approximately $1,139,000 relating to the Bridge Financing and the transfer of Common Stock to Greg Norman pursuant to the terms of the Greg Norman License in future periods. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements stating that the Company's losses and working capital and net capital deficiencies raise substantial doubt about its ability to continue as a going concern. There can be no assurance that the Company will ever achieve profitable operations. See Financial Statements. 4. Uncertainty of Proposed Plan of Operation. The Company's proposed plan of operation and prospects will be largely dependent upon the Company's ability to successfully complete development of production versions of its proposed One-on-One videotapes; hire and retain skilled technical, marketing and other personnel; establish and maintain satisfactory relationships with golf professionals at golf courses and driving ranges; successfully develop, equip and operate One-on-One vans on a timely and cost effective basis; and achieve significant market acceptance for its proposed products. The Company has limited experience in developing and commercializing new products based on innovative technology and there is limited information available concerning the potential performance of the Company's video editing and production process or market acceptance of the Company's proposed products. There can be no assurance that the Company will be able to successfully implement its business plan or that unanticipated expenses, problems or technical difficulties will not occur which would result in material delays in its implementation. See "Plan of Operation." 5. Dependence on Proceeds to Implement Plan of Operation. The capital requirements relating to implementation of the Company's business plan will be significant. The Company is dependent on the proceeds of this offering to implement its proposed plan of operation. The Company anticipates, based on currently proposed plans and assumptions relating to the implementation of its business plan (including the timetable of, and costs associated with, product and van development and commercialization), that the proceeds of this offering will be sufficient to satisfy its contemplated cash requirements for at least twelve months following the consummation of this offering. In the event that the Company's plans change, its assumptions change or prove to be inaccurate or if the proceeds of this offering prove to be insufficient to implement its business plan (due to unanticipated expenses, technical difficulties, problems or otherwise), the Company would be required to seek additional financing sooner than currently anticipated. There can be no assurance that the proceeds of this offering will be sufficient to permit the Company to meet its objective of developing a significant number of One-on-One vans 7 to market, promote and produce the Company's proposed products or that any assumptions relating to the implementation of the Company's business plan will prove to be accurate. To the extent that the proceeds of this offering are not sufficient to enable the Company to generate meaningful revenues or achieve profitable operations, the inability to obtain additional financing will have a material adverse effect on the Company, including possibly requiring the Company to significantly curtail or cease its operations. See "Use of Proceeds." 6. Need for Additional Financing. Any implementation of the Company's business plan subsequent to the twelve month period following this offering or the development of additional products will require capital resources greater than the proceeds of this offering or otherwise currently available to the Company. There can be no assurance that any additional financing, particularly the significant amounts of financing that would be required if the Company is unable to secure satisfactory equipment leasing or financing arrangements, will be available to the Company on commercially reasonable terms, or at all. See "Use of Proceeds" and "Plan of Operation." 7. Dependence on Greg Norman License. Pursuant to the Greg Norman License, Greg Norman agreed to grant to the Company a worldwide license to use his name, likeness and endorsement in connection with the production and promotion of the Company's proposed products. The license agreement provides that the continued use of the license by the Company is conditioned upon guaranteed payments aggregating $3,300,000 during the three-year period commencing July 1, 1996 to be applied against a royalty equal to 8% of the Company's net revenues from product sales. The Company is required to make payments aggregating $600,000, $1,000,000 and $1,700,000, respectively, during each of the years commencing July 1, 1996, 1997 and 1998, whether or not the Company derives any revenues from product sales. Failure to make any required payment under the Greg Norman License would result in termination of the agreement, which would have a material adverse effect on the Company. The Company is also dependent upon the continued services of Greg Norman, principally his availability to schedule videotaping sessions to complete development of the Company's proposed products on a timely basis. The Greg Norman License provides that the Company has the right to require Greg Norman to be available for a limited number of days per year, subject to his commitments to the PGA Tour and other golf tours and contractual commitments, to produce the Company's proposed products. Failure or any significant delay by Greg Norman in scheduling videotaping sessions, his death, disability or retirement from tournament play or any significant decline in the level of Greg Norman's tournament play would, under certain circumstances, have a material adverse effect on the Company. In addition, the commission by Greg Norman of any serious crime or any act which adversely affects his reputation could also have an adverse affect on the Company. The Company intends to obtain "key-man" insurance on the life of Greg Norman in the amount of $10,000,000. See "Proposed Business -- Relationship with Greg Norman." 8. Uncertainty of Product Development. Although the Company has developed an initial version of a One-on-One videotape golf lesson, the Company has not yet completed development, production or testing of its proposed products. The Company will be required to commit considerable time, effort and resources to finalize development of production versions of its proposed One-on-One videotapes and adapt the video editing and videotape production functions of its software to its proposed products. The Company's development efforts are subject to all of the risks inherent in the development of new products and technologies, including unanticipated delays, expenses, technical problems or difficulties, as well as the possible insufficiency of funds to satisfactorily complete development, which could result in abandonment or substantial change in product commercialization. There can be no assurance that product development efforts will be successfully completed on a timely basis, or at all, or that unanticipated events will not occur which would result in increased costs or material delays in product development or commercialization. In addition, although the Company believes that its software performs the principal functions for which it has been designed, the Company has only conducted limited tests of its software. Consequently, there can be no assurance that such software will perform all of the functions for which it has been designed or prove to be sufficiently reliable for the widespread commercial production of the Company's proposed One-on-One videos. Technologies such as those incorporated into the Company's software may contain errors which become apparent subsequent to commercial use. Remedying such errors could delay the Company's plans and cause it to incur additional costs. See "Proposed Business -- Product Development." 9. Uncertainty of Market Acceptance and Commercialization Strategy. The Company's One-on-One personalized videotape golf lesson is a new business concept and, accordingly, demand and market acceptance for 8 the Company's proposed products is subject to a high level of uncertainty. The Company has not conducted and does not intend to conduct any independent market or concept feasibility studies nor does it currently expect to conduct any additional market testing activities. In the event of successful completion of production versions of its proposed One-on-One videotapes, the Company currently anticipates that it will seek to enter selected target markets. Achieving market acceptance for the Company's proposed products will require significant efforts and expenditures by the Company to create awareness and demand by golf professionals at golf courses and driving ranges and consumers. The Company's prospects will be significantly affected by its ability to successfully build an effective sales organization and develop a significant number of One-on-One vans. The Company has not yet commenced any marketing activities and has limited marketing and technical experience and limited financial, personnel and other resources to independently undertake extensive marketing activities. The Company's strategy and preliminary and future marketing plans may be subject to change as a result of a number of factors, including progress or delays in the Company's marketing efforts, changes in market conditions (including the emergence of potentially significant related market segments), the nature of possible license and distribution arrangements which may become available to it in the future and competitive factors. To the extent that the Company enters into third-party marketing and distribution arrangements in the future, it will be dependent on the marketing efforts of such third parties and in certain instances on the popularity and sales of their products. Additionally, to the extent that the Company seeks to market its proposed products in foreign markets, the Company may be subject to various risks associated with foreign trade, including customs duties, quotas and other trade restrictions, shipping delays, currency fluctuations and international political and economic developments. There can be no assurance that the Company's strategy will result in successful product commercialization or that the Company's efforts will result in initial or continued market acceptance for the Company's proposed products. See "Proposed Business -- Marketing and Distribution." 10. Competition. The Company will face intense competition for a finite amount of consumer discretionary spending from numerous other businesses in the golf industry and related market segments. The Company will compete with numerous other products and services which provide golf instruction, including instructional golf videotapes, golf software used to analyze golf swings and golf courses, schools and professionals who offer video golf lessons, certain of which may be less expensive or provide other advantages to consumers. Various instructional golf videotapes currently being marketed by leading golf professionals and instructors such as Jack Nicklaus, Tom Kite, Nick Faldo, David Leadbetter, Jim McLean and Greg Norman have achieved significant national, regional and local consumer recognition. These products are marketed by companies with substantially greater financial, marketing, distribution, personnel and other resources than the Company, permitting such companies to implement extensive advertising and promotional campaigns, both generally and in response to efforts by additional competitors to enter into new markets. In addition, certain companies offer both hardware and software to golf professionals for use in connection with golf lessons. Moreover, the instructional golf video segment of the industry has no substantial barriers to entry and, consequently, the Company expects that other companies which have developed software technologies may seek to enter into the Company's target markets and compete directly against the Company. There can be no assurance that other companies are not developing or will not seek to develop similar products. The Greg Norman License prohibits Greg Norman from granting similar rights to any person with respect to any concept which is the same as or confusingly similar to the Company's concept or proposed products. For purposes of the Greg Norman License, however, the self-instructional golf video product known as Better Golf featuring Greg Norman or any other form of golf instructional video or multi-media presentation for teaching golf techniques is not deemed the same as or confusingly similar to the Company's proposed products. There can be no assurance that the Company will be able to compete successfully. See "Proposed Business -- Competition." 11. Potential Product Obsolescence. The markets for the Company's proposed products may be characterized by rapidly changing technology which could result in product obsolescence or short product life cycles. Accordingly, the ability of the Company to compete may be dependent upon the Company's ability to complete development and commercialization of the Company's proposed products in a timely manner and to continually enhance and improve its software. There can be no assurance that competitors will not develop technologies or products that render the Company's proposed products obsolete or less marketable. See "Proposed Business -- Product Development." 9 12. Dependence on Limited Product Line. The Company's principal efforts to date have been devoted to securing rights to and engaging in the development of its proposed instructional golf videotapes. The Company will be entirely dependent on the commencement of sales of a limited product line to generate revenues and on the commercial success of its proposed products. There can be no assurance that the Company's proposed products will prove to be commercially viable. Failure to achieve commercial viability would have a material adverse effect on the Company. See "Proposed Business." 13. Industry Factors. Sales of the Company's instructional golf videotapes will be dependent on discretionary spending by consumers, which may be adversely affected by unfavorable general economic conditions, as well as a decline in the popularity of golf. Any decrease in the level of consumer spending on golf instruction could adversely affect the Company's proposed business and prospects. The Company's future operating results will depend on numerous factors beyond its control, including the popularity, price and timing of other instructional golf videos and related products being introduced and distributed, national, regional and local economic conditions (particularly recessionary conditions adversely affecting consumer spending), changes in consumer demographics, the availability and relative popularity of other forms of sports and entertainment, and public tastes and preferences, which may change rapidly and cannot be predicted. The Company's ability to plan for product development and promotional activities may be affected by the Company's ability to anticipate and respond to relatively rapid changes in consumer tastes and preferences. To the extent that the Company targets consumers with limited disposable income, the Company may find it more difficult to price its products at levels which result in profitable operations. In addition, seasonal weather conditions limiting the playing seasons in certain geographic areas may result in fluctuations in the Company's future operating results. See "Proposed Business." 14. Uncertainty of Patent Protection. The Company has filed a patent application with the United States Patent and Trademark Office covering certain aspects of its digital video editing and videotape production process. There can be no assurance, however, as to the breadth or degree of protection which patents may afford the Company, that any patent applications will result in issued patents or that patents will not be circumvented or invalidated. Rapid technological developments in the computer software industry result in extensive patent filings and a rapid rate of issuance of new patents. Although the Company believes that its proposed products do not and will not infringe patents or violate proprietary rights of others, the Company has not conducted any investigation to determine whether its proposed products infringe patents or violate proprietary rights of others, and it is possible that infringement of existing or future patents or proprietary rights of others have occurred or may occur. In the event the Company's proposed products infringe patents or proprietary rights of others, the Company may be required to modify the design of its proposed products or obtain a license. There can be no assurance that the Company will be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do any of the foregoing could have a material adverse effect upon the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement action and the Company could, under certain circumstances, become liable for damages, which also could have a material adverse effect on the Company. See "Proposed Business -- Patents, Trademarks and Proprietary Information." 15, Proprietary Information. The Company intends to rely on proprietary processes and to employ various methods to protect the concepts, ideas and documentation of its proposed products. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such processes or obtain access to the Company's proprietary processes, ideas and documentation. Furthermore, although the Company intends to enter into confidentiality agreements with its employees, there can be no assurance that such arrangements will adequately protect the Company. See "Proposed Business -- Patents, Trademarks and Proprietary Information." 16. Broad Discretion in Application of Proceeds. Approximately $1,380,000 (26.0%) of the estimated net proceeds of this offering has been allocated to working capital and general corporate purposes. Accordingly, the Company will have broad discretion as to the application of such proceeds. In addition, approximately $1,627,000 (30.7%) of the estimated net proceeds of this offering has been allocated to the repayment of the Bridge Notes and indebtedness owed to Republic National Bank of New York (the "Bank") and will not be available for use in connection with other corporate purposes. See "Use of Proceeds." 10 17. Substantial Benefits to Related Parties. Repayment of the Company's indebtedness to the Bank will release the personal guarantees of Messrs. Earl T. Takefman, Alan L. Lubell and Barry Minsky, principal stockholders of the Company, and pledges of personal assets in the form of letters of credit and certificates of deposit to secure such loan. The Company also intends to use approximately $1,152,500 (21.7%) of the proceeds of this offering allocated to working capital to pay $112,500 of accrued salaries since January 1, 1996 to Messrs. Takefman and Lubell and to pay salaries of executive officers and license fees pursuant to the Greg Norman License (which are anticipated to be approximately $590,000 and $450,000, respectively, during the twelve months following this offering). See "Use of Proceeds" and "Certain Transactions." 18. Dependence on Third-Party Production Companies and Equipment Manufacturers. The Company will rely on third-party production companies to film and edit the Company's proposed One-on-One videotapes and will be dependent on such third parties to satisfactorily complete such filming and editing on behalf of the Company on a timely and cost-effective basis. The Company will also rely on third-party manufacturers for all of its supply of video and computer equipment and vans used in its operations. The Company has not entered into agreements with any equipment manufacturer and intends to purchase or lease equipment components pursuant to purchase orders placed from time to time in the ordinary course of business. Failure or delay by any manufacturer in supplying components to the Company on favorable terms could result in interruptions in its operations and adversely effect the Company's ability to implement its business plan. See "Proposed Business." 19. Dependence on Key Personnel; Need for Qualified Personnel. The success of the Company will be dependent on the personal efforts of Earl T. Takefman, its Chief Executive Officer, and other key personnel. The loss of the services of Mr. Takefman could have a material adverse effect on the Company's proposed business and prospects. The Company has entered into employment agreements with Mr. Takefman and other key personnel and intends to obtain "key-man" insurance on the life of Mr. Takefman in the amount of $5,000,000 prior to the consummation of this offering. The success of the Company is also dependent upon its ability to hire and retain additional qualified marketing, technical, financial and other personnel. Competition for qualified personnel is intense and there can be no assurance that the Company will be able to hire or retain additional qualified personnel. Any inability to attract and retain qualified personnel would have a material adverse effect on the Company. See "Management." 20. Control by Management. Upon consummation of this offering, Earl T. Takefman, the Company's Chief Executive Officer, and Alan L. Lubell, Chairman of the Board of Directors of the Company, will beneficially own, in the aggregate, approximately 50.3% of the outstanding shares of Common Stock (assuming no exercise of the Warrants). Accordingly, such persons, acting together, will be in a position to control the Company, elect all of the Company's directors, cause an increase in the authorized capital or the dissolution, merger or sale of the assets of the Company, and generally to direct the affairs of the Company. See "Management" and "Principal Stockholders." 21. Outstanding Options. Upon consummation of this offering, there will be outstanding options to purchase an aggregate of 767,871 shares of Common Stock at an exercise price equal to the initial public offering price per share, of which options to purchase up to an aggregate of 500,000 shares (the "Executive Options") will be granted to Messrs. Takefman and Lubell. Of such Executive Options, 300,000 options shall vest and become exercisable if the market price of the Common Stock equals or exceeds $10.00 per share for at least five consecutive trading days during the 18-month period following the consummation of this offering and 200,000 options shall vest and become exercisable if the market price of the Common Stock equals or exceeds $15.00 per share for five consecutive trading days during the 30-month period following the consummation of this offering. Exercise of any of the foregoing options will have a dilutive effect on the Company's stockholders. Furthermore, the terms upon which the Company may be able to obtain additional equity financing may be adversely affected, since the holders of the options can be expected to exercise them, if at all, at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the options. See "Management -- Stock Option Plan." 22. No Dividends. To date, the Company has not paid any cash dividends on its Common Stock and does not expect to declare or pay dividends on the Common Stock in the foreseeable future. In addition, the payment of cash dividends may be limited or prohibited by the terms of future loan agreements or the future issuance of Preferred Stock. See "Description of Securities -- Dividend Policy." 11 23. Substantial Dilution. Investors purchasing Common Stock in this offering will incur immediate and substantial dilution of $3.92 (78.4%) per share between the adjusted net tangible book value per share after this offering and the initial public offering price of $5.00 per share. See "Dilution." 24. Authorization and Discretionary Issuance of Preferred Stock. The Company's Certificate of Incorporation authorizes the Company's Board of Directors to issue up to 5,000,000 shares of preferred stock, from time to time, in one or more series. The Board of Directors will be authorized, without further approval of the stockholders, to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges and restrictions applicable to each new series of preferred stock. The issuance of such stock could adversely affect the voting power of the holders of Common Stock and, under certain circumstances, make it more difficult for a third party to gain control of the Company, discourage bids for the Common Stock at a premium, or otherwise adversely affect the market price of the Common Stock. See "Description of Securities--Preferred Stock." 25. No Assurance of Public Market; Possible Volatility of Market Price of Common Stock and Warrants. Prior to this offering, there has been no public trading market for the Common Stock or Warrants. There can be no assurance that a regular trading market for the Common Stock or Warrants will develop after this offering or that, if developed, it will be sustained. The market prices of the Company's securities following this offering may be highly volatile as has been the case with the securities of other emerging companies. Factors such as the Company's operating results and announcements by the Company or its competitors may have a significant impact on the market price of the Company's securities. In addition, in recent years, the stock market has experienced a high level of price and volume volatility and market prices for the stock of many companies have experienced wide price fluctuations which have not necessarily been related to the operating performance of such companies. See "Underwriting." 26. Underwriter's Potential Influence on the Market. Although it has no obligation to do so, the Underwriter intends to make a market in the Common Stock and Warrants and may otherwise effect transactions in the Common Stock and Warrants. If the Underwriter makes a market in the Common Stock or Warrants, such activities may exert a dominating influence on the market and such activity may be discontinued at any time. The prices and liquidity of the Common Stock and Warrants may be significantly affected to the extent, if any, that the Underwriter participates in such market. See "Underwriting." 27. Possible Delisting of Securities from Nasdaq. It is currently anticipated that the Company's Common Stock and Warrants will be eligible for listing on the Nasdaq Small Cap Market upon the completion of this offering. In order to continue to be listed on Nasdaq, however, the Company must maintain $2,000,000 in total assets, a $200,000 market value of the public float and $1,000,000 in total capital and surplus. In addition, continued inclusion requires two market-makers and a minimum bid price of $1.00 per share; provided, however, that if the Company falls below such minimum bid price, it will remain eligible for continued inclusion on Nasdaq if the market value of the public float is at least $1,000,000 and the Company has $2,000,000 in capital and surplus. The failure to meet these maintenance criteria in the future may result in the delisting of the Common Stock and Warrants from Nasdaq, and trading, if any, in the Company's securities would thereafter be conducted in the non-Nasdaq over-the-counter market. As a result of such delisting, an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's securities. 28. Risks Relating to Low-Priced Stocks. In the event the Common Stock were to become delisted from trading on Nasdaq and the trading price of the Common Stock were to fall below $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non- Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transac- 12 tion prior to sale. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in the Common Stock, which could severely limit the market price and liquidity of the Common Stock and the ability of purchasers in this offering to sell the Common Stock in the secondary market. 29. Potential Adverse Effect of Warrant Redemption. The Warrants are subject to redemption by the Company, upon the consent of the Underwriter, at any time commencing on , 1997, upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 30 trading days ending on the third day prior to the day on which the Company gives notice has been at least 150% (currently $7.50, subject to adjustment) of the then effective exercise price of the Warrants. Redemption of the Warrants could force the holders to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, to sell the Warrants at the then current market price when they might otherwise wish to hold the Warrants, or to accept the redemption price, which is likely to be substantially less than the market value of the Warrants at the time of redemption. See "Description of Securities -- Redeemable Warrants." 30. Possible Inability to Exercise Warrants. The Company intends to qualify the sale of the Common Stock and the Warrants in a limited number of states. Although certain exemptions in the securities laws of certain states might permit the Warrants to be transferred to purchasers in states other than those in which the Warrants were initially qualified, the Company will be prevented from issuing Common Stock in such states upon the exercise of the Warrants unless an exemption from qualification is available or unless the issuance of Common Stock upon exercise of the Warrants is qualified. The Company may decide not to seek or may not be able to obtain qualification of the issuance of such Common Stock in all of the states in which the ultimate purchasers of the Warrants reside. In such a case, the Warrants held by purchasers will expire and have no value if such Warrants cannot be sold. Accordingly, the market for the Warrants may be limited because of these restrictions. Further, a current prospectus covering the Common Stock issuable upon exercise of the Warrants must be in effect before the Company may accept Warrant exercises. There can be no assurance the Company will be able to have a prospectus in effect when this Prospectus is no longer current, notwithstanding the Company's commitment to use its best efforts to do so. See "Description of Securities -- Redeemable Warrants." 31. Shares Eligible for Future Sale. Upon the consummation of this offering, the Company will have 4,520,000 shares of Common Stock outstanding (assuming no exercise of the Warrants), of which 1,520,000 shares, consisting of the 1,300,000 shares offered hereby and, subject to certain contractual restrictions described below, the 220,000 shares being offered by the Selling Stockholders, will be freely tradeable without restriction or further registration under the Securities Act. All of the remaining 3,000,000 shares of Common Stock outstanding are "restricted securities", as that term is defined in Rule 144 promulgated under the Securities Act, and in the future may be sold only pursuant to an effective registration statement under the Securities Act, in compliance with the exemption provisions of Rule 144 or pursuant to another exemption under the Securities Act. Of the 3,000,000 restricted shares, an aggregate of 2,520,406 shares will be eligible for sale, without registration, under Rule 144 (subject to certain volume limitations prescribed by such rule and to the contractual restrictions described below), commencing March 1997. All of the Company's officers, directors and security holders (except for the holders of 9,776 shares of Common Stock) have agreed not to sell or dispose of any of their securities of the Company for a period of twelve months from the date of this Prospectus (subject to certain exceptions nine months from the date of this Prospectus) without the Underwriter's prior written consent. No prediction can be made as to the effect, if any, that sales of such securities or the availability of such securities for sale will have on the market prices prevailing from time to time. However, even the possibility that a substantial number of the Company's securities may be sold in the public market may adversely affect prevailing market prices for the Common Stock and Warrants and could impair the Company's ability to raise capital through the sale of its equity securities. See "Description of Securities." "Shares Eligible for Future Sale," "Underwriting" and "Selling Stockholders and Plan of Distribution." 32. Limitations of Liability of Directors and Officers. The Company's Certificate of Incorporation includes provisions to limit, to the full extent permitted by Delaware law, the personal liability of directors of the Company for monetary damages arising from a breach of their fiduciary duties as directors. The Certificate of Incorporation also includes provisions to the effect that (subject to certain exceptions) the Company shall, to 13 the maximum extent permitted from time to time under the law of the State of Delaware, indemnify, and upon request shall advance expenses to, any director or officer to the extent permitted under such law as it may from time to time be in effect. In addition, the Company's By-Laws require the Company to indemnify, to the full extent permitted by law, any director, officer, employee or agent of the Company for acts which such person reasonably believes are not in violation of the Company's corporate purposes as set forth in the Certificate of Incorporation. As a result of such provisions in the Certificate of Incorporation and the By-Laws of the Company, stockholders may be unable to recover damages against the directors and officers of the Company for actions taken by them which constitute negligence, gross negligence or a violation of their fiduciary duties, which may reduce the likelihood of stockholders instituting derivative litigation against directors and officers and may discourage or deter stockholders from suing directors, officers, employees and agents of the Company for breaches of their duty of care, even though such an action, if successful, might otherwise benefit the Company and its stockholders. See "Management -- Limitations of Liability and Indemnification." USE OF PROCEEDS The net proceeds to the Company from the sale of the securities offered hereby are estimated to be $5,307,000 ($6,172,215 if the Underwriter's over-allotment option is exercised in full). The Company expects to use the net proceeds over the twelve months following this offering approximately as follows:
Approximate Approximate Application of Proceeds Dollar Amount Percentage - ----------------------- --------------- ------------- Van development(1) ............................... $2,000,000 37.7% Repayment of Bridge Notes(2) ..................... 1,120,000 21.1 Repayment of bank indebtedness(3) ................ 507,000 9.6 Marketing and promotion(4) ....................... 300,000 5.6 Working capital and general corporate purposes(5) . 1,380,000 26.0 --------------- ------------- $5,307,000 100.0% =============== =============
- ------ (1) Represents anticipated costs associated with developing up to twenty One-on-One vans equipped with video and computer equipment, consisting primarily of personal computers, video cassette recorders, video cameras and equipment and television monitors, during the twelve months following the consummation of this offering. The Company anticipates that the average cost to acquire a van and related equipment will be approximately $110,000. The Company may seek to lease or finance rather than purchase One-on-One vans and related equipment. See "Plan of Operation" and "Proposed Business -- Marketing and Distribution." (2) Represents amounts to be used for the repayment of the entire $1,100,000 principal amount of the Bridge Notes and accrued interest thereon. The Bridge Notes bear interest at the rate of 8% per annum and are repayable on the earlier of the consummation of this offering or May 31, 1997. The Company used the proceeds of the Bridge Financing principally in connection with product and van design and development, payment of a license fee and working capital. See "Plan of Operation." (3) Represents amounts to be used to repay outstanding principal and accrued interest owed to the Bank. Such indebtedness currently bears interest at the rate of 8.25% per annum and is repayable on or before December 31, 1996. The Company used the proceeds of such borrowings in connection with product development and market testing activities. See "Plan of Operation." (4) Represents anticipated costs associated with marketing and promotion, including costs associated with public relations and advertising in trade publications, attendance at trade shows and preparation of product brochures. See "Proposed Business -- Marketing and Distribution." (5) Working capital will be used, among other things, to pay accrued salaries since January 1, 1996 of approximately $112,500 to Messrs. Lubell and Takefman, to pay salaries of its executive officers and license fees pursuant to the Greg Norman License (which are anticipated to be $590,000 and $450,000, respectively, during the twelve months following the consummation of this offering), to purchase furniture, fixtures and equipment and to pay salaries of additional personnel, rent, trade payables, professional fees and other operating expenses. See "Management." 14 If the Underwriter exercises its over-allotment option in full, the Company will realize additional net proceeds of $865,000 which will be added to working capital. Based on the Company's currently proposed plans and assumptions relating to the implementation of its business plan (including the timetable of, and costs associated with, product and van design and development and commercialization), the Company anticipates that the net proceeds of this offering will be sufficient to satisfy its contemplated cash requirements for at least twelve months following the consummation of this offering. In the event that the Company's plans change (due to changes in market conditions, competitive factors or new or different business opportunities that may become available in the future), its assumptions change or prove to be inaccurate or if the proceeds of this offering prove to be insufficient to implement its business plan (due to unanticipated expenses, technical difficulties, problems or otherwise), the Company may find it necessary or desirable to reallocate a portion of the proceeds within the above described categories, use of proceeds for other purposes, seek additional financing or curtail its operations. There can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. Proceeds not immediately required for the purposes described above will be invested principally in United States government securities, short-term certificates of deposit, money market funds or other short-term interest bearing investments. 15 DILUTION The difference between the public offering price per share of Common Stock and the net tangible book value per share after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of outstanding shares of Common Stock. At March 31, 1996, the net tangible book value of the Company was ($230,816), or ($.08) per share. After giving retroactive effect to the Bridge Financing, the pro forma net tangible book value of the Company at March 31, 1996 would be ($56,470), or ($.02) per share. After also giving effect to the sale of the 1,300,000 shares of Common Stock and 1,300,000 Warrants being offered hereby and the receipt of the estimated net proceeds therefrom (less underwriting discounts and commissions and estimated expenses of this offering), the as adjusted pro forma net tangible book value of the Company at March 31, 1996 would be approximately $4,896,184, or $1.08 per share, representing an immediate increase in net tangible book value of $1.10 per share to existing stockholders and an immediate dilution of $3.92 (78.4%) per share to new investors. The following table illustrates the foregoing information with respect to dilution to new investors on a per share basis:
Initial public offering price .......................... $5.00 Net tangible book value before Bridge Financing ... $(.08) Increase attributable to Bridge Financing ......... .06 -------- Pro forma net tangible book value before offering . $(.02) Increase attributable to investors in this offering . 1.10 -------- Adjusted pro forma net tangible book value after offering 1.08 ------- Dilution to investors in this offering ................. $3.92 =======
The following table sets forth, with respect to existing stockholders (including investors in the Bridge Financing) and new investors in this offering, a comparison of the number of shares of Common Stock acquired from the Company, the percentage of ownership of such shares, the total cash consideration paid, the percentage of total cash consideration paid and the average price per share.
Total Cash Shares Purchased Consideration Paid Average ------------------------ ------------------------- Price Per Number Percent Amount Percent Share ----------- --------- ------------ --------- ----------- Existing stockholders . 3,220,000 71.2% $ 738,046 10.2% $ .23 New investors ....... 1,300,000 28.8% $6,500,000 89.8% $5.00 ----------- --------- ------------ --------- Total ............. 4,520,000 100.0% $7,238,046 100.0% =========== ========= ============ =========
The above table assumes no exercise of the Underwriter's over-allotment option. If such option is exercised in full, such investors will have paid $975,000 for 195,000 shares of Common Stock, representing approximately 11.9% of the total consideration for 4.1% of the total Common Stock outstanding. In addition, the above table also assumes no exercise of outstanding stock options or the Warrants. Upon consummation of this offering, there will be outstanding stock options to purchase an aggregate of 767,871 shares of Common Stock. See "Certain Transactions," "Description of Securities" and "Underwriting." 16 CAPITALIZATION The following table sets forth, as of March 31, 1996, the capitalization of the Company (i) on an actual basis, as adjusted to give effect to the Recapitalization, (ii) on a pro forma basis giving effect to the consummation of the Bridge Financing in May 1996 and (iii) as further adjusted to give retroactive effect to the issuance and the sale of the Common Stock and Warrants offered hereby and anticipated application of the estimated net proceeds therefrom:
March 31, 1996 --------------------------------------------- Pro Forma As Actual Pro Forma Adjusted ------------ ------------ -------------- Short term debt ................................. $ 507,000 $1,272,654 $ -- ============ ============ ============== Stockholders' equity (deficit): Common Stock, $0.01 par value: 20,000,000 shares authorized; 3,000,000 shares issued and outstanding (actual); 3,220,000 shares issued and outstanding pro forma; 4,520,000 shares issued and outstanding (pro forma as adjusted)(1) 30,000 32,200 45,200 Preferred Stock, 5,000,000 shares authorized; none issued; none issued as adjusted. .... -- -- -- Additional paid-in capital ................. 385,460 717,606 6,011,606 Deficit accumulated during the development stage (596,262) (596,262) (1,135,608)(2) ------------ ------------ -------------- Total stockholders' equity (deficit) ....... (180,802) 153,544 4,921,198 ------------ ------------ -------------- Total capitalization ............................ $(180,802) $ 153,544 $ 4,921,198 ============ ============ ==============
- ------ (1) Does not include (i) 1,300,000 shares of Common Stock reserved for issuance upon the exercise of the Warrants, (ii) an aggregate of 260,000 shares of Common Stock reserved for issuance upon the exercise of the Underwriter's Warrants and the warrants included therein, (iii) 767,871 shares of Common Stock which may be issued upon the exercise of outstanding options under the Company's 1996 Stock Option Plan (the "Plan"), including up to 500,000 shares of Common Stock which may be issued upon the exercise of options granted to Earl T. Takefman and Alan L. Lubell, Chief Executive Officer and Chairman of the Board of the Company, respectively, subject to certain stock performance levels, and (iv) 32,129 shares of Common Stock reserved for issuance upon the exercise of options available for future grant under the Plan. See "Management -- Employment and Consulting Agreements," "-- Stock Option Plan," "Certain Transactions," "Description of Securities" and "Underwriting." (2) Gives effect to a non-recurring charge of $539,346 relating to the Bridge Financing. Does not give effect to a non-recurring charge of $600,000 relating to the transfer of Common Stock to Greg Norman pursuant to the terms of the Greg Norman License which will be recorded in the three-month period ending June 30, 1996. See Notes 2 and 9 to Financial Statements. 17 PLAN OF OPERATION The Company was organized in July 1994 and is in the development stage. Since its inception, the Company has been engaged principally in organizational activities, including developing a business plan, entering into the Greg Norman License, engaging in product development and market testing and undertaking preliminary activities for the commencement of operations. The Company has not yet generated any operating revenues, other than limited revenues from market testing activities, and will not generate any meaningful revenues until after the Company successfully completes development of its proposed One-on-One videotapes and develops a number of One-on-One vans, which the Company does not anticipate will occur until several months following the consummation of this offering. For the period from July 15, 1994 (inception) to March 31, 1996, the Company incurred a cumulative net loss of $596,262. Since March 31, 1996, the Company has continued to incur losses and anticipates that it will continue to incur significant losses until, at the earliest, the Company generates sufficient revenues to offset the substantial up-front capital expenditures and operating costs (including salaries of executive officers) associated with developing and commercializing its proposed products. There can be no assurance that the Company will ever generate meaningful revenues or achieve profitable operations or that the Company's proposed products will be commercially viable. Through March 31, 1996, the Company generated revenues of $11,115 from product sales during market testing activities and $125,000 from a non-refundable royalty payment pursuant to the terms of a distribution agreement with an unaffiliated third party relating to the territories of Australia, New Zealand and Indonesia. To date, a significant portion of the Company's expenses have consisted of general and administrative expenses, including costs associated with market testing, professional fees and travel. Since inception, the Company had capital expenditures of $671,177, consisting primarily of computer hardware and software as well as video production and equipment. See Financial Statements. The Company will incur a non-recurring charge of approximately $539,000 relating to the Bridge Financing upon the consummation of this offering. The Company will also incur a non-recurring charge of $600,000 relating to the transfer of Common Stock to Greg Norman pursuant to the terms of the Greg Norman License for the three-month period ending June 30, 1996. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements stating that the Company's losses and working capital and net capital deficiencies raise substantial doubt about its ability to continue as a going concern. This offering is an integral part of the Company's plan to continue as a going concern. See Financial Statements. BUSINESS DEVELOPMENT The Company's proposed plan of operation and prospects will be largely dependent upon the Company's ability to successfully complete development of production versions of its proposed One-on-One videotapes; hire and retain skilled technical, marketing and other personnel; establish and maintain satisfactory relationships with golf professionals at golf courses and driving ranges; successfully develop, equip and operate One-on-One vans on a timely and cost effective basis; and achieve significant market acceptance for its proposed products. In 1995, the Company developed the software necessary to operate a video editing and videotape production process and an initial version of a right-handed, full swing videotape golf lesson. The Company intends to design, develop and test production versions of its proposed full swing One-on-One videotapes. The production versions are expected to provide enhanced pre-recorded instructional commentary and analysis of a golfer's swing at various club positions. The Company currently anticipates that, subject to Greg Norman's availability, it will script, film, edit and produce production videotapes of its proposed One-on-One lessons by late 1996. The Company will be required to commit considerable time, effort and resources to finalize development of production versions of One-on-One videotapes and adapt the editing and production functions of its software to its proposed products. The Company currently does not have any personnel, other than its executive officers. The Company has engaged a Director of Software Development, who is expected to continue to enhance and adapt the Company's 18 software to the Company's proposed products. Additionally, the Company has engaged independent production companies to produce the Company's proposed One-on-One videos. The Company currently anticipates that Greg Norman will be available to film additional segments of the Company's videos in July 1996. See "Proposed Business -- Product Development." In the event of successful completion of production versions of One-on-One videotapes, the Company anticipates that it will seek to enter selected target markets. The Company's objective is to develop mobile One-on-One vans equipped with video and personal computer equipment to market, promote and produce the Company's proposed products. Pursuant to its currently proposed plan of operation, the Company will seek to develop up to 20 One-on-One vans during the twelve months following the consummation of this offering. The Company is in the process of designing and developing the first of such vans and purchasing necessary equipment to produce personalized One-on-One videotape golf lessons. The Company anticipates that the average cost to acquire a van and purchase and install equipment in each van will be approximately $110,000. The Company will seek to engage the services of the logistic consulting division of KPMG Peat Marwick LLP to advise and assist the Company in connection with van development. In order to reduce the Company's up-front capital requirements associated with van development, the Company may seek to lease or finance rather than purchase a portion of its equipment. There can be no assurance that the Company will be able to obtain satisfactory equipment leasing or financing arrangements. See "Proposed Business -- Marketing and Distribution." LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements will be to fund the development of its proposed products, the purchase of the One-on-One vans and equipment and the Company's working capital requirements. The Company has historically financed its capital requirements through the issuance of equity and debt securities and bank borrowings. In March 1995, an aggregate of 1,281,704, 1,159,636 and 488,268 shares of Common Stock, respectively, were acquired by Alan Lubell, Chairman of the Board of Directors and Vice President -- Product Development of the Company, Status-One Investments Inc. ("Status-One"), a company controlled by Earl T. Takefman, Chief Executive Officer of the Company, and Greenwich Properties, Inc. ("Greenwich"), a company controlled by Barry Minsky, a principal stockholder of the Company, for an aggregate consideration of $1,000. See "Certain Transactions." Since its inception, the Company borrowed $191,750, $162,500 and $48,450, respectively, from Mr. Lubell, Status-One and Greenwich. In December 1995, these loans were contributed to the capital of the Company. See "Certain Transactions" and Financial Statements. The Company borrowed an aggregate of $507,000 from the Bank, which is due and payable on December 31, 1996. Interest on the unpaid principal amount of the loan accrues at the reference rate established by the Bank from time to time (currently 8.25%). All of the Company's assets are pledged as collateral to secure such indebtedness and Earl T. Takefman, Alan Lubell and Barry Minsky, principal stockholders of the Company, have guaranteed and pledged personal assets in the form of letters of credit and certificates of deposit in the amounts of $354,400, $106,325 and $39,275, respectively, to secure such loan. The Company intends to use a portion of the proceeds of this offering to repay such indebtedness, which will release the personal guarantees of Messrs. Takefman, Lubell and Minsky. See "Use of Proceeds" and "Certain Transactions." On May 31, 1996, the Company consummated the Bridge Financing, pursuant to which it issued an aggregate of (i) $1,100,000 principal amount of Bridge Notes which bear interest at the rate of 8% per annum and are due on the earlier of the consummation of this offering or May 31, 1997 and (ii) 220,000 shares of Common Stock. After the payment of $135,000 in placement fees and expenses to the Underwriter, which acted as placement agent for the Company in connection with the Bridge Financing and other offering expenses of approximately $50,000, the Company received net proceeds of approximately $915,000. The proceeds from the Bridge Financing were used for product development, the payment of a license fee of $150,000 under the Greg Norman License, the design and development of a One-on-One van and for working capital and general corporate purposes. See Note 2 to Notes to Financial Statements. The capital requirements relating to the implementation of the Company's business plan will be significant. The Company is dependent on the proceeds of this offering to implement its proposed plan of operation. The 19 Company anticipates, based on currently proposed plans and assumptions relating to the implementation of its business plan (including the timetable of, and costs associated with, product van development and commercialization), that the proceeds of this offering will be sufficient to satisfy its contemplated cash requirements for at least twelve months following the consummation of this offering. In the event that the Company's plans change, the assumptions change or prove to be inaccurate or if the proceeds of this offering prove to be insufficient to implement its business plan (due to unanticipated expenses, technical difficulties, problems or otherwise), the Company would be required to seek additional financing sooner than currently anticipated. There can be no assurance that the proceeds of this offering will be sufficient to permit the Company to meet its objective of developing a significant number of One-on-One vans to market, promote and produce the Company's proposed products or that any assumptions relating to the implementation of the Company's business plan will prove to be accurate. To the extent that the proceeds of this offering are not sufficient to enable the Company to generate meaningful revenues or achieve profitable operations, the inability to obtain additional financing will have a material adverse effect on the Company, including possibly requiring the Company to significantly curtail or cease its operations. In addition, any implementation of the Company's business plan subsequent to the twelve month period following this offering or the development of additional products will require capital resources greater than the proceeds of this offering or otherwise currently available to the Company. The Company also may determine, depending upon the opportunities available to it, to seek additional debt or equity financing to fund the cost of continuing expansion. The extent that the Company finances expansion through the issuance of additional equity securities, any such issuance would result in dilution to the interests of the Company's stockholders. Additionally, to the extent that the Company incurs indebtedness or issues debt securities in connection with financing expansion activities, the Company will be subject to all of the risks associated with incurring substantial indebtedness, including the risks that interest rates may fluctuate and cash flow may be insufficient to pay principal and interest on any such indebtedness. There can be no assurance that any additional financing, particularly the significant amounts of financing that would be required if the Company is unable to secure satisfactory equipment leasing or financing arrangements, will be available to the Company on commercially reasonable terms, or at all. SEASONALITY The Company's proposed business may be subject to seasonal factors, with a larger portion of sales generally expected to occur in certain geographic regions during the spring and summer months of each year. 20 PROPOSED BUSINESS The Company, a development stage company, was organized to develop and market videotape golf lessons featuring personalized One-on-One instruction by leading professional golfer Greg Norman. The Company intends to sell its proposed products under the name One-on-One with Greg Norman.(TR) INDUSTRY OVERVIEW Golf has become an increasingly popular form of sport in recent years. According to the National Golf Foundation, consumer spending on golf-related activities, including green fees, golf equipment and related merchandise, increased from approximately $12.7 billion in 1989 to approximately $15.1 billion in 1994. The Company believes that this trend is due largely to the aging of the general population as well as baby boomers, whose income and leisure time spent on recreational activities have been increasing. According to the National Golf Foundation, golfers are generally well-educated, high income, young to middle-aged adult males, a target market with attractive demographics and significant spending power. Also, it is estimated that there are more female golfers enjoying the sport than ever before. The number of golfers and golf courses and driving ranges has also increased and golf industry participants have sought to increase public awareness and provide greater access to golfers of all ages and income levels. According to the National Golf Foundation, there are approximately 15,000 public and private courses and, according to the Golf Range and Recreational Association, 1,900 to 2,300 stand-alone driving ranges in the United States today. In addition, the National Golf Foundation has estimated that there are currently 1,850 golf courses under construction in the United States. It is also estimated that golfers spend approximately $440 million annually on golf lessons. The Company believes that golfers are motivated to continually improve their play and that video is an effective method of delivering instruction. The Company believes that the capabilities of its software, including its ability to produce instructional commentary by Greg Norman and synchronized, "split- screen" comparisons with Greg Norman's swing, coupled with consumer recognition and appeal of Greg Norman, differentiate the Company's proposed products from competing products and position the Company to capitalize on the growing popularity of golf. PROPOSED PRODUCTS The Company's proposed One-on-One personalized videotape golf lesson analyzes a golfer's swing by comparing it to Greg Norman's swing at several different club positions from two camera angles using Greg Norman's pre-recorded instructional commentary and analysis and computer graphics to highlight important golf fundamentals intended to improve a golfer's performance. The Company's proposed products, through the use of synchronized "split-screen" comparisons to Greg Norman's swing, are being designed to enable golfers to make meaningful self-observations to improve their play. In each of the Company's proposed video golf lessons, Greg Norman will emphasize the importance of the relevant golf fundamental, comment on the golfer's execution of the fundamental and summarize the key fundamentals to remember. The Company's principal proposed products under development include the following right and left-handed, full swing personalized One-on-One golf lessons with Greg Norman: o Standard Lesson. The Company's standard golf lesson is being designed for golfers of all skill levels. The Company plans to develop three versions of such lesson, each focusing on a different body type. o Advanced Lesson. The Company's advanced golf lesson is being designed primarily for golfers who have taken the standard lesson and lower handicap golfers. o Senior Lesson. The Company's senior lesson is intended for male and female senior golfers who typically have more limited range of motion. The Company expects that this lesson may also include a professional senior golfer. o Female Lesson. The Company's female lesson is being designed for a female golfer and may include a professional female golfer to provide additional comparisons. 21 o Self-Comparison Video. The Company's self-comparison video lesson is being designed to permit golfers to compare two swings taken at different times to Greg Norman's swing to measure improvement or deterioration through the use of triple "split-screen" video. The Company anticipates that golfers will be able to store several swings on a computer diskette which may be incorporated into a self-comparison One-on-One video at any time. The Company's proposed products are expected to sell for $39.95 to $59.95, except for the self-comparison video which is expected to sell for $19.95 to $29.95, and will be available on VHS videotape format. The Company also expects to make personalized video golf lessons available on CD-ROM. In addition, the Company plans to develop additional One-on-One video golf lessons, including short game lessons designed to focus on short iron play, chipping and pitching, sand play lessons and putting lessons. In the event the Company is able to meet its business objective, the Company believes that potential opportunities exist for the application of its One-on-One concept to the sports of bowling, tennis and baseball. There can be no assurance that the Company will be able to successfully develop any of its proposed products. RELATIONSHIP WITH GREG NORMAN Greg Norman, currently the number one player in the world according to the SONY golfer ranking system, is a two-time British Open winner, was awarded the Varden Trophy for the lowest average score on the PGA Tour in 1989, 1990 and 1994 and was named the 1995 PGA Player of the Year. The Company's proposed business and prospects are dependent upon the Company's continued association with Greg Norman. Pursuant to a license agreement dated March 1, 1995, by and among the Company, Greg Norman and Great White Shark Enterprises, Inc. (the "Greg Norman License"), Greg Norman agreed to grant to the Company a worldwide license to use his name, likeness and endorsement in connection with the production and promotion of the Company's proposed products. Greg Norman also agreed to grant to the Company the right to use any trademarks owned by him (except for the "Shark" logo). The agreement provides that the continued use of the license by the Company is conditioned upon guaranteed payments aggregating $3.3 million during the three-year period commencing July 1, 1996 (the "initial term") to be applied against a royalty equal to 8% of the Company's net revenues from product sales. "Net revenues" is defined as revenues less costs associated with discounts, allowances, payments to golf clubs, driving ranges or golf professionals, sales tax and returns, not to exceed 20% of product sales. Under the agreement, the Company is required to make payments aggregating $600,000, $1,000,000 and $1,700,000, respectively, during each of the years commencing July 1, 1996, 1997 and 1998, whether or not the Company derives any revenues from product sales. Such annual payments are payable on a quarterly basis. The Company has the option to renew the agreement for two additional five-year periods. In the event of renewal, the Company is obligated to make guaranteed payments of $1,300,000 during the first year of any renewal term, increasing by $100,000 for each successive year. The Company used a portion of the proceeds of the Bridge Financing to make the first payment of $150,000 under the Greg Norman License, and satisfied all other conditions, prior to its due date on June 30, 1996. In connection with the agreement, in April 1996, Status-One, Greenwich and Mr. Lubell transferred an aggregate of 300,000 shares of Common Stock owned by them to Mr. Norman pursuant to an option held by Mr. Norman. The Company has the right to require Greg Norman to be available, subject to his commitments to the PGA Tour and other golf tours and contractual commitments, to produce the Company's proposed products and make promotional appearances to market such products. Greg Norman is required to be available to the Company on three days, one day and two days during the first, second and third year, respectively, of the initial term, and two days during each year of any renewal term. In order to assist the Company in developing its proposed products, Greg Norman has agreed to make himself available, at a cost of $50,000 per day and subject to his schedule and convenience, for additional days in 1996 and 1997 for the purpose of filming personalized One-on-One golf video lessons. Greg Norman has the right to approve prototypes and finished products and related advertising and promotional materials and may withhold his consent under certain circumstances. The agreement also requires Greg Norman to make himself available for medical exams for the purpose of assisting the Company in obtaining up to $10 million in "key-man" insurance on his life. The Company has agreed to indemnify Greg Norman against any liability arising out of the Greg Norman License. 22 The Greg Norman License prohibits Greg Norman from granting similar rights to any person with respect to any concept which is the same as or confusingly similar to the Company's concept or proposed products. "Products" means a videotape or CD-ROM or other similar medium that is given or sold to a consumer upon use of the concept in which Greg Norman's golf swing or any other golf professional's golf swing is compared to the user's golf swing using audio and video analysis of both swings. For purposes of the agreement, however, the self-instructional golf video product Better Golf featuring Greg Norman or any other form of golf instructional video or multi-media presentation for teaching golf techniques are not deemed to be the same as or confusingly similar to the Company's concept or proposed products. Greg Norman may terminate the agreement in the event the Company fails to make any payment, breaches the agreement, is declared bankrupt or becomes insolvent, assigns its assets for the benefit of creditors, consents to the appointment of a receiver or trustee or winds up or ceases to carry on its business. The Company may terminate the agreement in the event Greg Norman dies, voluntarily enters a substance abuse program, commits an act that results in a criminal conviction damaging to his reputation or good will or breaches any material term of the agreement. The Company may assign the agreement to an affiliated entity and enter into distribution agreements with third parties with respect to product sales. The Company has no right to sublicense its rights under the agreement to a third party without the prior consent of Greg Norman. PRODUCT DEVELOPMENT In 1995, the Company developed the software necessary to operate a video editing and videotape production process and an initial version of a right-handed, full swing videotape golf lesson. The Company intends to design, develop and test production versions of its proposed full swing One-on-One videotapes. The production versions are expected to provide enhanced pre-recorded commentary and analysis of a golfer's swing at various club positions. The Company currently anticipates that, subject to Greg Norman's availability, it will script, film, edit and produce its proposed One-on-One videos by late 1996. The Company intends to engage independent production companies to produce the Company's proposed videotapes. The Company currently anticipates that Greg Norman will be available to film additional segments of the Company's videos in July 1996. The Company allocated approximately $350,000 of the proceeds of the Bridge Financing for video production. To date, the Company has focused its efforts on developing computer software which digitally combines actual video footage of a golfer's swing with a synchronized "split-screen" comparison to Greg Norman's golf swing to produce a 45-minute One-on-One videotape golf lesson. The Company's software was developed on behalf of the Company by Thomas Peters, Director of Software Development of the Company. Mr. Peters has entered into a confidentiality agreement with the Company, has agreed, pursuant to his employment agreement, to devote all of his business time to the Company's affairs and has assigned to the Company all of his right, title and interest in and to any invention relating to or used in connection with the Company's One-on-One products which he developed while engaged by the Company. Mr. Peters has independently developed additional software features for Smart View ("Smart View"), a company he controls which the Company is evaluating and may elect to license for use in connection with its One-on-One products. Such features would provide the ability to size and superimpose a golfer's image onto that of Greg Norman. The Company anticipates that following the consummation of this offering, Mr. Peters will continue to devote his efforts to enhance and adapt the editing and videotape production functions of the Company's software to its proposed products. The Company allocated $75,000 of the proceeds of the Bridge Financing for product development. The Company will be required to commit considerable time, effort and resources to finalize development of production versions of its proposed One-on-One videotapes and adapt the editing and videotape production functions of its software to its proposed products. There can be no assurance that any of the Company's product development efforts will be successful. MARKET TESTING In September 1995, the Company conducted preliminary market testing of its initial version of the right- handed, full swing videotape golf lesson at a public driving range in New York where approximately 175 golf- 23 ers used the One-on-One concept at no charge. Each of the 175 market test participants was asked to complete a two-page questionnaire after reviewing their videotape to solicit evaluations, recommendations, criticisms and comments. Of the approximate 120 responses received by the Company, approximately 55% rated the video golf lesson excellent and approximately 34% rated it above average. Based on favorable consumer reaction to the initial version of the Company's video golf lesson, in November and December 1995 the Company engaged in expanded market testing activities at various public and private golf courses, driving ranges and retailers in Florida and California, including the PGA National Golf Course, during which a limited number of videotapes were sold. The market tests were intended to provide information on the product's acceptance among golfers and to test the technical aspects of the Company's video editing and production process. The Company circulated a limited number of questionnaires and conducted on-site interviews to solicit consumer feedback used to develop a preliminary marketing strategy. The Company believes that the results from market testing indicate that the Company's video editing and videotape production process is effective in commercial applications and that its proposed products will have strong appeal to golfers. The Company does not currently expect to conduct any additional market testing activities. MARKETING AND DISTRIBUTION Marketing Strategy In the event of successful completion of production versions of One-on-One videotapes, the Company anticipates that it will seek to enter selected target markets. The Company's primary marketing strategy is to sell One-on-One videotapes on a prearranged basis to various organizers of amateur corporate, charity and member golf tournaments (who typically offer gifts to tournament participants) and golf professionals at private and daily fee golf courses and driving ranges. Target Markets The Company expects that its primary target markets will include: Amateur Golf Tournaments. The Company believes that private and public golf courses present a significant opportunity to sell personalized One-on-One videotape golf lessons. The Company intends to target private and public golf courses which host corporate, charity and member tournaments and typically offer gifts such as golf umbrellas, golf bag towels, golf balls or golf shirts to tournament participants. The Company believes there is a significant opportunity for product and promotional "tie-ins" with potential corporate sponsors. Golf Courses and Golf Professionals. The Company intends to focus its marketing efforts on golf professionals at private and public golf courses. The Company believes that golf professionals will be willing to use the Company's proposed products as instructional tools to enhance the marketing and quality of golf lessons given to their students. Driving Ranges. The Company has identified driving ranges as a potentially significant market for the Company's proposed One-on-One videotapes. Driving ranges generally conduct a substantial portion of their business during the evenings and on weekends. The Company intends to market its proposed products at driving ranges during evening hours to complement its marketing efforts to private and public golf courses during the daytime. Other Potential Markets. The Company also believes that travel agents who plan golf trips, golf specialty shops and sporting goods retailers and professional golf tournaments are also potential markets for the Company's proposed products. Distribution Strategy The Company's objective is to develop mobile One-on-One vans equipped with video and personal computer equipment to market, promote and produce the Company's proposed products. The Company will seek to position such vans in selected geographic areas that will serve golf courses and driving ranges throughout the United States, initially Florida, the Carolinas and California. The Company anticipates that initially such geographic areas will include Palm Beach, Boca Raton, Miami, Fort Lauderdale, Jacksonville, Orlando, Tampa, Naples, Fort Myers, Sarasota, Tallahassee, Pensacola, as well as Hilton Head and Myrtle Beach and, thereafter, selected areas in Southern California. 24 One-on-One Van Development The Company has allocated approximately $125,000 of the proceeds of the Bridge Financing to develop and customize its first One-on-One van and to purchase certain equipment necessary to produce personalized One-on-One video golf lessons, and intends to use $2,000,000 of the proceeds of this offering to develop up to 20 additional fully-equipped vans during the twelve months following the consummation of this offering. The Company expects that the costs associated with developing a customized One-on-One van will be approximately $35,000. The Company will seek to engage the logistics consulting division of KPMG Peat Marwick LLP to advise and assist the Company in identifying and evaluating van specifications, procurement and lease arrangements, maintenance contracts, security and warranty arrangements. The Company currently estimates that the average cost to acquire and install equipment in each van will be approximately $75,000, including video equipment (cameras, tripods, lens, filters, splitters, small television monitor, lighting and accessories); input equipment (computer and video cassette recorder); and output equipment (computers, output video cassette recorders, scan converters, a television monitor and accessories). In order to reduce the Company's up-front capital requirements associated with van development, the Company may seek to lease or finance rather than purchase a portion of its equipment. There can be no assurance that the Company will be able to obtain satisfactory leasing or financing arrangements. Strategic Relationships The Company may also seek to enter into strategic relationships with third parties relating to product marketing and distribution. Potential marketing partners may include golf industry participants, such as organizers of golf tournaments and companies that offer hole-in-one insurance. In November 1995, the Company entered into a distribution agreement with Visual Edge Systems Australia Pty. Ltd. ("Vesa"), an unaffiliated third party, pursuant to which the Company granted to Vesa the exclusive right to distribute One-on-One products in Australia, New Zealand and Indonesia. In connection with the agreement and upon delivery of the Company's initial version of its product, the Company received a non-refundable payment of $125,000 to be applied against future royalties, and is entitled to receive a royalty of $5.00 for each videotape sold. During the second and third years of the agreement, the Company is entitled to receive aggregate guaranteed royalties of $700,000. In addition, the agreement provides for certain profit sharing arrangements. The Company has not yet commenced any significant marketing activities and has limited marketing and technical experience and limited financial, personnel and other resources to independently undertake extensive marketing activities. The Company's strategy and preliminary and future marketing plans may be subject to change as a result of a number of factors, including progress or delays in the Company's marketing efforts, changes in market conditions (including the emergence of potentially significant related market segments), the nature of possible license and distribution arrangements which may become available to it in the future and competitive factors. There can be no assurance that the Company's strategy will result in successful product commercialization or that the Company's efforts will result in initial or continued market acceptance for the Company's proposed products. PRODUCTION The Company's proposed One-on-One products are made possible by relatively recent advancements in the capabilities of affordable desktop personal computers to process, manipulate and edit digital video information. Creation of a One-on-One videotape involves videotaping a golfers' swing, editing and production of a videotape. Videotaping involves the operation of video equipment, including three cameras, a small television monitor, a splitter (to provide a "split-screen" image), a video cassette recorder and power supply. Editing involves the use of a computer and monitor, a scan converter and video cassette recorder and consists of digitizing the videotape and synchronizing and sizing the golfer's swing to Greg Norman's swing and identifying key clubhead and body positions. In the final videotape production stage, the Company's software scans the videotape to the first blank segment where it records a "split-screen" image of Greg Norman and the golfer at similar club positions. Using pre-recorded film and audio footage stored in the computer's memory, the software creates computer graphics designed to illustrate comparisons to Greg Norman's swing and chooses appropriate verbal 25 instructions and analytical comments from Greg Norman. The Company anticipates that a Company employee will operate videotaping equipment at the first tee, driving range or other suitable location to videotape a golfer's swing which would be edited inside the One-on-One van to create a personalized video golf lesson in approximately 25 minutes. COMPETITION The Company will face intense competition for a finite amount of consumer discretionary spending from numerous other businesses in the golf industry and related market segments. The Company will compete with numerous other products and services which provide golf instruction, including instructional golf videotapes, golf software used to analyze golf swings and golf courses, golf schools and professionals who offer video golf lessons, which may be less expensive or provide other advantages to consumers. Various instructional golf videotapes currently being marketed by leading golf professionals and instructors such as Jack Nicklaus, Tom Kite, Nick Faldo, David Leadbetter, Jim McLean and Greg Norman, including Better Golf and Shark Attack, among others, featuring Greg Norman, have achieved significant national, regional and local consumer recognition. These products are marketed by companies with substantially greater financial, marketing, distribution, personnel and other resources than the Company, permitting such companies to implement extensive advertising and promotional campaigns, both generally and in response to efforts by additional competitors to enter into new markets. In addition, certain companies offer both hardware and software to golf professionals for use in connection with golf lessons. Such companies include Astar, Inc., Vivid Visions, Inc. and Golf Training Systems, Inc. The Company believes that such companies offer hardware and software at prices ranging from $4,500 to $20,000. Certain companies also offer computer software to permit a golfer to analyze a golf swing, such as David Leadbetter's ComputerCoach, which sells at a price of $59.95. The instructional golf video segment of the industry has no substantial barriers to entry and, consequently, the Company expects that other companies which have developed software technologies may seek to enter into the Company's target markets and compete directly against the Company. There can be no assurance that other companies are not developing or will not seek to develop similar products. The Greg Norman License prohibits Greg Norman from granting similar rights to any person with respect to any concept which is the same as or confusingly similar to the Company's concept or proposed products. Notwithstanding this prohibition, the self-instructional golf video product known as Better Golf featuring Greg Norman or any other form of golf instructional video or multi-media presentation for teaching golf techniques are not deemed the same as or confusingly similar to the Company's concept or proposed products. There can be no assurance that the Company will be able to compete successfully. PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION The Company has filed a patent application with the United States Patent and Trademark Office covering certain aspects of its digital video editing and production process. There can be no assurance, however, as to the breadth or degree of protection which patents may afford the Company, that any patent applications will result in issued patents or that patents will not be circumvented or invalidated. Rapid technological developments in the computer software industry results in extensive patent filings and a rapid rate of issuance of new patents. Although the Company believes that its proposed products do not and will not infringe patents or violate proprietary rights of others, the Company has not conducted any investigation, to determine whether its proposed products infringe patents or violate proprietary rights of others, and it is possible that infringement of existing or future patents or proprietary rights of others have occurred or may occur. In the event the Company's proposed products infringe patents or proprietary rights of others, the Company may be required to modify the design of its proposed products or obtain a license. There can be no assurance that the Company will be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do any of the foregoing could have a material adverse effect upon the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement action and the Company could, under certain circumstances, become liable for damages, which also could have a material adverse effect on the Company. 26 The Company intends to rely on proprietary processes and to employ various methods to protect the concepts, ideas and documentation of its proposed products. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such processes or obtain access to the Company's proprietary processes, ideas and documentation. Furthermore, although the Company intends to enter into confidentiality agreements with its employees, there can be no assurance that such arrangements will adequately protect the Company. The Company has filed a trademark application with the United States Patent and Trademark Office, on behalf of Greg Norman, for the mark One-on-One with Greg Norman(TR) and may use this mark, as well as all other trademarks owned by Greg Norman (except the "Shark" logo) in connection with the marketing of its products. The Company's rights in these marks may be a significant part of the Company's proposed business. The Company is not aware of any claims or infringement or other challenges to the Company's rights to use these marks. LEGAL PROCEEDINGS The Company has no pending legal proceedings. EMPLOYEES Other than the Company's executive officers, the Company has no employees. The Company anticipates, depending upon its level of business activities, that it will hire approximately ten additional office personnel, including administrative personnel, during the 12 months following this offering. The Company currently estimates that the salaries of the Company's executive officers and such additional personnel during such period will be approximately $1,080,000. In addition, the Company expects to employ approximately two to four operators per van, as each van is deployed, at an approximate annual cost of $30,000 per person. See "Management." PROPERTY The Company's executive offices are located in approximately 200 square feet of office space in New York, New York. Such space is being provided to the Company by Alan Lubell, its Chairman of the Board and Vice President-Product Development, at no cost. The Company intends to relocate its executive offices to South Florida following the completion of this offering. The Company currently anticipates that a new location will provide it with approximately 3,500 square feet of office space at an annual expense of approximately $56,000. See "Certain Transactions." 27 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following are the directors and executive officers of the Company: Name Age Position - ----------------- ----- ----------------------------------------------- Earl T. Takefman . 46 Chief Executive Officer and Director Chairman of the Board, Vice President -- Product Alan L. Lubell .. 57 Development and Director Richard Parker* . 35 Chief Operating Officer Ami Trauber* .... 56 Chief Financial Officer Thomas Peters ... 51 Director of Software Development Frank Williams* . 55 Director Eddie Einhorn* .. 60 Director Mark Hershhorn* . 48 Director - ------ * Nominee whose appointment is to become effective upon consummation of this offering. Earl T. Takefman, a co-founder of the Company, has been Chief Executive Officer of the Company since March 1995. Prior to founding the Company, Mr. Takefman was Co-Chief Executive Officer of SLM International, Inc. ("SLM"), a publicly traded toy and sporting goods company, from December 1989 to August 1994. SLM filed for protection under Chapter 11 of the U.S. Bankruptcy Code in October 1995. From 1980 to 1989, prior to joining SLM, Mr. Takefman was Chief Operating Officer of Charan Industries ("Charan"), a publicly traded Canadian toy and sporting goods company. Mr. Takefman also currently serves as a consultant to National Media Corporation of Philadelphia ("National Media"), a publicly traded company which is a producer of infomercials, in the area of new product development. Mr. Takefman received a Bachelor of Architecture degree in 1971 and a Masters of Business Administration degree from McGill University in Montreal, Canada in 1973. Alan L. Lubell, a co-founder of the Company, has been Chairman of the Board of the Company since July 1994 and Vice President -- Product Development since May 1996. Prior to founding the Company, Mr. Lubell had been an entrepreneur in the area of sports television. From 1977 to July 1994, Mr. Lubell served as President of Marathon Entertainment, a sports television company which he founded that created many events and programs that were sold to television stations and networks and national advertisers. Among the events developed, packaged and produced by Marathon Entertainment was the New York City Marathon. Mr. Lubell received a Bachelor of Science degree in marketing from New York University in 1960. Richard Parker has been appointed as Chief Operating Officer, effective upon the completion of this offering. Since February 1990, Mr. Parker has been the founder, owner and president of Diomo Marketing Inc. and Devrew Merchandising Inc., companies engaged in marketing and selling consumer products in Canada. From August 1984 to February 1990, Mr. Parker held various positions, including Vice President, at Charan. Mr. Parker graduated from Vanier College in Montreal in 1980. Ami Trauber has been appointed as Chief Financial Officer, effective upon completion of this offering. Since 1991, Mr. Trauber has been President and Chief Operating Officer of Ed's West, Inc., a designer and importer of headwear and other licensed apparel. From 1978 until 1990, Mr. Trauber was Corporate Vice President -- Finance and Controller of Harcourt General, Inc., a conglomerate. From 1976 to 1978, Mr. Trauber was Corporate Vice President and Controller of Hertz Corporation. Mr. Trauber received a Bachelor of Science degree from the University of Connecticut in 1965 and graduated from the Harvard Business School Advanced Management Program in 1982. Thomas Peters has been Director of Software Development of the Company since May 1996. Since July 1992, Mr. Peters has been the owner of Smart View ("Smart View"), a company he founded to design and develop computer golf software to be used by golf professionals when giving video golf lessons. Since March 1995, Smart View has been engaged as an independent consultant to the Company and is principally responsible for the development of the software used in the Company's proposed products. Smart View also has developed operating systems used by the Golf Academy at PGA National and at the Doral Golf Learning Center, each in Florida. Prior to founding Smart View, Mr. Peters, for 26 years, held various positions at International Business 28 Machines Corporation, including Manager of Application Development from July 1989 to July 1992 and Personal Computer Product Planning Manager from 1984 to 1989. Mr. Peters graduated from Harper College at University of New York in 1967, with a B.A. in mathematics. Frank Williams will become a director of the Company upon completion of this offering. Mr. Williams has been the Managing Director of Great White Shark Enterprises, Inc. ("Great White Shark") since January 1993. From 1988 to January 1993, Mr. Williams served as a General Manager of the Australian division of International Management Group, a company engaged in representing athletes and producing sports programming. From 1978 to 1988, Mr. Williams was Managing Director and a co-founder of the Australian Masters Golf Tournament. Eddie Einhorn will become a director of the Company upon completion of this offering. Mr. Einhorn currently serves, and has served for the past five years, as Vice-Chairman of the Chicago White Sox baseball team franchise. Prior to being appointed Vice-Chairman, he served the franchise as its President and Chief Operating Officer from 1981 to 1991. Mr. Einhorn is a member of the Major League Baseball Schedule Format Committee, the Professional Baseball Association Committee, and was a member of the Television Committee from 1992 to 1995. In 1989, Mr. Einhorn was appointed television consultant to the United States Olympic Committee. He is currently a television consultant for the United States Figure Skating Association and the International Skating Union, the governing bodies for figure skating throughout the world. Mr. Einhorn also serves on the Board of Directors of the Chicago Bulls basketball team of the National Basketball Association. Prior to 1981, Mr. Einhorn was executive producer of CBS Sports Spectacular, where he was awarded an Emmy Award in 1980. Mr. Einhorn holds a Bachelor's degree from the University of Pennsylvania and is a graduate of Northwestern University School of Law. Mark Hershhorn will become a director of the Company upon completion of this offering. Mr. Hershhorn currently serves and has served since November 1994 as President and Chief Executive Officer and as a director of National Media Corporation of Philadelphia, a publicly-traded worldwide infomercial company, and as Chairman of the Board of its international subsidiary, Quantum International, Inc. From August 1994 to November 1994, Mr. Hershhorn acted as President and Chief Operating Officer of National Media. Mr. Hershhorn was President and Chief Operating Officer of Buckeye Communications, a publicly traded corporation, from June 1993 to August 1994 and of National Media from December 1991 to April 1993. From 1990 to December 1991, Mr. Hershhorn was a Senior Vice President of Food Marketing for Nutri-Systems Inc., a diet food company. Prior to joining Nutri-Systems, he held various positions at the Franklin Mint, including Chief Financial Officer, Treasurer, Vice President and director, from 1985 to 1990. Mr. Hershhorn received a Bachelor of Arts degree in economics Rutgers University and a Masters of Business Administration degree from the Wharton School of Business at the University of Pennsylvania. He currently serves as a member of the Wharton School Graduate Executive Board and as a member of the Executive Committee of the National Infomercial Marketing Associations. BOARD OF DIRECTORS All directors currently hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. The Company reimburses directors for reasonable travel expenses incurred in connection with their activities on behalf of the Company but does not currently pay its directors any fees for attending Board meetings. The Company has granted to its non-employee directors options to purchase 5,000 shares of Common Stock and such directors will receive annual option grants to purchase 2,500 shares of Common Stock. See "Stock Option Plan." Audit Committee. Upon the consummation of this offering, the Company will establish an Audit Committee of the Board of Directors consisting of at least two directors who are not employees of the Company. It is currently anticipated that Messrs. Einhorn and Hershhorn will comprise the Audit Committee. Audit Committee members will meet regularly with the Company's financial management and independent auditors to review the results of their examination, the scope of audits and their opinions on the adequacy of internal controls and quality of financial reporting. Compensation Committee. Upon the consummation of this offering, the Company will establish a Compensation Committee of the Board of Directors consisting of at least two directors who are not employees of the Company. It is currently anticipated that Messrs. Hershhorn and Williams will comprise the Compensation Com- 29 mittee. The Committee will make recommendations to the Board of Directors concerning the salaries of all elected officers. In addition, the Compensation Committee will administer the Company's 1996 Stock Option Plan and determine the amounts of, and the individuals to whom, awards shall be made thereunder. See "Stock Option Plan." The Company has agreed, for a period of three years from the date of the Prospectus, if so requested by the Underwriter, to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company or, at the Underwriter's option, as a non-voting advisor to the Company's Board of Directors. The Underwriter has not yet exercised its right to designate such a person. See "Underwriting." EXECUTIVE COMPENSATION Since its inception, the Company has not paid any salaries, bonuses, long-term compensation (through plans or otherwise) or any other form of compensation to any of its executive officers. Salaries owing since January 1, 1996 under the Company's employment agreements with Messrs. Takefman and Lubell will be paid with a portion of the proceeds of this offering. The Company has not paid, and will not pay, any compensation to any executive officer for periods prior to January 1, 1996 and no non-salary compensation has accrued or will accrue with respect to any executive officer from January 1, 1996 through the consummation of this offering. See "Employment Agreements." EMPLOYMENT AGREEMENTS Effective January 1, 1996, the Company entered into a three-year employment agreement with Earl T. Takefman, the Chief Executive Officer of the Company. Pursuant to the agreement, Mr. Takefman is entitled to receive a base salary of $150,000 per annum, subject to increase to $200,000 in July 1997 and $250,000 in July 1998 if the Company achieves pre-tax earnings of $2 million and $4 million in the prior 12-month periods, respectively. The agreement also provides for additional compensation in the amount of 5% of pre-tax earnings of the Company in each year if the Company achieves pre-tax earnings of at least $3 million and $5 million in fiscal 1997 and 1998, respectively. In addition, pursuant to the agreement, Mr. Takefman shall receive the Executive Options upon the consummation of this offering. Of the Executive Options, 150,000 options will vest and become exercisable at $5.00 per share if the market price of the Common Stock equals or exceeds $10.00 per share for at least five consecutive trading days during the 18-month period following the completion of this offering and 100,000 of the Executive Options will vest and become exercisable at $5.00 per share if the trading price of the Common Stock equals or exceeds $15.00 per share for at least five consecutive trading days during the 30-month period following completion of this offering. The agreement is automatically renewed for additional one-year periods unless Mr. Takefman or the Company provides notice to the other of its termination. In the event that Mr. Takefman is terminated without cause, he will be entitled to receive as severance the amount of his base salary for the lesser of one year or the remaining term of the agreement. Effective January 1, 1996, the Company entered into a three-year employment agreement with Alan L. Lubell, the Chairman of the Board and Vice President -- Product Development of the Company. Pursuant to the agreement, Mr. Lubell is entitled to receive a base salary of $75,000 per annum, subject to increase to $100,000 in July 1997 and $125,000 in July 1998 if the Company achieves pre-tax earnings of $2 million and $4 million in the prior 12-month periods, respectively. In addition, Mr. Lubell shall have the right to receive a bonus based on the Company's performance, as determined by the Board of Directors, and the Executive Options on the same terms and subject to the same conditions as Mr. Takefman. The agreement is automatically renewed for additional one-year periods unless Mr. Lubell or the Company provides notice to the other of its termination. In the event Mr. Lubell is terminated without cause, he will be entitled to receive as severance the amount of his base salary for six months. Effective upon the completion of this offering, the Company will enter into an employment agreement with Richard Parker, pursuant to which Mr. Parker will serve as the Chief Operating Officer of the Company. Mr. Parker will receive a base salary of $150,000 per annum, subject to increase to $175,000 in 1998 if the Company achieves pre-tax earnings during 1997. Mr. Parker will be eligible to receive a bonus based on the Company's performance, as determined by the Board of Directors. The agreement will expire on December 31, 1998 but will automatically be renewed annually unless terminated by one or both of the parties. If Mr. Parker is terminated without cause, he will be entitled to receive as severance the amount of his base salary for the lesser of six months or the remaining term of the agreement. 30 Effective upon completion of this offering, the Company will enter into an employment agreement with Ami Trauber, pursuant to which Mr. Trauber will serve as the Chief Financial Officer of the Company. Mr. Trauber will receive a base salary of $150,000 per annum, subject to increase to $175,000 in 1998 if the Company achieves pre-tax earnings during 1997. Mr. Trauber will be eligible to receive a bonus based on the Company's performance, as determined by the Board of Directors. The agreement will expire on December 31, 1998, but will automatically be renewed for one additional year unless terminated by one or both of the parties, provided that either party may terminate the agreement, without cause, on or before December 31, 1996. If Mr. Trauber is terminated without cause, he will be entitled to receive as severance the amount of his then base salary for the lesser of six months or the remaining term of the agreement. Since March 1995, Thomas Peters and Smart View have been engaged to act as independent consultants to the Company in the area of software development, and are principally responsible for the development of the software used in the Company's proposed products. Mr. Peters has been paid an aggregate of $91,525 in connection with services rendered for the period from March 1995 through April 30, 1996 and received 9,155 shares of Common Stock. As of May 1, 1996, the Company entered into a two-year employment agreement with Thomas Peters, pursuant to which Mr. Peters serves the Company, as Director -- Software Development. Mr. Peters is entitled to receive a base salary of $65,000 in the first year of the agreement and $75,000 in the second year. Pursuant to the agreement, Mr. Peters will also be eligible to receive a bonus based on the Company's performance, as determined by the Board of Directors. The agreement is automatically renewed for additional one-year periods unless Mr. Peters or the Company provides notice to the other of its termination. In the event that Mr. Peters is terminated without cause, he will be entitled to receive as severance the amount of his base salary for three months. Mr. Peters has entered into a confidentiality agreement with the Company, has agreed, pursuant to his employment agreement, to devote all of his business time to the Company's affairs and has assigned to the Company all of his right, title and interest in and to any invention relating to or used in connection with the Company's One-on-One products which he developed while engaged by the Company. STOCK OPTION PLAN In April 1996, the Board of Directors and the Company's stockholders approved the Company's 1996 Stock Option Plan (the "Plan"). The purpose of the Plan is to provide directors, officers and key employees of, and consultants to, the Company with additional incentives by increasing their ownership interests in the Company. Directors, officers and other key employees of the Company are eligible to participate in the Plan. Awards may also be granted to consultants providing valuable services to the Company. In addition, individuals who have agreed to become a key employee of or a consultant to the Company are eligible for option grants, conditional in each case on actual employment or consultant status. Awards of options to purchase Common Stock may include incentive stock options ("ISOs") and/or non-qualified stock options ("NQSOs"). The maximum number of shares of Common Stock that may be subject to outstanding options, determined immediately after the grant of any option, is equal to the greater of 800,000 shares (reduced by the number of Executive Options not granted or, if granted, forfeited in accordance with their terms) or 12% of the aggregate number of shares of the Company's Common Stock outstanding, provided, however, that options to purchase no more than 300,000 shares of Common Stock may be granted as ISOs. The Board of Directors intends, upon consummation of this offering, to establish a Compensation Committee, consisting of two or more directors who qualify as disinterested persons within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to administer the Plan. The Compensation Committee will generally have discretion to determine the terms of an option grant, including the number of option shares, option price, term, vesting schedule, the post-termination exercise period, and whether the grant will be an ISO or NQSO. Notwithstanding this discretion: (i) the number of shares subject to options granted to any individual in any calendar year may not exceed 250,000; (ii) the option price per share of Common Stock may not be less than 100% of the market value of such share at the time of grant (or 110% if granted as an ISO to a 10% or more stockholder); (iii) the term of any option may not exceed 10 years (unless granted as an ISO to a 10% or more stockholder, which term may not exceed five years); and (iv) an option may terminate upon a grantee's termination of employment for cause. In addition, unless otherwise specified by the Compensation Committee, all outstanding options vest upon a "change in control" of the Company (as defined in the Plan), and all options will terminate three months following any termination of employment. 31 The Plan also provides for automatic option grants to directors who are not otherwise employed by the Company. Upon commencement of service (or upon agreeing to serve in the case of the initial non-employee directors), a non-employee director will receive a nonqualified option to purchase 5,000 shares of Common Stock, and continuing non-employee directors will receive annual options to purchase 2,500 shares of Common Stock. Options granted to non-employee directors become exercisable one-third on the date of grant and one- third on each of the next two anniversaries of the date of grant. Non-employee directors' options have a term of five years from the date of grant. Upon consummation of this offering, Messrs. Williams, Einhorn and Herschhorn will each receive options to purchase 5,000 shares of Common Stock. The Plan will remain in effect until terminated by the Board of Directors. The Plan may be amended by the Board of Directors without the consent of the stockholders of the Company, except that any amendment, although effective when made, will be subject to stockholder approval if required by any Federal or state law or regulation or by the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted. Upon consummation of this offering, the Company will have outstanding nonqualified options to purchase an aggregate of 767,871 shares of Common Stock. Of such options, options to purchase 87,478, 58,318, 50,000, 25,000, 20,411, 5,832 and 5,832 shares were granted to Earl Takefman, Frank Williams, Richard Parker, Ami Trauber, Thomas Peters, Mona-Lee Takefman and Mark Lubell (excluding options granted to Mr. Williams as a non-employee director of the Company), respectively. All of such options are exercisable at the public offering price per share and vest in equal installments over a three- or five-year period following the completion of this offering. In addition, Messrs. Takefman and Lubell are each eligible to receive the Executive Options upon the completion of this offering pursuant to their employment arrangements, which may be exercised at various times over the course of two and a half years following completion of this offering if the market price of the Company's Common Stock reaches certain levels. See "Management--Employment Agreements." LIMITATIONS OF LIABILITY AND INDEMNIFICATION Section 145 of the Delaware General Corporation Law ("DGCL") contains provisions entitling the Company's directors and officers to indemnification from judgments, fines, amounts paid in settlement, and reasonable expenses (including attorneys' fees) as the result of an action or proceeding in which they may be involved by reason of having been a director or officer of the Company. In its Certificate of Incorporation, the Company has included a provision that limits, to the fullest extent now or hereafter permitted by the DGCL, the personal liability of its directors to the Company or its stockholders for monetary damages arising from a breach of their fiduciary duties as directors. Under the DGCL as currently in effect, this provision limits a director's liability except where such director (i) breaches his duty of loyalty to the Company or its stockholders, (ii) fails to act in good faith or engages in intentional misconduct or a knowing violation of law, (iii) authorizes payment of an unlawful dividend or stock purchase or redemption as provided in Section 174 of the DGCL, or (iv) obtains an improper personal benefit. This provision does not prevent the Company or its stockholders from seeking equitable remedies, such as injunctive relief or rescission. If equitable remedies are found not to be available to stockholders in any particular case, stockholders may not have any effective remedy against actions taken by directors that constitute negligence or gross negligence. The Certificate of Incorporation also includes provisions to the effect that (subject to certain exceptions) the Company shall, to the maximum extent permitted from time to time under the law of the State of Delaware, indemnify, and upon request shall advance expenses to, any director or officer to the extent that such indemnification and advancement of expenses is permitted under such law, as it may from time to time be in effect. In addition, the Company's By-Laws require the Company to indemnify, to the full extent permitted by law, any director, officer, employee or agent of the Company for acts which such person reasonably believes are not in violation of the Company's corporate purposes as set forth in the Certificate of Incorporation. At present, the DGCL provides that, in order to be entitled to indemnification, an individual must have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the Company's best interests. 32 PRINCIPAL STOCKHOLDERS The following table sets forth certain information, as of the date of this Prospectus and as adjusted to reflect the sale by the Company of the 1,300,000 shares of Common Stock offered hereby (based on information obtained from the persons named below), relating to the beneficial ownership of shares of Common Stock by: (i) each person or entity who is known by the Company to own beneficially five percent or more of the outstanding Common Stock; (ii) each of the Company's directors; and (iii) all directors and executive officers of the Company as a group.
Percentage of Shares Number of Beneficially Owned(2) Shares ------------------------ Name and address of Beneficially Before After Beneficial Owners(1) Owned(2) Offering Offering - --------------------- -------------- ---------- ---------- Earl T. Takefman(3) ........................... 1,154,350 35.8% 25.5% Alan L. Lubell(4) ............................. 1,117,553 34.7 24.7 Greg Norman ................................... 300,000 9.3 6.6 Barry Minsky(5) ............................... 248,503 7.7 5.5 Eddie Einhorn ................................. -- -- -- Mark Hershhorn ................................ -- -- -- Frank Williams ................................ 8,139 * * All directors and executive officers as a group (six persons) ................................ 2,289,197 71.1% 50.6%
- ------ *Less than 1% (1) Unless otherwise indicated, the address for each named individual, corporation or group is in care of Visual Edge Systems Inc., 7 West 51st Street, New York, New York 10019 (2) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities which may be acquired by such person within 60 days from the date of this Prospectus upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options that are held by such person (but not those held by any other person) and which are exercisable within 60 days of the date of this Prospectus, have been exercised. (3) The shares are owned by Status-One Investments Inc., a Delaware corporation owned by Earl T. Takefman and certain family members and controlled by Earl T. Takefman. Does not include options held by Mr. Takefman and his spouse (as to which Mr. Takefman disclaims beneficial ownership) to acquire an aggregate of 93,000 shares of Common Stock, none of which are exercisable within 60 days, or shares underlying the Executive Options. See "Management -- Employment Agreements." (4) Does not include shares underlying the Executive Options. See "Management -- Employment Agreements." (5) The shares are owned by Greenwich Properties Inc., a company controlled by Barry Minsky. Does not include 50,000 shares which Mr. Minsky has agreed to sell to Dr. Leonard Mendell immediately prior to the consummation of this offering. Earl T. Takefman and Alan L. Lubell may be deemed to be "promoters" of the Company within the meaning of the rules and regulations of the Commission. 33 CERTAIN TRANSACTIONS STOCK ISSUANCES AND LOANS In March 1995, the Company issued (i) 1,708,938 shares of Common Stock to Alan L. Lubell, its Chairman of the Board and Vice President -- Product Development, (ii) 732,402 shares of Common Stock to Status- One Investments Inc. ("Status-One"), a company controlled by Earl Takefman, its Chief Executive Officer, and (iii) 488,268 shares of Common Stock to Greenwich Properties Inc. ("Greenwich"), a company controlled by Barry Minsky, for nominal consideration. In March 1995, Mr. Lubell transferred 427,235 shares of Common Stock to Status-One in accordance with the terms of a shareholders agreement, dated March 1, 1995, by and between Status-One and Mr. Lubell (the "Shareholders Agreement"). The Shareholders Agreement has since been terminated. Between June 1995 and March 1996, Mr. Lubell sold an additional 102,536 shares of Common Stock to various investors for $630,000 in the aggregate, and Greenwich sold 9,765 shares in consideration of $60,000 in the aggregate. Since its inception, the Company borrowed $191,750, $162,500 and $48,450, respectively, from Mr. Lubell, Status-One and Greenwich. In December 1995, these loans were contributed to the capital of the Company for no consideration. In March 1995, the Company issued an additional 24,413 shares of Common Stock and granted options to purchase 116,637 shares of Common Stock to Status-One at an exercise price of $5.00 per share in exchange for financing considerations arranged by Status-One. In addition, in March 1995 the Company issued an additional 24,413 shares of Common Stock to Status-One in consideration of services rendered to the Company by Earl Takefman, 8,139 shares to Frank Williams in consideration of consulting services rendered to the Company, 9,155 shares to Thomas Peters in consideration of software development services rendered to the Company, 2,136 shares to Mona-Lee Takefman, the spouse of Earl Takefman, the Company's Chief Executive Officer, in consideration of clerical and secretarial services rendered to the Company and 2,136 shares to Mark Lubell, the son of Alan Lubell, the Company's Chairman of the Board of Directors and Vice President--Product Development, in consideration of managerial services rendered to the Company during its market testing activities. The value of the foregoing services were, in each case, determined by the Board of Directors of the Company based upon a per share valuation of $.17. In April 1996, Greenwich, Status-One and Mr. Lubell transferred 180,000, 56,250 and 63,750 shares of Common Stock, respectively, to Greg Norman, upon his exercise of an option granted to him pursuant to the terms of the Shareholders Agreement and the Greg Norman License. Pursuant to the Greg Norman License, the Company is required to make guaranteed payments aggregating $3,300,000 during the three-year period commencing July 1, 1996. RECAPITALIZATION In March 1996, the Company effected a recapitalization of its capital stock. Each outstanding share of Class A Common Stock was converted into the right to receive .488268 shares of Common Stock, and each outstanding share of Class B Common Stock was converted into the right to receive 4,882.68 shares of Common Stock. In addition, options to purchase 305,000 shares of Class A Common Stock were converted, on the same terms and conditions, into the right to purchase 177,871 shares of Common Stock. LOAN GUARANTEES As of May 31, 1996, the Company borrowed an aggregate of $507,000 from the Bank, which is due and payable on December 31, 1996. Interest on the unpaid principal amount of the loan accrues at the reference rate established by the Bank from time to time (currently 8.25%). All of the Company's assets are pledged as collateral to secure such indebtedness and Earl T. Takefman, Alan Lubell and Barry Minsky, principal stockholders of the Company, have guaranteed and pledged personal assets in the form of letters of credit and certificates of deposit and in the amounts of $354,400, $106,325 and $39,275, respectively, to secure such loan. The Company intends to use a portion of the proceeds of this offering to repay this indebtedness which will release the personal guarantees of Messrs. Takefman, Lubell and Minsky. 34 The Company is currently utilizing office space in New York, New York provided to it at no charge by Alan L. Lubell, its Chairman of the Board and Vice President--Product Development. The Company does not owe any rental charges to Mr. Lubell and does not anticipate incurring any such rental charges. Pursuant to a Settlement Agreement entered into in May 1996, the Company agreed to pay $35,000 to Barry Minsky in consideration for the termination of an agreement with Mr. Minsky. The Company believes that each of the foregoing transactions were on terms no less favorable than those which could have been obtained from unaffiliated third parties. All future transactions between the Company and its affiliates will be on terms no less favorable than would be obtained from unaffiliated third parties. DESCRIPTION OF SECURITIES GENERAL The Company is authorized to issue 20,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01 per share. As of the date of this Prospectus, there are 3,220,000 shares of Common Stock outstanding and no shares of Preferred Stock outstanding. COMMON STOCK The holders of the Common Stock are entitled to one vote for each share held of record in the election of directors of the Company and in all other matters to be voted on by the stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors. Holders of Common Stock are entitled (i) to receive such dividends as may be declared from time to time by the Board out of funds legally available therefor and (ii) in the event of liquidation, dissolution or winding up of the Company, to share ratably in all assets remaining after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the Common Stock. The rights of the holders of the Common Stock are subject to any rights that may be fixed for holders of Preferred Stock, when and if any Preferred Stock is issued. All of the outstanding shares of Common Stock are, and the Common Stock offered hereby, upon issuance and sale, will be, validly issued, fully paid and non-assessable. The holders of Common Stock have no preemptive rights. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of Preferred Stock from time to time in one or more series, in all cases ranking senior to the Common Stock with respect to payment of dividends and in the event of the liquidation, dissolution or winding-up of the Company. There are no shares of Preferred Stock currently outstanding. Pursuant to the Company's Certificate of Incorporation, the Board of Directors, without further stockholder approval, is authorized to issue shares of one or more series of Preferred Stock, at any time, for such consideration and with such relative rights, privileges, preferences and other terms as the Board may determine (including, but not limited to, terms relating to dividend rates, redemption rates, liquidation preferences and voting, sinking fund and conversion or other rights). The rights and terms relating to any new series of Preferred Stock could adversely affect the voting power or other rights of the holders of the Common Stock or could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. REDEEMABLE WARRANTS Each Warrant entitles the registered holder thereof to purchase one share of Common Stock, at a price of $5.00, subject to adjustment in certain circumstances, at any time after , 1997 until , 2000. 35 The Warrants are redeemable by the Company, upon the consent of the Underwriter, at any time after , 1997, upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid price of the Common Stock on all 30 of the trading days ending on the third day prior to the day on which the Company gives notice has been at least 150% (currently $7.50, subject to adjustment) of the then effective exercise price of the Warrants. All warrantholders have exercise rights until the close of business on the date fixed for redemption. The Warrants will be issued in registered form under a Warrant Agreement between the Company and American Stock Transfer & Trust Company as Warrant Agent. Reference is made to said Warrant Agreement for a complete description of the terms and conditions therein (the description herein contained being qualified in its entirety by reference thereto). The exercise price and number of shares of Common Stock or other securities issuable on exercise of the Warrants are subject to adjustment in certain circumstances, including in the event of a stock dividend, recapitalization, reorganization, merger or consolidation of the Company. However, such Warrants are not subject to adjustment for issuances of Common Stock at a price below the exercise price of the Warrants, including the issuance of shares of Common Stock pursuant to the Plan. The Warrants may be exercised upon surrender of the Warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form on the reverse side of the certificate completed and executed as indicated, accompanied by full payment of the exercise price (by certified check payable to the Company) to the Warrant Agent for the number of Warrants being exercised. The warrantholders do not have the rights or privileges of holders of Common Stock. No Warrant will be exercisable unless at the time of exercise the Company has filed a current registration statement with the Commission covering the shares of Common Stock issuable upon exercise of such Warrant and such shares have been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of such Warrant. The Company will use its best efforts to have all such shares so registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Warrants, subject to the terms of the Warrant Agreement. While it is the Company's intention to do so, there is no assurance that it will be able to do so. No fractional shares will be issued upon exercise of the Warrants. However, if a warrantholder exercises all Warrants then owned of record by him, the Company will pay to such warrantholder, in lieu of the issuance of any fractional share which is otherwise issuable, an amount in cash based on the market value of the Common Stock on the last trading day prior to the exercise date. REGISTRATION RIGHTS In connection with this offering, the Company has agreed to grant to the Underwriter certain demand and piggyback registration rights in connection with the 260,000 shares of Common Stock issuable upon exercise of the Underwriter's Warrants and the warrants included therein. See "Underwriting." Pursuant to the terms of the Bridge Financing, the Company has included the shares issued in the Bridge Financing in the Registration Statement of which this Prospectus forms a part. The Company has agreed to use its best efforts to keep the Registration Statement effective until the earlier of (i) the date that all of the shares included in the Registration Statement have been sold pursuant thereto and (ii) the date the Selling Stockholders receive an opinion of counsel that the full amount of their shares may be freely sold by such holders. All registration expenses related to such shares will be paid by the Company. The Selling Stockholders have agreed that they will not, directly or indirectly, offer to sell, sell or otherwise dispose of any shares of Common Stock without the prior written consent of the Underwriter for a period of twelve months after the date of this Prospectus (subject to certain exceptions nine months from the date of this Prospectus). 36 STATUTORY PROVISIONS AFFECTING STOCKHOLDERS Following the consummation of this offering, the Company will be subject to the State of Delaware's "business combination" statute, Section 203 of the Delaware General Corporation Law. In general, such statute prohibits a publicly held Delaware corporation from engaging in various "business combination" transactions with any "interested stockholder" for a period of three years after the date of the transaction in which the person became an "interested stockholder," unless (i) the transaction in which the interested stockholder obtained such status or the business combination is approved by the Board of Directors prior to the date the interested stockholder obtained such status; (ii) upon consummation of the transaction which resulted in the stockholder becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the corporation outstanding at the time the transection commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date the "business combination" is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3 % of the outstanding voting stock which is not owned by the "interested stockholder." A "business combination" includes mergers, asset sales and other transactions resulting in financial benefit to a stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of a corporation's voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. DIVIDEND POLICY Holders of Common Stock are entitled to receive such dividends as may be declared and paid from time to time by the Board of Directors out of funds legally available therefor. The Company intends to retain any earnings for the operation and expansion of its business and does not anticipate paying cash dividends in the foreseeable future. Any future determination as to the payment of cash dividends will depend upon future earnings, results of operations, capital requirements, the Company's financial condition and such other factors as the Board of Directors may consider. TRANSFER AGENT AND REGISTRAR The transfer and registrar for the Common Stock and the warrant agent for the Warrants is American Stock Transfer and Trust Company, New York, New York. REPORTS TO STOCKHOLDERS The Company has agreed, subject to the sale of the shares of Common Stock and Warrants offered hereby, that on or before the date of this Prospectus, it will register its Common Stock and Warrants under the provisions of Section 12(g) of the Exchange Act. Such registration will require the Company to comply with periodic reporting, proxy solicitation and certain other requirements of the Exchange Act. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this offering, the Company will have 4,520,000 shares of Common Stock outstanding (assuming no exercise of the Warrants), of which 1,520,000 shares (consisting of the 1,300,000 shares of Common Stock offered hereby by the Company, and, subject to certain contractual restrictions described below, the 220,000 shares being offered by the Selling Stockholders) will be freely tradeable without restriction or further registration under the Securities Act. All of the remaining 3,000,000 shares outstanding are "restricted securities," as that term is defined in Rule 144 promulgated under the Securities Act, and in the future may only be sold pursuant to a registration statement under the Securities Act, in compliance with the exemption provisions of Rule 144 or pursuant to another exemption under the Securities Act. Of the 3,000,000 restricted shares, an aggregate of 2,520,406 shares will be eligible for sale, without registration, under Rule 144 (subject to certain volume limitations prescribed by such rule and to the contractual restrictions described below), commencing March 1997. 37 In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) who has beneficially owned restricted securities for at least two years is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the then outstanding shares of the issuer's common stock or the average weekly trading volume during the four calendar weeks preceding such sale, provided that certain public information about the issuer as required by Rule 144 is then available and the seller complies with certain other requirements. In general, shares issued in compliance with Rule 701 promulgated under the Securities Act may be sold by non-affiliates subject to the manner of sale requirements of Rule 144, but without compliance with the other requirements of Rule 144. Affiliates may sell such shares in compliance with Rule 144, other than the holding period requirement. A person who is not an affiliate, has not been an affiliate within three months prior to sale, and has beneficially owned the restricted securities for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. The Company's officers, directors and stockholders (excluding the holders of 9,776 shares of Common Stock) have agreed not to sell or dispose of any of their securities of the Company for a period of twelve months from the date of this Prospectus without the Underwriter's prior written consent, provided that such restrictions shall not apply at any time after nine months from the date of this Prospectus if the closing bid quotation of the Common Stock as reported by Nasdaq is at least $10.00 per share for 20 consecutive trading days. Prior to this offering, there has been no market for the Common Stock and no prediction can be made as to the effect, if any, that public sales of shares of Common Stock or the availability of such shares for sale will have on the market prices of the Common Stock and Warrants prevailing from time to time. However, the possibility that a substantial amount of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. UNDERWRITING Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the terms and conditions contained in the Underwriting Agreement, to purchase 1,300,000 shares and 1,300,000 Warrants from the Company. The Underwriter is committed to purchase and pay for all of the Common Stock and Warrants offered hereby if any of such securities are purchased. The Common Stock and Warrants are being offered by the Underwriter, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter has advised the Company that it proposes to offer the Common Stock and Warrants to the public at the public offering prices set forth on the cover page of this Prospectus. The Underwriter may allow certain dealers who are members of the National Association of Securities Dealers, Inc. (the "NASD") concessions, not in excess of $. per share of Common Stock and $. per Warrant, of which not in excess of $ per share of Common Stock and $. per Warrant may be reallowed to other dealers which are members of the NASD. The Company has granted to the Underwriter an option, exercisable for 45 days from the date of this Prospectus, to purchase up to 195,000 additional shares of Common Stock and/or 195,000 Warrants at the public offering prices set forth on the cover page of this Prospectus, less the underwriting discounts and commissions. The Underwriter may exercise this option in whole or, from time to time, in part, solely for the purpose of covering over-allotments, if any, made in connection with the sale of the Common Stock and/or Warrants offered hereby. The Company has agreed to pay to the Underwriter a non-accountable expense allowance of 3% of the gross proceeds of this offering, of which $50,000 has been paid as of the date of this Prospectus. The Company has also agreed to pay all expenses in connection with qualifying the Common Stock and Warrants offered hereby for sale under the laws of such states as the Underwriter may designate including expenses of counsel retained for such purpose by the Underwriter. The Company has agreed to grant to the Underwriter and/or its designees warrants (the "Underwriter's Warrants") to purchase up to 130,000 shares of Common Stock at an exercise price of $6.90 per share (138% of the initial public offering price per share) and/or up to 130,000 warrants (each to purchase one share of Com- 38 mon Stock at $6.90 per share) at an exercise price of $.138 per warrant (138% of the initial public offering price per Warrant). The Underwriter's Warrants may not be sold, transferred, assigned or hypothecated for one year from the date of this Prospectus, except to officers and partners of the Underwriter and members of the selling group, and are exercisable at any time and from time to time, in whole or in part, during the five-year period commencing on the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the Underwriter's Warrants are given, at no cost, the opportunity to profit from a rise in the market price of the Common Stock. To the extent that the Underwriter's Warrants are exercised, dilution to the interests of the Company's stockholders will occur. Further, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected since the holders of the Underwriter's Warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the Underwriter's Warrants. Any profit realized by the Underwriter on the sale of the Underwriter's Warrants, the underlying shares or the underlying warrants, or the shares issuable upon exercise of such underlying warrants, may be deemed additional underwriting compensation. Subject to certain limitations and exclusions, the Company has agreed, at the request of the holders of a majority of the Underwriter's Warrants, at the Company's expense, to register the Underwriter's Warrants, the shares and warrants underlying the Underwriter's Warrants, and the shares issuable upon exercise of the underlying warrants under the Securities Act on one occasion during the Warrant Exercise Term and to include the Underwriter's Warrants and all such underlying securities in any appropriate registration statement which is filed by the Company during the seven years following the date of this Prospectus. The Company has agreed, in connection with the exercise of the Warrants pursuant to solicitation (commencing one year from the date of this Prospectus), to pay to the Underwriter for bona fide services provided a fee of 5% of the exercise price for each Warrant exercised; provided, however, that the Underwriter will not be entitled to receive such compensation in Warrant exercise transactions in which (i) the market price of shares at the time of exercise is lower than the exercise price of the Warrants; (ii) the Warrants are held in any discretional account; (iii) disclosure of compensation arrangements is not made, in addition to the disclosure provided in this Prospectus, in documents provided to holders of the Warrants at the time of exercise; (iv) the holder of the Warrants has not confirmed in writing that the Underwriter solicited such exercise; or (v) the solicitation of exercise of the Warrants was in violation of Rule 10b-6 promulgated under the Exchange Act. In addition to soliciting, either orally or in writing, the exercise of the Warrants, such bona fide services may also include disseminating information, either orally or in writing, to the holders of the Warrants about the Company or the market for the Company's securities, and assisting in the processing of the exercise of Warrants. The Company has agreed to retain the Underwriter as a financial consultant for a period of two years following the consummation of this offering at an annual fee of $30,000, the entire $60,000 payable in full, in advance. The consulting agreement with the Underwriter will not require it to devote a specific amount of time to the performance of its duties thereunder. It is anticipated that these consulting services will be provided by principals of the Underwriter and/or members of the Underwriter's corporate fiance department who, however, have not been designated as of the date hereof. In addition, in the event that the Underwriter originates a financing or a merger, acquisition, joint venture or other transaction to which the Company is a party, the Underwriter will be entitled to receive a finder's fee in consideration for origination of such transaction. The Company has also agreed, for a period of three years from the date of this Prospectus, if so requested by the Underwriter, to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company, or, at the Underwriter's option, as a non-voting adviser to the Company's Board of Directors. The Company's officers, directors and principal stockholders have agreed to vote their shares in favor of such designee. The Underwriter has not yet exercised its right to designate such a person. The Company and its officers, directors and security holders (except for the holders of 9,776 shares of Common Stock) have agreed not to sell or dispose of any of their securities of the Company for a period of twelve months from the date of this Prospectus without the Underwriter's prior written consent (subject to certain exceptions nine months from the date of this Prospectus). The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act. The Underwriter has advised the Company that it does not expect to make any sales of the securities offered hereby to discretionary accounts. 39 The Underwriter acted as placement agent for the Company in connection with the Bridge Financing and was paid a placement fee of $110,000 (constituting 10% of the gross proceeds of the Bridge Financing) and received an expense reimbursement of $25,000. Prior to this offering, there has been no public trading market for the Common Stock or Warrants. Consequently, the initial public offering price of the Common Stock and Warrants and the exercise price of the Warrants have been determined by negotiations between the Underwriter and the Company. Among the factors considered in determining the initial public offering prices was the Company's financial condition and prospects, the potential market for the Company's products, market prices of similar securities of comparable publicly-traded companies, an assessment of the Company's management and the general condition of the securities markets at the time of the offering. 40 SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION An aggregate of up to 220,000 shares may be offered and sold pursuant to this Prospectus by the Selling Stockholders. The Company has agreed to register the public offering of such shares under the Securities Act concurrently with this offering and to pay all expenses in connection therewith. The shares have been included in the Registration Statement of which this Prospectus forms a part. None of the such shares may be sold by the Selling Stockholders prior to twelve months after the date of this Prospectus, without the prior written consent of the Underwriter. None of the Selling Stockholders has ever held any position or office with the Company or had any other material relationship with the Company. The Company will not receive any of the proceeds from the sale of the shares by the Selling Stockholders. The following table sets forth certain information with respect to the Selling Stockholders:
Percentage Beneficial Beneficial Beneficial Ownership of Amount of Ownership of Ownership of Common Stock Common Stock Common Stock Common Stock Selling Stockholders Prior to Sale Offered After Offering After Offering - -------------------- --------------- -------------- -------------- -------------- Dr. Lawrence Howard ..................... 20,000 20,000 -- -- Dr. Leonard Mendell ..................... 5,000 5,000 -- -- Dr. Steven Landman ...................... 5,000 5,000 -- -- John R. Tompson and Constance A. Tompson, Joint Tenants with Right of Survivorship. 5,000 5,000 -- -- Allan R. Lyons .......................... 5,000 5,000 -- -- Jonathan Robinson ....................... 5,000 5,000 -- -- Michael Weissman ........................ 5,000 5,000 -- -- Isaac Kier .............................. 10,000 10,000 -- -- Craig Effron ............................ 5,000 5,000 -- -- Mark Dickstein .......................... 5,000 5,000 -- -- Robert Laikin ........................... 20,000 20,000 -- -- Lisa Grossman ........................... 10,000 10,000 -- -- Gary Newman ............................. 5,000 5,000 -- -- Albert Nocciolino ....................... 5,000 5,000 -- -- FGR Akel ................................ 5,000 5,000 -- -- Scott C. Gottlieb ....................... 5,000 5,000 -- -- Alfonso and Federico de Riveroll, Joint Tenants with Right of Survivorship ..... 10,000 10,000 -- -- Roderick D. MacAlpine ................... 5,000 5,000 -- -- Leonard A. Albanese ..................... 5,000 5,000 -- -- Lester Lieberman ........................ 5,000 5,000 -- -- Albert Greenspoon ....................... 5,000 5,000 -- -- B&B Trading Corp. Retirement Plan ....... 5,000 5,000 -- -- Garland T. Duke, Jr. .................... 5,000 5,000 -- -- Charles J. Reilly and Kathleen M. Reilly . 5,000 5,000 -- -- James H. Cooper ......................... 5,000 5,000 -- -- Wendy and Robert Ull, Joint Tenants with Right of Survivorship ................... 5,000 5,000 -- -- Michael Freidman ........................ 10,000 10,000 -- -- Edward S. Rosenthal ..................... 10,000 10,000 -- -- Nicholas Kahla .......................... 5,000 5,000 -- -- Elliott Broidy .......................... 20,000 20,000 -- --
The shares may be offered and 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 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 41 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 purchases; 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 to participate. Such brokers or dealers may receive commissions or discounts from Selling Stockholders in amounts to be negotiated. Such broker and dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with such sales. LEGAL MATTERS The validity of the securities offered hereby will be passed upon for the Company by Morgan, Lewis & Bockius LLP, New York, New York. Tenzer Greenblatt LLP, New York, New York, has acted as counsel for the Underwriter in connection with this offering. EXPERTS The financial statements of Visual Edge Systems Inc. (a development stage company) as of December 31, 1995 and for the year then ended have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1995 financial statements contains an explanatory paragraph that states that the Company is in its development stage and its losses and working capital and net capital deficiencies raise substantial doubt about the entity's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. AVAILABLE INFORMATION The Company has filed with the Commission a registration statement on Form SB-2 under the Securities Act (together with all amendments and exhibits thereto, the "Registration Statement") with respect to the securities offered hereby. 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. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete and are qualified in their entirety by reference to each such contract, agreement or other document which is filed as an exhibit to the Registration Statement. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Regional Offices of the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601, and 7 World Trade Center, 13th Floor, New York, New York 10007. Copies of such material may be obtained by mail from the Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. 42 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) CONTENTS
PAGE -------- INDEPENDENT AUDITORS' REPORT ...................................................................... F-2 FINANCIAL STATEMENTS Balance Sheets as of December 31, 1995 and March 31, 1996 (Unaudited) ............................. F-3 Statements of Operations for the year ended December 31, 1995, three months ended March 31, 1995 and 1996 (Unaudited) and period from inception (July 15, 1994) to March 31, 1996 (Unaudited) ..... F-4 Statements of Stockholders' Deficit for the year ended December 31, 1995 and three months ended March 31, 1996 (Unaudited) ....................................................................... F-5 Statements of Cash Flows for the year ended December 31, 1995, three months ended March 31, 1995 and 1996 (Unaudited) and period from inception (July 15, 1994) to March 31, 1996 (Unaudited) ......... F-6 Notes to Financial Statements ..................................................................... F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Visual Edge Systems Inc. (a development stage company): We have audited the accompanying balance sheet of Visual Edge Systems Inc. (a development stage company) as of December 31, 1995 and the related statements of operations, stockholders' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Visual Edge Systems Inc. (a development stage company) as of December 31, 1995 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in its development stage and its losses and working capital and net capital deficiencies raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG Peat Marwick LLP New York, New York April 30, 1996, except for notes 1e, 2 and 10, which are as of May 31, 1996 See accompanying notes to financial statements. F-2 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
December 31, March 31, 1995 1996 -------------- ----------- (unaudited) Assets Current Assets: Cash ................................................ $ 558 $ 833 -------------- ----------- Total current assets ......................... 558 833 Fixed assets, net ........................................ 606,434 558,740 Deferred organization costs, net ......................... 26,485 25,014 Deferred financing costs ................................. -- 25,000 -------------- ----------- Total assets ................................. $ 633,477 $ 609,587 ============== =========== Liabilities and Stockholders' Deficit Current Liabilities: Accounts payable .................................... $ 269,262 $ 216,280 Accrued expenses .................................... 13,718 67,109 Note payable to bank ................................ 400,000 507,000 -------------- ----------- Total current liabilities .................... 682,980 790,389 -------------- ----------- Stockholders' deficit: Preferred Stock, 5,000,000 shares authorized, none issued -- -- Common stock, $.01 par value, 20,000,000 shares authorized, 3,000,000 shares issued and outstanding ........... 30,000 30,000 Additional paid-in capital .......................... 385,460 385,460 Deficit accumulated during the development stage .... (464,963) (596,262) -------------- ----------- Total stockholders' deficit .................. (49,503) (180,802) -------------- ----------- Total liabilities and stockholders' deficit .. $ 633,477 $ 609,587 ============== ===========
See accompanying notes to financial statements. F-3 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
Unaudited ---------------------------------------------- Period from Inception Year Ended Three Months Ended (July 15, 1994) December 31, March 31, to March 31, 1995 1995 1996 1996 -------------- ------------ ------------ --------------- HISTORICAL: Product sales ...................... $ 7,267 $ -- $ 3,848 $ 11,115 License fees ....................... 125,000 -- -- 125,000 -------------- ------------ ------------ --------------- 132,267 -- 3,848 136,115 -------------- ------------ ------------ --------------- Cost of sales ...................... 44,167 -- 23,728 67,895 General and administrative expenses . 531,984 108,242 98,148 630,132 Selling and Marketing .............. 15,240 -- 459 15,699 -------------- ------------ ------------ --------------- 591,391 108,242 122,335 713,726 -------------- ------------ ------------ --------------- Operating loss .................... (459,124) (108,242) (118,487) (577,611) Interest expense ................... 5,118 -- 12,812 17,930 -------------- ------------ ------------ --------------- Loss before income taxes .......... (464,242) (108,242) (131,299) (595,541) Provision for income taxes ......... 721 -- -- 721 -------------- ------------ ------------ --------------- Net loss .......................... $ (464,963) $(108,242) $(131,299) $ (596,262) ============== ============ ============ =============== PRO FORMA (UNAUDITED): Historical loss before income taxes . $ (464,242) $(108,242) $(131,299) $ (595,541) Pro forma adjustments to executive officers' compensation ............ (590,000) (147,500) (91,250) (681,250) -------------- ------------ ------------ --------------- Pro forma loss before income taxes... (1,054,242) (255,742) (222,549) (1,276,791) Pro forma provision for income taxes. 721 -- -- 721 -------------- ------------ ------------ --------------- Pro forma net loss ................. $(1,054,963) $(255,742) $(222,549) $(1,277,512) ============== ============ ============ =============== Pro forma net loss per share ....... $ (.33) $ (.08) $ (.07) $ (.40) ============== ============ ============ ===============
See accompanying notes to financial statements. F-4 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED DECEMBER 31, 1995 AND THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
Deficit accumulated Additional during the Common Stock paid-in development Shares Amount capital stage Total ----------- ---------- ------------ ------------- ------------- Balance at January 1, 1995 .. -- $ -- $ -- $ -- $ -- Issuance of common stock .... 2,929,608 29,296 374,404 -- 403,700 Common stock issued for services 70,392 704 11,056 -- 11,760 Net loss for 1995 ........... -- -- -- (464,963) (464,963) ----------- ---------- ------------ ------------- ------------- Balance at December 31, 1995 . 3,000,000 30,000 385,460 (464,963) (49,503) Net loss for the three months ended March 31, 1996 (unaudited) . -- -- -- (131,299) (131,299) ----------- ---------- ------------ ------------- ------------- Balance at March 31, 1996 (unaudited) ................ 3,000,000 $30,000 $385,460 $ (596,262) $ (180,802) =========== ========== ============ ============= =============
See accompanying notes to financial statements. F-5 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
Unaudited ----------------------------------------------- Period from Inception Year Ended Three Months Ended (July 15, 1994) December 31, March 31, to March 31, 1995 1995 1996 1996 -------------- ------------ ------------- --------------- Operating Activities: Net loss ...................... $ (464,963) $(108,242) $ (131,299) $ (596,262) Adjustments to reconcile net loss to net cash used in operating activities: Stock compensation expense . 11,760 11,760 -- 11,760 Depreciation and amortization 67,686 -- 49,165 116,851 Deferred organization costs . (29,428) (8,535) -- (29,428) Interest expense ........... -- -- 3,400 3,400 Increase (decrease) in accounts payable ......... 269,262 17,645 (52,982) 216,280 Increase in accrued expenses . 13,718 -- 53,391 67,109 -------------- ------------ ------------- --------------- Net cash used in operating activities ................. (131,965) (87,372) (78,325) (210,290) -------------- ------------ ------------- --------------- Investing Activities: Capital expenditures .......... (671,177) (56,138) -- (671,177) Deferred financing costs ...... -- -- (25,000) (25,000) -------------- ------------ ------------- --------------- Net cash used in investing activities ................. (671,177) (56,138) (25,000) (696,177) -------------- ------------ ------------- --------------- Financing Activities: Issuance of note payable to bank 400,000 -- 103,600 503,600 Advances from stockholders .... -- 164,950 -- -- Issuance of common stock ...... 403,700 1,000 -- 403,700 -------------- ------------ ------------- --------------- Net cash provided by financing activities ................. 803,700 165,950 103,600 907,300 -------------- ------------ ------------- --------------- Increase in cash .............. 558 22,440 275 833 Cash at beginning of period ..... -- -- 558 -- -------------- ------------ ------------- --------------- Cash at end of period ........... $ 558 $ 22,440 $ 833 $ 833 ============== ============ ============= =============== Supplemental information: - ------------------------- Cash paid for interest .......... $ 5,118 $ -- $ 9,274 $ 14,392 ============== ============ ============= =============== Cash paid for income taxes ...... $ 721 $ -- $ -- $ 721 ============== ============ ============= ===============
See accompanying notes to financial statements. F-6 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business Visual Edge Systems Inc. (the "Company") was organized to develop and market personalized videotape golf lessons featuring One-on-One instruction by leading professional golfer Greg Norman. To date, the Company has focused its efforts on developing computer software which digitally combines actual video footage of a golfer's swing with a synchronized "split-screen" comparison to Greg Norman's golf swing to produce a 45-minute One-on-One videotape golf lesson. The Company's proposed One-on-One personalized videotape golf lesson analyzes a golfer's swing by comparing it to Greg Norman's swing at several different club positions from two camera angles using Greg Norman's pre-recorded instructional commentary and analysis and computer graphics to highlight important golf fundamentals intended to improve a golfer's performance. The Company intends to sell its proposed products under the name "One-on-One with Greg Norman." The Company was incorporated in July 1994 and commenced operations in January 1995. The Company is a development stage company which has not commenced generating revenue from its planned primary business activities. Since the Company's inception, it has been primarily engaged in product development, market testing its intended products, recruitment of key personnel, raising capital and preparing the software and videotaped coaching instructions used in the production of its products. As a consequence, the Company has not generated any revenue of substance from operations to date. (b) Revenue Recognition Revenue from product sales is recognized as videotape products are delivered to the customer. Royalties and license fees are recorded as revenue when earned. (c) Fixed Assets Fixed assets are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets (3 to 5 years). (d) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (e) Loss Per Share Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin Topic 4:D, stock issued and stock options granted during the 12-month period preceding the date of the Company's proposed initial public offering (the IPO) have been included in the calculation of weighted average common shares outstanding for the period prior to the IPO, even when the impact of such incremental shares is antidilutive. The computation of weighted average common shares and equivalents outstanding for the year ended December 31, 1995 follows: F-7 VISUAL EDGE SYSTEMS INC. (a Development Stage Company) Notes to Financial Statements (1) Summary of Significant Accounting Policies - (Continued) Weighted average common shares outstanding, exclusive of issuances within 12 months prior to the IPO .............. 3,000,000 Shares issued within 12 months prior to the IPO assumed to be outstanding for the entire period. ....................... 220,000 ---------- Weighted average common shares and equivalents outstanding . 3,220,000 ========== References to the number of shares and all per share data have been restated to reflect the recapitalization (note 7). (f) Basis of Presentation The financial statements have been presented on a historical basis and also on a pro forma basis for the statements of operations. The pro forma adjustment presented reflects the increase in five executive officers' aggregate annual base compensation as prescribed in employment agreements. Two agreements were effective January 1, 1996, one is effective May 1, 1996 and two will become effective upon the completion of the Company's planned IPO. (g) Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. Cash, accounts payable and accrued expenses as reflected in the financial statements approximate fair value because of the short-term maturity of these instruments. The carrying value of the note payable to bank approximates its fair value since the interest rate fluctuates with changes in market conditions. (h) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (i) New Accounting Pronouncements In October 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 123, "Accounting for Stock-Based Compensation," which must be adopted by the Company in 1996. The Company has elected not to implement the fair value based accounting method for employee stock options, but has elected to disclose, commencing in 1996, the pro-forma net income and earnings per share as if such method had been used to account for stock-based compensation cost as described in the Statement. In March 1995, the FASB issued Statement No. 121," Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which must also be adopted by the Company in 1996. The effect of adopting this standard will be insignificant. (j) Unaudited Interim Financial Statements The accompanying unaudited interim financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the financial position of the Company and the results of its operations as of and for the three months ended March 31, 1996 and 1995. Results for the three months ended March 31, 1996 are not necessarily indicative of results which could be expected for the entire year. F-8 VISUAL EDGE SYSTEMS INC. (a Development Stage Company) Notes to Financial Statements (1) Summary of Significant Accounting Policies - (Continued) (2) LIQUIDITY The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is in its development stage and its losses, working capital and net capital deficiencies raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might arise from the outcome of this uncertainty. To generate funds to continue the development of the Company's products, pay the $150,000 royalty advance due June 30, 1996 (note 9(a) and commence its planned primary business activities, the Company on May 31, 1996 raised $915,000, net of expenses, from the sale of 22 units in a private placement for $50,000 per unit, each unit consisting of an 8% unsecured promissory note in the principal amount of $50,000 and 10,000 shares of the Company's common stock. The promissory notes are due on the earlier of the consummation of the Company's planned initial public offering (IPO) of its common stock or May 31, 1997. The relative fair market value of the 220,000 shares of common stock issued of $334,346 was reflected as an increase in additional paid-in capital and as a discount on the promissory notes to be amortized over the one-year term of the notes. In March 1996, the Company entered into a letter of intent, as amended, with a placement agent to offer 1,300,000 shares of common stock and 1,300,000 warrants for sale. There is no assurance that the Company will be able to successfully complete its IPO. (3) FIXED ASSETS Fixed assets consist of the following at December 31, 1995: Amount Life ----------- --------- (years) Equipment ................................ $247,117 5 Video production costs ................... 184,282 3 Computer hardware ........................ 148,253 3 Purchased computer software .............. 91,525 3 ----------- 671,177 Less accumulated depreciation and amortization 64,743 ----------- $606,434 =========== (4) OPERATING LEASES The Company is utilizing office space provided at no charge by an officer of the Company. Accordingly, as of December 31, 1995, the Company did not have any lease commitments. (5) NOTE PAYABLE TO BANK In October 1995, the Company borrowed $400,000 from a bank which was due on demand. This note bears interest at the bank's reference rate (8.25% at December 31, 1995). The note is secured by all of the Company's assets and certain personal assets of certain of the Company's shareholders and is personally guaranteed by such shareholders. In January and April 1996, the Company borrowed an additional $107,000 and the total outstanding balance of $507,000 was converted to a promissory note which is due December 31, 1996. (6) INCOME TAXES Income tax expense consists of: Current Deferred Total ----------- ------------ --------- Year ended December 31, 1995: Federal ......................... -- -- -- State and local ................. $721 -- $721 ----------- ------------ --------- $721 -- $721 =========== ============ ========= F-9 VISUAL EDGE SYSTEMS INC. (a Development Stage Company) Notes to Financial Statements (6) Income Taxes - (Continued) The following is a reconciliation of income tax expense to the expected amounts computed by applying the statutory federal income tax rate to the Company's loss before income taxes for the year ended December 31, 1995. Income tax benefit at statutory rate ................. $ (157,800) State and local income taxes, net of Federal income tax benefit ............................................. 721 Increase in valuation allowance ...................... 157,800 ------------- Provision for income taxes ........................... $ 721 ============= The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 are presented below: Deferred tax assets: Deferred start-up costs .............................. $ 97,500 Net operating loss carryforward ....................... 54,300 Fixed asset depreciation ............................. 6,000 ----------- 157,800 Less: valuation allowance ............................ (157,800) ----------- Net deferred tax asset ............................... $ -- =========== As of December 31, 1995, the Company has a tax net operating loss carryforward of approximately $160,000 expiring in 2010. The Company has provided a valuation allowance of $157,800 against its deferred tax assets since it is more likely than not that the Company will not realize such asset due to the Company's development stage nature of operations and the pre-tax losses since inception. (7) COMMON STOCK During 1995, the Company's founding shareholders made capital contributions or loaned funds to the Company which were subsequently contributed to the Company as capital, totaling $403,700, in exchange for 5,000,000 Class A non-voting shares and 100 Class B voting shares. On March 11, 1996, the Company's Board of Directors eliminated the Class A and B designation of its common stock and declared a recapitalization effective May 2, 1996, whereby .488268 of a share and 4882.68 shares of common stock with a par value of $.01 per share was issued for each Class A and Class B share, respectively, of common stock outstanding on that date. In addition, options to purchase Class A common stock were converted into the right to purchase .5831847 shares of common stock. All references to number of shares (except shares authorized), per share data and stock option data have been restated to reflect the recapitalization. In March 1995, the Company issued 70,392 shares of common stock to employees and consultants for services. The estimated market value of such shares of $11,760 was recorded as compensation expense. F-10 VISUAL EDGE SYSTEMS INC. (a Development Stage Company) Notes to Financial Statements (8) STOCK OPTIONS In April 1996, the Company adopted the 1996 Stock Option Plan, which provides for the granting to directors, officers, key employees and consultants of the greater of 800,000 shares of common stock (reduced by the number of options which may be granted to two executive officers pursuant to their employment agreements (note 9(b) which are not granted or, if granted, are forfeited in accordance with their terms) or 12% of the aggregate number of the Company's common stock outstanding. Grants of options may be incentive stock options (to a maximum of 300,000) or non-qualified stock options and will be at such exercise prices, in such amounts, and upon such terms and conditions, as determined by the Compensation Committee of the Board of Directors. However, the option exercise price may not be less than 100% of the market value at the time of grant (110% if an incentive stock option granted to a 10% or more stockholder) and the term of any option may not exceed ten years (unless granted as an incentive stock option to a 10% or more stockholder, which term may not exceed five years). The plan also provides for the automatic grant of 5,000 non-qualified stock options upon commencement of service of a non-employee director and 2,500 options per year per director thereafter. Such options vest one-third on the date of grant and one third on the first two anniversary dates and have a term of five years. In March 1995, the Company granted 177,871 nonqualified options to purchase common stock at an exercise price equal to the price common stock is sold in the Company's initial public offering when it may occur. Such options have been converted to options under the 1996 Stock Option Plan. (9) COMMITMENTS (a) License agreement Effective March 1, 1995 the Company entered into a license agreement with Greg Norman (Norman), a professional golfer, and his corporation, Great White Shark Enterprises, Inc. (Great White Shark), pursuant to which the Company was granted a worldwide license to use his name, likeness and endorsement in connection with the production and promotion of the Company's proposed products. Norman will receive royalties of 8% of all net revenues, as defined, derived from the sale of One-on-One videotapes. Such agreement expires on June 30, 1996. However, the Company has advised Norman and Great White Shark that it will extend the agreement and will use a portion of the proceeds from its private placement to pay the initial $150,000 required to extend the agreement. The extension of the agreement, which is for three additional years, requires the Company to pay certain guaranteed fees, amounting to $3,300,000, to be paid quarterly to Great White Shark and total $600,000 (including the $150,000 payment referred to above) in the year ending June 30, 1997, $1 million in the year ending June 1998 and $1.7 million in the year ending June 30, 1999. Such guaranteed payments will be credited against future 8% royalties due on the Company's net revenues from the sale of the One-on-One video. In addition, the Company has the right to renew the license agreement for two additional periods of five years each. In the event of renewal, the Company is obligated to make guaranteed payments of $1,300,000 during the first year of the renewal term, increasing by $100,000 per year thereafter. Also in March 1995, the Company entered into an Agreement with and gave Greg Norman an option to receive 10% of the outstanding shares of the Company from the Company's three founding shareholders. The option was conditioned upon the Company delivering a notice to Greg Norman that it intends to extend the License Agreement for three years, which occurred in April 1996. In April 1996, Greg Norman exercised the option and those shareholders transferred 300,000 shares of common stock to Greg Norman. The estimated market value of such shares, amounting to approximately $600,000 will be recorded as a charge in the income statement in April, 1996. F-11 VISUAL EDGE SYSTEMS INC. (a Development Stage Company) Notes to Financial Statements (9) Commitments - (Continued) (b) Employment agreements The Company entered into employment agreements with three executive employees of the Company expiring through December 1998 which provide for aggregate minimum annual compensation of approximately $268,000 in 1996, $297,000 in 1997 and $250,000 in 1998. The agreements are automatically renewed for additional one-year periods unless the Company or the employees provide timely notice of termination. In addition, two of the employment agreements provide for an increase in compensation commencing in July 1997, if the Company achieves prescribed pre-tax earnings thresholds. The agreements also provide for bonuses and severance payments ranging from three to twelve months. In addition, two of the employment agreements provide for options for each employee to purchase an aggregate of up to 250,000 shares of common stock, at an exercise price per share equal to the proposed IPO price subsequent to completion of the Company's proposed public offering. Of such options, 150,000 options shall vest and become exercisable if the common stock trades at $10.00 or more per share for at least five consecutive trading days during the 18-month period following the completion of the proposed public offering, and 100,000 options shall vest and become exercisable if the common stock trades at $15.00 or more per share for five consecutive trading days during the 30-month period following such completion. (10) CONTINGENCY In April 1996, one of the Company's principal stockholders and his affiliated companies asserted certain claims against the Company, including that the provisions of a stockholders agreement have been breached. In May 1996, such stockholder and his affiliated companies entered into a settlement agreement with the Company under which they agreed to release each other from any claims if the Company's proposed IPO is consummated on or before December 31, 1996, and the Company agreed to pay $35,000 in consideration of the termination of the stockholders agreement. Pursuant to an indemnification agreement, two other principal stockholders, jointly and severally, have agreed to indemnify and hold harmless the Company from and against any losses, claims, damages, expenses or liabilities suffered as a result of the above claims and, in the event the Company issues any equity securities to any stockholder of the Company as a result of any claim, those stockholders have agreed to deliver an equal number of shares of common stock to the Company for cancellation. F-12 ============================================================================= No dealer, salesperson or any other individual has been authorized to give any information or to make any representations not contained 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 Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any security by any person in any jurisdiction in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, imply that the information in this Prospectus is correct as of any time subsequent to the date of this Prospectus. ------ TABLE OF CONTENTS Page -------- Prospectus Summary .............................. 3 Risk Factors .................................... 7 Use of Proceeds ................................. 14 Dilution ........................................ 16 Capitalization .................................. 17 Plan of Operation ............................... 18 Proposed Business ............................... 21 Management ...................................... 28 Principal Stockholders .......................... 33 Certain Transactions ............................ 34 Description of Securities ....................... 35 Shares Eligible For Future Sale ................. 37 Underwriting .................................... 38 Selling Stockholders and Plan of Distribution ... 41 Legal Matters ................................... 42 Experts ......................................... 42 Available Information ........................... 42 Index to Financial Statements ................... F-1 ------ Until , 1996 (25 days after the date of this Prospectus), all dealers effecting transactions in the securities offered hereby, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ============================================================================= ============================================================================= 1,300,000 SHARES OF COMMON STOCK AND REDEEMABLE WARRANTS TO PURCHASE 1,300,000 SHARES OF COMMON STOCK [LOGO] ------ PROSPECTUS ------ WHALE SECURITIES CO., L.P. , 1996 ============================================================================= PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Generally, Section 145 of the General Corporation Law of the State of Delaware (the "GCL") permits a corporation to indemnify certain persons made a party or threatened to be made a party to an action by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise. In the case of an action by or in the right of the corporation, no indemnification may be made in respect of any matter as to which such person was adjudged liable for negligence or misconduct in the performance of such person's duty to the corporation unless the Delaware Court of Chancery or the court in which such action was brought determines that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for proper expenses. To the extent such person has been successful in the defense of any matter, such person shall be indemnified against expenses actually and reasonably incurred by him. The Company has adopted provisions in its By-laws which provide for indemnification of its officers and directors to the full extent permitted under Delaware law. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth an estimate of the expenses that will be incurred by the Registrant in connection with the distribution of the securities being registered hereby: SEC ............................................. $ 6,197.23 NASD filing fees ................................ $ 2,297.21 Nasdaq Small Cap Market listing fee ............. 10,000.00 Legal fees and expenses ......................... 200,000.00 Accounting fees and expenses .................... 100,000.00 Printing and engraving expenses ................. 75,000.00 State securities qualification fees and expenses . 50,000.00 Transfer agent fees and expenses ................ 3,500.00 Miscellaneous ................................... 14,105.56 ----------- $461,100.00 Total .......................................... =========== None of the foregoing expenses will be borne by the Selling Stockholders. II-1 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. The table below sets forth the sales of unregistered securities made by the Company since the date of its organization on July 15, 1994. All of such sales were private placements made in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, and no underwriters were involved in such placements. In each instance in which the Company received services as consideration for the issuance and sale of Common Stock, the value of the services so rendered was determined by the Board of Directors of the Company based upon a per share valuation of $.17.
Title and Amount of Purchaser Security Date of Sale Consideration --------- ------------ ---------------- -------------- Alan L. Lubell ...................... 1,708,938 Common Stock March 1995 $192,350 Status-One Investments Inc. ......... 732,402 Common Stock March 1995 162,750 Greenwich Properties Inc. ........... 488,268 Common Stock March 1995 48,600 Greg Norman ......................... 300,000 License and Services under Common Stock June 1996 License Agreement Status-One Investments Inc. ......... 24,413 Common Stock March 1995 Executive Services Frank Williams ...................... 8,139 Common Stock March 1995 Consulting Services Thomas Peters ....................... 9,155 Common Stock March 1995 Software Development Services Mona-Lee Takefman ................... 2,136 Common Stock March 1995 Secretarial and Clerical Services Mark Lubell ......................... 2,136 Common Stock March 1995 Management Services Dr. Lawrence Howard ................. 20,000 Common Stock $100,000 Note May 1996 $100,000 Dr. Leonard Mandell ................. 5,000 Common Stock $25,000 Note May 1996 25,000 Dr. Steven Landman .................. 5,000 Common Stock $25,000 Note May 1996 25,000 John R. Tompson and 5,000 Constance A. Tompson, Common Stock Joint Tenants with Right of $25,000 Survivorship ....................... Note May 1996 25,000
II-2
Title and Amount of Purchaser Security Date of Sale Consideration --------- ------------ ---------------- -------------- Allan R. Lyons ...................... 5,000 Common Stock $25,000 Note May 1996 $ 25,000 Jonathan Robinson ................... 5,000 Common Stock $25,000 Note May 1996 25,000 Michael Weissman .................... 5,000 Common Stock $25,000 Note May 1996 25,000 Isaac Kier .......................... 10,000 Common Stock $50,000 Note May 1996 50,000 Craig Effron ........................ 5,000 Common Stock $25,000 Note May 1996 25,000 Mark Dickstein ...................... 5,000 Common Stock $25,000 Note May 1996 25,000 Robert Laikin ....................... 20,000 Common Stock $100,000 Note May 1996 100,000 Lisa Grossman ....................... 10,000 Common Stock $50,000 Note May 1996 50,000 Gary Newman ......................... 5,000 Common Stock $25,000 Note May 1996 25,000 Albert Nocciolino ................... 5,000 Common Stock $25,000 Note May 1996 25,000 FGR Akel ............................ 5,000 Common Stock $25,000 Note May 1996 25,000
II-3
Title and Amount of Purchaser Security Date of Sale Consideration --------- ------------ ---------------- -------------- Scott C. Gottlieb ................... 5,000 Common Stock $25,000 Note May 1996 $25,000 Alfonso and Federico de Riveroll, 10,000 Joint Tenants with Right of Common Stock Survivorship ....................... $50,000 Note May 1996 50,000 Roderick D. MacAlpine ............... 5,000 Common Stock $25,000 Note May 1996 25,000 Leonard A. Albanese ................. 5,000 Common Stock $25,000 Note May 1996 25,000 Lester Lieberman .................... 5,000 Common Stock $25,000 Note May 1996 25,000 Albert Greenspoon ................... 5,000 Common Stock $25,000 Note May 1996 25,000 B&B Trading Corp. 5,000 Retirement Plan .................... Common Stock $25,000 Note May 1996 25,000 Garland T. Duke, Jr. ................ 5,000 Common Stock $25,000 Note May 1996 25,000 Charles J. Reilly and 5,000 Kathleen M. Reilly ................. Common Stock $25,000 Note May 1996 25,000 James H. Cooper ..................... 5,000 Common Stock $25,000 Note May 1996 25,000 Wendy and Robert Ull, 5,000 Joint Tenants with Right of Common Stock Survivorship ....................... $25,000 Note May 1996 25,000 10,000 Common Stock Michael Freidman...................... $50,000 May 1996 50,000 Note
II-4
Title and Amount of Purchaser Security Date of Sale Consideration --------- ------------ ---------------- -------------- Edward S. Rosenthal ................. 10,000 Common Stock $50,000 Note May 1996 $50,000 Nicholas Kahla ...................... 5,000 Common Stock $25,000 Note May 1996 25,000 Elliott Broidy ...................... 20,000 Common Stock $100,000 Note May 1996 100,000
ITEM 27. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES. (a) Exhibits The following is a complete list of Exhibits filed as part of this Registration Statement, which are incorporated herein:
Exhibit Number Description ----------- ------------ 1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Company, as amended. 3.2 Amended and Restated By-laws of the Company. 4.1* Form of Specimen Common Stock Certificate. 4.2* Form of Specimen Redeemable Warrant Certificate. 4.3 Form of Warrant Agreement between the Company and Whale Securities Co., L.P. 4.4 Form of Warrant, among American Stock Transfer & Trust Company, the Company and Whale Securities Co., L.P. 5.1* Opinion of Morgan, Lewis & Bockius LLP with respect to the legality of the Common Stock and Warrants. 10.1* License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and the Company, as supplemented. 10.2 Promissory Note, dated April 15, 1996, payable to the Republic National Bank of New York. 10.3 Employment Agreement, dated as of January 1, 1996, between Earl Takefman and the Company. 10.4 Employment Agreement, dated as of January 1, 1996, between Alan Lubell and the Company. 10.5 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and the Company. 10.6 License Agreement, dated as of November 1, 1996, between the Company and Visual Edge Systems (Australia) Pty. Ltd. 10.7 Form of Consulting Agreement between the Company and Whale Securities Co., L.P. 10.8* 1996 Stock Option Plan. 10.9* Employment Agreement, dated as of June 1, 1996, between the Company and Richard Parker. 10.10* Employment Agreement, dated as of June 1, 1996, between the Company and Ami Trauber. 10.11* Assignment, dated April 19, 1996, from Thomas S. Peters to the Company. 23.1* Consent of KPMG Peat Marwick LLP. 23.2* Consent of Frank Williams to be named as a Director. 23.3* Consent of Eddie Einhorn to be named as a Director. 23.4 Consent of Mark Hershhorn to be named as a Director. 24.1 Power of Attorney relating to the Company (included as part of the signature page hereof). 27* Financial Data Schedule.
- ------ * Filed herewith. II-5 (b) Financial Statement Schedules: None. ITEM 28. UNDERTAKINGS. (1) The undersigned Registrant hereby undertakes that it will: (a) File, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to: (i) include any prospectus required by Section 10(a)(3) of the Act; (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the Registration Statement; and (iii) include any additional or changed material information on the plan of distribution. (b) For determining any liability under the Act, each post-effective amendment shall be deemed to be a new Registration Statement of the securities offered, and the offering of securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of this offering. (2) The undersigned Registrant hereby undertakes to provide to the Underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. (3) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the provisions in Item 14 above, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the company of expenses incurred or paid by a director or officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company 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 of whether such indemnification by it is against public policy as expressed in such act and will be governed by the final adjudication of such issue. (4) The Company hereby undertakes: (a) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (b) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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. II-6 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grants to meet all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on July 9, 1996. VISUAL EDGE SYSTEMS INC. By: /s/ EARL T. TAKEFMAN ---------------------------- Earl T. Takefman Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Earl T. Takefman and Alan L. Lubell, and each of them such person's true and lawful attorneys-in-fact and agents, with full power of substitution and revocation, for such person and in such person's name, place and stead, in any and all capacities to sign any and all amendments (including additional amendments to this Registration Statement) and to file the same with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and things requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. 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 ---------- ------ ---- /s/ EARL T. TAKEFMAN Chief Executive Officer, Director July 9, 1996 - ------------------------ (Principal Executive Officer) Earl T. Takefman /s/ ALAN L. LUBELL Chairman of the Board of Directors July 9, 1996 - ------------------------ (Principal Financial and Accounting Alan L. Lubell Officer)
II-7 EXHIBIT INDEX
Exhibit Number Description Page - ------- ------------ -------- 1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Company, as amended. 3.2* Amended and Restated By-laws of the Company. 4.1* Form of Specimen Common Stock Certificate. 4.2* Form of Specimen Redeemable Warrant Certificate. 4.3 Form of Warrant Agreement between the Company and Whale Securities Co., L.P. Form of Warrant, among American Stock Transfer & Trust Company, the Company and Whale Securities 4.4 Co., L.P. 5.1* Opinion of Morgan, Lewis & Bockius LLP with respect to the legality of the Common Stock and Warrants. 10.1* License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and the Company, as supplemented. 10.2 Promissory Note, dated April 15, 1996, payable to the Republic National Bank of New York. 10.3 Employment Agreement, dated as of January 1, 1996, between Earl Takefman and the Company. 10.4 Employment Agreement, dated as of January 1, 1996, between Alan Lubell and the Company. 10.5 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and the Company. License Agreement, dated as of November 1, 1996, between the Company and Visual Edge Systems (Australia) 10.6 Pty. Ltd. 10.7 Form of Consulting Agreement between the Company and Whale Securities Co., L.P. 10.8* 1996 Stock Option Plan. 10.9* Employment Agreement, dated as of June 1, 1996, between the Company and Richard Parker. 10.10* Employment Agreement, dated as of June 1, 1996, between the Company and Ami Trauber. 10.11 Assignment, dated April 19, 1996, from Thomas S. Peters to the Company. 23.1* Consent of KPMG Peat Marwick LLP. 23.2* Consent of Frank Williams to be named as a Director. 23.3* Consent of Eddie Einhorn to be named as a Director. 23.4 Consent of Mark Hershhorn to be named as a Director. 24.1 Power of Attorney relating to the Company (included as part of the signature page hereof). 27* Financial Data Schedule.
- ------ * Filed herewith. EX-3.2 2 BY-LAWS AMENDED AND RESTATED BY-LAWS OF VISUAL EDGE SYSTEMS INC. ARTICLE I Stockholders SECTION 1. Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date, at such time and at such place within or without the State of Delaware as may be designated by the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as may be properly brought before the meeting. SECTION 2. Special Meetings. Except as otherwise provided in the Certificate of Incorporation, a special meeting of the stockholders of the Corporation may be called at any time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer and shall be called by the Chairman of the Board, the Chief Executive Officer or the Secretary at the request in writing of stockholders holding together at least twenty-five percent of the number of shares of stock outstanding and entitled to vote at such meeting. Any special meeting of the stockholders shall be held on such date, at such time and at such place within or without the State of Delaware as the Board of Directors or the officer calling the meeting may designate. At a special meeting of the stockholders, no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting unless all of the stockholders are present in person or by proxy, in which case any and all business may be transacted at the meeting even though the meeting is held without notice. SECTION 3. Notice of Meetings. Except as otherwise provided in these By-Laws or by law, a written notice of each meeting of the stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of the Corporation entitled to vote at such meeting at his address as it appears on the records of the Corporation. The notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. SECTION 4. Quorum. At any meeting of the stockholders, the holders of a majority in number of the total outstanding shares of stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes, unless the representation of a larger number of shares shall be required by law, by the Certificate of Incorporation or by these By-Laws, in which case the representation of the number of shares so required shall constitute a quorum; provided that at any meeting -2- of the stockholders at which the holders of any class of stock of the Corporation shall be entitled to vote separately as a class, the holders of a majority in number of the total outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum for purposes of such class vote unless the representation of a larger number of shares of such class shall be required by law, by the Certificate of Incorporation or by these By-Laws. SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present in person or represented at any meeting of the stockholders, the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting may adjourn from time to time; provided, however, that if the holders of any class of stock of the Corporation are entitled to vote separately as a class upon any matter at such meeting, any adjournment of the meeting in respect of action by such class upon such matter shall be determined by the holders of a majority of the shares of such class present in person or represented by proxy and entitled to vote at such meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders, or the holders of any class of stock entitled to vote separately as a class, as the case may be, may transact any -3- business which might have been transacted by them at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. SECTION 6. Organization. The Chairman of the Board or, in his absence, the Chief Executive Officer, or, in the absence of both the Chairman of the Board and the Chief Executive Officer, the President shall call all meetings of the stockholders to order, and shall act as Chairman of such meetings. In the absence of the Chairman of the Board, the Chief Executive Officer and the President, the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall elect a Chairman. The Secretary of the Corporation shall act as Secretary of all meetings of the stockholders; but in the absence of the Secretary, the Chairman may appoint any person to act as Secretary of the meeting. It shall be the duty of the Secretary to prepare and make, at least ten days before every meeting of stockholders, a complete list of stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered -4- in the name of each stockholder. Such list shall be open, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held, for the ten days next preceding the meeting, to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, and shall be produced and kept at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. SECTION 7. Voting. Except as otherwise provided in the Certificate of Incorporation or by law, each stockholder shall be entitled to one vote for each share of the capital stock of the Corporation registered in the name of such stockholder upon the books of the Corporation. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. When directed by the presiding officer or upon the demand of any stockholder, the vote upon any matter before a meeting of stockholders shall be by ballot. Except as otherwise provided by law or by the Certificate of Incorporation, Directors shall be elected by a plurality of the votes cast at a meeting of stockholders by the stockholders entitled to vote in the election -5- and, whenever any corporate action, other than the election of Directors is to be taken, it shall be authorized by a majority of the votes cast at a meeting of stockholders by the stockholders entitled to vote thereon. Shares of the capital stock of the Corporation belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. SECTION 8. Inspectors. When required by law or directed by the presiding officer or upon the demand of any stockholder entitled to vote, but not otherwise, the polls shall be opened and closed, the proxies and ballots shall be received and taken in charge, and all questions touching the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided at any meeting of the stockholders by two or more Inspectors who may be appointed by the Board of Directors before the meeting, or if not so appointed, shall be appointed by the presiding officer at the meeting. If any person so appointed fails to appear or act, the vacancy may be filled by appointment in like manner. -6- SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken or which may be taken at any annual or special meeting of the stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of any such corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II Board of Directors SECTION 1. Number and Term of Office. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors, none of whom need be stockholders of the Corporation. The number of Directors constituting the Board of Directors shall be fixed from time to time by resolution passed by a majority of the Board of Directors. The Directors shall, except as hereinafter otherwise provided for filling vacancies, be elected at the annual meeting of stockholders, and shall hold office until their respective -7- successors are elected and qualified or until their earlier resignation or removal. SECTION 2. Removal, Vacancies and Additional Directors. The stockholders may, at any special meeting the notice of which shall state that it is called for that purpose, remove, with or without cause, any Director and fill the vacancy; provided that whenever any Director shall have been elected by the holders of any class of stock of the Corporation voting separately as a class under the provisions of the Certificate of Incorporation, such Director may be removed and the vacancy filled only by the holders of that class of stock voting separately as a class. Vacancies caused by any such removal and not filled by the stockholders at the meeting at which such removal shall have been made, or any vacancy caused by the death or resignation of any Director or for any other reason, and any newly created directorship resulting from any increase in the authorized number of Directors, may be filled by the affirmative vote of a majority of the Directors then in office, although less than a quorum, and any Director so elected to fill any such vacancy or newly created directorship shall hold office until his successor is elected and qualified or until his earlier resignation or removal. When one or more Directors shall resign effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill -8- such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office as herein provided in connection with the filling of other vacancies. SECTION 3. Place of Meeting. The Board of Directors may hold its meetings in such place or places in the State of Delaware or outside the state of Delaware as the Board from time to time shall determine. SECTION 4. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as the Board from time to time by resolution shall determine. No notice shall be required for any regular meeting of the Board of Directors; but a copy of every resolution fixing or changing the time or place of regular meetings shall be mailed to every Director at least five days before the first meeting held in pursuance thereof. SECTION 5. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board, the Chief Executive Officer, the President or by any two of the Directors then in office. Notice of the day, hour and place of holding of each special meeting shall be given by mailing the same at least two -9- days before the meeting or by causing the same to be transmitted by telegraph, cable or wireless at least one day before the meeting to each Director. Unless otherwise indicated in the notice thereof, any and all business other than an amendment of these By-Laws may be transacted at any special meeting, and an amendment of these By-Laws may be acted upon if the notice of the meeting shall have stated that the amendment of these By-Laws is one of the purposes of the meeting. At any meeting at which every Director shall be present, even though without any notice, any business may be transacted, including the amendment of these By-Laws. SECTION 6. Quorum. Subject to the provisions of Section 2 of this Article II, a majority of the members of the Board of Directors in office (but, unless the Board shall consist solely of one Director, in no case less than one-third of the total number of Directors nor less than two Directors) shall constitute a quorum for the transaction of business and the vote of the majority of the Directors present at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors. If at any meeting of the Board there is less than a quorum present, a majority of those present may adjourn the meeting from time to time. SECTION 7. Organization. The Chairman of the Board or, in his absence, the Chief Executive Officer, or, in the absence -10- of both the Chairman of the Board and the Chief Executive Officer, the President shall preside at all meetings of the Board of Directors. In the absence of the Chairman of the Board, the Chief Executive Officer and the President, a Chairman shall be elected from the Directors present. The Secretary of the Corporation shall act as Secretary of all meetings of the Directors; but in the absence of the Secretary, the Chairman may appoint any person to act as Secretary of the meeting. SECTION 8. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided by resolution passed by a majority of the whole Board, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and the affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but -11- no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending these By-Laws; and unless such resolution, these By-Laws, or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. SECTION 9. Conference Telephone Meetings. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws, the members of the Board of Directors or any committee designated by the Board, may participate in a meeting of the Board or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. SECTION 10. Consent of Directors or Committee in Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, -12- or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee, as the case may be. ARTICLE III Officers SECTION 1. Officers. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a Chief Operating Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer, and such additional officers, if any, as shall be elected by the Board of Directors pursuant to the provisions of Section 9 of this Article III. The Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer, the President, one or more Vice Presidents, the Secretary and the Treasurer shall be elected by the Board of Directors at its first meeting after each annual meeting of the stockholders. The failure to hold such election shall not of itself terminate the term of office of any officer. All officers shall hold office at the pleasure of the Board of Directors. Any officer may resign at any time upon written notice to the Corporation. Officers may, but need not, be Directors. Any number of offices may be held by the same person. -13- All officers, agents and employees shall be subject to removal, with or without cause, at any time by the Board of Directors. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. All agents and employees other than officers elected by the Board of Directors shall also be subject to removal, with or without cause, at any time by the officers appointing them. Any vacancy caused by the death of any officer, his resignation, his removal, or otherwise, may be filled by the Board of Directors, and any officer so elected shall hold office at the pleasure of the Board of Directors. In addition to the powers and duties of the officers of the Corporation as set forth in these By-Laws, the officers shall have such authority and shall perform such duties as from time to time may be determined by the Board of Directors. SECTION 2. Powers and Duties of the Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and at all meetings of the Board of Directors and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors. -14- SECTION 3. Powers and Duties of the Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general charge and control of all its business and affairs and shall have all powers and shall perform all duties incident to the office of Chief Executive Officer. In the absence of the Chairman of the Board he shall preside at all meetings of the stockholders and at all meetings of the Board of Directors and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors. SECTION 4. Powers and Duties of the Chief Operating Officer. The Chief Operating Officer shall be the chief operating officer of the Corporation and, subject to the control of the Board of Directors and the Chief Executive Officer, shall have general charge and control of all its operations, shall have all powers and shall perform all duties incident to the office of Chief Operating Officer and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws, by the Board of Directors or by the Chief Executive Officer. SECTION 5. Powers and Duties of the President. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside at all meetings of the -15- stockholders and at all meetings of the Board of Directors and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws, by the Board of Directors, by the Chairman of the Board or by the Chief Executive Officer. SECTION 6. Powers and Duties of the Vice Presidents. Each Vice President shall have all powers and shall perform all duties incident to the office of Vice President and shall have such other powers and perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. SECTION 7. Powers and Duties of the Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and the minutes of all meetings of the stockholders in books provided for that purpose; he shall attend to the giving or serving of all notices of the Corporation; he shall have custody of the corporate seal of the Corporation and shall affix the same to such documents and other papers as the Board of Directors, the Chief Executive Officer or the President shall authorize and direct; he shall have charge of the stock certificate books, transfer books and stock ledgers and such other books and papers as the Board of Directors, the Chief Executive Officer or the President shall direct, all of which shall at all reasonable -16- times be open to the examination of any Director, upon application, at the office of the Corporation during business hours; and whenever required by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President shall render statements of such accounts; and he shall have all powers and shall perform all duties incident to the office of Secretary and shall also have such other powers and shall perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. SECTION 8. Powers and Duties of the Treasurer. The Treasurer shall have custody of, and when proper shall pay out, disburse or otherwise dispose of, all funds and securities of the Corporation which may have come into his hands; he may endorse on behalf of the Corporation for collection checks, notes and other obligations and shall deposit the same to the credit of the Corporation in such bank or banks or depositary or depositaries as the Board of Directors may designate; he shall sign all receipts and vouchers for payments made to the Corporation; he shall enter or cause to be entered regularly in the books of the Corporation kept for the purpose full and accurate accounts of all moneys received or paid or otherwise disposed of by him and whenever required by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President shall render -17- statements of such accounts; he shall, at all reasonable times, exhibit his books and accounts to any Director of the Corporation upon application at the office of the Corporation during business hours; and he shall have all powers and he shall perform all duties incident to the office of Treasurer and shall also have such other powers and shall perform such other duties as may from time to time be assigned to him by these By-Laws or by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. SECTION 9. Additional Officers. The Board of Directors may from time to time elect such other officers (who may but need not be Directors), including a Controller, Assistant Treasurers, Assistant Secretaries and Assistant Controllers, as the Board may deem advisable and such officers shall have such authority and shall perform such duties as may from time to time be assigned to them by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. The Board of Directors may from time to time by resolution delegate to any Assistant Treasurer or Assistant Treasurers any of the powers or duties herein assigned to the Treasurer; and may similarly delegate to any Assistant Secretary or Assistant Secretaries any of the powers or duties herein assigned to the Secretary. -18- SECTION 10. Giving of Bond by Officers. All officers of the Corporation, if required to do so by the Board of Directors, shall furnish bonds to the Corporation for the faithful performance of their duties, in such penalties and with such conditions and security as the Board shall require. SECTION 11. Voting Upon Stocks. Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meeting of stockholders of any corporation in which the Corporation may hold stock, and at any such meeting shall possess and may exercise, in person or by proxy, any and all rights, powers and privileges incident to the ownership of such stock. The Board of Directors may from time to time, by resolution, confer like powers upon any other person or persons. SECTION 12. Compensation of Officers. The officers of the Corporation shall be entitled to receive such compensation for their services as shall from time to time be determined by the Board of Directors. -19- ARTICLE IV Indemnification of Directors and Officers Section 1. Nature of Indemnity. The Corporation shall 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, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was or has agreed to become a Director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a Director or officer of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, and may indemnify any person who was or is a party or is threatened to be made a party to such an action, suit or proceeding by reason of the fact that he is or was or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, 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 -20- 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 Corporation to procure a judgment in its favor (1) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (2) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware 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 the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which 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 reasonable cause to believe that his conduct was unlawful. -21- Section 2. Successful Defense. To the extent that a Director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 of this Article IV or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 3. Determination that Indemnification is Proper. Any indemnification of a Director or officer of the Corporation under Section 1 of this Article IV (unless ordered by a court) shall be made by the Corporation unless a determination is made that indemnification of the Director or officer is not proper in the circumstances because he has not met the applicable standard of conduct set forth in Section 1. Any indemnification of an employee or agent of the Corporation under Section 1 (unless ordered by a court) may be made by the Corporation upon a determination that indemnification of the employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1. Any such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. -22- Section 4. Advance Payment of Expenses. Unless the Board of Directors otherwise determines in a specific case, expenses incurred by a Director or officer in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article IV. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. The Board of Directors may authorize the Corporation's legal counsel to represent such Director, officer, employee or agent in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. Section 5. Survival; Preservation of Other Rights. The foregoing indemnification provisions shall be deemed to be a contract between the Corporation and each Director, officer, employee and agent who serves in any such capacity at any time while these provisions as well as the relevant provisions of the Delaware General Corporation Law are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or -23- previously existing or any action, suit, or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a contract right may not be modified retroactively without the consent of such Director, officer, employee or agent. The indemnification provided by this Article IV shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The corporation may enter into an agreement with any of its Directors, officers, employees or agents providing for indemnification and advancement of expenses, including attorneys fees, that may change, enhance, qualify or limit any right to indemnification or advancement of expenses created by this Article IV. Section 6. Severability. If this Article IV or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Director or officer and may indemnify each employee or agent of the Corporation as to costs, charges and -24- expenses (including attorneys' fees), judgment, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article IV that shall not have been invalidated and to the fullest extent permitted by applicable law. Section 7. Subrogation. In the event of payment of indemnification to a person described in Section 1 of this Article IV, the Corporation shall be subrogated to the extent of such payment to any right of recovery such person may have and such person, as a condition of receiving indemnification from the Corporation, shall execute all documents and do all things that the Corporation may deem necessary or desirable to perfect such right of recovery, including the execution of such documents necessary to enable the Corporation effectively to enforce any such recovery. Section 8. No Duplication of Payments. The Corporation shall not be liable under this Article IV to make any payment in connection with any claim made against a person described in Section 1 of this Article IV to the extent such person has otherwise received payment (under any insurance policy, by-law or otherwise) of the amounts otherwise payable as indemnity hereunder. -25- ARTICLE V Stock-Seal-Fiscal Year SECTION 1. Certificates For Shares of Stock. The certificates for shares of stock of the Corporation shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be approved by the Board of Directors. All certificates shall be signed by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be valid unless so signed. In case any officer or officers who shall have signed any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates had not ceased to be such officer or officers of the Corporation. All certificates for shares of stock shall be consecutively numbered as the same are issued. The name of the person owning the shares represented thereby with the number of such shares and the date of issue thereof shall be entered on the books of the Corporation. -26- Except as hereinafter provided, all certificates surrendered to the Corporation for transfer shall be cancelled, and no new certificates shall be issued until former certificates for the same number of shares have been surrendered and cancelled. SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person owning a certificate for shares of stock of the Corporation alleges that it has been lost, stolen or destroyed, he shall file in the office of the Corporation an affidavit setting forth, to the best of his knowledge and belief, the time, place and circumstances of the loss, theft or destruction, and, if required by the Board of Directors, a bond of indemnity or other indemnification sufficient in the opinion of the Board of Directors to indemnify the Corporation and its agents against any claim that may be made against it or them on account of the alleged loss, theft or destruction of any such certificate or the issuance of a new certificate in replacement therefor. Thereupon the Corporation may cause to be issued to such person a new certificate in replacement for the certificate alleged to have been lost, stolen or destroyed. Upon the stub of every new certificate so issued shall be noted the fact of such issue and the number, date and the name of the registered owner of the lost, stolen or destroyed certificate in lieu of which the new certificate is issued. -27- SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof, in person or by his attorney duly authorized in writing, upon surrender and cancellation of certificates for the number of shares of stock to be transferred, except as provided in Section 2 of this Article IV. SECTION 4. Regulations. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. SECTION 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, as the case may be, the Board of Directors may fix, in advance, a record date, which shall not be (i) more than sixty (60) nor less than ten (10) days before the date of such meeting, or (ii) in the case of corporate action to be taken by consent in writing without a meeting, prior to, or more than ten (10) days after, the date upon which the resolution -28- fixing the record date is adopted by the Board of Directors, or (iii) more than sixty (60) days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the Corporation; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors shall have power to declare and pay dividends upon shares of stock of the Corporation, but only out of funds available for the payment of dividends as provided by law. -29- Subject to the provisions of the Certificate of Incorporation, any dividends declared upon the stock of the Corporation shall be payable on such date or dates as the Board of Directors shall determine. If the date fixed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday. SECTION 7. Corporate Seal. The Board of Directors shall provide a suitable seal, containing the name of the Corporation, which seal shall be kept in the custody of the Secretary. A duplicate of the seal may be kept and be used by any officer of the Corporation designated by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President. SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by resolution shall determine. ARTICLE VI Miscellaneous Provisions SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange, acceptances, notes or other obligations or orders -30- for the payment of money shall be signed and, if so required by the Board of Directors, countersigned by such officers of the Corporation and/or other persons as the Board of Directors from time to time shall designate. Checks, drafts, bills of exchange, acceptances, notes, obligations and orders for the payment of money made payable to the Corporation may be endorsed for deposit to the credit of the Corporation with a duly authorized depository by the Treasurer and/or such other officers or persons as the Board of Directors from time to time may designate. SECTION 2. Loans. No loans and no renewals of any loans shall be contracted on behalf of the Corporation except as authorized by the Board of Directors. When authorized so to do, any officer or agent of the Corporation may effect loans and advances for the Corporation from any bank, trust company or other institution or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the Corporation. When authorized so to do, any officer or agent of the Corporation may pledge, hypothecate or transfer, as security for the payment of any and all loans, advances, indebtedness and liabilities of the Corporation, any and all stocks, securities and other personal property at any time held by the Corporation, -31- and to that end may endorse, assign and deliver the same. Such authority may be general or confined to specific instances. Section 3. Contracts. Except as otherwise provided in these By-Laws or by law or as otherwise directed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or any Vice President shall be authorized to execute and deliver, in the name and on behalf of the Corporation, all agreements, bonds, contracts, deeds, mortgages, and other instruments, either for the Corporation's own account or in a fiduciary or other capacity, and the seal of the Corporation, if appropriate, shall be affixed thereto by any of such officers or the Secretary or an Assistant Secretary. The Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or any Vice President designated by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President may authorize any other officer, employee or agent to execute and deliver, in the name and on behalf of the Corporation, agreements, bonds, contracts, deeds, mortgages, and other instruments, either for the Corporation's own account or in a fiduciary or other capacity, and, if appropriate, to affix the seal of the Corporation thereto. The grant of such authority by the Board or any such officer may be general or confined to specific instances. -32- SECTION 4. Waivers of Notice. Whenever any notice whatever is required to be given by law, by the Certificate of Incorporation or by these By-Laws to any person or persons, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. SECTION 5. Offices Outside of Delaware. Except as otherwise required by the laws of the State of Delaware, the Corporation may have an office or offices and keep its books, documents and papers outside of the State of Delaware at such place or places as from time to time may be determined by the Board of Directors or the Chairman of the Board. ARTICLE VII Amendments These By-Laws and any amendment thereof may be altered, amended or repealed, or new By-Laws may be adopted, by the Board of Directors at any regular or special meeting by the affirmative vote of a majority of all of the members of the Board, provided in the case of any special meeting at which all of the members of the Board are not present, that the notice of such meeting shall have stated that the amendment of these By-Laws was one of the purposes of the meeting; but these By-Laws and any amendment thereof, may be altered, amended or repealed or new By-Laws may be adopted by the holders of a majority of the total outstanding -33- stock of the Corporation entitled to vote at any annual meeting or at any special meeting, provided, in the case of any special meeting, that notice of such proposed alteration, amendment, repeal or adoption is included in the notice of the meeting. -34- EX-4.1 3 FORM OF SPECIMEN COMMON STOCK CERTIFICATE LOGO COMMON STOCK COMMON STOCK Visual Edge Systems Inc. NUMBER SHARES Visual Edge Systems Inc. INCORPORATED UNDER THE LAWS CUSIP 928430 10 7 OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFIES that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.01 PER SHARE OF VISUAL EDGE SYSTEMS INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Certificate of Incorporation of the Corporation and any amendments thereto, to all of which the holder, by acceptance hereof, assents. This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ Earl Takefman /s/ Alan Lubell - ------------------------------------- ------------------------------------ CHIEF EXECUTIVE OFFICER AND SECRETARY CHAIRMAN OF THE BOARD CORPORATE SEAL VISUAL EDGE SYSTEMS INC. 1994 DELAWARE Countersigned and Registered: AMERICAN STOCK TRANSFER & TRUST COMPANY (New York, N.Y.) Transfer Agent and Registrar By Authorized Officer VISUAL EDGE SYSTEMS INC. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM- as tenants in common UNIF GIFT MIN ACT- _____Custodian________ TEN ENT- as tenants by the entireties (Cust) (Minor) JT TEN- as joint tenants with under Uniform Gifts to Minors right of survivorship and Act__________________________ not as tenants in common (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED,___________________ hereby sell, assign and tranfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________________________________________________ _______________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE) _______________________________________________________________________________ _______________________________________________________________________________ _________________________________________________________________________Shares of the capital stock represented by the within Certificate and do hereby irrevocably constitute and appoint______________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ________________________________ _______________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: ______________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-4.2 4 FORM OF SPECIMEN REDEEMABLE WARRANT CERTIFICATE NUMBER WARRANT V CUSIP 928430 11 5 [LOGO] VISUAL EDGE Systems Inc. VOID AFTER 5:00 P.M., EASTERN TIME ON , 2000 REDEEMABLE WARRANT CERTIFICATE FOR PURCHASE OF SHARES OF COMMON STOCK Visual Edge Systems Inc. THIS CERTIFIES THAT, for value received, or registered assigns, is the owner of the number of warrants set forth above. Each Warrant (subject to adjustments as hereinafter referred to) entitles the owner hereof to purchase at any time from , 1997 until 5:00 p.m. Eastern Time on , 2000 one fully paid and non-assessable share of common stock (the "Common Stock") of Visual Edge Systems Inc., a Delaware corporation (the "Company") (such shares of Common Stock being hereinafter referred to as "Shares" or a "Share"), upon payment of the warrant price (as hereinafter described), provided, however, that under certain conditions set forth in the Warrant Agreement hereinafter mentioned, the number of Shares purchasable upon the exercise of this Warrant may be increased or reduced and the warrant price may be adjusted. Subject to adjustment as aforesaid, the warrant price per Share (hereinafter called the "Warrant Price") shall be $ per Share if exercised on or before 5:00 p.m. Eastern Time on , 2000. As provided in said Warrant Agreement, the Warrant Price is payable upon the exercise of the Warrant, either in cash or by certified check or bank draft to the order of the Company. Under certain conditions set forth in the Warrant Agreement, this Warrant may be called for redemption on or after , 1997, at a redemption price of $0.10 per Warrant upon 30 days' written notice. Upon the exercise of this Warrant, the form of election to purchase on the reverse hereof must be properly completed and executed. In the event that this Warrant is exercised in respect of not less than all of such Shares, a new Warrant for the remaining number of Shares will be issued on such surrender. This Warrant is issued under and the rights represented hereby are subject to the terms and provisions contained in a Warrant Agreement dated as of , 1996, by and among the Company, American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent") and Whale Securities Co., L.P., all upon the terms and provisions of which the registered holder of this Warrant, by acceptance hereof, assents. Reference is hereby made to said Warrant Agreement for a more complete statement of the rights and limitations of rights of the registered holders hereof, the rights and duties of the Warrant Agent and the rights and obligations of the Company thereunder. Copies of said Warrant Agreement are on file at the office of the Warrant Agent. The Company shall not be required upon the exercise of this Warrant to issue fractions of Shares, but shall make adjustment therefor in cash on the basis of the current market value of any fractional interest as provided in the Warrant Agreement. This Warrant is transferable at the office of the Warrant Agent (or of its successor as Warrant Agent) by the registered holder hereof in person or by attorney duly authorized in writing, but only in the manner and subject to the limitations provided in the Warrant Agreement and upon surrender of this Warrant and the payment of any transfer taxes. Upon any such transfer, a new Warrant or new Warrants of different denominations, of this tenor and representing in the aggregate the right to purchase a like number of Shares will be issued to the transferee in exchange for this Warrant. This Warrant, when surrendered at the office of the Warrant Agent (or its successor as Warrant Agent) by the registered holder hereof in person or by attorney duly authorized in writing, may be exchanged in the manner and subject to the limitations provided in the Warrant Agreement, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Shares equal to the number of such Warrants. If this Warrant Certificate shall be surrendered for exercise within any period during which the transfer books for the Company's Common Stock or other securities purchasable upon the exercise of the Warrants are closed for any purpose, the Company shall not be required to make delivery of certificates for the securities purchasable upon exercise until the date of the reopening of said transfer books. The holder of this Warrant shall not be entitled to any of the rights of a shareholder of the Company prior to the exercise hereof. This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent. WITNESS the facsimile seal of the Company and the facsimile signatures of its duly authorized officers. VISUAL EDGE SYSTEMS INC. Dated BY BY /S/ EARL TAKEFMAN /S/ ALAN LUBELL - ------------------------------ ----------------------------- EARL TAKEFMAN ALAN LUBELL CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD AND SECRETARY COUNTERSIGNED: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, N.Y.) AS WARRANT AGENT BY AUTHORIZED SIGNATORY [SEAL] ELECTION TO PURCHASE To Be Executed by the Registered Holder in Order to Exercise Warrants To: Visual Edge Systems Inc. c/o: American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant(s) for and to purchase thereunder, ______________________ shares of Common Stock provided for therein and tenders herewith payment of the purchase price in full to the order of the Corporation and requests that certificates for such shares shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________________ ______________________________________________________________________________ (Please Print or Typewrite) and be delivered to___________________________________________________________ (Name) at____________________________________________________________________________ (Street Address) (City) (State) (Zip Code) and, if said number of shares shall not be all the shares purchasable thereunder, that a new Warrant for the balance remaining of the shares purchasable under the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below: The undersigned represents that the exercise of the within Warrant was solicited by a member of the National Association of Securities Dealers. If not solicited by an NASD member, please write "unsolicited" in the space below. Unless otherwise indicated by listing the name of another NASD member firm, it will be assumed that the exercise was solicited by Whale Securities Co., L.P. Dated:_____________________, 19___ Signature:_________________________________ Name:_____________________________ Note: The above signature must (Please Print or Typewrite) correspond with the name as written upon the face of this Address:__________________________ Warrant or with the name of the (Street) assignee appearing in the assignment form below in every __________________________________ particular without alteration (City) (State) (Zip Code) or enlargement or any change whatever. *Signature Guaranteed:____________________ ________________________________ ________________________________ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ASSIGNMENT For value received_______________________________________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________ _______________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee _______________________________________________________________________________ ___________________________________________________________________(__) Warrants represented by the within Warrant certificate, together with all right, title and interest therein, and do hereby irrevocably constitute and appoint _______________________________________________________________________attorney, to transfer said Warrant on the books of the within named Corporation, with full power of substitution in the premises. Dated:___________, 19___ Signature:_______________________________ Note: The above signature must correspond with the name as written upon the face of this Warrant in every particular without alteration or enlargement or any change whatever. *Signature Guaranteed:___________________ *In case of assignment, or if the Common Stock issued upon exercise is to be registered in the name of a person other than the holder, the holder's signature must be guaranteed by a commercial bank, trust company or an NASD member firm. EX-5.1 5 OPINION OF MORGAN, LEWIS & BOCKIUS LLP July 9, 1996 Visual Edge Systems Inc. 7 West 51st Street New York, NY 10019 Re: Issuance of Shares Pursuant to Registration Statement on Form SB-2 Ladies and Gentlemen: We have acted as counsel to Visual Edge Systems Inc., a Delaware corporation (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), of a Registration Statement on Form SB-2 (the "Registration Statement") relating to the public offering by the Company of an aggregate of 1,520,000 shares (including 220,000 shares to be sold by certain selling stockholders) (the "Shares") of the Company's Common Stock, par value $.01 per share (the "Common Stock"), and an aggregate of 1,300,000 Warrants (the "Warrants") to purchase 1,300,000 shares of Common Stock. In so acting, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the Certificate of Incorporation of the Company, as amended, the By-Laws of the Company, as amended, and such other documents, records, certificates and other instruments as in our judgment are necessary or appropriate for purposes of this opinion. Based on the foregoing, we are of the opinion that the Shares have been duly authorized by the Company and, when issued and paid for as contemplated by the Registration Statement, will be duly and validly issued and fully paid and non-assessable. In addition, we are of the opinion that the Warrants have been duly authorized by the Company and, when issued and paid for as contemplated by the Registration Statement, will be duly and validly issued. We render this opinion as members of the Bar of the State of New York and express no opinion as to any law other than the General Corporation Law of the State of Delaware. Visual Edge Systems Inc. July 9, 1996 Page 2 We consent to the use of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not admit that we are acting within the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ MORGAN, LEWIS & BOCKIUS LLP ---------------------------------- Morgan, Lewis & Bockius LLP EX-10.1 6 LICENSE AGREEMENT EXHIBIT 10.1 LICENSE AGREEMENT THIS AGREEMENT is made as of March 1, 1995 (the "Agreement"), by and between Greg Norman and Great White Shark Enterprises, Inc. (collectively "Norman") and Visual Edge Systems Inc., a Delaware corporation ("Licensee"). RECITALS A. Norman holds and controls the right to use, and to license the use of, Greg Norman's name, image and likeness, caricature, endorsement, signature, photographs and all biographical materials and all facsimiles thereof and all goodwill pertaining thereto, for the purpose of trading on his name, reputation and goodwill. B. Subject to the terms and conditions hereinafter set forth, Licensee wishes to license from Norman, and Norman is willing to grant to the Licensee, certain endorsement rights which may be exploited in connection with the promotion of the Concept (as defined hereafter). AGREEMENT In consideration of the above recitals and mutual promises and agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS I.1 In this Agreement, unless otherwise specified or expressly required by the context, all defined terms appearing in this Agreement shall have the meanings ascribed thereto elsewhere herein or in this Article I, as applicable: I.1.1 "Advance' shall have the meaning ascribed to it in Article 2.1 hereof; I.1.2 "Affiliate" means any officer, director, or principal shareholder of Licensee, or any other person who (or which) controls, is controlled by or is under the common control with (a) Licensee or (b) any such officer director or principal shareholder; I.1.3 "Agreement" means this Agreement as may be amended or supplemented; I.1.4 "Authorized Territory" means the entire world; I.1.5 "Business Day" means any day other than a Saturday, Sunday or any other day which is specified or provided for as a holiday by the United States, Canadian, or Florida State governments; I.1.6 "Canadian Trade Marks Act" means the Trade Marks Act of Canada, cited as 1952-53 c. 29 (Can.), as amended from time to time, and the "American Trade Marks Act" means that certain act set forth at 15 U.S.C.A. s.1051 et seq., as amended from time to time, or any successor statutory scheme to either thereof; I.1.7 "Concept" means an automated, operator less videotaping system that produces the Product consistent with the section entitled "System Design" of Section III. "Product Description" in the Business Plan of Golf Vision, Inc. dated January 27, 1995; I.1.8 "Contract Quarter" means the period of three (3) consecutive months following the commencement of the Contract Year. I.1.9 "Contract Year" means the period commencing on the first day of the first month following the Equity Date. I.1.10 "Customer" means any Person to whom or which a Sale is made; I.1.11 "Dollars" or "$" means legal currency of United States; I.1.12 "Equity" means a share certificate representing ten (10%) percent of the issued and outstanding participating shares in the capital stock of the Licensee. The shares shall be non-voting but shall have all other rights and privileges of other shares in the Licensee and shall be issued to Norman under the terms as described in the attached letter I.1.13 "Equity Date" means the date referred to in Paragraph 2.1 hereof; 1.1.14 "Guaranteed Fees" means the guaranteed non-refundable fees payable by Licensee pursuant to Paragraph 5.1 hereof; I.1.15 "Initial Term" shall have the meaning ascribed to it in Paragraph 2.1 hereof; I.1.16 "Legal Opinion" means a letter of opinion signed by the Attorneys for the Licensee attesting to the fact that the share certificate registered in the name of Norman attached to such letter, represents ten (10%) percent of the issued and outstanding participating non-voting shares in the capital stock of the Licensee, but have all other rights and privileges of other shares in the Licensee. I.1.17 "Net Revenues" means total revenues, computed in United States Dollars, derived by Licensee and its Affiliates from the Sale of the Products at retail to Customers, which may exclude customary discounts, allowances, payments to golf club or range owners or golf professionals, sales taxes and returns of Products actually credited to Customers, provided that the total of these exclusions from the total Sales revenues of Licensee shall 2 not be greater than 20% of the total retail Sales of the Product. I.1.18 "Norman Identification" shall mean any words or symbols or photographic or graphic representations, and Norman's signature or statements by Norman or combination thereof which identify Norman such as, for example, Norman's name and likeness, including any non-registered nicknames such as "Shark" or "Great White Shark", and including the right of use of any trademarks which are currently registered in and owned by Norman and which are listed on Schedule A to this Agreement and all common law rights therein and thereto. The Norman Identification shall not include the Shark Logo which is exclusively licensed to Reebok International Ltd. I.1.19 "Person" or "Persons" mean severally or collectively, as applicable, an individual, partnership, corporation, association, trust or other entity, other than the parties hereto; I.1.20 "Personal Appearance" means Greg Norman's appearance at any gathering sponsored, hosted or organized by Licensee for promotional or client-relations purposes, which appearance shall occur on a calendar day during the Term, shall not exceed six (6) hours in duration and shall not require Greg Norman's presence prior to 9:00 a.m. or later than 9:00 p.m. local time on such day; I.1.21 "Photography Session" means Greg Norman's participation in a video taping session in which film will be taken of Greg Norman to be used in connection with the sale and promotion of the Concept, which session shall occur on a Business Day during the Term, shall not exceed eight (8) hours in duration and shall not require Greg Norman's presence prior to 9:00 a.m. or later than 9:00 p.m. local time on such day; I.1.22 "Product" or "Products" means severally a video tape delivered to a consumer upon use of the Concept which has Greg Norman's golf swing or any other golf professional's swing compared to the user's golf swing as described in the section entitled "The Video Golf Lesson" of Section III. of the "Product Description" in the Business Plan for Golf Vision, Inc. dated January 27, 1995; I.1.23 "Provision" or "Provisions" means severally or collectively as applicable, all terms, conditions, provisions, covenants, obligations, undertakings, warranties and representations contained in this Agreement; I.1.24 "Prototypes" means a maximum of six prototypes of the Concept to be manufactured and tested by the Licensee during the Initial Term: I.1.25 "Right" or "Rights" means severally or collectively, as applicable, the right to use the Norman Identification and Trade Marks for the purposes of producing the Concept and promoting and advertising the Concept to the public in the Authorized Territory through the use of radio and television commercials and still photographs for point of sale 3 and/or print advertising materials, including posters, programs, sales materials and advertisements in consumer and trade magazines and newspapers; I.1.26 "Rights Fees" means the Guaranteed Fees or the Royalties whichever is the greater; I.1.27 "Royalty" or "Royalties' means severally or collectively, as applicable, the royalty payments required to be made pursuant to Paragraph 5.2 hereof; I.1.28 "Royalty Statement" or "Royalty Statements" means severally and collectively, as applicable, the true, accurate and complete statements furnished by Licensee to Norman, setting forth the quantities of the Product sold during the period covered thereby, each of which statements shall be certified as accurate by the Chief Financial Officer of Licensee or its nominee, and shall be delivered concurrently with the payment of Royalties pursuant to Paragraph 5.4 hereof; 1.1.29 "Sale" or "Sales" mean severally or collectively, as applicable, a sale or sales of the Product made to any person within the Authorized Territory; 1.1.30 "Trade Mark" or "Trade Marks" mean severally or collectively, as applicable, those certain registered and unregistered trade marks, trade names, logos and insignias relating to or associated with Norman described in Exhibit "A" attached hereto (and not including the Trade Mark known as the Shark Logo which is exclusively licensed to Reebok International Ltd.), including any and all trade marks, trade names, service marks or service names which Norman shall register or in which Norman shall have a proprietary right after the date hereof, the use and conditions of use of which are stipulated in Article IX hereof; but said terms do not refer to any trade marks, trade names, logos or insignias which relate to or are associated with Licensee, which do not contain as a part thereof any of the Trade Marks, and which have no relationship or association with Norman; and "trade marks" and "trade names" have the meaning ascribed to them in the Canadian Trade Marks Act, the American Trade Marks Act and under all applicable laws, rules and regulations of each other jurisdiction having applicability; I.1.31 "Term" means the Initial Term together with any extension and/or renewal thereof: and I.1.32 "Workday" means any day, or portion thereof, during the Term on which a Personal Appearance or Photography Session shall be scheduled; provided that, if any combination of a Photography Session and Personal Appearance are scheduled on the same Workday, the total number of hours for which Greg Norman shall be required to render services shall not exceed eight (8) hours. 4 ARTICLE II TERM II.1 Subject to Article X hereof, the Initial Term of this Agreement shall commence as of the first day of March 1995 and shall expire upon the earlier of (i) the date upon which the Licensee delivers the Equity, the Legal Opinion and the first Contract Quarter's Guaranteed Fee ("Advance") to Norman, or (ii) June 30. 1996. II.2 In the event that the Licensee delivers the Equity, the Legal Opinion and the Advance to Norman prior to June 30, 1996, this Agreement shall be automatically renewed for a period of three (3) Contract Years commencing July 1, 1996 and expiring June 30, 1999, (the "first Term"). In addition, the Licensee shall have the right to renew this Agreement for two (2) additional periods of five (5) years each (the "Renewal Term"). Any such renewal shall be subject to the same terms and conditions as are contained herein save and except that the Guaranteed Fees for each Renewal Term shall be as set forth in Article V and there shall be no Advance paid at the commencement of any Renewal Term. Any such renewal shall be exercised by the Licensee forwarding written notice to Norman at least 60 days prior to the expiration of the First Term or any Renewal Term thereafter. ARTICLE III GRANT AND PERFORMANCE III.1 Subject to the Provisions of this Agreement, during the Term, Norman hereby grants to Licensee the right and license to use the Rights in association with the Concept and the promotion of the Concept in all manners and media of communication throughout the Authorized Territory. Licensee hereby retains Norman to provide the Rights and Norman hereby accepts such retainer. Notwithstanding the foregoing during the Initial Term the right and license herein granted shall be limited to the Prototypes. III.2 Subject to the Provisions of this Agreement and Licensee's compliance with all terms and conditions hereof, Licensee shall have the right, during the Initial Term to require Greg Norman to attend two (2) Photography Sessions. Following the Initial Term the Licensee shall have the right during each year of the Term, to require Norman to provide such services for two (2) Workdays per year, each of which shall occur in Palm Beach or Martin Counties, Florida. Notwithstanding the foregoing, Norman may in his sole discretion, agree to perform Workday services at a location other than Palm Beach or Martin Counties, Florida if requested to do so by Licensee. Licensee shall utilize such Workdays either for a Personal Appearance or Photography Session, in its sole discretion. If Licensee fails to use any Workday during a given year during the Term, Licensee shall not be entitled to carry over such unused Workday to subsequent fiscal years. Notwithstanding the foregoing, following the Initial Term, the Licensee shall have the right during the first year of the Term, to require Norman to provide such services for three (3) 5 Work Days per year provided that no more than two (2) of the three (3) Work Days shall be consecutive Work Days and provided further that during the next following year of the Term Norman shall only be required to provide such services for one (1) Work Day. III.3 Subject to the Provisions of this Agreement, Greg Norman shall attend a Personal Appearance or participate in a Photography Session on such date and at such time and place that Licensee requests. Licensee shall notify Norman of the proposed time and date of any such Workday at least thirty (30) days prior thereto, and thereafter: III.3.1 Norman's approval and confirmation of his availability on such date shall be deemed to have been given if, upon the expiration of ten (10) days following the date Norman receives notice thereof, Norman has not notified Licensee in writing if his unavailability is due to a prior bona fide contractual commitment or his illness or injury, and if Norman notifies Licensee of his unavailability, the requested Workday shall be rescheduled based upon Norman's availability; and III.3.2 if, notwithstanding Greg Norman's approval and confirmation of his availability on such a date as shall have been earlier given, Greg Norman's illness or injury prevents his performing services on the actual designated Workday, Greg Norman shall use his best efforts to attend a rescheduled Workday as soon as possible thereinafter, subject always to the prior bona fide contractual commitments of Norman, and in such event, Norman shall not be responsible for any costs or expenses incurred by Licensee in connection therewith III.4 Without limiting the generality of Paragraph 3.3 hereof, Licensee specifically acknowledges that Greg Norman's commitments to the Professional Golf Association Tour (PGA Tour) are prior bona fide contractual commitments within the meaning of Paragraph 3.3 hereof, and that Greg Norman will be deemed to be unavailable and unable to render personal services at any time during the entire PGA Tour season provided however, that Norman may, in his sole discretion, schedule a Workday during any such PGA Tour season, which Workday shall be mutually acceptable to Norman and Licensee. III.5 Licensee specifically acknowledges that all of the commitments now and hereafter existing of Norman to any and all other Persons entitled to use all or any portion of the Norman Identification and/or Norman personal services are prior bona fide contractual commitments within the meaning of paragraph 3.3 hereof; provided that, nothing contained herein shall be deemed a waiver by Licensee of the terms of Article VII hereof. III.6 Greg Norman agrees that he will use his best efforts to render his personal services hereunder in a competent, cooperative and artistic manner. Notwithstanding the foregoing and provided Greg Norman shall not be required to perform in any manner that may be likely to cause him bodily injury or illness, Greg Norman shall comply with whatever reasonable instructions, suggestions and recommendations Licensee may give in connection with the 6 rendition of his personal services. III.7 If Greg Norman is unable to provide his personal services hereunder as the result of the occurrence of any event or circumstance over which Norman has no control (including without limitation, war, civil commotion, riot, earthquake, fire, flood, inclement weather, strikes, work stoppage or slowdown, power outages or other acts of God), then Greg Norman shall not be deemed to be in breach hereunder as long as such personal services are provided by Greg Norman as soon after the termination or cessation of such event or circumstance as is reasonably practicable; and, in such event, the Term shall be extended for a period equal to the duration of any such event or circumstance. III.8 Greg Norman agrees that he shall cooperate and allow the Licensee to have issued a life insurance policy on the life of Greg Norman in the amount of $10,000,000.00. The Licensee shall pay for all premiums in respect of this life insurance policy and shall arrange that all medical tests which may be reasonably required by the insurers shall take place at Greg Norman's convenience at his home in Martin County, Florida. ARTICLE IV RIGHT OF PRIOR APPROVAL IV.1 Norman shall have the right of prior approval of the Prototypes and the final Concept, as well as the final form of the manner in which Licensee proposes to exercise or utilize the Rights on the advertising and promotion of the Prototypes and the Concept. Before finalizing the form of the Concept and of any and all advertising or promotional material which in any way includes or makes use of the Norman Identification, Licensee shall forward to Norman a written proposal setting forth: IV.1.1 the proposed final form of the Concept; IV.1.2 the proposed manner in which Greg Norman would be required to render personal services hereunder; IV.1.3 any proposed script, story board, layout or other material to be used in connection with the Concept. Norman's approval of any such proposal submitted by Licensee shall be conclusively deemed to have been given if Norman has not notified Licensee of his objection thereto within ten (10) days from the date Norman receives such written proposal. Licensee agrees that it shall not be unreasonable for Norman to withhold such approval if (a) Norman, in his sole and absolute discretion, deems that the granting of such approval would conflict with or cause Norman or Licensee to be in breach of any existing or pending contractual commitment between Norman or any other person or (b) the proposed advertising or promotional material (i) utilizes the Norman 7 Identification, or any part thereof, in conjunction, directly or indirectly, with the name, image, likeness or endorsements of any other Person, (ii) identifies, names, or otherwise refers to any supplier or manufacturer of any of the component parts or other accessories used in connection with, or forming part of, the Concept, (iii) requires Greg Norman to appear in clothing or to hold, or be photographed with, any golf equipment or paraphernalia such that Norman will be in breach of any other existing or pending contractual commitments, or (iv) is not consistent with Licensee's obligations under Paragraph 4.2 hereof. IV.2 Licensee shall, at all times: IV.2.1 act with good taste and judgment in using the Rights; IV.2.2 portray and depict Norman in the Concept and in all advertising and promotional materials in a positive and enhancing manner and not depict or refer to Norman in a negative, degrading, argumentative, or controversial fashion or manner; IV.2.3 ensure that the Rights will not, without Norman's prior consent (which consent may be withheld by Norman in his sole discretion, be used by Licensee or any other person to endorse or promote any other concept, personage, matter or thing whatsoever: IV.2.4 ensure that the Concept is, and continues to be manufactured and distributed in strict accordance with Licensee's past practices and internal quality standards, as well as in strict compliance with all acceptable laws, regulations and other rules of each national state, local or other governmental body or agency having jurisdiction; IV.2.5 ensure to the best of Licensee's knowledge that the Concept, and Licensee's use of the Rights in association or connection therewith, will in no way infringe upon or violate any Trade Mark or Trade Name, or any trade mark, patent, patent rights, trade names, copyrights or other proprietary or contractual rights of any Person whatsoever; IV.3 Subject to Paragraph 4.2 hereof, and upon the deemed or actual receipt of Norman's approval as set forth in Paragraph 4.1 hereof, Licensee shall have the right to (a) produce and market the Concept as so approved and (b) make copies of, publish and distribute, in the manner approved by Norman, such approved advertising or promotional materials in connection with the Concept within the Authorized Territory, provided that Licensee shall not sell or otherwise distribute such advertising or promotional materials to the public for gain. Licensee shall not (i) deviate or depart form the terms of the written proposal referred to in said paragraph 4.1 or (ii) revise, modify or create new versions of any advertising or promotional materials, including television or radio commercials, that shall not have been submitted to and approved by Norman, in either such event without Norman's prior written approval, which approval shall be obtained in accordance with the terms of Article IV IV.4 Subject to the provisions of this Article IV and of Article IX hereof, the Concept and all 8 print advertising and other promotional materials produced hereunder shall be and remain the sole and absolute property of Licensee forever. ARTICLE V CONSIDERATION FOR RIGHTS V.1 Provided that this Agreement is extended beyond the Initial Term, Licensee hereby agrees to pay Norman, without deduction or set off, a Guaranteed Fee of $3,300,000 for the First Term, due and payable in equal quarterly installments on the first day of each Contract Quarter of the First Term based on the following schedule: First Contract Year - $600,000.00; Second Contract Year - $1,000,000.00; Third Contract Year - $1,700,000.00. Thereafter the Guaranteed Fee in first year of a Renewal Term shall be $1,300,000 and shall increase in each subsequent Contract Year of any Renewal Term by the sum of $100,000 payable in equal quarterly installments on the first day of each Contract Quarter of the Term. The foregoing, collectively, are referred to as the "Guaranteed Fees". In the event that this Agreement is not extended beyond the Initial Term. the Licensee shall nevertheless pay Norman the sum of $50,000 on June 30, 1996. V.2 Provided that this Agreement is extended beyond the Initial Term, Licensee shall pay to Norman, without deduction or offset, except as otherwise provided in section 5.3 hereof, a royalty payment equal to 8% of all Net Revenue derived from Sales of the Product. V.3 The Guaranteed Fees paid pursuant to Paragraph 5.1 hereof shall be credited against the Royalties payable pursuant to paragraph 5.2 hereof and the Royalties paid pursuant to paragraph 5.2 hereof shall be credited against the balance of the Guaranteed Fees payable pursuant to paragraph 5.1 hereof; V.4 Following the Initial Term and throughout the remainder of the First Term and any Renewal Terms, Licensee shall furnish Royalty Statements to Norman on the last day of the month immediately following the end of each Contract Quarter, stating the Net Revenues and the amount of the Product sold by Licensee during the applicable preceding Contract Quarter Licensee shall furnish Norman with a final Royalty Statement sixty (60) days following the expiration of each Contract Year of the Term. Royalties shall be payable in accordance with and concurrently with the delivery of the relevant Royalty Statement after deducting any Guaranteed Fee previously paid, as provided in paragraph 5.3. V.5 Licensee shall keep and maintain true, accurate and complete books of account, records and other pertinent accounting data of its gross Sales of the Product, including the gross Sales of the Product to or by each Affiliate, if any, and such books, records and other accounting data shall be kept for a period of not less than two (2) years after the later date upon which the last required Royalty Statement is furnished to Norman. 9 V.6 All Royalty Statements shall be furnished to Norman whether or not any Product shall have been sold during the accounting period to which such Royalty Statement refers. Receipt or acceptance by Norman of any Royalty Statement, or any of the sums paid thereunder, shall not preclude Norman from challenging the correctness thereof any time. At Norman's option, Norman may cause, at any time and from time to time, during the Term or within two (2) years following the termination of the this Agreement, upon twenty one (21) days' prior notice to Licensee, a complete audit to be made of Licensee's entire business affairs and records relating to Sales Statement(s) furnished by Licensee hereunder. Such audit shall be conducted in a manner which interferes minimally with Licensee's business. If such audit shall disclose a discrepancy of five percent (5%) or more between the Royalties theretofore computed and paid by Licensee to Norman for such period and the Royalties that should have been paid by Licensee to Norman for such period as disclosed by such audit, then Licensee shall promptly reimburse Norman for the reasonable costs of such audit, and shall promptly pay to Norman the amount of such deficiency. V.7 The Rights Fees shall be payable by Licensee to Norman in any event, regardless of whether Licensee uses any or all of the Rights herein granted. V.8 Licensee shall pay, or promptly reimburse Norman for, all reasonable pre-approved expenses incurred by him in performing any personal services hereunder, including without limitation: V.8.1 The expenses incurred by Norman in performing his personal services hereunder on a first class basis; V.8.2 If Norman's services required hereunder are performed outside the Florida area, first-class travel (including air travel, if elected by Norman of his private aircraft not to exceed $2 500 per operating hour (not to exceed $50,000.00 in any Contract Year and not to be charged if Norman is already at the requested location) first-class hotel and other accommodations (including meals and lodging), and reasonable out of pocket expenses incurred by Norman and one other person, that may be designated by him; V.8.3 In connection with the performance of any personal services requested by Norman hereunder, the expense of limousine transportation for him (and any other person specified in Paragraph 5.8.2 hereunder) from his home or hotel at which he may be staying, as applicable, to the location of the Photography Session or Personal Appearance, as applicable, and from such location back to Norman's home or hotel; V.9 All amounts payable under this Agreement shall be paid in United States Dollars. Norman may elect to have payments made by check, wire transfer or bank transfer. Unless such election has been made in writing, all payments shall be made by check drawn to the order of Norman and delivered to Bessemer Trust Company of Florida, 222 Royal Palm Way, Palm Beach, FL 33480. Past due payments hereunder shall bear interest at the rate of one percent (1%) per month. All such checks shall be delivered by Licensee to Norman's address indicated below unless Licensee shall have been notified otherwise. 10 V.10 In the event that the shares of the Licensee are ever offered in any publicly traded securities market, the shares issued to Norman under this Agreement shall be converted to have full voting privileges. ARTICLE VI REPRESENTATIONS. WARRANTIES AND COVENANTS VI.1 In addition to all other representations, warranties and covenants of Licensee herein, Licensee hereby represents, warrants and covenants to and with Norman as follows: VI.1.1 Licensee is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has all requisite corporate power and authority to execute and deliver this Agreement, to perform all its duties and obligations set forth herein and to use the Rights. This Agreement is a valid and binding obligation of Licensee, enforceable against it in accordance with its terms; VI.1.2 Neither the execution and delivery of this Agreement, nor the performance by Licensee of any of the Provisions hereof, constitutes a breach of or a default under Licensee's Charter or Bylaws, as amended, or any other charter documents of Licensee; any agreement, instrument or other document to which Licensee is a party or by which any of its assets or properties may be bound or affected; or any judgment, order, regulation. statute, ordinance or rule having any applicability to Licensee or any of its assets or properties; VI.1.3 The Concept is, and shall at all times during the Term continue to be, manufactured and distributed by Licensee in accordance with all national, state, local, and other laws, regulations, rules and orders having applicability thereto, and all advertising and promotional materials used by Licensee in connection with the Concept will be in compliance with all national, state, local and other laws, regulations, rules and standards having applicability thereto; VI.1.4 Licensee shall, at all times during the Term, remain duly qualified to carry out its business and to manufacture and distribute the Concept in all jurisdictions in which it conducts business; VI.1.5 Norman shall not be under any obligation to pay any commission or other fee to Licensee, or any agent or representative thereof, on account of this Agreement; VI.2 Norman hereby represents and warrants to Licensee that (a) he has the full right and power to enter into this Agreement, to perform all of his obligations hereunder and to grant all rights hereunder without violating the legal or equitable of any other Person, (b) neither the 11 execution and delivery of this Agreement, nor the Performance by Norman of any other Provisions hereof, constitutes a breach of or a default under any agreement, instrument or other document to which Norman is a party or by which any of his assets or properties may be bound or affected or any judgment, order, regulation, statute, ordinance or rule having applicability to Licensee or any of his assets or properties (c) this Agreement is a valid and binding obligation of Norman, enforceable against him in accordance with its terms; (d) Licensee shall not be under any obligation to pay any commissions to any agent or representative of Norman on account of this Agreement. ARTICLE VII NON-COMPETITION AND EXCLUSIVITY VII.1 Subject to the provisions of this Article VII, during the Term, Norman shall not enter into any agreement to grant any rights similar to the Rights to any Person with respect to any concept which is the same as or confusingly similar to the Concept or the Product. The parties agree that the self-instructional golf video product known as Better Golf or any other form of golf instructional video or multi-media presentation for teaching golf techniques is not the same as or confusingly similar to the Concept of the Product. VII.2 The restrictions set forth in Article VII are not intended to preclude and shall not preclude Norman from appearing in the sports, entertainment, news or information portion of: VII.2. 1 any form of media whatsoever, including, without limitation, print media, television programs and broadcasts, radio programs and broadcasts, television and radio series, newscasts, documentaries, video tapes and video discs that do not compete with the Product; sound tracks, motion pictures and any other form of media that has been, or may in the future be, conceived, developed or invented, by any process, instrumentation or device now known or hereafter developed; or VII.2.2 any athletic tournament match or outing in which or in connection with which concepts or services are advertised, publicized, featured or otherwise dealt with that are the same as or confusingly similar to or competitive with the Concept or the Product. VII.3 Licensee acknowledges and agrees that the grant to it of the Rights is restricted to use in the Concept by Licensee within the Authorized Territory, and Licensee agrees that it has no right or entitlement to, and that it shall not: VII.3.1 use the Rights in connection with the promotion, sale or other dealings with any other concept or concepts; 12 VII.3.2 license or permit others to use or rely upon any or all the Rights except in association with the Concept; VII.3.3 permit or authorize the use of the Norman Identification in any joint promotion of the Concept with any other concepts or services, whether of its own or any other Person, without the prior written approval of Norman, which approval may be withheld in his sole and absolute discretion. VII.4 The parties agree that the use of any portion of the self-instructional golf video product known as Better Golf in connection with the Product is subject to the consent of the owners of Eagle One Pty. Ltd., the proprietor of Better Golf, which Norman agrees to attempt to obtain by April 1, 1995. The parties further agree that this Agreement is subject to Norman's confirmation on or before April 1, 1995 from Eagle One Pty. Ltd. that no conflict exists between the Better Golf program and the Concept. ARTICLE VIII INDEMNITY VIII.1 Licensee shall indemnify, and shall save, defend and hold Norman, and his heirs, executors, and representatives (individually an "Indemnitee"), free and harmless from and against any and all claims, demands, causes of action, losses, damages, expenses and/or other liabilities (including without limitation, reasonable attorneys' fees and court costs) which the Indemnitee may incur or to which such Indemnitee may be subject, relating to or arising out of (a) Licensee's breach of any of the Provisions of this Agreement; (b) Norman's actions or omissions in connection with the performance of his obligations under this Agreement, including, but not limited to, any actions or omissions which constitute negligence on the part of Norman; (c) the manufacture, sale, promotion, advertisement and/or distribution of the Concept (including without limitation. the sale of any damaged, nonconforming or defective Product), regardless of who manufactured or distributed the Product giving rise to any such claim; (d) any allegation or claim that Licensee (i) has violated any state or federal securities laws, or otherwise committed any acts or omissions constituting fraud, willful misconduct or negligence, whether such allegation is brought as a derivative action or by a shareholder of Licensee on his/her own capacity and/or (ii) has misrepresented the nature of the relationship between Norman and Licensee, or the nature of the Rights obtained from Norman pursuant to this Agreement; and/or (e) the wrongful use or violation by Licensee of any copyrights, trademarks, trade names or other proprietary rights which may be the property of any third party. VIII.2 Norman shall indemnify, and shall save, defend, and hold Licensee, its shareholders, directors, officers, employees, agents and other representatives (individually, a "Licensee Indemnitee"), free and harmless, from and against any and all claims, demands causes of action, losses, damages, expenses and/or liabilities (including, without limitation, reasonable attorneys' fees and court costs) relating to or arising out of (a) Norman's breach of any of the Provisions of 13 this Agreement and/or (b) any allegation or claim that Norman has misrepresented the nature of the relationship between himself and Licensee, or the nature of the Rights granted by Norman to Licensee pursuant this Agreement. VIII.3 Licensee shall, at its own expense, place and maintain insurance of an amount, type and form with an insurance company approved and satisfactory to Norman, or under any existing insurance which Licensee shall have in force and effect from time to time, in Licensee's sole discretion, to fully protect Norman from all potential claims and demands of whatsoever nature and kind made against Norman that Licensee is required to indemnify against hereunder. Norman shall be an additional named insured under all such contracts of insurance which shall be maintained in full force and effect by Licensee from the date hereof to and including the expiry of six (6) months following the termination of this Agreement. Licensee shall ensure that Norman shall receive not less than thirty (30) day's prior notice of the insurance company's (or companies') intention to cancel such contracts of insurance, and that Norman shall receive notice of any and all defaults by Licensee under such contracts of insurance. Licensee's obligation to place and maintain insurance pursuant to this paragraph 8.3 may not be revoked, amended or otherwise modified in any manner whatsoever by the parties hereto, without the prior written approval of Norman, which approval may be withheld in his sole and absolute discretion. VIII.4 Licensee shall, within fifteen (15) days following the execution of this Agreement, forward to Norman appropriate certificates of insurance indicating compliance by Licensee with the requirements of Paragraph 8.3 hereof. ARTICLE IX TRADE MARKS IX.1 Licensee acknowledges that Norman is the sole and absolute owner of all Trade Marks; its use of such Trade Marks will inure to the sole benefit of Norman (and Licensee shall acquire no rights therein by virtue of this Agreement); and Licensee shall not, without the prior written consent of Norman, which consent may be withheld in his sole discretion, use or attempt to use, or register or attempt to register any such Trade Marks under the Canadian Trade Marks Act, the American Trade Marks Act or any other similar legislation of any other country or jurisdiction. The prior written consent of Norman, if provided, may be conditioned upon any and all such terms and provisions as he may, is his sole and absolute discretion. determine. IX.2 Licensee acknowledges that nothing herein contained shall obligate Norman to: IX.2. 1 register any Trade Marks under the Canadian Trade Marks Act, the American Trade Marks Act, or any other similar legislation of Canada, the United States or under corresponding laws or legislation of any other country, state, or jurisdiction. IX.2.2 dissuade any third party from using, attempting to use, registering or attempting to 14 register any Trade Mark or Trade Marks; or IX.2.3 indemnify or hold Licensee harmless from or against any loss, liability, expense, damages, claims, suits, proceedings, actions, judgments, assessments, penalties, orders for specific performance or otherwise, indemnities and costs of any kind whatever those arising out of or occurring as a result if the use by Licensee of the Trade Marks. IX.3 Nothing contained in this Article IX shall prevent Licensee from using any of the Norman Identification in connection with the advertising, promotion or Sale of the Concept within the Authorized Territory. IX.4 If requested by Norman, Licensee shall use its best efforts to assist Norman in executing any and all agreements and instruments and filing all applicable to enable documents that may be necessary or appropriate to enable Norman to obtain protection with respect to each and every Trade Mark that may be included in any advertising or promotional materials used by Licensee hereunder IX.5 If either party discovers that the Rights are infringed, it shall communicate the details to the other party. Licensee shall thereupon have the right, but not the obligation, to take whatever action it deems necessary, including the filing of lawsuits to protect the rights of the parties to this Agreement and to terminate such infringement. Norman shall cooperate with Licensee if Licensee takes any such action, but all expenses of Licensee shall be borne by Licensee. If Licensee recovers any damages or compensation for any action it takes hereunder in excess of its costs of prosecution of the infringement. such damages or compensation shall be subject to the Royalty. In the event that Licensee does not bring an action in respect of the infringement, Norman shall also have the right, but not the obligation, to take any such action, in which case Licensee shall cooperate with Norman, but all of Norman's expenses shall be borne by Norman. In this event, Norman shall receive 100% of any damages or compensation it recovers for any such infringement. ARTICLE X DEFAULT AND TERMINATION X.1 Norman may, at his option, terminate this Agreement if: X.1.1 Licensee fails to make any payment to Norman when due; X.1.2 Licensee breaches or fails to observe, perform or keep any material Provision on its part to be observed, performed or kept pursuant to this Agreement, including without imitation, any material representation, warranty or covenant of Licensee hereunder, X.1.3 Licensee (a) files, or has filed against it, and does not take immediate steps to 15 quash, any petition for bankruptcy, reorganization, arrangement or other protection under any state, federal or other applicable jurisdiction's bankruptcy, insolvency or similar laws: (b) is declared bankrupt or becomes insolvent; (c) consents to the appointment of a receiver, trustee or assignee for the benefit of its creditors or makes any such assignment for the benefit of creditors; or (d) winds-up or ceases to carry on the business and affairs of Licensee X.2 If Norman shall exercise his option to terminate this Agreement upon the occurrence of any one or more of the events stipulated in Paragraph 10.1 hereof, then this Agreement shall terminate ninety (90) days after notice thereof to Licensee, provided that if Licensee shall have failed to make any payment required by Paragraph 10.1.1 hereof, Licensee shall have ten (10) Business Days from receipt of written notice of such default by which to cure such default and provided further that, upon the occurrence of any other event specified in Paragraph 10.1 hereof, (other than as stipulated in said Paragraph 10.1.1) Licensee shall have thirty (30) days from the date of such notice from Norman to Licensee to cure such default. Neither the termination of this Agreement by Norman nor Norman's right to so terminate this Agreement shall be its exclusive remedy and neither shall in any way affect: X.2. 1 the obligation of Licensee to pay the Rights Fees or any other amounts hereunder; X.2.2 the right of Norman to enforce the receipt and collection of the Rights Fees of other amounts payable by the Licensee hereunder; X.2.3 the right of Norman to enforce any of the Provisions of this Agreement against Licensee; X.2.4 the right of Norman to sue for damages or to seek and obtain equitable relief (including without limitation, injunctive relief or an order for specific performance), or X.2.5 the right of Norman to pursue any other legal or equitable remedies, whether for a breach of this Agreement by Licensee or otherwise. X.3 With particular reference to Paragraph 10.2.4 hereof, the parties acknowledge and agree that the failure of Licensee to observe, perform or keep all of the Provisions on its part to be so observed, performed or kept, would result in irreparable harm and injury to Norman which could not be adequately compensated for in damages and that, in such event, Norman shall be entitled to equitable relief (including without limitation, specific performance, temporary restraining orders and/or preliminary or permanent injunctions), in addition to all other remedies to which Norman may be entitled hereunder or at law. X.4 Licensee may, at its option, terminate this Agreement if, and only if, Greg Norman (a) dies; (b) voluntarily enters a substance abuse clinic, center or similar program; (c) commits an act or becomes involved in any situation or occurrence within the Authorized Territory that results in 16 a criminal conviction therein which, in the good faith discretion of Licensee, would materially damage or impair the goodwill or reputation of Norman; or (d) breaches or fails to observe, perform or keep any material Provision on his part to be observed, performed or kept pursuant to this Agreement. If Licensee shall exercise its option to terminate this Agreement as provided in this Paragraph 10.5, then this Agreement shall terminate ninety (90) days after notice thereof to Norman. Licensee shall not be entitled to claim the return of any moneys paid to Norman prior to termination or to claim any further or other relief or damages against Norman. If Licensee so terminates this Agreement, Norman shall nonetheless be entitled to receive and retain all of the Rights Fees, including all Royalties accrued to the date of such termination. X.5 Upon the termination of this Agreement, all rights granted hereunder to Licensee (including without limitation. the Rights) shall forthwith cease, terminate and revert to Norman and Licensee shall have no other or further right to utilize or exploit the Rights thereafter. Upon such expiration or termination, Licensee shall: X.5.1 forthwith cease use of the Rights in any manner whatsoever, including without limitation, the cessation of the use of any Trade Marks and any still photographs, prints or other advertising, promotional or sales materials, regardless of the media or form in which they are used, in which the Norman Identification are used: X.5.2 not make use of or otherwise distribute any further copies of any advertising or promotional materials approved hereunder in any manner whatsoever; and X.5.3 forthwith destroy or transfer to any Person designated by Norman any such advertising or promotional materials which it then or thereafter has in its possession or under its control and use its best efforts to remove or cause the removal of, all existing copies of such materials from public display, provided however, that Licensee shall be allowed to keep a limited number of copies of the Product and a limited number of copies of any advertising or promotional materials relating thereto, for historical and/or administrative purposes. Licensee hereby agrees that such copies retained pursuant to this Paragraph 10.5.3 shall not be used for any commercial purposes whatsoever. Notwithstanding the foregoing, during the six (6) consecutive months following the termination of this Agreement, Licensee shall be permitted to distribute and sell its then existing inventory of the Product and utilize any existing signage that depicts Greg Norman and the Provisions of this Agreement shall continue to apply during such period, including without limitation, all Provisions relating to the Royalties payable with respect to Sales of the Product during such six (6) month period and Licensee's obligation to provide Royalty Statements pursuant to Article V hereof. Within thirty (30) days following such termination, Licensee shall furnish to Norman a certificate of an officer of Licensee certifying it compliance with the Provisions of this Paragraph 10.5. 17 ARTICLE XI NOTICES XI.1 Notwithstanding any other Provision of this Agreement to the contrary, all notices, consents, approvals, requests, communications or other documentation to be given, made or obtained under this Agreement, shall be in writing and shall be deemed given when delivered personally, transmitted by facsimile or 48 hours after deposit in the United States or Canadian mail with postage prepaid, sent by registered mail, return receipt requested, duly addressed to the person to be notified as follows: If to Norman: Great White Shark Enterprises, 281 South U.S. Highway #1, Suite 302, Tequesta, Florida. 33469 Attention: Mr. Frank Williams With copy to: Paul B. Erickson, Esq. P.O. Box 431 Palm Beach, FL 33480 If to Licensee: 7 West 51 St Street, Fourth Floor, New York. N.Y. 10019 With copy to: Mr. Earl Takefman, 68 Belvedere Road, Westmount, Quebec. H3Y 1P8 XI.2 All such notices, consents, approvals, requests, communications and other documentation to be given, made or obtained hereunder by Licensee for itself or for and on behalf of Norman, including without limitation, all applications, permissions, registrations and insurance policies required hereunder, shall be so given, made or obtained at the sole cost and expense of Licensee and Licensee shall pay all legal and other fees arising in connection therewith. XI.3 Either party may change its address for purposes of this Article XI by giving notice to that effect to the other party in the manner provided for herein. ARTICLE XII ASSIGNMENT XII.1 Norman and Licensee acknowledge and agree that this Agreement is personal in nature and that neither party may assign all or any part of this Agreement, or the Rights granted 18 hereunder, to any other Person without the prior written consent of the non-assigning party, which consent may be withheld in such party's sole and absolute discretion. Notwithstanding the foregoing, Norman hereby consents to the assignment by Licensee to an Affiliate of Licensee and Licensee agrees that Norman shall have the right to assign the rights to income and shares under this Agreement to any other Person or Affiliate of Norman. Norman further acknowledges and agrees that Licensee shall have the right to distribute the Concept and the Product through Affiliates and duly designated distributors provided that any and all such Affiliates and distributors shall only be permitted to utilize advertising and promotional materials that Licensee shall have created and that Norman shall have approved, and Licensee shall require such use of pre-approved advertising and promotional materials in its agreements with such other persons (copies of which will be made available to Norman or his designated representative upon request). XII.2 Any permitted assignment of this Agreement or any portion thereof, or discretionary assignment if consented to by Norman or the Licensee, shall not affect or otherwise discharge Norman's or Licensee's obligations hereunder and Norman or Licensee agrees to provide its written acknowledgment thereof in connection with any such assignment. ARTICLE XIII MISCELLANEOUS XIII.1 If either Norman or Licensee is prevented from satisfying or fulfilling any provision of this Agreement as a result of the occurrence of any event or circumstance over which such party has no reasonable control (including without limitation, war, civil commotion, riot, earthquake, fire, floods inclement weather, strikes, work stoppages or slowdowns, power outages or other similar or dissimilar acts of God) then such party shall not be deemed to be in breach of this Agreement for the duration of the applicable event or circumstance, provided that such party satisfied or performs the applicable Provision as soon after termination or cessation of such event or circumstance as is reasonably practicable. XIII.2 This Agreement is solely for the benefit of Licensee, and except as otherwise specifically provided herein, no Affiliate or other Person shall be entitled to use, or permit any other Person to use, the Rights, or any part or portion thereof, including without limitation, the Norman Identification, to produce and promote the Concept or the Product. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto and their respective successor, permitted assigns and legal representatives. XIII.3 Time is, and shall be and remain. of the essence of this Agreement. XIII.4 The division of this Agreement into Articles and clauses, and the insertion of headings, are for convenience of reference only and shall not affect the meaning, construction or interpretation of this Agreement, or any Provision hereto. The terms "this agreement", "hereof", 19 "herein", "hereto". "hereunder" and similar expressions refer to this Agreement and not to any particular Article, clause or other portion of this Agreement. Such terms refer similar to any agreement or instrument which amends this Agreement or is supplemental or ancillary hereto. All Provisions in this Agreement are to be construed as covenants as though the words importing such covenants were used in each Article or Paragraph herein. XIII.5 The parties agree that there are no inducements, implied warranties, representations or other documents which have been made or relied upon by any party except as expressly set forth herein or attached hereto. This Agreement, and all Exhibits attached hereto or schedules, documents and agreements furnished or to be furnished in connection herewith, constitute the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersedes any and all discussions and agreements. This Agreement may not be amended or supplemented. and no provision hereof may be waived, unless such amendment, supplement or waiver is in writing and signed by the party sought to be bound thereby. XIII.6 This Agreement shall be governed by and construed and enforced, in accordance with the laws of the State of Florida applicable to agreements made and to be wholly performed within such state. XIII.7 The relationship between the parties hereto is intended to be, and is to be construed as, that of independent contracting parties only and not that of a partnership, joint venture, agency or any other association whatsoever. Nothing contained herein shall constitute either party as having the right, power or authority to bind the other in any manner whatsoever and nothing contained herein shall give, or is intended to give, any rights of any kind to any third party. XIII.8 The parties hereto agree that each of them has participated in the drafting and negotiation of this Agreement and that any rule of construction to the effect that ambiguities are to be construed against the drafting party shall not apply in the interpretation of this Agreement. XIII.9 The parties hereto agree that, except as set forth below, all the Provisions hereof (including without limitation, all representations and warranties contained herein), whether requiring performance or fulfillment before or after the expiry or earlier termination of this Agreement, shall survive the expiry or earlier termination of this Agreement. Wherever the term "termination" is used in this Agreement, it shall be deemed, unless otherwise expressly required by the context, to mean both the expiry of this Agreement pursuant to Article II hereof and the earlier termination of this Agreement pursuant to Article X hereof or otherwise. XIII.1O Wherever the expression "including without limitation" is used herein, it shall be deemed to mean "including without limiting the generality of the foregoing". XIII.11 Where the context so requires, words importing the singular number shall include the plural and vice versa and words importing the masculine gender shall include the feminine and neuter genders. 20 XIII.12 No waiver of any Provision hereof shall be deemed to be a waiver of any other Provision, and no waiver in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such Provision unless expressly agreed to by the party waiving such Provision. XIII.13 Any condoning, excusing or overlooking by either party of any default, breach or non-observance by the other party at any time or times in respect of any Provision hereof shall not operate as a waiver of such party's rights hereunder with respect to such Provision or of any subsequent default, breach or non-observance thereof and such party's rights shall not be affected or limited in any way as a result of any such default, breach or non-observance or any such subsequent default, breach or non-observance. XIII.14 If any Provision or Provisions of this Agreement shall be held to be in whole or in part invalid, illegal or unenforceable in any jurisdiction, or if any governmental agency or authority shall require the parties to delete any Provision of this Agreement, such invalidity, illegality, unenforceability or deletion shall not impair or affect the remaining Provisions of this Agreement or the validity or enforceability of such Provision in any other jurisdiction. The parties shall endeavor, in good faith negotiations, to replace the invalid, illegal, unenforceable or deleted Provision by valid Provisions the affect of which comes as close as legally possible to that of the invalid, illegal, unenforceable or deleted Provision. XIII.l5 Each party agrees to carry out all such actions and to execute and deliver all such further agreements, instruments, documents and assurances as may be reasonably required to give full force and effect to the intent hereof (provided the same shall not be inconsistent with the Provisions hereof). XIII.16 If either party hereto shall institute any action or proceeding to enforce or interpret this Agreement, or any Provision hereof, the party prevailing in such action or proceeding shall be entitled to recover its reasonable attorneys' fees and court costs from the non-prevailing party. XIII.17 No right or remedy conferred upon any party by any of the specific Provisions of this Agreement is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to any other right or remedy whether given to such party hereunder, or now or hereafter existing at law, in equity, by statute or otherwise. The election by any party of any one or more rights or remedies shall not constitute a waiver of such party's right to pursue other available rights or remedies. XIII.18 This Agreement may be executed by the parties hereto in any number of separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. 21 XIII.19 All rights not herein specifically granted to Licensee shall remain the property of Norman to be used in any manner Norman deems appropriate. THE PARTIES HAVE SIGNED THIS AGREEMENT AS OF THE DATE ABOVE WRTTTEN. GREAT WHITE SHARK ENTERPRISES, INC. per /s/ Greg Norman ------------------------------------ /s/ Greg Norman --------------------------------------- GREG NORMAN VISUAL EDGE SYSTEMS INC. per /s/ Earl Takefman ------------------------------------ 22 [LOGO] April 2, 1996 GREAT WHITE SHARK ENTERPRISES, INC. FRANK I. WILLIAMS MANAGING DIRECTOR Mr. Earl Takefman Visual Edge Systems 7 West 51st Street New York, NY 10019 Dear Earl, Further to our various discussions of last week, this letter will confirm our agreement, notwithstanding the terms as outlined in our Licensing agreement with you dated March 1, 1995, that we will cooperate with you in providing additional work days with Greg Norman, over and above the required days in the licensing agreement, under the following conditions: a) the additional days can only occur during 1996 and/or 1997; and b) the additional days may be used only to film the One-on-One instructional videos i.e., they may not be used for personal appearances or other purposes; and c) the additional days will be at Greg's reasonable convenience and subject to his schedule; and d) you will pay Greg a fee of $50,000 for each additional day you may require him. We are agreeing to these additional potential work days to accommodate you in completing the public offering and hope that you will use all reasonable efforts to finish the filming within the period allotted in the contract. Additionally, we wish to confirm that we are awaiting your request for the initial work days you will require to commence the filming of the One-on-One videos. We cannot over emphasize the importance of lead up time so that we give your request priority over the others to make sure that this project is given top precedence over all others. In other words Earl, let us get on with this, we seem to have lost some momentum in the last month or so. Kind regards, /s/ FRANK WILLIAMS - ----------------------- Frank Williams Managing Director 281 South U.S. Highway 1 * Suite 302 * Tequesta, Florida 33469 TEL 407-743-9818 * FAX 407-743-8831 OPTION TO PURCHASE SHARES Mr. Greg Norman and Great White Shark Enterprises 281 South U.S. Highway #1 Suite 302 Tequesta, Florida 33469 Attention: Mr. Frank Williams - ------------------------------ Dear Sir: This letter will confirm our agreement and understanding that Visual Edge Systems, Inc. (the "Licensee) does hereby undertake that is shall cause the shareholders of the Licensee to sell to you shares representing ten percent (10%) of the issued and outstanding participating shares in the capital stock of the Licensee for an aggregate consideration of One Dollar ($1.00). These shares shall be non-voting but shall have all other rights and privileges of the other common shares of the Licensee. The Licensee does hereby undertake to cause these shares to be delivered to you upon the fulfillment of the following conditions: 1. That the Licensee has delivered a notice to you that it intends to extend the Agreement for a period of three (3) Contract Years following the expiry of the Initial Term (the "Renewal Notice"); 2. That you have notified the Licensee in writing within five (5) days of receipt of the Renewal Notice, of your intention to exercise the present option (the "Option Notice"). Upon receipt of the Option Notice and the fulfillment of the other conditions, the Licensee shall cause the shareholders of the Licensee to sell to you within five (5) days of receipt of the Option Notice, non-voting common shares in the capital stock of the Licensee representing ten percent (10%) of the total issued and outstanding participating shares in the capital stock of the Licensee, failing which the Licensee shall cause to be issued to you, from its treasury, non-voting participating shares representing ten percent (10%) of the total issued and outstanding shares in the capital stock of the Licensee. In either event the Licensee hereby covenants and agrees that it shall deliver to you a letter of opinion signed by the attorneys for the Licensee attesting to the fact that the share certificate(s) delivered to you represent ten percent (10%) of the issued and outstanding participating, non-voting shares in the capital stock of the Licensee but have all other rights and privileges of the other shares of the Licensee. All capitalized items used herein shall have the same meaning as set forth in that certain License Agreement entered into as of March 1, 1995, by and between Greg Norman and Great White Shark Enterprises and the undersigned. Dated as of March 1, 1995. Yours very truly, VISUAL EDGE SYSTEMS, INC. per: /s/ EARL TAKEFMAN ------------------------------ Earl Takefman AGREED TO AND ACCEPTED /s/ GREG NORMAN - --------------------------------- Greg Norman GREAT WHITE SHARK ENTERPRISES per /s/ GREG NORMAN ------------------------------ [LOGO] April 19, 1996 GREAT WHITE SHARK ENTERPRISES, INC. PAUL B. ERICKSON CHIEF OPERATING OFFICER & GENERAL COUNSEL Attn: Earl Takefman Visual Edge Systems Inc. 7 West 51st Street New York, NY 10019 VIA: FACSIMILE 212-765-3524 RE: Amendments to March 1 to 1995 Agreement Dear Earl: This will confirm that we hereby agree to amend the following portions of our agreement to read as follows in lieu of previous terms. 1.1.7 "Concept" means a videotaping system and computer software that produces the Product; 1.1.22 "Product" or "Products" means severally a videotape or CD-ROM or other similar medium that is given or sold to a consumer upon use of the Concept in which Greg Norman's golf swing or any other golf professional's golf swing is compared to the user's golf swing using audio and video analysis of both swings. Paragraph VII.4 is deleted. This will also confirm that upon the receipt of $150,000.00 advance on or before June 30, 1996 the next payment will be due October 1, 1996. Very truly yours /s/ PAUL B. ERICKSON - ------------------------ Paul B. Erickson [LOGO] April 29, 1996 GREAT WHITE SHARK ENTERPRISES, INC. PAUL B. ERICKSON CHIEF OPERATING OFFICER & GENERAL COUNSEL Mr. Earl Takefman Visual Edge Systems Inc. 68 Belvedere Road Montreal Quebec Canada H3Y IP8 VIA: FACSIMILE 514-937-0286 Dear Earl: Thank you for your letter of April 25, 1996. This will confirm that Greg Norman will exercise his option to acquire equity in Visual Edge Systems Inc. pursuant to the agreement dated March 1, 1995. Very truly yours, /s/ PAUL B. ERICKSON - ------------------------ Paul B. Erickson Visual Edge System Inc. 7 West 51st St. New York, NY 10019 Attn: Mr. Earl Takefman Dear Earl, We confirm that you may use all, or certain, of the photos of Greg Norman from your One-on-One catalogue (including photos that depict the Shark logo) on the inside, front and/or back cover of your prospectus. Yours Very Truly, Great White Shark Enterprises EX-10.8 7 1996 STOCK OPTION PLAN EXHIBIT 10.8 VISUAL EDGE SYSTEMS INC. 1996 STOCK OPTION PLAN Section 1. Purpose The Plan (i) authorizes the Committee to provide to Employees and Consultants of the Corporation and its Subsidiaries, who are in a position to contribute materially to the long-term success of the Corporation, with options to acquire Stock of the Corporation, and (ii) provides for the automatic grant of options to Non-Employee Directors of the Corporation in accordance with the terms specified herein. The Corporation believes that this incentive program will cause those persons to increase their interest in the Corporation's welfare, and aid in attracting and retaining Employees, Consultants and Directors of outstanding ability. Section 2. Definitions Unless the context clearly indicates otherwise, the following terms, when used in this Plan, shall have the meanings set forth in this Section: (a) "Board" shall mean the Board of Directors of the Corporation. (b) A "Change in Control" shall be deemed to have occurred if: (i) any person (as defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than the Corporation or an employee benefit plan of the Corporation, acquires directly or indirectly the Beneficial Ownership (within the meaning of Rule 13d-3 promulgated pursuant to the Exchange Act) of any voting security of the Corporation and immediately after such acquisition such Person is, directly or indirectly, the Beneficial Owner of voting securities representing 30% or more of the total voting power of all of the then-outstanding voting securities of the Corporation; (ii) the individuals (A) who, as of the closing date of the Initial Public Offering, constitute the Board (the "Original Directors") or (B) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors then still in office (such directors becoming "Additional Original Directors" immediately following their election) or (C) who are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors and Additional Original Directors then still in office (such directors also becoming "Additional Original Directors" immediately following their election) (such individuals being the "Continuing Directors"), cease for any reason to constitute a majority of the members of the Board; 1 (iii) the stockholders of the Corporation shall approve a merger, consolidation, recapitalization, or reorganization of the Corporation, a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not sought or obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being Beneficially Owned by at least 75% of the holders of outstanding voting securities of the Corporation immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; or (iv) the stockholders of the Corporation shall approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or a substantial portion of the Corporation's assets (i.e., 50% or more of the total assets of the Corporation). (c) "Code" shall mean the Internal Revenue Code of 1986 as it may be amended from time to time. (d) "Committee" shall mean the Board, or any Committee of two or more Directors that may be designated by the Board to administer the Plan. (e) "Consultant" shall mean (i) any person who is engaged to perform services for the Corporation or its Subsidiaries, other than as an Employee or Director, or (ii) any person who has agreed to become a consultant within the meaning of clause (i). (f) "Control Person" shall mean any person who, as of the date of grant of an Option, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Corporation or of any parent or Subsidiary. (g) "Corporation" shall mean Visual Edge Systems Inc., a Delaware corporation. (h) "Director" shall mean any member of the Board. (i) "Employee" shall mean (i) any full-time employee of the Corporation or its Subsidiaries (including Directors who are otherwise employed on a full-time basis by the Corporation or its Subsidiaries), or (ii) any person who has agreed to become an employee within the meaning of clause (i). (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as it may be amended from time to time. 2 (k) "Fair Market Value" of the Stock on a given date shall be based upon: (i) if the Stock is listed on a national securities exchange or quoted in an interdealer quotation system, the last sales price or, if unavailable, the average of the closing bid and asked prices per share of the Stock on such date (or, if there was no trading or quotation in the Stock on such date, on the next preceding date on which there was trading or quotation) as provided by one of such organizations; or (ii) if the Stock is not listed on a national securities exchange or quoted in an interdealer quotation system, as determined by the Board in good faith in its sole discretion; provided, however, that the "fair market value" of Stock on the date on which shares of Stock are first issued and sold pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission shall be the Initial Public Offering price of the shares so issued and sold, as set forth in the first final prospectus used in such offering. (l) "Grantee" shall mean a person granted an Option under the Plan. (m) "Initial Public Offering" shall mean an initial public offering of shares of Stock in a firm commitment underwriting registered with the Securities and Exchange Commission in compliance with the provisions of the 1933 Act. (n) "ISO" shall mean an Option granted pursuant to the Plan to purchase shares of the Stock and intended to qualify as an incentive stock option under Section 422 of the Code, as now or hereafter constituted. (o) "1933 Act" shall mean the Securities Act of 1933, as amended. (p) "Non-Employee Director" shall mean a Director of the Corporation who is not an Employee, nor has been an Employee at any time during the prior one year period. (q) "NQSO" shall mean an Option granted pursuant to the Plan to purchase shares of the Stock that is not an ISO. (r) "Options" shall refer collectively to NQSOs and ISOs issued under and subject to the Plan. (s) "Parent" shall mean any parent corporation as defined in Section 424 of the Code. (t) "Plan" shall mean this 1996 Stock Option Plan as set forth herein and as amended from time to time. (u) "Stock" shall mean shares of the Common Stock of the Corporation, par value $0.01 per share. 3 (v) "Stock Option Agreement" shall mean a written agreement between the Corporation and the Grantee, or a certificate accepted by the Grantee, evidencing the grant of an Option hereunder and containing such terms and conditions, not inconsistent with the Plan, as the Committee shall approve. (w) "Subsidiary" shall mean (i) any corporation with respect to which the Corporation owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock of such corporation, or (ii) any entity which the Committee reasonably expects to become a subsidiary within the meaning of clause (i). Section 3. Shares of Stock Subject to the Plan The total amount of Stock that may be subject to outstanding Options, determined immediately after the grant of any Option, shall not exceed the greater of 800,000 shares (reduced by 500,000 less the number of shares subject to performance-based Options granted pursuant to employment agreements, effective January 1, 1996, with Messrs. Earl Takefman and Alan Lubell that remain outstanding at such time), or 12% percent of the total number of shares of Stock outstanding. Notwithstanding the foregoing, the number of shares that may be delivered upon exercise of ISOs shall not exceed 300,000, provided, however, that shares subject to ISOs shall not be deemed delivered if such Options are forfeited, expire or otherwise terminate without delivery of shares to the Grantee. Any shares of Stock delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued shares or treasury shares. Section 4. Administration of the Plan The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have the authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of Stock Option Agreements thereunder and to make all other determinations necessary or advisable for the administration of the Plan. Any controversy or claim arising out of or related to this Plan or the Options granted thereunder shall be determined unilaterally by, and at the sole discretion of, the Committee. Any action of the Committee with respect to the Plan shall be final, conclusive, and binding on all persons, including the Corporation, subsidiaries of the Corporation, Grantees, any person claiming any rights under the Plan from or through any Grantee, and stockholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. To the extent necessary to comply with Rule 16b-3 under the Exchange Act, determinations concerning Options granted to any person who is subject to Section 16(b) of the Exchange Act shall be made by the Committee, all of whose members shall be "disinterested persons" within the meaning of Rule 16b-3 under the Exchange Act. The Committee may delegate to officers or managers of the Corporation or any Subsidiary the authority, subject to such terms as the Committee shall determine, to perform administrative functions and, with respect to persons not subject to Section 16 of the 4 Exchange Act, to perform such other functions as the Committee may determine, to the extent permitted under Rule 16b-3, if applicable, and other applicable law. Section 5. Types of Options Options granted under the Plan may be of two types: ISOs or NQSOs. The Committee shall have the authority and discretion to grant to an eligible Employee either ISOs, NQSOs or both, but shall clearly designate the nature of each Option at the time of grant in the Stock Option Agreement. Grantees who are not Employees (determined with reference to Section 2(i)(i) only) of the Corporation or a Subsidiary (determined with reference to Section 2(w)(i) only) on the date an Option is granted shall only receive NQSOs. Section 6. Grant of Options to Employees and Consultants (a) Employees and Consultants of the Corporation and its Subsidiaries shall be eligible to receive Options under the Plan. (b) The exercise price per share of Stock subject to an Option granted to an Employee or Consultant shall be determined by the Committee and specified in the Stock Option Agreement, provided, however, that the exercise price of each share subject to an ISO shall be not less than 100%, or, in the case of an ISO granted to a Control Person, 110%, of the Fair Market Value of a share of the Stock on the date such Option is granted. (c) The term of each Option granted to an Employee or Consultant shall be determined by the Committee and specified in a Stock Option Agreement, provided that no Option shall be exercisable more than ten years from the date such Option is granted, and provided further that no ISO granted to a Control Person shall be exercisable more than five years from the date of Option grant. (d) The Committee shall determine and designate from time to time Employees or Consultants who are to be granted Options, and shall specify in the Stock Option Agreement the nature of each Option granted and the number of shares of Stock subject to each such Option, provided, however, that in any calendar year, no Employee or Consultant may be granted an Option to purchase more than 250,000 shares of Stock (determined without regard to when such Option is exercisable), subject to adjustment pursuant to Section 10. (e) Notwithstanding any other provisions hereof, the aggregate Fair Market Value (determined at the time the ISO is granted) of the Stock with respect to which ISOs are exercisable for the first time by any Employee during any calendar year under all plans of the Corporation and any Parent or Subsidiary corporation shall not exceed $100,000. To the extent the limitation set forth in the preceding sentence is exceeded, the Options with respect to such excess shall be treated as NQSOs. 5 (f) The Committee shall determine whether any Option granted to an Employee or Consultant shall become exercisable in one or more installments and specify the installment dates in the Stock Option Agreement. The Committee may also specify in the Stock Option Agreement such other provisions, not inconsistent with the terms of this Plan, as it may deem desirable, including such provisions as it may deem necessary to qualify any ISO under the provisions of Section 422 of the Code. Unless otherwise determined by the Committee and specified in the Stock Option Agreement, all Options shall immediately become exercisable upon a Change in Control. (g) The Committee may, at any time, grant new or additional options to any eligible Employee or Consultant who has previously received Options under this Plan, or options under other plans, whether such prior Options or other options are still outstanding, have been exercised previously in whole or in part, or have been cancelled. The exercise price of such new or additional Options may be established by the Committee, subject to Section 6(b) hereof, without regard to such previously granted Options or other options. Section 7. Grants of Options to Non-Employee Directors (a) Non-Employee Directors of the Corporation who serve on the Committee shall be eligible to receive Options under the Plan only pursuant to the provisions of this Section 7. Each individual who agrees to become a Non-Employee Director prior to the consummation of the Corporation's Initial Public Offering shall receive, without the exercise of the discretion of any person, an NQSO under the Plan relating to the purchase of 5,000 shares of Stock at an exercise price per share equal to the Initial Public Offering price per share. Such option grant shall be conditional upon, and for all purposes hereunder, deemed granted upon, the Initial Public Offering. Each individual who becomes a Non-Employee Director thereafter shall, on the date such individual becomes a Non-Employee Director, receive, without the exercise of the discretion of any person, an NQSO under the Plan relating to the purchase of 5,000 shares of Stock. In addition, on the day of the annual meeting of stockholders next following the date of an Initial Public Offering, and the day of each subsequent annual meeting, each individual who is a continuing Non-Employee Director on any such date (other than a Non-Employee Director who was granted an Option pursuant to the preceding sentence within 30 days of the date of any such annual meeting) shall receive, without the exercise of the discretion of any person, an NQSO under the Plan relating to the purchase of 2,500 shares of Stock. In the event that there are not sufficient shares available under this Plan to allow for the grant to each Non-Employee Director of an NQSO for the number of shares provided herein, each Non-Employee Director shall receive an NQSO for his pro rata share of the total number of shares of Stock available under the Plan. 6 (b) The exercise price of each share of Stock subject to an Option granted to a Non-Employee Director shall equal the Fair Market Value of a share of Stock on the date such Option is granted. Payment of the exercise price for the shares being purchased shall be made in cash. (c) Each Option granted to a Non-Employee Director shall become exercisable in three equal annual installments on the date of grant and on each of the first two anniversaries of the date of grant, and shall have a term of five years from the date of grant. Notwithstanding the exercise period of any Option granted to a Non-Employee Director, all such Options shall immediately become exercisable upon a Change in Control. Section 8. Exercise of Options (a) A Grantee shall exercise an Option by delivery of written notice to the Corporation setting forth the number of shares with respect to which the Option is to be exercised, together with cash, certified check, bank draft, wire transfer, or postal or express money order payable to the order of the Corporation for an amount equal to the Option price of such shares and any income tax required to be withheld. The Committee may, in its sole discretion, permit a Grantee to pay all or a portion of the exercise price by delivery of Stock or other property (including notes or other contractual obligations of Grantees to make payment on a deferred basis, such as through "cashless exercise" arrangements, to the extent permitted by applicable law), and the methods by which Stock will be delivered or deemed to be delivered to Grantees. (b) Except as provided pursuant to Section 9(a), no Option granted to an Employee or Consultant shall be exercised unless at the time of such exercise the Grantee is then an Employee (determined with reference to Section 2(i)(i) only) or Consultant (determined with reference to Section 2(e)(i) only) of the Corporation or a Subsidiary (determined with reference to Section 2(w)(i) only). (c) Except as provided in Section 9(a), no Option granted to a Non-Employee Director shall be exercised unless at the time of such exercise the Grantee is then a Non-Employee Director. Section 9. Exercise of Options upon Termination (a) Unless otherwise determined by the Committee, upon termination of a Grantee's employment with the Corporation and its Subsidiaries, such Grantee may exercise any Options during the three month period following such termination of employment, but only to the extent such Option was exercisable immediately prior to such termination of employment. Notwithstanding the foregoing, if the Committee determines that such termination is for cause, all Options held by the Grantee shall immediately terminate. In addition, all Options granted on the basis of clause (ii) of Section 2(e), (i) or (w) shall immediately terminate if the Committee determines, in its sole discretion, that the Consultant, Employee or Subsidiary, as the case may be, will not 7 become a Consultant, Employee or Subsidiary within the meaning of clause (i) of such Sections. (b) Unless otherwise determined by the Committee and specified in the Stock Option Agreement, in no event shall any Option be exercisable for more than the maximum number of shares that the Grantee was entitled to purchase at the date of termination of the relationship with the Corporation and its Subsidiaries. (c) The sale of any Subsidiary shall be treated as a termination of employment with respect to any Grantee employed by such Subsidiary. (d) Subject to the foregoing, in the event of death, Options may be exercised by a Grantee's legal representative. Section 10. Adjustment Upon Changes in Capitalization In the event of any dividend or other distribution (whether in the form of cash, Stock, or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Grantees under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Stock deemed to be available thereafter for grants of Options under Section 3, (ii) the number and kind of shares of Stock that may be delivered or deliverable in respect of outstanding Options, (iii) the number of shares with respect to which Options may be granted to a given Grantee in the specified period as set forth in Section 6(d), and (iv) the exercise price (or, if deemed appropriate, the Committee may make provision for a cash payment with respect to any outstanding Option). In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Options (including, without limitation, cash payments in exchange for an Option or substitution of Options using stock of a successor or other entity) in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence) affecting the Corporation or any Subsidiary or the financial statements of the Corporation or any Subsidiary, or in response to changes in applicable laws, regulations, or accounting principles. Section 11. Restrictions on Issuing Shares The Corporation shall not be obligated to deliver Stock upon the exercise or settlement of any Option or take other actions under the Plan until the Corporation shall have determined that applicable federal and state laws, rules, and regulations have been complied with and such approvals of any regulatory or governmental agency have been obtained and contractual obligations to which the Option may be subject have been satisfied. The Corporation, in its discretion, may postpone the issuance or delivery of Stock under any 8 Option until completion of such stock exchange listing or registration or qualification of such Stock or other required action under any federal or state law, rule, or regulation as the Corporation may consider appropriate, and may require any Grantee to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock under the Plan. Section 12. Tax Withholding The Corporation shall have the right to require that the Grantee make such provision, or furnish the Corporation such authorization, necessary or desirable so that the Corporation may satisfy its obligation, under applicable laws, to withhold or otherwise pay for income or other taxes of the Grantee attributable to the grant or exercise of Options granted under the Plan or the sale of Stock issued with respect to Options. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Grantee's tax obligations. Section 13. Transferability No Option shall be subject to anticipation, sale, assignment, pledge, encumbrance, charge or transfer except by will or the laws of descent and distribution, and an Option shall be exercisable during the Grantee's lifetime only by the Grantee, provided, however, that the Committee may permit a Grantee to transfer an Option to a family member or a trust created for the benefit of family members. In the case of such a transfer, the transferee's rights and obligations with respect to the Option shall be determined by reference to the Grantee and the Grantee's rights and obligations with respect to the Option had no transfer been made. Notwithstanding such transfer, the Grantee shall remain obligated pursuant to Section 11 if required by applicable law. Section 14. General Provisions (a) Each Option shall be evidenced by a Stock Option Agreement. The terms and provisions of such Stock Option Agreements may vary among Grantees and among different Options granted to the same Grantee. (b) The grant of an Option in any year shall not give the Grantee any right to similar grants in future years, any right to continue such Grantee's employment relationship with the Corporation or its Subsidiaries, or, until such Option is exercised and share certificates are issued, any rights as a Stockholder of the Corporation. All Grantees shall remain subject to discharge to the same extent as if the Plan were not in effect. (c) No Grantee, and no beneficiary or other persons claiming under or through the Grantee shall have any right, title or interest by reason of any Option to any particular assets of the Corporation or its Subsidiaries, or any shares of Stock allocated or reserved for the purposes of the Plan or subject to any Option except as set forth herein. The Corporation shall not be 9 required to establish any fund or make any other segregation of assets to assure the payment of any Option. (d) The issuance of shares of Stock to Grantees or to their legal representatives shall be subject to any applicable taxes and other laws or regulations of the United States or of any state having jurisdiction thereof. Section 15. Amendment or Termination The Board may, at any time, alter, amend, suspend, discontinue or terminate this Plan; provided, however, that no such action shall adversely affect the rights of Grantees to Options previously granted hereunder and, provided further, however, that any shareholder approval necessary or desirable in order to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or other applicable law or regulation) shall be obtained in the manner required therein. In addition, no plan provision, within the meaning of Rule 16b-3(c)(2)(i)(D), shall be amended more than once every six months, other than to comport with changes in the Code or rules thereunder. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate, any Option theretofore granted and any Stock Option Agreement relating thereto; provided, however, that, without the consent of an affected Grantee, no such action may materially impair the rights of such Grantee under such Option. Section 16. Effective Date of Plan This Plan is effective upon its adoption by the Board and shall continue in effect until terminated by the Board. No ISO may be granted more than ten years after such date. 10 EX-10.9 8 EXECUTIVE EMPLOYMENT AGREEMENT OF RICHARD PARKER EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT made as of July 1, 1996. BETWEEN: Visual Edge Systems Inc., a corporation duly incorporated under the laws of Delaware having an office and place of business at 7 West 51st Street, New York, New York 10019 (hereinafter referred to as "Company") AND: Richard Parker, 5990 Tommy Douglas, Montreal, Quebec, Canada H3X 4A6 (hereinafter referred to as "Employee") THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements hereinafter contained and the mutual benefit to be derived therefrom and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereto hereby covenant and agrees as follows: Section 1 - Employment The Company hereby agrees to employ the Employee as Chief Operating Officer of the Company and the Employee hereby accepts employment with the Company and its subsidiaries in such position and agrees to work for the Company and any of its subsidiaries upon the terms and conditions hereinafter set forth. Section 2 - Term 2.1 Unless this Agreement is terminated upon Employee's resignation, death or permanent disability or incapacity, for Cause (as hereinafter defined) or without Cause, this Agreement shall remain in effect from July 1, 1996 until December 31, 1998. 2.2 This Agreement shall automatically be renewed after December 31, 1998 for additional twelve (12) month periods commencing on the 1st day of January and terminating on the 31st day of December of each year, unless one party shall have given notice to the other party, in writing, not later than September 30 of any year thereafter, of its election to terminate this Agreement as of December 31 of that year. 2.3 In the event that the Company elects to terminate this Agreement, other than for Cause, the Company agrees to pay to the Employee six (6) months severance pay from the date of termination or the remaining term of this agreement whichever is greater, (based on the Employee's annual base Salary (as hereinafter defined) during the last year in which he was employed by the Company) as liquidated damages for such termination, payable in full upon termination. 2.4 For purposes of this Agreement, for "Cause" shall mean: (i) the material breach of any provision of this Agreement by the Employee, (ii) the conviction of the Employee of a felony or an indictable offense under United States law, (iii) the misappropriation or embezzlement of funds by the Employee or (iv) the Employee is materially impaired from performing his duties hereunder because of alcohol, drug or any substance abuse. Section 3 - Compensation 3.1 In consideration of the services to be rendered by the Employee to the Company under this Agreement, the Company shall pay to the Employee an annual base salary (such annual base salary being hereinafter referred to as the "Salary") of $150,000 payable monthly. If the Company has an operating net income in fiscal 1997 then the base salary will be increased to $175,000 for fiscal 1998. 3.2 The Employee shall be entitled to receive an annual bonus in accordance with Schedule A and shall receive 50,000, 5 year options at $5.00 per share in accordance with Section 3.3 herein. 3.3 Any option granted to the Employee with respect to the Company's shares of Common Stock in respect of any fiscal year shall be made by the Company's Stock Option Committee pursuant to the Company's Stock Option Plan (the "Plan"). In the event that an insufficient number of shares of Common Stock are available for grant under the Plan, then the Company shall use its best efforts to amend the Plan (including obtaining stockholder approval) to increase the number of shares of Common Stock available thereunder. In the event that the Company is unable to so increase the number of shares so available, then the Employee shall be granted phantom units, or another award, that shall entitle him to the same appreciation in the Company's Common Stock as if he had received options to purchase shares of Common Stock. The Company shall use its best efforts to cause the Stock Option Committee to grant options as provided for herein. -2- 3.4 Vesting of any options granted pursuant to Section 3.2 hereof shall be as follows: 20% on June 30, 1997, 30% on June 30, 1998, 30% on June 30, 1999 (if the contract is renewed) and 20% on June 30, 2000 (if the contract is renewed). All options will vest if this Agreement is terminated other than for cause or is not renewed beyond the initial term. 3.5 The bonus granted to the Employee in respect of any fiscal year in accordance with the provisions of Section 3.2 hereof shall be payable in full by the Company to the Employee not later than fifteen (15) days after the day on which the Company files its Annual Report on Form 10-K with the SEC containing its audited financial statements for the preceding year. 3.6 If any change is made to the Company's Common Stock (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination of shares, or exchange of shares or any other change in capital structure made without receipt of consideration), then the Company shall preserve the value of all shares of Common Stock referred to herein by adjusting the number and class of shares issuable to reflect the effect of such event or change upon the Company's capital structure and by making appropriate adjustments to the number and class of shares. Section 4 - Benefits 4.1 During the term of this Agreement, the Employee shall be entitled to receive from the Company the following: (1) benefits and a health care plan that is made available to the Company's executives; (2) a monthly car allowance of $500, car insurance and coverage of gas, maintenance and repair expenses; (3) reimbursement for all reasonable expenses incurred by the Employee in the conduct of the Company's business; (4) 4 weeks annual vacation. Such vacation, to the extent not used in any calendar year, may not be carried over to subsequent calendar years. -3- Section 5 - Duties of the Employee The Employee is engaged by the Company for the term of this Agreement as an executive employee of the Company on a full time basis, and of such of its subsidiaries as it may designate, and hereby covenants and agrees to perform and discharge well and faithfully the duties which may be assigned to him from time to time by the Company in connection with the conduct of its business and that of its subsidiaries. The parties hereto agree that the Employee will be based in South Florida geographic area throughout the term of his employment hereunder and may be required to travel from time to time in furtherance of the Company's business. The Employee shall carry out such duties are reasonably assigned to him by the Board of Directors of the Company. The Employee shall deal at all times in good faith with the Company and its subsidiaries and shall conduct himself at all times in the best interest of the Company and of its subsidiaries. Provided that the Employee honors his obligations under this Section he shall be allowed to continue his ownership and involvement with Diomo Marketing Inc. Section 6 - Extent of Services The Employee shall devote all of his working time, attention and energy to the business of the Company and of its subsidiaries. The Employee shall not, during the term of this Agreement, directly or indirectly, be engaged in any other business activities, whether or not such business activities are pursued for gain, profit or other pecuniary advantage. The foregoing provision shall not be construed as preventing the Employee from investing his personal assets in businesses which do not compete with the Company, provided such investment will not require any material services on the part of the Employee. Section 7 - Disclosure of Information The Employee acknowledges that in the course of his employment with the Company and its subsidiaries he has and will acquire access to and knowledge of many of their trade secrets, financial information and proprietary information and proprietary processes as they may, from time to time, exists ("Proprietary Information") and he hereby acknowledges that the Proprietary Information is a valuable, special and unique asset of the business of the Company and its subsidiaries. The Employee hereby covenants and agrees that he will not, during the term of his employment and thereafter, disclose any of the Proprietary Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall he make use of the Proprietary Information for his own purposes or for the benefit of any other party under any circumstances whatsoever. -4- Section 8 - Restrictive Covenant 8.1 The Employee covenants and agrees with the Company that he shall not, so long as he is an employee of the Company and for a period of two (2) years from the date (the "Exit Date") on which he ceases to be an employee of the Company. (a) directly or indirectly, in any manner whatsoever, including, without limitation, either individually or in partnership or jointly, or in conjunction with any other person or persons, firm, association, syndicate, company or corporation, as principal, agent, shareholder (except as shareholder of not more than 5% of the voting shares of a publicly traded corporation), employee or in any other manner whatsoever, work for, be employed by or acquire an interest in any corporation engaged in the production, marketing, distribution or funding of the production, marketing or distribution of a personalized instructional sports video hereto (a "Competitive Business") or any corporation affiliated with a Competitive Business or be concerned with or interested in or lend money to, guarantee the debts or obligations of or permit his name or any part thereof to be used or employed by a Competitive Business or any corporation affiliated with such business; or (b) entice away or otherwise attempt to obtain the withdrawal of any employee of the Company or its subsidiaries. 8.2 If any of the covenants contained in Section 8.1 shall be held unreasonable by reason of the definition of a Competitive Business, duration or type or scope of service covered by the said covenant, then the said covenant shall be given effect to in such reduced form as may be decided by any court of competent jurisdiction. If, notwithstanding the foregoing, any clause or any portion of any such covenant should be unenforceable or be declared invalid for any reason whatsoever, such unenforceability or invalidity shall not affect the enforceability or validity of the remaining portions of the convenants and such unenforceable or invalid portions shall be severable from the remainder of this Agreement. The Employee hereby acknowledges and agrees that all restrictions contained in this Agreement are reasonable and valid and all defenses to the strict enforcement thereof by the Company are hereby waived by the Employee. -5- Section 9 - General 9.1 Any notice or other writing required or permitted to be given hereunder or for the purposes hereof (hereinafter in this subsection called a "notice") to any party shall be in writing and shall be sufficiently given if delivered or sent by prepaid registered mail addressed to such party: (a) in the case of a notice to the Company, at: Visual Edge Systems Inc. 7 West 51st Street New York, New York 10019 Attention: Chief Executive Officer with a copy to: Morgan, Lewis & Bockius 101 Park Avenue New York, New York 10178 Attention: David W. Pollak, Esq. (b) in the case of a notice to the Employee: Richard Parker 5990 Tommy Douglas Montreal, Quebec Canada H3X 4A6 or at such other address or to such other person's attention as the party to whom such notice is to be given shall have last notified to the party giving the same in the manner provided in this section. Any notice delivered to the party to whom it is addressed as hereinbefore provided shall be deemed to have been given and received on the day it is so delivered at such address, provided that if such day is not a business day then the notice shall be deemed to have been given and received on the business day next following such day. Any notice mailed as aforesaid shall be deemed to have been given and received on the third business day of uninterrupted postal service following the date of its mailing. -6- 9.2 This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. 9.3 This Agreement contains the whole understanding of the parties hereto with respect to the subject matter hereof and supersedes all other agreements and communications, oral or written, with respect thereto. This Agreement shall not be amended except by instrument in writing executed by each of the parties hereto. 9.4 The division of this Agreement into sections and sub-sections is for convenience of reference only and shall not affect the interpretation or construction of this Agreement. All words and personal pronouns relating thereto shall be read and construed as the number and gendor of the party or parties referred to in each case require and the verb shall be construed as agreeing with the required word and pronoun. 9.5 This Agreement may be executed by the Parties hereto in separate counterparts each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 9.6 The Parties hereto agree that any legal or other expenses associated with the preparation of this Agreement shall be for the account of the Company. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date set forth above. VISUAL EDGE SYSTEMS INC. /s/ EARL TAKEFMAN /s/ RICHARD PARKER - --------------------------------- ------------------------------- Name: Earl Takefman Richard Parker Title: Chief Executive Officer -7- Bonus Compensation EPS = Earnings per share. A target EPS will be established on a yearly basis by the Company.
then cash bonus and new options If Stock Price is (2) or If EPS is based on base salary is (4) issued will be (1)(4) - ------------------------ --------- --------------------------- --------------------- BASE price or less less than X 0% 0 BASE + 10% X 10% 5,000 BASE + 15% X to 1.1X 15% 7,500 BASE + 25% 1.1X to 1.25X 25% 10,000 BASE + 50% 1.25X to 1.5X 35% 12,500 BASE + 75% 1.5X to 2.0X 50% 15,000 BASE + 100% 2.0X plus 75% 20,000
(1) Options will be issued at the closing price of the Company's stock on the last day of its fiscal year end, namely December 31st. (2) Stock price means closing yearend stock price which is calculated as the average of the last 10 trading days in December. (3) BASE price for fiscal 1997 will be the IPO price. Thereafter it will be the price established in (2) for the previous year i.e. for 1998 bonuses the average stock price on the last 10 trading days of 1997. (4) Cash bonus and options will be determined based upon the greater of the EPS calculation or the Stock Price calculation. e.g. if the Stock Price is Base + 25% and the EPS is 1.35X, then the cash bonus will be 35% of base salary and 12,500 options will be issued. -8- EX-10.10 9 EXECUTIVE EMPLOYMENT AGREEMENT OF AMI TRAUBER EXHIBIT 10.10 EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT made as of July 1, 1996. BETWEEN: Visual Edge Systems Inc., a corporation duly incorporated under the laws of Delaware having an office and place of business at 7 West 51st Street, New York, New York 10019 (hereinafter referred to as "Company") AND: Ami Anthony Trauber, 33 Pond Avenue, #1225, Brookline, MA 02146 (hereinafter referred to as "Employee") THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements hereinafter contained and the mutual benefit to be derived therefrom and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereto hereby covenant and agrees as follows: Section 1 -- Employment The Company hereby agrees to employ the Employee as Chief Financial Officer of the Company and the Employee hereby accepts employment with the Company and its subsidiaries in such position and agrees to work for the Company and any of its subsidiaries upon the terms and conditions hereinafter set forth subject to the completion of the Company's initial public offering of its stock ("IPO"). Section 2 -- Term 2.1 Unless this Agreement is terminated upon Employee's resignation, in accordance with Section 2.5, death or permanent disability or incapacity, for Cause (as hereinafter defined) or without Cause, this Agreement shall remain in effect from July 1st, 1996 until December 31, 1998. 2.2 This Agreement shall automatically be renewed after December 31, 1998 for additional twelve (12) month periods commencing on the 1st day of January and terminating on the 31st day of December of each year, unless one party shall have given notice to the other party, in writing, not later than September 30th of any year thereafter, of its election to terminate this Agreement as of December 31st of that year. 2.3 In the event that the Company elects to terminate this Agreement, other than for Cause, the Company agrees to pay to the Employee six (6) months severance pay from the date of termination or the remaining term of this agreement whichever is greater. (based on the Employee's annual base Salary (as hereinafter defined) during the last year in which he was employed by the Company) as liquidated damages for such termination, payable in full upon termination. 2.4 For purposes of this Agreement, for "Cause" shall mean: (i) the material breach of any provision of this Agreement by the Employee, (ii) the conviction of the Employee of a felony or an indictable offense under United States law, (iii) the misappropriation or embezzlement of funds by the Employee or (iv) the Employee is materially impaired from performing his duties hereunder because of alcohol, drug or any substance abuse. 2.5 Either the Company or the Employee may cancel this Agreement on or before December 31, 1996 by giving notice of their intention to cancel on or before November 30, 1996. If no notice is received by either party this Section 2.5 shall be considered null and void and of no effect. If notice is received by either party, the Employee shall receive the Salary until December 31, 1996 and 5,000 options issued pursuant to Section 3.2 shall vest with the Employee on January 1, 1997. Section 3 -- Compensation 3.1 In consideration of the services to be rendered by the Employee to the Company under this Agreement, the Company shall pay to the Employee an annual base salary (such annual base salary being hereinafter referred to as the "Salary") of $150,000 payable monthly. For fiscal 1998, the Salary shall be $175,000 if the Company realized a profit in fiscal 1997. 3.2 The Employee shall be entitled to receive an annual bonus in accordance with Schedule A and 25,000 options to purchase stock in the Company at the IPO price in accordance with Section 3.3 and 3.4 hereinbelow and subject to the completion of the contemplated IPO. 3.3 Any option granted to the Employee with respect to the Company's shares of Common Stock in respect of any fiscal year shall be made by the Company's Stock Option Committee pursuant to the Company's Stock Option Plan (the "Plan"). In the event that an insufficient number of shares of Common Stock are available for grant under the Plan, then the Company shall use its best efforts to amend the Plan (including -2- obtaining stockholder approval) to increase the number of shares of Common Stock available thereunder. In the event that the Company is unable to so increase the number of shares so available, then the Employee shall be granted phantom units, or another award, that shall entitle him to the same appreciation in the Company's Common Stock as if he had received options to purchase shares of Common Stock. The Company shall use its best efforts to cause the Stock Option Committee to grant options as provided for herein. 3.4 Vesting of any options granted pursuant to Section 3.2 hereof shall be in accordance with the Company's Employee Stock Option Plan. 3.5 The bonus granted to the Employee in respect of any fiscal year in accordance with the provisions of Section 3.2 hereof shall be payable in full by the Company to the Employee not later than fifteen (15) days after the day on which the Company files its Annual Report on Form 10-K with the SEC containing its audited financial statements for the preceding year. 3.6 If any change is made to the Company's Common Stock (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination of shares, or exchange of shares or any other change in capital structure made without receipt of consideration), then the Company shall preserve the value of all shares of Common Stock referred to herein by adjusting the number and class of shares issuable to reflect the effect of such event or change upon the Company's capital structure and by making appropriate adjustments to the number and class of shares. Section 4 -- Benefits 4.1 During the term of this Agreement, the Employee shall be entitled to receive from the Company the following: (1) benefits and a health care plan that is made available to the Company's executives; (2) a monthly car allowance of $500, car insurance and coverage of gas, maintenance and repair expenses; (3) reimbursement for all reasonable expenses incurred by the Employee in the conduct of the Company's business; -3- (4) four (4) weeks annual vacation. Such vacation, to the extent not used in any calendar year, may not be carried over to subsequent calendar years. Section 5 -- Duties of the Employee The employee is engaged by the Company for the term of this Agreement as an executive employee of the Company on a full time basis, and of such of its subsidiaries as it may designate, and hereby covenants and agrees to perform and discharge well and faithfully the duties which may be assigned to him from time to time by the Company in connection with the conduct of its business and that of its subsidiaries. The parties hereto agree that the Employee will be based on the east coast of South Florida geographic area throughout the term of his employment hereunder and may be required to travel from time to time in furtherance of the Company's business. The Employee shall carry out such duties are reasonably assigned to him by the Board of Directors of the Company. The Employee shall deal at all times in good faith with the Company and its subsidiaries and shall conduct himself at all times in the best interest of the Company and of its subsidiaries. Section 6 -- Extent of Services The Employee shall devote all of his working time, attention and energy to the business of the Company and of its subsidiaries. The Employee shall not, during the term of this Agreement, directly or indirectly, be engaged in any other business activities, whether or not such business activities are pursued for gain, profit or other pecuniary advantage. The foregoing provision shall not be construed as preventing the Employee from investing his personal assets in businesses which do not compete with the Company, provided such investment will not require any material services on the part of the Employee. Section 7 -- Disclosure of Information The Employee acknowledges that in the course of his employment with the Company and its subsidiaries he has and will acquire access to and knowledge of many of their trade secrets, financial information and proprietary information and proprietary processes as they may, from time to time, exists ("Proprietary Information") and he hereby acknowleges that the Proprietary Information is a valuable, special and unique assets of the business of the Company and its subsidiaries. The Employee hereby covenants and agrees that he will not, during the term of his employment and thereafter, disclose any -4- of the Proprietary Information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall he make use of the Proprietary Information for his own purposes or for the benefit of any other party under any circumstances whatsoever. Section 8 -- Restrictive Covenant 8.1 The Employee covenants and agrees with the Company that he shall not, so long as he is an employee of the Company and for a period of two (2) years from the date (the "Exit Date") on which he ceases to be an employee of the Company; (a) directly or indirectly, in any manner whatsoever, including, without limitation, either individually or in partnership or jointly, or in conjunction with any other person or persons, firm, association, syndicate, company or corporation, as principal, agent, shareholder (except as shareholder of not more than 5% of the voting shares of a publicly traded corporation), employee or in any other manner whatsoever, work for, be employed by or acquire an interest in any corporation engaged in the production, marketing, distribution or funding of the production, marketing or distribution of a personalized instructional sports video hereto (a "Competitive Business") or any corporation affiliated with a Competitive Business or be concerned with or interested in or lend money to, guarantee the debts or obligations of or permit his name or any part thereof to be used or employed by a Competitive Business or any corporation affiliated with such business; or (b) entice or otherwise attempt to obtain the withdrawal of any employee of the Company or its subsidiaries. 8.2 If any of the covenants contained in Section 8.1 shall be held unreasonable by reason of the definition of a Competitive Businesses, duration or type or scope of service covered by the said covenant, then the said covenant shall be given effect to in such reduced form as may be decided by any court of competent jurisdiction. If, notwithstanding the foregoing, any clause or any portion of any such covenant should be unenforceable or be declared invalid for any reason whatsoever, such unenforceability or invalidity shall not affect the enforceability or validity of the remaining portions of the covenants and such unenforceable or invalid portions shall be severable from the -5- remainder of this Agreement. The Employee hereby acknowledges and agrees that all restrictions contained in this Agreement are reasonable and valid and all defenses to the strict enforcement thereof by the Company are hereby waived by the Employee. Section 9 -- General 9.1 Any notice or other writing required or permitted to be given hereunder or for the purposes hereof (hereinafter in this subsection called a "notice") to any party shall be in writing and shall be sufficiently given if delivered or sent by prepaid registered mail addressed to such party: (a) in the case of a notice to the Company, at: Visual Edge Systems Inc. 7 West 51st Street New York, New York 10019 Attention: Chief Executive Officer with a copy to: Morgan, Lewis & Bockius 101 Park Avenue New York, New York 10178 Attention: David W. Pollak, Esq. (b) in the case of a notice to the Employee: Ami Anthony Trauber 33 Pond Avenue #1225 Brookline, MA 02146 or at such other address or to such other person's attention as the party to whom such notice is to be given shall have last notified to the party giving the same in the manner provided in this section. Any notice delivered to the party to whom it is addressed as hereinbefore provided shall be deemed to have been given and received on the day it is so delivered at such address, provided that if such day is not a business day then the notice shall be deemed to have been given and received on the business day next following such day. Any notice mailed as aforesaid shall -6- be deemed to have been given and received on the third business day of uninterrupted postal service following the date of its mailing. 9.2 This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. 9.3 This Agreement contains the whole understanding of the parties hereto with respect to the subject matter hereof and supersedes all other agreements and communications, oral or written, with respect thereto. This Agreement shall not be amended except by instrument in writing executed by each of the parties hereto. 9.4 The division of this Agreement into sections and sub-sections is for convenience of reference only and shall not affect the interpretation or construction of this Agreement. All words and personal pronouns relating thereto shall be read and construed as the number and gender of the party or parties referred to in each case required and the verb shall be construed as agreeing with the required word and pronoun. 9.5 This Agreement may be executed by the Parties hereto in separate counterparts each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 9.6 The Parties hereto agree that any legal or other expenses associated with the preparation of this Agreement shall be for the account of the Company. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed as of the date set forth above. VISUAL EDGE SYSTEMS INC. /s/ EARL TAKEFMAN /s/ AMI A. TRAUBER - ------------------------------------ ------------------------------------- Name: Earl Takefman Ami Anthony Trauber Title: Chief Executive Officer -7- Bonus Compensation EPS -- Earnings per share. A target EPS will be established on a yearly basis by the Company. If Stock Price then cash bonus and new options is (2) or If EPS is based on base salary is issued will be (1) - -------------- --------- ----------------------- ------------------ BASE price or less less than X 0 0 BASE + 10% X 10% 5,000 BASE + 15% X to 1.1X 15% 7,500 BASE + 25% 1.1X to 1.25X 20% 10,000 BASE + 50% 1.2X to 1.5X 35% 12,500 BASE + 75% 1.5X to 2.0X 50% 15,000 BASE + 100% 2.0X plus 75% 20,000 (1) Options will be issued at the closing price of the Company's stock on the last day of its fiscal year end, namely December 31st. (2) Stock price means closing yearend stock price which is calculated as the average of the last 10 trading days in December. (3) BASE price for fiscal 1997 will be the IPO price. Thereafter it will be the price established in (2) for the previous year i.e. for 1998 bonus the average stock price on the last 10 trading days of 1997. -8- EX-23.1 10 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Visual Edge Systems Inc. (a development stage company): We consent to the use of our report included herein in Amendment No. 1 to Form SB-2 and to the reference to our firm under the heading "Experts" in the prospectus. Our report dated April 30, 1996, except as to notes 1(e), 2 and 10, which are as of May 31, 1996, contains an explanatory paragraph that states that the Company is in its development stage and its losses and working capital and net capital deficiencies raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. KPMG PEAT MARWICK LLP New York, New York July 9, 1996 EX-23.2 11 CONSENT OF FRANK WILLIAMS EXHIBIT 23.2 CONSENT TO BE NAMED AS A DIRECTOR OF VISUAL EDGE SYSTEMS INC. The undersigned hereby consents to be named in the Registration Statement on Form SB-2 to be filed by Visual Edge Systems Inc. (the "Company") with the Securities and Exchange Commission, as a director of the Company. /s/ FRANK WILLIAMS ---------------------------------------- Frank Williams EX-23.3 12 CONSENT OF EDDIE EINHORN EXHIBIT 23.3 CONSENT TO BE NAMED AS A DIRECTOR OF VISUAL EDGE SYSTEMS INC. The undersigned hereby consents to be named in the Registration Statement on Form SB-2 to be filed by Visual Edge Systems Inc. (the "Company") with the Securities and Exchange Commission, as a director of the Company. /s/ EDDIE EINHORN -------------------------------------- Eddie Einhorn EX-27 13 FINANCIAL DATA SCHEDULE
5 12-MOS 3-MOS DEC-31-1995 MAR-31-1996 DEC-31-1995 MAR-31-1996 $558 $833 0 0 0 0 0 0 0 0 558 833 671,177 671,177 64,743 112,437 633,477 609,587 682,980 790,389 0 0 0 0 0 0 30,000 30,000 (79,503) (210,802) 633,477 609,587 7,267 3,848 132,267 3,848 44,167 23,728 44,167 23,728 547,224 98,607 0 0 5,118 12,812 (464,242) (131,299) 721 0 (464,963) (131,299) 0 0 0 0 0 0 (464,963) (131,299) (.14) (.04) (.14) (.04)
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