-----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, WAQOL6XaE2teRpFcLfAqePZzazoMHFOpjvIOS/XZ4AXezSaig1kWk6T+cqWWMUuJ 3M0KxBlOLViiKW+lagLAYg== 0000950144-97-003859.txt : 19970409 0000950144-97-003859.hdr.sgml : 19970409 ACCESSION NUMBER: 0000950144-97-003859 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970407 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] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-24675 FILM NUMBER: 97575818 BUSINESS ADDRESS: STREET 1: 7 W 51ST ST CITY: NEW YORK STATE: NY ZIP: 10019 MAIL ADDRESS: STREET 1: 7 WEST 51ST STREET STREET 2: 7 WEST 51ST STREET CITY: NEW YORK STATE: NY ZIP: 10019 SB-2 1 VISUAL EDGE SYSTEMS FORM SB-2 1 As filed with the Securities and Exchange Commission on April 7, 1997 REGISTRATION NO. 333- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 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 (Principal Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification Number)
2424 NORTH FEDERAL HIGHWAY, SUITE 100 BOCA RATON, FLORIDA 33431 (561) 750-7559 (Address and telephone number of registrant's principal executive offices) EARL T. TAKEFMAN CHIEF EXECUTIVE OFFICER VISUAL EDGE SYSTEMS INC. 2424 NORTH FEDERAL HIGHWAY, SUITE 100 BOCA RATON, FLORIDA 33431 (561) 750-7559 COPIES TO: DAVID W. POLLAK, ESQ. MORGAN, LEWIS & BOCKIUS LLP 101 PARK AVENUE NEW YORK, NEW YORK 10178 TEL: (212) 309-6000 FAX: (212) 309-6273 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. 2 CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED REGISTERED SECURITY(1) PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share . . . . . . . . . . 125,000 $11.125 $1,390,625 $421.40 - ---------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share(2) . . . . . . . . 100,000 $11.125 $1,112,500 $337.12 - ---------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share(3) . . . . . . . . 260,000 (4) (4) (4) - ---------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share(5) . . . . . . . . . 1,495,000 (6) (6) (6) - ---------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share(7) . . . . . . . . . 220,000 (8) (8) (8) - ---------------------------------------------------------------------------------------------------------------------- Total Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $758.52 ======================================================================================================================
(1) Estimated solely for the purpose of calculating the filing fee. (2) Issuable upon the exercise of warrants held by the Selling Stockholders. (3) Issuable upon the exercise of 130,000 warrants, each to purchase one share of Common Stock, and 130,000 warrants, each to purchase one warrant to purchase one share of Common Stock, held by Whale Securities Co., L.P. (4) These securities were registered under a previous Registration Statement (No. 333-5193) filed by the Company. Pursuant to Rule 429, the Company is carrying forward from such Registration Statement the 260,000 shares registered hereby, as well as the filing fee of $605.16 previously paid with respect to such securities. (5) Issuable upon exercise of the 1,495,000 Redeemable Warrants sold to the public in the Company's initial public offering on July 24, 1996. (6) These securities were registered under a previous Registration Statement (No. 333-5193) filed by the Company. Pursuant to Rule 429, the Company is carrying forward from such Registration Statement the 1,495,000 shares of Common Stock registered hereby, as well as the filing fee of $2,577.58 previously paid with respect to such securities. (7) Represents shares beneficially owned and to be sold by certain selling stockholders, and registered for offer on a delayed basis pursuant to Rule 415. (8) These securities were registered under a previous Registration Statement (No. 333-5193) filed by the Company. Pursuant to Rule 429, the Company is carrying forward from such Registration Statement the 220,000 shares registered hereby, as well as the filing fee of $379.31 previously paid with respect to such securities. ii 3 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. SUBJECT TO COMPLETION, DATED APRIL __, 1997 SHARES OF COMMON STOCK VISUAL EDGE SYSTEMS INC. This Prospectus relates to the offer and sale of up to an aggregate of 2,200,000 shares (the "Shares") of Common Stock of Visual Edge Systems Inc. (the "Company"), which Shares consist of the following: (i) 200,000 shares of Common Stock to be offered and sold by certain investors who received such shares in a bridge financing consummated by the Company in March 1997, (ii) 25,000 shares to be offered and sold by a former officer of the Company, (iii) 220,000 shares of Common Stock to be offered and sold by certain investors who invested in the Company prior to the Company's initial public offering (the "IPO"), (iv) 260,000 shares of Common Stock underlying an aggregate of 260,000 warrants held by Whale Securities Co., L.P. ("Whale"), the underwriter in the Company's IPO, and (v) 1,495,000 shares of Common Stock underlying the Company's Redeemable Warrants, which were sold in the IPO. See "Selling Stockholders and Plan of Distribution" and "Description of Securities." The Company will receive up to $128,000 of the net proceeds from the sale of the Shares offered hereby by the former officer of the Company. See "Management - Severance Arrangement." The Common Stock of the Company is traded on the Nasdaq SmallCap Market ("Nasdaq") under the symbol "EDGE." On March 27, 1997, the last reported sale price of the Common Stock as quoted on Nasdaq was $11.125 per share. THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6. The Shares may be sold from time to time in brokerage transactions at or near prevailing market prices through Whale or others, or in privately negotiated transactions for the account of Whale or each of the Selling Stockholders. The Company has agreed to bear all expenses (other than discounts, selling commissions and stock transfer taxes relating to the Shares) in connection with the registration and sale of the Shares being registered hereby. See "Selling Stockholders and Plan of Distribution." 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. No person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus and, if given or made, such information and representations must not be relied upon as having been authorized by the Company, Whale or the Selling Stockholders. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Common Stock to which it relates. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy such securities in any circumstances in which such offer or solicitation is unlawful. THE DATE OF THIS PROSPECTUS IS APRIL __, 1997. 4 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. THE COMPANY 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 and is in the early stages of being an operational company. To date, the Company has focused its efforts on developing and marketing 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 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 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 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 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. Since then, the Company has developed six full swing personalized One-on-One golf lessons with Greg Norman for both right- and left-handed golfers. The Company's personalized products include a lesson stressing basic golf fundamentals for either males or females, a lesson geared towards senior golfers, an advanced lesson for lower-handicap players and a "follow-up" lesson which measures a golfer's improvement from prior lessons. The Company also plans to develop additional videotape golf lessons, such as short game, sand play and putting lessons. A Company employee operates videotaping equipment at the first tee, driving range or other suitable location to videotape a golfer's swing which is edited inside a One-on-One van to create a personalized videotape golf lesson in approximately 16 minutes. 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), golf professionals at private and daily fee golf courses and driving ranges and indoor event planners who organize trade shows, conventions, sales meetings, retail store openings and promotions and automobile dealer showroom promotions. To implement its marketing and business strategy, the Company has already developed seven mobile One-on-One vans equipped with video and personal computer equipment to market, promote and produce the Company's products, and the Company has ordered an additional eight such mobile units which it expects to have operational by May 31, 1997. The Company will position such vans in selected geographic areas that will service golf courses and driving ranges throughout the United States, and has initially placed its first seven vans in Florida (3), Georgia, Texas, Arizona and Southern California. 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 2 5 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 products from competing products and position the Company to capitalize on the growing popularity of golf. Since its inception, the Company has engaged in limited operations and has generated minimal operating revenues. The Company incurred substantial up-front expenses in connection with product development and commercialization (including the payment of license fees and the lease of One-on-One vans and video and computer equipment), resulting in significant operating losses which are likely to continue 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 located at 2424 North Federal Highway, Suite 100, Boca Raton, Florida 33431, and its telephone number is (561) 750-7559. RECENT BRIDGE FINANCING In March 1997, the Company consummated a bridge financing (the "Bridge Financing") pursuant to which it issued to 13 investors, including Status-One Investments Inc., a company controlled by Earl T. Takefman, the Chief Executive Officer of the Company, an aggregate of (i) 100,000 shares of Common Stock and (ii) 100,000 warrants to purchase 100,000 shares of Common Stock at a price of $10.00 per share, subject to adjustment in certain circumstances. As consideration for such securities, the investors in the Bridge Financing pledged an aggregate of $3,500,000 in cash and other marketable securities as cash collateral (the "Cash Collateral") to Republic Bank of New York (Canada) Ltd. ("Republic"), which in turn issued a stand-by letter of credit (the "Letter of Credit") to the Company in an amount up to $3,500,000, which expires on December 31, 1997. The Company has used the Letter of Credit to secure a $3,500,000 line of credit (the "Line of Credit") from Barnett Bank. In the event that the Company draws upon the Line of Credit and is subsequently unable to repay amounts owed to Barnett Bank under the Line of Credit prior to December 31, 1997, Barnett Bank will present the Letter of Credit to Republic, who will pay Barnett Bank amounts owed to it using the Cash Collateral. In such instance, the investors in the Bridge Financing will be issued additional shares of Common Stock by the Company according to a pre-determined formula. See "Plan of Operation." 3 6 THE OFFERING Securities offered hereby(1) . . . . 2,200,000 shares of Common Stock. Common Stock to be outstanding after the offering(2) . . . . . . 4,840,000 shares Use of Proceeds . . . . . . . . . . . The Company will receive up to $128,000 from the sale of the Common Stock offered hereby. See "Use of Proceeds." Risk Factors . . . . . . . . . . . . The securities offered hereby are speculative and involve a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See "Risk Factors." Nasdaq Symbols . . . . . . . . . . . Common Stock -- EDGE Redeemable Warrants -- EDGEW - -------------------
(1) Includes (i) 200,000 shares of Common Stock to be offered and sold by certain investors in a bridge financing consummated by the Company in March 1997; (ii) 25,000 shares to be offered and sold by a former officer of the Company; (iii) an aggregate of 1,495,000 shares of Common Stock reserved for issuance upon the exercise of the Company's Redeemable Warrants (the "Redeemable Warrants"), which were sold by the Company on July 24, 1996 in the Company's initial public offering ("IPO"); (iv) an aggregate of 260,000 shares of Common Stock reserved for issuance upon the exercise of an aggregate of 260,000 warrants held by Whale (the "Whale Warrants"); and (v) an aggregate of 220,000 shares of Common Stock owned by certain pre-IPO investors in the Company. See "Selling Stockholders and Plan of Distribution" and "Description of Securities." (2) Does not include (i) an aggregate of 1,495,000 shares of Common Stock reserved for issuance upon the exercise of the Redeemable Warrants; (ii) an aggregate of 260,000 shares of Common Stock reserved for issuance upon the exercise of the Whale Warrants; (iii) 965,871 shares of Common Stock which may be issued upon the exercise of outstanding options under the Company's Amended and Restated 1996 Stock Option Plan (the "Plan"), including up to 500,000 shares of Common Stock issuable 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; or (iv) 234,129 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" and "Description of Securities." 4 7 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 December 31, 1996 December 31, 1995 ----------------- ----------------- Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 132,267 Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,397,690) (464,963) Net loss per share . . . . . . . . . . . . . . . . . . . . . . . (.63) (.14) Weighted average number of shares outstanding . . . . . . . . . . 3,801,250 3,220,000 BALANCE SHEET DATA: December 31, 1996 1995 ------------- --------------- Working capital (deficit) . . . . . . . . . . . . . . . . . . . . $ 1,400,158 $ (682,422) Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4,784,170 633,477 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 1,119,514 682,980 Deficit accumulated during the development stage . . . . . . . . (2,862,653) (464,963) Stockholders' equity (deficit) . . . . . . . . . . . . . . . . . 3,664,656 (49,503)
5 8 RISK FACTORS Prospective investors should carefully consider the following risk factors, in addition to the other information contained in this Prospectus, in evaluating an investment in the shares of Common Stock offered hereby. This Prospectus contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified herein, including the matters set forth below, which could cause actual results to differ materially from those indicated by such forward-looking statements. No Significant Operating Revenues. To date, the Company has generated minimal operating revenues, and may not generate any meaningful revenues until after the Company operates several One-on-One vans. There can be no assurance that the Company will ever generate meaningful revenues. See "Financial Statements." Significant and Continuing Losses; Going Concern. For the period from July 15, 1994 (inception) to December 31, 1996, the Company incurred a cumulative net loss of $2,862,653. Since December 31, 1996, the Company has continued to incur significant losses and anticipates that it will incur continuing losses until, at the earliest, the Company generates sufficient revenues to offset the substantial up-front capital expenditures and operating costs (including significantly increased salaries of executives officers) associated with enhancing and commercializing its products. The Company incurred a non-recurring charge of $600,000 relating to the transfer of Common Stock to Greg Norman prior to the consummation of the Company's initial public offering (the "IPO"). In addition, the Company incurred costs of $1,615,000 relating to the IPO which was a reduction to its equity. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements stating that the Company's recurring losses through 1996 and contractual commitments under a licensing agreement raise substantial doubt about its ability to continue as a going concern unless the Company receives additional equity or other financing. There can be no assurance that the Company will ever achieve profitable operations. See "Financial Statements." Uncertainty of Proposed Plan of Operation. The Company's plan of operation and prospects will be largely dependent upon the Company's ability to successfully hire and retain skilled technical, marketing and other personnel, establish and maintain satisfactory relationships with those who arrange golf events, successfully develop, equip and operate One-on-One vans on a timely and cost effective basis and achieve significant market acceptance for its products. The Company has limited experience in developing and commercializing new products based on innovative technology and there is limited information available concerning the performance of the Company's video editing and production process or market acceptance of the Company's 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." Need for Additional Financing. The continued implementation of the Company's business plan or the development of additional products will require capital resources greater than the proceeds of the IPO and the Bridge Financing or other funds 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. 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 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 6 9 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 license agreement, which would have a material adverse effect on the Company. Greg Norman's death, disability or retirement from tournament play or any significant decline in the level of his 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 has obtained "key-man" insurance on the life of Greg Norman in the amount of $10,000,000. See "Business -- Relationship with Greg Norman." 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 the Company's products is subject to a high level of uncertainty. Achieving market acceptance for the Company's 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 only recently commenced 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 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 products. See "Business -- Marketing and Distribution." Competition. The Company faces intense competition for a finite amount of consumer discretionary spending from numerous other businesses in the golf industry and related market segments. The Company competes 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 products. There can be no assurance that the Company will be able to compete successfully. See "Business -- Competition." 7 10 Potential Product Obsolescence. The markets for the Company's 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 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 products obsolete or less marketable. See "Business -- Product Development." Dependence on Limited Product Line. The Company is entirely dependent on the commencement of sales of a limited product line to generate revenues and on the commercial success of its products. There can be no assurance that the Company's products will prove to be commercially viable. Failure to achieve commercial viability would have a material adverse effect on the Company. See "Business." Industry Factors. Sales of the Company's instructional golf videotapes are 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 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 "Business." 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 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 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 products infringe patents or proprietary rights of others, the Company may be required to modify the design of its 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 "Business -- Patents, Trademarks and Proprietary Information." Proprietary Information. The Company relies on proprietary processes and employs various methods to protect the concepts, ideas and documentation of its 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 has entered into confidentiality agreements with certain of its employees, there can be no assurance that such arrangements will adequately protect the Company. See "Business -- Patents, Trademarks and Proprietary Information." 8 11 Dependence on Third-Party Production Companies and Equipment Manufacturers. The Company relies 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 affect the Company's ability to implement its business plan. See "Business." 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 has obtained "key-man" insurance on the life of Mr. Takefman in the amount of $5,000,000. 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." Control by Management. Earl T. Takefman, the Company's Chief Executive Officer, and Alan L. Lubell, Chairman of the Board of Directors of the Company, currently beneficially own, in the aggregate, approximately 46.9% of the outstanding shares of Common Stock (assuming no exercise of any of the Company's outstanding warrants or unexercised options). Accordingly, such persons, acting together, are effectively 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." Outstanding Options. There are currently outstanding options to purchase an aggregate of 965,871 shares of Common Stock at exercise prices ranging from $5.00 to $10.75 per share, of which options to purchase up to an aggregate of 500,000 shares (the "Executive Options") were granted to Messrs. Takefman and Lubell upon consummation of the IPO. The Executive Options vest five years from the date of grant, subject to acceleration if the trading price of the Common Stock reaches certain thresholds and have an exercise price of $5.00. Specifically, the vesting of 300,000 of the Executive Options would accelerate to the date that the market price of the Common Stock equaled or exceeded $10.00 per share for at least five consecutive trading days on or prior to January 24, 1998, if the price reaches such threshold. This threshold was achieved on February 7, 1997, and, accordingly, 300,000 of the Executive Options became exercisable as of such date. The vesting of the remaining 200,000 of the Executive Options will accelerate to the date the market price of the Common Stock equals or exceeds $15.00 per share for five consecutive trading days on or prior to January 24, 1999, if the price reaches such threshold. 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." 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 "Dividend Policy." 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 9 12 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." Volatility of Market Price of Common Stock and Warrants. Since the IPO, the market prices of the Company's publicly traded securities have been 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. Potential Influence on the Market of Whale Securities Co., L.P. Whale Securities Co., L.P. ("Whale"), the underwriter in the Company's IPO, makes a market in the Common Stock and publicly traded warrants (the "Warrants") and may otherwise effect transactions in the Common Stock and the 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 Company's securities may be significantly affected to the extent, if any, that Whale participates in such market. Shares Eligible for Future Sale. Including 225,000 of the shares of Common Stock offered hereby, the Company has 4,840,000 shares of Common Stock outstanding (assuming no exercise of any of the Company's outstanding warrants), of which 1,840,000 shares, consisting of 1,615,000 shares registered in connection with the IPO (220,000 of which shares remain subject to certain contractual restrictions described below) and the 225,000 shares offered hereby by certain of the Selling Stockholders and Mr. Ami Trauber, a former officer of the Company, 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 and directors as well as the investors in a pre-IPO bridge financing who hold an aggregate of 220,000 shares have agreed not to sell or dispose of any of their securities of the Company for a period of twelve months ending on July 24, 1997 without Whale's prior written consent, provided that such restrictions shall terminate 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 commencing on or after April 24, 1997. 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" and "Selling Stockholders and Plan of Distribution." 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 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 10 13 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." 11 14 PRICE RANGE OF COMMON STOCK AND WARRANTS The Company's Common Stock and Warrants are traded on the Nasdaq SmallCap Market under the symbols "EDGE" and "EDGEW," respectively. The Company completed its initial public offering in July 1996 at an offering price of $5.00 per share for its Common Stock and $.10 per Warrant. The following tables set forth, for the Company's fiscal periods indicated, the range of high and low last reported sale prices for the Common Stock and the Warrants.
COMMON STOCK: HIGH LOW ------------- ---- --- FISCAL YEAR 1996 Third Quarter (from July 24, 1996) $ 8.00 $ 4.375 Fourth Quarter 7.625 5.625 FISCAL YEAR 1997 First Quarter (through March 27, 1997) 12.25 5.75 WARRANTS: HIGH LOW --------- ---- --- FISCAL YEAR 1996 Third Quarter (from July 24, 1996) $ 4.125 $ 1.00 Fourth Quarter 3.156 1.875 FISCAL YEAR 1997 First Quarter (through March 27, 1997) 7.25 1.875
HOLDERS On March 27, 1997, the last reported sale price of the Common Stock on the Nasdaq SmallCap Market was $11.125 per share and the last reported sale price of the Warrants on the Nasdaq SmallCap Market was $6.125 per Warrant. At February 25, 1997, there were 83 holders of record of the Company's Common Stock and 2 holders of record of the Company's Warrants, although the Company believes that there are approximately 425 beneficial holders of the Common Stock. DIVIDEND POLICY The Company does not anticipate paying any cash dividends on its Common Stock in the foreseeable future and intends to retain its earnings, if any, to finance the expansion of its business and for general corporate purposes. Any payment of future dividends will be at the discretion of the Board of Directors and will depend upon, among other things, the Company's earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions and other factors that the Company's Board of Directors deems relevant. USE OF PROCEEDS The sale of the 225,000 shares of Common Stock offered hereby by the Selling Stockholders and Mr. Trauber will not result in any proceeds to the Company, except that the Company will receive up to $128,000 of the net proceeds from the sale of Common Stock offered hereby by Mr. Trauber. See "Management - Severance Arrangement." The Company will use such proceeds for general corporate purposes, including the purchase and deployment of additional mobile units. See "Business--Marketing and Distribution." The sale of the 220,000 shares of Common Stock offered hereby by certain investors in a bridge financing consummated by the Company prior to the consummation of the IPO will not result in any proceeds to the Company. The sale of the 1,495,000 shares underlying the Company's Redeemable Warrants upon the exercise of such warrants, if any, will not result in any proceeds to the Company. However, in connection with the actual exercise, if 12 15 any, of such warrants, the Company will receive $5.00 in cash per Redeemable Warrant. See "Description of Securities-- Redeemable Warrants." The sale of the 260,000 shares underlying the Whale Warrants upon the exercise of such warrants, if any, will not result in any proceeds to the Company. However, in connection with the actual exercise, if any, of such warrants, the Company will receive (i) $6.90 in cash per warrant for 130,000 of such outstanding warrants and (ii) $7.038 in cash per warrant in connection with the exercise of 130,000 of such outstanding warrants. See "Description of Securities--Whale Warrants." 13 16 CAPITALIZATION The following table sets forth, as of December 31, 1996, the capitalization of the Company.
December 31, 1996 Short term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,000 ========== Stockholders' equity (deficit): Common Stock, $0.01 par value: 20,000,000 shares authorized; 4,615,000 shares issued and outstanding(1) . . . . . $ 46,150 Preferred Stock, 5,000,000 shares authorized; none issued . . . . . . . . . . . . . . . - Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,481,159 Deficit accumulated during the development stage . . . . . . . . . . . . . . . . . . . (2,862,653) ---------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,664,656 ---------- Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,164,656 ==========
__________________ (1) Does not include (i) 100,000 shares of Common Stock reserved for issuance upon the exercise of warrants held by the Selling Stockholders; (ii) an aggregate of 1,495,000 shares of Common Stock reserved for issuance upon the exercise of the Redeemable Warrants; (iii) an aggregate of 260,000 shares of Common Stock reserved for issuance upon the exercise of the Whale Warrants; (iv) 965,871 shares of Common Stock (of which 787,871 were outstanding as of December 31, 1996) which may be issued upon the exercise of outstanding options under the Company's Amended and Restated 1996 Stock Option Plan, including up to 500,000 shares of Common Stock issuable 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; and (v) 234,129 shares of Common Stock reserved for issuance upon the exercise of options available for future grant under the Plan (which Plan was amended as of January 1, 1997 to increase the number of shares reserved for issuance under the Plan from 900,000 to 1,200,000). See "Management -- Employment and Consulting Agreements," "-- Stock Option Plan," "Certain Transactions" and "Description of Securities." 14 17 PLAN OF OPERATION Due to the successful completion of the Bridge Financing in March 1997 (as described below), management believes it will be able to launch 15 to 25 "One-on-One with Greg Norman" vans by the end of the year which will operate in California, Arizona, Texas, Nevada, Florida, Georgia, Illinois, Michigan and the northeastern United States. Management also intends to build the infrastructure required to support these vans from an operations and sales perspective. Management also intends on negotiating international distribution rights with third parties during the year. RESULTS OF OPERATIONS Year Ended December 31, 1996 ("Fiscal 1996") compared to Year Ended December 31, 1995 ("Fiscal 1995") The Company is a development stage company and generated no revenues during Fiscal 1996. The Company's revenues of $132,267 in Fiscal 1995 were primarily attributable to the licensing of its technology and product to an Australian company. In Fiscal 1996, the Company commenced its introduction and marketing of computerized videotape golf lessons featuring One-on-One instruction by leading professional golfer Greg Norman. In 1997, the Company intends to introduce its product to the golf tournament market throughout the United States. In Fiscal 1996, the Company continued to focus its efforts on upgrading its proprietary hardware and software technology, video products and mobile video capturing and processing production units. In Fiscal 1996, the Company completed its first five mobile production units as well as the Company's training facility. Costs during Fiscal 1996 consisted primarily of start-up product development, payroll, marketing and other administrative expenses. A significant portion of the Company's disbursements during Fiscal 1996 represents the Company's investment in mobile production units, training facilities, product development equipment and other fixed assets aggregating $1,365,365 compared with similar expenditures which aggregated $395,369 in Fiscal 1995. Investment in video and marketing production costs during fiscal 1996 totaled $398,558 compared with $275,808 in Fiscal 1995. In addition, the Company incurred a one-time non-cash stock compensation expense totaling $600,000 in conjunction with the transfer of 300,000 shares of Common Stock from the founding shareholders to Greg Norman. See "Financial Statements." LIQUIDITY AND CAPITAL RESOURCES In July 1996, the Company consummated an initial public offering (the "IPO") of its Common Stock and Warrants. Net proceeds from the IPO (including in-house placement related expenses) aggregated $5,511,849. Of the proceeds from the IPO, $515,000 was utilized to repay bank debt and $1,100,000 was used to repay bridge loans provided to the Company prior to the IPO. In addition, a portion of the proceeds of the IPO was used to develop and deploy seven mobile operating units, to purchase other operating assets and to establish the Company's marketing, operating and administrative infrastructure. In November 1996, the Company entered into a $4,000,000 revolving line of credit arrangement with a financial institution. At December 31, 1996 the outstanding balance under this line was $500,000. On December 31, 1996, the Company executed an agreement with a financial institution to finance the first seven mobile production units whereby the Company can borrow up to $840,000 during 1997. No amounts were drawn against this lease at December 31, 1996. 16 18 The Company is required to make payments to Greg Norman under a license agreement 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. RECENT BRIDGE FINANCING In March 1997, the Company consummated the Bridge Financing pursuant to which it issued to 13 investors, including Status-One Investments Inc., a company controlled by Earl T. Takefman, the Chief Executive Officer of the Company, an aggregate of (i) 100,000 shares of Common Stock and (ii) 100,000 warrants to purchase 100,000 shares of Common Stock at a price of $10.00 per share, subject to adjustment in certain circumstances. As consideration for such securities, the investors in the Bridge Financing (the "Bridge Investors") pledged an aggregate of $3,500,000 in cash and other marketable securities as cash collateral (the "Cash Collateral") to Republic Bank of New York (Canada) Ltd. ("Republic"), which in turn issued a stand-by letter of credit (the "Letter of Credit") to the Company in an amount up to $3,500,000, which expires on December 31, 1997. The Company has used the Letter of Credit to secure a $3,500,000 line of credit (the "Line of Credit") from Barnett Bank. In the event that the Company draws upon the Line of Credit and is subsequently unable to repay amounts owed to Barnett Bank under the Line of Credit prior to December 31, 1997, Barnett Bank will present the Letter of Credit to Republic, who will pay Barnett Bank amounts owed to it using the Cash Collateral. In the event that some or all of the Cash Collateral is utilized and is thus not returned to the Bridge Investors on December 31, 1997, the expiration date of the Letter of Credit, the Company is obligated to promptly issue to each Bridge Investor a number of shares of Common Stock equal to (x) the amount of such Bridge Investor's unreturned Cash Collateral divided by (y) $7.50, provided that the average of the closing bid prices of the Common Stock on the Nasdaq SmallCap Market on each of the twenty consecutive trading days immediately prior to December 31, 1997 is greater than $11.00. Alternatively, if the average of the closing bid prices of the Common Stock on the Nasdaq SmallCap Market on each of the twenty consecutive days immediately prior to December 31, 1997 is less than $11.00, the price by which a Bridge Investor's unreturned Cash Collateral is to be divided shall be one-half of the average of the closing bid prices of the Common Stock on the Nasdaq SmallCap Market on each of the twenty consecutive trading days prior to December 31, 1997. In the event that the Company issues shares of Common Stock in accordance with the foregoing, the Company is contractually obligated to promptly use its best efforts to effect the registration of such shares of Common Stock under the Securities Act. The Company believes that the completion of the Bridge Financing will enable the Company to deploy additional mobile production units in several markets throughout the United States and Canada and provide working capital during the product launch period. The Company believes that its current cash position combined with its available credit lines, as well as other pending financing agreements which the Company hopes to consummate in 1997, will be adequate to satisfy its capital and operating cash requirements in 1997. 17 19 BUSINESS The Company was incorporated in July 1994 and commenced operations in January 1995. Since the Company's inception, it has been primarily engaged in the development and marketing of videotape golf lessons featuring personalized One-on-One instruction by leading professional golfer Greg Norman. The Company sells its products under the name One-on-One with Greg Norman.(TM) 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, 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 products from competing products and position the Company to capitalize on the growing popularity of golf. PRODUCTS The Company's 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 products, through the use of synchronized "split-screen" comparisons to Greg Norman's swing, are designed to enable golfers to make meaningful self-observations to improve their play. In each of the Company's video golf lessons, Greg Norman emphasizes the importance of the relevant golf fundamental, comments on the golfer's execution of the fundamental and summarizes the key fundamentals to remember. The Company's products include the following right and left-handed, full swing personalized One-on-One golf lessons with Greg Norman: - The Basic Fundamentals: The Company's basic fundamental golf lesson is designed for golfers of all skill levels and is approximately 45 minutes. The Company has developed three versions of this lesson, each focusing on a different body and swing type. - The Basic Fundamentals for Senior Golfers: The Company's senior lesson is intended for male and female senior golfers who typically have more limited range of motion. It is approximately 45 minutes. 18 20 - The Basic Fundamentals for Female Golfers: The Company's female lesson is designed for a female golfer and includes a professional female golfer to provide additional comparisons. It is approximately 45 minutes. - The Swing Plane: The Company's advanced golf lesson is designed primarily for golfers who have taken the Basic Fundamentals lesson and for lower handicap golfers. It is approximately 30 minutes. - The Follow-Up: This self-comparison video lesson is 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. Golfers are 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 products sell for $19.95 to $49.95 and are available on VHS videotape format. The Company also expects to make personalized video golf lessons available on CD-ROM in the future. 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 these proposed additional sports. 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 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 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. In connection with the agreement, in April 1996, certain principal stockholders of the Company 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 products and make promotional appearances to market such products and to play with individuals who achieve a hole-in-one in a tournament who have purchased the Company's Ultimate Hole-in-One prize. 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 19 21 each year of any renewal term. In order to assist the Company in developing its products and if a tournament participant achieves a hole-in-one, Greg Norman has agreed to make himself available, at a cost of $50,000 per day or $50,000 per hole-in-one and subject to his schedule and convenience, for additional days in 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, which policy is now in effect. The Company has agreed to indemnify Greg Norman against any liability arising out of the Greg Norman License. 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 products. "Products" means a videotape or CD-ROM or printed versions 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 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. MARKETING AND DISTRIBUTION Marketing Strategy 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), golf professionals at private and daily fee golf courses and driving ranges and event planners who arrange indoor corporate events such as new store openings, convention and trade shows, in-store retail promotions and sales meetings. Target Markets The Company believes that its primary target markets 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 has targeted private and public golf courses which host corporate, charity and member tournaments and whose sponsors 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 these potential corporate and charity sponsors. Golf Courses and Golf Professionals. The Company has focused 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 20 22 products as instructional tools to enhance the marketing and quality of golf lessons given to their students and as a participant gift in member-guest tournaments. Driving Ranges. The Company has identified driving ranges as a potentially significant market for the Company's 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 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 products, as well as event planners who arrange indoor and outdoor events such as conventions and trade shows, new store openings, sales meetings and seminars and in-store retail promotions. Distribution Strategy The Company's has developed mobile One-on-One vans equipped with video and personal computer equipment to market, promote and produce the Company's products. The Company has positioned and will position such vans in selected geographic areas that will serve golf courses and driving ranges throughout the United States. The Company has placed its first seven vans in Florida (3), Georgia, Texas, Arizona and Southern California. The Company plans to place its next eight vans (which have been ordered) in California (2), Illinois, Michigan, New York, Massachusetts, Washington, D.C. and New Jersey. 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 recently commenced its 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 products. PRODUCTION The Company's 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 digital cameras, a small television monitor, two computers and power 21 23 supply. Editing involves the use of several computers, a television, a scan converter and several video cassette recorders and consists of editing the video footage of a golfer, 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 locate 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 instructions and analytical comments from Greg Norman. A Company employee operates videotaping equipment at the first tee, driving range or other suitable location to videotape a golfer's swing which is edited inside the One-on-One van to create a personalized video golf lesson in approximately 16 minutes. COMPETITION The Company faces intense competition for a finite amount of consumer discretionary spending from numerous other businesses in the golf industry and related market segments. The Company competes 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 Computer Coach, 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 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 22 24 that its 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 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 products infringe patents or proprietary rights of others, the Company may be required to modify the design of its 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. The Company relies on proprietary processes and to employ various methods to protect the concepts, ideas and documentation of its 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(TM) 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. EMPLOYEES As of March 31, 1997, the Company employed (directly or indirectly) seven executive employees and 33 employees involved in the operation of its office and vans. PROPERTIES The Company's executive offices are located in approximately 4400 square feet of office space in Boca Raton, Florida. This office space is leased and is principally used for operations and general administrative functions. The Company believes that its property is generally well maintained, in good condition and adequate for its present needs. Furthermore, the Company believes that suitable additional or replacement space will be available when required. The Company also intends to lease two additional facilities in southern California and in the Northeast, each of which is anticipated to be approximately 1,000 square feet. In order to secure its obligations under its financing arrangement with Barnett Bank, the Company granted to Barnett Bank a lien on substantially all of the Company's liquid assets. LEGAL PROCEEDINGS The Company is not presently a party to any material litigation. 23 25 MANAGEMENT The following table sets forth certain information concerning the directors, executive officers and key employees of the Company:
NAME AGE POSITION ---- --- -------- Earl T. Takefman . . . . . . . . . . . . . . . . . . . 47 Chief Executive Officer and Director Alan L. Lubell . . . . . . . . . . . . . . . . . . . . 58 Chairman of the Board and Vice President Richard Parker . . . . . . . . . . . . . . . . . . . . 35 President and Chief Operating Officer Edward Smith . . . . . . . . . . . . . . . . . . . . . 45 Chief Financial Officer Thomas Peters(1) . . . . . . . . . . . . . . . . . . . 51 Director of Software Development Peter Gorski(1) . . . . . . . . . . . . . . . . . . . . 41 Vice President of Operations Eddie Einhorn(2) . . . . . . . . . . . . . . . . . . . 60 Director Mark Hershhorn(2)(3) . . . . . . . . . . . . . . . . . 48 Director Beryl Artz (3) . . . . . . . . . . . . . . . . . . . . 44 Director Frank Williams . . . . . . . . . . . . . . . . . . . . 57 Advisor to the Board of Directors - ---------------
(1) Executive employee. (2) Member of the Audit Committee. (3) Member of the Compensation Committee. 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 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 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 the Company's President and Chief Operating Officer since July 1996. From February 1990 until his appointment as Chief Operating Officer of the Company, Mr. Parker was the founder, owner and president of Diomo Marketing Inc. and Devrew Merchandising Inc., companies engaged in marketing and selling 24 26 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. Edward Smith became the Company's Chief Financial Officer in March 1997. From January 1996 until February 1997, Mr. Smith was the Vice President of Finance for Enterprise Development Corporation, a Florida corporation that provides consulting services to developing and early stage companies. From January 1995 until January 1996, Mr. Smith was the Chief Financial Officer for Kirker Enterprises, Inc., a Delaware corporation specializing in the manufacturing of bulk cosmetics. From September 1985 until January 1995, Mr. Smith was the Chief Financial Officer of the Calabrian Corporation, a Delaware corporation which manufactures specialized chemicals. From February 1981 to September 1985, Mr. Smith was a Manager at KPMG Peat Marwick LLP in the consulting area. Mr. Smith received a B.B.A. in accounting from Pace University in 1975 and an M.B.A. from Pace University in 1978. 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 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 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. Peter Gorski has been the Company's Vice President of Operations since August 1996. From March 1996 until his appointment as Vice President of Operations, Mr. Gorski was founder and owner and President of GHD Systems, Inc., a company providing courier services in five states. From February 1979 to March 1996, Mr. Gorski held various positions with the Federal Express Corporation, including Managing Director of District Operations, South Florida District. Mr. Gorski graduated from University of Wisconsin - Whitewater in 1976. Eddie Einhorn became a director of the Company on July 24, 1996 upon completion of the Company's IPO. 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 became a director of the Company on July 24, 1996 upon completion of the Company's IPO. 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 Officers, 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 25 27 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. Beryl Artz became a director of the Company on March 19, 1997. Since March 1995, Mr. Artz has served as an Executive Vice President and director for Club Corporation of America, a corporation that owns and manages golf courses, in which position he has responsibility for private clubs, public golf and semi-private club operations within Texas and the Southeast United States. From January 1988 until January 1995, Mr. Artz was the Executive Vice President of GolfCorp, a corporation that owns and manages golf courses, where he had responsibility for the public golf course and semi-private club operations. Mr. Artz also currently serves as an advisor to the Board of Directors of Club Corporation International, a privately held corporation that owns and manages golf courses and that has annual gross revenues of over $700 million and over 228,000 memberships nationwide. Frank Williams served as a director of the Company from July 24, 1996, the date of completion of the Company's IPO, until March 1997, and currently serves as an advisor to the Board of Directors. Mr. Williams has been the Managing Director of Great White Shark Enterprises, Inc. 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 Gold Tournament. 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 each of its non-employee directors options to purchase 5,000 shares of Common Stock and each of such directors will receive annual option grants to purchase 2,500 shares of Common Stock. See "Stock Option Plan." Audit Committee. The Company has established an Audit Committee of the Board of Directors comprised of Messrs. Einhorn and Hershhorn. Audit Committee members 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. The Company has established a Compensation Committee of the Board of Directors comprised of Messrs. Hershhorn and Artz. The Committee makes recommendations to the Board of Directors concerning the salaries of all elected officers. In addition, the Compensation Committee administers the Company's 1996 Stock Option Plan and determines the amounts of, and the individuals to whom, awards shall be made thereunder. See "Stock Option Plan." The Company has agreed, for a three-year period ending on July 24, 1999, if so requested by Whale, to nominate and use its best efforts to elect a designee of Whale as a director of the Company, or at Whale's option, as a non- voting advisor to the Company's Board of Directors. Whale has not yet exercised its right to designate such a person. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth certain information regarding the compensation earned by or awarded to the Chief Executive Officer and each of the other executive officers (the "Named Executive Officers") of the Company for the fiscal year ended December 31, 1996. Prior to the consummation of the Company's initial public offering on July 24, 1996, none of the Named Executive Officers received compensation or benefits from the Company. 26 28
SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS --------------------------------------- --------------------------------------- RESTRICTED SECURITIES STOCK UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($) AWARD(S)(#) OPTIONS(1) COMPENSATION($) ------- --------- --------- -------- ----------- ---------- --------------- Earl T. Takefman, Chief Executive Officer . . . . 1996 150,000 0 0 0 337,478 0 Alan L. Lubell, Chairman of the Board and Vice President . . . . . . . . . . . . . . . . . . 1996 75,000 0 0 0 250,000 0 Richard Parker, Predident and Chief Operating Officer . . . . . . . . . . . . . . . . . . . 1996 62,500 0 0 0 50,000 0 Ami Trauber, Chief Financial Officer(2) . . . . . 1996(2) 62,500 0 0 0 25,000 0
(1) Reflects options to acquire shares of the Company that were granted in 1996. The Company has not granted stock appreciation rights. (2) Mr. Trauber was terminated on February 28, 1997, and was replaced as Chief Financial Officer by Edward Smith. Mr. Smith receives an annual salary of $100,000 in connection with his employment. SEVERANCE ARRANGEMENT Effective February 28, 1997, the employment of Ami Trauber, the Company's former Chief Financial Officer, was terminated. Pursuant to an agreement in principle (the "Release"), between the Company and Mr. Trauber, the vesting of options to purchase 25,000 shares of Common Stock, at an exercise price of $5.00 per share, granted to Mr. Trauber would be accelerated so that all of such options vested immediately. The shares of Common Stock underlying such options (the "Option Shares") are being registered hereby. Mr. Trauber has authorized Whale or another broker of the Company's choosing to sell the Option Shares at prevailing market prices such that the Company will receive up to $128,000 from such exercise, with Mr. Trauber retaining the remaining proceeds. 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 a least $3 million and $5 million in fiscal 1997 and 1998, respectively. In addition, pursuant to the agreement, Mr. Takefman received the Executive Options upon the consummation of the Company's IPO, which options vest five years from the date of grant, subject to acceleration if the trading price of the Common Stock reaches certain thresholds, and which have an exercise price of $5.00. Specifically, the vesting of 150,000 of the Executive Options would accelerate to the date that the market price of the Common Stock equaled or exceed $10.00 per share for at least five consecutive trading days on or prior to January 24, 1998, if the price reaches such threshold. This threshold was achieved on February 7, 1997, and, accordingly, 150,000 of the Executive Options became exercisable as of such date. The vesting of the remaining 100,000 of the Executive Options will accelerate to the date that the trading price of the Common Stock equals or exceed $15.00 per share for at least five consecutive trading days on or prior to January 24, 1999, if the price reaches such threshold. 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. 27 29 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 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 June 1, 1996, the Company entered into an employment agreement with Richard Parker, pursuant to which Mr. Parker serves as the President and Chief Operating Officer of the Company. Mr. Parker is entitled to receive a base salary of $150,000 per annum, subject to increase to $175,000 in 1998 if the Company achieves certain pre-tax earnings during 1997. Pursuant to his employment agreement, Mr. Parker is also eligible to receive a cash bonus and additional options under a formula based upon (i) the Company's stock price at the end of its fiscal year, or (ii) whether the Company achieves certain pre-determined target earnings per share thresholds. The agreement expires 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 received as severance the amount of his 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 was paid an aggregate of $91,525 in connection with services rendered for the period from March 1995 through April 30, 1996 and also received 9,155 shares of Common Stock and options to purchase 20,411 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 a Director -- Software Development. Mr. Peters is entitled to receive a base salary of $100,000 in the first year of the agreement and $100,000 in the second year. Pursuant to the agreement, Mr. Peters is 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 rights, 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 Plan was amended by the Board of Directors on January 1, 1997 to increase the maximum number of shares of Common Stock that may be subject to outstanding options, determined immediately after the grant of any option. The Plan currently provides that such maximum number of shares of Common Stock is equal to the greater of 28 30 1,200,000 shares 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 has established a Compensation Committee, consisting of Messrs. Hershhorn and Artz, each of whom qualifies as a disinterested person 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 generally has discretion to determine the terms of any 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) with respect to ISO's 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 the ISO is granted 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. 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), non-employee directors receive a nonqualified option to purchase 5,000 shares of Common Stock, and continuing non-employee directors 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. Messrs. Einhorn and Hershhorn each received options to purchase 5,000 shares of Common Stock upon the consummation of the IPO, and, upon his appointment to the Board of Directors on March 19, 1997, Mr. Artz received options to purchase 5,000 shares of Common Stock. In addition, Mr. Frank Williams, a former director of the Company, currently acts as an advisor to the Company's Board of Directors and will continue to receive annual options to purchase 2,500 shares of Common Stock as long as he continues in such advisory capacity. 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. On January 1, 1997, the Board of Directors amended the Plan to provide for an increase in the maximum number of shares of Common Stock that may be subject to outstanding options, subject to the terms described above. At the Company's 1997 annual meeting, the Company intends to have the stockholders of the Company ratify such amendment to the Plan. The Company currently has outstanding nonqualified options to purchase an aggregate of 965,871 shares of Common Stock. Of such options, options to purchase 337,478, 250,000, 100,000, 40,411, 25,000, 15,832 and 5,832 shares have been granted to Earl Takefman, Alan Lubell, Richard Parker, Thomas Peters, Edward Smith, Mark Lubell and Mona-Lee Takefman, respectively. All of such options are exercisable at a price per share ranging from $5.00 to $10.00 and vest in equal installments over a three- or five-year period, except for the Executive Options granted to each of Mr. Takefman and Mr. Lubell. Such Executive Options vest on a date five years from the date of the consummation of the IPO, subject to acceleration if the trading price of the Common Stock reaches certain thresholds and have an exercise price of $5.00. On February 7, 1997, the vesting of 300,000 of such Executive Options was accelerated, as the market price of the Common Stock equaled or exceeded $10.00 per share for five consecutive trading days. The vesting period of the remaining 200,000 Executive Options has not been accelerated. See "Management -- Employment Agreements." 29 31 STOCK OPTION GRANT TABLE The following table shows, with respect to the Named Executive Officers, information concerning the grant of stock options pursuant to the Plan during the fiscal year ended December 31, 1996. OPTIONS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ----------------------------------------------------------- NUMBER OF PERCENTAGE OF TOTAL SECURITIES OPTIONS GRANTED TO EXERCISE OR BASE UNDERLYING EMPLOYEES IN FISCAL PRICE PER SHARE NAME OPTIONS GRANTED 1996 ($/SHARE)(1) EXPIRATION DATE --------------------- --------------- ------------------- ----------------- --------------- Earl T. Takefman . . 337,478(2) 43.9% $5.00 July 24, 2006 Alan L. Lubell . . . 250,000(3) 32.6 $5.00 July 24, 2006 Richard Parker . . . 50,000 6.5 $5.00 July 24, 2006 Ami Trauber(4) . . . 25,000 3.3 $5.00 July 24, 2006
(1) The exercise price per share for all options granted is equal to the market price of the underlying Common Stock as of the date of grant. (2) Excludes (i) 10,000 Bridge Warrants received by Mr. Takefman in the Bridge Financing, which were purchased on the same terms as the purchase of Bridge Warrants by the other investors in the Bridge Financing, and (ii) 5,832 shares underlying options owned by Mr. Takefman's spouse, as to which shares Mr. Takefman disclaims beneficial ownership. See "Certain Transactions -- Bridge Financing" and "Description of Securities." (3) Excludes 15,832 shares underlying options owned by Mr. Lubell's son, Mark Lubell, as to which shares Mr. Alan Lubell disclaims beneficial ownership. (4) Mr. Trauber's employment as the Company's Chief Financial Officer was terminated on February 28, 1997. STOCK OPTION EXERCISES AND YEAR END VALUES TABLE The following table shows, with respect to the Named Executive Officers, information with respect to the unexercised options to purchase shares of Common Stock granted under the Plan and held as of December 31, 1996. None of the Named Executive Officers exercised options during the year ended December 31, 1996. 30 32 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS DECEMBER 31, 1996 AT DECEMBER 31, 1996 (1) ------------------------------- ------------------------------ NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ----------------------- ----------- -------------- ----------- ------------- Earl T. Takefman . . . 0 337,478(2) 0 $253,108.50 Alan L. Lubell . . . . 0 250,000(3) 0 187,500.00 Richard Parker . . . . 0 50,000 0 37,500.00 Ami Trauber(4) . . . . 0 25,000 0 18,750.00
(1) Options are "in-the-money" if the closing market price of the Company's Common Stock exceeds the exercise price of the options. The value of the unexercised options represents the difference between the exercise price of such options and the closing market price of the Company's Common Stock on December 31, 1996. (2) Excludes (i) 10,000 Bridge Warrants received by Mr. Takefman in the Bridge Financing, which were purchased on the same terms as the purchase of Bridge Warrants by the other investors in the Bridge Financing, and (ii) 5,832 shares underlying options owned by Mr. Takefman's spouse, as to which shares Mr. Takefman disclaims beneficial ownership. See "Certain Transactions -- Bridge Financing" and "Description of Securities." (3) Excludes 15,832 shares underlying options owned by Mr. Lubell's son, Mark Lubell, as to which shares Mr. Alan Lubell disclaims beneficial ownership. (4) Mr. Trauber's employment as the Company's Chief Financial Officer was terminated on February 28, 1997. In connection with such termination, Mr. Trauber and the Company reached an agreement in principle pursuant to which the vesting of Mr. Trauber's 25,000 options would be accelerated such that all of such options would be presently exercisable. See "Management - Severance Arrangement." 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 judgment, fines, amounts paid in settlement, and reasonable expenses (including attorney's fee) as the result of an action or proceeding in which they may be involved by reason of having been 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 31 33 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 34 PRINCIPAL STOCKHOLDERS The following table sets forth certain information, as of the date of this Prospectus, 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 executive officers and directors; and (iii) all directors and executive officers of the Company as a group.
PERCENTAGE OF SHARES BENEFICIALLY OWNED(2) NUMBER OF ---------------------------- SHARES NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER BENEFICIAL OWNERS(1) OWNED(2) OFFERING OFFERING -------------------- ----------- -------- -------- Earl T. Takefman(3) . . . . . . . . . . . . . . . 1,314,118 26.2% 25.3% Alan L. Lubell(4) . . . . . . . . . . . . . . . . 1,255,958 25.0 24.4 Greg Norman . . . . . . . . . . . . . . . . . . . 300,000 6.0 5.9 Barry Minsky(5) . . . . . . . . . . . . . . . . . 248,503 5.0 4.9 Richard Parker . . . . . . . . . . . . . . . . . 0 -- -- Edward Smith(6) . . . . . . . . . . . . . . . . . 0 -- -- Eddie Einhorn(7) . . . . . . . . . . . . . . . . 1,666 * * Mark Hershhorn(7) . . . . . . . . . . . . . . . . 1,666 * * Beryl Artz(7) . . . . . . . . . . . . . . . . . . 1,666 * * All directors and executive officers as a group (seven persons) . . . . . . . . . . . . . . . . . 3,123,577 62.2 60.7 - -------------------- *Less than 1%
(1) Unless otherwise indicated, the address for each named individual, corporation or group is in care of Visual Edge Systems Inc., 2424 North Federal Highway, Suite 100, Boca Raton, Florida 33431. (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) Includes (i) 1,164,118 shares owned by Status-One Investments Inc., a Delaware corporation owned by Earl T. Takefman and certain family members and controlled by Earl T. Takefman (which includes 10,000 shares of Common Stock acquired in the Bridge Financing and 10,000 shares of Common Stock underlying the Bridge Warrants) and (ii) presently exercisable options to acquire 150,000 shares of Common Stock, but does not include (x) shares of Common Stock underlying options held by Mr. Takefman and his spouse (as to which Mr. Takefman disclaims beneficial ownership) to acquire an aggregate of 193,310 shares of Common Stock, none of which are exercisable within 60 days, or (y) 2,136 shares of Common Stock owned by Mr. Takefman's spouse, as to which shares Mr. Takefman disclaims beneficial ownership. See "Certain Transactions -- Bridge Financing" and "Management -- Employment Agreements." (4) Includes (i) presently exercisable options to acquire 150,000 shares of Common Stock and (ii) shares underlying an aggregate of 134,236 options to acquire shares owned by Mr. Lubell, which options Mr. Lubell granted to certain persons and which are not exercisable within 60 days, but does not include (x) 21,827 shares of Common Stock that Mr. Lubell has agreed to give to certain persons on July 24, 1997 upon the expiration of the transfer restrictions 33 35 on such shares and (y) 100,000 shares of Common Stock underlying the Executive Options, which are not exercisable within 60 days. See "Management -- Employment Agreements." (5) The shares are owned by Greenwich Properties Inc., a company controlled by Barry Minsky. Mr. Minsky's address is c/o Greenwich Properties Inc., 545 Madison Avenue, New York, New York 10022. (6) Excludes shares underlying options to acquire 25,000 shares of Common Stock, none of which are exercisable within 60 days. (7) Excludes shares underlying options to acquire 3,334 shares of Common Stock, none of which are exercisable within 60 days. 34 36 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, (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 to Status-One and granted options to purchase 87,478 shares of Common Stock to Earl Takefman 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, 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, 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 505,000 shares of Class A Common Stock were converted, on the same terms and conditions, into the right to purchase 294,508 shares of Common Stock. LOAN GUARANTEES As of May 31, 1996, the Company borrowed an aggregate of $507,000 from Republic National Bank of New York, which was repaid from the proceeds of the IPO. Prior to such repayment, all of the Company's assets were pledged as collateral to secure such indebtedness and Earl T. Takefman, Alan Lubell and Barry Minsky, principal stockholders of the Company, had 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 the loan. Such personal guarantees and pledges of collateral were released upon the Company's repayment of the indebtedness. 35 37 BRIDGE FINANCING In connection with the Company's Bridge Financing, Status-One contributed $350,000 in cash of the aggregate $3,500,000 cash collateral delivered to Republic to secure a letter of credit in an amount up to $3,500,000. As consideration for the use of such collateral, the Company issued to Status-One 10,000 shares of Common Stock and 10,000 warrants, each to purchase one share of Common Stock at a price of $10.00 per share, subject to adjustment in certain circumstances. In the event that some or all of the cash collateral delivered by Status-One is not returned to it, Status-One will receive additional shares of Common Stock from the Company. Status-One's investment in the Bridge Financing was made on the same terms as the other investors in the Bridge Financing who are not affiliated with the Company. See "Plan of Operation -- Recent Bridge Financing." OTHER Prior to the IPO, the Company utilized 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. The Company does not owe any rental charges to Mr. Lubell as a result of the use of such space. 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. 36 38 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, including 225,000 of the shares being registered and offered hereby, there are 4,840,000 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 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 In connection with the IPO an aggregate of 1,495,000 of the Company's redeemable warrants (the "Redeemable Warrants") were sold to the public. Each Redeemable 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 July 24, 1997 until July 24, 2000. The Redeemable Warrants are redeemable by the Company, upon the consent of Whale, at any time after July 24, 1997, upon notice of not less than 30 days, at a price of $.10 per Redeemable 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 Redeemable Warrants. All warrantholders have exercise rights until the close of business on the date fixed for redemption. The Redeemable Warrants have been 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 Redeemable Warrants are subject to adjustment in certain circumstances, including in the event of a stock dividend, recapitalization, 37 39 reorganization, merger or consolidation of the Company. However, such Redeemable Warrants are not subject to adjustment for issuances of Common Stock at a price below the exercise price of the Redeemable Warrants, including the issuance of shares of Common Stock pursuant to the Plan. The Redeemable Warrants may be exercised upon surrender of the Redeemable 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 Redeemable Warrants being exercised. The warrantholders do not have the rights or privileges of holders of Common Stock. No Redeemable 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 Redeemable 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 Redeemable 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 Redeemable 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 Redeemable Warrants. However, if a warrantholder exercises all Redeemable 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. The 1,495,000 shares of Common Stock underlying the Redeemable Warrants are being registered hereby, though none of such shares will be eligible for offer or sale until July 24, 1997, the date the Redeemable Warrants may first be exercised or redeemed. WHALE WARRANTS In connection with the IPO, the Company has granted to Whale and/or its designees warrants (the "Whale Warrants") to purchase up to 130,000 shares of Common Stock at an exercise price of $6.90 per share and/or up to 130,000 warrants (each to purchase one share of Common Stock at $6.90 per share) at an exercise price of $.138 per warrant. The Whale Warrants may not be sold, transferred, assigned or hypothecated for a one-year period ending on July 24, 1997, except to officers and partners of Whale and members of the selling group in the IPO, and are exercisable at any time and from time to time, in whole or in part, during the five-year period ending on July 24, 2001 (the "Warrant Exercise Term"). Subject to certain limitations and exclusions, the Company has agreed, at the request of the holders of a majority of the Whale Warrants, at the Company's expense, to register the Whale Warrants, the shares and warrants underlying the Whale 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 Whale Warrants and all such underlying securities in any appropriate registration statement which is filed by the Company during the seven year period ending on July 24, 2003. The 260,000 shares of Common Stock underlying the Whale Warrants are being registered hereby, though none of such shares will be eligible for offer or sale until July 24, 1997. BRIDGE FINANCING WARRANTS In connection with the Bridge Financing, the Company issued an aggregate of 100,000 warrants (the "Bridge Warrants") to the investors in the Bridge Financing. Each Bridge Warrant entitles the registered holder thereof to purchase one share of Common Stock, at a price of $10.00, subject to adjustment in certain circumstances, at any time from March 26, 1997 until March 26, 2002. 38 40 The Bridge Warrants have been issued pursuant to Share and Warrant Purchase Agreements entered into between the Company and each of the investors in the Bridge Financing. Reference is made to said Share and Warrant Purchase 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 Bridge Warrants are subject to adjustment in certain circumstances, including in the event of a stock dividend, subdivision or combination of the Company's Common Stock. The Bridge Warrants may be exercised upon surrender of the Bridge Warrant on or prior to the expiration date at the offices of the Company, with a completed form of subscription executed as indicated, accompanied by full payment of the exercise price (by certified check payable to the Company) for the number of Bridge Warrants being exercised. The warrantholders do not have the rights or privileges of holders of Common Stock. The Company is registering hereby 100,000 shares of Common Stock which are the shares of Common Stock underlying the 100,000 Bridge Warrants. No fractional shares will be issued upon exercise of the Bridge Warrants. However, if a warrantholder exercises all Bridge 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 the Bridge Financing, the Company is obligated to issue additional shares of Common Stock to certain investors if the Line of Credit is drawn upon and such indebtedness is repaid from the Letter of Credit, resulting in the forfeiture of some or all of the Cash Collateral pledged by the investors in the Bridge Financing. In the event the Company issues additional shares of Common Stock to such investors, the Company is obligated to promptly register such additional shares. In connection with the IPO, the Company granted to Whale certain demand and piggyback registration rights in connection with the 260,000 shares of Common Stock issuable upon exercise of the 260,000 Whale Warrants. In connection with such rights, the Company has included 260,000 shares of Common Stock in the Registration Statement of which this Prospectus forms a part. 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 transaction 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 39 41 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 Redeemable Warrants is American Stock Transfer and Trust Company, New York, New York. REPORTS TO STOCKHOLDERS The Company has registered its Common Stock and Redeemable Warrants under the provisions of Section 12(g) of the Exchange Act. Such registration requires the Company to comply with periodic reporting, proxy solicitation and certain other requirements of the Exchange Act. SHARES ELIGIBLE FOR FUTURE SALE As of the date of this Prospectus, including 225,000 of the shares being registered and offered hereby by certain of the Selling Stockholders and Mr. Trauber, the Company has 4,840,000 shares of Common Stock outstanding (assuming no exercise of any of the Company's outstanding warrants), of which 1,840,000 shares consisting of the 1,395,000 shares of Common Stock sold by the Company in the IPO, the 220,000 shares owned by the investors in the pre-IPO bridge financing (which are being registered hereby but remain subject to certain contractual restrictions described below) and the 225,000 shares offered by certain of the Selling Stockholders and Mr. Trauber 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. In general, under Rule 144 as currently in effect, if two years have elapsed since the later of the date of the acquisition of restricted shares of Common Stock from either the Company or any affiliate of the Company, the acquiror or subsequent holder thereof may sell, within any three-month period commencing 90 days after the date of this Prospectus, a number of shares that does not exceed the greater of 1% of the then outstanding shares of Common Stock or the average weekly trading volume of the Common Stock on the Nasdaq SmallCap Market during the four calendar weeks preceding the date on which notice of the proposed sale is sent to the Commission. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. If three years have elapsed since the later of the date of the acquisition of restricted shares of Common Stock from the Company or any affiliate of the Company, a person who is not deemed to have been an affiliate of the Company at any time for 90 days preceding a sale would be entitled to sell such shares under Rule 144 without regard to the volume limitations, manner of sale provisions or notice requirements. Through an amendment to Rule 144, the Commission has reduced the two-year and three-year holding periods described above to one year and two years, respectively. Such amendment will become effective on April 29, 1997. 40 42 The Company's officers and directors as well as the investors in a pre-IPO bridge financing who hold an aggregate of 220,000 shares 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 the IPO without Whale's prior written consent, provided that such restrictions shall terminate 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 commencing on or after April 24, 1997. 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. 41 43 SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION An aggregate of up to 2,200,000 shares of Common Stock may be offered and sold pursuant to this Prospectus consisting of the following: (i) 200,000 shares by the Bridge Investors, including 100,000 shares underlying the Bridge Warrants, (ii) 25,000 shares by Ami Trauber, the former Chief Financial Officer of the Company, (iii) 260,000 shares by Whale, which shares underly the Whale Warrants, (iv) 1,495,000 shares underlying the Redeemable Warrants, which shares may be offered and sold by holders of the Redeemable Warrants upon exercise or conversion thereof, and (v) 220,000 by certain investors who invested in the Company prior to the IPO. The Company has agreed to register the public offering of all of such shares under the Securities Act and to pay all expenses in connection therewith, and such shares have been included in the Registration Statement of which this Prospectus forms a part. Except for Status-One Investments Inc., a company controlled by Earl T. Takefman, the Chief Executive Officer of the Company, Ami Trauber, the Company's former Chief Financial Officer, Frank Williams, a former director of the Company who currently serves in an advisory capacity to the Company's Board of Directors, and Whale, the Company's underwriter in the IPO, none of the Selling Stockholders has ever held any position or office with the Company or has had any other material relationship with the Company. The Company will receive up to $128,000 of the proceeds from the sale of the shares of Common Stock by Mr. Trauber. See "Management - Severance Arrangement." All of the Selling Stockholders have an address in care of the Company at 2424 North Federal Highway, Suite 100, Boca Raton, Florida 33431, except for Whale, whose address is 650 Fifth Avenue, New York, New York 10019, and Mr. Trauber, whose address is 3598 Yacht Club Drive, Apt. 1903, Aventura, Florida 33180. The following tables set 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 -------------------- ------------- ------------ -------------- -------------- Status-One Investments Inc. (1) 1,314,118 20,000(2) 1,294,118 25.7% Abbott Finance Inc. 28,572 28,572(2) - - Neil Freder 41,919 14,286(2) 27,633 * Leonard Mendell 62,282 19,282(3) 48,000 1.0 Avrum Schwam Holdings Inc. 31,431 8,572(2) 22,859 * Carajen International Inc. 42,896 8,572(2) 34,324 * Venture Management 28,572 28,572(2) - - Consultants LLC Sandy Lang 14,286 14,286(2) - - Frank Leo 14,286 14,286(2) - - Martin Miller 22,286 14,286(2) 8,000 * Frank Williams 13,853 5,714(2) 8,139 * Dan Elituv 14,286 14,286(2) - - Sol Zuckerman 19,286 14,286(2) 5,000 * Ami Trauber (4) 25,000 25,000 - -
42 44
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(1) After Offering(1) -------------------- ------------- ------------ ----------------- ----------------- Whale Securities Co., L.P. 260,000(5) 260,000 - - Dr. Lawrence Howard 20,000 20,000 - - Dr. Steven Landman 5,000 5,000 - - John R. Tompson and 5,000 5,000 - - Constance A. Tompson, Joint Tenants with Right of Survivorship 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 10,000 10,000 - - Riveroll, Joint Tenants with Right of Survivorship 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. 5,000 5,000 - - Retirement Plan Garland T. Duke, Jr. 5,000 5,000 - - Charles J. Reilly and 5,000 5,000 - - Kathleen M. Reilly
43 45
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(1) AFTER OFFERING(1) -------------------- ------------- ------------ ----------------- ----------------- James H. Cooper 5,000 5,000 - - Wendy and Robert Ull, 5,000 5,000 - - Joint Tenants with Right of Survivorship 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 - -
* Less than 1% (1) Status-One Investments Inc. is a Delaware corporation owned by Earl T. Takefman, the Company's Chief Executive Officer, and certain of his family members and controlled by Mr. Takefman. (2) One-half of such shares of Common Stock are shares received in the Bridge Financing, and the other one-half of such shares are the shares of Common Stock underlying the Bridge Warrants received in the Bridge Financing. See "Plan of Operations - Recent Bridge Financing." (3) Includes 7,141 shares of Common Stock received in the Bridge Financing and 7,141 shares of Common Stock underlying the Bridge Warrants received in the Bridge Financing. (4) In connection with his termination as the Company's Chief Financial Officer, the vesting of all of Mr. Trauber's options was accelerated such that all 25,000 of his options are presently exercisable. The shares of Common Stock underlying such options are being registered hereby. See "Management - Severance Arrangement." (5) Shares of Common Stock underlying the Whale Warrants. See "Description of Securities - Whale Warrants." 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 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 or Whale may arrange for other brokers or dealers to participate. Such brokers or dealers may receive commissions or discounts from Selling Stockholders or Whale 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. 44 46 LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Morgan, Lewis & Bockius LLP, New York, New York. EXPERTS The financial statements of Visual Edge Systems Inc. (a development stage company) as of December 31, 1996 and 1995 and for the years then ended and for the period from inception (July 15, 1994) to December 31, 1996 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 contains an explanatory paragraph that states that the Company is in its development stage and its recurring losses through 1996 and contractual commitments under a licence agreement raise substantial doubt about the entity's ability to continue as a going concern unless additional financing or equity is obtained. 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 shares of Common Stock 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. The Commission maintains an Internet web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The address of that site is http://www.sec.gov. 45 47 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) TABLE OF CONTENTS
PAGE ---- INDEPENDENT AUDITORS' REPORT F-2 FINANCIAL STATEMENTS: Balance Sheets as of December 31, 1996 and 1995 F-3 Statements of Operations for the years ended December 31, 1996 and 1995 and from the period of inception (July 15, 1994) to December 31, 1996 F-4 Statements of Stockholders' Equity (Deficit) from the period of inception (July 15, 1994) to December 31, 1994 and for the years ended December 31, 1995 and 1996 F-5 Statements of Cash Flows for the years ended December 31, 1996 and 1995 and from the period of inception (July 15, 1994) to December 31, 1996 F-6 Notes to Financial Statements F-7 - F-15
F-1 48 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Visual Edge Systems Inc.: We have audited the accompanying balance sheets of Visual Edge Systems Inc. (a development stage company) as of December 31, 1996 and 1995 and the related statements of operations, stockholders' equity (deficit) and cash flows for the years then ended and for the period from inception (July 15, 1994) to December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Visual Edge Systems Inc. as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended and for the period from inception (July 15, 1994) to December 31, 1996 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 1(a) to the financial statements, the Company is in its development stage and its recurring losses through 1996 and contractual commitments under a license agreement raise substantial doubt about its ability to continue as a going concern unless additional financing or equity is obtained. Management's plans in regard to these matters are also described in Note 1(a). The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG Peat Marwick LLP Fort Lauderdale, Florida January 24, 1997 except as to note 9(b), which is as of April 3, 1997 F-2 49 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995 ------ ----------- --------- Current assets: Cash $ 233,117 $ 558 Short-term investments 1,869,052 -- Advance royalties (note 9a) 300,000 -- Other current assets 117,503 -- ----------- --------- Total current assets 2,519,672 558 Fixed assets, net (note 2) 1,624,826 330,626 Intangible assets, net (note 3) 616,470 302,293 Other assets 23,202 -- ----------- --------- Total assets $ 4,784,170 $ 633,477 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) - ---------------------------------------------- Current Liabilities: Bank borrowings (note 6) $ 500,000 $ 400,000 Accounts payable 333,114 269,262 Accrued expenses 284,900 13,718 Other current liabilities 1,500 -- ----------- --------- Total current liabilities 1,119,514 682,980 ----------- --------- Commitments and contingencies (notes 1(a), 8 and 9) Stockholders' equity (deficit) (Notes 5, 8 and 9): Preferred Stock, 5,000,000 shares authorized, none issued -- -- Common stock, $.01 par value, 20,000,000 shares authorized, 4,615,000 shares issued and outstanding at December 31, 1996 and 3,000,000 shares issued and outstanding at December 31, 1995 46,150 30,000 Additional paid-in capital 6,481,159 385,460 Deficit accumulated during the development stage (2,862,653) (464,963) ----------- --------- Total stockholders' equity (deficit) 3,664,656 (49,503) ----------- --------- Total liabilities and stockholders' equity (deficit) $ 4,784,170 $ 633,477 =========== =========
See accompanying notes to financial statements. F-3 50 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
Period from inception (July 15, For the years ended 1994) to December 31, December 31, 1996 1995 1996 ------------ ----------- ------------ Product sales $ -- $ 7,267 $ 7,267 License fees -- 125,000 125,000 ------------ ----------- ------------ -- 132,267 132,267 ------------ ----------- ------------ Cost of sales -- 44,167 44,167 General and administrative expenses 1,552,062 520,224 2,072,286 Selling and marketing 264,772 15,240 280,012 One-time stock compensation expense (note 9(a)) 600,000 11,760 611,760 ------------ ----------- ------------ 2,416,834 591,391 3,008,225 ------------ ----------- ------------ Operating loss (2,416,834) (459,124) (2,875,958) Other: Interest expense (50,854) (5,118) (55,972) Interest income 69,998 -- 69,998 ------------ ----------- ------------ Total other 19,144 (5,118) 14,026 ------------ ----------- ------------ Loss before income taxes (2,397,690) (464,242) (2,861,932) Provision for income taxes (note 7) -- (721) (721) ------------ ----------- ------------ Net loss $ (2,397,690) $ (464,963) $ (2,862,653) ============ =========== ============ Net loss per share $ (.63) $ (.14) $ (.82) ------------ ----------- ------------ Weighted average common shares outstanding (note 1e) 3,801,250 3,220,000 3,510,625 ============ =========== ============
See accompanying notes to financial statements. F-4 51 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) PERIOD FROM INCEPTION (JULY 15, 1994) TO DECEMBER 31, 1994 AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
DEFICIT ACCUMULATED COMMON STOCK ADDITIONAL DURING THE ------------ PAID-IN DEVELOPMENT SHARES AMOUNT CAPITAL STAGE TOTAL --------- ------- ---------- ------------ ----------- Balance at inception (July 15, 1994) to December 31, 1994 -- $ -- $ -- $ -- $ -- 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 -- -- -- (464,963) (464,963) --------- ------- ---------- ------------ ----------- Balance at December 31, 1995 3,000,000 30,000 385,460 (464,963) (49,503) Issuance of common stock 1,615,000 16,150 5,495,699 -- 5,511,849 Common stock issued by shareholders for services -- -- 600,000 -- 600,000 Net loss -- -- -- (2,397,690) (2,397,690) --------- ------- ---------- ------------ ----------- Balance at December 31, 1996 4,615,000 $46,150 $6,481,159 $ (2,862,653) $ 3,664,656 ========= ======= ========== ============ ===========
See accompanying notes to financial statements. F-5 52 VISUAL EDGE SYSTEMS INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
For the period from inception For the years ended (July 15, 1994) December 31, to December 31, 1996 1995 1996 ------------ ---------- ------------ Operating activities: Net loss $ (2,397,690) $ (464,963) $ (2,862,653) Adjustments to reconcile net loss to net cash used in operating activities: One-time stock compensation expense 600,000 11,760 611,760 Depreciation and amortization 155,546 67,686 223,232 Changes in assets and liabilities: Increase in other current assets (117,503) -- (117,503) Increase in advanced royalties (300,000) -- (300,000) Increase in other assets (23,202) -- (23,202) Increase in accounts payable 63,852 269,262 333,114 Increase in accrued expenses 271,182 13,718 284,900 Increase in other current liabilities 1,500 -- 1,500 ------------ ---------- ------------ Net cash used in operating activities (1,746,315) (102,537) (1,848,852) ------------ ---------- ------------ Investing activities: Purchases of short-term investments (3,508,015) -- (3,508,015) Proceeds from the sale of short-term investments 1,638,963 -- 1,638,963 Deferred organization costs -- (29,428) (29,428) Increase in intangible assets (398,558) (275,808) (674,366) Capital expenditures (1,365,365) (395,369) (1,760,734) ------------ ---------- ------------ Net cash used in investing activities (3,632,975) (700,605) (4,333,580) ------------ ---------- ------------ Financing activities: Proceeds from borrowings 1,715,000 400,000 2,115,000 Repayment of borrowings (1,615,000) -- (1,615,000) Proceeds from issuance of common stock 5,511,849 403,700 5,915,549 ------------ ---------- ------------ Net cash provided by financing activities 5,611,849 803,700 6,415,549 ------------ ---------- ------------ Net increase in cash 232,559 558 233,117 Cash at beginning of period 558 -- -- ------------ ---------- ------------ Cash at end of period $ 233,117 $ 558 $ 233,117 ============ ========== ============ Supplemental information: Cash paid for interest $ 50,854 $ 5,118 $ 55,972 ============ ========== ============ Cash paid for income taxes $ -- $ 721 $ 721 ============ ========== ============
See accompanying notes to financial statements. F-6 53 VISUAL EDGE SYSTEMS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business and Basis of Presentation 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 video production technology 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 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 sells its products under the name "One-on-One with Greg Norman." The Company was incorporated in July 1994 and commenced operations in January 1995. Since the Company's inception, it has been primarily engaged in product development, market development, testing technology, recruitment of key personnel, raising capital and preparing the software, hardware and videotape coaching instructions used in the production of its products. As a consequence, the Company has not generated any significant revenue and operated as a development stage company through December 31, 1996. Subsequent to year-end, the Company commenced generating revenue from its primary business activities. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As a development stage company, the Company has not generated any significant revenues. Its recurring losses through 1996, and contractual commitments under a license agreement raise substantial doubt about the Company's ability to continue as a going concern unless additional financing or equity is obtained. The financial statements do not include any adjustments that might arise from the outcome of this uncertainty. In March 1997, the Company obtained some additional financing (see Note 10). Currently, the Company is in negotiation with several parties to obtain additional financing. There is no assurance the Company will be able to successfully obtain financing. (b) Revenue Recognition Revenue from product sales is recognized as videotape products are delivered to the customer and in accordance with individual contracted terms. Royalties and license fees are recorded as revenue when earned. (c) Fixed and Intangible Assets Fixed assets are stated at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets (4 years). F-7 54 Intangible assets consist principally of video production costs. The costs of video production are amortized over the estimated useful lives of the respective assets (4 years). The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed fair value. (d) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for 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 The Company has presented loss per share information giving effect to the recapitalization discussed in note 5. 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 July 1996 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 and December 31, 1996 follows:
1996 1995 ---- ---- Weighted average common shares outstanding, exclusive of issuances within twelve months prior to the IPO 3,000,000 3,000,000 Shares issued within 12 months prior to the IPO assumed to be outstanding for the entire period 220,000 220,000 Weighted average common shares outstanding, for shares issued after IPO 581,250 -- --------- --------- Weighted average common shares outstanding at end of year 3,801,250 3,220,000 ========= =========
(f) 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, short term investments, advance royalties and other current assets as well as accounts payable, accrued expenses and other current liabilities 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 at F-8 55 December 31, 1995 and the borrowings against the line of credit at December 31, 1996 approximated fair value as the variable rates offered are comparable to rates currently available to the Company. (g) Stock Option Plan As permitted by Statement No. 123, "Accounting for Stock Based Compensation," the Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would generally be recorded only if the current market price of the underlying stock exceeded the exercise price on the date of grant. Consistent with Statement No. 123, the Company discloses pro forma net loss and pro forma net loss per share for employee stock option grants made in 1995 and future years as if the fair-value-based method described in Statement No. 123 had been applied. (h) Short-Term Investments Short-term investments consist of discount notes and Treasury bills and are available for sale. The difference between the carrying value and fair value is immaterial at December 31, 1996. (i) 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. (j) Reclassification Certain accounts in the 1995 financial statements were reclassified in order to conform to the 1996 financial statement presentation. (2) FIXED ASSETS Fixed assets consist of the following at December 31, 1996 and 1995:
1996 1995 ---------- -------- Mobile video production units $ 951,653 $ -- Product development equipment 407,184 220,915 Training and processing equipment 112,302 -- Office furniture and equipment 144,808 31,930 Show and exhibit displays 144,787 142,524 ---------- -------- 1,760,734 395,369 Less accumulated depreciation (135,908) (64,743) ---------- -------- $1,624,826 $330,626 ========== ========
F-9 56 (3) INTANGIBLE ASSETS Intangible assets consist of the following at December 31, 1996 and 1995:
1996 1995 -------- -------- Video and marketing production costs $674,366 $275,808 Deferred organization costs 29,428 29,428 -------- -------- 703,794 305,236 Less: accumulated amortization (87,324) (2,943) -------- -------- $616,470 $302,293 ======== ========
(4) LEASES The Company has a noncancelable lease for office space that expires in 1999. Rental payments include minimum rentals plus building expenses. Rental expense for this lease during 1996 was $16,984. Through October 1996, the Company utilized minimal office space provided by an officer of the Company. Future minimum lease payments under this lease as of December 31, 1996 are:
YEAR ENDING DECEMBER 31, 1997 $ 102,452 1998 105,751 1999 90,512 --------- $ 298,715 =========
The Company entered into a capitalized master lease agreement with a financial institution which permits the Company to finance its mobile video productions units of up to $840,000 through May 2000 at an interest rate of approximately 10%. At December 31, 1996, no amounts were drawn against this master capital lease. In January 1997, the Company financed one mobile video production unit for $130,284 under this lease. Future payments under this capital lease for each of the following three years is $49,210. Also, the Company anticipates financing six additional mobile video production units in 1997 for approximately the same amount. (5) 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. In March 1995, the Company issued 144,167 shares of Class A non-voting shares to employees and consultants for services. The estimated market value of such shares of $11,760 was recorded as compensation expense. 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 share and per share information related to shares issued prior to the recapitalization have been restated to reflect the recapitalization. F-10 57 In April 1996, three shareholders transferred 300,000 shares of Common Stock to Greg Norman, upon his exercise of an option granted to him pursuant to the terms of the Shareholders Agreement and Greg Norman License (see note 9(a)). To generate funds to continue the development of the Company's products and commence its planned primary business activities, the Company on May 31, 1996, raised $965,000 net of expenses, from 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 ($1,100,000) were repaid upon consummation of the initial public offering (IPO) on July 24, 1996. In the July 1996 IPO, including the over-allotment option granted to the underwriters in connection therewith, the Company sold 1,395,000 shares of Common Stock and 1,495,000 Redeemable Warrants to the public. Each Redeemable Warrant gives the registered holder thereof, during the period from July 24, 1997 until July 24, 2000, the right to purchase one share of Common Stock at an exercise price of $5.00. The Redeemable Warrants are redeemable by the Company, upon the consent of Whale Securities Co., L.P. (Whale) at any time after July 24, 1997, upon notice of not less than 30 days, at a price of $.10 per Redeemable Warrant, provided that the closing bid price of the Common Stock is at least $7.50 per share for thirty trading days ending on the third day prior to the date on which the Company gives notice of the redemption of the Redeemable Warrants, subject to adjustment in certain circumstances. Net proceeds from the IPO were $5,511,849. At December 31, 1996, 1,495,000 shares of common stock are reserved for issuance upon exercise of the Redeemable Warrants and an additional 260,000 shares of Common Stock are reserved for issuance upon exercise of an aggregate of 260,000 warrants held by Whale, which warrants were received in connection with Whale's role as underwriter in the IPO. (6) BANK BORROWINGS In October 1995, the Company borrowed $400,000 from a bank which was due on demand. This note bore interest at the bank's reference rate (8.25% at December 31, 1995). The note was secured by all of the Company's assets and certain personal assets of certain of the Company's shareholders and was personally guaranteed by such shareholders. In January and April 1996, the Company borrowed an additional $115,000 and the total outstanding balance of $515,000 was converted to a promissory note. This note was paid off in July 1996 using the proceeds obtained from the IPO. In November 1996, the Company entered into a revolving line of credit arrangement with a financial institution for $4,000,000. Through December 20, 1996, the line of credit bore an interest rate of 6.625%. Subsequent to December 20, 1996, the interest rate is 1.25% plus LIBOR (5.50% at December 31, 1996). All investments held with the financial institution are pledged as collateral for the line of credit. At December 31, 1996, the outstanding balance under this line was $500,000. F-11 58 (7) INCOME TAXES Income tax expense in 1995 represented current state and local taxes. Net operating losses which are not currently usable are the principal difference between the expected amounts of tax benefits computed by applying the statutory federal income tax rate to the Company's loss before income taxes for the years ended December 31, 1996 and 1995. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below:
1996 1995 ------------ --------- Deferred tax assets: Deferred start-up costs $ 75,550 $ 97,500 Net operating loss carryforward 1,095,160 54,300 Accrued expenses 22,212 -- Amortization 5,439 -- Fixed asset depreciation -- 6,000 ------------ --------- Total gross deferred tax assets 1,198,361 157,800 Less valuation allowance (1,075,644) (157,800) ------------ --------- Net deferred tax assets 122,717 -- ------------ --------- Deferred tax liabilities: Fixed asset depreciation (9,827) -- Advanced royalties (112,890) -- ------------ --------- Total gross deferred tax liabilities (122,717) -- ------------ --------- Net deferred tax asset $ -- $ -- ============ =========
As of December 31, 1996, the Company has a tax net operating loss carryforward of approximately $1,160,000 expiring in 2010. The Company has provided a valuation allowance of $1,075,644 and $157,800 at December 31, 1996 and 1995 against its net deferred tax assets since it is more likely than not that the Company will not realize such assets given the Company's development stage and the losses incurred since inception. The change in valuation allowance in 1996 was $917,844. (8) STOCK OPTION PLAN In April 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"), which provided for the granting to directors, officers, key employees and consultants of the greater of 900,000 shares of common stock or 12% of the aggregate number of the Company's common stock outstanding, whichever is greater. 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, with respect to incentive stock options, the option exercise price may not be less than 100% of the market value at the time of grant (110% if the incentive stock option is 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 Company has not granted any incentive stock options. On January 1, 1997, the Plan was amended by the Board of Directors to increase the maximum number of shares of Common Stock that may be subject to outstanding options, determined immediately after the grant of any option. The Plan currently provides that such maximum number of shares of Common Stock is equal to the greater of 1,200,000 shares 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. F-12 59 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. The exercise price of the option may not be less than 100% of the market value at the time of grant. 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. At the time of the IPO (July 1996), 787,871 nonqualified options were granted to purchase common stock at an exercise price equal to the IPO price of the common stock ($5.00). In March 1995, the Company granted 177,871 nonqualified options to purchase common stock at an exercise price equal to the IPO price of the common stock ($5.00). Such options have been canceled. The Company applies APB Opinion No. 25 in accounting for its Plan, and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on fair value at the grant date for its stock options under Statement No. 123, the Company's net loss and net loss per share for the year ended December 31, 1996 would have increased to $3,579,469 and $.94, respectively, and, for the year ended December 31, 1995, the Company's net loss and net loss per share would have increased to $719,904 and $.23, respectively. In calculating the Company's net loss had the compensation cost been determined under Statement No. 123, it was assumed that Earl Takefman's options would vest in the year granted, others would vest over a four year period, 5% of the options would be forfeited, no dividends, volatility percent of 10% and an interest rate of 6.3%. Stock option activity during the periods is indicated as follows:
WEIGHTED AVERAGE NUMBER EXERCISE OF SHARES PRICE --------- ------ Balance at January 1, 1995 Granted 177,871 $ 5.00 Exercised -- -- Forfeited -- -- Expired -- -- -------- ------ Balance at December 31, 1995 177,871 $ 5.00 Granted 787,871 $ 5.00 Exercised -- -- Forfeited -- -- Canceled (177,871) $ 5.00 -------- ------ Balance at December 31, 1996 787,871 $ 5.00 ======== ======
At December 31, 1996, 4,998 options are exercisable. In addition, on February 7, 1997, an additional 300,000 options became exercisable. See Note 9(b). At December 31, 1996, the exercise price and weighted-average remaining contractual life of outstanding options was $5.00 and 10 years, respectively. (9) COMMITMENTS AND CONTINGENCIES (A) LICENSE AGREEMENT F-13 60 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 products. Norman will receive royalties of 8% of all net revenues, as defined, derived from the sale of One-on-One videotapes. The Company extended the agreement in 1996 and used 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 in quarterly installments 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. Through December 31, 1996, the Company made payments to Norman amounting to $300,000. These payments are presented as advance royalties on the balance sheet at December 31, 1996. As the Company generates revenue, the advance royalties will be recorded as expense. 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's three founding shareholders entered into an Agreement which gave Norman an option to receive 10% of the outstanding shares of the Company from them. The option was conditioned upon the Company delivering a notice to Norman that was intended to extend the License Agreement for three years. In April 1996, Norman exercised the option and those shareholders transferred 300,000 shares of their common stock to Norman. The market value of such shares was $600,000. In accordance with Accounting Principles Board Opinion ("APB") No. 25, the non-cash transaction was recorded as a charge to the statement of operation and an increase in additional paid-in capital, in April 1996, with no net impact on the Company's equity. (B) EMPLOYMENT AGREEMENTS The Company entered into employment agreements with seven executive employees expiring through December 1998 which provide for aggregate minimum annual compensation of approximately $763,000 in 1997 and $888,000 in 1998. The agreements are automatically renewed for additional one-year periods unless the Company or the employees provide timely notice of termination. 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 IPO price of $5 per share, which was the per share price at the date of grant (see note 8). Such options had a vesting term of five years, subject to acceleration if the trading price of the Common Stock reached certain thresholds. Specifically, the vesting of 300,000 of such options would accelerate to the date that the market price of the Common Stock equaled or exceeded $10.00 per share for at least five consecutive trading days prior to January 24, 1998, if such threshold is reached. This threshold was achieved on February 7, 1997, at which time such 300,000 options became exercisable. The vesting of the remaining 200,000 options will be accelerated to the date that the trading price of the Common Stock equals or exceeds $15.00 per share for at least five consecutive trading days on or before January 24, 1999 if such threshold is reached. This threshold has not yet been reached. The original optional agreement contained an error in that it did not include a provision for the options to vest in five years. Such error was corrected by revisions to the option agreements dated April 3, 1997. (10) SUBSEQUENT EVENT (unaudited) In March 1997, the Company consummated a bridge financing (the "Bridge Financing") pursuant to which it issued to 13 investors, including Status-One Investments Inc., a company controlled by Earl T. Takefman, the Chief Executive Officer of the Company, an aggregate of (i) 100,000 shares of Common Stock and (ii) 100,000 warrants to purchase 100,000 shares of Common Stock at a price of $10.00 per share, subject to adjustment in certain circumstances. As consideration for such securities, the investors in the Bridge Financing pledged an aggregate of $3,500,000 in cash and other marketable securities as cash collateral (the "Cash Collateral") to Republic Bank of New York (Canada) Ltd. ("Republic"), which in turn issued a stand-by letter of credit (the "Letter of Credit") to the Company in an amount up to F-14 61 $3,500,000, which expires on December 31, 1997. The Company has used the Letter of Credit to secure a $3,500,000 line of credit (the "Line of Credit") from Barnett Bank. In the event that the Company draws upon the Line of Credit and is subsequently unable to repay amounts owed to Barnett Bank under the Line of Credit prior to December 31, 1997, Barnett Bank will present the Letter of Credit to Republic, who will pay Barnett Bank amounts owed to it using the Cash Collateral. In such instance, the investors in the Bridge Financing will be issued additional shares of Common Stock by the Company according to a predetermined formula to a maximum of 467,000 shares provided that the average of the closing bid prices of the Common Stock on the Nasdaq SmallCap Market on each of the twenty consecutive trading days immediately prior to December 31, 1997 is greater than $11.00. Alternatively, if the average of the closing bid prices of the Common Stock on the Nasdaq SmallCap Market on each of the twenty consecutive days immediately prior to December 31, 1997 is less than $11.00, the Company is obligated to issue to each investor in the Bridge Financing a number of shares of Common Stock equal to (x) the amount of such investor's unreturned Cash Collateral divided by (y) one-half of the average of the closing bid prices of the Common Stock on the Nasdaq SmallCap Market on each of the twenty consecutive trading days prior to December 31, 1997. F-15 62 NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS COMMON STOCK PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, WHALE SECURITIES CO., L.P. OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY BY VISUAL EDGE ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER SYSTEMS INC. 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 PROSPECTUS PAGE ---- ---------- Prospectus Summary . . . . . . . . . . . . . 2 Risk Factors . . . . . . . . . . . . . . . . 6 Price Range of Common Stock and Warrants . . 12 Dividend Policy . . . . . . . . . . . . . . . 12 Use of Proceeds . . . . . . . . . . . . . . . 12 Capitalization . . . . . . . . . . . . . . . 14 Plan of Operation . . . . . . . . . . . . . . 15 Business . . . . . . . . . . . . . . . . . . 17 April __, 1997 Management . . . . . . . . . . . . . . . . . 23 Principal Stockholders . . . . . . . . . . . 32 Certain Transactions . . . . . . . . . . . . 34 Description of Securities . . . . . . . . . . 36 Shares Eligible For Future Sale . . . . . . . 39 Selling Stockholders and Plan of Distribution 41 Legal Matters . . . . . . . . . . . . . . . . 44 Experts . . . . . . . . . . . . . . . . . . . 44 Available Information . . . . . . . . . . . . 44 Index to Financial Statements . . . . . . . . F-1 _____________________________
63 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 the expenses that will be incurred by the Registrant in connection with the offering described in this Registration Statement. All of such amounts (except the SEC Registration Fee and the Nasdaq SmallCap Market listing fee) are estimated. SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 758.52 Nasdaq SmallCap Market listing fee . . . . . . . . . . . . . . . . . . . . 2,000.00 Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . 10,000.00 Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . 5,000.00 Printing and engraving expenses . . . . . . . . . . . . . . . . . . . . . 5,000.00 State securities qualification fees and expenses . . . . . . . . . . . . . 2,000.00 Transfer agent fees and expenses . . . . . . . . . . . . . . . . . . . . . 2,000.00 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,241.48 ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,000.00
None of the foregoing expenses will be borne by the Selling Stockholders. 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. II-1 64
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 Secretarial and Clerical Common Stock March 1995 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 Allan R. Lyons . . . . . . . . . . . 5,000 Common Stock $25,000 Note May 1996 25,000
II-2 65
Title and Amount of Purchaser Security Date of Sale Consideration --------- -------- ------------ ------------- 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 66
Title and Amount of Purchaser Security Date of Sale Consideration --------- -------- ------------ ------------- Scott 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
II-4 67
Title and Amount of Purchaser Security Date of Sale Consideration --------- -------- ------------ ------------- Wendy and Robert Ull, 5,000 Joint Tenants with Right of Common Stock Survivorship . . . . . . . . $25,000 Note May 1996 $25,000 Michael Friedman . . . . . . . . . . 10,000 Common Stock $50,000 Note May 1996 50,000 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 Status-One Investments Inc. . . . . . 10,000 Common Stock 10,000 Bridge Warrants March 1997 350,000 Abbott Finance Inc. . . . . . . . . . 14,286 Common Stock 14,286 Bridge Warrants March 1997 500,000 Neil Freder . . . . . . . . . . . . . 7,143 Common Stock 7,143 Bridge Warrants March 1997 250,000 Leonard Mendell . . . . . . . . . . . 7,141 Common Stock 7,141 Bridge Warrants March 1997 250,000 Avrum Schwam Holdings Inc. . . . . . 4,286 Common Stock 4,286 Bridge Warrants March 1997 150,000
II-5 68
Title and Amount of Purchaser Security Date of Sale Consideration --------- -------- ------------ ------------- Carajen International Inc. . . . . . 4,286 Common Stock 4,286 Bridge Warrants March 1997 $150,000 Venture Management Consultants Inc. 14,286 Common Stock 14,286 Bridge Warrants March 1997 500,000 Sandy Lang . . . . . . . . . . . . . 7,143 Common Stock 7,143 Bridge Warrants March 1997 250,000 Frank Leo . . . . . . . . . . . . . . 7,143 Common Stock 7,143 Bridge Warrants March 1997 250,000 Martin Miller . . . . . . . . . . . . 7,143 Common Stock 7,143 Bridge Warrants March 1997 250,000 Frank Williams . . . . . . . . . . . 2,857 Common Stock 2,857 Bridge Warrants March 1997 100,000 Dan Elituv . . . . . . . . . . . . . 7,143 Common Stock 7,143 Bridge Warrants March 1997 250,000 Sol Zuckerman . . . . . . . . . . . . 7,143 Common Stock 7,143 Bridge Warrants March 1997 250,000
II-6 69 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 - ------ ----------- 3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 3.2 Amended and Restated By-Laws of the Company (Incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.1 Form of Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.2 Form of Specimen Redeemable Warrant Certificate (Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.3 Form of Warrant Agreement between the Company and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.4 Form of Warrant among American Stock Transfer & Trust Company, the Company and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.5 Form of Warrant Certificate issued to investors in the Bridge Financing 5 Opinion of Morgan, Lewis & Bockius LLP 10.1 License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and the Company, as supplemented (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.2 Promissory Note, dated April 15, 1996, payable to the Republic National Bank of New York (Incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.3 Employment Agreement, dated as of January 1, 1996, between Earl Takefman and the Company (Incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.4 Employment Agreement, dated as of January 1, 1996, between Alan Lubell and the Company (Incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996)
II-7 70
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.5 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and the Company (Incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.6 License Agreement, dated as of November 1, 1996, between the Company and Visual Edge Systems (Australia) Pty. Ltd. (Incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.7 Form of Consulting Agreement between the Company and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.8 Amended and Restated 1996 Stock Option Plan 10.9 Employment Agreement, dated as of June 1, 1996, between the Company and Richard Parker (Incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.10 Assignment, dated April 19, 1996 from Thomas S. Peters to the Company (Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.11 Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and Status-One Investments Inc. 10.12 Form of Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and each unaffiliated investor in the Bridge Financing 11 Computation of Per Share Loss 23 Consent of KPMG Peat Marwick LLP 24 Power of Attorney (included with the signature page hereof)
(b) Financial Statement Schedules: None. II-8 71 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 mens of a post-effective amendment any of the securities being registered which remain unsold at the termination of this offering. (2) 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 foregoing provisions, 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. (3) 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-9 72 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds 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 Boca Raton, State of Florida, on April 3, 1997. 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 thing 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 CAPACITY IN WHICH SIGNED DATE - --------- ------------------------ ---- /s/ Earl Takefman Director, Chief Executive Officer April 3, 1997 - ----------------------------- (Principal Executive Officer) Earl Takefman /s/ Edward Smith Chief Financial Officer April 3, 1997 - ----------------------------- (Principal Financial Officer Edward Smith and Principal Accounting Officer) /s/ Alan Lubell Chairman of the Board April 3, 1997 - ----------------------------- Alan Lubell Director April _, 1997 - ----------------------------- Eddie Einhorn /s/ Mark Hershhorn Director April 3, 1997 - ----------------------------- Mark Hershhorn Director April _, 1997 - ----------------------------- Beryl Artz
73 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 3.2 Amended and Restated By-Laws of the Company (Incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.1 Form of Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.2 Form of Specimen Redeemable Warrant Certificate (Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.3 Form of Warrant Agreement between the Company and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.4 Form of Warrant among American Stock Transfer & Trust Company, the Company and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.5 Form of Warrant Certificate issued to investors in the Bridge Financing 5 Opinion of Morgan, Lewis & Bockius LLP 10.1 License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and the Company, as supplemented (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.2 Promissory Note, dated April 15, 1996, payable to the Republic National Bank of New York (Incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.3 Employment Agreement, dated as of January 1, 1996, between Earl Takefman and the Company (Incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.4 Employment Agreement, dated as of January 1, 1996, between Alan Lubell and the Company (Incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996)
74
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.5 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and the Company (Incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.6 License Agreement, dated as of November 1, 1996, between the Company and Visual Edge Systems (Australia) Pty. Ltd. (Incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.7 Form of Consulting Agreement between the Company and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.8 Amended and Restated 1996 Stock Option Plan 10.9 Employment Agreement, dated as of June 1, 1996, between the Company and Richard Parker (Incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.10 Assignment, dated April 19, 1996 from Thomas S. Peters to the Company (Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.11 Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and Status-One Investments, Inc. 10.12 Form of Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and each unaffiliated investor in the Bridge Financing 11 Computation of Per Share Loss 23 Consent of KPMG Peat Marwick LLP 24 Power of Attorney (included with the signature page hereof)
(b) Financial Statement Schedules: None. EX-4.5 2 WARRANT CERTIFICATE 1 Exhibit A WARRANT CERTIFICATE NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE SOLD OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN AVAILABLE. WARRANT TO PURCHASE COMMON STOCK OF VISUAL EDGE SYSTEMS INC. Date: February __, 1997 This is to certify that, FOR VALUE RECEIVED, the registered holder hereof, ____________________ (the "Holder" or the "Holders"), is entitled to purchase, subject to the provisions of this Warrant Certificate, from VISUAL EDGE SYSTEMS INC., a Delaware corporation (the "Company"), up to _______ shares (as such number may be adjusted in accordance with Section 5 hereof) of the Company's Common Stock, par value $.01 per share (such class of stock, together with any capital stock of the Company into which such class of stock shall be converted, being referred to herein as "Stock"), at $10.00 per share (as such number may be adjusted in accordance with Section 5 hereof) (the "Exercise Price"). The number of shares of Stock to be received upon the exercise of this Warrant and the Exercise Price shall be adjusted from time to time as hereinafter set forth. The shares of Stock or other securities or property deliverable upon such exercise, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares." This Warrant Certificate is one of the Warrant Certificates (the "Warrants", which term includes all Warrants 2 issued in substitution therefor) originally issued in connection with the issue and sale by the Company of_________ shares of its Common Stock. The Warrants and the Common Stock have been issued pursuant to the Share and Warrant Purchase Agreements, dated as of February 27, 1997 (the "Purchase Agreements"), between the Company and the investors named therein (the "Purchasers"). The Warrants originally so issued evidence rights to purchase an aggregate of ________ Warrant Shares at the Exercise Price. The Purchase Agreement under which this Warrant was originally issued is herein referred to as the "Purchase Agreement." This Warrant is subject to the provisions, and is entitled to the benefits, of the Purchase Agreement. Section 1. Exercise of Warrant. 1.1. Manner of Exercise. (a) This Warrant may be exercised by the Holder, in whole or in part, at any time or from time to time through and including the fifth (5th) anniversary of the date hereof (the "Expiration Date") during normal business hours on any Business Day (as defined in the Purchase Agreement) by surrender of this Warrant, together with the form of subscription duly executed by such Holder in substantially the form attached as Annex A hereto, to the Company at its office designated pursuant to Section 16 of the Purchase Agreement. (b) Payment of the Exercise Price for the Warrant Shares shall be made by certified or bank check or wire transfer payable to the order of the Company, in any case, in an amount equal to (A) the number of Warrant Shares specified in such form of subscription, multiplied by (B) the then current Exercise Price. The Holder shall thereupon be entitled to receive the number of Warrant Shares specified in such form of subscription (plus cash in lieu of any fractional share as provided in Section 1.3 hereof). 1.2. Effective Date. Each exercise of this Warrant pursuant to Section 1.1 hereof shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant is surrendered to the Company as provided in Section 1.1 hereof (except that if such exercise is in connection with an underwritten public offering of Warrant Shares subject to this Warrant, then such exercise shall be 2 3 deemed to have been effected upon such surrender of this Warrant). On each such day that an exercise of this Warrant is deemed effected, the person or persons in whose name or names any certificate or certificates for Warrant Shares are issuable upon such exercise (as provided in Section 1.3 hereof) shall be deemed to have become the Holder or Holders of record thereof. 1.3. Warrant Share Certificates, Cash for Fractional Warrant Shares and Reissuance of Warrants. As promptly as practicable after the exercise of this Warrant, in whole or in part, and in any event within five (5) Business Days thereafter (unless such exercise shall be in connection with a public offering of Warrant Shares subject to this Warrant, in which event concurrently with such exercise), the Company at its expense (including the payment by it of any applicable issue, stamp or other taxes) will cause to be issued in the name of and delivered to the Holder: (a) a certificate or certificates for the number of Warrant Shares to which the Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which the Holder would otherwise be entitled, cash in an amount equal to the same fraction of the Market Price (as defined in Section 5.1 hereof) per Warrant Share on the effective date of such exercise; and (b) in case such exercise is in part only, a new Warrant or Warrants, substantially identical hereto, representing the rights formerly represented by this Warrant which have not expired or been exercised. 1.4. Acknowledgment of Obligation. The Company will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof or of any Warrant Shares issued upon such exercise, acknowledge in writing its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled under this Warrant Certificate and the Purchase Agreement; provided, that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Company to afford such rights to such Holder. 3 4 1.5. Conditional Exercise. Notwithstanding any other provision hereof, if any exercise of any portion of this Warrant is to be made in connection with a public offering of Warrant Shares or any transaction described in Section 5.8 hereof, the exercise of any portion of this Warrant may, at the election of the Holder, be conditioned upon the consummation of the public offering or such transaction, in which case such exercise shall not be deemed to be effective until the consummation of such public offering or transaction. Section 2. Reservation of Shares. The Company shall at all times after the date hereof and until the Expiration Date reserve for issuance and delivery upon exercise of this Warrant the number of Warrant Shares as shall be required for issuance and delivery upon exercise in full of this Warrant. Section 3. Transfer, Exchange, Assignment or Loss of Warrant. 3.1. Transfer. This Warrant may be assigned in whole or in part or transferred in whole or in part; subject, however, to compliance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Act"). 3.2. Procedure for Assignment or Transfer. Any assignment or transfer hereunder shall be made by surrender of this Warrant to the Company at its office designated pursuant to Section 15 of the Purchase Agreement, together with the form of assignment duly executed by the Holder in substantially the form attached as Annex B hereto and funds sufficient to pay any required transfer tax. In such event the Company shall, without charge, execute and deliver a new Warrant or Warrants substantially identical hereto in the name of the assignee or assignees named in such instrument of assignment and designate the assignee or assignees as the registered holder or holders on the Company's records and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation thereof at the principal office of the Company together with a written 4 5 notice signed by the holder thereof, specifying the names and denominations in which new Warrants are to be issued. 3.3. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification to the Company or (in the case of mutilation) presentation of this Warrant for surrender and cancellation, the Company will execute and deliver a new Warrant identical hereto and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void. Section 4. Warrant Certificate Holder Not Deemed a Stockholder. Except as otherwise provided herein, the Holders shall not, solely because of holding this Warrant, be entitled to vote, receive dividends or be deemed the holder of Stock or any other securities of the Company which may at any time be issuable on the exercise of the Warrant for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the Holders, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matters submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise), or to receive notice of meetings or other actions affecting stockholders, or to receive dividend or subscription rights, or otherwise, until this Warrant shall have been exercised in accordance with the provisions hereof. Section 5. Anti-Dilution. The number of Warrant Shares for which this Warrant is exercisable and/or the Exercise Price at which such Warrant Shares may be purchased upon exercise of this Warrant shall be subject to adjustment from time to time as set forth in this Section 5. The Company shall give the Holders notice of any event described below which requires an adjustment pursuant to this Section 5 at the time of such event. 5 6 5.1. Special Definitions. For purposes of this Section 5 the following terms shall have the following meanings: "Additional Shares of Stock" shall mean all shares of Stock issued by the Company after the date hereof, other than (i) the Stock to be issued upon exercise of the Warrants, (ii) redeemable warrants to purchase 1,300,000 shares of Common Stock issued pursuant to the Warrant Agreement, dated as of July 24, 1996, among the Company, Whale Securities Co., L.P. ("Whale") and American Stock Transfer & Trust Company, (iii) the Stock to be issued upon exercise of the warrants for shares of Stock issued to Whale, (iv) shares of Stock to be issued pursuant to the Company's 1996 Stock Option Plan and (vi) 130,000 shares of Stock to be issued to certain executives upon the exercise of outstanding stock options held by such persons. "Convertible Securities" shall mean evidences of indebtedness, shares of preferred stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Stock, either immediately or upon the occurrence of a specified date or a specified event. 5.2. Stock Dividends, Subdivisions and Combinations. If at any time the Company shall: (i) take a record of the holders of its Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Stock, (ii) subdivide its outstanding shares of Stock into a larger number of shares of Stock, or (iii) combine its outstanding shares of Stock into a smaller number of shares of Stock, then (I) the Warrant Shares for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Stock which a record holder of the same number of shares of Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the 6 7 happening of such event, and (II) the Exercise Price shall be adjusted to equal (x) the Exercise Price multiplied by the Warrant Shares for which this Warrant is exercisable immediately prior to the adjustment divided by (y) the Warrant Shares for which this Warrant is exercisable immediately after such adjustment. 5.3. Certain other Distributions. If at any time the Company shall take a record of the holders of its Stock for the purpose of entitling them to receive any dividend or other distribution of: (i) cash, (ii) any evidences of its indebtedness, any shares of its Stock or any other securities or property of any nature whatsoever (other than cash or Additional Shares of Stock), or (iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any share of its Stock or any other securities or property of any nature whatsoever (other than cash or Additional Shares of Stock), then, (I) the Warrant Shares for which this Warrant is exercisable shall be adjusted to equal the product of the Warrant Shares for which this Warrant is exercisable immediately prior to such adjustment by a fraction (x) the numerator of which shall be the Exercise Price at the date of taking such record and (y) the denominator of which shall be such Exercise Price per share of Stock minus the amount allocable to one share of Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Company) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (II) the Exercise Price shall be adjusted to equal (x) the Exercise Price multiplied by the Warrant Shares for which this Warrant is exercisable immediately prior to the adjustment divided by (y) the Warrant Shares for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Stock and shares of any 7 8 other class of stock shall be deemed a distribution by the Company to the Holders of its Stock of such shares of such other class of stock within the meaning of this Section 5.3 and, if the outstanding shares of the Stock shall be changed into a larger or smaller number of shares of the Stock as part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of the Stock within the meaning of Section 5.2. 5.4. Issuance of Additional Shares of Stock. If at any time the Company shall (except as hereinafter provided) issue or sell any Additional Shares of Stock in exchange for consideration in an amount per Additional Share of Stock less than the Exercise Price in effect immediately prior to such issuance or sale of Additional Shares of Stock, then the Exercise Price as to the Warrant Shares for which this Warrant is exercisable immediately prior to such adjustment shall be adjusted to equal the price determined by multiplying the Exercise Price by a fraction, of which (x) the numerator shall be (1) the number of shares of Stock outstanding immediately prior to such issuance or sale of Additional Shares of Stock plus (2) the number of shares of Stock which the aggregate amount of consideration, if any, received by the Company for the total number of such Additional Shares of Stock so issued or sold would purchase at the Exercise Price in effect immediately prior to such issuance or sale of Additional Shares of Stock, and (y) the denominator shall be the number of shares of Stock outstanding immediately after such issuance or sale of Additional Shares of Stock. The provisions of this Section 5.4 shall not apply to any issuance of Additional Shares of Common Stock for which an adjustment is provided under Section 5.2 or 5.3. 5.5. Issuance of Warrants or Other Rights. If at any time the Company shall take a record of the holders of its Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue 8 9 or sell, any warrants or other rights to subscribe for or purchase any Additional Shares of Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the consideration received for such warrants or other rights or such Convertible Securities shall be less than the Exercise Price in effect immediately prior to the time of such issue or sale, then the Exercise Price shall be adjusted as provided in Section 5.4. No further adjustments of the Exercise Price shall be made upon the actual issue of such Stock or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issue of such Stock upon such conversion or exchange of such Convertible Securities. 5.6. Issuance of Convertible Securities. If at any time the Company shall take a record of the holders of its Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to convert thereunder are immediately exercisable, and the consideration received for such stock shall be less than the Exercise Price in effect immediately prior to the time of such issue or sale, then the Exercise Price shall be adjusted as provided in Section 5.4. No adjustment of the Exercise Price shall be made under this Section 5.6 upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to Section 5.5. No further adjustments of the Exercise Price shall be made upon the actual issue of such Stock upon conversion of such Convertible Securities and, if any issue or sale of such Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the Exercise Price have been or are to be made pursuant to other provisions of this Section 5, no further adjustments of the Exercise Price shall be made by reason of such issue or sale. 5.7. Other Provisions Applicable to Adjustments under this Section. The following provisions shall be applicable to the making of adjustments of the Warrant Shares for which this 9 10 Warrant is exercisable and the Exercise Price at which such Warrant Shares may be purchased upon exercise of this Warrant provided for in this Section 5: (a) Computation of Consideration. To the extent that any Additional Shares of Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Shares of Stock or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such Additional Shares of Stock or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Shares of Stock or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any Additional Shares of Stock or any Convertible Securities or any warrants or other rights to subscribe for or purchase such Additional Shares of Stock or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such Additional Shares of Stock, Convertible Securities, warrants or other rights, as the case may be. The consideration for any Additional Shares of Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants or other rights plus the additional consideration payable to the Company upon 10 11 exercise of such warrants or other rights. The consideration for any Additional Shares of Stock issuable pursuant to the terms of any Convertible Securities shall be the consideration received by the Company for issuing warrants or other rights to subscribe for or purchase such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such Convertible Securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such Convertible Securities. In case of the issuance at any time of any Additional Shares of Stock or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Stock, the Company shall be deemed to have received for such Additional Shares of Stock or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied. (b) When Adjustments to Be Made. The adjustments required by this Section 5 shall be made whenever and as often as any event requiring an adjustment shall occur, except that any adjustment of the Warrant Shares for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Stock, as provided for in Section 5.2) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of the Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 5 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any event shall be deemed to have occurred at the close of business on the date of its occurrence. (c) Fractional Interests. In computing adjustments under this Section 5, fractional interests in the Stock shall be taken into account to the nearest 1/10th of a share. 11 12 (d) When Adjustment Not Required. If the Company shall take a record of the holders of the Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. (e) Challenge to Good Faith Determination. Whenever the Board of Directors of the Company shall be required to make a determination in good faith of the fair value of any item under this Section 5, such determination may be challenged in good faith by a Holder and any dispute shall be resolved by an investment banking firm of recognized national standing selected by the Company and acceptable to such Holder. The fees of such investment banker shall be borne by the Holder if the Company's calculation is determined to be correct and otherwise by the Company. 5.8. Reorganization, Reclassification, Merger or Consolidation. If the Company shall at any time reorganize or reclassify the outstanding shares of Stock (other than a change in par value, or from no par value to par value, or from par value to no par value, or as a result of a subdivision or combination) or consolidate with or merge into another corporation (where the Company is not the continuing corporation after such merger or consolidation), the Holders shall thereafter be entitled to receive upon exercise of this Warrant in whole or in part, the same kind and number of shares of stock and other securities, cash or other property (and upon the same terms and with the same rights) as would have been distributed to the Holder upon such reorganization, reclassification, consolidation or merger had the Holder exercised this Warrant immediately prior to such reorganization, reclassification, consolidation or merger (subject to subsequent adjustments under Section 5 hereof). The Holders shall pay upon such exercise the Exercise Price that otherwise would have been payable pursuant to the terms of this Warrant. If any such reorganization, reclassification, consolidation or merger results in a cash distribution in excess 12 13 of the Exercise Price provided by this Warrant, a Holder may, at the Holder's option, exercise this Warrant without making payment of the Exercise Price, and in such case the Company shall, upon distribution to the Holder, consider the Exercise Price to have been paid in full, and in making settlement to the Holder, shall deduct an amount equal to the Exercise Price from the amount payable to the Holder. Notwithstanding anything herein to the contrary, the Company will not effect any such reorganization, reclassification, merger or consolidation unless prior to the consummation thereof, the corporation who may be required to deliver any stock, securities or other assets upon the exercise of this Warrant shall agree by an instrument in writing to deliver such stock, cash, securities or other assets to the Holder. A sale, transfer or lease of all or substantially all of the assets of the Company to another person shall be deemed a reorganization, reclassification, consolidation or merger for the foregoing purposes. 5.9. Chief Financial Officer's Opinion. Upon each adjustment of the Exercise Price and upon each change in the Warrant Shares issuable upon the exercise of this Warrant, and in the event of any change in the rights of a Holder by reason of other events herein set forth, then and in each such case, the Company will promptly obtain an opinion of the chief financial officer of the Company, stating the adjusted Exercise Price and the new Warrant Shares so issuable, or specifying the other shares of the Stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such opinion to the Holders. If a Holder disagrees with such calculation, the Company agrees to obtain within thirty (30) business days an opinion of a firm of independent certified public accountants selected by the Company's Board of Directors and acceptable to such Holder to review such calculation and the opinion of such firm of independent certified public accountants shall be final and binding on the parties and shall be conclusive evidence of the correctness of the computation with respect to any such adjustment of the Exercise Price and any such change in the number of Warrant Shares so issuable. The fees of such accountants shall be borne by the Holder if the Company's 13 14 calculation is determined by such accountants to be correct and otherwise by the Company. 5.10. Company to Prevent Dilution. In case at any time or from time to time conditions arise by reason of action taken by the Company, which in the good faith opinion of its Board of Directors or a majority of the Holders are not adequately covered by the provisions of this Section 5, and which might materially and adversely affect the exercise rights of the Holders, the Board of Directors of the Company shall appoint such firm of independent certified public accountants acceptable to a majority of the Holders, which shall give their opinion upon the adjustment, if any, on a basis consistent with the standards established in the other provisions of this Section 5, necessary with respect to the Exercise Price, so as to preserve, without dilution (other than as specifically contemplated by this Warrant), the exercise rights of the Holders. Upon receipt of such opinion, the Board of Directors of the Company shall forthwith make the adjustments described therein. Section 6. Character of Shares of Stock. All shares of the Stock issuable upon the exercise of this Warrant shall, when issued to a Holder, be duly authorized, validly issued, fully paid and nonassessable, free and clear of any lien or encumbrance and without any preemptive rights. Section 7. Notice to Holder. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Stock otherwise than in cash, (ii) if the Company shall offer to the holders of Stock, for subscription or purchase by them, any shares of any class of stock of the Company or any other rights or (iii) if there shall be any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company, voluntary or involuntary dissolution, liquidation or winding up of the Company, then in any such event, the Company shall cause to be mailed by certified mail to each Holder, at least 30 days prior to the relevant date of the event described above, a notice 14 15 containing a brief description of the proposed action and stating the date or expected date on which a record is to be taken for the purpose of such dividend, distribution or rights, or the date or expected date such reclassification, reorganization, consolidation, merger, conveyance, lease or transfer, dissolution, liquidation or winding up shall take place or be voted upon by holders of the Stock of record, and the date or expected date as of which the holders of Stock of record shall be entitled to exchange their shares of Stock for securities or other property deliverable upon any such event. Section 8. Disposition of Warrant Shares. The stock certificates of the Company that will evidence the Warrant Shares or any other security issued or issuable upon exercise of this Warrant will be imprinted with a conspicuous legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933 (the "Act") or any applicable state securities laws and may not be sold, pledged, hypothecated, donated or otherwise transferred (whether or not for consideration) unless registered under the Act and any applicable state securities laws or in a transaction exempt from such registrations. Except as provided in the Purchase Agreements, the Company has not agreed to register any of the Warrant Shares for distribution in accordance with the provisions of the Act or any applicable state securities laws, and the Company has not agreed to comply with any exemption from registration under the Act or any applicable state securities laws for the resale of the Warrant Shares. Hence, it is the understanding of the Holder that by virtue of the provisions of certain rules respecting "restricted securities" promulgated by the Securities and Exchange Commission, the Warrant Shares may be required to be held indefinitely, unless and until registered under the Act and any applicable state securities laws unless an exemption from such registration is available, in which case the Holders may still be limited as to the number of Warrant Shares that may be sold. 15 16 Section 9. Governing Law. This Warrant shall be construed in accordance with the laws of the State of New York applicable to contracts executed and to be performed wholly within such state without regard to any conflicts of laws principles. Section 10. Notice. Any notice, demand, document or other communication given or delivered hereunder shall be in writing, and may be (i) personally delivered, (ii) given or made by United States registered or certified mail, return receipt requested, postage prepaid, or (iii) given or made by overnight courier, delivery charges prepaid, addressed as follows: If to the Company: Visual Edge Systems Inc. 2424 North Federal Highway Suite 100 Boca Raton, Florida 33431 Attention: Chief Executive Officer With a Copy to: Morgan, Lewis & Bockius LLP 101 Park Avenue New York, New York 10178 Attention: David W. Pollak, Esq. If to Holder: The Company and the Holder shall each have the right to designate a different address for itself by notice similarly given. All such notices, demands, documents or other communication will be deemed to be delivered (i) upon receipt, if personally delivered, (ii) on the third full Business Day following the day of mailing, if sent by United States registered or certified mail and (iii) on the Business Day following the date it was sent, if sent by overnight courier. 16 17 Section 11. Remedies. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise, in addition to any other remedies which may be available at law or in equity. Section 12. Successors and Assigns. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holders hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder. Section 13. Amendment. This Warrant Certificate may be modified or amended and any provision hereof may be waived by a writing executed by the Company and holders of Warrants representing a majority of the Warrant Shares obtainable upon exercise of the Warrants. Section 14. Headings. Section headings in this Warrant are for reference only and shall not affect the meaning or construction of any of the provisions hereof. 17 18 IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. VISUAL EDGE SYSTEMS INC. By: ------------------------------ Name: Earl Takefman Title: Chief Executive Officer 18 19 ANNEX A FORM OF SUBSCRIPTION (To be executed only upon exercise of the Warrant in whole or in part) To VISUAL EDGE SYSTEMS INC. The undersigned registered holder of the accompanying Warrant hereby irrevocably exercises such Warrant or portion thereof for, and purchases thereunder, _______(1) Warrant Shares (as defined in such Warrant) and herewith makes payment therefor of $_______. The undersigned requests that the certificates for such Warrant Shares be issued in the name of, and delivered to, ____________________________, whose address is ___________________________ ______________________________________. Dated: ------------------------------------ (Name must conform to name of holder as specified on the face of the Warrant) ------------------------------------ (Street Address) ------------------------------------ (City) (State) (Zip Code) - -------------------- (1) Insert the number of Warrant Shares as to which this Warrant is being exercised. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unexercised portion of this Warrant, to the holder surrendering the same. 20 ANNEX B FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns and transfers unto ____________________________ [Name] of _____________ [Address] the right represented by the within Warrant to purchase ________ shares of Common Stock of VISUAL EDGE SYSTEMS INC. to which the within Warrant relates, and appoints ____________________ Attorney to transfer such right on the books of VISUAL EDGE SYSTEMS INC., with full power of substitution in the premises. Dated: -------------- ------------------------------------ (Name must conform to name of holder as specified on the face of the Warrant) ------------------------------------ (Street Address) ------------------------------------ (City) (State) (Zip Code) Signed in the presence of: - ------------------------------- EX-5 3 OPINION OF MORGAN LEWIS & BOCKINS LLP 1 EXHIBIT 5 April 3, 1997 Visual Edge Systems Inc. 2424 North Federal Highway, Suite 100 Boca Raton, FL 33431 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 sale of an aggregate of 2,200,000 shares of the Company's Common Stock, par value $.01 per share (the "Common Stock"), as follows: (i) 100,000 shares of Common Stock to be sold by certain investors (the "Bridge Investors") who received such shares in a bridge financing consummated by the Company in March 1997; (ii) 25,000 shares of Common Stock to be sold by a former officer of the Company; (iii) 220,000 shares of Common Stock to be offered and sold by certain investors who invested in the Company prior to the Company's initial public offering (the "IPO"); (iv) 100,000 shares of Common Stock underlying certain warrants owned by the Bridge Investors; (v) 260,000 shares of Common Stock underlying certain warrants owned by Whale Securities Co., L.P., the underwriter in the IPO; and (v) 1,495,000 shares of Common Stock underlying the Company's redeemable warrants which were sold in the IPO. The shares of Common Stock referred to above in clauses (i), (ii) and (iii) are collectively referred to herein as the "Shares," and the shares of Common Stock referred to above in clauses (iv), (v) and (vi) are collectively referred to herein as the "Warrant Shares." 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. 2 Based on the foregoing, we are of the opinion that: 1. The Shares have been duly authorized and validly issued by the Company and are fully paid and non-assessable. 2. The Warrant Shares have been duly authorized by the Company and, when issued and paid for as described in the Registration Statement, such shares of Common Stock will be duly and validly issued and fully paid and non-assessable. 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. 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 EX-10.8 4 AMENDED & RESTATED 1996 STOCK OPINION PLAN 1 EXHIBIT 10.8 VISUAL EDGE SYSTEMS INC. AMENDED AND RESTATED 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) 2 (such individuals being the "Continuing Directors"), cease for any reason to constitute a majority of the members of the Board; (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). 2 3 (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as it may be amended from time to time. (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 Amended and Restated 1996 Stock Option Plan as set forth herein and as amended from time to time. 3 4 (u) "Stock" shall mean shares of the Common Stock of the Corporation, par value $0.01 per share. (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 1,200,000 shares, 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 4 5 functions and, with respect to persons not subject to Section 16 of the 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 5 6 extent the limitation set forth in the preceding sentence is exceeded, the Options with respect to such excess shall be treated as NQSOs. (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 7 (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 7 8 Committee determines, in its sole discretion, that the Consultant, Employee or Subsidiary, as the case may be, will not 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, consoli dation, 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 8 9 discretion, may postpone the issuance or delivery of Stock under any 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 9 10 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 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. The Plan has been amended and restated effective as of January 1, 1997. No grant of options hereunder shall be effective if made on or after the date of 1997 annual meeting of stockholders of the Company, unless the Company's stockholders approve the Plan in connection with the 1997 annual meeting. 10 EX-10.11 5 SHARE & WARRANT PURCHASE AGREEMENT- TAKEFMAN 1 EXHIBIT 10.11 =============================================================================== SHARE AND WARRANT PURCHASE AGREEMENT DATED AS OF FEBRUARY 27, 1997 BETWEEN VISUAL EDGE SYSTEMS INC. AND THE INVESTOR NAMED HEREIN =============================================================================== 2 TABLE OF CONTENTS
Page SECTION 1. SALE AND PURCHASE OF COMMON STOCK AND WARRANTS..................................................1 SECTION 2. THE CLOSING.....................................................................................2 SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................3 3.1. Corporate Existence, Power and Authority........................................................3 3.2. Capital Stock...................................................................................4 3.3. No Defaults or Conflicts........................................................................4 3.4. Disclosure Materials; Other Information.........................................................5 3.5. Litigation......................................................................................5 3.6. Legal Compliance................................................................................5 3.7. Offering of Shares..............................................................................6 3.8. SEC Reports.....................................................................................6 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR..................................................6 4.1. Power and Authority.............................................................................6 SECTION 5. RESTRICTIONS ON TRANSFER........................................................................8 SECTION 6. COVENANTS OF THE COMPANY........................................................................8 6.1. Use of Proceeds.................................................................................8 6.2. Maintenance of Existence, Properties and Franchises; Compliance with Law; Taxes; Insurance................................................................................8 6.3. No Dilution or Impairment; No Changes in Capital Stock..........................................9 6.4. Reservation of Shares..........................................................................10 6.5. Private Placement Status.......................................................................10 6.6. Application of Funds...........................................................................10 6.7. Registration of Shares and Warrants............................................................10 SECTION 7. CONDITIONS TO INVESTOR'S OBLIGATIONS...........................................................10 7.1. Accuracy of Representations and Warranties.....................................................11 7.2. Compliance with Agreements.....................................................................11 7.3. Officers' Certificates.........................................................................11 7.4. Proceedings....................................................................................11 7.5. No Material Adverse Change.....................................................................11
-1- 3 SECTION 8. THE LETTER OF CREDIT ..........................................................................11 8.1. No Drawing on Letter of Credit.................................................................11 8.2. Drawing on Letter of Credit....................................................................12 8.3. Delivery of Shares.............................................................................12 8.4. Character of Shares............................................................................12 8.5. Termination....................................................................................12 SECTION 9. REGISTRATION RIGHTS............................................................................12 9.1. Initial Registration; Potential Registration After the Transaction Date........................12 9.2. Company's Fees and Expenses....................................................................12 SECTION 10 DEFINITIONS....................................................................................13 SECTION 11. BROKERS........................................................................................16 SECTION 12. EXPENSES.......................................................................................16 SECTION 13. AMENDMENTS AND WAIVERS.........................................................................16 SECTION 14. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT................................................................17 SECTION 15. NOTICES........................................................................................18 SECTION 16. MISCELLANEOUS..................................................................................18 EXHIBIT A Warrant Certificate EXHIBIT B Legend
-2- 4 SHARE AND WARRANT PURCHASE AGREEMENT SHARE AND WARRANT PURCHASE AGREEMENT, dated as of February 27, 1997, between Visual Edge Systems Inc., a Delaware corporation (the "Company"), and the Investor listed on the signature page of this Agreement (the "Investor"). W I T N E S S E T H : WHEREAS, the Company needs to obtain additional financing in order to further its business plan; WHEREAS, in order to obtain such a line of credit from a financial institution (the "Line of Credit") or other additional financing, the Company desires to obtain an irrevocable letter of credit up to an aggregate amount of up to $3,500,000 expiring on December 31, 1997 (the "Letter of Credit") from Republic National Bank of New York, or another financial institution (the "Bank"), to serve as collateral for such additional financing; WHEREAS, the Investor has indicated that it is willing to provide the amount of cash, or cash equivalents acceptable to the Bank, set forth on Schedule 1 hereto for use as collateral (the "Cash Collateral"), in order to assist the Company in obtaining the Letter of Credit; WHEREAS, the Company has agreed to issue to the Investor, and the Investor has agreed to purchase from the Company, units, each consisting of one share of Common Stock of the Company and one Warrant to purchase an equal number of shares of Common Stock of the Company, all upon the terms and provisions hereinafter set forth, in consideration for providing the Cash Collateral; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. SALE AND PURCHASE OF COMMON STOCK AND WARRANTS (a) The Company agrees to sell to the Investor and, subject to the terms and conditions hereof and in reliance upon the representations and warranties of the Company contained herein or made pursuant hereto, the Investor agrees to purchase from the Company on the Closing Date specified in Section 2 hereof, the number of units, each consisting of one share of Common Stock of the Company (the "Shares") and one Warrant to purchase an equal number 5 of shares of Common Stock of the Company, set forth opposite the Investor's name on Schedule 1 hereto. The Warrants to purchase shares of Common Stock of the Company being acquired under this Agreement and by the other Investors under the other Share and Warrant Purchase Agreements are collectively referred to herein as the "Warrants", containing rights and privileges as more fully set forth in the form of Warrant which shall be substantially in the form attached hereto as Exhibit A (the "Warrant Certificate"). The units, each consisting of one Share and one Warrant, being acquired under this Agreement and by the other Investors under the other Share and Warrant Purchase Agreements are collectively referred to herein as the "Units." (b) The purchase price to be paid to the Company by the Investor for the Units to be purchased by the Investor pursuant to this Agreement shall be the use of the Cash Collateral set forth opposite the Investor's name on Schedule 1 hereto for a period of time terminating on or before (at the Company's option) December 31, 1997. The Cash Collateral shall be delivered by the Investor to the Bank, such amount to be transferred to the Bank in federal or other immediately available funds, immediately prior to the Closing Date and shall be held by the Bank as collateral for the Letter of Credit issued to the Company. No further payment shall be required from the Investor for the Units. (c) The Shares and the Warrants are being sold to the purchasers listed on Schedule 1 hereto (the "Investors") pursuant to this Agreement and other share and warrant purchase agreements (all such agreements collectively, the "Share and Warrant Purchase Agreements"). The sale of Units to each Investor under each Share and Warrant Purchase Agreement is to be a separate sale, is not conditioned upon entering into any other Share and Warrant Purchase Agreement, and no Investor shall have any liability under any Share and Warrant Purchase Agreement other than the Share and Warrant Purchase Agreement to which it is a party. The Company may consummate the transactions completed under this Agreement without entering into any other Share and Warrant Purchase Agreements. (d) The Company will use the proceeds from the sale of the Units, (i) to purchase vans, trailers and related computer and video equipment, (ii) for advertising expenditures and (iii) to fund operating costs and for general corporate purposes. SECTION 2. CLOSING (a) Subject to the terms and conditions hereof, the closing of the purchase and sale of the Units to be purchased by the Investor (the "Closing") will take place at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, NY 10178, on Monday, March 3, 1997, or such other time and date as shall be mutually agreed to by the Company and the Investor. Such time and date are herein referred to as the "Closing Date." All documentation and signature pages must be received by Morgan, Lewis & Bockius LLP no later than February 28, 1997 by Federal Express or other courier. Upon the fulfillment of the closing conditions, -2- 6 written instructions releasing such signature pages and instructing the Bank will be exchanged by the parties on the Closing Date. (b) Subject to the terms and conditions hereof, on the Closing Date (i) the Company will deliver to the Investor (x) a certificate registered in the Investor's name evidencing the number of Shares equal to the number of Units set forth opposite the Investor's name on Schedule 1 and (y) a Warrant Certificate registered in the Investor's name evidencing a number of Warrants equal to the number of Units set forth opposite the Investor's name on Schedule 1, and (ii) the Investor will deliver to the Bank instructions confirming that the amount equal to the Cash Collateral previously deposited with the Bank is to be used for security for bank financing as described herein and that it has received consideration for the use of such funds in the form of the Units to be purchased by it as set forth on Schedule 1. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Investor as follows as of the date hereof and as of the Closing Date: 3.1. Corporate Existence, Power and Authority. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company is duly qualified, licensed and authorized to do business and is in good standing in each jurisdiction in which it owns or leases any property or in which the conduct of its business requires it to so qualify or be so licensed, except for such jurisdictions where the failure to so qualify or be so licensed would not have a material adverse effect on the Company's assets, properties, liabilities, business, results of operations or condition. (b) The Company has all requisite power, authority and legal right to own or to hold under lease and to operate the properties it owns or holds and to conduct its business as now being conducted. (c) The Company has all requisite power, authority and legal right to execute, deliver and consummate the transactions contemplated by and perform its obligations under (i) the Share and Warrant Purchase Agreements, including, without limitation, the issuance by the Company of the Shares, the Warrants and the Conversion Shares as contemplated herein and in the Warrant Certificates. The execution, delivery and performance of the Share and Warrant Purchase Agreements by the Company (including, without limitation, the issuance by the Company of the Shares, the Warrants and the Conversion Shares as contemplated herein and in the Warrant Certificates) have been duly authorized by all required corporate actions. The Company has duly executed and delivered the Share and Warrant Purchase Agreements and the Warrant Certificates. The Share and Warrant Purchase Agreements and the Warrant Certificates -3- 7 constitute the legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to the rights of creditors generally. 3.2. Capital Stock. (a) The authorized capital stock of the Company consists of 5,000,000 shares of Preferred Stock and 20,000,000 shares of Common Stock, $.01 par value per share. On the date hereof, there are outstanding no shares of Preferred Stock and 4,615,000 shares of Common Stock. All of such outstanding shares are duly authorized, validly issued and outstanding, fully paid and non-assessable. The shares of the Company's Common Stock issuable upon the exercise of the Warrants will, when issued in accordance with the terms of the Warrants, be duly authorized, validly issued, fully paid and non-assessable. None of the shares of the Company's capital stock outstanding at the Closing (i) were subject to preemptive rights when issued or (ii) provide the holders thereof with any preemptive rights with respect to any issuances of capital stock. (b) Except as referred to in Schedule 3.2(b), there are no outstanding options, warrants, subscriptions, rights, convertible securities or other agreements or plans under which the Company may become obligated to issue, sell or transfer shares of its capital stock or other securities. 3.3. No Defaults or Conflicts. (a) The Company is not in violation or default in any material respect under any indenture, agreement or instrument to which it is a party or by which it or its properties may be bound. The Company is not in default under any material order, writ, injunction, judgment or decree of any court or other governmental authority. (b) The execution, delivery and performance by the Company of the Share and Warrant Purchase Agreements, and any of the transactions contemplated hereby (including, without limitation, the issuance of the Shares, the Warrants and the Conversion Shares as contemplated herein and in the Warrant Certificates) do not and will not (i) violate or conflict with, with or without the giving of notice or the passage of time or both, any provision of (A) the certificates of incorporation or by-laws of the Company or (B) any law, rule, regulation or order of any federal, state, county, municipal or other governmental authority, or any judgment, writ, injunction, decree, award or other action of any court or governmental authority or arbitrator(s), or any agreement, indenture or other instrument applicable to the Company or any of its properties, (ii) result in the creation of any Lien upon any of the Company's properties or assets or (iii) require the consent, waiver, approval, order or authorization of, or declaration, registration, qualification or filing with, any Person, other than Whale Securities, Co., L.L.P. ("Whale"). -4- 8 3.4. Disclosure Materials; Other Information. (a) The Company has previously furnished to the Investor the following material (the "Disclosure Material"): (i) audited consolidated financial statements of the Company as of December 31, 1996, consisting of a consolidated balance sheet as of December 31, 1996 and the related consolidated statements of operations, changes in equity and cash flows for the year ended December 31, 1996 and the related notes thereto, all of which statements have been certified by KPMG Peat Marwick LLP, independent certified public accountants, (ii) the Company's Prospectus dated July 24, 1996 and (iii) the SEC Reports. The financial statements referred to or contained in the materials referred to in the preceding clauses (i) and (ii) fairly present the financial condition of the Company as of the respective dates thereof and the results of the operations of the Company for such periods and have been prepared in accordance with generally accepted accounting principles consistently applied, except that any such unaudited statements may omit notes and may be subject to year-end adjustment. (b) Since December 31, 1996, (i) the business of the Company has been conducted in the ordinary course and (ii) there has been no material adverse change in the assets, properties, liabilities, business, results of operations or condition of the Company. As of the date hereof, there are no material liabilities of the Company which would be required to be provided for in a balance sheet of the Company prepared in accordance with generally accepted accounting principles consistently applied, other than liabilities provided for in the financial statements referred to in Section 3.5(a). (c) None of the Disclosure Material contained or contains a false or misleading statement of a material fact or omits to state any material fact necessary in order to make the statements made in such Disclosure Material, in light of the circumstances under which they were made, not misleading. 3.5. Litigation. There is no action, suit, proceeding, investigation or claim pending or, to the knowledge of the Company, threatened in law, equity or otherwise before any court, administrative agency or arbitrator which (i) questions the validity of the Share and Warrant Purchase Agreements, the Warrant Certificates, the Units, the Shares, the Warrants or the Conversion Shares or any action taken or to be taken pursuant hereto or thereto, (ii) might adversely affect the right, title or interest of any Investor to the Units, the Shares, the Warrants, or the Conversion Shares or (iii) might result in a material adverse change in the assets, properties, liabilities, business, affairs, results of operations or condition of the Company. 3.6. Legal Compliance. (a) The Company has complied in all material respects with all applicable laws, rules, regulations, orders, licenses, judgments, writs, injunctions, decrees or demands. -5- 9 (b) There are no adverse orders, judgments, writs, injunctions, decrees or demands of any court or administrative body, domestic or foreign, or of any other governmental agency or instrumentality, domestic or foreign, outstanding against the Company. 3.7. Offering of Shares. None of the Company, any agent or any other person acting on its behalf, directly or indirectly, (i) offered any of the Units, the Shares, the Warrants or any similar security of the Company (A) by any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) or (B) for sale to or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person other than the Investors and not more than 30 other persons, each of which the Company reasonably believed was an "accredited investor" within the meaning of Regulation D under the Securities Act, or (ii) has done or caused to be done (or has omitted to do or to cause to be done) any act which act (or which omission) would result in bringing the issuance or sale of the Units, the Shares or the Warrants within the provisions of Section 5 of the Securities Act or the filing, notification or reporting provisions of any state securities laws. 3.8. SEC Reports. The Company has filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act. The Company has furnished the Investor with copies of (i) its Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996 and (ii) its Quarterly Reports on Form 10-QSB for the fiscal quarter ended September 30, 1996 (collectively, the "SEC Reports"). Each SEC Report complied in all material respects with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR The Investor represents and warrants to the Company as follows: 4.1. Power and Authority. The Investor has all requisite power, authority and legal right to execute, deliver and consummate the transactions contemplated by and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by the Investor have been duly authorized by all required corporate and other actions. The Investor has duly executed and delivered this Agreement and it constitutes the legal, valid and binding obligation of the -6- 10 Investor, enforceable against the Investor in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to the rights of creditors generally. 4.2. Investment Intent. (i) The Investor has received and reviewed the SEC Reports and except for the SEC Reports, the Investor has not been furnished with any other materials or literature relating to the offer and sale of the Units, the Shares, the Warrants or the Conversion Shares; (ii) The Investor has had a reasonable opportunity to ask questions of and receive answers from the Company concerning the Company and the offering, and all such questions, if any, have been answered to the full satisfaction of the Investor; (iii) The Investor has such knowledge and expertise in financial and business matters that the Investor is capable of evaluating the merits and risks involved in an investment in the Units, the Shares, the Warrants or the Conversion Shares; (iv) The Confidential Purchaser Questionnaire to be delivered by the Investor to the Company will be true, complete and correct in all material respects; and the Investor understands that the Company has determined that the exemption from the registration provisions of the Securities Act, which is based upon non-public offerings, are applicable to the offer and sale of the Units, the Shares, the Warrants or the Conversion Shares based, in part, upon the representations, warranties and agreements made by the Investor herein and in the Confidential Purchaser Questionnaire referred to above; (v) No representations or warranties have been made to the Investor by the Company or any agent, employee or affiliate of the Company and in entering into this transaction the Investor is not relying upon any information, other than that contained in the SEC Reports and the results of independent investigation by the Investor; (vi) The Investor understands that (A) the Units, the Warrants, the Shares and the Conversion Shares have not been registered under the Securities Act or the securities laws of any state, based upon an exemption from such registration requirements for non-public offerings pursuant to regulation D under the Securities Act; (B) the Units, the Warrants, the Shares and the Conversion Shares are and will be "restricted securities", as said term is defined in Rule 144 of the Rules and Regulations promulgated under the Securities Act; and (C) the Units, Warrants, Shares and the Conversion Shares may not be sold or otherwise transferred unless they have been first registered under the Securities Act and all applicable state securities laws, or unless exemptions from such registration provisions are available with respect to said resale or transfer; -7- 11 (vii) The Investor is acquiring the Units, the Shares, the Warrants and the Conversion Shares solely for the account of the undersigned, for investment purposes only, and not with a view towards the resale or distribution thereof; and (viii) The Investor is an "accredited investor," as such term is defined in Regulation D of the Rules and Regulations promulgated under the Securities Act. SECTION 5. RESTRICTIONS ON TRANSFER The Investor agrees that it will not sell or otherwise dispose of any Units, Shares, Warrants or Conversion Shares unless such Units, Shares, Warrants or Conversion Shares have been registered under the Securities Act and, to the extent required, under any applicable state securities laws, or pursuant to an applicable exemption from such registration requirements. The Company may place a legend to that effect in the form of Exhibit B hereto on all certificates evidencing Shares, Warrants or Conversion Shares, provided that such legend will not be placed on any certificate which, when issued, are no longer subject to the provisions of this Section 5 pursuant to the provisions of the Securities Act. SECTION 6. COVENANTS OF THE COMPANY The Company covenants and agrees as follows: 6.1. Use of Proceeds. The Company will use the proceeds realized from the sale of the Units (i) to purchase vans, trailers and related computer and video equipment, (ii) for advertising expenditures and (iii) to fund operating costs and for general corporate purposes. 6.2. Maintenance of Existence, Properties and Franchises; Compliance with Law; Taxes; Insurance. The Company will: (a) maintain its corporate existence, rights and other franchises in full force and effect; (b) maintain its tangible assets in good repair, working order and condition (reasonable wear and tear excepted) to far as necessary or advantageous to the proper carrying on of its business; -8- 12 (c) comply with all applicable laws and with all applicable orders, rules, rulings, certificates, licenses, regulations, demands, judgments, writs, injunctions and decrees, provided, that such compliance shall not be necessary so long as (i) the applicability or validity of any such law, order, rule, ruling, certificate, license, regulation, demand, judgment, writ, injunction or decree shall be contested in good faith by appropriate proceedings and (ii) failure to comply will not have a material adverse effect on the assets, properties, liabilities, business, results of operations or condition of the Company; (d) pay promptly when due all taxes, fees, assessments and other government charges imposed upon its properties, assets or income and all claims or indebtedness (including, without limitation, materialmen's, vendor's, workmen's and like claims) which might become a lien upon such properties or assets; provided, that payment of any such tax, fee, assessment, charge, claim or indebtedness shall not be necessary so long as (i) the applicability or validity thereof shall be contested in good faith by appropriate proceedings and a reserve, if appropriate, shall have been established with respect thereto and (ii) failure to make such payment will not have a material adverse effect on the assets, properties, liabilities, business, results of operations or condition of the Company; and (e) keep adequately insured, by financially sound and reputable insurers of nationally recognized stature, all its properties of a character customarily insured by entities similarly situated, against loss or damage of the kinds and in amounts customarily insured against by such entities and with such deductibles or coinsurance as is customary. 6.3. No Dilution or Impairment; No Changes in Capital Stock. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Share and Warrant Purchase Agreements or the Warrant Certificates. Without limiting the generality of the foregoing, the Company (a) will not permit the par value or the determined or stated value of any shares of the Common Stock receivable upon the exercise of the Warrants to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of the Common Stock free from all taxes, Liens and charges with respect to the issue thereof, upon the exercise of the Warrants from time to time outstanding and (c) will not take any action which results in any adjustment of the current exercise price under the Warrant Certificates if the total number of shares of the Common Stock (or other securities) issuable after the action upon the exercise of all of the then outstanding Warrants would exceed the total number of shares of the Common Stock (or other securities) then authorized by the Company's certificate of incorporation and available for the purpose of issuance upon such exercise. -9- 13 6.4. Reservation of Shares. There have been reserved, and the Company shall at all times keep reserved, free from preemptive rights, out of its authorized Common Stock a number of shares of Common Stock sufficient to provide for the exercise of the Warrants and pursuant to the terms of the Warrant Certificates. 6.5. Private Placement Status. Neither the Company nor any agent or any other Person acting on the Company's behalf will do or cause to be done (or will omit to do or to cause to be done) any act which act (or which omission) would result in bringing the issuance or sale of the Units, the Shares, the Warrants or the Conversion Shares within the provisions of Section 5 of the Securities Act or the filing, notification or reporting requirements of any state securities law. 6.6. Application of Funds. As long as the Letter of Credit is outstanding, the Company will (i) use all existing funds that it currently has, or that it receives from its business operations, prior to borrowing funds under the Line of Credit, and (ii) apply any funds that it receives (net of expenses) from any financing, including, without limitation, any (A) future public or private sale of equity or debt securities, other than a potential financing in an amount of approximately $2,000,000 that the Company is currently working on, (B) future redemption of outstanding warrants or (C) the sale and leaseback of its software to Canadian limited partnerships (collectively referred to as a "New Financing"), prior to borrowing funds on the Line of Credit or to repay outstanding borrowings under the Line of Credit. In the event that the Company completes a New Financing on or before December 31, 1997, and receives net proceeds of $3,500,000 or more, then the Company shall use its best efforts to cancel the Letter of Credit and have the Cash Collateral returned to the Investor. 6.7. Registration of Shares and Warrants. Promptly after the Closing, the Company will use its best efforts to effect the registration of the shares of Common Stock and the Conversion Shares under the Securities Act. SECTION 7. CONDITIONS TO INVESTOR'S OBLIGATIONS The Investor's obligation to purchase Units hereunder and to provide the Cash Collateral to the Bank is subject to satisfaction of the following conditions at the Closing (any of which may be waived by the Investor): -10- 14 7.1. Accuracy of Representations and Warranties. The representations and warranties of the Company in the Share and Warrant Purchase Agreements or in any certificate or document delivered pursuant hereto or thereto shall be correct and complete in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date (after giving effect to the transactions contemplated by this Agreement). 7.2. Compliance with Agreements. The Company shall have performed and complied in all material respects with all agreements, covenants and conditions contained in the Share and Warrant Purchase Agreements and any other document contemplated hereby which are required to be performed or complied with by the Company on or before the Closing Date. 7.3. Officers' Certificates. The Investor shall have received a certificate dated the Closing Date and signed by the Chief Executive Officer and by the Secretary of the Company, to the effect that the conditions in Sections 7.1, 7.2 and 7.5 have been satisfied. 7.4. Proceedings. All corporate and other proceedings in connection with the transactions contemplated by the Share and Warrant Purchase Agreements, and all documents incident thereto, shall be in form and substance satisfactory to the Investor and the Investor shall have received all such originals or certified or other copies of such documents as the Investor may reasonably request. 7.5. No Material Adverse Change. There shall have been no material adverse change in the assets, properties, liabilities, business, results of operations or condition of the Company since December 31, 1996. SECTION 8. THE LETTER OF CREDIT 8.1. No Drawing on Letter of Credit. In the event that the Letter of Credit is not drawn upon on or before December 31, 1997, then the Bank shall return promptly the amount of Cash Collateral, and any interest earned thereon, to the Investor. Upon receipt of such Cash Collateral, and interest earned thereon by the Investor, this Agreement shall terminate and be of no further force or effect. -11- 15 8.2. Drawing on Letter of Credit. In the event that there are one or more drawings on the Letter of Credit, in part or in whole, on or before December 31, 1997 (the "Letter of Credit Drawing"), then on December 31, 1997 the Bank shall return promptly the remaining portion of the Cash Collateral to the Investor (the portion drawn down or not returned being referred to as the "Unreturned Cash Collateral"). 8.3. Delivery of Shares. In the event of a Letter of Credit Drawing, the Company shall, after December 31, 1997, promptly deliver to the Investor a number of shares of Common Stock equal to (x) the Unreturned Cash Collateral divided by (y) $7.50, provided that the average of the closing bid prices of the Common Stock on the NASDAQ Small Cap Market on each of the twenty (20) consecutive trading days immediately prior to December 31, 1997 is greater than $11.00; or, if the average of the closing bid prices of the Common Stock on the NASDAQ Small Cap Market on each of the twenty (20) consecutive trading days immediately prior to December 31, 1997 is less than $11.00, clause (y) of this Section 8.3 will be the average of the closing bid prices of the Common Stock on the NASDAQ Small Cap Market on each of the twenty (20) consecutive trading days immediately prior to December 31, 1997 divided by two. 8.4. Character of Shares. All shares of Common Stock issued by the Company to the Investor pursuant to this Section 8 shall be duly authorized, validly issued, fully paid and non-assessable. 8.5. Termination. Upon receipt by the Investor of the remaining portion of the Cash Collateral and the delivery of shares of Common Stock referred to in Section 8.3, this Agreement shall terminate and be of no further force or effect, except that provisions of Sections 8 and 9 hereof shall continue in full force and effect. SECTION 9. REGISTRATION RIGHTS 9.1. Initial Registration; Potential Registration After the Transaction Date. (a) Promptly after the date hereof, the Company will use its best efforts to effect the registration of the shares of Common Stock and the Conversion Shares under the Securities Act. (b) Promptly after December 31, 1997, in the event that additional shares of Common Stock are delivered to the Investor pursuant to Section 8.3, the Company will use its best efforts to effect the registration of the shares of Common Stock under the Securities Act. 9.2. Company's Fees and Expenses. All expenses incident to the Company's performance of or compliance with Section 9 of this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and expenses for listing or quoting the Shares on each securities exchange or The NASDAQ Stock Market on which similar securities -12- 16 issued by the Company are then listed or quoted, and fees and disbursements of counsel for the Company, any transfer agent and all independent certified public accountants, underwriters (excluding discounts and selling commissions) and other Persons retained by the Company in connection with any registration (all such expenses being herein called "Registration Expenses"), will be paid by the Company. SECTION 10. DEFINITIONS For purposes of this Agreement, the following definitions shall apply: "Agreement" means this Share and Warrant Purchase Agreement (together with exhibits and schedules) as from time to time assigned, supplemented or amended or as the terms hereof may be waived. "Board" or "Board of Directors" means with respect to any Person which is a corporation, a business trust or other entity, the board of directors or other group, however, designated, which is charged with legal responsibility for the management of such Person, or any committee of such board of directors or group, however designated, which is authorized to exercise the power of such board or group in respect of the matter in question. "Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Closing" has the meaning set forth in Section 2(a) hereof. "Closing Date" has the meaning set forth in Section 2(a) hereof. "Common Stock" means the Company's Common Stock, par value $.01 per share, and any stock into which such Common Stock may hereafter be changed or for which such Common Stock may be exchanged after giving effect to the terms of such change or exchange (by way of reorganization, recapitalization, merger, consolidation or otherwise). "Company" means Visual Edge Systems Inc., a Delaware corporation, its successors and assigns. "Conversion Share" or "Conversion Shares" means the shares of Common Stock obtained or obtainable upon exercise of Warrants and shall also include any capital stock or other securities into which Conversion Shares are changed and any capital stock or other securities resulting from or comprising a -13- 17 reclassification, combination or subdivision of, or a stock dividend on, any Conversion Shares. In the event that any Conversion Shares are sold either in a public offering pursuant to a registration statement under the Securities Act or pursuant to a Rule 144 Transaction, then the transferees of such Conversion Shares shall not be entitled to any benefits under this Agreement with respect to such Conversion Shares and such Conversion Shares shall no longer be considered to be "Conversion Shares" for purposes of the definition of Majority Shareholders or for purposes of any consent or waiver provision of this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules, regulations and interpretations thereunder. "Investor" means the person who accepts and agrees to the terms hereof as indicated by such person's signature (as "the undersigned Investor") on the execution page of this Agreement, together with its successors and assigns. "Investors" has the meaning set forth in Section 1(c) hereof, together with their respective successors and assigns. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security interest of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing, any assignment or other conveyance of any right to receive income and any assignment of receivables with recourse against the assignor), any filing of a financing statement as debtor under the Uniform Commercial Code or any similar statute and any agreement to give or make any of the foregoing. "Majority Shareholders" means the holder or holders, at the time, of at least fifty-one percent (51%) of the shares represented by (i) the shares issued under the Share and Warrant Purchase Agreements and (ii) the Conversion Shares, including the Conversion Shares then outstanding and the Conversion Shares then obtainable under outstanding Warrants. "Person" or "person" means an individual, corporation, partnership, firm, association, joint venture, trust, unincorporated organization, government, governmental body, agency, political subdivision or other entity. "Registrable Securities" means (i) any shares of Common Stock issued or issuable upon exercise of the Warrants purchased by the Investors pursuant to the Purchase Agreement, (ii) any securities issued or issuable with respect to the -14- 18 Common Stock referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have (x) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (y) been transferred pursuant to Rule 144 (or any similar rule then in force) under the Securities Act. "Rule 144" means (i) Rule 144 under the Securities Act as such Rule is in effect from time to time and (ii) any successor rule, regulation or law, as in effect from time to time. "Rule 144 Transaction" means a transfer of Conversion Shares (A) complying with Rule 144 as such Rule is in effect on the date of such transfer (but not including a sale other than pursuant to "brokers' transactions" as defined in clauses (1) and (2) of paragraph (g) of such Rule as in effect on the date hereof) and (B) occurring at a time when Conversion Shares are registered pursuant to Section 12 of the Exchange Act. "SEC" means the Securities and Exchange Commission and any other similar or successor agency of the federal government administering the Securities Act or the Exchange Act. "SEC Reports" has the meaning set forth in Section 3.9 hereof. "Securities Act" means the Securities Act of 1933, as amended, and the rules, regulations and interpretations thereunder. "Share and Warrant Purchase Agreements" has the meaning set forth in Section 1(c) hereof. "Shares" has the meaning set forth in Section 1(a) hereof. "Subsidiary", with respect to any Person, means any corporation, association or other entity of which more than 50% of the total voting power of shares of stock or other equity interests (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is, at the time as of which any determination is being made, owned or controlled, directly or indirectly, by such Person or one or more of its Subsidiaries, or both. The term "Subsidiary" or "Subsidiaries" when used herein without reference to any particular Person, means a Subsidiary or Subsidiaries of the Company. -15- 19 "Units" has the meaning set forth in Section 1(a) hereof. "Warrant Certificate" has the meaning set forth in Section 1(a) hereof. "Warrants" has the meaning set forth in Section 1(a) hereof. SECTION 11. BROKERS Except for certain fees payable to certain brokers or agents (all of which fees will be paid by the Company), the Company, on the one hand, and the Investor, on the other hand, each represents and warrants to the other that there is no liability for any fees or expenses (or claims therefor) of any investment banker, finder or broker in connection with any Share and Warrant Purchase Agreements or any of the transactions contemplated hereby. The Company will indemnify the Investor against all such fees or expenses payable to the persons named in the preceding sentence and against any other such fees, expenses or claims of any person, unless such person was engaged by the Investor in connection with this Agreement or any of the transactions contemplated hereby. The Investor will indemnify the Company against any such fees, expenses or claims of any person engaged by the Investor in connection with this Agreement or any of the transactions contemplated hereby. SECTION 12. EXPENSES (a) Whether or not the transactions herein contemplated are consummated, the Company will pay (i) the costs, fees and expenses of the Company and its counsel in connection with the Share and Warrant Purchase Agreements, the Warrant Certificates and the issuance of the Units, the Shares, the Warrants and the Conversion Shares, (ii) the fees and expenses of the Investors in connection with the Share and Warrant Purchase Agreements, the Warrant Certificates, or in connection with any other agreements between the Investors and the Company, and (iii) the fees and expenses incurred in connection with the obtaining of the Letter of Credit and the agreements relating to the Cash Collateral. (b) The obligations of the Company under this Section 12 shall survive the Closing hereunder and any termination of the Share and Warrant Purchase Agreements. SECTION 13. AMENDMENTS AND WAIVERS (a) The terms and provisions of this Agreement may be amended, waived, modified or terminated only with the written consent of the Majority Shareholders; provided, however, that no such amendment, waiver, modification or termination shall change the definition of Majority Shareholders or this Section 13(a) without the written consent of the holders of all the Shares, Warrants and Conversion Shares then outstanding. -16- 20 (b) The Company agrees that all holders of Shares, Warrants and Conversion Shares shall be notified by the Company in advance of any proposed amendment, waiver, modification or termination, but failure to give such notice shall not in any way affect the validity of any such amendment, waiver, modification or termination. In addition, promptly after obtaining the written consent of the holders as herein provided, the Company shall transmit a copy of any amendment, waiver, modification or termination which has been adopted to all holders of Shares, Warrants and Conversions Shares then outstanding, but failure to transmit copies shall not in any way affect the validity of any such amendment, waiver, modification or termination. SECTION 14. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT (a) At any time at the request of any holder of Shares or Warrants to the Company at its address provided under Section 15 hereof, the Company at its expense (except for any transfer tax arising out of the exchange) will issue and deliver to or upon the order of the holder in exchange therefor a new certificate or certificates in such amount or amounts as such holder may request in the aggregate representing the number of Shares or Warrants represented by such surrendered certificates, and registered in the name of such holder or as such holder may direct. (b) Any Warrant Certificate which is converted into Conversion Shares in whole or in part shall be canceled by the Company, and no new Share certificates or Warrant Certificates shall be issued in lieu of any Shares or Warrants which have been converted into Conversion Shares. The Company shall issue a new certificate with respect to any Warrants which were not exercised into Conversion Shares and were represented by a certificate which was converted in part. (c) Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Share certificate or Warrant Certificate and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to the Company (if requested by the Company and unsecured in the case of the Investor or an institutional holder), or in the case of any such mutilation, upon surrender of such Share certificate or Warrant Certificate (which surrendered Share certificate or Warrant Certificate shall be canceled by the Company), the Company will issue a new Share certificate or Warrant Certificate, of like tenor in lieu of such lost, stolen, destroyed or mutilated Share certificate or Warrant Certificate as if the lost, stolen, destroyed or mutilated Share certificate or Warrant Certificate were then surrendered for exchange. -17- 21 SECTION 15. NOTICES All notices, requests, demands, consents and other communications hereunder shall be in writing and shall be delivered by hand or shall be sent by telex or telecopy (confirmed by registered, certified or overnight mail or courier, postage and delivery charges prepaid), (i) if to the Company, to Visual Edge Systems Inc., 2424 North Federal Highway, Suite 100, Boca Raton, Florida 33431, Attention: Chief Executive Officer, with a copy to Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178, Attention: David W. Pollak, Esq., or (ii) if to the Purchaser, at the address indicated on Schedule 1 hereto, or at such other address as a party may from time to time designate as its address in writing to the other party to this Agreement. Whenever any notice is required to be given hereunder, such notice shall be deemed given and such requirement satisfied only when such notice is delivered or, if sent by telex or telecopier, when received. SECTION 16. MISCELLANEOUS (a) The Share and Warrant Purchase Agreements and, upon the closing hereunder, the Warrant Certificates together with any further agreements entered into by the Investor and the Company at the closing hereunder, contain the entire agreement between the Investor and the Company, and supersede any prior oral or written agreements, commitments, terms or understandings, regarding the subject matter hereof. (b) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which may render any provision hereof prohibited or unenforceable in any respect. (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, whether so expressed or not. (d) The headings and captions in this Agreement are for convenience of reference only and shall not define, limit or otherwise affect any of the terms or provisions hereof. (e) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York (other than any conflict of laws rule which might result in the application of the laws of any other jurisdiction). -18- 22 (f) 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, and all signatures need not appear on any one counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. VISUAL EDGE SYSTEMS INC. By /s/ Earl T. Takefman ------------------------------- Name: Earl T. Takefman Title: Chief Executive Officer Accepted and Agreed to as of the date first above written by the undersigned Investor: Status-One Investments Inc. - ------------------------------ by Earl T. Takefman -19- 23 Schedule 1 to the Share and Warrant Purchase Agreement
Number of Name of Units Investor -------- Shares Warrants Cash Collateral -------- ------- ------ --------------- Status-One Investments Inc. 10,000 10,000 10,000 $350,000 Abbott Finance Inc. 14,236 14,236 14,236 $500,000 Neil Freder 7,143 7,143 7,143 $250,000 Leonard Mendell 7,141 7,141 7,141 $250,000 Avrum Schwam Holdings Inc. 4,236 4,236 4,236 $150,000 Carajen International Inc. 4,236 4,236 4,236 $150,000 Venture Management Consultants 14,236 14,236 14,236 $500,000 LLC Sandy Lang 7,143 7,143 7,143 $250,000 Frank Leo 7,143 7,143 7,143 $250,000 Martin Miller 7,143 7,143 7,143 $250,000 Frank Williams 2,857 2,857 2,857 $100,000 Dan Elituv 7,143 7,143 7,143 $250,000 Sol Zuckerman 7,143 7,143 7,143 $250,000
Address: -20- 24 EXHIBIT B SHARE LEGEND The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or the securities laws of certain states and are being offered and sold in reliance on exemptions from the registration requirements of the Act and such laws. The securities may not be transferred unless (i) registration under such Act or such applicable state securities laws shall have become effective with regard thereto or (ii) registration under such Act or such applicable state laws is not required in connection with such proposed transfer. THE TRANSFER OF THE STOCK REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE TRANSFER RESTRICTIONS, OBLIGATIONS AND CONDITIONS SPECIFIED IN THE SHARE AND WARRANT PURCHASE AGREEMENT DATED AS OF FEBRUARY 27, 1997, AMONG VISUAL EDGE SYSTEMS INC. AND THE HOLDERS OF THIS CERTIFICATE. A COPY OF SUCH AGREEMENT WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. EX-10.12 6 SHARE & WARRANT PURCHASE AGREEMENT- BRIDGE 1 EXHIBIT 10.12 ================================================================================ SHARE AND WARRANT PURCHASE AGREEMENT dated as of February 27, 1997 between VISUAL EDGE SYSTEMS INC. and THE INVESTOR NAMED HEREIN ================================================================================ 2 TABLE OF CONTENTS
Page SECTION 1. SALE AND PURCHASE OF COMMON STOCK AND WARRANTS .......................................................... 1 SECTION 2. THE CLOSING ............................................................................................. 2 SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ........................................................... 3 3.1. Corporate Existence, Power and Authority. ............................................................... 3 3.2. Capital Stock ........................................................................................... 4 3.3. No Defaults or Conflicts ................................................................................ 4 3.4. Disclosure Materials; Other Information ................................................................. 5 3.5. Litigation. ............................................................................................. 5 3.6. Legal Compliance. ....................................................................................... 5 3.7. Offering of Shares. ..................................................................................... 6 3.8. SEC Reports. ............................................................................................ 6 SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR .......................................................... 6 4.1. Power and Authority ..................................................................................... 6 SECTION 5. RESTRICTIONS ON TRANSFER ................................................................................ 8 SECTION 6. COVENANTS OF THE COMPANY ................................................................................ 8 6.1. Use of Proceeds. ........................................................................................ 8 6.2. Maintenance of Existence, Properties and Franchises; Compliance with Law; Taxes; Insurance .............. 8 6.3. No Dilution or Impairment; No Changes in Capital Stock .................................................. 9 6.4. Reservation of Shares. .................................................................................. 10 6.5. Private Placement Status. ............................................................................... 10 6.6. Application of Funds .................................................................................... 10 6.7. Registration of Shares and Warrants. .................................................................... 10 SECTION 7. CONDITIONS TO INVESTOR'S OBLIGATIONS .................................................................... 10 7.1. Accuracy of Representations and Warranties. ............................................................. 11 7.2. Compliance with Agreements. ............................................................................. 11 7.3. Officers' Certificates. ................................................................................. 11 7.4. Proceedings. ............................................................................................ 11 7.5. No Material Adverse Change. ............................................................................. 11
-1- 3 SECTION 8. THE LETTER OF CREDIT ..................................................................................... 11 8.1. No Drawing on Letter of Credit ........................................................................... 11 8.2. Drawing on Letter of Credit .............................................................................. 12 8.3. Delivery of Shares ....................................................................................... 12 8.4. Character of Shares ...................................................................................... 12 8.5. Termination .............................................................................................. 12 SECTION 9. REGISTRATION RIGHTS ...................................................................................... 12 9.1. Initial Registration; Potential Registration After the Transaction Date .................................. 12 9.2. Company's Fees and Expenses .............................................................................. 12 SECTION 10 DEFINITIONS .............................................................................................. 13 SECTION 11. BROKERS .................................................................................................. 16 SECTION 12. EXPENSES ................................................................................................. 16 SECTION 13. AMENDMENTS AND WAIVERS ................................................................................... 16 SECTION 14. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT ...................................... 17 SECTION 15. NOTICES .................................................................................................. 18 SECTION 16. MISCELLANEOUS ............................................................................................ 18 EXHIBIT A Warrant Certificate EXHIBIT B Legend
-2- 4 SHARE AND WARRANT PURCHASE AGREEMENT SHARE AND WARRANT PURCHASE AGREEMENT, dated as of February 27, 1997, between Visual Edge Systems Inc., a Delaware corporation (the "Company"), and the Investor listed on the signature page of this Agreement (the "Investor"). W I T N E S S E T H : WHEREAS, the Company needs to obtain additional financing in order to further its business plan; WHEREAS, in order to obtain such a line of credit from a financial institution (the "Line of Credit") or other additional financing, the Company desires to obtain an irrevocable letter of credit up to an aggregate amount of up to $3,500,000 expiring on December 31, 1997 (the "Letter of Credit") from Republic National Bank of New York, or another financial institution (the "Bank"), to serve as collateral for such additional financing; WHEREAS, the Investor has indicated that it is willing to provide the amount of cash, or cash equivalents acceptable to the Bank, set forth on Schedule 1 hereto for use as collateral (the "Cash Collateral"), in order to assist the Company in obtaining the Letter of Credit; WHEREAS, the Company has agreed to issue to the Investor, and the Investor has agreed to purchase from the Company, units, each consisting of one share of Common Stock of the Company and one Warrant to purchase an equal number of shares of Common Stock of the Company, all upon the terms and provisions hereinafter set forth, in consideration for providing the Cash Collateral; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: SECTION 1. SALE AND PURCHASE OF COMMON STOCK AND WARRANTS (a) The Company agrees to sell to the Investor and, subject to the terms and conditions hereof and in reliance upon the representations and warranties of the Company contained herein or made pursuant hereto, the Investor agrees to purchase from the Company on the Closing Date specified in Section 2 hereof, the number of units, each consisting of one share of Common Stock of the Company (the "Shares") and one Warrant to purchase an equal number 5 of shares of Common Stock of the Company, set forth opposite the Investor's name on Schedule 1 hereto. The Warrants to purchase shares of Common Stock of the Company being acquired under this Agreement and by the other Investors under the other Share and Warrant Purchase Agreements are collectively referred to herein as the "Warrants", containing rights and privileges as more fully set forth in the form of Warrant which shall be substantially in the form attached hereto as Exhibit A (the "Warrant Certificate"). The units, each consisting of one Share and one Warrant, being acquired under this Agreement and by the other Investors under the other Share and Warrant Purchase Agreements are collectively referred to herein as the "Units." (b) The purchase price to be paid to the Company by the Investor for the Units to be purchased by the Investor pursuant to this Agreement shall be the use of the Cash Collateral set forth opposite the Investor's name on Schedule 1 hereto for a period of time terminating on or before (at the Company's option) December 31, 1997. The Cash Collateral shall be delivered by the Investor to the Bank, such amount to be transferred to the Bank in federal or other immediately available funds, immediately prior to the Closing Date and shall be held by the Bank as collateral for the Letter of Credit issued to the Company. No further payment shall be required from the Investor for the Units. (c) The Shares and the Warrants are being sold to the purchasers listed on Schedule 1 hereto (the "Investors") pursuant to this Agreement and other share and warrant purchase agreements (all such agreements collectively, the "Share and Warrant Purchase Agreements"). The sale of Units to each Investor under each Share and Warrant Purchase Agreement is to be a separate sale, is not conditioned upon entering into any other Share and Warrant Purchase Agreement, and no Investor shall have any liability under any Share and Warrant Purchase Agreement other than the Share and Warrant Purchase Agreement to which it is a party. The Company may consummate the transactions completed under this Agreement without entering into any other Share and Warrant Purchase Agreements. (d) The Company will use the proceeds from the sale of the Units, (i) to purchase vans, trailers and related computer and video equipment, (ii) for advertising expenditures and (iii) to fund operating costs and for general corporate purposes. SECTION 2. THE CLOSING (a) Subject to the terms and conditions hereof, the closing of the purchase and sale of the Units to be purchased by the Investor (the "Closing") will take place at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, NY 10178, on Monday, March 3, 1997, or such other time and date as shall be mutually agreed to by the Company and the Investor. Such time and date are herein referred to as the "Closing Date." All documentation and signature pages must be received by Morgan, Lewis & Bockius LLP no later than February 28, 1997 by Federal Express or other courier. Upon the fulfillment of the closing conditions, -2- 6 written instructions releasing such signature pages and instructing the Bank will be exchanged by the parties on the Closing Date. (b) Subject to the terms and conditions hereof, on the Closing Date (i) the Company will deliver to the Investor (x) a certificate registered in the Investor's name evidencing the number of Shares equal to the number of Units set forth opposite the Investor's name on Schedule 1 and (y) a Warrant Certificate registered in the Investor's name evidencing a number of Warrants equal to the number of Units set forth opposite the Investor's name on Schedule 1, and (ii) the Investor will deliver to the Bank instructions confirming that the amount equal to the Cash Collateral previously deposited with the Bank is to be used for security for bank financing as described herein and that it has received consideration for the use of such funds in the form of the Units to be purchased by it as set forth on Schedule 1. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Investor as follows as of the date hereof and as of the Closing Date: 3.1. Corporate Existence, Power and Authority. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company is duly qualified, licensed and authorized to do business and is in good standing in each jurisdiction in which it owns or leases any property or in which the conduct of its business requires it to so qualify or be so licensed, except for such jurisdictions where the failure to so qualify or be so licensed would not have a material adverse effect on the Company's assets, properties, liabilities, business, results of operations or condition. (b) The Company has all requisite power, authority and legal right to own or to hold under lease and to operate the properties it owns or holds and to conduct its business as now being conducted. (c) The Company has all requisite power, authority and legal right to execute, deliver and consummate the transactions contemplated by and perform its obligations under (i) the Share and Warrant Purchase Agreements, including, without limitation, the issuance by the Company of the Shares, the Warrants and the Conversion Shares as contemplated herein and in the Warrant Certificates. The execution, delivery and performance of the Share and Warrant Purchase Agreements by the Company (including, without limitation, the issuance by the Company of the Shares, the Warrants and the Conversion Shares as contemplated herein and in the Warrant Certificates) have been duly authorized by all required corporate actions. The Company has duly executed and delivered the Share and Warrant Purchase Agreements and the Warrant Certificates. The Share and Warrant Purchase Agreements and the Warrant Certificates -3- 7 constitute the legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to the rights of creditors generally. 3.2. Capital Stock. (a) The authorized capital stock of the Company consists of 5,000,000 shares of Preferred Stock and 20,000,000 shares of Common Stock, $.01 par value per share. On the date hereof, there are outstanding no shares of Preferred Stock and 4,615,000 shares of Common Stock. All of such outstanding shares are duly authorized, validly issued and outstanding, fully paid and non-assessable. The shares of the Company's Common Stock issuable upon the exercise of the Warrants will, when issued in accordance with the terms of the Warrants, be duly authorized, validly issued, fully paid and non-assessable. None of the shares of the Company's capital stock outstanding at the Closing (i) were subject to preemptive rights when issued or (ii) provide the holders thereof with any preemptive rights with respect to any issuances of capital stock. (b) Except as referred to in Schedule 3.2(b), there are no outstanding options, warrants, subscriptions, rights, convertible securities or other agreements or plans under which the Company may become obligated to issue, sell or transfer shares of its capital stock or other securities. 3.3. No Defaults or Conflicts. (a) The Company is not in violation or default in any material respect under any indenture, agreement or instrument to which it is a party or by which it or its properties may be bound. The Company is not in default under any material order, writ, injunction, judgment or decree of any court or other governmental authority. (b) The execution, delivery and performance by the Company of the Share and Warrant Purchase Agreements, and any of the transactions contemplated hereby (including, without limitation, the issuance of the Shares, the Warrants and the Conversion Shares as contemplated herein and in the Warrant Certificates) do not and will not (i) violate or conflict with, with or without the giving of notice or the passage of time or both, any provision of (A) the certificates of incorporation or by-laws of the Company or (B) any law, rule, regulation or order of any federal, state, county, municipal or other governmental authority, or any judgment, writ, injunction, decree, award or other action of any court or governmental authority or arbitrator(s), or any agreement, indenture or other instrument applicable to the Company or any of its properties, (ii) result in the creation of any Lien upon any of the Company's properties or assets or (iii) require the consent, waiver, approval, order or authorization of, or declaration, registration, qualification or filing with, any Person, other than Whale Securities, Co., L.L.P. ("Whale"). -4- 8 3.4. Disclosure Materials; Other Information. (a) The Company has previously furnished to the Investor the following material (the "Disclosure Material"): (i) audited consolidated financial statements of the Company as of December 31, 1996, consisting of a consolidated balance sheet as of December 31, 1996 and the related consolidated statements of operations, changes in equity and cash flows for the year ended December 31, 1996 and the related notes thereto, all of which statements have been certified by KPMG Peat Marwick LLP, independent certified public accountants, (ii) the Company's Prospectus dated July 24, 1996 and (iii) the SEC Reports. The financial statements referred to or contained in the materials referred to in the preceding clauses (i) and (ii) fairly present the financial condition of the Company as of the respective dates thereof and the results of the operations of the Company for such periods and have been prepared in accordance with generally accepted accounting principles consistently applied, except that any such unaudited statements may omit notes and may be subject to year-end adjustment. (b) Since December 31, 1996, (i) the business of the Company has been conducted in the ordinary course and (ii) there has been no material adverse change in the assets, properties, liabilities, business, results of operations or condition of the Company. As of the date hereof, there are no material liabilities of the Company which would be required to be provided for in a balance sheet of the Company prepared in accordance with generally accepted accounting principles consistently applied, other than liabilities provided for in the financial statements referred to in Section 3.5(a). (c) None of the Disclosure Material contained or contains a false or misleading statement of a material fact or omits to state any material fact necessary in order to make the statements made in such Disclosure Material, in light of the circumstances under which they were made, not misleading. 3.5. Litigation. There is no action, suit, proceeding, investigation or claim pending or, to the knowledge of the Company, threatened in law, equity or otherwise before any court, administrative agency or arbitrator which (i) questions the validity of the Share and Warrant Purchase Agreements, the Warrant Certificates, the Units, the Shares, the Warrants or the Conversion Shares or any action taken or to be taken pursuant hereto or thereto, (ii) might adversely affect the right, title or interest of any Investor to the Units, the Shares, the Warrants, or the Conversion Shares or (iii) might result in a material adverse change in the assets, properties, liabilities, business, affairs, results of operations or condition of the Company. 3.6. Legal Compliance. (a) The Company has complied in all material respects with all applicable laws, rules, regulations, orders, licenses, judgments, writs, injunctions, decrees or demands. -5- 9 (b) There are no adverse orders, judgments, writs, injunctions, decrees or demands of any court or administrative body, domestic or foreign, or of any other governmental agency or instrumentality, domestic or foreign, outstanding against the Company. 3.7. Offering of Shares. None of the Company, any agent or any other person acting on its behalf, directly or indirectly, (i) offered any of the Units, the Shares, the Warrants or any similar security of the Company (A) by any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) or (B) for sale to or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any person other than the Investors and not more than 30 other persons, each of which the Company reasonably believed was an "accredited investor" within the meaning of Regulation D under the Securities Act, or (ii) has done or caused to be done (or has omitted to do or to cause to be done) any act which act (or which omission) would result in bringing the issuance or sale of the Units, the Shares or the Warrants within the provisions of Section 5 of the Securities Act or the filing, notification or reporting provisions of any state securities laws. 3.8. SEC Reports. The Company has filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act. The Company has furnished the Investor with copies of (i) its Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996 and (ii) its Quarterly Reports on Form 10-QSB for the fiscal quarter ended September 30, 1996 (collectively, the "SEC Reports"). Each SEC Report complied in all material respects with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR The Investor represents and warrants to the Company as follows: 4.1. Power and Authority. The Investor has all requisite power, authority and legal right to execute, deliver and consummate the transactions contemplated by and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by the Investor have been duly authorized by all required corporate and other actions. The Investor has duly executed and delivered this Agreement and it constitutes the legal, valid and binding obligation of the -6- 10 Investor, enforceable against the Investor in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to the rights of creditors generally. 4.2. Investment Intent. (i) The Investor has received and reviewed the SEC Reports and except for the SEC Reports, the Investor has not been furnished with any other materials or literature relating to the offer and sale of the Units, the Shares, the Warrants or the Conversion Shares; (ii) The Investor has had a reasonable opportunity to ask questions of and receive answers from the Company concerning the Company and the offering, and all such questions, if any, have been answered to the full satisfaction of the Investor; (iii) The Investor has such knowledge and expertise in financial and business matters that the Investor is capable of evaluating the merits and risks involved in an investment in the Units, the Shares, the Warrants or the Conversion Shares; (iv) The Confidential Purchaser Questionnaire to be delivered by the Investor to the Company will be true, complete and correct in all material respects; and the Investor understands that the Company has determined that the exemption from the registration provisions of the Securities Act, which is based upon non-public offerings, are applicable to the offer and sale of the Units, the Shares, the Warrants or the Conversion Shares based, in part, upon the representations, warranties and agreements made by the Investor herein and in the Confidential Purchaser Questionnaire referred to above; (v) No representations or warranties have been made to the Investor by the Company or any agent, employee or affiliate of the Company and in entering into this transaction the Investor is not relying upon any information, other than that contained in the SEC Reports and the results of independent investigation by the Investor; (vi) The Investor understands that (A) the Units, the Warrants, the Shares and the Conversion Shares have not been registered under the Securities Act or the securities laws of any state, based upon an exemption from such registration requirements for non-public offerings pursuant to regulation D under the Securities Act; (B) the Units, the Warrants, the Shares and the Conversion Shares are and will be "restricted securities", as said term is defined in Rule 144 of the Rules and Regulations promulgated under the Securities Act; and (C) the Units, Warrants, Shares and the Conversion Shares may not be sold or otherwise transferred unless they have been first registered under the Securities Act and all applicable state securities laws, or unless exemptions from such registration provisions are available with respect to said resale or transfer; -7- 11 (vii) The Investor is acquiring the Units, the Shares, the Warrants and the Conversion Shares solely for the account of the undersigned, for investment purposes only, and not with a view towards the resale or distribution thereof; and (viii) The Investor is an "accredited investor," as such term is defined in Regulation D of the Rules and Regulations promulgated under the Securities Act. SECTION 5. RESTRICTIONS ON TRANSFER The Investor agrees that it will not sell or otherwise dispose of any Units, Shares, Warrants or Conversion Shares unless such Units, Shares, Warrants or Conversion Shares have been registered under the Securities Act and, to the extent required, under any applicable state securities laws, or pursuant to an applicable exemption from such registration requirements. The Company may place a legend to that effect in the form of Exhibit B hereto on all certificates evidencing Shares, Warrants or Conversion Shares, provided that such legend will not be placed on any certificate which, when issued, are no longer subject to the provisions of this Section 5 pursuant to the provisions of the Securities Act. SECTION 6. COVENANTS OF THE COMPANY The Company covenants and agrees as follows: 6.1. Use of Proceeds. The Company will use the proceeds realized from the sale of the Units (i) to purchase vans, trailers and related computer and video equipment, (ii) for advertising expenditures and (iii) to fund operating costs and for general corporate purposes. 6.2. Maintenance of Existence, Properties and Franchises; Compliance with Law; Taxes; Insurance. The Company will: (a) maintain its corporate existence, rights and other franchises in full force and effect; (b) maintain its tangible assets in good repair, working order and condition (reasonable wear and tear excepted) to far as necessary or advantageous to the proper carrying on of its business; -8- 12 (c) comply with all applicable laws and with all applicable orders, rules, rulings, certificates, licenses, regulations, demands, judgments, writs, injunctions and decrees, provided, that such compliance shall not be necessary so long as (i) the applicability or validity of any such law, order, rule, ruling, certificate, license, regulation, demand, judgment, writ, injunction or decree shall be contested in good faith by appropriate proceedings and (ii) failure to comply will not have a material adverse effect on the assets, properties, liabilities, business, results of operations or condition of the Company; (d) pay promptly when due all taxes, fees, assessments and other government charges imposed upon its properties, assets or income and all claims or indebtedness (including, without limitation, materialmen's, vendor's, workmen's and like claims) which might become a lien upon such properties or assets; provided, that payment of any such tax, fee, assessment, charge, claim or indebtedness shall not be necessary so long as (i) the applicability or validity thereof shall be contested in good faith by appropriate proceedings and a reserve, if appropriate, shall have been established with respect thereto and (ii) failure to make such payment will not have a material adverse effect on the assets, properties, liabilities, business, results of operations or condition of the Company; and (e) keep adequately insured, by financially sound and reputable insurers of nationally recognized stature, all its properties of a character customarily insured by entities similarly situated, against loss or damage of the kinds and in amounts customarily insured against by such entities and with such deductibles or coinsurance as is customary. 6.3. No Dilution or Impairment; No Changes in Capital Stock. The Company will not, by amendment of its certificate of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Share and Warrant Purchase Agreements or the Warrant Certificates. Without limiting the generality of the foregoing, the Company (a) will not permit the par value or the determined or stated value of any shares of the Common Stock receivable upon the exercise of the Warrants to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of the Common Stock free from all taxes, Liens and charges with respect to the issue thereof, upon the exercise of the Warrants from time to time outstanding and (c) will not take any action which results in any adjustment of the current exercise price under the Warrant Certificates if the total number of shares of the Common Stock (or other securities) issuable after the action upon the exercise of all of the then outstanding Warrants would exceed the total number of shares of the Common Stock (or other securities) then authorized by the Company's certificate of incorporation and available for the purpose of issuance upon such exercise. -9- 13 6.4. Reservation of Shares. There have been reserved, and the Company shall at all times keep reserved, free from preemptive rights, out of its authorized Common Stock a number of shares of Common Stock sufficient to provide for the exercise of the Warrants and pursuant to the terms of the Warrant Certificates. 6.5. Private Placement Status. Neither the Company nor any agent or any other Person acting on the Company's behalf will do or cause to be done (or will omit to do or to cause to be done) any act which act (or which omission) would result in bringing the issuance or sale of the Units, the Shares, the Warrants or the Conversion Shares within the provisions of Section 5 of the Securities Act or the filing, notification or reporting requirements of any state securities law. 6.6. Application of Funds. As long as the Letter of Credit is outstanding, the Company will (i) use all existing funds that it currently has, or that it receives from its business operations, prior to borrowing funds under the Line of Credit, and (ii) apply any funds that it receives (net of expenses) from any financing, including, without limitation, any (A) future public or private sale of equity or debt securities, other than a potential financing in an amount of approximately $2,000,000 that the Company is currently working on, (B) future redemption of outstanding warrants or (C) the sale and leaseback of its software to Canadian limited partnerships (collectively referred to as a "New Financing"), prior to borrowing funds on the Line of Credit or to repay outstanding borrowings under the Line of Credit. In the event that the Company completes a New Financing on or before December 31, 1997, and receives net proceeds of $3,500,000 or more, then the Company shall use its best efforts to cancel the Letter of Credit and have the Cash Collateral returned to the Investor. 6.7. Registration of Shares and Warrants. Promptly after the Closing, the Company will use its best efforts to effect the registration of the shares of Common Stock and the Conversion Shares under the Securities Act. SECTION 7. CONDITIONS TO INVESTOR'S OBLIGATIONS The Investor's obligation to purchase Units hereunder and to provide the Cash Collateral to the Bank is subject to satisfaction of the following conditions at the Closing (any of which may be waived by the Investor): -10- 14 7.1. Accuracy of Representations and Warranties. The representations and warranties of the Company in the Share and Warrant Purchase Agreements or in any certificate or document delivered pursuant hereto or thereto shall be correct and complete in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date (after giving effect to the transactions contemplated by this Agreement). 7.2. Compliance with Agreements. The Company shall have performed and complied in all material respects with all agreements, covenants and conditions contained in the Share and Warrant Purchase Agreements and any other document contemplated hereby which are required to be performed or complied with by the Company on or before the Closing Date. 7.3. Officers' Certificates. The Investor shall have received a certificate dated the Closing Date and signed by the Chief Executive Officer and by the Secretary of the Company, to the effect that the conditions in Sections 7.1, 7.2 and 7.5 have been satisfied. 7.4. Proceedings. All corporate and other proceedings in connection with the transactions contemplated by the Share and Warrant Purchase Agreements, and all documents incident thereto, shall be in form and substance satisfactory to the Investor and the Investor shall have received all such originals or certified or other copies of such documents as the Investor may reasonably request. 7.5. No Material Adverse Change. There shall have been no material adverse change in the assets, properties, liabilities, business, results of operations or condition of the Company since December 31, 1996. SECTION 8. THE LETTER OF CREDIT 8.1. No Drawing on Letter of Credit. In the event that the Letter of Credit is not drawn upon on or before December 31, 1997, then the Bank shall return promptly the amount of Cash Collateral, and any interest earned thereon, to the Investor. Upon receipt of such Cash Collateral, and interest earned thereon by the Investor, this Agreement shall terminate and be of no further force or effect. -11- 15 8.2. Drawing on Letter of Credit. In the event that there are one or more drawings on the Letter of Credit, in part or in whole, on or before December 31, 1997 (the "Letter of Credit Drawing"), then on December 31, 1997 the Bank shall return promptly the remaining portion of the Cash Collateral to the Investor (the portion drawn down or not returned being referred to as the "Unreturned Cash Collateral"). 8.3. Delivery of Shares. In the event of a Letter of Credit Drawing, the Company shall, after December 31, 1997, promptly deliver to the Investor a number of shares of Common Stock equal to (x) the Unreturned Cash Collateral divided by (y) $7.50, provided that the average of the closing bid prices of the Common Stock on the NASDAQ Small Cap Market on each of the twenty (20) consecutive trading days immediately prior to December 31, 1997 is greater than $11.00; or, if the average of the closing bid prices of the Common Stock on the NASDAQ Small Cap Market on each of the twenty (20) consecutive trading days immediately prior to December 31, 1997 is less than $11.00, clause (y) of this Section 8.3 will be the average of the closing bid prices of the Common Stock on the NASDAQ Small Cap Market on each of the twenty (20) consecutive trading days immediately prior to December 31, 1997 divided by two. 8.4. Character of Shares. All shares of Common Stock issued by the Company to the Investor pursuant to this Section 8 shall be duly authorized, validly issued, fully paid and non-assessable. 8.5. Termination. Upon receipt by the Investor of the remaining portion of the Cash Collateral and the delivery of shares of Common Stock referred to in Section 8.3, this Agreement shall terminate and be of no further force or effect, except that provisions of Sections 8 and 9 hereof shall continue in full force and effect. SECTION 9. REGISTRATION RIGHTS 9.1. Initial Registration; Potential Registration After the Transaction Date. (a) Promptly after the date hereof, the Company will use its best efforts to effect the registration of the shares of Common Stock and the Conversion Shares under the Securities Act. (b) Promptly after December 31, 1997, in the event that additional shares of Common Stock are delivered to the Investor pursuant to Section 8.3, the Company will use its best efforts to effect the registration of the shares of Common Stock under the Securities Act. 9.2. Company's Fees and Expenses. All expenses incident to the Company's performance of or compliance with Section 9 of this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and expenses for listing or quoting the Shares on each securities exchange or The NASDAQ Stock Market on which similar securities -12- 16 issued by the Company are then listed or quoted, and fees and disbursements of counsel for the Company, any transfer agent and all independent certified public accountants, underwriters (excluding discounts and selling commissions) and other Persons retained by the Company in connection with any registration (all such expenses being herein called "Registration Expenses"), will be paid by the Company. SECTION 10. DEFINITIONS For purposes of this Agreement, the following definitions shall apply: "Agreement" means this Share and Warrant Purchase Agreement (together with exhibits and schedules) as from time to time assigned, supplemented or amended or as the terms hereof may be waived. "Board" or "Board of Directors" means with respect to any Person which is a corporation, a business trust or other entity, the board of directors or other group, however, designated, which is charged with legal responsibility for the management of such Person, or any committee of such board of directors or group, however designated, which is authorized to exercise the power of such board or group in respect of the matter in question. "Business Day" means any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Closing" has the meaning set forth in Section 2(a) hereof. "Closing Date" has the meaning set forth in Section 2(a) hereof. "Common Stock" means the Company's Common Stock, par value $.01 per share, and any stock into which such Common Stock may hereafter be changed or for which such Common Stock may be exchanged after giving effect to the terms of such change or exchange (by way of reorganization, recapitalization, merger, consolidation or otherwise). "Company" means Visual Edge Systems Inc., a Delaware corporation, its successors and assigns. "Conversion Share" or "Conversion Shares" means the shares of Common Stock obtained or obtainable upon exercise of Warrants and shall also include any capital stock or other securities into which Conversion Shares are changed and any capital stock or other securities resulting from or comprising -13- 17 a reclassification, combination or subdivision of, or a stock dividend on, any Conversion Shares. In the event that any Conversion Shares are sold either in a public offering pursuant to a registration statement under the Securities Act or pursuant to a Rule 144 Transaction, then the transferees of such Conversion Shares shall not be entitled to any benefits under this Agreement with respect to such Conversion Shares and such Conversion Shares shall no longer be considered to be "Conversion Shares" for purposes of the definition of Majority Shareholders or for purposes of any consent or waiver provision of this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules, regulations and interpretations thereunder. "Investor" means the person who accepts and agrees to the terms hereof as indicated by such person's signature (as "the undersigned Investor") on the execution page of this Agreement, together with its successors and assigns. "Investors" has the meaning set forth in Section 1(c) hereof, together with their respective successors and assigns. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security interest of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same effect as any of the foregoing, any assignment or other conveyance of any right to receive income and any assignment of receivables with recourse against the assignor), any filing of a financing statement as debtor under the Uniform Commercial Code or any similar statute and any agreement to give or make any of the foregoing. "Majority Shareholders" means the holder or holders, at the time, of at least fifty-one percent (51%) of the shares represented by (i) the shares issued under the Share and Warrant Purchase Agreements and (ii) the Conversion Shares, including the Conversion Shares then outstanding and the Conversion Shares then obtainable under outstanding Warrants. "Person" or "person" means an individual, corporation, partnership, firm, association, joint venture, trust, unincorporated organization, government, governmental body, agency, political subdivision or other entity. "Registrable Securities" means (i) any shares of Common Stock issued or issuable upon exercise of the Warrants purchased by the Investors pursuant to the Purchase Agreement, (ii) any securities issued or issuable with respect to the -14- 18 Common Stock referred to in clause (i) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have (x) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (y) been transferred pursuant to Rule 144 (or any similar rule then in force) under the Securities Act. "Rule 144" means (i) Rule 144 under the Securities Act as such Rule is in effect from time to time and (ii) any successor rule, regulation or law, as in effect from time to time. "Rule 144 Transaction" means a transfer of Conversion Shares (A) complying with Rule 144 as such Rule is in effect on the date of such transfer (but not including a sale other than pursuant to "brokers' transactions" as defined in clauses (1) and (2) of paragraph (g) of such Rule as in effect on the date hereof) and (B) occurring at a time when Conversion Shares are registered pursuant to Section 12 of the Exchange Act. "SEC" means the Securities and Exchange Commission and any other similar or successor agency of the federal government administering the Securities Act or the Exchange Act. "SEC Reports" has the meaning set forth in Section 3.9 hereof. "Securities Act" means the Securities Act of 1933, as amended, and the rules, regulations and interpretations thereunder. "Share and Warrant Purchase Agreements" has the meaning set forth in Section 1(c) hereof. "Shares" has the meaning set forth in Section 1(a) hereof. "Subsidiary", with respect to any Person, means any corporation, association or other entity of which more than 50% of the total voting power of shares of stock or other equity interests (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is, at the time as of which any determination is being made, owned or controlled, directly or indirectly, by such Person or one or more of its Subsidiaries, or both. The term "Subsidiary" or "Subsidiaries" when used herein without reference to any particular Person, means a Subsidiary or Subsidiaries of the Company. -15- 19 "Units" has the meaning set forth in Section 1(a) hereof. "Warrant Certificate" has the meaning set forth in Section 1(a) hereof. "Warrants" has the meaning set forth in Section 1(a) hereof. SECTION 11. BROKERS Except for certain fees payable to certain brokers or agents (all of which fees will be paid by the Company), the Company, on the one hand, and the Investor, on the other hand, each represents and warrants to the other that there is no liability for any fees or expenses (or claims therefor) of any investment banker, finder or broker in connection with any Share and Warrant Purchase Agreements or any of the transactions contemplated hereby. The Company will indemnify the Investor against all such fees or expenses payable to the persons named in the preceding sentence and against any other such fees, expenses or claims of any person, unless such person was engaged by the Investor in connection with this Agreement or any of the transactions contemplated hereby. The Investor will indemnify the Company against any such fees, expenses or claims of any person engaged by the Investor in connection with this Agreement or any of the transactions contemplated hereby. SECTION 12. EXPENSES (a) Whether or not the transactions herein contemplated are consummated, the Company will pay (i) the costs, fees and expenses of the Company and its counsel in connection with the Share and Warrant Purchase Agreements, the Warrant Certificates and the issuance of the Units, the Shares, the Warrants and the Conversion Shares, (ii) the fees and expenses of the Investors in connection with the Share and Warrant Purchase Agreements, the Warrant Certificates, or in connection with any other agreements between the Investors and the Company, and (iii) the fees and expenses incurred in connection with the obtaining of the Letter of Credit and the agreements relating to the Cash Collateral. (b) The obligations of the Company under this Section 12 shall survive the Closing hereunder and any termination of the Share and Warrant Purchase Agreements. SECTION 13. AMENDMENTS AND WAIVERS (a) The terms and provisions of this Agreement may be amended, waived, modified or terminated only with the written consent of the Majority Shareholders; provided, however, that no such amendment, waiver, modification or termination shall change the definition of Majority Shareholders or this Section 13(a) without the written consent of the holders of all the Shares, Warrants and Conversion Shares then outstanding. -16- 20 (b) The Company agrees that all holders of Shares, Warrants and Conversion Shares shall be notified by the Company in advance of any proposed amendment, waiver, modification or termination, but failure to give such notice shall not in any way affect the validity of any such amendment, waiver, modification or termination. In addition, promptly after obtaining the written consent of the holders as herein provided, the Company shall transmit a copy of any amendment, waiver, modification or termination which has been adopted to all holders of Shares, Warrants and Conversions Shares then outstanding, but failure to transmit copies shall not in any way affect the validity of any such amendment, waiver, modification or termination. SECTION 14. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SHARES; REPLACEMENT (a) At any time at the request of any holder of Shares or Warrants to the Company at its address provided under Section 15 hereof, the Company at its expense (except for any transfer tax arising out of the exchange) will issue and deliver to or upon the order of the holder in exchange therefor a new certificate or certificates in such amount or amounts as such holder may request in the aggregate representing the number of Shares or Warrants represented by such surrendered certificates, and registered in the name of such holder or as such holder may direct. (b) Any Warrant Certificate which is converted into Conversion Shares in whole or in part shall be canceled by the Company, and no new Share certificates or Warrant Certificates shall be issued in lieu of any Shares or Warrants which have been converted into Conversion Shares. The Company shall issue a new certificate with respect to any Warrants which were not exercised into Conversion Shares and were represented by a certificate which was converted in part. (c) Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Share certificate or Warrant Certificate and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to the Company (if requested by the Company and unsecured in the case of the Investor or an institutional holder), or in the case of any such mutilation, upon surrender of such Share certificate or Warrant Certificate (which surrendered Share certificate or Warrant Certificate shall be canceled by the Company), the Company will issue a new Share certificate or Warrant Certificate, of like tenor in lieu of such lost, stolen, destroyed or mutilated Share certificate or Warrant Certificate as if the lost, stolen, destroyed or mutilated Share certificate or Warrant Certificate were then surrendered for exchange. -17- 21 SECTION 15. NOTICES All notices, requests, demands, consents and other communications hereunder shall be in writing and shall be delivered by hand or shall be sent by telex or telecopy (confirmed by registered, certified or overnight mail or courier, postage and delivery charges prepaid), (i) if to the Company, to Visual Edge Systems Inc., 2424 North Federal Highway, Suite 100, Boca Raton, Florida 33431, Attention: Chief Executive Officer, with a copy to Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178, Attention: David W. Pollak, Esq., or (ii) if to the Purchaser, at the address indicated on Schedule 1 hereto, or at such other address as a party may from time to time designate as its address in writing to the other party to this Agreement. Whenever any notice is required to be given hereunder, such notice shall be deemed given and such requirement satisfied only when such notice is delivered or, if sent by telex or telecopier, when received. SECTION 16. MISCELLANEOUS (a) The Share and Warrant Purchase Agreements and, upon the closing hereunder, the Warrant Certificates together with any further agreements entered into by the Investor and the Company at the closing hereunder, contain the entire agreement between the Investor and the Company, and supersede any prior oral or written agreements, commitments, terms or understandings, regarding the subject matter hereof. (b) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which may render any provision hereof prohibited or unenforceable in any respect. (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, whether so expressed or not. (d) The headings and captions in this Agreement are for convenience of reference only and shall not define, limit or otherwise affect any of the terms or provisions hereof. (e) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York (other than any conflict of laws rule which might result in the application of the laws of any other jurisdiction). -18- 22 (f) 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, and all signatures need not appear on any one counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. VISUAL EDGE SYSTEMS INC. By ------------------------------ Name: Title: Accepted and Agreed to as of the date first above written by the undersigned Investor: - ------------------------------------- [NAME OF INVESTOR] -19- 23 Schedule 1 to the Share and Warrant Purchase Agreement Name of Number of Investor Units Shares Warrants Cash Collateral -------- --------- ------ -------- --------------- Address: - -------- -20- 24 EXHIBIT B SHARE LEGEND The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or the securities laws of certain states and are being offered and sold in reliance on exemptions from the registration requirements of the Act and such laws. The securities may not be transferred unless (i) registration under such Act or such applicable state securities laws shall have become effective with regard thereto or (ii) registration under such Act or such applicable state laws is not required in connection with such proposed transfer. THE TRANSFER OF THE STOCK REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE TRANSFER RESTRICTIONS, OBLIGATIONS AND CONDITIONS SPECIFIED IN THE SHARE AND WARRANT PURCHASE AGREEMENT DATED AS OF FEBRUARY 27, 1997, AMONG VISUAL EDGE SYSTEMS INC. AND THE HOLDERS OF THIS CERTIFICATE. A COPY OF SUCH AGREEMENT WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE. EX-11 7 COMPUTATION OF PER SHARE LOSS 1 EXHIBIT 11 Visual Edge Systems Inc. Computation of Per Share Loss
YEAR ENDED DECEMBER 31, PRIMARY 1996 1995 ------ ------ Weighted average common shares outstanding, exclusive 3,000,000 3,000,000 of issuances within twelve months prior to the IPO Shares issued within 12 months prior to the IPO 220,000 220,000 assumed to be outstanding for the entire period Weighted average common shares outstanding, for 581,250 -- shares issued after IPO ----------- ---------- Weighted average common shares outstanding at end of year 3,801,250 3,220,000 =========== ========== Net loss $(2,397,690) $ (464,963) =========== ========== Net loss per share $ (.63) $ (.14) =========== ==========
EX-23 8 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Visual Edge Systems Inc. We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the Form SB-2 and in the prospectus. Our report dated January 24, 1997 except as to note 9(b), which is as of April 3, 1997, contains an explanatory paragraph that states that the Company has suffered recurring losses through 1996 and has contractual commitments under a license agreement which raise substantial doubt about its ability to continue as a going concern unless additional financing or equity is obtained. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG Peat Marwick LLP Fort Lauderdale, Florida April 3, 1997 -----END PRIVACY-ENHANCED MESSAGE-----