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As filed with the Securities and Exchange Commission on June 13, 1997.
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
RETROSPETTIVA, INC.
(Exact Name of Small Business Issuer
As Specified In Its Charter)
CALIFORNIA 2337 95-4298051
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code No.) I.D. Number)
8825 WEST OLYMPIC BLVD.
BEVERLY HILLS, CA 90211
(310) 657-4488
(Address, including zip code, and telephone number, in-
cluding area code, of Registrant's principal executive offices)
MICHAEL D. SILBERMAN, CHIEF FINANCIAL OFFICER
RETROSPETTIVA, INC.
8825 WEST OLYMPIC BLVD.
BEVERLY HILLS, CA 90211
(310) 657-4488
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies of all communications to:
Gary A. Agron, Esq. Donald C. Reinke, Esq.
Law Office of Gary A. Agron Pezzola & Reinke, A Professional
5445 DTC Parkway, Suite 520 Corporation
Englewood, CO 80111 1999 Harrison Street, Suite 1300
(303) 770-7254 Oakland, CA 94612
(303) 770-7257 (Fax) (510) 273-8750
(510) 834-7440 (Fax)
Approximate date of commencement of the proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective and the
Underwriting Agreement is executed.
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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,
check the following box:
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Title of Each Class Amount to Proposed Aggregate Amount of
of Securities Be Maximum Price Offering Registration
to be Registered Registered Per Security Price Fee
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Units, consisting of
two shares of Common
Stock, no par value 575,000
and one Warrant(1) Units $12.00 $ 6,900,000 $2,091
Common Stock, no par
value, underlying 575,000
Warrants Shares $ 7.50 $ 4,312,500 $1,307
Representative's 50,000
Warrants(2) Warrants $ .002 $ 100 $ -0-
Units underlying
Representative's
Warrants consisting of
two shares of Common 50,000
Stock and one Warrant Units $14.40 $ 720,000 $ 219
Common Stock, no par
value, underlying
Warrants included in
Representative's 50,000
Warrants(2) Shares $ 7.50 $ 375,000 $ 114
Common Stock, no par
value offered by 75,000
Selling Shareholders Shares $ 6.00 $ 450,000 $ 136
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Totals . . . . . . . . . . . . . . . . . . . . . . $12,757,600 $3,776
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(1) Includes the overallotment option granted to the Representative of 75,000
Units.
(2) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number
of shares issuable upon exercise of the Representative's Warrants is subject to
adjustment in accordance with anti-dilution provisions of such warrants.
The Registrant hereby amends the 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.
(EXHIBIT INDEX LOCATED ON PAGE ____ OF THIS FILING)
(ii)
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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.
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JUNE 13, 1997
RETROSPETTIVA, INC.
500,000 UNITS
Retrospettiva, Inc. (the "Company") is offering (the "Offering") through
Kensington Securities, Inc., as the representative (the "Representative") of the
underwriters herein named (the "Underwriters") 500,000 Units of the Company's
securities ("Units"), each Unit consisting of two shares of no par value common
stock ("Common Stock") and one redeemable common stock purchase warrant
("Warrant") at a price of $12.00 per Unit. The Common Stock and Warrants are
separately tradeable as of the date of the Prospectus. Each Warrant is
exercisable to purchase one share of Common Stock at an exercise price of $7.50
per share for a period of five years from the date hereof and may be redeemed by
the Company after six months from the date hereof for $.01 per Warrant on 30
days' written notice to the Warrantholders if the closing price of the Common
Stock on the Nasdaq National Market System (the "National Market") is at least
$8.50 per share for 20 consecutive trading days, ending not earlier than five
days before the Warrants are called for redemption. The Unit price and Warrant
exercise price have been determined by negotiations between the Company and the
Representative and such prices are not necessarily related to the Company's
financial condition, net worth or other established criteria of value. See
"Risk Factors" and "Underwriting."
There is no trading market for the Units, Common Stock and Warrants and
there can be no assurance that a trading market will develop in these securities
upon completion of the Offering. The Company has applied to list the Common
Stock and Warrants (but not the Units) on the National Market under the symbols
"RTRO" and "RTROW," respectively.
This Prospectus also covers the sale of 75,000 shares of Common Stock which
may be sold from time to time in open market transactions at prevailing prices
by two shareholders (the "Selling Shareholders"). See "Selling Shareholders."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION")
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE
OF RISK AND SUBSTANTIAL DILUTION
AND SHOULD BE CONSIDERED ONLY BY PERSONS
ABLE TO SUSTAIN A TOTAL LOSS
OF THEIR INVESTMENT. SEE "RISK FACTORS."
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The Units are offered by the Underwriters on a firm commitment basis,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain conditions, including the right of the
Underwriters to reject orders in whole or in part. It is expected that delivery
of certificates representing the securities will be made against payment
therefor in Scottsdale, Arizona on or about three business days from the date of
this Prospectus.
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Underwriting Proceeds
Price to Discounts and to
Public Commissions(1) Company(2)
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Per Unit . . . . . . . . . $12.00 $1.20 $10.80
Total(3) . . . . . . . . . $6,000,000 $600,000 $5,400,000
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(1) Excludes a nonaccountable expense allowance payable to the Representative
of $180,000 ($207,000 if the Overallotment Option is exercised) and the
issuance of warrants to the Representative (the "Representative's
Warrants") to purchase up to 50,000 Units at a price of $14.40 per Unit.
The Company has granted certain registration rights with respect to the
Units underlying the Representative's Warrants and has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933 (the "1933 Act"). See "Underwriting."
(2) Before deducting costs of the Offering estimated to be $455,000, including
the Representative's nonaccountable expense allowance. See "Underwriting."
(3) Assumes no exercise of the Representative's option (the "Overallotment
Option"), exercisable within 30 days from the date of this Prospectus, to
purchase from the Company up to 75,000 additional Units on the same terms
as the Units offered hereby solely to cover overallotments, if any. If the
Overallotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Proceeds to Company will be $6,900,000, $690,000
and $6,210,000, respectively. See "Underwriting."
KENSINGTON SECURITIES, INC.
The date of this Prospectus is __________, 1997.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS INCLUDING PURCHASE AND SALE TRANSACTIONS OF THE COMMON STOCK AND
WARRANTS ON THE NASDAQ NATIONAL MARKET.
The Company will furnish annual reports to its shareholders which will
include year end audited financial statements. The Company may also furnish to
its shareholders quarterly financial statements and such other reports as may be
authorized by its Board of Directors. See "Available Information."
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PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS THAT APPEAR ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL SHARE AND OTHER INFORMATION IN THIS PROSPECTUS REFLECT AN
APPROXIMATELY 2.3825731 SHARES FOR ONE SHARE FORWARD STOCK SPLIT APPROVED BY THE
COMPANY'S SHAREHOLDERS ON JUNE 20, 1997 AND ASSUMES THAT THE WARRANTS, THE
OVERALLOTMENT OPTION AND THE REPRESENTATIVE'S WARRANTS HAVE NOT BEEN EXERCISED.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS SET
FORTH IN THIS PROSPECTUS INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. THESE RISKS
AND UNCERTAINTIES ARE DETAILED UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE
THROUGHOUT THE PROSPECTUS AND WILL BE FURTHER DISCUSSED FROM TIME TO TIME IN THE
COMPANY'S PERIODIC REPORTS FILED WITH THE COMMISSION. THE FORWARD-LOOKING
STATEMENTS INCLUDED IN THE PROSPECTUS SPEAK ONLY AS OF THE DATE HEREOF.
THE COMPANY
The Company produces internationally a variety of garments, primarily basic
women's activewear, sportswear and businesswear which include skirts, blouses,
blazers, pants, shorts, vests and dresses, using assorted fabrics including
rayons, linens, cotton and wool. The Company produces garments for customers
under its own labels, "Easy Concepts," "Magellan" and "Retrospettiva" and under
private labels selected by its customers and markets its products to (i) large
wholesalers such as Giorgio Sant' Angelo, Jeans Collectibles, Periwinkle,
Positive Influence, David N., Rex Winston and Wild Life, (ii) national retailers
including department stores such as Nordstrom, Dayton Hudson, Bloomingdales,
J.C. Penney, Casual Corner, Neiman Marcus, May Co., Newton's, Macy's and Saks
Fifth Avenue, and (iii) women's chain clothing stores such as Marshalls, TJ
Maxx, Chadwicks, Hit or Miss, Fred Mayer, Burlington Coat Factory and Cato.
Substantially all of the Company's garments are sold on a "package" basis
pursuant to which the Company markets at fixed prices finished garments to the
customer's specifications and quantity requirements, arranges for production of
the garments and delivers the garments directly to the customer at the port of
entry. In its marketing, the Company emphasizes these package arrangements and
what it believes to be the better quality and lower prices of garments produced
by skilled Eastern European workers as compared to lower paid workers in certain
other regions. See "Business - Marketing."
As a package provider, the Company sources and purchases fabrics and trims,
arranges for cutting and sewing, and coordinates any other services required to
provide a completed garment. Under this arrangement the Company does not assume
the marketing and fashion risk generally associated with the apparel industry.
Fabrics and trims are purchased from suppliers
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in China, India, Russia, Romania, Italy and the United States. These items
are shipped to factories selected by the Company (generally located in
Eastern Europe) where they are manufactured into completed garments under the
Company's management and quality control guidance.
The apparel industry is highly competitive and consists of numerous
manufacturers, importers and distributors. Many of the Company's competitors
are significantly larger, more diversified and have significantly greater
financial, distribution, marketing, name recognition and other resources than
the Company. The Company believes it has certain competitive advantages
resulting from its relationships with Eastern European manufacturers including
(i) the availability in Eastern European factories of highly skilled workers at
relatively lower costs than in more economically developed regions, (ii) a lack
of quotas and lower tariffs in the importation of finished goods from certain
Eastern European countries, and (iii) lower shipping costs and faster garment
delivery as a result of the closer geographical proximity to the United States
of the Company's Eastern European contract manufacturers compared to
manufacturers in the Pacific Rim nations. See "Business - Competition."
The Company was organized in November 1990 initially to manufacture and
import textile products from Italy including finished garments and fabrics. By
1993, the Company was purchasing fabrics from firms and factories around the
world and contracting for the manufacture of the fabrics in Eastern Europe
(primarily Macedonia) for importation into the United States. Net sales
increased from $821,345 for the year ended December 31, 1993 to $5,521,802 in
1994, $11,379,826 in 1995 and $12,902,195 in 1996. See "Financial Statements."
The Company's executive offices are located at 8825 West Olympic Blvd.,
Beverly Hills, California 90211, and its telephone number is (310) 657-4488.
THE OFFERING
Securities Offered 500,000 Units, each Unit consisting of two shares
of Common Stock and one Warrant
Offering Price $12.00 per Unit
Common Stock Outstanding
Prior to the Offering(1) 1,750,000 shares
Securities Outstanding
After the Offering(1) 2,750,000 shares and 500,000 Warrants
Use of Proceeds The net proceeds of the Offering will be used to
purchase fabric, purchase apparel manufacturing
equipment, repay debt and for working capital. See
"Use of Proceeds."
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Proposed Nasdaq National
Market Symbols RTRO - Common Stock
RTROW - Warrants
Transfer and Warrant Agent Corporate Stock Transfer, Inc.
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(1) Excludes exercise of: (i) the Warrants; (ii) the Overallotment Option;
(iii) the Representative's Warrants; and (iv) outstanding stock options to
purchase up to 1,761,635 shares of Common Stock issued under the Company's
1996 Stock Option Plan. See "Dilution," "Capitalization," "Management -
1996 Stock Option Plan," "Description of Securities" and "Underwriting."
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SUMMARY FINANCIAL INFORMATION
The financial information of the Company set forth below for the two years
ended December 31, 1995 and 1996 has been derived from the Company's audited
financial statements included herein. Interim information for the three months
ended March 31, 1996 and 1997 has been derived from unaudited financial
statements which are also included herein. The results of operations for the
three months ended March 31, 1997 are not necessarily indicative of the results
to be expected for the year ending December 31, 1997. The financial information
should be read in conjunction with the financial statements, related notes and
other financial information included elsewhere in this Prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------
1996 1995 1997 1996
---- ---- ---- ----
INCOME STATEMENT DATA: (Unaudited) (Unaudited)
Net sales 12,902,195 11,379,826 5,093,857 4,639,169
Gross profit 1,896,142 1,402,893 748,797 681,958
Operating income 1,363,342 891,776 598,569 552,015
Interest expense 61,457 21,241 13,264 12,342
Net income 772,802 680,495 350,305 296,673
Weighted average shares
outstanding 1,750,000 1,750,000 1,750,000 1,750,000
Net income per share .44 .39 .20 .17
AT MARCH 31, AS
1997 ADJUSTED(1)
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BALANCE SHEET DATA: (Unaudited) (Unaudited)
Working capital 1,368,620 5,645,620
Total assets 4,667,902 9,164,902
Long-term debt -- --
Total liabilities 3,139,054 2,659,054
Shareholders' equity 1,528,848 6,473,848
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(1) As adjusted to give effect to the receipt and application of the estimated
net proceeds of the Offering without giving effect to exercise of the
Warrants, the Overallotment Option, the Representative's Warrants or
outstanding stock options. See "Use of Proceeds" and "Description of
Securities."
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RISK FACTORS
Prospective purchasers of the Units should carefully consider the following
risk factors and the other information contained in this Prospectus before
making an investment in the securities. Information contained in this
Prospectus includes "forward-looking statements" which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. See, e.g., "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business - Strategy." No assurance can be given that the future results
addressed by the forward-looking statements will be achieved. The following
matters constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results addressed in such forward-looking statements. Other factors
could also cause actual results to vary materially from the future results
addressed in such forward-looking statements.
LIMITED OPERATING HISTORY. The Company began operations in November 1990,
and has a limited operating history upon which potential investors may evaluate
its performance. Although the Company reported net income for the years ended
December 31, 1995 and 1996, and the three months ended March 31, 1997, there can
be no assurance that future operations will be profitable. The likelihood of
the Company's success must be considered relative to the problems, difficulties,
complications and delays frequently encountered in connection with the
development and operation of a relatively new business and the competitive
environment in which the Company operates. See "Business" and "Financial
Statements."
DEPENDENCE ON THE COMPANY'S PRESIDENT AND OTHER KEY PERSONNEL. The success
of the Company is largely dependent on the personal efforts, relationships and
abilities of Mr. Vukadinovic, who is the Chief Executive Officer and President
of the Company and other executive officers. In May 1996, Mr. Vukadinovic
entered into a three-year employment agreement with the Company which included a
non-competition provision effective through the term of the agreement and for
two additional years thereafter. The Company intends to apply for life
insurance upon Mr. Vukadinovic's life in the face amount of $5,000,000 but does
not maintain key man life insurance on the lives of any other executive
officers. The loss of the services of Mr. Vukadinovic would have a material
adverse effect on the Company. See "Management" and "Principal Shareholders."
DEPENDENCE UPON UNAFFILIATED MANUFACTURERS AND FABRIC SUPPLIERS. The
Company does not own or operate any manufacturing facilities and is therefore
dependent upon independent manufacturers, primarily in Macedonia, that
manufacture products to the Company's specifications. The inability of a
manufacturer to produce or ship the Company's products at agreed upon times, or
to meet the Company's quality standards, could adversely affect the Company's
ability to deliver products to its customers in a timely manner. Delays in
delivery could also result in missing certain retailing seasons with respect to
products ordered by customers or could otherwise have an adverse effect on the
Company's financial condition and
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results of operations. The Company is dependent upon one fabric supplier
which provided approximately 37% and 38%, respectively, of the Company's
fabric needs for the year ended December 31, 1996 and the three months ended
March 31, 1997. The loss of this supplier could have an adverse affect on
the Company's operations. The Company does not have any written contracts
with any of its contractors or suppliers. See "Business - Manufacturing and
Suppliers."
DEPENDENCE ON CERTAIN CUSTOMERS. Three of the Company's customers each
accounted for 10% or more of sales for the year ended December 31, 1996 and two
customers each accounted for 10% or more of such sales for the three months
ended March 31, 1997. A loss of any of these customers would have a material
adverse effect on the Company's operations. See "Business - Marketing."
FOREIGN OPERATIONS. During 1996, all of the apparel sold by the Company
was manufactured outside the United States, primarily in Macedonia. The
Company's operations would be adversely affected by political instability
resulting in disruption of trade with foreign countries in which the Company's
contractors and suppliers are located, the imposition of additional regulations
related to imports or duties, taxes and other charges on imports, significant
fluctuations in the value of the United States' dollar against foreign
currencies and restrictions on the international transfer of funds. The
Company's import operations may be subject to constraints imposed by bilateral
textile agreements between the United States and a number of foreign countries
(not currently including Macedonia). These agreements impose quotas on the
amount and type of goods which can be imported into the United States from these
countries and can limit or prohibit importation of products on very short
notice. The Company's imported products are also subject to United States
customs duties which may be a material portion of the Company's cost of imported
goods. A substantial increase in customs duties or the imposition of quota
limits applicable to the Company's imports (especially from Macedonia) could
have a material adverse effect on the Company's financial condition and results
of operations. Because the Company's foreign manufacturers are located at
greater geographic distances from the Company than domestic manufacturers, the
Company is generally required to allow greater lead time for its orders. See
"Business."
SUBSTANTIAL COMPETITION. The apparel industry is highly competitive and
consists of numerous manufacturers, importers and retailers. Many of the
Company's competitors are significantly larger and more diversified and have
significantly greater financial, distribution, marketing, name recognition and
other resources than the Company. The Company also encounters competition from
department stores and mass merchandisers, including some of the Company's own
retail customers, who sell apparel under their own private labels. Recently,
department stores and mass merchandisers have increased the amount of sportswear
and activewear manufactured specifically by them or their contract manufacturers
and sold under their own labels. See "Business - Competition."
RISKS ASSOCIATED WITH SIGNIFICANT GROWTH. The Company has experienced
rapid growth which has placed, and could continue to place, a significant strain
on its employees and
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operations. The Company remains vulnerable to a variety of business risks
generally associated with rapidly growing companies as well as risks related
to the broadening of its product offerings and the expansion of its
distribution channels. No assurance can be given that the Company will be
able to continue to deliver products in a timely manner at competitive
prices. To manage growth effectively, the Company will be required to
continue to implement changes in certain aspects of its business, expand its
information systems and operations to respond to current demand and develop,
train and manage employees. The Company's past growth cannot be assumed to
be indicative of its future operating results. In addition, failure to
enhance operating control systems or unexpected difficulties encountered
during expansion could adversely affect the Company's financial condition and
results of operations. See "Financial Statements."
UNCERTAINTIES IN APPAREL RETAILING; GENERAL ECONOMIC CONDITIONS. The
apparel industry has historically been subject to substantial cyclical
variations. During recessionary periods, when disposable income is low,
purchases of apparel and related goods tend to decline. Accordingly, a
recession in the general economy or uncertainties regarding future economic
prospects that affect consumer spending habits could have a material adverse
effect on the Company's results of operations. Additionally, the retail apparel
industry has experienced significant changes and difficulties over the past
several years, including consolidation of ownership, increased centralization of
buying decisions, restructurings, bankruptcies and liquidations. Various
retailers, including some of the Company's customers, experienced financial
difficulties in the past few years which increased the risk of extending credit
to such retailers. Financial problems of a retailer could cause the Company to
curtail business with such retailer, require the Company to assume more credit
risk relating to the retailer's receivables or even write off the retailer's
receivables. The Company cannot predict what effect, if any, continued changes
within the retail industry will have on the Company's business.
DEPENDENCE ON EXTENSION OF CREDIT TERMS. Historically, the Company has
borrowed significant amounts of working capital (up to $1,200,000) from one of
its fabric suppliers through the extension of credit terms from this supplier on
fabrics ordered by the Company. The loss of credit terms from this or any other
supplier would have a material adverse effect on the Company's operations.
There can be no assurance that the supplier will continue to provide credit
terms to the Company.
CONCENTRATION OF ACCOUNTS RECEIVABLE. At December 31, 1996 and March 31,
1997, two customers accounted in the aggregate for 93% and 80%, respectively of
the Company's accounts receivable. All payments on these accounts are current,
however, if either customer defaulted on its account receivable obligation to
the Company, the Company's financial condition would be adversely affected. See
"Financial Statement."
NO TRADEMARK PROTECTION. The Company believes that its trademarks are
valuable assets although no trademark registrations have been filed in the
United States or in foreign countries, and accordingly, there can be no
assurance that the Company can successfully defend its trademarks against
infringement by others. See "Business - Trademarks."
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POSSIBLE FLUCTUATIONS IN OPERATING RESULTS. The Company's operating
results could vary from period to period as a result of the purchasing patterns
of customers, the timing of new product introductions by the Company and its
competitors, variations in sales and competitive pricing. Unanticipated events,
including delays in manufacturing new garments, could have an adverse effect on
the Company's operating results. These factors could result in significant
fluctuations in operating results in future periods. See "Financial
Statements."
LIMITATION ON LIABILITY. The Company's Articles of Incorporation provide
that liability of directors to the Company for monetary damages is eliminated to
the full extent provided by California law. Under California law, a director is
not personally liable to the Company or its shareholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the Company or its shareholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) for authorizing the unlawful
payment of a dividend or other distribution on the Company's capital stock or
the unlawful purchases of its capital stock; or (iv) for any transaction from
which the director derived any improper personal benefit.
The effect of this provision in the Articles of Incorporation is to
eliminate the rights of the Company and its shareholders (through shareholders'
derivative suits on behalf of the Company) to recover monetary damages from a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any stockholder to seek non-
monetary relief such as an injunction or rescission in the event of a breach of
a director's duty of care or any liability for violation of the federal
securities laws. See "Description of Securities - Limitation on Liability."
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to the
Offering, there has been no public trading market for the Units, Common Stock or
Warrants. The initial public offering price of the Units and the exercise price
of the Warrants were determined by negotiations between the Company and the
Representative and does not necessarily bear any relationship to recognized
criteria for the valuation of such securities. Factors considered in such
negotiations included the Company's current level of revenues and earnings, its
prospects for future growth based upon proceeds of the Offering, the nature of
the Company's products, the apparel industry in general and the level of
competition within the industry. There can be no assurance that a regular
trading market for the Common Stock or Warrants will develop or continue after
the Offering or, if such a market develops, that the market price of the
component securities will exceed the Offering price. See "Underwriting."
IMMEDIATE SUBSTANTIAL DILUTION. The Offering involves an immediate and
substantial dilution of $3.65 per share of Common Stock, a 61% difference
between the public offering price of $6.00 per share of Common Stock (ascribing
no value to the Warrants included in the Units) and the net tangible book value
of $2.35 per share of Common Stock upon completion of the Offering, assuming no
exercise of the Warrants, the Overallotment Option, the Representative's
Warrants or other outstanding stock options of the Company. See "Dilution."
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SIGNIFICANT AMOUNTS OF STOCK OPTIONS OUTSTANDING. The Company's officers,
directors, employees and consultants hold stock option to purchase an aggregate
of 1,761,635 shares of the Company's Common Stock at prices ranging from $.63 to
$6.75 per share. Exercise of these stock options would significantly increase
the number of shares of Common Stock outstanding, dilute the ownership of the
investors in the Offering and reduce any per share earnings otherwise realized
by the Company.
NO DIVIDENDS. The Company has not paid any dividends on its Common Stock
and does not intend to pay dividends in the foreseeable future. See
"Description of Securities-Dividends."
POSSIBLE VOLATILITY OF SECURITIES PRICES. The market price of the
Company's Common Stock and Warrants following the Offering may be highly
volatile, as has been the case with the securities of other companies completing
initial public offerings. Factors such as the Company's operating results or
announcements by the Company or its competitors may have a significant effect on
the market price of the Company's securities. In addition, market prices for
securities of many emerging and small capitalization companies have experienced
wide fluctuations in response to variations in quarterly operating results and
general economic indicators and conditions, as well as other factors beyond the
control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the open market or the availability of such shares for sale following
the Offering could adversely affect the market price for the Common Stock.
Following the Offering, the 1,000,000 shares of Common Stock and the 500,000
Warrants included in the Units together with the 500,000 shares of Common Stock
underlying the Warrants and the 75,000 shares registered hereby on behalf of the
Selling Shareholders may all be sold in the open market. An additional
1,340,241 shares of the Company's Common Stock are currently eligible for sale
under Rule 144 ("Rule 144") promulgated under the 1933 Act and the remaining
334,759 shares will be eligible for sale in March 1998. Notwithstanding the
above, the Company's officers, directors and 5% or greater shareholders (holding
an aggregate of 1,101,991 shares after deducting the 75,000 shares to be
registered hereby) have agreed with the Representative not to sell or otherwise
dispose of their shares of Common Stock without the prior written consent of the
Representative for a period of two years from the date of this Prospectus
provided, however, that one-half of such shares (550,996 shares) may be sold
after one year from the date of this Prospectus if the Company reports at least
$1,000,000 of after tax net income for the year ending December 31, 1997. See
"Description of Securities-Common Stock Eligible for Future Sale" and
"Underwriting."
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant amount of the Common
Stock and Warrants offered hereby may be sold to customers of the Representative
and the Underwriters. Such customers subsequently may engage in transactions
for the sale or purchase of such securities through or with the Underwriters.
Although it has no obligation to do so, the Representative intends to make a
market in the Company's Common Stock and Warrants and may otherwise effect
transactions in the Common Stock and Warrants. This market-making activity may
terminate at any time. If it participates in the market, the Representative may
exert
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<PAGE>
a dominating influence on the market, if one develops, for the Common Stock
and Warrants. The price and liquidity of the Common Stock and Warrants
may be significantly affected by the degree, if any, of the Underwriters'
participation in such market.
CONTROL BY MANAGEMENT; AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK;
PREVENTION OF CHANGES IN CONTROL. Upon completion of the Offering, the
Company's officer and directors will own approximately 40.1% of the then issued
and outstanding shares of Common Stock (assuming no exercise of the Warrants,
the Overallotment Option, the Representative's Warrant or other outstanding
stock options) and will continue to be able to elect substantially all of the
Company's directors and control the affairs of the Company. The Company's
Articles of Incorporation authorize the issuance of up to 1,000,000 shares of
Preferred Stock with such rights and preferences as may be determined from time
to time by the Board of Directors. Accordingly, under the Articles of
Incorporation, the Board of Directors may, without shareholder approval, issue
Preferred Stock with dividend, liquidation, conversion, voting, redemption or
other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. The issuance of any shares of Preferred Stock
having rights superior to those of the Common Stock may result in a decrease of
the value or market price of the Common Stock and could further be used by the
Board of Directors as a device to prevent a change in control of the Company.
The Company has no other anti-takeover provisions in its Articles of
Incorporation or Bylaws. Holders of Preferred Stock may have the right to
receive dividends, certain preferences in liquidation, and conversion rights.
See "Description of Securities."
REPRESENTATIVE'S LACK OF UNDERWRITING EXPERIENCE. The Representative was
organized in July 1989 under the name Chadwick Securities, Incorporated, was
registered as a broker-dealer in October 1989 and changed its name to Kensington
Securities, Inc. in September 1994. The Representative has acted as a
representative of the Underwriters in only one prior public offering although it
has participated as a dealer in offerings underwritten by others. This lack of
underwriting experience may (i) adversely affect the development or continuation
of a trading market for the Common Stock and Warrants, (ii) limit the
effectiveness of the Representative in negotiating the offering price of the
Units and the exercise price of the Warrants, and (iii) negatively influence the
market price of the Common Stock and Warrants following the Offering. The
Representative had no material relationship with the Company or its promoters
prior to this Offering.
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES OF COMMON STOCK
UNDERLYING THE WARRANTS. The Warrants are not convertible or exercisable
unless, at the time of exercise, the Company has a current prospectus covering
the shares of Common Stock issuable upon exercise of the Warrants and such
shares of Common Stock have been registered, qualified or deemed to be exempt
under the securities laws of the states of residence of the holders of such
Warrants. There can be no assurance that the Company will have or maintain a
current prospectus or that the securities will be qualified or registered under
any state laws.
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REDEMPTION OF WARRANTS. The Warrants may be redeemed by the Company under
certain circumstances (if there is a current prospectus covering exercise of the
Warrants) upon 30 days' written notice to the Warrantholders at $.01 per
Warrant. In such event, the Warrants will be exercisable until the close of
business on the date fixed for redemption in such notice. Any Warrants not
exercised by such time will cease to be exercisable, and the holders will be
entitled only to the redemption price, which is likely to be substantially less
than the market value of the Warrants. Accordingly, such redemption could force
the Warrantholders to exercise the Warrants and pay the exercise price at a time
when it might be disadvantageous for them to do so or sell the Warrants at the
then market price when they might otherwise prefer to hold the Warrants. See
"Description of Securities - Warrants."
The Common Stock and the Warrants, which comprise the Units offered hereby,
are detachable and separately transferable as of the date hereof. Purchasers
may buy Warrants in the aftermarket or may move to jurisdictions in which the
shares of Common Stock underlying the Warrants are not registered or qualified
during the period that the Warrants are exercisable. In this event, the Company
would be unable to issue Common Stock to those persons desiring to exercise
their Warrants unless and until such shares could be qualified for sale in
jurisdictions in which the purchasers reside, or an exemption from qualification
exists in such jurisdiction. In this event, Warrantholders would have no choice
but to attempt to sell the Warrants in a jurisdiction where such sale is
permissible or allow them to expire unexercised. See "Description of
Securities - Warrants."
MAINTENANCE CRITERIA FOR NASDAQ NATIONAL MARKET SECURITIES. The National
Association of Securities Dealers, Inc. (the "NASD"), which administers Nasdaq
(which includes the National Market) recently has adopted certain criteria for
continued Nasdaq eligibility. In order to continue to be included on the Nasdaq
National Markets or the Nasdaq Small Cap Markets, a company must maintain
$2 million in total assets, a $200,000 market value of its public float and
$1 million in total capital and surplus. In addition, continued inclusion
requires two market-makers, at least 300 holders of the Common Stock and a
minimum bid price of $1 per share; provided, however, that if a company falls
below such minimum bid price, it will remain eligible for continued inclusion in
Nasdaq if the market value of the public float is at least $1 million and the
Company has $2 million in capital and surplus. The Company's failure to meet
these maintenance criteria in the future may result in the discontinuance of the
inclusion of its securities in Nasdaq. In such event, trading, if any, in the
securities may then continue to be conducted in the non-Nasdaq over-the-counter
market in what are commonly referred to as the electronic bulletin board and the
"pink sheets." As a result, an investor may find it more difficult to dispose
of or to obtain accurate quotations as to the market value of the securities.
DISCLOSURE RELATED TO PENNY STOCKS. The Commission has adopted rules that
define a "penny stock" as equity securities priced at under $5.00 per share
which are not listed for trading on Nasdaq (unless (i) the issuer has a net
worth of $2,000,000 if in business for more than three years or $5,000,000 if in
business for less than three years or (ii) the issuer has had average annual
revenues of $6,000,000 or more for the prior three years. In the event that any
of the Company's securities are characterized in the future as penny stock,
broker-dealers
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dealing in the securities will be subject to the disclosure rules for
transactions involving penny stocks which require the broker-dealer among
other things to (i) determine the suitability of purchasers of the securities,
and obtain the written consent of purchasers to purchase such securities and
(ii) disclose the best (inside) bid and offer prices for such securities and
the price at which the broker-dealer last purchased or sold the securities.
The additional burdens imposed upon broker-dealers may discourage them from
affecting transactions in penny stocks, which could reduce the liquidity of
the securities offered hereby.
15
<PAGE>
DILUTION
At March 31, 1997, the net tangible book value of the Company was
$1,481,069, or $.85 per share of Common Stock. "Net tangible book value" per
share represents the total amount of tangible assets of the Company, less the
total amount of liabilities of the Company, divided by the number of shares of
Common Stock outstanding. Without taking into account any changes in net
tangible book value after March 31, 1997, other than to give effect to the sale
by the Company of the 1,000,000 shares of Common Stock included in the Units and
offered hereby, less underwriting discounts and commissions and estimated costs
of the Offering not recorded as deferred costs as of March 31, 1997, the net
tangible book value of the Company at March 31, 1997 would have been $6,457,848,
or approximately $2.35 per share. This represents an immediate increase in net
tangible book value of $1.50 per share of Common Stock to existing shareholders
and an immediate dilution of $3.65 per share to new shareholders. "Dilution"
per share represents the difference between the $6.00 per share price to be paid
by the new shareholders (without ascribing any value to the Warrants included in
the Units) and the net tangible book value per share of Common Stock immediately
after this Offering.
The foregoing is illustrated in the following table:
Public offering price per share of Common Stock
included in the Units $6.00
Net tangible book value per share of Common Stock
before Offering $ .85
Increase in net tangible book value per share
of Common Stock attributable to new investors
purchasing in the Offering $1.50
Net tangible book value per share of Common Stock
after the Offering $2.35
Dilution of net tangible book value per share of
Common Stock to new investors $3.65
Percent reduction of net tangible book value per share
to new investors 61%
The following table sets forth the number of shares of Common Stock
purchased as a part of the Units, the total consideration paid and the average
price per share paid by existing shareholders as of March 31, 1997 and new
investors purchasing Common Stock in the Offering:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ---------- ---------- ---------
New investors 1,000,000 36.4% $6,000,000 95.7% $6.00
Existing shareholders 1,750,000 63.6% $ 272,054 4.3% $ .16
--------- ----- ---------- -----
Totals 2,750,000 100.0% $6,272,054 100.0%
--------- ----- ---------- -----
--------- ----- ---------- -----
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<PAGE>
The preceding discussion and the accompanying tables assume no exercise of
(i) the Warrants; (ii) the Overallotment Option; (iii) the Representative's
Warrants; or (iv) outstanding stock options to purchase up to 1,761,635 shares
of Common Stock issued under the Company's 1996 Stock Option Plan. See
"Capitalization," "Management - 1996 Stock Option Plan," "Description of
Securities" and "Underwriting."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
March 31, 1997 and as adjusted to give effect to the sale by the Company of
500,000 Units offered hereby, without giving effect to the exercise of the
Warrants, the Overallotment Option, the Representative's Warrants or other
outstanding stock options.
ACTUAL AS ADJUSTED(1)
---------- --------------
(Unaudited) (Unaudited)
Current Liabilities $3,139,054 $2,659,054
Long-term liabilities -0- -0-
Shareholders' equity
Preferred Stock, 1,000,000 no par value
shares authorized, none issued -0- -0-
Common Stock, 15,000,000 no par value
shares authorized, 1,750,000
shares outstanding, and
2,750,000 shares outstanding,
as adjusted 272,054 5,217,054
Additional paid-in capital 230,000 230,000
Retained earnings 1,026,794 1,026,794
---------- ----------
Total shareholders' equity 1,528,848 6,473,848
---------- ----------
Total capitalization 4,667,902 9,132,902
---------- ----------
---------- ----------
- -----------------
(1) As adjusted to give effect to the receipt and application of the estimated
net proceeds of the Offering. See "Use of Proceeds."
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering are
estimated to be $4,945,000 ($5,728,000 if the Overallotment Option is
exercised). The Company intends to use the net proceeds of the Offering to
purchase fabric ($3,365,000 or 68.0% of the net proceeds), to purchase apparel
manufacturing equipment ($700,000 or 14.2% of the net proceeds), for repayment
of debt ($480,000 or 9.7% of the net proceeds) and for working capital ($400,000
or 8.1% of the net proceeds). Debt repayment consists of repayment of
(i) principal and interest due on bridge loans advanced in June 1996 aggregating
approximately $280,000 evidenced by promissory notes bearing interest at 8% per
annum due the earlier of June 30, 1997 or the closing date of the Offering, and
(ii) a commercial bank loan in the amount of $220,000 bearing interest at 4%
over the prime rate per annum due August 15, 1997. The bridge loans and bank
loan were used for working capital.
The Company estimates, but cannot assure, that the net proceeds of the
Offering, together with anticipated operating revenues, will be sufficient to
fund the Company's estimated cash requirements for at least 12 months following
this Offering.
While the above use of proceeds indicates the Company's current plans,
there may be changes due to the availability of other business opportunities
and/or changes in the Company's plan of operation. Management is not currently
aware of any such business opportunities or planned changes in operations.
Pending application, the net proceeds may be invested in short-term interest
bearing obligations.
Any funds received by the Company from exercise of the Warrants, the
Overallotment Option and the Representative's Warrants will be added to working
capital.
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<PAGE>
SELECTED FINANCIAL DATA
The financial information of the Company set forth below for the two years
ended December 31, 1995 and 1996 has been derived from the Company's audited
financial statements included herein. Interim information for the three months
ended March 31, 1996 and 1997 has been derived from unaudited financial
statements which are also included herein. The results of operations for the
three months ended March 31, 1997 are not necessarily indicative of the results
to be expected for the year ending December 31, 1997. The financial information
should be read in conjunction with the financial statements, related notes and
other financial information included elsewhere in this Prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------
1996 1995 1997 1996
---- ---- ---- ----
INCOME STATEMENT DATA: (Unaudited) (Unaudited)
Net sales 12,902,195 11,379,826 5,093,857 4,639,169
Gross profit 1,896,142 1,402,893 748,797 681,958
Operating income 1,363,342 891,776 598,569 552,015
Interest expense 61,457 21,241 13,264 12,342
Net income 772,802 680,495 350,305 296,673
Weighted average shares
outstanding 1,750,000 1,750,000 1,750,000 1,750,000
Net income per share .44 .39 .20 .17
AT MARCH 31, AS
1997 ADJUSTED(1)
------------ -----------
BALANCE SHEET DATA: (Unaudited) (Unaudited)
Working capital 1,368,620 5,645,620
Total assets 4,667,902 9,164,902
Long-term debt -- --
Total liabilities 3,139,054 2,659,054
Shareholders' equity 1,528,848 6,473,848
- -----------------
(1) As adjusted to give effect to the receipt and application of the estimated
net proceeds of the Offering without giving effect to exercise of the
Warrants, the Overallotment Option, the Representative's Warrants or
outstanding stock options. See "Use of Proceeds" and "Description of
Securities."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1995 and 1996 and the
three months ended March 31, 1996 and 1997. This discussion should be read in
conjunction with the Company's financial statements, the notes related thereto,
and the other financial data included elsewhere in this Prospectus. All
information with respect to the three month period ended March 31, 1996 and
March 31, 1997 is unaudited. The matters discussed in this section that are not
historical or current facts deal with potential future circumstances and
developments. Such forward-looking statements include, but are not limited to,
the development and market acceptance for products, trends in the results of the
Company's operations and the Company's anticipated capital requirements and
capital resources. The Company's actual results could differ materially from
the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below as well as
those discussed under the caption "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
The Company produces to customer specifications, contracts to manufacture
and ships a variety of garments, primarily basic women's activewear, sportswear
and businesswear which include skirts, blouses, blazers, pants, shorts, vests
and dresses, using assorted fabrics including rayons, linens, cotton and wool.
Substantially all of the Company's garments are sold on a "package" basis
pursuant to which the Company markets at fixed prices finished garments to the
customer's specifications and quantity requirements, arranges for production of
the garments and delivers the garments directly to the customer at the port of
entry. The Company believes that its package arrangements eliminate design and
fashion risk and inventory write-offs and therefore allow the Company to offer
lower product prices.
The Company purchases fabrics and trim (such as buttons, zippers, shoulder
pads and the like) on behalf of its customers from suppliers in a number of
countries, including Australia, China, India, Russia, Romania, Italy and the
United States. The fabrics and trim are shipped by the suppliers directly to
factories under contract to the Company in Macedonia where they are manufactured
into finished garments for delivery to the Company's customers in the United
States.
In its marketing, the Company emphasizes its package arrangements and what
it believes to be the better quality and lower prices of garments produced by
skilled Eastern European workers as compared to lower paid workers in certain
other regions. The Company produces garments for customers under its own
labels, "Easy Concepts," "Magellan" and "Retrospettiva" and under private labels
selected by its customers and markets its products to (i) large wholesalers such
as Giorgio Sant' Angelo, Jeans Collectibles, Periwinkle, Positive Influence,
David N., Rex Winston and Wild Life, (ii) national retailers including
department stores such as Nordstrom, Dayton Hudson, Bloomingdales, J.C. Penney,
Casual Corner, Neiman Marcus,
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May Co., Newton's, Macy's and Saks Fifth Avenue, and (iii) women's chain
clothing stores such as Marshalls, TJ Maxx, Chadwicks, Hit or Miss, Fred
Mayer, Burlington Coat, Cato and Saks Fifth Avenue. See "Business -
Marketing."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net revenues of certain items in the Company's statements of
operations data:
Years Ended Three Months Ended
December 31, March 31,
-------------------- -----------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Net Revenues . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . 87.4 87.7 85.3 85.3 85.3
Gross profit . . . . 12.6 12.3 14.7 14.7 14.7
Selling, general
and admini-
strative expenses. 10.9 4.5 4.1 2.8 2.9
Interest expense . . .04 .2 .5 .3 .3
Operating income . . 1.7% 7.8% 10.6% 11.9% 11.8%
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
SALES
Sales for the first quarter ended March 31, 1997 (the "1997 Quarter") were
$5,093,857 which represented an increase of $454,688 or 9.8% over the first
quarter ended March 31, 1996 (the "1996 Quarter") net sales of $4,639,169. The
growth in sales was primarily attributable to increased purchases by existing
customers. Sales of the Company's own labeled products and private label
products were $306,774 and $4,787,083, respectively, in the 1997 Quarter
compared to $1,098,246 and $3,540,923, respectively, in the 1996 Quarter.
COST OF GOODS SOLD
Cost of goods sold in the 1997 Quarter was $4,345,060 or 85.3% of sales, an
increase of $387,849 from $3,957,211 or 85.3% of sales for the 1996 Quarter.
The increase in cost of goods sold was attributable primarily to an increase in
sales.
GROSS PROFIT
Gross profit was $748,797 for the 1997 Quarter, an increase of $66,839.
The gross profit percentage was 14.7% for the 1997 Quarter and 14.7% for the
1996 Quarter.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were $150,228 or 2.9%
of net revenues for the 1997 Quarter, an increase of $20,285 from $129,943 or
2.8% of sales for the 1996 Quarter. The increase in SG&A expense levels was
primarily the result of increases in rent.
INTEREST EXPENSE
Interest expense for the 1997 Quarter was $13,264 as compared to $12,342
for the 1996 Quarter. The increase in interest expense was primarily
attributable to the accrual of interest on bridge loan debt.
PROVISION (BENEFIT) FOR INCOME TAXES
The provision for income taxes was $235,000 and $243,000 for the 1997
Quarter and the 1996 Quarter, respectively. The increase in the provision for
income taxes was due to the increase in income before income taxes which was
$585,305 for the 1997 Quarter, an increase of $45,632 or 8.5% from $539,673 from
the 1996 Quarter.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
SALES
Sales for the year ended December 31, 1996 ("1996") were $12,902,195, which
represented an increase of $1,522,369 or 13.4% over 1995 ("1995") sales of
$11,379,826. The growth in sales was primarily attributable to increased
purchases by existing customers. Sales of the Company's own labeled products
and private label products were $3,381,524 and $9,520,671, respectively in 1996
compared to $2,214,378 and $9,165,448, respectively, in 1995.
COST OF GOODS SOLD
Cost of goods sold was $11,006,053 or 85.3% of sales in 1996, an increase
of $1,029,120 from $9,976,933 or 87.7% of sales in 1995. The decrease in the
percentage of cost of goods sold was a result of increased sales and
implementation of a system to more tightly control consumption of raw materials
used in production of finished goods.
GROSS PROFIT
Gross profit was $1,896,142 for 1996, an increase of $493,249. The gross
profit percentage was 14.7% in 1996, an increase from 12.3% in 1995. Tighter
control of consumption of raw materials used in the production of finished goods
enabled the Company to produce more units using less raw materials.
23
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were $532,800 or 4.1%
of sales in 1996, an increase of $21,683 from $511,117 or 4.5% of sales in 1995.
The increase in SG&A expense levels was primarily the result of increased costs
of insurance to cover the exposure associated with increased production and
import volume. The increase in SG&A expense also reflects the growth in the
Company's management and the expense associated with building the infrastructure
necessary to support the growth strategies of the Company. Marketing expenses
were $170,179 or 1.3% of sales in 1996, a decrease of $60,122 from $230,301 or
2.0% of sales in 1995. The decrease was primarily due to the reduction of sales
commissions as the Company's executive officers called directly on more
customers.
INTEREST EXPENSE
Interest expense in 1996 was $61,457 as compared to $21,241 in 1995. The
increase in interest expense was the result of financing obtained through bridge
loans and the increased utilization of the Company's line of credit.
PROVISION (BENEFIT) FOR INCOME TAXES
The provision for income taxes was $540,285 and $195,000 in 1996 and 1995,
respectively. The increase in the provision for income taxes in 1996 was
primarily attributable to increased earnings. The level of increase was also
due to the tax benefits employed by the Company in 1995. The Company's
effective tax rate increased to 41.2% in 1996 from 22.3% in 1995, principally
due to the loss carry forwards used in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
SALES
Sales for the year ended December 31, 1995 ("1995") were $11,379,826, which
represented an increase of $5,858,024 or 106% over 1994 ("1994") sales of
$5,521,802. The growth in sales was primarily attributable to increased
purchases by existing customers. Sales of the Company's own labeled products
and private label products were $2,214,378 and $9,165,448, respectively, in 1995
compared to $0 and $5,521,802, respectively, in 1994.
COST OF GOODS SOLD
Cost of goods sold was $9,976,933 or 87.7% of sales in 1995, an increase of
$5,152,222 from $4,824,711 or 87.4% of net sales in 1994. The increase in cost
of goods sold was attributable primarily to increased sales.
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<PAGE>
GROSS PROFIT
Gross profit was $1,402,893 for 1995, an increase of $705,802. The gross
profit percentage was 12.3% in 1995, a decrease from 12.6% in 1994. The slight
decrease in gross profit was due primarily to an increase in air freight expense
versus transporting goods by ship.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were $511,117 or 4.5%
of sales in 1995, a decrease of $92,374 from $603,491 or 10.9% of net revenues
in 1994. The decrease in SG&A expense levels was primarily the result of the
decrease in sales commissions.
INTEREST EXPENSE
Interest expense in 1995 was $21,241 as compared to $2,430 in 1994. The
increase in interest expense was the result of increase utilization of the
Company's line of credit.
PROVISION (BENEFIT) FOR INCOME TAXES
The provision (benefit) for income taxes was $195,000 and ($179,500) in
1995 and 1994, respectively. The increase in the provision for income taxes in
1995 was primarily attributable to increased earnings and reduced tax benefits
available from prior years. The Company's effective tax rate increased to 22.3%
in 1995 from (200.3%) in 1994, principally due to the loss carry forwards used
in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation, the Company has financed its operations and met its
capital requirements primarily through cash flows from operations, customer
advances, from principals, credit facilities and two private placements. The
Company received gross proceeds of $812,000 from two private placements in 1996.
The proceeds of the private placements were used to pay expenses related to the
Offering, for working capital and for other corporate purposes. The Company's
capital requirements primarily result from working capital needs.
YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Operating activities used net cash of $367,339 in 1995 compared to
providing net cash of $263,280 in 1996. The principal use of operating cash is
to purchase fabric, manufacture the Company's products and import finished
goods. Cash increased as a result of increased sales, profits, favorable
turnover in accounts receivable and customer advances.
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CASH FLOWS PROVIDED (USED) FOR INVESTING ACTIVITIES
The Company's cash flow used by investing activities totalled $16,172 and
$6,825 in 1995 and 1996. The Company's capital expenditures related to the
purchase of fixed assets totalled $16,172 and $6,825 in 1995 and 1996. These
capital expenditures were for office equipment, computer and improvements to
leased premises. Certain budgeted capital expenditures over the next year are
described in the "Use of Proceeds."
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Cash flows from financing activities totalled $353,651 in 1995 and cash
flows to financing activities totalled $183,975 in 1996. The majority of the
financing costs incurred in 1996 arose primarily from deferred costs associated
with the Offering in the amount of $230,930 and payments to the Company's Chief
Executive Officer of $354,176 to pay down the Company's loan payable to him.
Cash flows from financing activities in 1995 came primarily from the utilization
of a bank line of credit of $247,403 and loans from the Company's Chief
Executive Officer.
The Company's ability to fund its working capital and capital expenditure
requirements, make interest payments and meet its other cash requirements
depends, among other things, on internally generated funds and proceeds from the
Offering. Thereafter, if cash generated from operations is insufficient to
satisfy the Company's capital requirements, the Company may have to sell
additional equity or debt securities or obtain credit facilities. In the event
such financing is needed in the future, there is no assurance that it will be
available to the Company in an amount and on terms acceptable to the Company.
THREE MONTHS ENDED MARCH 31, 1997
CASH FLOWS FROM (TO) OPERATING ACTIVITIES. Operating activities provided
net cash of $307,038 for the 1997 Quarter compared to providing net cash of
$32,120 for the 1996 Quarter. The principal use of operating cash is to
purchase fabric, manufacture the Company's products and import finished goods.
The increase in cash flows from operating activities was primarily attributable
to an increase in net income, turnover of accounts receivable and utilization of
existing inventories net of reductions in accounts payable and customer
advances.
CASH FLOWS PROVIDED (USED) FOR INVESTING ACTIVITIES. The Company's
investing activities provided $44,593 of cash for the 1997 Quarter and used
$1,900 for the 1996 Quarter. The increase in cash flows provided by investing
activities is primarily attributable to reductions in notes receivable.
CASH FLOWS FROM (TO) FINANCING ACTIVITIES. Cash flows from financing
activities totalled $278,848 and $2,474 for the 1997 Quarter and the 1996
Quarter, respectively. The increase in cash flows from financing activities was
primarily attributable to proceeds from the issuance of Common Stock.
26
<PAGE>
SEASONALITY
The Company's revenues and operating results have exhibited some degree of
seasonality in past periods. Typically, the Company experiences its highest
sales in the first and fourth quarters and its lowest sales in the second and
third quarters. The Company expects this trend to continue in the future.
The Company believes that the net proceeds of the Offering, together with
its sales, existing cash resources and available credit facilities, will be
sufficient to meet the Company's anticipated working capital needs for the next
12 months. The Company, however, may raise capital through the issuance of
long-term or short-term debt, or the issuance of securities in private or public
transactions to fund future expansion of its business, either before or after
the end of the 12 month period. There can be no assurance that acceptable
financing for future transactions can be obtained.
27
<PAGE>
BUSINESS
INTRODUCTION
The Company produces internationally a variety of garments, primarily basic
women's activewear, sportswear and businesswear which include skirts, blouses,
blazers, pants, shorts, vests and dresses, using assorted fabrics including
rayons, linens, cotton and wool. The Company produces garments for customers
under its own labels, "Easy Concepts," "Magellan" and "Retrospettiva" and under
private labels selected by its customers and markets its products to (i) large
wholesalers such as Giorgio Sant' Angelo, Jeans Collectibles, Periwinkle,
Positive Influence, David N., Rex Winston and Wild Life, (ii) national retailers
including department stores such as Nordstrom, Dayton Hudson, Bloomingdales,
J.C. Penney, Casual Corner, Neiman Marcus, May Co., Newton's, Macy's and Saks
Fifth Avenue, and (iii) women's chain clothing stores such as Marshalls, TJ
Maxx, Chadwicks, Hit or Miss, Fred Mayer, Burlington Coat Factory and Cato.
Substantially all of the Company's garments are sold on a "package" basis
pursuant to which the Company markets at fixed prices finished garments to the
customer's specifications and quantity requirements, arranges for production of
the garments and delivers the garments directly to the customer at the port of
entry. In its marketing, the Company emphasizes these package arrangements and
what it believes to be the better quality and lower prices of garments produced
by skilled Eastern European workers as compared to lower paid workers in certain
other regions. See "Business - Marketing."
As a package provider, the Company sources and purchases fabrics and trims,
arranges for cutting and sewing, and coordinates any other services required to
provide a completed garment. Under this arrangement the Company does not assume
the marketing and fashion risk generally associated with the apparel industry.
Fabrics and trims are purchased from suppliers in China, India, Russia, Romania,
Italy and the United States. These items are shipped to factories selected by
the Company (generally located in Eastern Europe) where they are manufactured
into completed garments under the Company's management and quality control
guidance.
The Company was organized in November 1990 initially to manufacture and
import textile products from Italy including finished garments and fabrics. By
1993, the Company was purchasing fabrics from firms and factories around the
world and contracting for the manufacture of the fabrics in Eastern Europe for
importation into the United States. Net sales increased from $821,345 for the
year ended December 31, 1993 to $5,521,802 in 1994, $11,379,826 in 1995 and
$12,902,195 in 1996. See "Financial Statements."
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STRATEGY
The Company intends to continue to offer better quality, popular priced
women's apparel in a wide variety of styles, patterns, colors and fabrics. The
Company's business strategy emphasizes the following elements:
MAINTAIN FOCUS ON THE COMPANY'S CORE BUSINESS. The Company will continue
to produce, manufacture and market a wide variety of better quality, popular
priced garments on a package basis while avoiding the trendier fashion apparel
which contributes to inventory write-offs for out of style garments.
INCREASE PENETRATION OF CURRENT MARKETS. The Company seeks to further
penetrate its current markets by offering lower product prices while maintaining
a high degree of quality control. The Company's relationships with its Eastern
European manufacturers, lower transportation costs compared to other parts of
the world (such as the Pacific Rim) and current quota free United States
importation rules contribute to its ability to offer competitive prices.
VERTICAL INTEGRATION. The Company intends to invest in wool manufacturing
equipment which will be placed in certain manufacturing facilities in Macedonia
with which the Company currently maintains manufacturing relationships. The
equipment is expected to provide the Company with improved quality control,
reduced costs and increased production.
EXPAND DISTRIBUTION CHANNELS AND PRODUCT LINES. The Company will continue
to explore new geographic markets for its existing products while expanding its
existing product lines.
PRODUCTS
The Company offers to its customers a variety of women's activewear,
sportswear and businesswear including 26 women's garment styles manufactured in
rayon, 33 styles manufactured in rayon and linen mixes, 30 styles manufactured
in linen and cotton mixes, 25 styles manufactured in all cotton, 23 styles
manufactured in wool and two styles manufactured in rayon faille. The Company's
garments are moderately priced ranging at retail from $12.99 to $49.99 and are
marketed primarily to college students and working women.
MARKETING
The apparel industry in general and the women's apparel industry in
particular are mature markets. According to the United States Department of
Commerce, United States apparel sales increased from approximately $75 billion
in 1986 to approximately $113 million in 1996, however, sales increased only
approximately $3 billion between 1995 and 1996. Similarly, women's apparel
sales increased from approximately $28 billion in 1986 to approximately
$33 billion in 1996 but decreased approximately $2 billion from 1995 to 1996.
Accordingly, a substantial portion of any growth by individual apparel companies
such as the Company must come at the expense of competitors.
29
<PAGE>
The Company produces garments for customers under its own labels, "Easy
Concepts," "Magellan" and "Retrospettiva" and under private labels selected by
its customers, and markets its products to (i) large wholesalers such as Giorgio
Sant' Angelo, Jeans Collectibles, Periwinkle, Positive Influence, David N., Rex
Winston and Wild Life, (ii) national retailers including department stores such
as Nordstroms, Dayton Hudson, Bloomingdales, J.C. Penney, Casual Corner, Neiman
Marcus, May Co., Newton's and Macy's, and (iii) women's chain clothing stores
such as Marshalls, TJ Maxx, Chadwicks, Hit or Miss, Fred Mayer, Burlington Coat,
Cato and Saks Fifth Avenue. Sales of the Company's own labeled products and
private label products were $3,381,524 and $9,520,671, respectively, from the
year ended December 31, 1996 and $306,774 and $4,787,083, respectively, for the
three months ended March 31, 1997.
Marketing is conducted through three in-house salespersons who call
directly upon customers, through customer referrals and through the efforts of
the Company's executive officers. The Company maintains a buying office in New
York, attends trade shows and advertises by direct mail in trade journals.
The Company's customers include large United States retailers and
wholesalers as described above. Three of the Company's customers each accounted
for 10% or more of sales for the year ended December 31, 1996 and two customers
each accounted for 10% or more of such sales for the three months ended
March 31, 1997. A loss of any of these customers would have a material adverse
affect on the Company's operations.
MANUFACTURING AND SUPPLIERS
The Company produces garments based on the fabric, design, styling and
quality specifications of individual customer orders. The Company does not own
or operate any manufacturing facilities and obtains its products generally from
manufacturers in Eastern Europe (primarily Macedonia) who contract with the
Company to manufacture specific items of apparel in predetermined amounts and
for agreed upon unit prices. The Company contracts for the purchase of fabric
and the manufacture and sewing of its products with approximately 15 overseas
factories. The Company believes that outsourcing allows it to enhance
production flexibility and capacity while reducing capital expenditures and
avoiding the costs of managing a large production work force. In addition,
outsourcing provides the Company with expertise in fabric selection and
manufacturing processes.
The Company arranges for the production of its products based on orders
received. The Company obtains substantially all of its customers' orders prior
to placement of its contract manufacturing orders. The Company's customer
orders may change with respect to colors, sizes, allotments or assortments prior
to the manufacturing delivery date. However, the Company utilizes initial
orders and its experience to estimate fabric quantities and production
requirements.
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<PAGE>
The Company purchases fabric and trim from the manufacturers of these
garment components who ship their products directly to the Company's contract
manufacturer. The Company does not have written contracts with any of its
fabric or trim suppliers or contractors; however, the Company believes that its
relationships with its suppliers and contractors are good. Although the loss of
certain suppliers or contractors could have a significant adverse effect on the
Company's operating results, the Company believes it would be able to replace
such suppliers and contractors within a reasonable amount of time if required to
do so.
The Company delivers finished goods directly from its contract
manufacturers to its customers at the port of entry.
QUALITY CONTROL
The Company's quality control program is designed to provide that all of
the Company's products meet the Company's standards. The Company maintains a
staff of four quality control employees in the United States and seven such
employees in Eastern Europe. The Company develops and inspects prototypes of
each product prior to production, establishes fittings based on the prototype,
inspects sample fabric prior to cutting and several times during the production
process. The Company and (in the case of private label products)
representatives of the Company's customers inspect final products prior to
shipment.
BACKLOG
As of March 31, 1997, the Company had unfilled orders of approximately
$17,800,000 compared to approximately $11,700,000 at March 31, 1996. Backlog
amounts include both firm and nonbinding orders, although the Company believes,
based upon industry practice and prior experience, that substantially all of the
nonbinding orders will be filled.
COMPETITION
The apparel industry is highly competitive and consists of numerous
manufacturers, importers and distributors. Many of the Company's competitors
are significantly larger, more diversified and have significantly greater
financial, distribution, marketing, name recognition and other resources than
the Company. The Company believes it has certain competitive advantages
resulting from its contractual relationships with Eastern European manufacturers
including (i) the availability in Eastern European factories of highly skilled
workers at relatively lower costs than in more economically developed regions,
(ii) a lack of quotas and lower tariffs in the importation of finished goods
from certain Eastern European countries, and (iii) lower shipping costs as a
result of the closer geographical proximity to the United States of the
Company's Eastern European contract manufacturers compared to manufacturers in
the Pacific Rim nations.
The Company also encounters competition from department stores and mass
merchandisers, including some of the Company's own retail customers who seek
apparel under their own private labels. Recently, department stores and mass
merchandisers have increased
31
<PAGE>
the amount of sportswear and activewear manufactured specifically by them or
their contract manufacturers (including the Company), and sold under their own
labels.
TRADEMARKS
The Company has developed three apparel trademarks, "Easy Concepts,"
"Magellan" and "Retrospettiva" in connection with the marketing of its apparel.
The Company regards its trademarks as valuable assets although no trademark
registrations have been filed in the United States or in foreign countries and,
accordingly, there can be no assurance the Company can successfully defend its
trademarks against infringement by others.
CREDIT POLICY AND CREDIT CONTROL
Prior to accepting a purchase order and purchasing fabric and components,
the Company investigates the customer's credit history through traditional
credit reporting services, through asset-based lenders of the customer and
through other contract partners of the customer. The Company also generally
obtains a deposit or advance payment before purchasing fabric or commencing
garment production for the customer.
The Company manages its own credit and collection functions. The Company
does not factor its accounts receivables or maintain credit insurance to manage
the risks of bad debts. The Company's bad debt write-offs were less than 1% of
net sales for the year ended December 31, 1996.
GOVERNMENT REGULATION
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements, which have been negotiated bilaterally either
under the framework established by the Arrangement Regarding International Trade
in Textiles, known as the Multifiber Agreement, or other applicable statutes,
impose quotas on the amounts and types of merchandise which may be imported into
the United States from these countries. These agreements also allow the
signatories to adjust the quantity of imports for categories of merchandise
that, under the terms of the agreements, are not currently subject to specific
limits. The Company's imported products are also subject to United States
customs' duties which may comprise a material portion of the cost of the
merchandise. However, apparel imported from Macedonia is not subject to such
quotas.
Apparel products are subject to regulation by the Federal Trade Commission
in the United States. Regulations relate principally to the labelling of the
Company's products. The Company believes that it is in substantial compliance
with such regulations, as well as applicable federal, state, local, and foreign
rules and regulations governing the discharge of materials hazardous to the
environment. There are no significant capital expenditures for environmental
control matters either estimated in the current year or expected in the near
future.
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<PAGE>
PROPERTIES
The Company leases 2,200 square feet for its executive and administrative
offices at 8825 West Olympic Boulevard, Beverly Hills, California 90211, on a
five-year lease expiring November 1, 1999 for $2,300 per month subject to cost
of living increases.
The Company subleases 2,000 square feet of office and showroom facilities
at 1359 Broadway, Suite 2102, New York, New York 10018, through October 1, 1998
for $2,600 per month which includes maintenance expenses. The Company maintains
two small New York apartments for use by its employees traveling from Los
Angeles, California and Macedonia to New York City. Both apartments are
subleased to the Company with monthly rent aggregating approximately $3,500.
EMPLOYEES
As of September 30, 1996, the Company employed 15 individuals in Los
Angeles, California, New York, New York and Macedonia including its two
executive officers, three inventory management and order control personnel,
three administrative personnel and four quality control workers.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The name, age, position and terms of office of each of the Company's
executive officers and directors are set forth below:
Officer or
Name Age Position Director Since
---- --- -------- --------------
Borivoje Vukadinovic 38 Chief Executive Officer, 1991
President and Director
Michael D. Silberman 41 Chief Financial Officer, 1996
Secretary and Director
Ivan Zogovic 37 Manager - Export/Import 1996
and Director
Mojgan Keywanfar 34 Accounting Manager 1996
and Director
S. William Yost 67 Director 1996
Donald E. Tormey 63 Director 1996
Philip E. Graham 40 Director 1996
The name, age and position of each of the Company's key employees are set
forth below:
Natasha Vukadinovic 33 General Manager - Foreign
Operations - Macedonia
Jovica Kecman 32 General Manager - International
Quality Control
Millisav Vicanovic 48 General Manager - Quality
Control - Macedonia
Directors hold office for a period of one year from their election at the
annual meeting of shareholders or until their successors are duly elected and
qualified. Officers of the Company are elected by, and serve at the discretion
of, the Board of Directors. Upon completion of the Offering, the Company will
establish an audit and compensation committee, each committee composed of a
majority of individuals not employed by the Company.
34
<PAGE>
BACKGROUND
The following is a summary of the business experience, for at least the
last five years, of the individuals named below:
DIRECTORS AND EXECUTIVE OFFICERS
BORIVOJE VUKADINOVIC has been Chief Executive Officer and President of the
Company since January 1993. From June 1990 to August 1993, he was Vice
President and a principal stockholder of Celtex ENT, a Los Angeles, California
based company which established and administered production of yarns and raw
textiles in Yugoslavia, Turkey and Macedonia. From May 1988 to June 1990, he
was the founder owner and President of DUTY OFF, Inc., a Los Angeles, California
based company which produced young men's apparel. Since February 1993,
Mr. Vukadinovic has written music and recorded record albums which include his
own instrument and vocal performances. He earned a Bachelor of Arts degree in
Business from the University of Banja Luka in Yugoslavia and a Bachelor of Arts
degree in Art from Bern University in Switzerland.
MICHAEL D. SILBERMAN was Executive Vice President of Allied Business
Capital, a privately-held Los Angeles, California based commercial finance
company from 1983 to 1991. From September 1991 to April 1992, Mr. Silberman was
president of UMB Commercial Capital, a division of United Mercantile Bank of
Pasadena, California where he administered the division's accounts' receivable
finance department. From April 1992 to February 1994, he was a portfolio
manager for Private Investment Fund, a privately-held and managed investment
fund. From May 1994 until he joined the Company in April 1996, Mr. Silberman
was a financial advisor with Prudential Securities Inc. Mr. Silberman earned a
Bachelor of Arts degree from the University of California, Los Angeles ("UCLA")
and an MBA degree from the Anderson Graduate School of Management at UCLA.
IVAN B. ZOGOVIC has been employed by the Company as its Manager-
Export/Import since January 1994 and was appointed a director in May 1996. In
this capacity, Mr. Zogovic is responsible for the export and import of raw
materials and finished goods including customs clearing, scheduling and freight
forwarding, between the United States and the Company's contract manufacturers
in Eastern Europe. He earned a law degree from the University of Belgrade Law
School and practiced law in Yugoslavia from 1984 until 1992.
MOJGAN KEYWANFAR has been employed by the Company as its accounting manager
since February 1991 and was appointed a director in December 1996.
Ms. Keywanfar manages the Company's bookkeeping and management information
systems. She holds a B.A. degree in Economics from California State University,
Northridge.
S. WILLIAM YOST became a director of the Company in May 1996. He has been
an adjunct professor of Operations and Technology Management at the Anderson
Graduate School of Management of the University of California, Los Angeles,
since 1986. During his tenure at
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<PAGE>
Anderson, Dr. Yost developed two new graduate courses, Managing Service and
Managing Entrepreneurial Operations. His career is diverse, with over 20
years experience in industrial positions together with four years as a
presidential appointee in the executive branch of the federal government and
three years in Management Consulting. His industrial experience includes nine
years in energy-related production and exploration activities, six years in
the manufacture of non-defense industrial products, three years in industrial
services and supplies and four years in aerospace engineering and
manufacturing. Dr. Yost holds a doctorate in Business Administration (DBA)
from the Harvard Business School, an MBA from the Anderson Graduate School of
Management at the University of California, Los Angeles, and a B.A. from the
University of California, Berkeley. He serves on the Board of Directors of a
number of small privately-held companies and is a consultant to a variety of
public and private clients.
DONALD E. TORMEY became a director of the Company in May 1996. From 1958
to 1996, he was employed by Chevron Corporation in a number of positions
culminating as the Refinery General Manager in El Segundo, California. He holds
a BSCE degree in engineering from the University of Wisconsin engineering
school. Mr. Tormey served in the U.S. Army Corps of Engineers from 1951 to 1953
and was mayor of the City of Pinole, California from 1970 to 1971.
PHILIP E. GRAHAM became a director of the Company in May 1996. Since
March 1997, he has been the Information Technology Executive at the Avionics and
Communications Finance and Information Technology department of Rockwell
managing a staff of over 400 individuals. From 1989 until March 1997 he was
employed by AirTouch Cellular in a number of positions, culminating as its
director of Information Technology where he is responsible for administering and
providing technical direction for a staff of 48 persons. From May 1984 to
July 1989, he was a business systems manager for Northrop's B-2 Division where
he managed three departments and 25 individuals supporting the B-2 (Stealth
Bomber) project. Mr. Graham holds an MBA degree from the Anderson Graduate
School of Management at the University of California, Los Angeles, an M.S.
degree from California State University at Fullerton and a B.S. degree from the
University of California at Irvine.
KEY EMPLOYEES
NATASHA VUKADINOVIC has been employed by the Company since 1990 initially
as a designer and subsequently as a manager responsible for quality control and
organization of the Company's offshore production. In 1986, Ms. Vukadinovic,
who is Borivoje Vukadinovic's sister, earned an advanced degree in textile
design from the Textile Design School in Prague, Czechoslovakia.
JOVICA KECMAN has been employed by the Company as general manager of
international quality control since 1990. Mr. Kecman earned a degree in
economics from the University of Banja Luka. He is Mr. Vukadinovic's brother-
in-law.
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<PAGE>
MILISAV VICANOVIC joined the Company in 1993 and is responsible for quality
control of all of the Company's lightweight garments, such as dresses and two-
piece women's suits. From 1975 to 1993, he was Director of Textile
Manufacturing, Chief Executive Officer and General Manager for Macedonia Sport,
a Yugoslavian company involved in the manufacture of garments in factories
employing in the aggregate more than 3,500 workers. He earned an advanced
degree in textile manufacturing from the University of Belgrade in 1971.
EXECUTIVE COMPENSATION
The following table discloses all compensation paid to the Chief Executive
Officer of the Company for the year ended December 31, 1996. No other executive
officer's annual compensation exceeded $100,000 in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ---------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Annual Restricted Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary($) Bonus($) sation($) Award(s)($) SARS(#) Payouts($) sation($)
- ------------------ ---- --------- -------- --------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Borivoje Vukadinovic 1996 $40,928 -0- -0- -0- 500,000(1) -0- -0-
Chief Exec. Officer
</TABLE>
(1) See 1996 Stock Option Plan.
In May 1996, the Company entered into three-year employment agreements with
Mr. Vukadinovic, the Company's Chief Executive Officer, and Mr. Silberman, the
Company's Chief Financial Officer, which provide for annual salaries commencing
the first month following closing of the Offering of $95,000 and $60,000,
respectively, together with a non-competition clause for two years following
termination of Mr. Vukadinovic's employment agreement. As a part of their
employment agreements, Mr. Vukadinovic and Mr. Silberman received stock options
to purchase up to 1,191,290 and 119,129 shares, respectively, of Common Stock
exercisable until April 2006 at $6.75 per share. Mr. Vukadinovic's stock
options are cancelable under certain circumstances. See "1996 Stock Option
Plan."
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<PAGE>
The Company's directors do not receive any cash compensation as directors,
although they are reimbursed for out-of-pocket expenses in attending Board of
Directors' meetings and have been granted stock options to purchase an aggregate
of 204,902 shares of the Company's Common Stock at prices ranging from $1.68 per
share to $2.94 per share under the Company's 1996 Stock Option Plan.
1996 STOCK OPTION PLAN
In May 1996, the Company adopted a stock option plan (the "Plan") which
provides for the grant of options intended to qualify as "incentive stock
options" and "nonqualified stock options" within the meaning of Section 422 of
the United States Internal Revenue Code of 1986 (the "Code"). Incentive stock
options are issuable only to eligible officers, directors, key employees and
consultants of the Company.
The Plan is administered by the Compensation Committee of the Board of
Directors which is comprised of nonemployee directors. As of May 1996, the
Company had reserved 1,786,930 shares of Common Stock for issuance under the
Plan. Under the Plan, the Board of Directors determines which individuals shall
receive options, the time period during which the options may be partially or
fully exercised, the number of shares of Common Stock that may be purchased
under each option and the option price.
The per share exercise price of the Common Stock may not be less than the
fair market value of the Common Stock on the date the option is granted. No
person who owns, directly or indirectly, at the time of the granting of an
incentive stock option, more than 10% of the total combined voting power of all
classes of stock of the Company is eligible to receive incentive stock options
under the Plan unless the option price is at least 110% of the fair market value
of the Common Stock subject to the option on the date of grant.
No options may be transferred by an optionee other than by will or the laws
of descent and distribution, and during the lifetime of an optionee, the option
may only be exercisable by the optionee. Options under the Plan must be granted
within 10 years from the effective date of the Plan and the exercise date of an
option cannot be later than 10 years from the date of grant. Any options that
expire unexercised or that terminate upon an optionee's ceasing to be employed
by the Company become available once again for issuance. Shares issued upon
exercise of an option will rank equally with other shares then outstanding.
As of the date of this Memorandum, 1,761,635 options have been granted
under the Plan to officers, directors, employees and consultants including
1,477,196 options granted to Messrs. Vukadinovic and Silberman, an aggregate of
204,902 options granted to the Company's five non-salaried directors and 79,537
options granted to employees and consultants. The per share exercise prices
represented the fair market value of the Company's Common Stock at the date such
options were granted, based on prior sales of the Company's Common Stock. The
table below sets forth the total number of options issued to each executive
officer and director
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<PAGE>
of the Company and the exercise price. Messrs. Vukadinovic's and Silberman's
options are exercisable until April 2006. The remaining options expire at
various times through 2006. All options were granted in 1996.
Percent of
Total Options
Granted to
Name of Executive Total Number Employees in Exercise Expiration
Officer or Director of Options Issued Fiscal Year Price Date
- ------------------- ----------------- ------------ -------- ----------
Borivoje Vukadinovic 1,358,067(1) 77.1 (1) 2006
Michael D. Silberman 119,129 6.8 6.75 2006
Ivan Zogovic 66,712 3.8 (2) 2006
Mojgan Keywanfar 66,712 3.8 (2) 2006
S. William Yost 23,826 1.4 $2.94 2006
Donald E. Tormey 23,826 1.4 $2.94 2006
Philip E. Graham 23,826 1.4 $2.94 2006
--------- ----
TOTALS 1,682,098 95.7
- -----------------
(1) Consists of 166,777 options exercisable at $.63 per share and the remaining
1,191,290 options exercisable at $6.75 per share. A total of 595,645 of
the options will be cancelled by the Company if the Company's after tax net
income for the year ended December 31, 1997 does not exceed $750,000.
(2) Consists of 35,739 options exercisable at $2.94 per share and 30,973
options exercisable at $1.68 per share as to each individual.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
ownership of the Company's Common Stock as of March 31, 1997, by (i) each person
who is known by the Company to own of record or beneficially more than 5% of the
Company's Common Stock, (ii) the Company's Chief Executive Officer and each of
the Company's directors and (iii) all directors and officers of the Company as a
group. The persons listed in the table have sole voting and investment powers
with respect to the shares of Common Stock and the address of each person is in
care of the Company at 8825 West Olympic Blvd., Beverly Hills, California 90211.
Percent of Percent of
Amount of Class Prior Class After
Name Ownership to Offering Offering
- ---- --------- ----------- -----------
Borivoje Vukadinovic(1) 2,454,051 79.0% 59.7%
Michael D. Silberman(2) 200,136 10.7 7.0
Ivan Zogovic(3) 66,712 3.7 2.4
Mojgan Keywanfar(5) 66,712 3.7 2.4
S. William Yost(4) 23,826 1.3 *
Donald E. Tormey(4) 23,826 1.3 *
Philip E. Graham(4) 23,826 1.3 *
All officers and
directors as a
group (7 persons) 2,859,089 83.3% 64.5%
---- ----
* Less than 1%.
(1) Includes stock options to purchase up to 1,191,290 shares of Common Stock
at $6.75 per share and 166,777 shares at $.63 per share exercisable until
April 2006. See "Management - 1996 Stock Option Plan."
(2) Includes stock options to purchase up to 119,129 shares of Common Stock at
$6.75 per share until April 2006. See "Management - 1996 Stock Option
Plan."
(3) Represents stock options to purchase up to 30,973 shares at $1.68 per share
exercisable at any time until April 2001, 11,913 shares at $2.94 per share
exercisable at any time until May 2001, and 23,826 shares at $2.94 per
share exercisable at any time until April 2006. See "Management - 1996
Stock Option Plan."
(4) Represents stock options to purchase up to 23,826 shares of Common Stock at
$2.94 per share exercisable at any time until May 2001. See "Management -
1996 Stock Option Plan."
(5) Represents stock options to purchase up to 11,913 shares at $2.94 per share
exercisable at any time until May 2001, 30,973 shares at $1.68 per share
exercisable at any time until April 2006, and 23,826 shares at $2.94 per
share exercisable at any time until April 2006. See "Management - 1996
Stock Option Plan."
40
<PAGE>
SELLING SHAREHOLDERS
The Company is registering by this Prospectus and at its expense 50,000
shares of Common Stock held by Mr. Vukadinovic and 25,000 shares of Common Stock
held by Mr. Silberman, the Company's Chief Executive Officer and Chief Financial
Officer, respectively. The Common Stock may be sold from time to time after the
date hereof in public or private open market transactions directly to purchasers
or through brokerage firms at prevailing market prices less customary
commissions. The Underwriters and Selling Shareholders have no plans,
proposals, arrangements or understandings with respect to any transactions
involving the Selling Shareholders' securities. If there are changes to the
stated plan of distribution, including any plans, proposals, arrangements or
understandings involving the Underwriters or the distribution of the Common
Stock, a post-effective amendment with current information will first be filed
with and declared effective by the Commission. Information concerning the
Selling Shareholders is set forth below. The Selling Shareholders may be deemed
to be "underwriters" within the meaning of the 1933 Act.
<TABLE>
Percent of Number of Percent of Class
Name of Number of Class Owned Shares Offered To Be Owned
Selling Stockholder Shares Owned Prior to Offering For Sale After Offering
- ------------------- ------------ ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
Borivoje Vukadinovic 2,454,051(1) 79.0% 50,000 59.7%
Michael D. Silberman 200,136(2) 10.7% 25,000 7.0%
</TABLE>
(1) Includes stock options to purchase up to 1,191,290 shares of Common Stock
at $6.75 per share and 166,777 shares at $.63 per share exercisable until
April 2006. Also includes the 50,000 shares of Common Stock registered for
sale hereby.
(2) Includes stock options to purchase up to 119,129 shares of Common Stock at
$6.75 per share until April 2006. Also includes the 25,000 shares of
Common Stock registered for sale hereby.
41
<PAGE>
CERTAIN TRANSACTIONS
In May 1996, the Company executed employment agreements with
Mr. Vukadinovic and Mr. Silberman, its Chief Financial Officer, providing for
annual salaries of $95,000 and $60,000 respectively. In connection with their
employment, Messrs. Vukadinovic and Silberman received options to purchase
1,191,290 shares and 119,129 shares, respectively of the Company's Common Stock,
exercisable in perpetuity, at certain fixed prices and Mr. Silberman also
received 81,007 shares of Common Stock for services rendered valued at $.42 per
share. See "Management - Executive Compensation."
At March 31, 1997, Mr. Vukadinovic was indebted to the Company in the
amount of $105,777. The indebtedness is evidenced by an unsecured promissory
note bearing interest at 10% per annum and is due on demand.
Until December 31, 1996, Mr. Vukadinovic was a principal but minority
stockholder in Easy Concepts, Inc. ("EC"), an apparel customer of the Company.
At December 31, 1996 and March 31, 1997, EC was indebted to the Company for
apparel purchases in the amounts of $1,182,202 and $552,902, respectively. EC
is current in its payments on the account.
The Company believes that the transactions described above were fair,
reasonable and consistent with the terms of transactions which the Company could
have entered into with non-affiliated third parties. All future transactions
with affiliates will be approved by a majority of the Company's disinterested
directors.
42
<PAGE>
DESCRIPTION OF SECURITIES
UNITS
Each Unit being offered hereby consists of two shares of Common Stock and
one Warrant. The Common Stock and Warrants have been approved for listing on
the National Market and are separately transferable as of the date of this
Prospectus.
COMMON STOCK
The Company is authorized to issue 15,000,000 shares of no par value Common
Stock. Upon issuance, the shares of Common Stock are not subject to further
assessment or call. The holders of Common Stock are entitled to one vote for
each share held of record on each matter submitted to a vote of shareholders.
Cumulative voting for election of directors is permitted. Subject to the prior
rights of any series of Preferred Stock which may be issued by the Company in
the future, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, and, in the event of the liquidation, dissolution or winding
up of the Company, are entitled to share ratably in all assets remaining after
payment of liabilities. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities. The
outstanding Common Stock is, and the Common Stock to be outstanding upon
completion of the Offering will be, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of no par value
preferred stock (the "Preferred Stock"). The Preferred Stock may, without
action by the shareholders of the Company, be issued by the Board of Directors
("Board") from time to time in one or more series for such consideration and
with such relative rights, privileges and preferences as the Board may
determine. Accordingly, the Board has the power to fix the dividend rate and to
establish the provisions, if any, relating to voting rights, redemption rates,
sinking funds, liquidation preferences and conversion rights for any series of
Preferred Stock issued in the future.
It is not possible to state the actual effect of any other authorization of
Preferred Stock upon the rights of holders of Common Stock until the Board
determines the specific rights of the holders of any other series of Preferred
Stock. The Board's authority to issue Preferred Stock also provides a
convenient vehicle in connection with possible acquisitions and other corporate
purposes, but could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock. Accordingly, the
issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the shareholders of the Company, and may adversely
affect the holders of the Common Stock. See "Risk Factors - Control by
Management; Authorization and Issuance of Preferred Stock; Prevention of Changes
in Control."
43
<PAGE>
WARRANTS
Each Warrant represents the right to purchase one share of Common Stock at
an initial exercise price of $7.50 per share for a period of five years from the
date hereof. The exercise price and the number of shares issuable upon exercise
of the Warrants are subject to adjustment in certain events including the
issuance of Common Stock as a dividend on shares of Common Stock, subdivisions
or combinations of the Common Stock or similar events. The Warrants do not
contain provisions protecting against dilution resulting from the sale of
additional shares of Common Stock for less than the exercise price of the
Warrants or the current market price of the Company's securities.
Warrants may be redeemed in whole or in part, at the option of the Company
after six months from the date hereof, upon 30 days' notice, at a redemption
price equal to $.01 per Warrant if the closing price of the Company's Common
Stock on the National Market is at least $8.50 per share for 20 consecutive
trading days, ending not earlier than five days before the Warrants are called
for redemption.
Holders of Warrants may exercise their Warrants for the purchase of shares
of Common Stock only if a current prospectus relating to such shares is then in
effect and only if such shares are qualified for sale, or deemed to be exempt
from qualification under applicable state securities laws. The Company is
required to use its best efforts to maintain a current prospectus relating to
such shares of Common Stock at all times when the market price of the Common
Stock exceeds the exercise price of the Warrants until the expiration date of
the Warrants, although there can be no assurance that the Company will be able
to do so.
The shares of Common Stock issuable on exercise of the Warrants will be,
when issued in accordance with the Warrants, fully paid and non-assessable. The
holders of the Warrants have no rights as shareholders until they exercise their
Warrants.
For the life of the Warrants, the holders thereof are given the opportunity
to profit from a rise in the market for the Company's Common Stock, with a
resulting dilution in the interest of all other shareholders. So long as the
Warrants are outstanding, the terms on which the Company could obtain additional
capital may be adversely affected. The holders of the Warrants might be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital by a new offering of securities on terms
more favorable than those provided by the Warrants.
COMMON STOCK ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 2,750,000 shares of Common
Stock outstanding, of which 1,000,000 shares included in the Units have been
registered in the Offering on behalf of the Company, 75,000 shares have been
registered on behalf of the Selling Shareholders, and the remaining 1,675,000
shares have not been registered in the Offering and are "restricted securities"
under Rule 144 of the 1933 Act.
44
<PAGE>
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period the number of shares which
does not exceed the greater of one percent of the then outstanding shares of
Common Stock (approximately 27,500 shares immediately after the Offering
assuming no exercise of the Warrants, the Representative's Warrants, the
Overallotment Option, or other outstanding stock options) or the average weekly
trading volume during the four calendar weeks prior to such sale. Rule 144 also
permits, under certain circumstances, the sale of shares by a person without any
quantity limitation after the securities have been held for two years. Of the
1,675,000 shares of Common Stock that are restricted securities 1,340,241 are
currently eligible for sale under Rule 144 and the remaining 334,759 shares may
be sold in March 1998. The Company is unable to predict the effect that any
sales, under Rule 144 or otherwise, may have on the then prevailing market price
of the Common Stock. The Company's officers, directors and 5% or greater
shareholders (holding an aggregate of 1,101,991 shares after deducting the
75,000 shares to be registered hereby) have agreed not to sell or otherwise
dispose of any of their shares of Common Stock for a period of two years from
the date of this Prospectus, without the prior written consent of the
Representative provided, however, that one-half of such shares (550,996 shares)
may be sold after one year from the date of the Prospectus if the Company
reports at least $1,000,000 of after tax net income for the year ending
December 31, 1997. The Company has also granted certain demand and piggy-back
registration rights to the Representative with respect to the Representative's
Warrants as well as the securities issuable upon exercise of the
Representative's Warrants.
TRANSFER AGENT AND WARRANT AGENT
The Company has appointed Corporate Stock Transfer, Inc., 370 17th Street,
Suite 2350, Denver, Colorado 80202, as its transfer agent and warrant agent.
DIVIDENDS
The Company has not paid dividends on its Common Stock since inception and
does not plan to pay dividends in the foreseeable future. Earnings, if any,
will be retained to finance growth.
LIMITATION ON LIABILITIES
The Company's Articles of Incorporation provide that liability of directors
to the Company for monetary damages is eliminated to the full extent provided by
California law. Under California law, a director is not personally liable to
the Company or its shareholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the Company or its shareholders; (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law; (iii) for authorizing the unlawful payment of a dividend or other
distribution on the Company's capital stock or the unlawful purchases of its
capital stock; or (iv) for any transaction from which the director derived any
improper personal benefit.
45
<PAGE>
The effect of this provision in the Articles of Incorporation is to
eliminate the rights of the Company and its shareholders (through shareholders'
derivative suits on behalf of the Company) to recover monetary damages from a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any stockholder to seek non-
monetary relief such as an injunction or rescission in the event of a breach of
a director's duty of care or any liability for violation of the federal
securities laws.
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
number of Units set forth opposite their names below:
NUMBER OF
UNDERWRITER UNITS
----------- -----
-------
Total 500,000
-------
The Company has been advised by the Representative that the Underwriters
propose to offer the Units purchased by them directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at a price that represents a concession of $_____ per Unit. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $__________ within the discretion of the Representative. The Underwriters
are committed to purchase and pay for all of the Units if any Units are taken.
After the initial public offering of the Units, the offering price and the
selling terms may be changed by the Underwriters.
The Company has granted the Underwriters an Overallotment Option,
exercisable within 30 days from the date of this Prospectus, to purchase from
the Company up to 75,000 Units solely to cover overallotments.
The Underwriters will purchase the Units (including Units subject to the
Overallotment Option) from the Company at a price of $10.80 per Unit. In
addition, the Company has agreed to pay to the Representative a 3%
nonaccountable expense allowance on the aggregate initial public offering price
of the Units, including Units subject to the Overallotment Option of which
$15,000 has been paid. The Representative has agreed to pay a finder's fee of
up to $45,000 to a person not affiliated with the Company or the Representative
for introducing the Company to the Representative.
46
<PAGE>
The Company has agreed to issue the Representative's Warrants to the
Representative for a consideration of $100. The Representative's Warrants are
exercisable at any time in the four-year period commencing one year from the
date of this Prospectus to purchase up to 50,000 Units for $14.40 per Unit. The
Representative's Warrants are not transferable for one year from the date of
this Prospectus except (i) to an Underwriter or a partner or officer of an
Underwriter or (ii) by will or operation of law. During the term of the
Representative's Warrants, the holder thereof is given the opportunity to profit
from a rise in the market price of the Company's securities. The Company may
find it more difficult to raise additional equity capital while the
Representative's Warrants are outstanding. At any time at which the
Representative's Warrants are likely to be exercised, the Company would probably
be able to obtain additional equity capital on more favorable terms. If the
Company files a registration statement relating to an equity offering under the
provisions of the 1933 Act at any time during the five-year period following the
date of this Prospectus, the holders of the Representative's Warrants or
underlying Units will have the right, subject to certain conditions, to include
in such registration statement, at the Company's expense, all or part of the
underlying Units at the request of the holders. Additionally, the Company has
agreed, for a period of five years commencing on the date of this Prospectus, on
demand of the holders of a majority of the Representative's Warrants or the
Units issued or issuable thereunder, to register the Units underlying the
Representative's Warrants one time at the Company's expense. The registration
of securities pursuant to the Representative's Warrants may result in
substantial expense to the Company at a time when it may not be able to afford
such expense and may impede future financing. The Company may find that the
terms on which it could obtain additional capital may be adversely affected
while the Representative's Warrants are outstanding. The number of Units
covered by the Representative's Warrants and the exercise price are subject to
adjustment under certain events to prevent dilution. In the event of any demand
registration, the Company has the right to redeem the Representative's Warrants
by committing to pay, within ten days of the date of such demand registration,
the difference between the exercise price of the Representative's Warrants and
the average bid price of the Units (or the component securities) over the prior
ten business days.
The Company has agreed, in connection with exercise of the Warrants
pursuant to solicitation by the Representative, or any other broker-dealer, to
pay to the Representative, or any broker-dealer, a fee of 5% of the exercise
price of any Warrants exercised after six months from the date hereof. The
Representative, or broker-dealer, will not be entitled to receive such
compensation in Warrant exercise transactions except with respect to the
exercise of Warrants solicited and procured by such broker-dealer and confirmed
in writing by the Warrantholder that the broker-dealer solicited such Warrants
and provided that (i) the market price of the shares of Common Stock at the time
of exercise is higher than the exercise price of the Warrants, (ii) disclosure
of compensation arrangements is made, in addition to the disclosure provided in
the Registration Statement, in documents provided to holders of Warrants at the
time of exercise, (iii) the exercise of the Warrants is solicited, (iv) the
Warrants are not exercised by discretionary accounts, and (v) the solicitation
of exercise of the Warrants is not in violation of Rule 10b-6 promulgated under
the 1934 Act.
47
<PAGE>
The Company's officers, directors and 5% or greater shareholders (holding
an aggregate of 1,101,991 shares) have entered into a lock-up agreement with the
Representative pursuant to which they have agreed not to sell or otherwise
dispose of any of their shares of Common Stock (including shares issuable upon
exercise of stock options) for a period of two years from the date of this
Prospectus without the prior written consent of the Representative; provided,
however, that one-half of such shares (550,996 shares) may be sold after one
year from the date of the Prospectus if the Company reports at least $1,000,000
of after tax net income for the year ending December 31, 1997. The Company has
also granted certain demand and piggy-back registration rights to the
Representative with respect to the Representative's Warrants as well as the
securities issuable upon exercise of the Representative's Warrants.
The Company has agreed with the Representative that, for a period of 36
months from the effective date of the Offering, the Company will allow an
observer designated by the Representative and acceptable to the Company to
attend all meetings of the Board of Directors. The observer will have no voting
rights, will be reimbursed for out-of-pocket expenses incurred in attending
meetings and will be indemnified against any claims arising out of participation
at the meetings, including claims based on liabilities arising under the
securities laws.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the 1933 Act, or to contribute to
payments that any Underwriter may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gary A. Agron, Englewood, Colorado. Certain legal
matters in connection with the Offering will be passed upon for the
Representative by Pezzola & Reinke, a Professional Corporation, Oakland,
California.
EXPERTS
The financial statements of the Company for the years ended December 31,
1995 and 1996, appearing in this Prospectus, have been audited by AJ. Robbins,
P.C., independent certified public accountants, as stated in their report
appearing herein, and have been so included herein in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the 1933 Act with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain items of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
48
<PAGE>
respect to the Company and the securities offered by this Prospectus, reference
is made to such Registration Statement and the exhibits thereto which may be
inspected without charge at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington, DC 20549; Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661; 7 World Trade
Center, New York, NY 10048; and 5670 Wilshire Boulevard, Los Angeles, CA 90036.
The Company will be subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and, in accordance therewith,
will file reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information may be inspected at public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington, DC 20549; Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60661; 7 World Trade Center, New York, NY 10048; and
5670 Wilshire Boulevard, Los Angeles, CA 90036. Copies of such material can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street N.W., Washington, DC 20549 at prescribed rates.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report 2
Balance Sheets 3
Statements of Income 5
Statement of Changes in Stockholders' Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS
RETROSPETTIVA, INC.
BEVERLY HILLS, CALIFORNIA
We have audited the accompanying balance sheet of Retrospettiva, Inc. as of
December 31, 1996 and the related statements of income, changes in stockholders'
equity and cash flows for the two years ended 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 of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Retrospettiva, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for the
two years ended December 31, 1996 in conformity with generally accepted
accounting principles.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
DENVER, COLORADO
MARCH 15, 1997
Except for Note 14 as to which
the date is June 1, 1997
F-2
<PAGE>
RETROSPETTIVA, INC.
BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 110,777 $ 741,256
Accounts receivable, net, pledged 760,495 469,412
Accounts receivable, related party, pledged 1,182,202 597,495
Note receivable, current portion 140,000 115,121
Note receivable, stockholder - 105,777
Inventories, pledged 3,112,678 2,404,271
Deferred tax assets, current portion 11,000 11,000
Deferred offering costs 330,930 31,779
Other 14,825 31,563
---------- ----------
Total Current Assets 5,662,907 4,507,674
PROPERTY AND EQUIPMENT, at cost, net 61,386 56,979
NOTE RECEIVABLE, net of current portion 47,583 17,583
DEFERRED TAX ASSETS, net of current portion 5,000 5,000
OTHER ASSETS 80,666 80,666
---------- ----------
$5,857,542 $4,667,902
========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE>
RETROSPETTIVA, INC.
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
CURRENT LIABILITIES:
Accounts payable, trade $2,806,812 $1,745,489
Note payable 237,580 205,000
Notes payable, related parties 250,000 250,000
Accrued expenses 51,070 57,624
Accrued income taxes 541,910 738,670
Customer advances 909,681 142,271
---------- ----------
Total Current Liabilities 4,797,053 3,139,054
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - authorized 1,000,000 shares -
none issued or outstanding - -
Common stock - authorized 15,000,000 shares,
no par value; issued and outstanding
1,415,241 and 1,750,000 shares, respectively 154,000 272,054
Additional paid-in capital 230,000 230,000
Retained earnings 676,489 1,026,794
---------- ----------
Total Stockholders' Equity 1,060,489 1,528,848
---------- ----------
$5,857,542 $4,667,902
========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE>
RETROSPETTIVA, INC.
STATEMENTS OF INCOME
<TABLE>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES $ 9,165,448 $ 9,520,671 $ 3,540,923 $ 4,787,083
SALES, related party 2,214,378 3,381,524 1,098,246 306,774
----------- ----------- ----------- -----------
Total Sales 11,379,826 12,902,195 4,639,169 5,093,857
COST OF SALES 9,976,933 11,006,053 3,957,211 4,345,060
----------- ----------- ----------- -----------
GROSS PROFIT 1,402,893 1,896,142 681,958 748,797
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling expenses 230,301 170,179 51,371 47,788
General and administrative 280,816 362,621 78,572 102,440
----------- ----------- ----------- -----------
Total Operating Expenses 511,117 532,800 129,943 150,228
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 891,776 1,363,342 552,015 598,569
OTHER INCOME (EXPENSES)
Other income 4,960 11,202 - -
Interest expense (21,241) (61,457) (12,342) (13,264)
----------- ----------- ----------- -----------
Net Other Income (Expenses) (16,281) (50,255) (12,342) (13,264)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 875,495 1,313,087 539,673 585,305
PROVISION FOR INCOME TAXES 195,000 540,285 243,000 235,000
----------- ----------- ----------- -----------
NET INCOME $ 680,495 $ 772,802 $ 296,673 $ 350,305
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ .39 $ .44 $ .17 $ .20
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,750,000 1,750,000 1,750,000 1,750,000
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE>
RETROSPETTIVA, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
COMMON STOCK ADDITIONAL RETAINED
-------------------- PAID IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 1,095,984 $ 20,000 $230,000 $ (776,808) $ (526,808)
Net income for the year - - - 680,495 680,495
--------- -------- -------- ---------- ----------
Balances, December 31, 1995 1,095,984 20,000 230,000 (96,313) 153,687
Stock issued for compensation 81,007 34,000 - 34,000
Stock issued for bridge loans 238,250 100,000 - - 100,000
Net income for the year - - - 772,802 772,802
--------- -------- -------- ---------- ----------
Balances, December 31, 1996 1,415,241 154,000 230,000 676,489 1,060,489
Stock issued in private
offering net of offering
costs (unaudited) 334,759 118,054 - - 118,054
Net income for the period
(unaudited) - - - 350,305 350,305
--------- -------- -------- ---------- ----------
Balances, March 31, 1997
(unaudited) 1,750,000 $272,054 $230,000 $1,026,794 $1,528,848
========= ======== ======== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE>
RETROSPETTIVA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1995 1996 1996 1997
----------- --------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income $ 680,495 $ 772,802 $ 296,673 $ 350,305
Adjustments to reconcile net income to net
Cash provided (used) by operating activities:
Depreciation and amortization 17,792 17,491 4,291 4,407
Stock issued for compensation -- 34,000 -- --
Deferred income taxes 160,000 7,000 -- --
Services provided to reduce
note receivable -- 8,417 -- 10,286
Changes in:
Accounts receivable 274,471 (572,917) 2,048 291,083
Accounts receivable,
related party (441,830) (740,372) (542,245) 584,707
Accounts receivable -- others (76,166) -- -- --
Inventories (1,257,515) (592,610) 572,017 708,407
Other (3,600) (11,225) (539) (16,738)
Accounts payable
and accrued expenses 265,682 (103,765) (743,125) (1,054,769)
Accrued income taxes 13,332 534,778 243,000 196,760
Customer advances -- 909,681 200,000 (767,410)
----------- --------- --------- -----------
Cash flows provided (used) by
operating activities (367,339) 263,280 32,120 307,038
----------- --------- --------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of fixed assets (16,172) (6,825) (1,900) --
Payments on notes receivable -- -- -- 44,593
----------- --------- --------- -----------
Cash flows provided (used) by
investing activities (16,172) (6,825) (1,900) 44,593
----------- --------- --------- -----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Loans to stockholder -- -- -- (116,027)
Collections on note receivable, stockholder -- -- -- 10,250
Proceeds from note payable,
stockholder 351,263 170,856 2,199 --
Payments on note payable, stockholder (245,015) (354,176) -- --
Proceeds from notes payable,
related parties -- 250,000 -- --
Proceeds from note payable 247,403 -- 275 --
Payments on note payable -- (19,725) -- (32,580)
Deferred offering costs -- (230,930) -- 299,151
Proceeds from issuance of common stock -- -- -- 118,054
----------- --------- --------- -----------
Cash flows provided (used) by
financing activities 353,651 (183,975) 2,474 278,848
----------- --------- --------- -----------
NET INCREASE (DECREASE) IN CASH (29,860) 72,480 32,694 630,479
CASH IN BANK, beginning of period 68,157 38,297 38,297 110,777
----------- --------- --------- -----------
CASH IN BANK, end of period $ 38,297 $ 110,777 $ 70,991 $ 741,256
----------- --------- --------- -----------
----------- --------- --------- -----------
</TABLE>
See Note 13
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-7
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACTIVITY
Retrospettiva, Inc. (the Company) located in Beverly Hills, California was
organized in November 1990 to manufacture and import textile products from Italy
including finished garments and fabrics. By 1993, the Company was purchasing
fabrics from firms and factories around the world and contracting for the
manufacture of the fabrics in Eastern Europe (primarily Macedonia) for
importation into the United States.
The Company designs, manufactures and markets a variety of garments. Fabrics
are purchased from suppliers worldwide including firms in China, India, Russia,
Romania, Italy and the United States. The fabrics are shipped to contractor
factories primarily in Macedonia to be manufactured into finished garments for
shipment to the Company's customers in the United States.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for the
three month periods ending March 31, 1996 and 1997 are presented on a basis
consistent with the audited annual financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ending March 31, 1997 are not necessarily indicative of the
results to be expected for the year ended December 31, 1997.
STOCK SPLITS
In May 1996, the Company's Board of Directors authorized a 46 for one stock
split. The financial statements have been presented as if the split had
occurred at the beginning of each period presented.
In May 1997, the Company's Board of Directors authorized a 2.3826 for one stock
split to be approved by the Company's stockholders in June 1997. The financial
statements have been presented as if the split had occurred at the beginning of
each period presented.
CASH AND CASH EQUIVALENT
Cash and cash equivalents include cash on hand and investments with original
maturities of three months or less.
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts, as needed, for accounts
deemed uncollectible. Allowance for uncollectible accounts was recorded at
$17,196 for December 31, 1996 and March 31, 1997 (unaudited), respectively.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
F-8
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
expense is generally provided on a straight-line basis using estimated useful
lives of 5-10 years for equipment. Leasehold improvements are amortized over the
lesser of the estimated useful life of the asset or the term of the lease.
Depreciation and amortization expense of property and equipment was $17,792,
$17,491, $4,291, and $4,407 for the years ended December 31, 1995, 1996 and for
the three months ended March 31, 1996 (unaudited) and 1997 (unaudited),
respectively.
DEFERRED OFFERING COSTS
Costs incurred in connection with the Company's current anticipated public
offering are deferred and will be charged against stockholders' equity upon the
successful completion of the offering or charged to expense if the offering is
not consummated.
REVENUE RECOGNITION
Revenue is recognized when sold merchandise has cleared customs in the United
States and is available to be shipped to customers from a port of entry.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS
109), Accounting for Income Taxes. Under this method, deferred income taxes are
recorded to reflect the tax consequences in future years of temporary
differences between the tax basis of the assets and liabilities and their
financial statement amounts at the end of each reporting period. Valuation
allowances will be established when necessary to reduce deferred tax assets to
the amount expected to be realized. Income tax expense is the tax payable for
the current period and the change during the period in deferred tax assets and
liabilities. The deferred tax assets and liabilities have been netted to
reflect the tax impact of temporary differences. The adoption of SFAS 109 did
not have a material effect on the Company's financial statements.
EARNINGS PER COMMON SHARE
Earnings per common share is computed based upon the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Fully diluted and primary earnings per common share are the same amounts for
each of the periods presented.
Common shares issued by the Company in the twelve months immediately preceding a
proposed public offering plus the number of common equivalent shares which
became issuable during the same period pursuant to the grant of warrants and
stock options (using the treasury stock method) at prices substantially less
than the initial public offering price have been included in the calculation of
common stock and common stock equivalent shares as if they were outstanding for
all periods presented.
Dilutive common equivalent shares consist of stock options and warrants
(calculated using the treasury stock method). In loss periods, dilutive common
equivalent shares are excluded as the effect would be anti-dilutive.
F-9
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which principally
include cash, trade receivables, note receivable, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity of such
instruments.
The fair value of the Company's debt instruments are based on the amount of
future cash flows associated with each instrument discounted using the Company's
borrowing rate. At December 31, 1996 and March 31, 1997 (unaudited), the
carrying value of all financial instruments was not materially different from
fair value.
CREDIT RISK
The Company sells its merchandise principally to customers throughout the United
States. Management performs regular evaluations concerning the ability of its
customers to satisfy their obligations and records a provision for doubtful
accounts based upon these evaluations. The Company's credit losses for the
periods presented have not exceeded management's estimates.
There are two customers that make up 93% and 81% of the accounts receivable
balance at December 31, 1996 and March 31, 1997 (unaudited), respectively.
The Company maintains all cash in bank deposit accounts, which at times may
exceed federally insured limits. The Company has not experienced a loss in such
accounts.
F-10
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT CUSTOMERS
Individual customers aggregating in excess of 10% of net sales are as follows:
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
SALES
Customer A $5,413,771 $4,102,545 $2,149,939 $ -
Customer B $2,325,851 $3,745,836 $ 891,529 $3,257,966
Customer C,
related party $2,214,378 $3,381,524 $1,098,246 $ 306,774
Customer D $ - $ - $ - $1,074,696
RELATED PARTY TRANSACTIONS
The Company has sales to a related party customer. The Company's
officer/stockholder is part owner of Customer C. Accounts receivable at
December 31, 1996 and March 31, 1997 for Customer C was $1,182,202 and $597,495
(unaudited), respectively.
Principal ownership and control of the Company rests with the Chief Executive
Officer.
ADOPTION OF NEW STANDARDS
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128), was issued in February 1997 (effective for financial statements ending
after December 15, 1997). This Statement simplifies the standards for computing
earnings per share (EPS) previously found in APB Opinion No. 15, Earnings Per
Share, and makes them more comparable to international EPS standards. SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS. In
addition, the Statement requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. The Company has not yet assessed the impact of SFAS 128 on its
financial statements.
F-11
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - INVENTORIES
Inventories consist of the following:
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
(UNAUDITED)
Finished goods $ 923,373 $ 409,200
Work-in-process 908,752 881,985
Raw materials 1,280,553 1,113,086
---------- ----------
$3,112,678 $2,404,271
---------- ----------
---------- ----------
The Company's import operations are subject to constraints imposed by bilateral
textile agreements between the United States and a number of foreign countries.
These agreements impose quotas on the amount and type of goods which can be
imported into the United States from these countries and can limit or prohibit
importation of products on very short notice. The Company's imported products
are also subject to United States customs duties which are a material portion of
the Company's cost of imported goods. A substantial increase in customs duties
or a substantial reduction in quota limits applicable to the Company's imports
could have a material adverse effect on the Company's financial condition and
results of operations.
NOTE 3 - OTHER ASSETS
Other assets consist of the following:
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
(Unaudited)
Insurance claim, receivable $76,166 $76,166
Deposits 4,500 4,500
------- -------
$80,666 $80,666
------- -------
------- -------
The insurance claim receivable is due to inventory lost in a fire in a
consolidating warehouse.
F-12
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31, MARCH 31,
1996 1997
----------- -----------
(UNAUDITED)
Automobile $ 20,568 $ 20,568
Furniture and fixtures 35,494 35,494
Leasehold improvements 50,514 50,514
-------- --------
Total 106,576 106,576
Less accumulated depreciation
and amortization (45,190) (49,597)
-------- --------
$ 61,386 $ 56,979
-------- --------
-------- --------
NOTE 5 - NOTE RECEIVABLE
During 1994, the Company was owed an outstanding trade receivable of
$266,000. Approximately $70,000 was written off as uncollectible in 1994 and
$196,000 was converted to a note receivable, bearing interest at 10%, and
requiring 24 monthly payments of $10,000 in services. The Company realized
$8,416 in services during 1996 and $10,286 (unaudited) during the three
months ended March 31, 1997.
The Company has negotiated with its related party customer to use the warehouse
services. The note receivable will be reduced by services rendered. During the
three months ended March 31, 1997 the notes receivable was reduced by $44,593
(unaudited).
NOTE 6 - NOTE RECEIVABLE FROM STOCKHOLDER (UNAUDITED)
The Company's note receivable from officer/stockholder is unsecured, due on
demand and bears interest at 10% per annum.
F-13
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - NOTE PAYABLE
On September 27, 1995, the Company obtained a line of credit of $250,000 with a
bank due October 10, 1996. The loan was collateralized by accounts receivable
inventory and personal guarantee of an officer/stockholder. Interest was
payable monthly at 3% over the financial institutions variable prime rate.
During March 1997 the line of credit was refinanced with a variable rate (4%
over prime rate, initial rate of 12.25%). Payments are due in four monthly
installments of $20,000 principal plus interest beginning April 15, 1997, with
one final principal and interest payment due August 15, 1997.
NOTE 8 - NOTES PAYABLE, RELATED PARTIES
During June 1996 the Company completed an offering of 25 units in a Private
Placement for bridge loans. Each unit consisted of one $10,000 promissory note
(totaling $250,000) bearing interest at 8% per annum and 9,530 shares of the
Company's Common Stock. The notes are payable the earlier of June 30, 1997 or
on the closing date of an initial public offering of the Company's stock. The
underwriter was paid a commission of $50,000.
NOTE 9 - STOCK OPTION PLAN
STOCK OPTION PLAN
On May 1, 1996 the Company adopted the Stock Option Plan (the Plan) which
provides for the granting of options to officers, directors, employees and
consultants. 1,786,930 shares of common stock have been reserved under the plan
for the granting of options. The Plan will be in effect until April 30, 2006,
unless extended by the Company's shareholders. The options are exercisable to
purchase stock for a period of ten years from the date of grant.
Incentive Stock Options granted pursuant to this Plan may not have an option
price that is less than the fair market value of the stock on the date the
option is granted. Incentive stock options granted to significant stockholders
shall have an option price of not less than 110% of the fair market value of the
stock on the date of the grant.
<TABLE>
OUTSTANDING OPTIONS
RESERVED -----------------------
--------- PRICE PER
SHARES SHARES SHARES
--------- --------- ---------
<S> <C> <C> <C>
Initial reserved shares 1,786,930 - $ -
Granted 1,701,635 1,701,635 .63-6.75
--------- --------- ---------
Balance, December 31, 1996
and March 31, 1997 (unaudited) 85,295 1,701,635 $ .63-6.75
--------- --------- ---------
--------- --------- ---------
</TABLE>
Under an employment agreement a total of 595,645 options will be cancelled if
net income for the year ended December 31, 1997 does not exceed $750,000.
At December 31, 1996, 1,105,990 options granted under the plan were exercisable.
F-14
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company signed a 61 month lease agreement for its offices commencing
December 1, 1995. The monthly lease payment is $2,300.
The Company signed a ten-month sublease agreement in New York commencing
December 1, 1996. The terms of the sublease agreement require monthly payments
of $1,250 plus 50% of the maintenance costs.
The Company has another sublease in New York, with a two year term through April
1, 1998. The terms require monthly payments of $2,175 through January 31, 1997
and monthly payments of $2,285 for the remainder of the agreement.
Future minimum rental payments under non-cancelable operating leases are as
follows:
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
1997 $ 66,160 $ 48,765
1998 34,455 34,455
1999 27,600 27,600
2000 2,300 2,300
-------- --------
Total $130,515 $113,120
-------- --------
-------- --------
The Company rents office and showroom space from a major supplier in New York
on a month to month basis.
Rent expense for the years ended December 31, 1995 and 1996 was $37,900 and
$62,920, and three months ended March 31, 1996 and 1997 was $9,900 (unaudited)
and $22,310 (unaudited), respectively.
EMPLOYMENT AGREEMENTS
In May 1996 the Company entered into a three year employment agreement with
an officer/stockholder which provides for annual salary of $95,000,
commencing the first month subsequent to the earlier of the closing of an
initial public offering or the closing of a merger or acquisition by a public
company, a non-competition clause for two years following termination of the
employment agreement and stock options to purchase up to 1,191,300 shares of
Common Stock at $6.75 per share exercisable for a period of 10 years.
In April 1996, the Company entered into a three year employment agreement with
the chief financial officer which provides for annual salary of $60,000
commencing the first month after the completion of its planned initial public
offering. As signing compensation he received 81,007 shares of Common Stock and
stock options to purchase up to 119,100 shares of Common Stock at $6.75 per
share exercisable for a period of 10 years.
F-15
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
The Company is a party to various claims, complaints, and other legal actions
that have arisen in the ordinary course of business. The Company believes that
the outcome of all pending legal proceedings, in the aggregate, will not have a
material adverse effect on the Company's financial condition or the results of
its operations.
NOTE 11 - INCOME TAXES
The components of deferred tax assets and (liabilities) are as follows:
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
Total deferred tax assets $16,000 $16,000
Total deferred tax (liabilities) -- --
------- -------
Net deferred tax assets $16,000 $16,000
------- -------
------- -------
There are no significant differences between financial statement and taxable
income.
The tax effects of temporary differences that give rise to deferred tax assets
and (liabilities) are as follows:
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
Temporary differences:
Allowance for bad debts $ 7,000 $ 7,000
Property and equipment 5,000 5,000
Other 4,000 4,000
------- -------
$16,000 $16,000
------- -------
------- -------
F-16
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following:
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------ ---------------------
1995 1996 1996 1997
-------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED)
Current $ 35,000 $533,285 $243,000 $235,000
Deferred 160,000 7,000 -- --
-------- -------- -------- --------
Provision (Benefit) $195,000 $540,285 $243,000 $235,000
-------- -------- -------- --------
-------- -------- -------- --------
Following is a reconciliation of the amount of income tax (benefit) expense that
would result from applying the statutory federal income tax rates to pre-tax
income and the reported amount of income tax expense for the periods:
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------ ---------------------
1995 1996 1996 1997
-------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED)
Tax expense at federal
statutory rates $ 298,000 $450,000 $185,000 $200,000
State tax, net of federal
benefit 25,000 101,000 58,000 35,000
Alternative minimum
tax (credit) 10,000 (10,000) -- --
Depreciation -- 3,000 -- --
Other -- 3,285 -- --
(Benefit) of net operating
loss carryforward (298,000) (14,000) -- --
--------- -------- -------- --------
$ 35,000 $533,285 $243,000 $235,000
--------- -------- -------- --------
--------- -------- -------- --------
F-17
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES (CONTINUED)
The components of deferred income tax (benefit) expense are as follows:
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------ ---------------------
1995 1996 1996 1997
-------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED)
Bad debts $ 7,000 $ -- $ -- $ --
Depreciation 2,000 (3,000) -- --
Other 4,000 (4,000) -- --
Net operating loss
carryover 364,000 14,000 -- --
Valuation allowance (217,000) -- -- --
--------- -------- -------- --------
$ 160,000 $ 7,000 $ -- $ --
--------- -------- -------- --------
--------- -------- -------- --------
NOTE 12 - STOCK-BASED COMPENSATION
During 1996 the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). The new standard
requires the Company to adopt the "fair value" method with respect to stock-
based compensation of consultants and other non-employees.
The Company did not change its method of accounting with respect to employee
stock options; the Company continues to account for these under the "intrinsic
value" method. Had the Company adopted the fair value method with respect to
options issued to employees as well, an additional charge to income of $52,300
would have been required in 1996; proforma net income would have been $319,000
and earnings per share would have been $.18 on both a primary and fully diluted
basis. No stock options were issued for the three months ended March 31, 1997.
In estimating the above expense, the Company used the Modified Black-Scholes
European pricing model. The average risk-free interest rate used was 6.2%,
volatility was estimated at 31%; the expected life was less than three years.
F-18
<PAGE>
RETROSPETTIVA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS FOR NONCASH
INVESTING AND FINANCING ACTIVITIES
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------ ---------------------
1995 1996 1996 1997
-------- -------- ---------- ----------
(UNAUDITED) (UNAUDITED)
Cash paid for interest $ 8,180 $ 26,820 $7,722 $12,331
------- -------- ------ -------
------- -------- ------ -------
Cash paid for income taxes $26,113 $ 2,196 $ -- $59,295
------- -------- ------ -------
------- -------- ------ -------
Stock issued for bridge
loans $ -- $100,000 $ -- $ --
------- -------- ------ -------
------- -------- ------ -------
NOTE 14 - SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING
The Company has entered into a letter of intent with an underwriter to sell
Company securities in a public offering. Upon a registration statement being
declared effective, 500,000 units (each unit consisting of two shares of common
stock and one warrant) are anticipated to be sold and 75,000 shares to be agreed
upon by certain security holders.
STOCK OPTIONS ISSUED
In June 1997, the Company has granted stock options to purchase 60,000 share
of common stock at $6.75 per share to a consultant. The amount of compensation
to be recognized under SFAS 123 is approximately $120,000.
In estimating the above expense, the Company used the Modified Black-Scholes
European pricing model. The average risk-free interest rate used was 6.4%,
volatility was estimated at 43%; the expected life was less than three years.
F-19
<PAGE>
- ------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than contained in this
Prospectus in connection with the Offering described herein, and if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell, or the solicitation of an offer to buy, the securities offered hereby to
any person in any state or other jurisdiction in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any sale
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof.
_______________
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 21
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 40
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . 43
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . 48
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-1
Until __________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
500,000 UNITS
RETROSPETTIVA, INC.
_______________
PROSPECTUS
_______________
KENSINGTON SECURITIES, INC.
__________, 1997
- ------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI of the Registrant's Bylaws provides as follows:
ARTICLE VI
INDEMNIFICATION OF CERTAIN PERSONS
Section 1. INDEMNIFICATION. For purposes of Article VI, a "Proper Person"
means any person (including the estate or personal representative of a director)
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether formal or informal, by reason of
the fact that he is or was a director, officer, employee, fiduciary or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, fiduciary or agent of any foreign
or domestic profit or nonprofit corporation or of any partnership, joint
venture, trust, profit or nonprofit unincorporated association, limited
liability company, or other enterprise or employee benefit plan. The
corporation shall indemnify any Proper Person against reasonably incurred
expenses (including attorneys' fees), judgments, penalties, fines (including any
excise tax assessed with respect to an employee benefit plan) and amounts paid
in settlement reasonably incurred by him in connection with such action, suit or
proceeding if it is determined by the groups set forth in Section 4 of this
Article that he conducted himself in good faith and that he reasonably believed
(i) in the case of conduct in his official capacity with the corporation, that
his conduct was in the corporation's best interests, or (ii) in all other cases
(except criminal cases), that his conduct was at least not opposed to the
corporation's best interests, or (iii) in the case of any criminal proceeding,
that he had no reasonable cause to believe his conduct was unlawful. Official
capacity means, when used with respect to a director, the office of director
and, when used with respect to any other Proper Person, the office in a
corporation held by the officer or the employment, fiduciary or agency
relationship undertaken by the employee, fiduciary, or agent on behalf of the
corporation. Official capacity does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
A director's conduct with respect to an employee benefit plan for a purpose
the director reasonably believed to be in the interests of the participants in
or beneficiaries of the plan is conduct that satisfies the requirement in (ii)
of this Section 1. A director's conduct with respect to an employee benefit
plan for a purpose that the director did not reasonably believe to be in the
interests of the participants in or beneficiaries of the plan shall be deemed
not to satisfy the requirement of this section that he conduct himself in good
faith.
No indemnification shall be made under this Article VI to a Proper Person
with respect to any claim, issue or matter in connection with a proceeding by or
in the right of a corporation in which the Proper Person was adjudged liable to
the corporation or in connection with any proceeding charging that the Proper
Person derived an improper personal benefit, whether or
<PAGE>
not involving action in an official capacity, in which he was adjudged liable
on the basis that he derived an improper personal benefit. Further,
indemnification under this section in connection with a proceeding brought by
or in the right of the corporation shall be limited to reasonable expenses,
including attorneys' fees, incurred in connection with the proceeding.
Section 2. RIGHT TO INDEMNIFICATION. The corporation shall indemnify any
Proper Person who was wholly successful, on the merits or otherwise, in defense
of any action, suit, or proceeding as to which he was entitled to
indemnification under Section 1 of this Article VI against expenses (including
attorneys' fees) reasonably incurred by him in connection with the proceeding
without the necessity of any action by the corporation other than the
determination in good faith that the defense has been wholly successful.
Section 3. EFFECT OF TERMINATION OF ACTION. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person seeking indemnification did not meet the standards
of conduct described in Section 1 of this Article VI. Entry of a judgment by
consent as part of a settlement shall not be deemed an adjudication of
liability, as described in Section 2 of this Article VI.
Section 4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION.
Except where there is a right to indemnification as set forth in Sections 1 or 2
of this Article or where indemnification is ordered by a court in Section 5, any
indemnification shall be made by the corporation only as determined in the
specific case by a proper group that indemnification of the Proper Person is
permissible under the circumstances because he has met the applicable standards
of conduct set forth in Section 1 of this Article. This determination shall be
made by the board of directors by a majority vote of those present at a meeting
at which a quorum is present, which quorum shall consist of directors not
parties to the proceeding ("Quorum"). If a Quorum cannot be obtained, the
determination shall be made by a majority vote of a committee of the board of
directors designated by the board, which committee shall consist of two or more
directors not parties to the proceeding, except that directors who are parties
to the proceeding may participate in the designation of directors for the
committee. If a Quorum of the board of directors cannot be obtained and the
committee cannot be established, or even if a Quorum is obtained or the
committee is designated and a majority of the directors constituting such Quorum
or committee so directs, the determination shall be made by (i) independent
legal counsel selected by a vote of the board of directors or the committee in
the manner specified in this Section 4 or, if a Quorum of the full board of
directors cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the full board
(including directors who are parties to the action) or (ii) a vote of the
shareholders.
Authorization of indemnification and advance of expenses shall be made in
the same manner as the determination that indemnification or advance of expenses
is permissible except that, if the determination that indemnification or advance
of expenses is permissible is made by independent legal counsel, authorization
of indemnification and advance of expenses shall be made by the body that
selected such counsel.
II-2
<PAGE>
Section 5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction for mandatory indemnification under Section 2 of this
Article, including indemnification for reasonable expenses incurred to obtain
court-ordered indemnification. If a court determines that the Proper Person is
entitled to indemnification under Section 2 of this Article, the court shall
order indemnification, including the Proper Person's reasonable expenses
incurred to obtain court-ordered indemnification. If the court determines that
such Proper Person is fairly and reasonably entitled to indemnification in view
of all the relevant circumstances, whether or not he met the standards of
conduct set forth in Section 1 of this Article or was adjudged liable in the
proceeding, the court may order such indemnification as the court deems proper
except that if the Proper Person has been adjudged liable, indemnification shall
be limited to reasonable expenses incurred in connection with the proceeding and
reasonable expenses incurred to obtain court-ordered indemnification.
Section 6. ADVANCE OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred in defending an action, suit or proceeding as described in
Section 1 may be paid by the corporation to any Proper Person in advance of the
final disposition of such action, suit or proceeding upon receipt of (i) a
written affirmation of such Proper Person's good faith belief that he has met
the standards of conduct prescribed by Section 1 of this Article VI, (ii) a
written undertaking, executed personally or on the Proper Person's behalf, to
repay such advances if it is ultimately determined that he did not meet the
prescribed standards of conduct (the undertaking shall be an unlimited general
obligation of the Proper Person but need not be secured and may be accepted
without reference to financial ability to make repayment), and (iii) a
determination is made by the proper group (as described in Section 4 of this
Article VI) that the facts as then known to the group would not preclude
indemnification. Determination and authorization of payments shall be made in
the same manner specified in Section 4 of this Article VI.
Section 7. ADDITIONAL INDEMNIFICATION TO CERTAIN PERSONS OTHER THAN
DIRECTORS. In addition to the indemnification provided to officers, employees,
fiduciaries or agents because of their status as Proper Persons under this
Article, the corporation may also indemnify and advance expenses to them if they
are not directors of the corporation to a greater extent than is provided in
these bylaws, if not inconsistent with public policy, and if provided for by
general or specific action of its board of directors or shareholders or by
contract.
Section 8. WITNESS EXPENSES. The sections of this Article VI do not limit
the corporation's authority to pay or reimburse expenses incurred by a director
in connection with an appearance as a witness in a proceeding at a time when he
has not been made or named as a defendant or respondent in the proceeding.
Section 9. REPORT TO SHAREHOLDERS. Any indemnification of or advance of
expenses to a director in accordance with this Article VI, if arising out of a
proceeding by or on behalf of the corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders' meeting.
If the next shareholder action is taken without a meeting at the
II-3
<PAGE>
instigation of the board of directors, such notice shall be given to the
shareholders at or before the time the first shareholder signs a writing
consenting to such action.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be permitted to officers, directors or
persons controlling the Company, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, Washington, D.C. 20549, 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 officer, director or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such officer, director 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 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)(2)
SEC Registration Fee. . . . . . . . . . . . . . . . $ 3,776
NASD Filing Fee . . . . . . . . . . . . . . . . . . 1,776
Blue Sky Filing Fees. . . . . . . . . . . . . . . . 1,000
Blue Sky Legal Fees . . . . . . . . . . . . . . . . 2,000
Printing Expenses . . . . . . . . . . . . . . . . . 50,000
Legal Fees and Expenses . . . . . . . . . . . . . . 80,000
Accounting Fees . . . . . . . . . . . . . . . . . . 65,000
Transfer Agent. . . . . . . . . . . . . . . . . . . 3,000
Nasdaq NMS Application Fee. . . . . . . . . . . . . 25,000
Miscellaneous Expenses. . . . . . . . . . . . . . . 43,448
---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $ 275,000(1)
(1) Does not include the Representative's commission and expenses of $780,000
($897,000 if the Overallotment Option is exercised).
(2) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the following shares of
its Common Stock which were not registered under the Securities Act of 1933, as
amended (the "1933 Act"):
(i) In April 1996, the Registrant sold 81,007 shares of its Common Stock to
Michael D. Silberman for services rendered valued at $.42 per share.
II-4
<PAGE>
(ii) In June 1996, the Registrant sold 25 Units of its securities, each Unit
consisting of a $10,000 promissory note and 9,530 shares of Common Stock for
$10,000 per Unit to the following persons:
Number of Shares of
Common Stock Underlying
Name the Units
---- ---------
Daniel Nordstrom 19,060
Michael Nordstrom 9,530
Michael N. Poli 9,530
Larry Heimann 9,530
Richard Yanez 9,530
John Wrobel 9,530
Kendall Oltrogge 9,530
Duane Eisenbeiss 9,530
Billie Jolson 9,530
Howard K. O'Neil 9,530
Richard J. Weiler and Mary Jo Weiler 19,060
Donald L. Moen and Barbara A. Moen 9,530
James W. O'Neil 9,530
Startrust Co. as trustee for Patricia Bandawat 38,120
John Jensen 9,530
Jeffrey B. Rosenfeld 9,530
Steven Bandawat 9,530
Patricia Bandawat 28,590
(iii) In March 1997, the Registrant sold 334,759 shares of its Common Stock at
$1.68 per share to the following individuals.
Name Number of Shares
---- ----------------
Gary Dendo and Masako Dendo 5,957
James. W. O'Neil 11,912
Rae Saltzman and Marjorie M. Saltzman 5,957
David H. Welch 17,870
Gary Oswald 8,936
Josephine C.H. Tinimbang 5,957
William A. Traxel and Ruth A. Miller 14,891
Robert L. Mapes and Peggy G. Mapes 595
Jim Mapes 3,872
Mapes 2,383
Kurt Kobel 3,574
John C. Gudgel, Jr. 23,826
II-5
<PAGE>
Name Number of Shares
---- ----------------
Milton Lamansky 2,979
Scott Huddleston and Judith Huddleston 5,957
Shung Sen Choong and Tu C. Choong 5,957
Marta Joan Butler and David T. Butler 23,826
Joanie L. Militich 3,872
Samuel Wong and Linda Wong 11,912
Russell J. Mello and Maxine F. Fuller 2,979
Clemence Tokarz 5,957
Jasvir S. Mattu 5,957
Eliot G. Ellefson 2,979
Frances M. Ellefson 5,957
Frank Hiavka 2,979
Jeffery Silverman 5,957
William B. Silverman 11,912
Steve Singer 9,530
Alan C. Andalman 9,530
Francene A. Kaefer 5,957
Frederick S. Kaefer 11,912
James W.T. Hu and Grace T.Y. Hu 11,912
Catherine Chen 5,957
Felicia Choi 11,912
Chuck Brown and Yvonne Brown 5,957
Jesse Roggens 5,957
Gary L. Boster 9,530
Rabbi Yaakov Bender 35,738
Kevin S. McGovern 5,957
(iv) From time to time, the Registrant has issued stock options (currently
aggregating 1,761,635 stock options) to employees, officers and directors under
its 1996 Stock Option Plan.
With respect to the sales made, the Registrant relied on Section 4(2) of
the 1933 Act, and/or Regulation D promulgated under the 1933 Act. No
advertising or general solicitation was employed in offering the securities.
The securities were offered to a limited number of individuals all of whom were
experienced and sophisticated investors capable of analyzing the merits and
risks of their investment. All such investors acknowledged in writing that they
were acquiring the securities for investment and not with a view toward
distribution or resale and that they understood the speculative nature of their
investment. The transfer of the securities was appropriately restricted from
sale by the Registrant.
II-6
<PAGE>
ITEM 27. EXHIBITS.
---------
Exhibit No. Title
- ----------- -----
1.01 Form of Underwriting Agreement
1.02 Form of Agreement Among Underwriters
1.03 Form of Selected Dealer Agreement
1.04 Form of Representative's Warrant
3.01 Restated Articles of Incorporation of the Registrant
3.02 Bylaws of the Registrant
4.01 Form of Warrant Agreement (To be filed by Amendment)
4.02 Common Stock Certificate (To be filed by Amendment)
5.01 Opinion of Gary A. Agron, regarding legality of the Units
(includes Consent)
10.01 1996 Employee Stock Option Plan
10.02 Office Lease and Amendments thereto (Beverly Hills, California)
10.03 Employment Agreement with Mr. Vukadinovic, as amended
10.04 Employment Agreement with Mr. Silberman, as amended
11.01 Computation of Earnings Per Share
23.01 Consent of AJ. Robbins, P.C.
23.02 Consent of Gary A. Agron (See 5.01, above)
27.01 Financial Data Schedule
II-7
<PAGE>
ITEM 28. UNDERTAKINGS.
-------------
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and Exchange
Commission such supplementary and periodic information, documents and reports as
may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(c) That any post-effective amendment filed will comply with the
applicable forms, rules and regulations of the Commission in effect at the time
such post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
1933 Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(e) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-8
<PAGE>
(f) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(g) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Beverly Hills, California, on June 11, 1997.
RETROSPETTIVA, INC.
By: /s/ BORIVOJE VUKADINOVIC
------------------------------------
Borivoje Vukadinovic
Chief Executive Officer
Pursuant to the requirements of the 1933 Act, as amended, this Registration
Statement has been signed below by the following persons on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ BORIVOJE VUKADINOVIC
- ------------------------ Chief Executive Officer, June 11, 1997
Borivoje Vukadinovic President and Director
/s/ MICHAEL D. SILBERMAN
- ------------------------ Chief Financial Officer, June 11, 1997
Michael D. Silberman Principal Accounting Officer,
Secretary and Director
/s/ IVAN ZOGOVIC
- ------------------------ Manager - Export/Import June 11, 1997
Ivan Zogovic and Director
/s/ MOJGAN KEYWANFAR
- ------------------------ Accounting Manager and June 11, 1997
Mojgan Keywanfar Director
/s/ S. WILLIAM YOST
- ------------------------ Director June 11, 1997
S. William Yost
/s/ DONALD E. TORMEY
- ------------------------ Director June 11, 1997
Donald E. Tormey
/s/ PHILIP E. GRAHAM
- ------------------------ Director June 11, 1997
Philip E. Graham
<PAGE>
EXHIBIT INDEX
Exhibit No. Title
- ----------- -----
1.01 Form of Underwriting Agreement
1.02 Form of Agreement Among Underwriters
1.03 Form of Selected Dealer Agreement
1.04 Form of Representative's Warrant
3.01 Restated Articles of Incorporation of the Registrant
3.02 Bylaws of the Registrant
5.01 Opinion of Gary A. Agron, regarding legality of the
Units (includes Consent)
10.01 1996 Employee Stock Option Plan
10.02 Office Lease and Amendments thereto (Beverly Hills,
California)
10.03 Employment Agreement with Mr. Vukadinovic, as
amended
10.04 Employment Agreement with Mr. Silberman, as amended
11.01 Computation of Earnings Per Share
23.01 Consent of AJ. Robbins, P.C.
23.02 Consent of Gary A. Agron (See 5.01, above)
27.01 Financial Data Schedule
<PAGE>
RETROSPETTIVA, INC.
500,000 UNITS
UNDERWRITING AGREEMENT
July ___, 1997
Kensington Securities, Inc.
162 Dockside Circle
Ft. Lauderdale, FL 33326
On behalf of the Several
Underwriters named in
Schedule I attached hereto
Ladies and Gentlemen:
Retrospettiva, Inc., a California corporation (the "Company"), proposes to
issue and sell to you and the other underwriters named in Schedule I to this
Agreement (the "Underwriters"), for whom you are acting as Representative, an
aggregate of 500,000 units (the "Firm Units"), each unit ("Unit") consisting of
two (2) shares of the Company's no par value Common Stock (the "Common Stock"),
and one Redeemable Common Stock Warrant entitling the holder thereof to purchase
for $7.50, one share of Common Stock for a term of five (5) years from the
effective date of the Registration Statement described below in Section 1(a).
The terms of the Units and the components of the Units shall be as described in
the Registration Statement. In addition, for the sole purpose of covering over-
allotments in connection with the sale of the Firm Units, the Company proposes
to grant to the Underwriters an option to purchase up to an additional 75,000
Units (the "Option Units"). The Company further agrees to sell and issue to you
as Representative, a five-year warrant (the "Representative's Warrant") to
purchase for $14.40 per Unit an aggregate of 50,000 Units (the "Representative's
Warrant Units"). Each Representative's Warrant Unit consists of two (2) shares
of Common Stock and one Redeemable Warrant ("Underlying Warrant"). The terms
and conditions of the Representative's Warrant, Representative's Warrant Units
and Underlying Warrants, including the purchase price thereof, shall be as set
forth in the Representative's Warrant filed as an exhibit to the Registration
Statement.
The Firm Units, any Option Units purchased pursuant to this Agreement and
the Representative's Warrant Units are collectively called herein the "Units"
and the Warrants included in the Units and the Representative's Warrant are
collectively called herein the "Warrants." The shares of Common Stock issuable
upon exercise of the Warrants are collectively called the "Warrant Shares" and
the Warrant Shares, together with the shares of Common Stock included in the
Units, are collectively called the "Shares."
<PAGE>
You have advised the Company that you intend to purchase the Firm Units,
and that you have been authorized to execute this Agreement. The Company
confirms the agreements made by it with respect to the purchase of the Firm
Units by the Underwriters, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, the Underwriters
that:
(a) A registration statement (File No. 333-__________) on Form SB-2
relating to the public offering of the Units, Warrants and Shares, including a
preliminary form of prospectus, copies of which have heretofore been delivered
to you, has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the Commission
under the Act. "Preliminary Prospectus" shall mean each prospectus filed
pursuant to Rule 430 of the Rules and Regulations. The registration statement
(including all financial schedules and exhibits) as amended at the time it
becomes effective and the final prospectus included therein are respectively
referred to as the "Registration Statement" and the "Prospectus", except that
(i) if the prospectus first filed by the Company pursuant to Rule 424(b) or Rule
430A of the Rules and Regulations or otherwise utilized and not required to be
so filed shall differ from said prospectus as then amended, the term
"Prospectus" shall mean the prospectus first filed pursuant to Rule 424(b) or
Rule 430A, or so utilized from and after the date on which it shall have been
filed or utilized and (ii) if such registration statement or prospectus is
amended or such prospectus is supplemented, after the effective date (the
"Effective Date") of such registration statement and prior to the Option Closing
Date (as defined in Section 2(b)), the term "Registration Statement" shall
include such registration statement as so amended, and the term "Prospectus"
shall include the prospectus as so amended or supplemented, or both, as the case
may be.
(b) At the time the Registration Statement becomes effective and at all
times subsequent thereto up to the Option Closing Date (defined above), (i) the
Registration Statement and Prospectus will in all respects conform to the
requirements of the Act and the Rules and Regulations, (ii) there will be no
stop order of the Commission, any court of competent jurisdiction or the
securities administrator of any state in which the Units, Warrants and Shares
have been, or are to be, registered or qualified, in effect, pending or
threatened with respect to the effectiveness of the Registration Statement or
the distribution of the Prospectus and (iii) neither the Registration Statement
nor the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
statements therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriters specifically for use in the preparation thereof. It is
understood that the statements set forth in the Prospectus with respect to
stabilization, the material set forth under the heading "Underwriting", and the
identity
2
<PAGE>
of counsel to the Underwriters under the heading "Legal Matters" constitute
the only information furnished in writing by or on behalf of the Underwriters
for inclusion in the Registration Statement and Prospectus, as the case may
be.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and corporate authority to own its properties and
conduct its business as described in the Prospectus and is duly qualified to do
business as a foreign corporation and is in good standing in all other
jurisdictions in which the nature of its business or the character or location
of its properties requires such qualification, except where failure to so
qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized capital stock of the Company as of the date of the
Prospectus, as set forth under "Description of Securities" in the Prospectus,
was 15,000,000 shares of Common Stock, no par value per share, of which not more
than 2,000,000 shares will be issued and outstanding or subject to outstanding
options or warrants as of the Effective Date and 1,000,000 shares of Preferred
Stock, no par value per share, of which no shares will be issued and
outstanding. The shares of issued and outstanding capital stock of the Company
set forth thereunder have been duly authorized, validly issued and are fully
paid and non-assessable; except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company.
The Preferred Stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and the Representative's Warrant and their respective
components upon issuance and delivery and payment therefor in the manner
contemplated by this Agreement will be duly authorized, validly issued, fully
paid and nonassessable. The shares of Common Stock are not subject to
preemptive rights of any security holder of the Company. Neither the filing of
the Registration Statement nor the offering or sale of the Units, Warrants or
Shares, as contemplated in this Agreement and the Representative's Warrant,
gives rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any shares of Common Stock or other
securities of the Company, except as described in the Registration Statement.
(f) All offers and sales of the Company's capital stock prior to the date
hereof, other than pursuant to effective registration statements under the Act,
were at all relevant times exempt from the registration requirements of the Act
and were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky laws,
or the relevant statutes of limitations have expired, or civil liability
therefor has been eliminated by an offer to rescind.
(g) This Agreement, including the Representative's Warrant, the agreement
between the Company and the warrant agent (the "Warrant Agreement") and the
other agreements of the
3
<PAGE>
Company provided for herein, have been duly authorized, executed and
delivered by the Company and constitute valid and binding agreements of the
Company enforceable against the Company in accordance with their respective
terms, except insofar as rights to indemnity and/or contribution may be
limited by federal or state securities laws or the public policy underlying
such laws and except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally,
and be subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The
Units, Warrants and Shares have been duly authorized for issuance and sale,
and, when issued pursuant to this Agreement and the Representative's Warrant
against payment of the consideration therefor, will be validly issued, fully
paid and nonassessable and not subject to preemptive rights. The Warrant
Shares issuable upon exercise of the Warrants have been duly authorized and
reserved for issuance upon exercise of the Warrants and when issued upon
payment of the exercise price therefor will be validly issued, fully paid and
nonassessable shares of Common Stock and not subject to preemptive rights.
(h) Except as described in the Prospectus, the Company is not in
violation, breach or default of or under, and consummation of the transactions
herein contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach of, any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance pursuant to the terms of, any indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets of the Company are subject, nor will such action result in
any violation of the provisions of the articles of incorporation or the
by-laws of the Company, as amended, or any statute or any order, rule or
regulation applicable to the Company of any court or of any regulatory authority
or other governmental body having jurisdiction over the Company.
(i) Subject to the qualifications stated in the Prospectus, the Company
has good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to its business; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus; and the Company
owns or leases all such properties described in the prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
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(j) A.J. Robbins, P.C., who have given their reports on certain financial
statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are with
respect to the Company independent public accountants as required by the Act and
the Rules and Regulations.
(k) The financial statements and schedules, together with related notes,
set forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in financial position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved.
(l) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as may otherwise be stated or
contemplated therein: (i) there has not been any material adverse change in the
condition of the Company and its subsidiaries, taken as a whole, financial and
otherwise, or in the earnings, business prospects or current operations of the
Company and its subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, (ii) there have not been any material transactions
entered into by the Company or any of its subsidiaries which are required to be
disclosed in the Registration Statement, (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock or any material change in the capital stock or material
increase in the long-term indebtedness of the Company; (iv) no action, suit or
proceeding at law or in equity and no governmental or regulatory proceeding has
occurred or is pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its subsidiaries wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
consummation of this Agreement or the business, operations, financial condition,
income or business prospects of the Company and its subsidiaries, taken as a
whole and (v) neither the Company nor any of its subsidiaries has sustained a
loss of, or damage to, its properties (whether or not insured) which would have
a material adverse effect on the business, operations, financial condition,
income or business prospects of the Company and its subsidiaries, taken as a
whole.
(m) Except as set forth in the Prospectus, there is not now pending nor,
to the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters or discrimination on the basis
of age, sex, religion or race) to which the Company is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth or
properties of the Company; and no labor disputes involving the employees of the
Company exist which might be expected to materially adversely affect the conduct
of the business, property or operations or the financial condition or earnings
of the Company.
(n) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon;
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and there is no tax deficiency which has been or to the knowledge of the
Company might be asserted against the Company.
(o) The Company has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects complying therewith and, except as disclosed in the Prospectus, owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, mark registrations, copyrights and licenses necessary for the
conduct of such business and has not received any notice of conflict with the
asserted rights of others in respect thereof. To the best knowledge of the
Company, none of the activities or business of the Company is in violation of,
or cause the Company to violate, any law, rule, regulation or order of any
foreign governmental authority or of the United States, any state, county or
locality, or of any agency or locality, the violation of which would have a
material adverse impact upon the condition (financial or otherwise), business,
property, prospective results of operations or net worth of the Company.
(p) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution in violation of law, or (ii) made any payment to any
state, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(q) On the Closing Dates (as defined in Section 2(c)), all transfer or
other taxes (including franchise, capital stock or other tax, other than income
taxes imposed by any jurisdiction), if any, which are required to be paid in
connection with the sale and transfer of the Units, Warrants and Shares to the
Underwriters hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been fully complied with.
(r) All contracts and other documents of the Company which are, under the
Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(s) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the Units, Warrants and Shares to facilitate the sale or resale of
the Units, Warrants and Shares hereunder.
(t) Except as set forth in the Prospectus, the Company has no
subsidiaries.
(u) The Company has not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
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(v) As of the effective date of the Registration Statement, the Common
Stock has been duly registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the Common Stock and the
Warrants have been approved for quotation on the National Association of
Securities Dealers Automated Quotation National Market System (the "Nasdaq
National Market") upon official notice of issuance.
Any certificate signed by any officer of the Company and delivered to you
or to counsel for the Underwriters in connection with the Closing shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
2. PURCHASE, DELIVERY AND SALE OF THE SHARES.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties and agreements herein contained, the
Company agrees to issue and sell to the Underwriters, and the Underwriters agree
to buy from the Company at $10.80 per Unit at the place and time hereinafter
specified, 500,000 Units.
Delivery of the Firm Units as well as the Representative's Warrant against
payment therefor shall take place at the offices of Kensington Securities, Inc.,
7031 E. Camelback Road, Suite 494, Scottsdale, Arizona 85251 (or at such other
place as may be designated by agreement between you and the Company) at 9:00
a.m. local time on July ___, 1997 or at such later time and date as you may
designate within ten business days of the effective date of the Registration
Statement or the date which you receive the Prospectus in sufficient quantity to
send confirmations of sale, such time and date of delivery for the Firm Units
being herein called the "First Closing Date." Time shall be of the essence and
delivery at the time and place specified in this subsection (a) is a further
condition to the obligations of the Underwriters hereunder. Payment shall be
made to the order of the Company on the First Closing Date.
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to you to purchase all or any
part of an aggregate of an additional 75,000 Units at the same price per Unit as
you shall pay for the Firm Units being sold pursuant to the provision of
subsection (a) of this Section 2. This option may be exercised within thirty
(30) days after the First Closing Date upon notice by you to the Company
advising it as to the amount of Option Units as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Units are to be registered and the time and date when such certificates are to
be delivered. Such time and date shall be determined by you but shall not be
earlier than four and not later than ten full business days after the exercise
of said option, nor in any event prior to the First Closing Date, and such time
and date is referred to herein as the "Option Closing Date." Delivery of the
Option Units against payment therefor shall take place at the offices of the
Underwriters. Time shall be of the essence and delivery at the time and place
specified in this subsection (b) is a further condition to your obligations
hereunder. The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriters of Firm Units referred to in
subsection (a) above.
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<PAGE>
(c) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company shall sell to you individually, and/or your designated
officers, at the First Closing Date, as defined below, for $100, the
Representative's Warrant to purchase an aggregate of up to 50,000
Representative's Warrant Units. The price, terms and provisions of the
Representative's Warrant Units and the respective rights and obligations of the
Company and the holders of the Representative's Warrant and/or Representative's
Warrant Units and the components thereof are set forth in the Representative's
Warrant between the Company and the Representative.
(d) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriters hereunder available to you for
examination at least two full business days prior to the First Closing Date or
the Option Closing Date (which are collectively referred to herein as the
"Closing Dates" and individually as a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request, at
least two full business days prior to the relevant Closing Dates. Time shall be
of the essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
Definitive engraved certificates in negotiable form for the Firm Units and
the Option Units to be purchased by the Underwriters hereunder will be delivered
by the Company to you for your account against payment of the purchase price by
you by certified or bank cashier's checks in certified funds, payable to the
order of the Company.
In addition, in the event you exercise the option to purchase from the
Company all or any portion of the Option Units pursuant to the provisions of
subsection (b) above, payment for such Option Units shall be made to or upon the
order of the Company not later than ten (10) business days after the Option
Closing Date by certified checks at the time and date of delivery of such Option
Units as required by the provisions of subsection (b) above, against receipt of
the certificates for such Option Units by you for your account, registered in
such names and in such denominations as you may request.
It is understood that the Underwriters propose to offer the Units to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the effective date, file any amendment to
the Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which you
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<PAGE>
or your counsel shall have objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later
of (i) the completion by the Underwriters of the distribution of the Shares
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared
effective) and (ii) 25 days after the Effective Date, the Company will
prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which,
in your reasonable opinion, may be necessary or advisable in connection with
the distribution of the Shares.
(i) Promptly after you or the Company is advised thereof, you
will advise the Company or the Company will advise you, as the case
may be, and confirm the advice in writing, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request
made by the Commission for amendment of the Registration Statement or
for supplementing of the Prospectus or for additional information with
respect thereto, of the issuance by the Commission or any state or
regulatory body of any stop orders or other order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Preliminary Prospectus, or of the suspension
of the qualification of the Shares for offering in any jurisdiction,
or the institution of any proceedings for any of such purposes, and
the Company will use its reasonable efforts to prevent the issuance of
any such order and, if issued, to obtain as soon as possible the
lifting thereof.
(ii) The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriters and selected dealers to
use the Prospectus in connection with the sale of the Units for such
period as in the opinion of counsel of the Underwriters (whether
general, special, patent or otherwise) the use thereof is required to
comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period
as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer, of any event of
which the Company has knowledge and which materially affects the
Company or the Securities, or which, in the opinion of counsel for the
Company or counsel for the Underwriters, should be set forth in an
amendment to the Registration Statement or a supplement to the
Prospectus in order to make the statements therein not then
misleading, in light of the circumstances existing at the time the
Prospectus is required to be delivered to a purchaser of the Units, or
in case it shall be necessary to amend or supplement the Prospectus to
comply with the Act or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you
copies of such amended Prospectus or of such supplement to be attached
to the
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<PAGE>
Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they are
made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended
Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters, except that in case the
Underwriters are required, in connection with the sale of the Shares,
to deliver a Prospectus nine months or more after the effective date
of the Registration Statement, the Company will upon your request and
at your expense, amend or supplement the Registration Statement and
Prospectus or file a new registration statement on Form SB-2, S-1 or
S-3, if necessary, and furnish the Underwriters with reasonable
quantities of prospectuses complying with Section 10(a)(3) of the Act.
(iii) The Company will comply with the Act, the Rules and
Regulations and the Exchange Act and the rules and regulations
thereunder in connection with the offering and issuance of the Shares.
(b) The Company will use its best efforts and shall pay all costs and
expenses to qualify or register ("Blue Sky") the Firm Units and Option Units for
sale under the securities or "blue sky" laws of such jurisdictions as you may
designate and will make such applications and furnish such information to
counsel for the Underwriters as may be required for that purpose and to comply
with such laws, provided that the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Firm Units and Option Units. Blue Sky
applications shall be prepared by the Company's counsel, Gary A. Agron, at the
Company's expense. On the Effective Date of this Agreement as defined in
Section 9 below, counsel for the Company shall deliver to Underwriters' counsel
a Blue Sky Memorandum describing, among other things, all states wherein the
Offering has been qualified or registered for sale, the number of Units
registered in each such state and the period of effectiveness of such
qualification or registration. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as you may reasonably request.
(c) If the sale of the Units provided for herein is not consummated for
any reason caused by the Company, the Company shall pay all costs and expenses
incident to the performance of the Company's obligations hereunder, including
but not limited to, all of the expenses itemized in Section 8, including your
accountable expenses, as provided in Section 8(b).
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<PAGE>
(d) The Company will use its best efforts to cause a Registration
Statement under the Exchange Act to be declared effective concurrently with the
completion of the offering of the Shares or promptly thereafter, but in no event
later than three days after the date of the Prospectus.
(e) For so long as the Company is a reporting company under either Section
12(g) or 15(d) of the Exchange Act, the Company, at its expense, will furnish to
the holders of its Common Stock, Units and Warrants an annual report (including
financial statements audited by independent public accountants), in reasonable
detail and at its expense, will furnish to you during the period ending five
years from the date hereof, (i) within 90 days of the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such fiscal
year, together with statements of income, stockholders' equity and cash flows of
the Company and any subsidiaries as at the end of such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent auditors; (ii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iii) as soon as they
are available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission; and (iv) such other information as
you may from time to time reasonably request.
(f) In addition to the information and reports set forth in Section 3(e)
above, for a period of two years from the Effective Date, the Company, at its
expense, shall furnish to you (i) unaudited quarterly financial statements on a
timely basis, and (ii) monthly shareholder lists prepared by the Company's
transfer agent.
(g) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(h) The Company will deliver to you at or before the First Closing Date
two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon order of the Underwriters, from time to time
until the Effective Date, as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company will deliver to the Underwriters on the
Effective Date and thereafter for so long as a Prospectus is required to be
delivered under the Act, from time to time, as many copies of the Prospectus, in
final form, or as thereafter amended or supplemented, as the Underwriters may
from time to time reasonably request.
(i) The Company will make generally available to its security holders and
deliver to you as soon as it is practicable to do so, but in no event later than
90 days after the end of 12 months after its current fiscal quarter, an earnings
statement (which need not be audited) covering a period of at least 12
consecutive months beginning after the Effective Date, which shall satisfy the
requirements of Section ll(a) of the Act.
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(j) The Company will apply the net proceeds from the sale of the Firm
Units substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of Pezzola & Reinke, A Professional Corporation, counsel to
the Underwriters, may be reasonably necessary or advisable in connection with
the distribution of the Shares and will use its reasonable efforts to cause the
same to become effective as promptly as possible.
(l) Except as stated below, each of the existing stockholders of the
Company at the date hereof (the "Existing Stockholders"), will execute
agreements ("Lock Up Agreements"), in the form previously delivered, to the
effect that for a period of 24 months from the date of the Prospectus, they will
not sell, assign, hypothecate, pledge or otherwise dispose of, directly or
indirectly, any shares of Common Stock of the Company owned prior to the date
hereof without your prior written consent, and will agree to permit all
certificates evidencing their shares to be endorsed with the appropriate
restrictive legends, and consent to the placement of appropriate stop transfer
orders with the transfer agent for the Company. Further, options of Company
employees shall be excluded from the Lock-Up Agreement except for ______________
options of Borivoje Vukadinovic, the Company's Chief Executive Officer which
will be subject to a Lock-Up Agreement for 12 months from the date hereof after
which one-half of such options shall be released from the Lock-Up Agreement with
all remaining options released from the Lock-Up Agreement on July 31, 1998.
Excluded from the Lock-Up Agreement shall be those shares of Common Stock that
certain Existing Stockholders are registering for sale as part of the
Registration Statement. The Company further agrees that for a period of 12
months from the date hereof, it will not register any shares of Common Stock
underlying any existing stock purchase warrants.
(m) The Company shall immediately make all filings required to seek
approval for the quotation of the Common Stock and the Warrants on the Nasdaq
National Market and will use its reasonable efforts to effect and maintain the
aforesaid approval for at least five years from the date of this Agreement.
(n) The Company and the Existing Stockholders represent that it or they
have not taken, and agree that it or they will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably be
expected to cause or result in the stabilization or manipulation of the price of
the Units to facilitate the sale or resale of the Units.
(o) For a period of thirty-six months from the Closing, the Company shall,
at your option, appoint a non-voting advisor to the Company's Board of
Directors, designated by you and such advisor shall receive notice of and be
entitled to attend all meetings of the Board of Directors. The Company agrees
it shall fully indemnify, defend and hold harmless such advisor
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to the fullest extent permitted by law with respect to all acts and omissions
as an advisor to the Company's Board of Directors.
(p) The Company will reserve and keep available that maximum number of its
authorized but unissued Shares which are issuable upon exercise of the Warrants
and the Representative's Warrant (as defined in Section 11).
(q) For a period of thirty-six (36) months from the Effective Date, you
shall have the right to provide a competitive 401k program to management and all
employees of the Company.
(r) The Company shall select Common Stock and Warrant certificates and
utilize a stock transfer agent satisfactory to you.
(s) So long as any Warrants are outstanding, the Company shall use its
best efforts to cause post-effective amendments to the Registration Statement to
become effective in compliance with the Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to the Underwriters and each dealer as many copies of
each such Prospectus as the Underwriters or dealer may reasonably request.
4. CONDITIONS OF UNDERWRITERS' OBLIGATION.
The obligations of the Underwriters to purchase and pay for the Units which
they have agreed to purchase hereunder are subject to the accuracy (as of the
date hereof, and as of the Closing Dates) of and compliance with the
representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 4:00 p.m., Eastern time, on the date
of this Agreement, or at such later time or on such later date as to which you
may agree in writing; on the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that or any similar purpose shall have been instituted or shall
be pending or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Pezzola & Reinke, counsel to the Underwriters; and no stop order
shall be in effect denying or suspending effectiveness of the Registration
Statement nor shall any stop order proceedings with respect thereto be
instituted or pending or threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of Gary A. Agron, counsel for the Company, in form
and substance satisfactory to counsel for the Underwriters, to the effect that:
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(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of California and is duly qualified or licensed to do business as a
foreign corporation in good standing in each other jurisdiction in
which the ownership or leasing of its properties or the conduct of its
business requires such qualification except where failure to so
qualify would not result in a material adverse effect on the Company;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained, or is in the process of obtaining, all licenses, permits and
other governmental authorizations necessary to the conduct of its
business as described in the Prospectus, (b) such obtained licenses,
permits and other governmental authorizations are in full force and
effect, and (c) the Company is in all material respects complying
therewith;
(iii) the authorized capitalization of the Company as of the
date of the Prospectus was as set forth under "Description of
Securities" in the Prospectus; all of the shares of the Company's
outstanding stock requiring authorization for issuance by the
Company's Board of Directors have been duly authorized and validly
issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding
shares of Common Stock of the Company have not been issued in
violation of the preemptive rights of any stockholder, and the
stockholders of the Company do not have any preemptive rights or other
rights to subscribe for or to purchase, and there are no restrictions
upon the voting or transfer of, any of the Common Stock; the Units,
Common Stock, Warrants and the Representative's Warrant conform to the
respective descriptions thereof contained in the Prospectus; the Units
and each Unit component to be issued as contemplated in the
Registration Statement have been duly authorized and, when paid, will
be non-assessable and free of preemptive rights, and no personal
liability will attach to the ownership thereof; all prior sales of the
Company's securities have been made in compliance with, or under an
exemption from, the Act and applicable state securities laws; a
sufficient number of shares of Common Stock have been reserved for
issuance upon exercise of the Warrants and the Representative's
Warrant; and to the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the
Units as contemplated by this Agreement gives rise to any registration
rights or other rights, other than those which have been waived or
satisfied, for or relating to the registration of the Units;
(iv) each of this Agreement, the Representative's Warrant, the
Warrant Agreement and the Warrants has been duly and validly
authorized, executed and delivered by the Company, and assuming due
authorization, execution and delivery of this Agreement by the
Underwriters and of such other agreements by the other parties
thereto, all of such agreements are, or when duly executed will be,
the valid and legally binding obligations of the Company (except as to
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bankruptcy and related matters described in paragraph 1(f), above);
provided that no opinion need be expressed as to the enforceability of
the indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7 of this Agreement;
(v) the Warrant Shares (including those issuable upon exercise
of the Representative's Warrant) and Representative's Warrant Units
have been duly authorized and reserved for issuance and, when issued
and delivered in accordance with the terms of this Agreement and the
Representative's Warrant, respectively, will be duly and validly
issued, fully paid and nonassessable.
(vi) the certificate evidencing the Unit components and the
Representative's Warrant are in valid and proper legal form; the
Warrants and the Representative's Warrant will be exercisable for
shares of Common Stock of the Company in accordance with the terms of
the Warrant Agreement and the Representative's Warrant, respectively;
and at the respective prices therein provided for; the shares of
Common Stock of the Company issuable upon exercise of the Warrants and
the Representative's Warrant have been duly authorized and reserved
for issuance upon such exercise or conversion, and such shares, when
issued upon such exercise in accordance with the terms of the Warrants
and the Representative's Warrant and at the price paid, or upon such
conversion, shall be fully paid and non-assessable;
(vii) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could
materially and adversely affect the business, property, financial
condition or operations of the Company or which question the validity
of the Units or the components thereof, this Agreement, the Warrant
Agreement or the Representative's Warrant or of any action taken or to
be taken by the Company pursuant to this Agreement, the Warrant
Agreement or the Representative's Warrant; no such proceedings are
known to such counsel to be contemplated against the Company; and
there are no governmental proceedings or regulations known to such
counsel required to be described or referred to in the Registration
Statement which are not so described or referred to;
(viii) to the best knowledge of such counsel, the Company is
not in violation of or default under this Agreement, the Warrant
Agreement or the Representative's Warrant, and the execution and
delivery hereof and thereof and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions
herein or therein contemplated will not result in a violation of, or
constitute a default under, the certificate or articles of
incorporation or by-laws of the Company, or in the performance or
observation of any material obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract,
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indenture, mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company is a party or in a violation
of any material order, rule, regulation, writ, injunction or decree or any
government, governmental instrumentality or court, domestic or foreign;
(ix) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission and the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations;
(x) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the
attention of such counsel to cause such counsel to have reason to
believe that the Registration Statement or any amendment thereto at
the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any supplement thereto contains
any untrue statement of a material fact or omits to state a material
fact necessary in order to make statements therein in light of the
circumstances under which they were made not misleading (except, in
the case of both the Registration Statement and any amendment thereto
and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need
express no opinion);
(xi) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other documents filed as exhibits to the Registration Statement are
accurate and fairly present the information required to be shown, and
such counsel is familiar with all contracts and other documents filed
as exhibits to the Registration Statement and the Prospectus and any
such amendment or supplement, or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
(xii) no authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Units or Unit components by the Company, in connection
with the execution, delivery and performance of this Agreement by the
Company or in connection with the taking of any action
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contemplated herein, or the issuance of the Warrants, Representative's
Warrant or the securities underlying the Warrants and the Representative's
Warrant, other than registration or qualification of the Units and
Representative's Warrant under applicable state or foreign securities
or blue sky laws and registration under the Act;
(xiii) the statements in the Registration Statement under the
captions "Business," "Use of Proceeds," "Management" and "Description of
Securities" have been reviewed by such counsel and, insofar as they
refer to descriptions of agreements, statements of law, descriptions
of statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects; and
Such opinion shall also cover such matters including to the
transactions contemplated hereby as you or counsel for the
Underwriters shall reasonably request. In rendering such opinion, such
counsel may rely upon certificates of any officer of the Company or
public officials as to matters of fact; and may rely as to all matters
of law other than the law of the United States or the corporate law of
the State of California upon opinions of counsel satisfactory to you,
which may also be addressed to you, in which case the opinion shall
state that they have no reason to believe that you and they are not
entitled to so rely.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus, and other related matters
shall be reasonably satisfactory to or approved by Pezzola & Reinke, counsel to
the Underwriters, and you shall have received from such counsel a signed
opinion, dated as of the First Closing Date, with respect to the validity of the
issuance of the Units, the form of the Registration Statement and Prospectus
(other than the financial statements and other financial data contained
therein), the execution of this Agreement and other related matters as you may
reasonably require. The Company shall have furnished to counsel for the
Underwriters such documents as they may reasonably request for the purpose of
enabling them to render such opinion.
(d) At both the time of the execution of this Agreement by the Company and
at the Closing Date, you shall have received letters in form and substance
satisfactory to you, from A.J. Robbins, P.C. (collectively the "Auditors"),
dated respectively as of the date of this Agreement and as of the Closing Date,
to the effect that they are independent certified public accountants with
respect to the Company within the meaning of the Act and published Rules and
Regulations, and that the Registration Statement is correct insofar as it
relates to them and stating in effect that:
(i) In their opinion the audited financial statements and notes
of the Company in the Registration Statement and the Prospectus
examined by them comply as to form in all material respects with the
applicable accounting requirements of the Act and the published Rules
and Regulation with respect to registration statements on Form SB-2.
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<PAGE>
(ii) On the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the financial information
and other data included in the Registration Statement and the
Prospectus in response to Item 310 of Regulation S-B; that on the
basis of inquiries of officials of the Company who have responsibility
for financial accounting matters, especially as to whether there was
any adverse change in revenues, net income, or any change in the
capital stock of the Company or any change in the long-term debt or
any increase in bank borrowings or any decreases in total assets, net
current assets or shareholders' equity of the Company; reviewing
minutes of all meetings of shareholders and boards of directors (and
various committees thereof) of the Company since inception and other
specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that
caused them to believe that:
(A) the audited financial statements for the years ended
December 31, 1995 and December 31, 1996, as to the Company, included
in the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the
published Rules and Regulations with respect to registration
statements on Form SB-2; or said financial statements are fairly
presented in conformity with generally accepted accounting principles;
or the amounts included in the Registration Statement and the
Prospectus in response to Item 310 of Regulation S-B are not
consistent with the corresponding amounts in the audited or unaudited
financial statements from which such amounts were derived; or
(B) during the period from December 31, 1996 to a specified date
not more than five (5) days prior to the date of such letter, there
has been any change in the Common Stock or long-term debt of the
Company or any increase in bank borrowings of the Company or any
decrease in the shareholders' equity or working capital of the Company
or change in any other item appearing on the Company's financial
statements as to which the Underwriters may request advice, in each
case as compared with amounts shown in the financial statements
included in the Prospectus, except in each case for increases or
deficiencies which the Prospectus discloses have occurred or may
occur, or as specified in such letter, in which case the letter shall
be accompanied by an explanation by the Company of the significance
thereof.
(iii) On the basis of certain procedure agreed to by the
Underwriters and the Auditors and described in their letter or
letters, certain numerical data and information included in the
Registration Statement and Prospectus and referred to in their letter
were in agreement with specifically designated records of the Company
which were not included in the Registration Statement and Prospectus
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<PAGE>
but from which information in the Registration Statement or the
Prospectus was derived.
(e) At each of the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct with the
same effect as if made on and as of such Closing Date, and the Company shall
have performed all of its obligations hereunder and satisfied all the conditions
on its part to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statements of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the respective dates as of
which information is given, no material adverse change in the business,
properties, condition (financial or otherwise), results of operations, capital
stock, long-term or short-term debt or general affairs of the Company from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company shall not have
incurred any material liabilities nor entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law shall be pending or threatened against the
Company which would be required to be disclosed in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding would materially
and adversely affect the business, property, condition (financial or otherwise),
results of operations or general affairs of the Company. In addition, you shall
have received, at the First Closing Date, a certificate signed by the Chairman
of the Board and the principal financial or accounting officer of the Company,
dated as of the First Closing Date, evidencing compliance with the provisions of
this subsection (e).
(f) Upon exercise of the option provided for in Section 2(b) hereof, your
obligations to purchase and pay for the Option Units referred to therein will be
subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order suspending the effectiveness
thereof shall have been issued, and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of Pezzola & Reinke, counsel to the Underwriters.
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<PAGE>
(ii) At the Option Closing Date there shall have been delivered
to you the signed opinion of Gary A. Agron, counsel for the Company,
dated as of the Option Closing Date, in form and substance
satisfactory to Pezzola & Reinke, counsel to the Underwriters, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the First Closing Date pursuant to Section
4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Shares rather than the Firm Shares. If the First Closing
Date is the same as the Option Closing Date, such opinions may be
combined.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chairman of the Board and the
principal financial or accounting officer of the Company dated the
Option Closing Date, in form and substance satisfactory to Pezzola &
Reinke, counsel to the Underwriters, substantially the same in scope
and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you letters in form and substance satisfactory to you from the
Auditors, dated the Option Closing Date and addressed to you,
confirming the information in their letter referred to in Section 4(d)
hereof as of the date thereof and stating that, without any additional
investigation required, nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five (5) business days prior to the Option
Closing Date which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Units shall be
satisfactory in form and substance to you, and you and Pezzola &
Reinke, counsel to the Underwriters, shall have been furnished with
all such documents, certificates and opinions as you may request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements
of the Company or its compliance with any of the covenants or
conditions contained therein.
(g) If any of the conditions herein provided for in this Section shall not
have been completely fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriters under this Agreement may be cancelled at, or at
any time prior to, each Closing Date by your notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the Underwriters to
the Company, except as otherwise provided herein.
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5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to sell and deliver the Units is subject to
the following conditions:
(a) The Registration Statement shall have become effective not later than
4:00 P.M. Eastern time, on the date of this Agreement, or on such later date or
time as the Company and you may agree in writing.
(b) On the Closing Dates, no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Units on exercise of
the option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Underwriters and
each person, if any, who controls the Underwriters, within the meaning of the
Act, from and against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), joint or
several, to which such Underwriters or such controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment thereof or supplement thereto, or (ii) any blue sky application or
other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Units or other securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary
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Prospectus or the Prospectus or any such amendment or supplement thereto.
This indemnity will be in addition to any liability which the Company may
otherwise have.
(b) The Underwriters agree to indemnify and hold harmless the Company and
each person, if any, who controls the Company, within the meaning of the Act,
from and against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all attorneys' fees) to which the Company
or any such director, nominee, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Underwriters, specifically for use in preparation thereof. This indemnity
agreement will be in addition to any liability which the Underwriters may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is the
Underwriters or a person who controls the Underwriters within the meaning of the
Act, the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party or (ii) the named parties to any
such action (including any impleaded parties) include both the Underwriters or
such controlling person and the indemnifying party, and in the reasonable
judgment of the
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Underwriters, it is advisable for the Underwriters or controlling persons to
be represented by separate counsel (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of
the Underwriters or such controlling person, it being understood, however,
that the indemnifying party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys). No settlement of any action against an indemnified party shall be
made without the consent of the indemnified party, which shall not be
unreasonably withheld in light of all factors of importance to such
indemnified party.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act in
any case in which (i) the Underwriters makes claims for indemnification pursuant
to Section 6 hereof but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriters,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriters shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that such Underwriters are
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price per Unit appearing thereon, and the Company shall be responsible for the
remaining portion, provided, however, that (a) if such allocation is not
permitted by applicable law, then the relative fault of the Company and the
Underwriters and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement of a material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company or the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree (a) that it would not be just and equitable
if the respective obligations of the Company and the Underwriters to contribute
pursuant to this Section 7 were to be determined by PRO RATA or PER CAPITA
allocation of the aggregate damages or by any other method of allocation that
does not take account of the equitable considerations referred to in the first
sentence of this Section 7 and (b) that the contribution of the Underwriters
shall not be in excess of its proportionate share of the portion of such losses,
claims, damages or liabilities for which the Underwriters are responsible. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
ll(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent
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misrepresentation. As used in this paragraph, the word "Company" includes
any officer, director, or person who controls the Company within the meaning
of Section 15 of the Act. If the full amount of the contribution specified
in this paragraph is not permitted by law, then the Underwriters and each
person who controls the Underwriters shall be entitled to contribution from
the Company to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriters. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of the
Firm Units or Option Units to the Underwriters is consummated, the Company will
pay all costs and expenses incident to the performance of this Agreement by the
Company, including but not limited to the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), each Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Units contemplated hereby; all expenses,
including reasonable fees (but not in excess of the amount set forth in Section
3(b)) and disbursements of counsel to the Underwriters, in connection with the
qualification of the Units and Unit components under the State Securities or
Blue Sky Laws which we shall mutually designate; the cost of printing and
furnishing to the Underwriters copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, the Selling Agreement
and the Blue Sky Memorandum; the cost of printing the certificates representing
the components comprising the Units, expenses of Company due diligence meetings
and presentations. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction) on
sales to the Underwriters hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the First
Closing Date pay to you the balance of a non-accountable expense allowance of
$__________, of which $___________ has been paid. In the event the
over-allotment option is exercised in full, the Company shall pay to you at the
Option Closing Date an additional amount equal to 3% of the gross proceeds
received upon exercise of the over-allotment option. In the event the
transactions contemplated hereby are not consummated for any reason, the
Underwriters will retain that portion of the $_____________ non-accountable
expense allowance deposit received from the Company as is equal to its actual
accountable expenses and will reimburse the Company for the remainder, if any.
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(c) No person is entitled either directly or indirectly to compensation
from the Company, from the Underwriters or from any other person for services as
a finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters, and the Underwriters agree to
indemnify and hold harmless the Company from and against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all attorneys' fees), to which the indemnified party may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution, except that you
may, at your option, delay its effectiveness until 10:00 A.M., Eastern time, on
the first full business day following the Effective Date, or at such earlier
time after the Effective Date as you in your discretion shall first commence the
initial public offering of any of the Shares. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Shares, or the time when the Shares are first
generally offered by you to dealers by letter or telegram, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14 and
15 shall remain in effect notwithstanding such termination.
10. TERMINATION.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15,
may be terminated at any time prior to the First Closing Date, and the option
referred to in Section 2(b), if exercised, may be cancelled, at any time prior
to the Option Closing Date, by you if in your judgment it is impracticable to
offer for sale or to enforce contracts made by the Underwriters for the resale
of the Units agreed to be purchased hereunder, by reason of (i) the Company
having sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof,
(iv) a banking moratorium having been declared by federal or New York State
authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company, (vii) any adverse change having occurred in
the sole opinion of the Underwriters in the financial or securities markets
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since the date of this Agreement, or (viii) any adverse change having occurred
in the sole opinion of the Underwriters with respect to the earnings, business
prospects or general condition of the Company, financial or otherwise, other
than normal fluctuations in sales, whether or not arising in the ordinary course
of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. REPRESENTATIVE'S WARRANT.
On the First Closing Date, the Company will issue to you, for a
consideration of $100 and upon the terms and conditions set forth in the form of
the Representative's Warrant annexed as an exhibit to the Registration
Statement, the Representative's Warrant to purchase up to 50,000 Units at an
exercise price of $14.40 per Unit. In the event of conflict in the terms of
this Agreement and the Representative's Warrant, the language of the
Representative's Warrant shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, and the Underwriters, set forth in or made
pursuant to this Agreement will remain in full force and effect regardless of
any investigation made by or on behalf of the Underwriters, the Company or any
of its officers or directors or any controlling persons and will survive
delivery of and payment for the Units and the termination of this Agreement.
13. NOTICE.
All communications hereunder will be in writing and, except as otherwise
expressly provided herein, if sent to you, will be mailed, certified mail,
return receipt requested, delivered or telegraphed and confirmed at 162 Dockside
Circle, Ft. Lauderdale, Florida, 33326, or if sent to the Company, will be
mailed, certified mail, return receipt requested, delivered, or telegraphed and
confirmed to it at 8825 West Olympic Boulevard, Beverly Hills, California,
90211.
14. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
Underwriters and the Company and any person controlling the Company, or the
Underwriters, and directors of the Company, nominees for directors of the
Company (if any) named in the Prospectus, the officers of the Company who have
signed the Registration Statement, and their respective executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such purchaser, from the
Underwriters of the Units.
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<PAGE>
15. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of California applicable to agreements made and to be entirely
performed within California.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriters in accordance with its terms.
Yours very truly,
RETROSPETTIVA, INC.
By
-------------------------------------
Borivoje Vukadinovic,
Chief Executive Officer
Dated: , 1997
---------------
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written. The undersigned hereby is acting on behalf of
itself and as representative of the several Underwriters named in Schedule I to
this Agreement.
KENSINGTON SECURITIES, INC.
By
-------------------------------------
Howard Davis, President
27
<PAGE>
SCHEDULE I
NAME OF UNDERWRITER NUMBER OF UNITS TO BE PURCHASED
- ------------------- -------------------------------
Total
28
<PAGE>
RETROSPETTIVA, INC.
500,000 UNITS
AGREEMENT AMONG UNDERWRITERS
To each of the Underwriters named __________, 1997
in Schedule I to the attached
Underwriting Agreement
Dear Sirs:
1. UNDERWRITING AGREEMENT. Retrospettiva, Inc., a California corporation
(the "Company") proposes to enter into an underwriting agreement in the form of
the Underwriting Agreement attached hereto (the "Underwriting Agreement") with
the underwriters named in Schedule I to the Underwriting Agreement (the
"Underwriters") for whom we are acting as representative (the "Representative"),
acting severally and not jointly, with respect to the purchase from the Company
of an aggregate of 500,000 units (the "Firm Units"), each unit ("Unit")
consisting of two (2) shares of the Company's no par value Common Stock (the
"Common Stock"), and one redeemable Common Stock Warrant entitling the holder
thereof to purchase for $7.50, one share of Common Stock for a term of five
years from the effective date of the Registration Statement described below in
Section 2. In addition, the Company proposes to sell to the Underwriters up to
an additional 75,000 Units (the "Optional Units") for the purpose of covering
over-allotments.
Under the terms of the Underwriting Agreement, each of the Underwriters
will agree, in accordance with the terms thereof, to purchase on a firm
commitment basis the number of Units set forth opposite its name in said
Schedule I, subject to adjustment pursuant to Section 12 hereof.
2. REGISTRATION STATEMENT AND PROSPECTUS. The Units are described in a
registration statement on Form SB-2 (File No. 333-________) and related
prospectus which have been filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act") and the rules and regulations of the Commission thereunder. A copy of
Amendment No. 1 to the registration statement has been delivered to you. An
additional amendment to such registration statement has been or will be filed in
which you have been or will be named as one of the Underwriters of the Units,
and you hereby authorize us to approve on your behalf any further amendments or
supplements which may be necessary or appropriate. The registration statement,
as amended at the time it becomes effective, is called the "Registration
Statement" and the final prospectus as filed by the Company with the Commission
pursuant to Rule 424(b) under the Act, is referred to as the "Prospectus."
3. AUTHORITY OF REPRESENTATIVE. You authorize us as your Representative
to execute the Underwriting Agreement with the Company in the form attached with
such insertions, deletions or other changes as we may approve (but not as to
price and number of the Units to be purchased by you except as provided herein
and therein) and to take such actions as in our discretion we may deem advisable
in respect of all matters pertaining to the Underwriting Agreement, this
Agreement, and the transactions for the accounts of the several Underwriters
contemplated thereby and hereby, determining whether and to what extent to
purchase the Optional Units on behalf of the Underwriters, and the purchase,
carrying, sale and distribution of the Units.
<PAGE>
4. PUBLIC OFFERING. In connection with any public offering of the Units,
you authorize us, in our discretion:
(a) To determine the time and manner of the initial public offering
(after the Registration Statement becomes effective), the initial public
offering price, and the concessions and reallowances to dealers, to change the
public offering price and such concessions and reallowances after the initial
public offering, to furnish the Company with the information to be included in
the Registration Statement and the Prospectus and any amendment or supplement
thereto with respect to the terms of the offering, and to determine all matters
relating to the public advertisement of the Units and any communications with
dealers or others;
(b) To reserve all or any part of your Units for sale to retail
purchasers and to dealers selected by us ("Selected Dealers") among whom may be
included any Underwriter (including ourselves) and each of whom shall be a
member of the National Association of Securities Dealers, Inc., such
reservations for sales to retail purchasers to be as nearly as practicable in
proportion to the respective underwriting obligations of the Underwriters and
such reservations for sales to Selected Dealers to be in such proportion as we
determine, and from time to time to add to the reserved Units such aggregate
number of Units retained by you remaining unsold and to release to you any of
your Units reserved but not sold;
(c) To sell reserved Units, as nearly as practicable in proportion to
the respective reservations, to retail purchasers at the public offering price
and to Selected Dealers at the public offering price less a concession (the
"Selected Dealer's Concession") pursuant to the Selling Agreement in
substantially the form attached; and
(d) To buy Units for your account from Selected Dealers at the public
offering price less such amount not in excess of the Selected Dealer's
Concession as we may determine.
After advice from us that the Units are released for public offering, you
will offer to the public in conformity with the terms of the offering set forth
in the Prospectus, or in any amendment or supplement thereto, such of your Units
as we advise you are not reserved.
You recognize the importance of a broad distribution of the Units among
bona fide investors and you agree to use your best efforts to obtain such broad
distribution, and to that end, to the extent you deem practicable, to give
priority to small orders. In offering the Units to Selected Dealers we will
take such action as we deem appropriate to effect a broad distribution.
5. REPURCHASE OF UNITS NOT EFFECTIVELY PLACED FOR INVESTMENT. You are
requested to place for investment those of your Units which are not reserved as
aforesaid. Any Units sold by you (otherwise than through us) which may be
delivered to us against a purchase contract made by us for the account of any
Underwriter prior to the termination of the provisions referred to in Section 11
of this Agreement, shall be repurchased by you on demand at the cost of such
purchase plus brokerage commissions and transfer taxes on redelivery. Units
delivered on such repurchase need not be the identical Units purchased by you.
In lieu of demanding repurchase by you we may in our discretion (a) sell for
your account the Units so purchased by us, at such price and upon such terms as
we may determine, and debit or credit your account with the loss and expense or
net profit resulting from such sale, or ((b) charge your account with an amount
not in excess of the Selected Dealer's Concession with
2
<PAGE>
respect to such Units plus brokerage commissions and transfer taxes paid in
connection with such purchase.
6. PAYMENT AND DELIVERY. You agree to deliver to us at or before 8:00
a.m., Pacific Daylight Savings Time, on the Initial Closing Date referred to in
the Underwriting Agreement, a certified check or bank cashier's check payable in
Clearing House funds to the order of Kensington Securities, Inc., as
Representative, for the full purchase price of the Units which you shall have
agreed to purchase from the Company. The proceeds shall be delivered in the
amounts required in each case for payment of the full purchase price by us to
the Company against delivery of the Units to us for your account. You authorize
us to accept that delivery and to give a receipt therefore. We may in our
discretion make such payment on your behalf with our own funds, in which event
you will reimburse us promptly upon request. You authorize us, as your
custodian, to take delivery of your Units registered as we may direct, in order
to facilitate deliveries. You also authorize us to hold for your account such
of your Units as we have reserved for sale to retail purchasers and to Selected
Dealers and to deliver your reserved Units against such sales. We will deliver
your unreserved Units to you promptly and, after we receive payment for reserved
Units sold by us for your account, we will remit to you an amount equal to the
price paid by you for such Units. As soon as practicable after termination of
Sections 4, 5 and 9 and the first sentence of Section 8 of this Agreement
(pursuant to Section 11 hereof) we will deliver to you any of your Units
reserved but not sold. All Units delivered to you pursuant to this Section will
be evidenced by certificates in such denominations as you shall direct by
written notice received by us not later than the third full business day
preceding the Initial Closing Date.
7. AUTHORITY TO BORROW. In connection with the purchase or carrying of
any Units purchased hereunder for your account, you authorize us, in our
discretion, to advance funds for your account, charging current interest rates,
or to arrange loans for your account, and in connection therewith to execute and
deliver any notes or other instruments and hold or pledge as security any of
your Units. Any lender may rely on our instructions in all matters relating to
any such loans. Any of your Units held by us for your account may be delivered
to you for carrying purposes only, and subject to our further direction.
8. STABILIZATION AND OVER-ALLOTMENT. To facilitate the distribution of
the Units, you authorize us during the term of this Agreement, or for such
longer period as may be necessary, in our discretion, and without obligating us
to do so, to make purchases and sales of the Units for your account in the open
market or otherwise, for long or short account, on such terms and at such prices
as we deem advisable and, in arranging sales, to over-allot. You also authorize
us to cover any short position incurred pursuant to this Section by purchase of
any or all of the Optional Units from the Company pursuant to the option
contained in the Underwriting Agreement or otherwise on such terms as we deem
advisable. All such purchases and sales and over-allotments shall be made for
the accounts of the several Underwriters as nearly as practicable in proportion
to their respective underwriting obligations. You will on our demand take up at
cost or deliver against payment any Units so purchased or sold or over-allotted
for your account. You will be obligated in respect of purchases and sales made
for your account hereunder whether or not the proposed purchase of the Units is
consummated. Your net commitment shall not, at the end of any business day,
exceed 15% of your maximum underwriting obligation. Notwithstanding the
foregoing limitations, in the event of default by one or more Underwriters in
respect of their obligations under this Section, you will assume your
proportionate Unit of such obligation without relieving the defaulting
Underwriter from liability.
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<PAGE>
In the event that we effect any stabilizing purchases pursuant to this
Section, we will notify each Underwriter promptly of the date and time when the
first stabilizing purchase is effected and the date and time when stabilizing is
terminated. Each Underwriter agrees that if it effects any stabilizing
purchases, it will, not later than three business days following the day on
which any such stabilization purchase is effected, notify us of the price, date
and time at which such stabilizing purchase was effected and will promptly
notify us of the date and time when stabilizing was terminated by such
Underwriter. Each Underwriter authorizes us to file with the Commission all
notices and reports which may be required as a result of any transactions made
pursuant to this Section.
Upon request you will advise us of Units retained by you or purchased by
you from other Underwriters and Selected Dealers and remaining unsold and will
sell to us for the account of one or more of the Underwriters such of your
unsold Units as we may designate, at the public offering price thereof less such
amount as we may determine, but not in excess of the Selected Dealer's
Concession with respect thereto.
If, pursuant to the provisions of the first paragraph of this Section and
prior to the termination of this Agreement (or such earlier date as we may have
determined on notice to the Underwriters), we purchase or contract to purchase
any Units which were retained by or released to you for direct sale, which Units
were theretofore not effectively placed for investment by you, you authorize us
in our discretion either to charge your account with an amount equal to the
Selected Dealer's Concession with respect thereto or to require you to
repurchase such Units at a price equal to the total cost of such purchase,
including commissions, if any, and transfer tax on the redelivery. Units
delivered on such repurchase need not be the identical Units originally
purchased by and delivered to you.
Upon the termination of this Agreement, we are authorized in our
discretion, in lieu of delivering to the several Underwriters any Units then
held for their respective accounts pursuant to this Section, to sell such Units
for the accounts of each of the Underwriters at such price or prices as we may
determine and debit or credit your account for the loss or profit resulting from
such sale.
9. OPEN MARKET TRANSACTION. We and you agree not to bid for, purchase,
attempt to induce others to purchase or sell, directly or indirectly, any Units
except as brokers pursuant to unsolicited orders and as otherwise provided in
this Agreement or in the Underwriting Agreement. You further agree not to offer
the Units for sale until notified by us, as Representative, that they are
released for that purpose.
10. EXPENSES AND SETTLEMENT. We may charge your account with Selected
Dealer's Concessions and all transfer taxes on sales made by us for your account
and with your proportionate share (based upon your underwriting obligation) of
all other expenses incurred by us under the terms of this Agreement or the
Underwriting Agreement or in connection with the purchase, carrying, sale or
distribution of the Units. Our determination of the amount and allocation of
the expenses shall be conclusive. As soon as practicable after termination of
the provisions referred to in Section 11, the accounts hereunder will be
settled, but we may reserve from distribution such amount as we deem advisable
to cover possible additional expenses. We may at any time make partial
distribution of credit balances or call for payment of debit balances. Any of
your funds in our hands may be held with our general funds without
accountability for interest. Notwithstanding any settlement, you will pay (a)
your proportionate share (based upon your underwriting obligation) of any
liability which may be incurred by the Underwriters, or any of them, based on
the claim that the Underwriters constitute an association,
4
<PAGE>
partnership, unincorporated business or other separate entity, and of any
expenses incurred by us, or by any other Underwriter with our approval, in
contesting any such liability, and (b) any transfer taxes which may be
assessed and paid after such settlement on account of any sale or transfer
for your account.
11. TERMINATION. The provisions of Sections 4, 5 and 9 and the first
sentence of Section 8 of this Agreement shall terminate 30 days after the date
of this Agreement unless extended by us. We may extend said provisions for
periods not exceeding an additional 30 days in the aggregate, provided that the
Selected Dealers Agreements, if any, are similarly extended. Whether extended
or not, said provisions may be terminated in part or in whole by notice from us
to the effect that the provisions referred to in this Section 11 have been so
terminated.
12. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters
hereunder or under the Underwriting Agreement shall not release the other
Underwriters from their obligations or affect the liability of any defaulting
Underwriter to the other Underwriters for damages resulting from such default.
In case of default under the Underwriting Agreement by one or more Underwriters,
we may arrange for the purchase by others, including non-defaulting
Underwriters, of Units not taken up by such defaulting Underwriters, and you
will, at our request, increase pro rata with the other non-defaulting
Underwriters the number of Units which you are to purchase. In the event any
such arrangements are made, the respective number of Units to be purchased by
non-defaulting Underwriters and by such others shall be taken as the basis for
the Underwriters and by such others shall be taken as the basis for the
underwriting obligations under this Agreement.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement, each non-defaulting Underwriter shall assume
its proportionate share of the obligations under this Agreement of each such
defaulting Underwriter (other than, to the extent stated in the first paragraph
of this Section, the purchase obligation of such defaulting Underwriter).
13. POSITION OF REPRESENTATIVE. We shall be under no liability to you for
any act or omission, except for obligations expressly assumed by us in this
Agreement, but no obligation on our part shall be implied or inferred therefrom.
Nothing shall constitute the Underwriters, or any of them, an association,
partnership, unincorporated business or other separate entity and the rights and
liability of ourselves and each of the other Underwriters are several and not
joint.
14. INDEMNIFICATION. You will indemnify and hold harmless each other
Underwriter and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Securities Act of 1933, as amended, to the extent
and upon the terms by which each Underwriter agrees to indemnify the Company in
the Underwriting Agreement. Such indemnity agreement shall survive the
termination of any of the provisions of this Agreement.
In the event that at any time any claim shall be asserted against us, as,
or a result of our having acted as, Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Units or any of the transactions
contemplated by this Agreement, you authorize us to make such investigation, to
retain such counsel and to take such other action as we shall deem necessary or
desirable under the circumstances, including settlement of any claim or claims
if such course of action shall be recommended by counsel retained by us. You
agree
5
<PAGE>
to pay to us, on request, your proportionate share (based upon your
underwriting obligation) of all expenses incurred by us (including, but not
limited to, the disbursements and fees of counsel so retained) in
investigating and defending against such claim or claims, and your
proportionate share (based upon your underwriting obligation) of any
liability incurred by us in respect of such claim or claims, whether such
liability shall be the result of a judgment against us or as a result of any
such settlement.
15. BLUE SKY MATTERS. You shall not have any responsibility with respect
to the right of any Underwriter or other person to sell Units in any
jurisdiction, notwithstanding any information we may furnish in that connection.
You hereby authorize us to file or cause to be filed, on your behalf, a New York
Further State Notice, if required, and to take such other action as may be
necessary or advisable to qualify the Units for offering and sale in any
jurisdiction.
16. TITLE TO SECURITIES. The Units purchased for the respective accounts
of the several Underwriters shall remain the property of those Underwriters
until sold; and no title to such securities shall in any event pass to us, as
Representative, by virtue of any of the provisions of this Agreement.
17. CAPITAL REQUIREMENT. You confirm that your commitment hereunder will
not result in any violation of Section 8(b) or 15(c) of the Securities Exchange
Act of 1934 or the rules and regulations thereunder, including Rule 15c3-1, or
any provision of any applicable rules of any securities exchange to which you
are subject or of any restriction imposed upon you by such exchange.
6
<PAGE>
18. NOTICES AND GOVERNING LAW. Any notice from you to us shall be
delivered, mailed or telegraphed to us at Kensington Securities, Inc. Any
notice from us to you shall be delivered, mailed or telegraphed to you at your
address as set forth below.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
We represent that we are a member in good standing of the National
Association of Securities Dealers, Inc. You represent that you are a member in
good standing of said Association.
Very truly yours,
KENSINGTON SECURITIES, INC.
By
-------------------------------------
Howard Davis, President
Confirmed and accepted as of the date
first above written.
By
--------------------------------
Name of Underwriter
--------------------------------
Authorized Signature
--------------------------------
Address
--------------------------------
Telephone Number
--------------------------------
Number of Units Purchased
7
<PAGE>
KENSINGTON SECURITIES, INC.
500,000 Units
Retrospettiva, Inc.
SELLING AGREEMENT
Dear Sirs:
1. We, as Underwriter, are offering for sale an aggregate of 500,000 Units
(the "Firm Units") of Retrospettiva, Inc. (the "Company") which we have agreed
to purchase from the Company. In addition, we have been granted an option to
purchase from the Company up to an additional 75,000 Units (the "Option Units")
to cover over-allotments in connection with the sale of the Firm Units. The Firm
Units and the Option Units purchased are herein collectively called the "Units."
The Units and the terms under which they are to be offered for sale by the
Underwriter are more particularly described in the Prospectus.
2. The Units are to be offered to the public by the Underwriter at the
price per Unit set forth on the cover page of the Prospectus (the "Public
Offering Price"), in accordance with the terms of the offering thereof set forth
in the Prospectus.
3. The Underwriter is offering, subject to the terms and conditions
hereof, a portion of the Units for sale to certain dealers who are engaged in
the investment banking or securities business and who are either (i) members in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) dealers with their principal places of business located outside
the United States, its territories and its possessions and not registered as
brokers or dealers under the Securities Exchange Act of 1934, as amended (the
"1934 Act") who have agreed not to make any sales within the United States, its
territories or its possessions or to persons who are nationals thereof or
residents therein (such dealers who shall agree to purchase Units hereunder
being herein called "Selected Dealers"), at the Public Offering Price, less a
selling concession (which may be changed) of not in excess of $.___ per Unit
payable as hereinafter provided, out of which concession an amount not exceeding
$.___ per Unit may be reallowable by Selected Dealers to members of the NASD or
foreign dealers qualified as aforesaid. The Selected Dealers have agreed to
comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and if any such dealer is a foreign dealer and not a
member of the NASD, such Selected Dealer also has agreed to comply with the
NASD's interpretation with respect to free-riding and withholding, to comply, as
though it were a member of the NASD, with the provisions of Section 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to non-member foreign dealers. The
Underwriter may be included among the Selected Dealers.
<PAGE>
4. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the public offering of the
Units.
5. If you desire to purchase any of the Units, your application should
reach us promptly by telephone, telegraph or facsimile at our office at 162
Dockside Circle, Ft. Lauderdale, Florida, 33326, Attention: Syndicate
Department, Telephone No. _____________, Fax No. ________________. We reserve
the right to reject subscriptions in whole or in part, to make allotments and to
close the subscription books at any time without notice. The Units allotted to
you will be confirmed subject to the terms and conditions of this Agreement.
6. Any Units purchased by you under the terms of this Agreement may be
immediately reoffered to the public in accordance with the terms of offering
thereof set forth herein and in the Prospectus, subject to the securities or
blue sky laws of the various states or other jurisdictions.
You agree to pay us on demand an amount equal to the Selected Dealer
concession as to any Units purchased by you hereunder which, prior to the
termination of this Agreement, we may purchase or contract to purchase and, in
addition, we may charge you with any broker's commission and transfer tax paid
in connection with such purchase or contract to purchase. Certificates for Units
delivered on such repurchases need not be the identical certificates originally
purchased.
No expenses shall be charged to Selected Dealers. A single transfer tax, if
payable, upon the sale of the Units by the Underwriter to you will be paid when
such Units are delivered to you. However, you shall pay any transfer tax on
sales of Units by you and you shall pay your proportionate share of any
transfer tax (other than the single transfer tax described above) in the event
that any such tax shall from time to time be assessed against you and other
Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Units other than as contained in the Prospectus.
7. The first three paragraphs of Section 6 hereof will terminate when we
shall have determined that the public offering of the Units has been completed
and upon telegraphic notice to you of such termination, but, if not theretofore
terminated, they will terminate at the close of business on the 30th full
business day after the date hereof; provided however, that we shall have the
right to extend such provisions for a further period or periods, not exceeding
an additional 30 full business days in the aggregate upon telegraphic notice to
you.
8. For the purpose of stabilizing the market in the Units, we have been
authorized to make purchases and sales of the Units of the Company, in the open
market or otherwise, for long or short account, and, in arranging for sales, to
over-allot.
2
<PAGE>
9. On becoming a Selected Dealer, and in offering and selling the Units,
you agree to comply with all the applicable requirements of the Securities Act
of 1933, as amended (the "1933 Act"), and the 1934 Act. You confirm that you are
familiar with Rule 15c2-8 under the 1934 Act relating to the distribution of
preliminary and final prospectuses for securities of an issuer (whether or not
the issuer is subject to the reporting requirements of Section 13 or 15(d) of
the 1934 Act) and confirm that you have complied and will comply therewith.
We hereby confirm that we will make available to you such number of copies
of the Prospectus (as amended or supplemented) as you may reasonably request for
the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and
regulations thereunder.
10. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Units are qualified for
sale under the respective securities or blue sky laws of such states and other
jurisdictions, but we assume no obligation or responsibility as to the right of
any Selected Dealer to sell the Units in any state or other jurisdiction or as
to the eligibility of the Units for sale therein.
11. No Selected Dealer is authorized to act as our agent or otherwise to
act on our behalf, in offering or selling the Units to the public or otherwise
or to furnish any information or make any representation except as contained in
the Prospectus.
12. Nothing will constitute the Selected Dealers an association or other
separate entity or partners with the Underwriter or with each other, but you
will be responsible or your share of any liability or expense based on any claim
to the contrary. We shall not be under any liability for or in respect of value,
validity or form of the Units or the delivery of the certificates for the Units,
or the performance by anyone of any agreement on its part, or the qualification
of the Units for sale under the laws of any jurisdiction, or for or in respect
of any other matter relating to this Agreement, except for lack of good faith
and for obligations expressly assumed by us or by the Underwriter in this
Agreement and no obligation on our part shall be implied herefrom. The foregoing
provisions shall not be deemed a waiver of any liability imposed under the 1933
Act.
Payment for the Units sold to you hereunder is to be made at the Public
Offering Price less the above-mentioned selling concession at such time and date
as we may advise, at the office of Kensington Securities, Inc., at the address
indicated above, by a certified or official bank check in Clearing House funds,
payable to the order of Kensington Securities, Inc., against delivery of
certificates for the Units. If such payment is not made at such time, you agree
to pay us interest on such funds at the prevailing brokers' loan rate.
13. Notices should be addressed to us at our office address indicated
above. Notices to you shall be deemed to have been duly given if telegraphed or
mailed to you at the address to which this letter is addressed.
3
<PAGE>
14. This Agreement shall be governed by and construed exclusively in
accordance with the laws of the State of California without giving effect to the
choice of law or conflicts of law principles thereof.
15. If you desire to purchase any Units, please confirm your application
by signing and returning to us your confirmation on the duplicate copy of this
letter enclosed herewith, even though you may have previously advised us thereof
by telephone, telegraph or fax. Our signature hereon may be by facsimile.
Very truly yours,
KENSINGTON SECURITIES, INC.
By:
------------------------------
Howard Davis
Officer
4
<PAGE>
Kensington Securities, Inc.
162 Dockside Circle
Ft. Lauderdale, FL 33326
Gentlemen:
We hereby irrevocably subscribe for _________ Units of Retrospettiva, Inc.
in accordance with the terms and conditions stated in the foregoing letter. We
hereby acknowledge receipt of the Prospectus referred to in the first paragraph
thereof relating to said Units and we confirm that we have no right to return
any Units to you. We further confirm that our commitment hereunder will not
result in any violation by us of Section 8(b) or 15(c) of the Securities
Exchange Act of 1934 or the rules and regulations thereunder, including
Rule 15c3-1, or any provision of any applicable rules of any securities exchange
to which we are subject or of any restriction imposed upon us by such exchange.
We further state that in purchasing said Units we have relied upon said
Prospectus and upon no other statement whatsoever, whether written or oral. We
confirm that we are a dealer actually engaged in the investment banking or
securities business and that we are either (i) a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or (ii) a dealer
with its principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer under
the Securities Exchange Act of 1934, as amended, who hereby agrees not to make
any sales within the United States, its territories or its possessions or to
persons who are nationals there or of residents therein. We hereby agree to
comply with the provisions of Section 24 of Article III of the rules of Fair
Practice of the NASD, and if we are a foreign dealer and not a member of the
NASD, we also agree to comply with the NASD's interpretation with respect to
free-riding and withholding, to comply, as though we were a member of the NASD,
with provisions of Sections 8 and 36 of Article III of such Rules of Fair
Practice, and to comply with Section 25 of Article III thereof as that Section
applies to non-member foreign dealers.
Name of Firm
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Authorized Signature
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Title
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Date
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<PAGE>
WARRANT TO PURCHASE
50,000 Units
RETROSPETTIVA, INC.
REPRESENTATIVE'S WARRANT
Dated: July ___, 1997
THIS CERTIFIES that Kensington Securities, Inc. (herein sometimes called
the "Holder" and/or the "Representative") is entitled to purchase from
Retrospettiva, Inc., a California corporation (the "Company"), at the price and
during the period as hereinafter specified, up to 50,000 Units of the Company's
securities with each Unit (the "Representative's Warrant Unit") consisting of
two (2) shares of the Company's no par value per share Common Stock (the
"Warrant Unit Shares") and one Redeemable Warrant (the "Underlying Warrant")
entitling the holder thereof to purchase for $7.50 (the "Underlying Warrant
Exercise Price"), one share of Common Stock (the "Underlying Warrant Shares")
for a term of five (5) years from the effective date of the Registration
Statement described below. The Warrant Unit Shares and the Underlying Warrant
Shares are sometimes referred to herein collectively as the "Warrant Shares."
This representative's Warrant (the "Representative's Warrant") is issued
pursuant to an Underwriting Agreement between the Company and the Underwriters
named in Schedule I to the Underwriting Agreement, for which the Holder is
acting as Representative, in connection with a public offering, through the
Underwriters, of 500,000 Units (the "Units") as more fully described in the
Underwriting Agreement, (and up to 75,000 additional Units covered by an
over-allotment option granted by the Company to the Underwriters) pursuant to a
Registration Statement on Form SB-2 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), and in consideration of
$100 received by the Company for the Representative's Warrant.
1. The rights represented by the Representative's Warrant shall be
exercised at the price, subject to adjustment in accordance with Sections 9
and 10 hereof (the "Exercise Price") and during the periods as follows:
(a) The Representative's Warrant shall be numbered and shall be registered
in a warrant register. The Company shall be entitled to treat the registered
owner of any Representative's Warrant (the "Warrantholder") as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Representative's Warrant on the part of any
other person, and shall not be liable for any registration or transfer of
Representative's Warrants which are registered or to be registered in the name
of a fiduciary or the nominee of a fiduciary unless made with the actual
knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer,
<PAGE>
or with such knowledge of such facts that its participation therein amounts
to gross negligence or bad faith.
(b) During the 12 month period from the Effective Date of the Registration
Statement (the "First Anniversary Date"), the Warrantholder shall have no right
to purchase any Representative's Warrant Units hereunder, except that in the
event of any merger, consolidation or sale of substantially all the assets of
the Company as an entirety prior to the First Anniversary Date, the
Warrantholder shall have the right to exercise the Representative's Warrant at
such time and into the kind and amount of Representative's Warrant Units and
other securities and property (including cash) receivable by a holder of the
number of Representative's Warrant Units into which the Representative's Warrant
would have been convertible or exercisable immediately prior thereto.
(c) Between July ___, 1998 and 2002 (five years from the Effective Date,
i.e. the "Expiration Date") inclusive, the Warrantholder shall have the option
to purchase Representative's Warrant Units hereunder at a price ("Exercise
Price") of $14.40 per Representative's Warrant Unit.
(d) Between July ___, 1998 and 2002 (five years from the Effective Date)
inclusive, the holders of the Underlying Warrants shall have the option to
purchase the number of fully paid and nonassessable Underlying Warrant Shares
which the holder of the Underlying Warrant may at that time be entitled to
purchase on the same terms and conditions as the Redeemable Warrants offered and
sold to the public. The Underlying Warrants are redeemable by the Company on
the same terms and conditions as the Redeemable Warrants offered and sold to the
public. Holders of the Representative's Warrants and the Underlying Warrants
are sometimes herein referred to collectively as "Warrantholders."
(e) After the Expiration Date, the Warrantholder shall have no right to
purchase any Representative's Warrant Units hereunder.
2. The rights represented by the Representative's Warrant or Underlying
Warrant may be exercised at any time within the periods above specified, in
whole or in part, by (i) the surrender of the Representative's Warrant or
Underlying Warrant (with the purchase form at the end hereof properly executed)
at the principal executive office of the Company (or such other office or agency
of the Company as it may designate by notice in writing to the Warrantholder at
the address of the Warrantholder appearing on the books of the Company); (ii)
payment to the Company of the Exercise Price then in effect for the number of
Representative's Warrant Units or Underlying Warrant Shares, as the case may be,
specified in the above-mentioned purchase form together with applicable transfer
taxes, if any; and (iii) delivery to the Company of a duly executed agreement
signed by the person(s) designated in the purchase form to the effect that such
person(s) agree(s) to be bound by the provisions of paragraph 7 and
subparagraphs (b), (c) and (d) of paragraph 8 hereof. The Representative's
Warrant or Underlying Warrant shall be deemed to have been exercised, in whole
or in part to the extent specified, immediately prior to the close of business
on the date the Representative's Warrant
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or Underlying Warrant is surrendered and payment is made in accordance with
the foregoing provisions of this paragraph 2.
3. Upon such surrender of an Representative's Warrant or Underlying
Warrant and payment of the Exercise Price or Underlying Warrant Exercise Price,
as applicable, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Warrantholder exercising
such Warrant or Underlying Warrant and in such name or names as such
Warrantholder may designate, a certificate or certificates for the number of
Warrant Units Shares or Underlying Warrant Shares or Underlying Warrants, as the
case may be, so purchased upon the exercise of such Representative's Warrant or
Underlying Warrant; and in the case of a fractional Warrant Share and/or
Underlying Warrant, such fraction shall be rounded to the nearest whole Warrant
Share and/or Underlying Warrant otherwise issuable upon such surrender. Such
certificate, certificates or Underlying Warrants shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Unit Shares, Underlying Warrants
and/or Underlying Warrant Shares, as the case may be, as of the date of receipt
by the Company or the warrant agent, if any, of such Warrant or Underlying
Warrant and payment of the applicable Exercise Price or Underlying Warrant
Exercise Price; provided, however, that if, at the date of surrender of such
Warrant or Underlying Warrant and payment of the applicable Exercise Price or
Underlying Warrant Exercise Price therefor, the transfer books for the Common
Stock or other class of stock purchasable upon the exercise of such
Representative's Warrants or Underlying Warrants shall be closed, the
certificates for the components of the Representative's Warrant Units or
Underlying Warrant Shares, as the case may be, in respect of which such
Representative's Warrant or Underlying Warrant is then exercised shall be
issuable as of the date on which such books shall next be opened (whether before
or after the date the Representative's Warrant or Underlying Warrants would
otherwise terminate (the "Termination Date")) and until such date the Company
shall be under no duty to deliver any Warrant Shares or Underlying Warrants.
The rights of purchase represented by the Representative's Warrants and
Underlying Warrants shall be exercisable, at the election of the Warrantholders
thereof, either in full or from time to time in part and, in the event that an
Representative's Warrant or Underlying Warrant is exercised in respect of less
than all of the Representative's Warrant Units or Underlying Warrant Shares
purchasable on such exercise at any time prior to the Termination Date, a new
Warrant and/or Underlying Warrant evidencing the remaining Representative's
Warrants and/or Underlying Warrants will be issued; and the Company shall
deliver, or the warrant agent, if any, is hereby irrevocably authorized to
countersign and to deliver the required new Warrant and/or Underlying Warrant
pursuant to the provisions of this Section; and the Company whenever required by
the warrant agent, if any, and will supply the warrant agent with
Representative's Warrant or Underlying Warrant duly executed on behalf of the
Company for such purpose.
4. The Representative's Warrant shall not be transferred, sold, assigned,
or hypothecated for a period of one year commencing on the Effective Date except
that it may be transferred to successors of the Warrantholder, and may be
assigned in whole or in part to any person who is an officer of the
Warrantholder or to any member of the selling group and/or the
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<PAGE>
officers or partners thereof during such period. Any such assignment shall
be effected by the Warrantholder by (i) executing the form of assignment at
the end hereof and (ii) surrendering the Representative's Warrant for
cancellation at the office or agency of the Company referred to in paragraph
2 hereof, accompanied by a certificate (signed by an officer of the
Warrantholder if the Warrantholder is a corporation), stating that each
transferee is a permitted transferee under this paragraph 4; whereupon the
Company shall issue, in the name or names specified by the Warrantholder
(including the Warrantholder) a new Representative's Warrant or Warrants of
like tenor and representing in the aggregate rights to purchase the same
number of Representative's Warrant Units as are purchasable hereunder. Such
transfers shall be made in compliance with the rules and regulations of the
National Association of Securities Dealers ("NASD") as well as the 1933 Act,
the Exchange Act of 1934, as amended, and the respective rules and
regulations promulgated thereunder.
5. The Company covenants and agrees that all Warrant Unit Shares and
Underlying Warrant Shares issued hereunder will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which the Representative's Warrant and the Underlying
Warrant may be exercised, the Company will at all times have authorized and
reserved a sufficient number of Shares.
6. The Representative's Warrant and the Underlying Warrants shall not
entitle the Warrantholder to any voting rights or other rights as a shareholder
of the Company.
7. (a) If at any time for a period of four (4) years commencing one (1)
year from the Effective Date, the Company files a registration statement under
the 1933 Act which relates to a current offering of securities of the Company
(except a Registration Statement on Form S-4, S-8 or any other inappropriate
form), such registration statement and the prospectus included therein shall
also, at the written request of the Company by any of the then owners of the
Representative's Warrants, Warrant Units, Underlying Warrants or Warrant Shares
(the "Owners"), include and relate to the Underlying Warrants and/or Warrant
Shares issuable upon exercise of such Representative's Warrants and/or
Underlying Warrants so as to permit the public sale thereof in compliance with
the 1933 Act. The Company shall give written notice to the Owners of its
intention to file a registration statement under the 1933 Act relating to a
current offering of the securities of the Company, at least 30 days prior to the
filing of such registration statement, and the written request provided for in
the first sentence of this subsection shall be made by the Owners at least 10
days prior to the date specified in the notice as the date on which the Company
intends to file such registration statement. Neither the delivery of such
notice by the Company nor of such request by the Owners shall in any way
obligate the Company to file such registration statement and, notwithstanding
the filing of such registration statement, the Company may, at any time prior to
the effective date thereof, determine not to offer those securities to which
such registration statement relates, without liability to the Owners, except
that the Company shall pay such expenses incurred in connection with the
preparation and filing of such registration statement and as otherwise set forth
in subsection (d) hereof.
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<PAGE>
(b) In addition, for a period of four (4) years commencing one (1) year
from the Effective Date, upon written notice at any time from a Majority Holder
(as such term is defined in subsection (f) of this Section 7) that he, she or it
contemplates the transfer of all or any part of his, her or its Underlying
Warrants or Warrant Shares under such circumstances that a public offering
thereof would be involved within the meaning of the 1933 Act, the Company, as
promptly as possible after the receipt of such notice, shall file, at its
expense, a post-effective amendment or a new registration statement with respect
to the offering, sale or other disposition of the Underlying Warrants and/or
Warrant Shares as to which the Company shall have received such notice. Within
10 days after receiving any such notice, the Company shall give notice to the
other Owners advising them that the Company is proceeding with such
post-effective amendment or new registration statement and offering to
include therein the Underlying Warrants and/or Warrant Shares of such Owners.
The Company shall not be obligated to any such other Owner unless such other
Owner shall accept such offer by written notice to the Company within 30 days
of the Company's notice. The Owners will bear the expense of fees of counsel
for the Owners and any sales commissions for the Underlying Warrants and/or
Warrant Shares sold by the Owners. In no event shall the Company be required
to file a post-effective amendment or a new registration statement pursuant
to the requirements of this subsection (b) more than once.
(c) In any exercise of the registration rights afforded pursuant to
subsection (a) and (b) of this Section 7, the Company shall:
(i) Supply to the Owner or its designee, as representative of the
Owners intending to make a public distribution of their Underlying
Warrants and/or Warrant Shares (the holder of the Representative's
Warrant by his, her or its receipt of the Representative's Warrant
and/or Underlying Warrant thereby acknowledging his, her or its
appointment of the Owners' representative or its designee as his, her
or its representative for purposes of this Agreement), four executed
copies of each post-effective amendment or registration statement and
as many copies of the preliminary and final prospectus which shall
have been prepared in conformity with the requirements of the 1933 Act
and the rules and regulations promulgated thereunder and such other
documents as the representative of the Owners shall reasonably
request;
(ii) Cooperate in taking such action as may be necessary to register
or qualify the Underlying Warrants and/or Warrant Shares under the
securities acts or blue sky laws of such jurisdictions as the
representative of the Owners shall reasonably request and the Company
shall do any and all other acts and things which may be necessary or
advisable to enable the Owners to consummate such proposed sale or
other disposition of the Underlying Warrants and/or Warrant Shares in
any such jurisdiction; provided, however, that in no event shall the
Company be obligated, in connection therewith, to qualify to do
business or to file a general consent to service of process in any
jurisdiction where it shall not then be so qualified; and
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<PAGE>
(iii) Use its best efforts to cause any such post-effective
amendment or new registration statement to become effective and remain
effective for a period of not less than 12 months after the initial
effectiveness thereof. The Company shall cooperate in taking such
other action as may be necessary to permit the public sale or other
disposition of the Underlying Warrants and/or Warrant Shares by the
Owners.
(d) The Company shall comply with the requirements of subsections (a) and
(b) of this Section (including the related requirements of subsection (c) of
this Section), at its own expense, including the costs to register/qualify the
securities under the securities laws of those states as the Owners shall
reasonably request; but excluding underwriting commissions, transfer taxes and
Representative's expense allowance attributable to the securities being offered
by the Owners.
(e) The term "Majority Holder" as used in this Section shall include any
owner or combination of owners of Representative's Warrants, Underlying Warrants
and/or Warrant Shares, in any combination, if the aggregate amount of:
A. the Warrant Unit Shares and/or Underlying Warrant Shares then
held by him, her, it or among them, plus
B. the Warrant Unit Shares and/or Underlying Warrant Shares then
issuable upon exercise of the Representative's Warrants and/or Underlying
Warrants then held by him, her, it or among them would constitute more than
fifty percent of the Representative's Warrant Unit Shares and/or Underlying
Warrant Shares originally issuable upon exercise of all of the Representative's
Warrants and Underlying Warrants.
(f) The provisions contained herein shall continue in effect regardless of
the exercise or surrender of any of the Warrants. Notwithstanding anything in
this Section 7 to the contrary, the Company shall not be obligated to register
any Underlying Warrants or Underlying Warrant Shares if the Underlying Warrants
shall have expired unexercised or if the Underlying Warrants shall have been
redeemed by the Company; and the Underlying Warrant Shares shall not be used to
calculate a Majority Holder if the Underlying Warrants shall have expired
unexercised or shall have been redeemed by the Company.
8. (a) Whenever pursuant to paragraph 7 a registration statement
relating to the Underlying Warrants and/or Warrant Shares is filed under the
1933 Act, amended or supplemented, the Company will indemnify and hold harmless
each holder of the securities covered by such registration statement, amendment
or supplement (such holder being hereinafter called the "Distributing Holder"),
and each person, if any, who controls (within the meaning of the 1933 Act) the
Distributing Holder, and each underwriter (within the meaning of the 1933 Act)
of such securities and each person, if any, who controls (within the meaning of
the 1933 Act) any such underwriter, against any losses, claims, damages or
liabilities, joint or several, to which the Distributing Holder, any such
controlling person or any such underwriter may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
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liabilities, or actions in respect thereof, arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading and will reimburse
the Distributing Holder or such controlling person or underwriter in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration
statement, said preliminary prospectus, said final prospectus or said
amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed said registration
statement and such amendments and supplements thereto, and each person, if any,
who controls the Company (within the meaning of the 1933 Act) against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer or controlling person may become subject, under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 7.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in and, to the extent that it may wish,
jointly with any other indemnifying party
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similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this paragraph 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No settlement
shall be made without the consent of the indemnifying party.
9. In case of any reclassification, capital reorganization or other
change of outstanding Shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital, reorganization or other
change of outstanding Shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of this Warrant shall have the right thereafter, by
exercising such Warrant, to purchase the kind and number of Shares of stock or
other securities or property (including cash) receivable upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance by a holder of the number of Shares of Common Stock that
might have been purchased upon exercise of such Warrant, immediately prior to
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. The foregoing provision shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding Shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
10. If, prior to the expiration of this Warrant by exercise or by its
terms the Company shall issue any of its shares of Common Stock as a share
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares, then, in either such case, the Exercise Price per
Representative's Warrant Unit shall be proportionately reduced, and the number
of Representative's Warrant Units at the time purchasable pursuant to this
Warrant shall be proportionately increased; and conversely, if the Company shall
contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the Exercise Price
per Representative's Warrant Unit in effect at the time of such action shall be
proportionately increased and the number of Representative's Warrant Units at
that time purchasable pursuant to this Warrant shall be proportionately
decreased. If the Company shall, at any time during the life of this Warrant
declare a dividend payable in cash on its shares of Common Stock and shall at
substantially the same time offer to its shareholders a right to purchase new
shares of Common Stock from the proceeds of such dividend or for an amount
substantially equal to the dividend, all shares of Common Stock so issued shall,
for the purpose of this Warrant, be deemed to have been issued as a share
dividend. Any dividend paid or distributed upon the shares of Common Stock in
shares of any other class of securities convertible into shares of Common Stock
shall be treated as a dividend paid in shares of Common Stock to the extent that
shares of Common Stock are issuable upon the conversion thereof.
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<PAGE>
11. This Agreement shall be governed by and construed in accordance with
the internal substantive laws of the State of California, without regard for the
conflict of laws.
IN WITNESS WHEREOF, Retrospettiva, Inc. has caused this Representative's
Warrant to be signed by its duly authorized officers under its corporate seal
and this Representative's Warrant to be dated ____________________, 1997.
RETROSPETTIVA, INC.
By
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President
Attest:
--------------------------------
Secretary
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PURCHASE FORM
(To be signed only upon exercise of Representative's Warrant)
The undersigned, the holder of the foregoing Representative's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Representative's Warrant for, and to purchase thereunder, ____________ Units
("Unit") of Retrospettiva, Inc. with each Unit comprised of two (2) shares of
Retrospettiva, Inc. no par value common stock and one (1) warrant to purchase an
additional share of such common stock at $7.50 per share and herewith makes
payment of $__________ therefor and requests that the certificates for Units be
issued in the name(s) of, and delivered to ______________________________, whose
address(es) is (are): ____________
____________________.
Dated: __________________, 19__
By:
------------------------------------
TRANSFER FORM
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _____________________ the right to purchase Shares represented by the
foregoing Representative's Warrant to the extent of ___________ Units and
appoints ____________________________________ attorney to transfer such rights
on the books of Retrospettiva, Inc., with full power of substitution in the
premises.
Dated: _________________, 19__
By:
------------------------------------
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ENDORSED
FILED
In the office of the Secretary of State
of the State of California
MAY 7 1996
/s/ Bill Jones
BILL JONES, Secretary of State
RESTATED ARTICLES OF INCORPORATION
OF
RETROSPETTIVA, INC.
A CALIFORNIA CORPORATION
Borivoje Vukadinovic and Michael D. Silberman certify that:
A. They are the President and Secretary, respectively, of RETROSPETTIVA,
INC., a California corporation.
B. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
"ARTICLES OF INCORPORATION
OF
RETROSPETTIVA, INC.
ARTICLE I
Name
The name of the corporation is: RETROSPETTIVA, INC.
ARTICLE II
Purpose
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or the
practice of a profession permitted to be incorporated by the California
Corporation Code.
<PAGE>
ARTICLE III
Capital Stock
1. AUTHORIZED SHARES OF COMMON STOCK. The aggregate number of
common shares which the corporation shall have authority to issue is 15,000,000
shares of Common Stock. The shares of this class of Common Stock shall have
unlimited voting rights and shall constitute the sole voting group of the
corporation, except to the extent any additional voting group or groups may
hereafter be established in accordance with the California Corporation Code.
2. DENIAL OF PREEMPTIVE RIGHTS. Preemptive rights to purchase
additional shares of stock are denied.
3. AUTHORIZED SHARES OF PREFERRED STOCK. The corporation shall
have the authority to issue 1,000,000 shares of Preferred Stock, which may be
issued in one or more series at the discretion of the board of directors. In
establishing a series, the board of directors shall give to it a distinctive
designation so as to distinguish it from the shares of all other series and
classes, shall fix the number of shares in such series, and the preferences,
rights and restrictions thereof. All shares of any one series shall be alike in
every particular except as otherwise provided by these Articles of Incorporation
or the California Corporation Code.
(1) DIVIDENDS. Dividends in cash, property or shares shall be
paid upon the Preferred Stock for any year on a cumulative or noncumulative
basis as determined by a resolution of the board of directors prior to the
issuance of such Preferred Stock, to the extent earned surplus for each such
year is available, in an amount as determined by a resolution of the board of
directors. Such Preferred Stock dividends shall be paid pro rata to holders of
Preferred Stock as determined by a resolution of the board of directors prior to
the issuance of such Preferred Stock. No other dividend shall be paid on the
Preferred Stock.
Dividends in cash, property or shares of the corporation may be
paid upon the Common Stock, as and when declared by the board of directors, out
of funds of the corporation to the extent and in the manner permitted by law,
except that no Common Stock dividend shall be paid for any year unless the
holders of Preferred Stock, if any, shall receive the maximum allowable
Preferred Stock dividend for such year.
(2) DISTRIBUTION IN LIQUIDATION. Upon any liquidation, dissolution or
winding up of the corporation, and after paying or adequately providing for
the payment of all its obligations, the remainder of the assets of the
corporation shall be distributed, either in cash or
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in kind, first pro rata to the holders of the Preferred Stock until an amount
to be determined by a resolution of the board of directors prior to issuance of
such Preferred Stock has been distributed per share, and, then, the remainder
pro rata to the holders of the Common Stock.
(3) REDEMPTION. The Preferred Stock may be redeemed in whole or
in part as determined by a resolution of the board of directors prior to the
issuance of such Preferred Stock, upon prior notice to the holders of record of
the Preferred Stock, published, mailed and given in such manner and form and on
such other terms and conditions as may be prescribed by the Bylaws or by
resolution of the board of directors, by payment in cash or Common Stock for
each share of the Preferred Stock to be redeemed, as determined by a resolution
of the board of directors prior to the issuance of such Preferred Stock. Common
Stock used to redeem Preferred Stock shall be valued as determined by a
resolution of the board of directors prior to the issuance of such Preferred
Stock. Any rights to or arising from fractional shares shall be treated as
rights to or arising from one share. No such purchase or retirement shall be
made if the capital of the corporation would be impaired thereby.
ARTICLE IV
Limitation on Director Liability
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
ARTICLE V
Indemnification of Agents
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with
respect to actions for breach of duty to the corporation and its shareholders.
C. The foregoing amendment and restatement was approved by the
required vote of the shareholders of the corporation in accordance with Section
902 of the California Corporations Code; the total number of outstanding shares
of each class entitled to vote with respect to the foregoing amendment and
restatement was ten thousand (10,000) shares; and the number of shares of
each class voting in favor of the foregoing amendment and restatement equalled
or exceeded the vote required, such required vote being a majority of the
outstanding shares.
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D. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the board of directors.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Dated: April 21, 1996
/s/ Borivoje Vukadinovic
---------------------------------
Borivoje Vukadinovic, President
/s/ Michael D. Silberman
---------------------------------
Michael D. Silberman, Secretary
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[SEAL]
SECRETARY OF STATE
CORPORATION DIVISION
I, BILL JONES, Secretary of State of the State of California,
hereby certify:
That the annexed transcript has been compared with the corporate
record on file in this office, of which it purports to be a copy, and
that same is full, true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
MAY 10 1996
-----------------------------
/s/ Bill Jones
[SEAL]
Secretary of State
<PAGE>
BYLAWS
OF
RETROSPETTIVA, INC.,
a California corporation
<PAGE>
BYLAWS
TABLE OF CONTENTS
ARTICLE.............................................................. PAGE
I. Offices........................................................ 1
II. Shareholders................................................... 1
III. Board of Directors............................................. 8
IV. Officers and Agents............................................ 12
V. Stock.......................................................... 15
VI. Indemnification of Certain Persons............................. 17
VII. Provision of Insurance......................................... 20
VIII. Miscellaneous.................................................. 20
Effective:
----------------
<PAGE>
BYLAWS
OF
RETROSPETTIVA, INC.
ARTICLE I
OFFICES
The principal office of the corporation shall be designated from time to
time by the corporation and may be within or outside of California.
The corporation may have such other offices, either within or outside
California, as the board of directors may designate or as the business of the
corporation may require from time to time.
The registered office of the corporation required by the California
Corporations Code to be maintained in California may be, but need not be,
identical with the principal office, and the address of the registered office
may be changed from time to time by the board of directors.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders shall
be held during the month of April of each year on a date and at a time fixed by
the board of directors of the corporation or by the president in the absence of
action by the board of directors, for the purpose of electing directors and for
the transaction of such other business as may come before the meeting. If the
election of directors is not held on the day fixed as provided herein for any
annual meeting of the shareholders, or any adjournment thereof, the board of
directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as it may conveniently be held.
A shareholder may apply to the district court in the county in California
where the corporation's principal office is located or, if the corporation has
no principal office in California, to the district court of the county in which
the corporation's registered office is located to seek an order that a
shareholder meeting be held (i) if an annual meeting was not held within six
months after the close of the corporation's most recently ended fiscal year or
fifteen months after its last annual meeting, whichever is earlier, or (ii) if
the shareholder participated in a proper call of or proper demand for a special
meeting and notice of the special meeting was not given within thirty days after
the date of the call or the date the last of the demands necessary to require
calling of the meeting was received by the corporation, or the special meeting
was not held in accordance with the notice.
Section 2. SPECIAL MEETINGS. Unless otherwise prescribed by statute,
special meetings of the shareholders may be called for any purpose by the
president or by the board of directors. The president shall call a special
meeting of the shareholders if the corporation receives one or more written
demands for the meeting, stating the purpose or purposes for which it is to be
held,
<PAGE>
signed and dated by holders of shares representing at least ten percent of
all the votes entitled to be cast on any issue proposed to be considered at
the meeting.
Section 3. PLACE OF MEETING. The board of directors may designate any
place, either within or outside California, as the place for any annual meeting
or any special meeting called by the board of directors. A waiver of notice
signed by all shareholders entitled to vote at a meeting may designate any
place, either within or outside California, as the place for such meeting. If
no designation is made, or if a special meeting is called other than by the
board, the place of meeting shall be the principal office of the corporation.
Section 4. NOTICE OF MEETING. Written notice stating the place, date, and
hour of the meeting shall be given not less than ten nor more than sixty days
before the date of the meeting, except that (i) if the number of authorized
shares is to be increased, at least thirty days' notice shall be given, or (ii)
any other longer notice period that is required by the California Corporations
Code. The secretary shall be required to give such notice only to shareholders
entitled to vote at the meeting except as otherwise required by the California
Corporations Code.
Notice of a special meeting shall include a description of the purpose or
purposes of the meeting. Notice of an annual meeting need not include a
description of the purpose or purposes of the meeting except the purpose or
purposes shall be stated with respect to (i) an amendment to the articles of
incorporation of the corporation, (ii) a merger or share exchange in which the
corporation is a party and, with respect to a share exchange, in which the
corporation's shares will be acquired, (iii) a sale, lease, exchange or other
disposition, other than in the usual and regular course of business, of all or
substantially all of the property of the corporation or of another entity which
this corporation controls, in each case with or without the goodwill, (iv) a
dissolution of the corporation, (v) restatement of the articles of
incorporation, or (vi) any other purpose for which a statement of purpose is
required by the California Corporations Code. Notice shall be given personally
or by mail, private carrier, telegraph, teletype, electronically transmitted
facsimile or other form of wire or wireless communication by or at the direction
of the president, the secretary, or the officer or persons calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed and
if in a comprehensible form, such notice shall be deemed to be given and
effective when deposited in the United States mail, properly addressed to the
shareholder at his address as it appears in the corporation's current record of
shareholders, with first class postage prepaid. If notice is given other than
by mail, and provided that such notice is in a comprehensible form, the notice
is given and effective on the date actually received by the shareholder.
If requested by the person or persons lawfully calling such meeting, the
secretary shall give notice thereof at corporate expense. No notice need be
sent to any shareholder if three successive notices mailed to the last known
address of such shareholder have been returned as undeliverable until such time
as another address for such shareholder is made known to the corporation by such
shareholder. In order to be entitled to receive notice of any meeting, a
shareholder shall advise the corporation in writing of any change in such
shareholder's mailing address as shown on the corporation's books and records.
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When a meeting is adjourned to another date, time or place, notice need not
be given of the new date, time or place if the new date, time or place of such
meeting is announced before adjournment at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
which may have been transacted at the original meeting. If the adjournment is
for more than 120 days, or if a new record date is fixed for the adjourned
meeting, a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting as of the new record date.
A shareholder may waive notice of a meeting before or after the time and
date of the meeting by a writing signed by such shareholder. Such waiver shall
be delivered to the corporation for filing with the corporate records, but this
delivery and filing shall not be conditions to the effectiveness of the waiver.
Further, by attending a meeting either in person or by proxy, a shareholder
waives objection to lack of notice or defective notice of the meeting unless the
shareholder objects at the beginning of the meeting to the holding of the
meeting or the transaction of business at the meeting because of lack of notice
or defective notice. By attending the meeting, the shareholder also waives any
objection to consideration at the meeting of a particular matter not within the
purpose or purposes described in the meeting notice unless the shareholder
objects to considering the matter when it is presented.
Section 5. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to (i) notice of or vote at any meeting of shareholders or
any adjournment thereof, (ii) receive distributions or share dividends, (iii)
demand a special meeting, or (iv) make a determination of shareholders for any
other proper purpose, the board of directors may fix a future date as the record
date for any such determination of shareholders, such date in any case to be not
more than seventy days, and, in case of a meeting of shareholders, not less than
ten days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
directors, the record date shall be the day before the notice of the meeting is
given to shareholders, or the date on which the resolution of the board of
directors providing for a distribution is adopted, as the case may be. When a
determination of shareholders entitled to vote at any meeting of shareholders is
made as provided in this section, such determination shall apply to any
adjournment thereof unless the board of directors fixes a new record date, which
it must do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. Unless otherwise specified when the record
date is fixed, the time of day for such determination shall be as of the
corporation's close of business on the record date.
Notwithstanding the above, the record date for determining the shareholders
entitled to take action without a meeting or entitled to be given notice of
action so taken shall be the date a writing upon which the action is taken is
first received by the corporation. The record date for determining shareholders
entitled to demand a special meeting shall be the date of the earliest of any of
the demands pursuant to which the meeting is called.
Section 6. VOTING LISTS. After a record date is fixed for a shareholders'
meeting, the secretary shall make, at the earlier of ten days before such
meeting or two business days after
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<PAGE>
notice of the meeting has been given, a complete list of the shareholders
entitled to be given notice of such meeting or any adjournment thereof. The
list shall be arranged by voting groups and within each voting group by class
or series of shares, shall be in alphabetical order within each class or
series, and shall show the address of and the number of shares of each class
or series held by each shareholder. For the period beginning the earlier of
ten days prior to the meeting or two business days after notice of the
meeting is given and continuing through the meeting and any adjournment
thereof, this list shall be kept on file at the principal office of the
corporation, or at a place (which shall be identified in the notice) in the
city where the meeting will be held. Such list shall be available for
inspection on written demand by any shareholder (including for the purpose of
this Section 6 any holder of voting trust certificates) or his agent or
attorney during regular business hours and during the period available for
inspection. The original stock transfer books shall be prima facie evidence
as to who are the shareholders entitled to examine such list or transfer
books or to vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during regular
business hours and during the period it is available for inspection, provided
(i) the shareholder has been a shareholder for at least three months immediately
preceding the demand or holds at least five percent of all outstanding shares of
any class of shares as of the date of the demand, (ii) the demand is made in
good faith and for a purpose reasonably related to the demanding shareholder's
interest as a shareholder, (iii) the shareholder describes with reasonable
particularity the purpose and the records the shareholder desires to inspect,
(iv) the records are directly connected with the described purpose, and (v) the
shareholder pays a reasonable charge covering the costs of labor and material
for such copies, not to exceed the estimated cost of production and
reproduction.
Section 7. RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The board of
directors may adopt by resolution a procedure whereby a shareholder of the
corporation may certify in writing to the corporation that all or a portion of
the shares registered in the name of such shareholder are held for the account
of a specified person or persons. The resolution may set forth (i) the types of
nominees to which it applies, (ii) the rights or privileges that the corporation
will recognize in a beneficial owner, which may include rights and privileges
other than voting, (iii) the form of certification and the information to be
contained therein, (iv) if the certification is with respect to a record date,
the time within which the certification must be received by the corporation, (v)
the period for which the nominee's use of the procedure is effective, and (vi)
such other provisions with respect to the procedure as the board deems necessary
or desirable. Upon receipt by the corporation of a certificate complying with
the procedure established by the board of directors, the persons specified in
the certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the registered holders of the number of shares specified in
place of the shareholder making the certification.
Section 8. QUORUM AND MANNER OF ACTING. One-third of the votes entitled
to be cast on a matter by a voting group represented in person or by proxy,
shall constitute a quorum of that voting group for action on the matter. If
less than one-third of such votes are represented at a meeting, a majority of
the votes so represented may adjourn the meeting from time to time
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<PAGE>
without further notice, for a period not to exceed 120 days for any one
adjournment. If a quorum is present at such adjourned meeting, any business
may be transacted which might have been transacted at the meeting as
originally noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, unless the
meeting is adjourned and a new record date is set for the adjourned meeting.
If a quorum exists, action on a matter other than the election of directors
by a voting group is approved if the votes cast within the voting group favoring
the action exceed the votes cast within the voting group opposing the action,
unless the vote of a greater number or voting by classes is required by law or
the articles of incorporation.
Section 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy by signing an appointment form or similar writing, either
personally or by his duly authorized attorney-in-fact. A shareholder may also
appoint a proxy by transmitting or authorizing the transmission of a telegram,
teletype, or other electronic transmission providing a written statement of the
appointment to the proxy, a proxy solicitor, proxy support service organization,
or other person duly authorized by the proxy to receive appointments as agent
for the proxy, or to the corporation. The transmitted appointment shall set
forth or be transmitted with written evidence from which it can be determined
that the shareholder transmitted or authorized the transmission of the
appointment. The proxy appointment form or similar writing shall be filed with
the secretary of the corporation before or at the time of the meeting. The
appointment of a proxy is effective when received by the corporation and is
valid for eleven months unless a different period is expressly provided in the
appointment form or similar writing.
Any complete copy, including an electronically transmitted facsimile, of an
appointment of a proxy may be substituted for or used in lieu of the original
appointment for any purpose for which the original appointment could be used.
Revocation of a proxy does not affect the right of the corporation to
accept the proxy's authority unless (i) the corporation had notice that the
appointment was coupled with an interest and notice that such interest is
extinguished is received by the secretary or other officer or agent authorized
to tabulate votes before the proxy exercises his authority under the
appointment, or (ii) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. Other notice of
revocation may, in the discretion of the corporation, be deemed to include the
appearance at a shareholders' meeting of the shareholder who granted the proxy
and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
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<PAGE>
The corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his attorney-in-fact, notwithstanding
that the revocation may be a breach of an obligation of the shareholder to
another person not to revoke the appointment.
Subject to Section 11 and any express limitation on the proxy's authority
appearing on the appointment form, the corporation is entitled to accept the
proxy's vote or other action as that of the shareholder making the appointment.
Section 10. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote, except in the election of directors, and
each fractional share shall be entitled to a corresponding fractional vote on
each matter submitted to a vote at a meeting of shareholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the articles of incorporation as permitted by the California
Corporations Code. Cumulative voting shall not be permitted in the election of
directors or for any other purpose; however, this provision shall become
effective only when the corporation becomes a listed corporation within the
meaning of Section 301.5 of the California Corporations Code. Each record
holder of stock shall be entitled to vote in the election of directors and shall
have as many votes for each of the shares owned by him as there are directors to
be elected and for whose election he has the right to vote.
At each election of directors, that number of candidates equaling the
number of directors to be elected, having the highest number of votes cast in
favor of their election, shall be elected to the board of directors.
Except as otherwise ordered by a court of competent jurisdiction upon a
finding that the purpose of this Section would not be violated in the
circumstances presented to the court, the shares of the corporation are not
entitled to be voted if they are owned, directly or indirectly, by a second
corporation, domestic or foreign, and the first corporation owns, directly or
indirectly, a majority of the shares entitled to vote for directors of the
second corporation except to the extent the second corporation holds the shares
in a fiduciary capacity.
Redeemable shares are not entitled to be voted after notice of redemption
is mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company or other financial institution under an
irrevocable obligation to pay the holders the redemption price on surrender of
the shares.
Section 11. CORPORATION'S ACCEPTANCE OF VOTES. If the name signed on a
vote, consent, waiver, proxy appointment, or proxy appointment revocation
corresponds to the name of a shareholder, the corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver, proxy appointment or
proxy appointment revocation and give it effect as the act of the shareholder.
If the name signed on a vote, consent, waiver, proxy appointment or proxy
appointment revocation does not correspond to the name of a shareholder, the
corporation, if
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<PAGE>
acting in good faith, is nevertheless entitled to accept the vote, consent,
waiver, proxy appointment or proxy appointment revocation and to give it
effect as the act of the shareholder if:
(i) the shareholder is an entity and the name signed purports to be that
of an officer or agent of the entity;
(ii) the name signed purports to be that of an administrator, executor,
guardian or conservator representing the shareholder and, if the
corporation requests, evidence of fiduciary status acceptable to the
corporation has been presented with respect to the vote, consent,
waiver, proxy appointment or proxy appointment revocation;
(iii) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, proxy appointment
or proxy appointment revocation;
(iv) the name signed purports to be that of a pledgee, beneficial owner or
attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to
sign for the shareholder has been presented with respect to the vote,
consent, waiver, proxy appointment or proxy appointment revocation;
(v) two or more persons are the shareholder as co-tenants or fiduciaries
and the name signed purports to be the name of at least one of the co-
tenants or fiduciaries, and the person signing appears to be acting on
behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy appointment or
proxy appointment revocation is otherwise proper under rules
established by the corporation that are not inconsistent with this
Section 11.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the secretary or other officer or
agent authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
Neither the corporation nor its officers nor any agent who accepts or
rejects a vote, consent, waiver, proxy appointment or proxy appointment
revocation in good faith and in accordance with the standards of this Section is
liable in damages for the consequences of the acceptance or rejection.
Section 12. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a written consent (or
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<PAGE>
counterparts thereof) that sets forth the action so taken is signed by all of
the shareholders entitled to vote with respect to the subject matter thereof
and received by the corporation. Such consent shall have the same force and
effect as a unanimous vote of the shareholders and may be stated as such in
any document. Action taken under this Section 12 is effective as of the date
the last writing necessary to effect the action is received by the corporation,
unless all of the writings specify a different effective date, in which case
such specified date shall be the effective date for such action. If any
shareholder revokes his consent as provided for herein prior to what would
otherwise be the effective date, the action proposed in the consent shall be
invalid. The record date for determining shareholders entitled to take action
without a meeting is the date the corporation first receives a writing upon
which the action is taken.
Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 12 may revoke such consent by a writing
signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the corporation before the effectiveness of the action.
Section 13. MEETINGS BY TELECOMMUNICATION. Any or all of the shareholders
may participate in an annual or special shareholders' meeting by, or the meeting
may be conducted through the use of, any means of communication by which all
persons participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, its board of directors, except as otherwise
provided in the California Corporations Code or the articles of incorporation.
Section 2. NUMBER, QUALIFICATIONS AND TENURE. The number of directors of
the corporation shall be fixed from time to time by the board of directors,
within a range of no less than two or more than nine, but no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. A director shall be a natural person who is eighteen years
of age or older. A director need not be a resident of California or a
shareholder of the corporation.
Directors shall be elected at each annual meeting of shareholders. Each
director shall hold office until the next annual meeting of shareholders
following his election and thereafter until his successor shall have been
elected and qualified. Directors shall be removed in the manner provided by the
California Corporations Code. Any director may be removed by the shareholders,
with or without cause, at a meeting called for that purpose. The notice of the
meeting shall state that the purpose or one of the purposes of the meeting is
removal of the
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director. A director may be removed only if the number of votes cast in favor
of removal exceeds the number of votes cast against removal.
Section 3. VACANCIES. Any director may resign at any time by giving
written notice to the secretary. Such resignation shall take effect at the time
the notice is received by the secretary unless the notice specifies a later
effective date. Unless otherwise specified in the notice of resignation, the
corporation's acceptance of such resignation shall not be necessary to make it
effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders at a special meeting called
for that purpose or by the board of directors. If the directors remaining in
office constitute fewer than a quorum of the board, the directors may fill the
vacancy by the affirmative vote of a majority of all the directors remaining in
office. If elected by the directors, the director shall hold office until the
next annual shareholders' meeting at which directors are elected. If elected by
the shareholders, the director shall hold office for the unexpired term of his
predecessor in office; except that, if the director's predecessor was elected by
the directors to fill a vacancy, the director elected by the shareholders shall
hold office for the unexpired term of the last predecessor elected by the
shareholders.
Section 4. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without notice immediately after and at the same place as the
annual meeting of shareholders. The board of directors may provide by
resolution the time and place, either within or outside California, for the
holding of additional regular meetings without other notice.
Section 5. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or any two directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place, either within or outside California, as the place for holding
any special meeting of the board of directors called by them.
Section 6. NOTICE. Notice of the date, time and place of any special
meeting shall be given to each director at least two days prior to the meeting
by written notice either personally delivered or mailed to each director at his
business address, or by notice transmitted by private courier, telegraph, telex,
electronically transmitted facsimile or other form of wire or wireless
communication. If mailed, such notice shall be deemed to be given and to be
effective on the earlier of (i) five days after such notice is deposited in the
United States mail, properly addressed, with first class postage prepaid, or
(ii) the date shown on the return receipt, if mailed by registered or certified
mail return receipt requested, provided that the return receipt is signed by the
director to whom the notice is addressed. If notice is given by telex,
electronically transmitted facsimile or other similar form of wire or wireless
communication, such notice shall be deemed to be given and to be effective when
sent, and with respect to a telegram, such notice shall be deemed to be given
and to be effective when the telegram is delivered to the telegraph company. If
a director has designated in writing one or more reasonable addresses or
facsimile numbers for delivery of notice to him, notice sent by mail, telegraph,
telex, electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to
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have been given or to be effective unless sent to such addresses or facsimile
numbers, as the case may be.
A director may waive notice of a meeting before or after the time and date
of the meeting by a writing signed by such director. Such waiver shall be
delivered to the secretary for filing with the corporate records, but such
delivery and filing shall not be conditions to the effectiveness of the waiver.
Further, a director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless at the beginning of the meeting, or
promptly upon his later arrival, the director objects to holding the meeting or
transacting business at the meeting because of lack of notice or defective
notice and does not thereafter vote for or assent to action taken at the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
Section 7. QUORUM. A majority of the number of directors fixed by the
board of directors pursuant to Article III, Section 2 or, if no number is fixed,
a majority of the number in office immediately before the meeting begins, shall
constitute a quorum for the transaction of business at any meeting of the board
of directors.
Section 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors.
Section 9. COMPENSATION. By resolution of the board of directors, any
director may be paid any one or more of the following: his expenses, if any, of
attendance at meetings, a fixed sum for attendance at each meeting, a stated
salary as director, or such other compensation as the corporation and the
director may reasonably agree upon. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
Section 10. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the board of directors or committee of the board at
which action on any corporate matter is taken shall be presumed to have assented
to all action taken at the meeting unless (i) the director objects at the
beginning of the meeting, or promptly upon his arrival, to the holding of the
meeting or the transaction of business at the meeting and does not thereafter
vote for or assent to any action taken at the meeting, (ii) the director
contemporaneously requests that his dissent or abstention as to any specific
action taken be entered in the minutes of the meeting, or (iii) the director
causes written notice of his dissent or abstention as to any specific action to
be received by the presiding officer of the meeting before its adjournment or by
the secretary promptly after the adjournment of the meeting. A director may
dissent to a specific action at a meeting, while assenting to others. The right
to dissent to a specific action taken at a meeting of the board of directors or
a committee of the board shall not be available to a director who voted in favor
of such action.
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Section 11. COMMITTEES. By resolution adopted by a majority of all the
directors in office when the action is taken, the board of directors may
designate from among its members an executive committee and one or more other
committees, and appoint one or more members of the board of directors to serve
on them. To the extent provided in the resolution, each committee shall have
all the authority of the board of directors, except that no such committee shall
have the authority to (i) authorize distributions, (ii) approve or propose to
shareholders actions or proposals required by the California Corporations Code
to be approved by shareholders, (iii) fill vacancies on the board of directors
or any committee thereof, (iv) amend articles of incorporation, (v) adopt, amend
or repeal the bylaws, (vi) approve a plan of merger not requiring shareholder
approval, (vii) authorize or approve the reacquisition of shares unless pursuant
to a formula or method prescribed by the board of directors, or (viii) authorize
or approve the issuance or sale of shares, or contract for the sale of shares or
determine the designations and relative rights, preferences and limitations of a
class or series of shares, except that the board of directors may authorize a
committee or officer to do so within limits specifically prescribed by the board
of directors. The committee shall then have full power within the limits set by
the board of directors to adopt any final resolution setting forth all
preferences, limitations and relative rights of such class or series and to
authorize an amendment of the articles of incorporation stating the preferences,
limitations and relative rights of a class or series for filing with the
Secretary of State under the California Corporations Code.
Sections 4, 5, 6, 7, 8 or 12 of Article III, which govern meetings, notice,
waiver of notice, quorum, voting requirements and action without a meeting of
the board of directors, shall apply to committees and their members appointed
under this Section 11.
Neither the designation of any such committee, the delegation of authority
to such committee, nor any action by such committee pursuant to its authority
shall alone constitute compliance by any member of the board of directors or a
member of the committee in question with his responsibility to conform to the
standard of care set forth in Article III, Section 14 of these bylaws.
Section 12. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at a meeting of the directors or any committee designated
by the board of directors may be taken without a meeting if a written consent
(or counterparts thereof) that sets forth the action so taken is signed by all
of the directors entitled to vote with respect to the action taken. Such
consent shall have the same force and effect as a unanimous vote of the
directors or committee members and may be stated as such in any document.
Unless the consent specifies a different effective time or date, action taken
under this Section 12 is effective at the time or date the last director signs a
writing describing the action taken, unless, before such time, any director has
revoked his consent by a writing signed by the director and received by the
president or the secretary of the corporation.
Section 13. TELEPHONIC MEETINGS. The board of directors may permit any
director (or any member of a committee designated by the board) to participate
in a regular or special meeting of the board of directors or a committee thereof
through the use of any means of
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communication by which all directors participating in the meeting can hear
each other during the meeting. A director participating in a meeting in this
manner is deemed to be present in person at the meeting.
Section 14. STANDARD OF CARE. A director shall perform his duties as a
director, including without limitation his duties as a member of any committee
of the board, in good faith, in a manner he reasonably believes to be in the
best interests of the corporation, and with the care an ordinarily prudent
person in a like position would exercise under similar circumstances. In
performing his duties, a director shall be entitled to rely on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by the persons herein
designated. However, he shall not be considered to be acting in good faith if
he has knowledge concerning the matter in question that would cause such
reliance to be unwarranted. A director shall not be liable to the corporation
or its shareholders for any action he takes or omits to take as a director if,
in connection with such action or omission, he performs his duties in compliance
with this Section 14.
The designated persons on whom a director is entitled to rely are (i) one
or more officers or employees of the corporation whom the director reasonably
believes to be reliable and competent in the matters presented, (ii) legal
counsel, public accountant, or other person as to matters which the director
reasonably believes to be within such person's professional or expert
competence, or (iii) a committee of the board of directors on which the director
does not serve if the director reasonably believes the committee merits
confidence.
ARTICLE IV
OFFICERS AND AGENTS
Section 1. GENERAL. The officers of the corporation shall be a president,
a secretary and a treasurer or chief financial officer, each of whom shall be
appointed by the board of directors and shall be a natural person eighteen years
of age or older. One person may hold more than one office. The board of
directors or an officer or officers so authorized by the board may appoint such
other officers, assistant officers, committees and agents, including a chairman
of the board, one or more vice presidents, assistant secretaries and assistant
treasurers, as they may consider necessary. Except as expressly prescribed by
these bylaws, the board of directors or the officer or officers authorized by
the board shall from time to time determine the procedure for the appointment of
officers, their authority and duties and their compensation, provided that the
board of directors may change the authority, duties and compensation of any
officer who is not appointed by the board.
Section 2. APPOINTMENT AND TERM OF OFFICE. The officers of the
corporation to be appointed by the board of directors shall be appointed at each
annual meeting of the board held after each annual meeting of the shareholders.
If the appointment of officers is not made at such meeting or if an officer or
officers are to be appointed by another officer or officers of the corporation,
such appointments shall be made as determined by the board of directors or the
appointing person or persons. Each officer shall hold office until the first of
the following
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occurs: his successor shall have been duly appointed and qualified, his
death, his resignation, or his removal in the manner provided in Section 3.
Section 3. RESIGNATION AND REMOVAL. An officer may resign at any time by
giving written notice of resignation to the president, secretary or other person
who appoints such officer. The resignation is effective when the notice is
received by the corporation unless the notice specifies a later effective date.
Any officer or agent may be removed at any time with or without cause by
the board of directors or an officer or officers authorized by the board. Such
removal does not affect the contract rights, if any, of the corporation or of
the person so removed. The appointment of an officer or agent shall not in
itself create contract rights.
Section 4. VACANCIES. A vacancy in any office, however occurring, may be
filled by the board of directors, or by the officer or officers authorized by
the board, for the unexpired portion of the officer's term. If an officer
resigns and his resignation is made effective at a later date, the board of
directors, or officer or officers authorized by the board, may permit the
officer to remain in office until the effective date and may fill the pending
vacancy before the effective date if the board of directors or officer or
officers authorized by the board provide that the successor shall not take
office until the effective date. In the alternative, the board of directors, or
officer or officers authorized by the board of directors, may remove the officer
at any time before the effective date and may fill the resulting vacancy.
Section 5. PRESIDENT. The president shall preside at all meetings of
shareholders and all meetings of the board of directors unless the board of
directors has appointed a chairman, vice chairman, or other officer of the board
and has authorized such person to preside at meetings of the board of directors.
Subject to the direction and supervision of the board of directors, the
president shall be the chief executive officer of the corporation, and shall
have general and active control of its affairs and business and general
supervision of its officers, agents and employees. Unless otherwise directed by
the board of directors, the president shall attend in person or by substitute
appointed by him, or shall execute on behalf of the corporation written
instruments appointing a proxy or proxies to represent the corporation, at all
meetings of the stockholders of any other corporation in which the corporation
holds any stock. On behalf of the corporation, the president may in person or
by substitute or by proxy execute written waivers of notice and consents with
respect to any such meetings. At all such meetings and otherwise, the
president, in person or by substitute or proxy, may vote the stock held by the
corporation, execute written consents and other instruments with respect to such
stock, and exercise any and all rights and powers incident to the ownership of
said stock, subject to the instructions, if any, of the board of directors. The
president shall have custody of the treasurer's bond, if any. The president
shall have such additional authority and duties as are appropriate and customary
for the office of president and chief executive officer, except as the same may
be expanded or limited by the board of directors from time to time.
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Section 6. VICE PRESIDENTS. The vice presidents shall assist the
president and shall perform such duties as may be assigned to them by the
president or by the board of directors. In the absence of the president, the
vice president, if any (or, if more than one, the vice presidents in the order
designated by the board of directors, or if the board makes no such designation,
then the vice president designated by the president, or if neither the board nor
the president makes any such designation, the senior vice president as
determined by first election to that office), shall have the powers and perform
the duties of the president.
Section 7. SECRETARY. The secretary shall (i) prepare and maintain as
permanent records the minutes of the proceedings of the shareholders and the
board of directors, a record of all actions taken by the shareholders or board
of directors without a meeting, a record of all actions taken by a committee of
the board of directors in place of the board of directors on behalf of the
corporation, and a record of all waivers of notice of meetings of shareholders
and of the board of directors or any committee thereof, (ii) see that all
notices are duly given in accordance with the provisions of these bylaws and as
required by law, (iii) serve as custodian of the corporate records and of the
seal of the corporation and affix the seal to all documents when authorized by
the board of directors, (iv) keep at the corporation's registered office or
principal place of business a record containing the names and addresses of all
shareholders in a form that permits preparation of a list of shareholders
arranged by voting group and by class or series of shares within each voting
group, that is alphabetical within each class or series and that shows the
address of, and the number of shares of each class or series held by, each
shareholder, unless such a record shall be kept at the office of the
corporation's transfer agent or registrar, (v) maintain at the corporation's
principal office the originals or copies of the corporation's articles of
incorporation, bylaws, minutes of all shareholders' meetings and records of all
action taken by shareholders without a meeting for the past three years, all
written communications within the past three years to shareholders as a group or
to the holders of any class or series of shares as a group, a list of the names
and business addresses of the current directors and officers, a copy of the
corporation's most recent corporate report filed with the Secretary of State,
and financial statements showing in reasonable detail the corporation's assets
and liabilities and results of operations for the last three years, (vi) have
general charge of the stock transfer books of the corporation, unless the
corporation has a transfer agent, (vii) authenticate records of the corporation,
and (viii) in general, perform all duties incident to the office of secretary
and such other duties as from time to time may be assigned to him by the
president or by the board of directors. Assistant secretaries, if any, shall
have the same duties and powers, subject to supervision by the secretary. The
directors and/or shareholders may however respectively designate a person other
than the secretary or assistant secretary to keep the minutes of their
respective meetings.
Any books, records, or minutes of the corporation may be in written form or
in any form capable of being converted into written form within a reasonable
time.
Section 8. TREASURER OR CHIEF FINANCIAL OFFICER. The treasurer or chief
financial officer shall be the principal financial officer of the corporation,
shall have the care and custody of all funds, securities, evidences of
indebtedness and other personal property of the corporation
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and shall deposit the same in accordance with the instructions of the board
of directors. Subject to the limits imposed by the board of directors, he
shall receive and give receipts and acquittances for money paid in on account
of the corporation, and shall pay out of the corporation's funds on hand all
bills, payrolls and other just debts of the corporation of whatever nature
upon maturity. He shall perform all other duties incident to the office of
the treasurer and, upon request of the board, shall make such reports to it
as may be required at any time. He shall, if required by the board, give the
corporation a bond in such sums and with such sureties as shall be
satisfactory to the board, conditioned upon the faithful performance of his
duties and for the restoration to the corporation of all books, papers,
vouchers, money and other property of whatever kind in his possession or
under his control belonging to the corporation. He shall have such other
powers and perform such other duties as may from time to time be prescribed
by the board of directors or the president. The assistant treasurers, if
any, shall have the same powers and duties, subject to the supervision of the
treasurer.
The treasurer or chief financial officer shall also be the principal
accounting officer of the corporation. He shall prescribe and maintain the
methods and systems of accounting to be followed, keep complete books and
records of account as required by the California Corporations Code, prepare and
file all local, state and federal tax returns, prescribe and maintain an
adequate system of internal audit and prepare and furnish to the president and
the board of directors statements of account showing the financial position of
the corporation and the results of its operations.
ARTICLE V
STOCK
Section 1. CERTIFICATES. The board of directors shall be authorized to
issue any of its classes of shares with or without certificates. The fact that
the shares are not represented by certificates shall have no effect on the
rights and obligations of shareholders. If the shares are-represented by
certificates, such shares shall be represented by consecutively numbered
certificates signed, either manually or by facsimile, in the name of the
corporation by the president or one or more vice presidents and the secretary or
an assistant secretary. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before such certificate is issued, such certificate may nonetheless be
issued by the corporation with the same effect as if he were such officer at the
date of its issue. All certificates shall be consecutively numbered, and the
names of the owners, the number of shares, and the date of issue shall be
entered on the books of the corporation. Each certificate representing shares
shall state upon its face:
(i) That the corporation is organized under the laws of California;
(ii) The name of the person to whom issued;
(iii) The number and class of the shares and the designation of the
series, if any, that the certificate represents;
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(iv) The par value, if any, of each share represented by the certificate;
(v) A conspicuous statement, on the front or the back, that the
corporation will furnish to the shareholder, on request in writing and
without charge, information concerning the designations, preferences,
limitations, and relative rights applicable to each class, the
variations in preferences, limitations, and rights determined for each
series, and the authority of the board of directors to determine
variations for future classes or series; and
(vi) Any restrictions imposed by the corporation upon the transfer of the
shares represented by the certificate.
If shares are not represented by certificates, within a reasonable time
following the issue or transfer of such shares, the corporation shall send the
shareholder a complete written statement of all of the information required to
be provided to holders of uncertificated shares by the California Corporations
Code.
Section 2. CONSIDERATION FOR SHARES. Certificated or uncertificated
shares shall not be issued until the shares represented thereby are fully paid.
The board of directors may authorize the issuance of shares for consideration
consisting of any tangible or intangible property or benefit to the corporation,
including cash, promissory notes, services performed or other securities of the
corporation. Future services shall not constitute payment or partial payment
for shares of the corporation. The promissory note of a subscriber or an
affiliate of a subscriber shall not constitute payment or partial payment for
shares of the corporation unless the note is negotiable and is secured by
collateral, other than the shares being purchased, having a fair market value at
least equal to the principal amount of the note. For purposes of this Section
2, "promissory note" means a negotiable instrument on which there is an
obligation to pay independent of collateral and does not include a non-recourse
note.
Section 3. LOST CERTIFICATES. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as the board may prescribe. The board of directors may in
its discretion require an affidavit of lost certificate and/or a bond in such
form and amount and with such surety as it may determine before issuing a new
certificate.
Section 4. TRANSFER OF SHARES. Upon surrender to the corporation or to a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by law and
evidence of compliance with all applicable securities laws and other
restrictions, the corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of stock
shall be entered on the stock books of the corporation which shall be kept at
its principal office or by the person and at the place designated by the board
of directors.
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Except as otherwise expressly provided in Article II, Sections 7 and 11,
and except for the assertion of dissenters' rights to the extent provided in the
California Corporations Code, the corporation shall be entitled to treat the
registered holder of any shares of the corporation as the owner thereof for all
purposes, and the corporation shall not be bound to recognize any equitable or
other claim to, or interest in, such shares or rights deriving from such shares
on the part of any person other than the registered holder, including without
limitation any purchaser, assignee or transferee of such shares or rights
deriving from such shares, unless and until such other person becomes the
registered holder of such shares, whether or not the corporation shall have
either actual or constructive notice of the claimed interest of such other
person.
Section 5. TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The board may at
its discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock, bond, debenture or other security of the
corporation. Such agents and registrars may be located either within or outside
California. They shall have such rights and duties and shall be entitled to
such compensation as may be agreed.
ARTICLE VI
INDEMNIFICATION OF CERTAIN PERSONS
Section 1. INDEMNIFICATION. For purposes of Article VI, a "Proper Person"
means any person (including the estate or personal representative of a director)
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether formal or informal, by reason of
the fact that he is or was a director, officer, employee, fiduciary or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, fiduciary or agent of any foreign
or domestic profit or nonprofit corporation or of any partnership, joint
venture, trust, profit or nonprofit unincorporated association, limited
liability company, or other enterprise or employee benefit plan. The
corporation shall indemnify any Proper Person against reasonably incurred
expenses (including attorneys' fees), judgments, penalties, fines (including any
excise tax assessed with respect to an employee benefit plan) and amounts paid
in settlement reasonably incurred by him in connection with such action, suit or
proceeding if it is determined by the groups set forth in Section 4 of this
Article that he conducted himself in good faith and that he reasonably believed
(i) in the case of conduct in his official capacity with the corporation, that
his conduct was in the corporation's best interests, or (ii) in all other cases
(except criminal cases), that his conduct was at least not opposed to the
corporation's best interests, or (iii) in the case of any criminal proceeding,
that he had no reasonable cause to believe his conduct was unlawful. Official
capacity means, when used with respect to a director, the office of director
and, when used with respect to any other Proper Person, the office in a
corporation held by the officer or the employment, fiduciary or agency
relationship undertaken by the employee, fiduciary, or agent on behalf of the
corporation. Official capacity does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
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A director's conduct with respect to an employee benefit plan for a purpose
the director reasonably believed to be in the interests of the participants in
or beneficiaries of the plan is conduct that satisfies the requirement in (ii)
of this Section 1. A director's conduct with respect to an employee benefit
plan for a purpose that the director did not reasonably believe to be in the
interests of the participants in or beneficiaries of the plan shall be deemed
not to satisfy the requirement of this section that he conduct himself in good
faith.
No indemnification shall be made under this Article VI to a Proper Person
with respect to any claim, issue or matter in connection with a proceeding by or
in the right of a corporation in which the Proper Person was adjudged liable to
the corporation or in connection with any proceeding charging that the Proper
Person derived an improper personal benefit, whether or not involving action in
an official capacity, in which he was adjudged liable on the basis that he
derived an improper personal benefit. Further, indemnification under this
section in connection with a proceeding brought by or in the right of the
corporation shall be limited to reasonable expenses, including attorneys' fees,
incurred in connection with the proceeding.
Section 2. RIGHT TO INDEMNIFICATION. The corporation shall indemnify any
Proper Person who was wholly successful, on the merits or otherwise, in defense
of any action, suit, or proceeding as to which he was entitled to
indemnification under Section 1 of this Article VI against expenses (including
attorneys' fees) reasonably incurred by him in connection with the proceeding
without the necessity of any action by the corporation other than the
determination in good faith that the defense has been wholly successful.
Section 3. EFFECT OF TERMINATION OF ACTION. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person seeking indemnification did not meet the standards
of conduct described in Section 1 of this Article VI. Entry of a judgment by
consent as part of a settlement shall not be deemed an adjudication of
liability, as described in Section 2 of this Article VI.
Section 4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION.
Except where there is a right to indemnification as set forth in Sections 1 or 2
of this Article or where indemnification is ordered by a court in Section 5, any
indemnification shall be made by the corporation only as determined in the
specific case by a proper group that indemnification of the Proper Person is
permissible under the circumstances because he has met the applicable standards
of conduct set forth in Section 1 of this Article. This determination shall be
made by the board of directors by a majority vote of those present at a meeting
at which a quorum is present, which quorum shall consist of directors not
parties to the proceeding ("Quorum"). If a Quorum cannot be obtained, the
determination shall be made by a majority vote of a committee of the board of
directors designated by the board, which committee shall consist of two or more
directors not parties to the proceeding, except that directors who are parties
to the proceeding may participate in the designation of directors for the
committee. If a Quorum of the board of directors cannot be obtained and the
committee cannot be established, or even if a Quorum is obtained or the
committee is designated and a majority of the directors constituting
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such Quorum or committee so directs, the determination shall be made by (i)
independent legal counsel selected by a vote of the board of directors or the
committee in the manner specified in this Section 4 or, if a Quorum of the
full board of directors cannot be obtained and a committee cannot be
established, by independent legal counsel selected by a majority vote of the
full board (including directors who are parties to the action) or (ii) a vote
of the shareholders.
Authorization of indemnification and advance of expenses shall be made in
the same manner as the determination that indemnification or advance of expenses
is permissible except that, if the determination that indemnification or advance
of expenses is permissible is made by independent legal counsel, authorization
of indemnification and advance of expenses shall be made by the body that
selected such counsel.
Section 5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction for mandatory indemnification under Section 2 of this
Article, including indemnification for reasonable expenses incurred to obtain
court-ordered indemnification. If a court determines that the Proper Person is
entitled to indemnification under Section 2 of this Article, the court shall
order indemnification, including the Proper Person's reasonable expenses
incurred to obtain court-ordered indemnification. If the court determines that
such Proper Person is fairly and reasonably entitled to indemnification in view
of all the relevant circumstances, whether or not he met the standards of
conduct set forth in Section 1 of this Article or was adjudged liable in the
proceeding, the court may order such indemnification as the court deems proper
except that if the Proper Person has been adjudged liable, indemnification shall
be limited to reasonable expenses incurred in connection with the proceeding and
reasonable expenses incurred to obtain court-ordered indemnification.
Section 6. ADVANCE OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred in defending an action, suit or proceeding as described in
Section 1 may be paid by the corporation to any Proper Person in advance of the
final disposition of such action, suit or proceeding upon receipt of (i) a
written affirmation of such Proper Person's good faith belief that he has met
the standards of conduct prescribed by Section 1 of this Article VI, (ii) a
written undertaking, executed personally or on the Proper Person's behalf, to
repay such advances if it is ultimately determined that he did not meet the
prescribed standards of conduct (the undertaking shall be an unlimited general
obligation of the Proper Person but need not be secured and may be accepted
without reference to financial ability to make repayment), and (iii) a
determination is made by the proper group (as described in Section 4 of this
Article VI) that the facts as then known to the group would not preclude
indemnification. Determination and authorization of payments shall be made in
the same manner specified in Section 4 of this Article VI.
Section 7. ADDITIONAL INDEMNIFICATION TO CERTAIN PERSONS OTHER THAN
DIRECTORS. In addition to the indemnification provided to officers, employees,
fiduciaries or agents because of their status as Proper Persons under this
Article, the corporation may also indemnify and advance expenses to them if they
are not directors of the corporation to a greater extent than is
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provided in these bylaws, if not inconsistent with public policy, and if
provided for by general or specific action of its board of directors or
shareholders or by contract.
Section 8. WITNESS EXPENSES. The sections of this Article VI do not limit
the corporation's authority to pay or reimburse expenses incurred by a director
in connection with an appearance as a witness in a proceeding at a time when he
has not been made or named as a defendant or respondent in the proceeding.
Section 9. REPORT TO SHAREHOLDERS. Any indemnification of or advance of
expenses to a director in accordance with this Article VI, if arising out of a
proceeding by or on behalf of the corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders' meeting.
If the next shareholder action is taken without a meeting at the instigation of
the board of directors, such notice shall be given to the shareholders at or
before the time the first shareholder signs a writing consenting to such action.
ARTICLE VII
Section 1. PROVISION OF INSURANCE. By action of the board of directors,
notwithstanding any interest of the directors in the action, the corporation may
purchase and maintain insurance, in such scope and amounts as the board of
directors deems appropriate, on behalf of any person who is or was a director,
officer, employee, fiduciary or agent of the corporation, or who, while a
director, officer, employee, fiduciary or agent of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, fiduciary or agent of any other foreign or domestic profit or
nonprofit corporation or of any partnership, joint venture, trust, profit or
nonprofit unincorporated association, limited liability company, other
enterprise or employee benefit plan, against any liability asserted against, or
incurred by, him in that capacity or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under the provisions of Article VI or applicable law. Any such
insurance may be procured from any insurance company designated by the board of
directors of the corporation, whether such insurance company is formed under the
laws of California or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the corporation has an equity interest
or any other interest, through stock ownership or otherwise.
ARTICLE VIII
MISCELLANEOUS
Section 1. SEAL. The board of directors may adopt a corporate seal, which
shall be circular in form and shall contain the name of the corporation and the
words, "Seal, California."
Section 2. FISCAL YEAR. The fiscal year of the corporation shall be as
established by the board of directors.
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Section 3. AMENDMENTS. The board of directors shall have power, to the
maximum extent permitted by the California Corporations Code, to make, amend and
repeal the bylaws of the corporation at any regular or special meeting of the
board unless the shareholders, in making, amending or repealing a particular
bylaw, expressly provide that the directors may not amend or repeal such bylaw.
The shareholders also shall have the power to make, amend or repeal the bylaws
of the corporation at any annual meeting or at any special meeting called for
that purpose.
Section 4. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder
writings consenting to action, and other documents or writings shall be deemed
to have been received by the corporation when they are actually received: (1)
at the registered office of the corporation in California; (2) at the principal
office of the corporation (as that office is designated in the most recent
document filed by the corporation with the secretary of state for California
designating a principal office) addressed to the attention of the secretary of
the corporation; (3) by the secretary of the corporation wherever the secretary
may be found; or (4) by any other person authorized from time to time by the
board of directors or the president to receive such writings, wherever such
person is found.
Section 5. GENDER. The masculine gender is used in these bylaws as a
matter of convenience only and shall be interpreted to include the feminine and
neuter genders as the circumstances indicate.
Section 6. CONFLICTS. In the event of any irreconcilable conflict between
these bylaws and either the corporation's articles of incorporation or
applicable law, the latter shall control.
Section 7. DEFINITIONS. Except as otherwise specifically provided in
these bylaws, all terms used in these bylaws shall have the same definition as
in the California Corporations Code.
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LAW OFFICE OF GARY A. AGRON
5445 DTC PARKWAY
SUITE 520
ENGLEWOOD, COLORADO 80111
TELEPHONE (303) 770-7254
FACSIMILE (303) 770-7257
EXHIBIT 5.01
June 3, 1997
Retrospettiva, Inc.
8825 West Olympic Blvd.
Beverly Hills, CA 90211
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We are counsel for Retrospettiva, Inc., a California corporation (the
"Company") in connection with its proposed public offering under the Securities
Act of 1933, as amended, of up to 575,000 Units of its securities, each Unit
consisting of two shares of no par value common stock ("Common Stock") and one
common stock purchase warrant ("Warrant") through a Registration Statement on
Form SB-2 ("Registration Statement") as to which this opinion is a part, to be
filed with the Securities and Exchange Commission (the "Commission").
In connection with rendering our opinion as set forth below, we have
reviewed and examined originals or copies identified to our satisfaction of the
following:
(1) Articles of Incorporation, and amendments thereto, of the Company as
filed with the Secretary of State of the State of California.
(2) Corporate minutes containing the written deliberations and resolutions
of the Board of Directors and shareholders of the Company.
(3) The Registration Statement and the Preliminary Prospectus contained
within the Registration Statement.
(4) The other exhibits to the Registration Statement.
<PAGE>
Retrospettiva, Inc.
June 3, 1997
Page 2
We have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the Company,
and have made such other investigations as we have deemed necessary or
appropriate under the circumstances.
Based upon the foregoing and in reliance thereon, it is our opinion that
the Units, Common Stock, Warrants and Common Stock issuable upon exercise of the
Warrants offered under the Registration Statement will, upon the purchase,
receipt of full payment, issuance and delivery in accordance with the terms of
the offering described in the Registration Statement, be fully and validly
authorized, legally issued, fully paid and non-assessable.
We hereby 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 Prospectus constituting a part thereof.
Very truly yours,
Gary A. Agron
GAA/mdi
<PAGE>
RETROSPETTIVA, INC.
1996 STOCK OPTION PLAN
ARTICLE I. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. Retrospettiva, Inc., a California corporation (the
"Company"), hereby establishes a stock option plan for officers, directors,
employees and consultants who provide services to the Company, as described
herein, which shall be known as the 1996 Stock Option Plan (the "Plan"). It is
intended that certain of the options issued under the Plan to employees of the
Company shall constitute "Incentive Stock Options" within the meaning of section
422A of the Internal Revenue Code ("Code"), and that other options issued under
the Plan shall constitute "Nonstatutory Options" under the Code. The Board of
Directors of the Company (the "Board") shall determine which options are to be
Incentive Stock Options and which are to be Nonstatutory Options and shall enter
into option agreements with recipients accordingly.
1.2 PURPOSE. The purpose of this Plan is to enhance the Company's
stockholder value and financial performance by attracting, retaining and
motivating the Company's officers, directors, key employees and consultants and
to encourage stock ownership by such individuals by providing them with a means
to acquire a proprietary interest in the Company's success through stock
ownership.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following capitalized terms
shall have the meanings set forth below, unless the context clearly requires
otherwise.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee provided for by Article IV hereof.
(d) "Company" means Retrospettiva, Inc., a California corporation.
(e) "Consultant" means any person or entity, including an officer or
director of the Company who provides services (other than as an Employee)
to the Company and shall include a Nonemployee Director, as defined below.
(f) "Date of Exercise" means the date the Company receives notice, by an
Optionee, of the exercise of an Option pursuant to section 8.1 of the Plan.
Such notice shall indicate the number of shares of Stock the Optionee
intends to exercise.
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(g) "Employee" means any person, including an officer or director of the
Company who is employed by the Company.
(h) "Fair Market Value" means the fair market value of Stock upon which an
Option is granted under this Plan.
(i) "Incentive Stock Option" means an Option granted under this Plan which
is intended to qualify as an "incentive stock option" within the meaning of
section 422A of the Code.
(j) "Nonemployee Director" means a member of the Board who is not an
employee of the Company at the time an Option is granted hereunder.
(k) "Nonstatutory Option" means an Option granted under the Plan which is
not intended to qualify as an Incentive Stock Option within the meaning of
section 422A of the Code. Nonstatutory Options may be granted at such times
and subject to such restrictions as the Board shall determine without
conforming to the statutory rules of section 422A of the Code applicable to
Incentive Stock Options.
(l) "Option" means the right, granted under the Plan, to purchase Stock of
the Company at the option price for a specified period of time. For purposes
of this Plan, an Option may be either an Incentive Stock Option or a
Nonstatutory Option.
(m) "Optionee" means an Employee or Consultant holding an Option under the
Plan.
(n) "Parent Corporation" shall have the meaning set forth in section 425(e)
of the Code with the Company being treated as the employer corporation for
purposes of this definition.
(o) "Significant Shareholder" means an individual who, within the meaning of
section 422A(b)(6) of the Code, owns securities possessing more than ten
percent of the total combined voting power of all classes of securities of
the Company. In determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning securities owned by
certain relatives of the individual and certain securities owned by
corporations in which the individual is a shareholder; partnerships in which
the individual is a partner; and estates or trusts of which the individual
is a beneficiary, all as provided in section 425(d) of the Code.
(p) "Stock" means the no par value common stock of the Company.
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2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
ARTICLE III. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION. All Employees are eligible to
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options hereunder. All Consultants are eligible to participate in this Plan and
receive Nonstatutory Options hereunder. Optionees in the Plan shall be selected
by the Board from among those Employees and Consultants who, in the opinion of
the Board, are in a position to contribute materially to the Company's continued
growth and development and to its long-term financial success.
ARTICLE IV. ADMINISTRATION
4.1 ADMINISTRATION. The Board shall he responsible for administering
the Plan.
The Board is authorized to interpret the Plan; to prescribe, amend, and
rescind rules and regulations relating to the Plan; to provide for conditions
and assurances deemed necessary or advisable to protect the interests of the
Company; and to make all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. Determinations, interpretations or other actions made
or taken by the Board, pursuant to the provisions of this Plan, shall be final
and binding and conclusive for all purposes and upon all persons.
The Plan shall be administered by the standing Compensation Committee of
the Board (the "Committee") which is an executive committee of the Board, and
consists of not less than three (3) members of the Board, at least two of whom
are not executive officers or salaried employees of the Company. The members of
the Committee may be directors who are eligible to receive Options under the
Plan, but Options may be granted to such persons only by action of the full
Board and not by action of the Committee. The Committee shall have full power
and authority, subject to the limitations of the Plan and any limitations
imposed by the Board, to construe, interpret and administer the Plan and to make
determinations which shall be final, conclusive and binding upon all persons,
including, without limitation, the Company, the stockholders, the directors and
any persons having any interests in any Options which may be granted under the
Plan, and, by resolution or resolution providing for the creation and issuance
of any such Option, to fix the terms upon which, the time or times at or within
which, and the price or prices at which any Stock may be purchased from the
Company upon the exercise of Options, which terms, time or times and price or
prices shall, in every case, be set forth or incorporated by reference in the
instrument or instruments evidencing such Option, and shall be consistent with
the provisions of the Plan.
The Board may from time to time remove members from or add members to, the
Committee. The Board may terminate the Committee at any time. Vacancies on the
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Committee, howsoever caused, shall be filled by the Board. The Committee shall
select one of its members as Chairman, and shall hold meetings at such times and
places as the Chairman may determine. A majority of the Committee at which a
quorum is present, or acts reduced to or approved in writing by all of the
members of the Committee, shall be the valid acts of the Committee. A quorum
shall consist of two-thirds (2/3) of the members of the Committee.
Where the Committee has been created by the Board, references herein to
actions to be taken by the Board shall be deemed to refer to the Committee as
well, except where limited by the Plan or the Board.
The Board shall have all of the enumerated powers of the Committee but
shall not be limited to such powers. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with
respect to the Plan or any Option granted under it.
4.2 SPECIAL PROVISIONS FOR GRANTS TO OFFICERS OR DIRECTORS. Rule 16b-3
under the Securities and Exchange Act of 1934 (the "Act") provides that the
grant of a stock option to a director or officer of a company subject to the
Act will be exempt from the provisions of section 16(b) of the Act if the
conditions set forth in said Rule are satisfied. Unless otherwise specified
by the Board, grants of Options hereunder to individuals who are officers or
directors of the Company shall be made in a manner that satisfies the
conditions of said Rule.
ARTICLE V. STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The total number of shares of Stock hereby made available
and reserved for issuance under the Plan shall be 750,000. The aggregate
number of shares of Stock available under this Plan shall be subject to
adjustment as provided in section 5.3. The total number of shares of Stock
may be authorized but unissued shares of Stock, or shares acquired by
purchase as directed by the Board from time to time in its discretion, to be
used for issuance upon exercise of Options granted hereunder.
5.2 UNUSED STOCK. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock
subject thereto shall (unless the Plan shall have terminated) become
available for other Options under the Plan.
5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification or other similar corporate change, the
aggregate number of shares of Stock set forth in section 5.1 shall be
appropriately adjusted by the Board to reflect such change. The Board's
determination shall be conclusive; provided, however, that fractional shares
shall be rounded to the nearest whole share. In any such case, the number
and kind of shares of Stock that are subject to any Option (including any
Option outstanding after termination of employment) and the Option price per
share shall be proportionately and appropriately adjusted without any change
in the aggregate Option price to be paid therefor upon exercise of the Option.
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ARTICLE VI. DURATION OF THE PLAN
6.1 DURATION OF THE PLAN. The Plan shall be in effect until April 30,
2006 unless extended by the Company's shareholders. Any Options outstanding at
the end of said period shall remain in effect in accordance with their terms.
The Plan shall terminate before the end of said period, if all Stock subject to
it has been purchased pursuant to the exercise of Options granted under the
Plan.
ARTICLE VII. TERMS OF STOCK OPTIONS
7.1 GRANT OF OPTIONS. Subject to section 5.1, Options may be granted to
Employees or Consultants at any time and from time to time as determined by the
Board; provided, however, that Consultants may receive only Nonstatutory
Options, and may not receive Incentive Stock Options. The Board shall have
complete discretion in determining the number of Options granted to each
Optionee. In making such determinations, the Board may take into account the
nature of services rendered by such Employees or Consultants, their present and
potential contributions to the Company, and such other factors as the Board in
its discretion shall deem relevant. The Board also shall determine whether an
Option is to be an Incentive Stock Option or a Nonstatutory Option.
In the case of Incentive Stock Options the total Fair Market Value
(determined at the date of grant) of shares of Stock with respect to which
incentive stock options are exercisable for the first time by the Optionee
during any calendar year under all plans of the Company under which incentive
stock options may be granted (and all such plans of any Parent Corporations
and any subsidiary corporations of the Company) shall not exceed $100,000.
(Hereinafter, this requirement is sometimes referred to as the "$100,000
Limitation.")
Nothing in this Article VII shall be deemed to prevent the grant of
Options permitting exercise in excess of the maximums established by the
preceding paragraph where such excess amount is treated as a Nonstatutory
Option.
The Board is expressly given the authority to issue amended or replacement
Options with respect to shares of Stock subject to an Option previously granted
hereunder. An amended Option amends the terms of an Option previously granted
(including an extension of the terms of such Option) and thereby supersedes the
previous Option. A replacement Option is similar to a new Option granted
hereunder except that it provides that it shall be forfeited to the extent that
a previously granted Option is exercised, or except that its issuance is
conditioned upon the termination of a previously granted Option.
7.2 NO TANDEM OPTIONS. Where an Option granted under the Plan is intended
to be an Incentive Stock Option, the Option shall not contain terms pursuant to
which the exercise of the Option would affect the Optionee's right to exercise
another Option, or vice versa, such that the Option intended to be an Incentive
Stock Option would be deemed a tandem stock option within the meaning of the
regulations under section 422A of the Code.
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7.3 OPTION AGREEMENT; TERMS AND CONDITIONS TO APPLY UNLESS OTHERWISE
SPECIFIED. As determined by the Board on the date of grant, each Option
shall be evidenced by an Option agreement (the "Option Agreement") that
includes the nontransferability provisions required by section 10.2 hereof
and specifies: whether the Option is an Incentive Stock Option or a
Nonstatutory Option; the Option price; the term (duration) of the Option; the
number of shares of Stock to which the Option applies; any vesting or
exercisability restrictions which the Board may impose; in the case of an
Incentive Stock Option, a provision implementing the $100,000 Limitation; and
any other terms or conditions which the Board may impose. All such terms and
conditions shall be determined by the Board at the time of grant of the
Option.
If not otherwise specified by the Board, the following terms and conditions
shall apply to Options granted under the Plan:
(a) TERM. The Option shall be exercisable to purchase Stock for a
period of ten years from the date of grant, as evidenced by the
execution date of the Option Agreement.
(b) EXERCISE OF OPTION. Unless an Option is terminated as provided
hereunder, an Optionee may exercise his Option for up to, but not in
excess of, the number of shares of Stock subject to the Option
specified below, based on the Optionee's number of years of continuous
service with the Company from the date on which the Option is granted.
In the case of an Optionee who is an Employee, continuous service
shall mean continuous employment; in the case of an Optionee who is a
Consultant, continuous service shall mean the continuous provision of
consulting services. In applying said limitations, the amount of
shares, if any, previously purchased by the Optionee under the Option
shall be counted in determining the amount of shares the Optionee can
purchase at any time. The Optionee may exercise his Option in the
following amounts:
(i) After one (1) year of continuous services to the Company,
the Optionee may purchase up to 33.3% of the shares of Stock
subject to the Option;
(ii) After two (2) years of continuous services to the Company,
the Optionee may purchase up to 66.6% of the shares of Stock
subject to the Option;
(iii) After three years of continuous services to the Company,
the Optionee may purchase all shares of Stock subject to the
Option.
The Board may specify terms and conditions other than those set forth
above, in its discretion.
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All Option Agreements shall incorporate the provisions of the Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 OPTION PRICE. No Incentive Stock Option granted pursuant to this Plan
shall have an Option price that is less than the Fair Market Value of the Stock
on the date the Option is granted. Incentive Stock Options granted to
Significant Stockholders shall have an Option price of not less than 110
percent of the Fair Market Value of the Stock on the date of grant. The Option
price for Nonstatutory Options shall be established by the Board and shall not
be less than 100 percent of the Fair Market Value of the Stock on the date of
grant.
7.5 TERM OF OPTIONS. Each Option shall expire at such time as the Board
shall determine, provided, however, that no Option shall be exercisable later
than ten years from the date of its grant.
7.6 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 PAYMENT. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash or
certified funds, or (ii) if acceptable to the Board, in Stock or in some other
form; provided, however, in the case of an Incentive Stock Option, that said
other form of payment does not prevent the Option from qualifying for treatment
as an Incentive Stock Option within the meaning of the Code.
ARTICLE VIII. WRITTEN NOTICE, ISSUANCE OF
STOCK CERTIFICATES, STOCKHOLDER PRIVILEGES
8.1 WRITTEN NOTICE. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares exercised pursuant to the Option must accompany the
written notice.
8.2 ISSUANCE OF STOCK CERTIFICATES. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock.
8.3 PRIVILEGES OF A STOCKHOLDER. An Optionee or any other person entitled
to exercise an Option under this Plan shall not have stockholder privileges with
respect to any Stock covered by the Option until the date of issuance of a stock
certificate for such stock.
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ARTICLE IX. TERMINATION OF EMPLOYMENT OR SERVICES
Except as otherwise expressly specified by the Board for Nonstatutory
Options, all Options granted under this Plan shall be subject to the following
termination provisions:
9.1 DEATH. If an Optionee's employment in the case of an Employee, or
provision of services as a Consultant, in the case of a Consultant, terminates
by reason of death, the Option may thereafter be exercised at any time prior to
the expiration date of the Option or within 12 months after the date of such
death, whichever period is the shorter, by the person or persons entitled to do
so under the Optionee's will or, if the Optionee shall fail to make a
testamentary disposition of an Option or shall die intestate, the Optionee's
legal representative or representatives. The Option shall be exercisable only
to the extent that such Option was exercisable as of the date of Optionee's
death.
9.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH. In the event of an
Optionee's termination of employment, in the case of an Employee, or termination
of the provision of services as a Consultant, in the case of a Consultant, other
than by reason of death, the Optionee may exercise such portion of his Option as
was exercisable by him at the date of such termination (the "Termination Date")
at any time within three (3) months of the Termination Date; provided, however,
that where the Optionee is an Employee, and is terminated due to disability
within the meaning of Code section 422A, he may exercise such portion of his
Option as was exercisable by him on his Termination Date within one year of his
Termination Date. In any event, the Option cannot be exercised after the
expiration of the term of the Option. Options not exercised within the
applicable period specified above shall terminate.
In the case of an Employee, a change of duties or position within the
Company, shall not be considered a termination of employment for purposes of
this Plan. The Option Agreements may contain such provisions as the Board shall
approve with reference to the effect of approved leaves of absence upon
termination of employment.
9.3 TERMINATION FOR CAUSE. In the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant, in the case of a Consultant, which termination is by
the Company for cause, any Option or Options held by him under the Plan, to the
extent not exercised before such termination, shall forthwith terminate.
ARTICLE X. RIGHTS OF OPTIONEES
10.1 SERVICE. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment, or any
Consultant's services, at any time, nor confer upon any Employee any right to
continue in the employ of the Company, or upon any Consultant any right to
continue to provide services to the Company.
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10.2 NONTRANSFERABILITY. Except as otherwise specified by the Board for
Nonstatutory Options, Options granted under this Plan shall be nontransferable
by the Optionee, other than by will or the laws of descent and distribution,
and shall be exercisable during the Optionee's lifetime only by the Optionee.
ARTICLE XI. OPTIONEE-EMPLOYEE'S
TRANSFER OR LEAVE OF ABSENCE
11.1 OPTIONEE-EMPLOYEE'S TRANSFER OR LEAVE OF ABSENCE. For Plan purposes:
(a) A transfer of an Optionee who is an Employee within the Company,
or
(b) a leave of absence for such an Optionee (i) which is duly
authorized in writing by the Company, and (ii) if the Optionee holds
an Incentive Stock Option, which qualifies under the applicable
regulations under the Code which apply in the case of Incentive Stock
Options,
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Board.
ARTICLE XII. AMENDMENT, MODIFICATION
AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The Board may
at any time terminate, and from time to time may amend or modify the Plan,
provided, however, that no such action of the Board, without approval of the
stockholders, may:
(a) increase the total amount of Stock which may be purchased through
Options granted under the Plan, except as provided in Article V;
(b) change the class of Employees or Consultants eligible to receive
Options;
No amendment, modification or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
ARTICLE XIII. ACQUISITION, MERGER AND LIQUIDATION
13.1 ACQUISITION. In the event that an Acquisition occurs with respect to
the Company, the Company shall have the option, but not the obligation, to
cancel Options outstanding as of the effective date of Acquisition, whether or
not such Options are then exercisable, in return for payment to the Optionees of
an amount equal to a reasonable estimate of an amount (hereinafter the "Spread")
equal to the difference between the net amount per share of Stock payable in the
Acquisition, or as a result of the Acquisition, less the exercise price of the
Option. In estimating the Spread, appropriate adjustments to give effect to the
existence of the Options shall be made,
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such as deeming the Options to have been exercised, with the Company receiving
the exercise once payable thereunder, and treating the shares receivable upon
exercise of the Options as being outstanding in determining the net amount per
share. For purposes of this section, an "Acquisition" shall mean any transaction
in which substantially all of the Company's assets are acquired or in which a
controlling amount of the Company's outstanding shares are acquired, in each
case by a single person or entity or an affiliated group of persons and/or
entities. For purposes of this section a controlling amount shall mean more
than 50% of the issued and outstanding shares of stock of the Company. The
Company shall have such an option regardless of how the Acquisition is
effectuated, whether by direct purchase, through a merger or similar corporate
transaction, or otherwise. In cases where the acquisition consists of the
acquisition of assets of the Company, the net amount per share shall be
calculated on the basis of the net amount receivable with respect to shares upon
a distribution and liquidation by the Company after giving effect to expenses
and charges, including but not limited to taxes, payable by the Company before
the liquidation can be completed.
Where the Company does not exercise its option under this section 13.1, the
remaining provisions of this Article XIII shall apply, to the extent applicable.
13.2 MERGER OR CONSOLIDATION. Subject to any required action by the
stockholders, if the Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled in such merger or consolidation.
13.3 OTHER TRANSACTIONS. A dissolution or a liquidation of the Company or
a merger and consolidation in which the Company is not the surviving corporation
shall cause every Option outstanding hereunder to terminate as of the effective
date of such dissolution, liquidation, merger or consolidation. However, the
Optionee either (i) shall be offered a firm commitment whereby the resulting or
surviving corporation in a merger or consolidation will tender to the Optionee
an option (the "Substitute Option") to purchase its shares on terms and
conditions both as to number of shares and otherwise, which will substantially
preserve to the Optionee the rights and benefits of the Option outstanding
hereunder granted by the Company, or (ii) shall have the right immediately prior
to such dissolution, liquidation, merger, or consolidation to exercise any
unexercised Options whether or not then exercisable, subject to the provisions
of this Plan. The Board shall have absolute and uncontrolled discretion to
determine whether the Optionee has been offered a firm commitment and whether
the tendered Substitute Option will substantially preserve to the Optionee the
rights and benefits of the Option outstanding hereunder. In any event, any
Substitute Option for an Incentive Stock Option shall comply with the
requirements of Code section 425(a).
ARTICLE XIV. SECURITIES REGISTRATION
14.1 SECURITIES REGISTRATION. In the event that the Company shall deem
it necessary or desirable to register under the Securities Act of 1933, as
amended, or any other applicable
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statute, any Options or any Stock with respect to which an Option may be or
shall have been granted or exercised, or to qualify any such Options or Stock
under the Securities Act of 1933, as amended, or any other statute, then the
Optionee shall cooperate with the Company and take such action as is necessary
to permit registration or qualification of such Options or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that the Optionee is
acquiring such shares for his own account for investment and not with a view to,
or for sale in connection with, the distribution of any part thereof, (b) that
before any transfer in connection with the resale of such shares, the Optionee
will obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing.
ARTICLE XV. TAX WITHHOLDING
15.1 TAX WITHHOLDING. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements.
ARTICLE XVI. INDEMNIFICATION
16.1 INDEMNIFICATION. To the extent permitted by law, each person who
is or shall have been a member of the Board shall be indemnified and held
harmless by the Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be a party
or in which he may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of judgment in any such action, suit or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
articles of incorporation or bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
ARTICLE XVII. REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
11
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17.2 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the state of
California.
ARTICLE XVIII. EFFECTIVE DATE OF PLAN
18.1 EFFECTIVE DATE. The Plan shall be effective on May 1, 1996, the
date of its adoption by the Company's stockholders.
ARTICLE XIX. COMPLIANCE WITH CODE
19.1 COMPLIANCE WITH CODE. Incentive Stock Options granted hereunder are
intended to qualify as Incentive Stock Options under Code section 422A. If any
provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as Incentive Stock Options under
the Code.
ARTICLE XX. NO OBLIGATION TO EXERCISE OPTION
20.1 NO OBLIGATION TO EXERCISE. The granting of an Option shall impose no
obligation upon the holder thereof to exercise such Option.
Dated at Beverly Hills, California, May 1, 1996.
RETROSPETTIVA,
By /s/ [ILLEGIBLE]
--------------------------------
President
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AMENDMENT NUMBER 1
TO
1996 STOCK OPTION PLAN
By Resolution of the Board of Directors of Retrospettiva, Inc. (the
"Company") dated November 25, 1996, the Company's 1996 Stock Option Plan is
hereby amended by adding a new Article XXI which reads as follows:
"ARTICLE XXI. BOARD MODIFICATION OF CERTAIN TERMS
21.1 Board Modification of Certain Terms. In its discretion, the
Board may delete the requirements of Section 7.3(b) and the time
requirements for the exercise of an option as set forth in Article IX
regarding specific grants of options."
Any and all other terms and conditions of the Company's 1996 Stock Option
Plan not amended or modified as stated above remain the same and in full force
and effect.
The foregoing is effective as of November 25, 1996.
RETROSPETTIVA, INC.
By
--------------------------------
Michael D. Silberman, Secretary
<PAGE>
SOUTHERN CALIFORNIA CHAPTER OF THE
[LOGO] SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,-R- INC.
INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of
the Lease referred to in this Article One explain and define the Basic Terms
and are to be read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: June 21, 1994
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): David Miller, as Trustee of
the David Miller and Edis Miller Family Trust dated January 15, 1987
Address of Landlord: 2350 Century Hill, Century City, California 90067
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): Boro Vukadinovic/
RETROSPETTIVA INC.
Address of Tenant: 8825 West Olympic Boulevard, Beverly Hills, California
90211
Section 1.04. PROPERTY: (include street address, approximate square
footage and description) An approximately 2,200 rentable square feet of a
building commonly known as 8825 West Olympic Boulevard, Beverly Hills, CA 90211
Section 1.05. LEASE TERM: 4 years 0 months beginning on August 30, 1994
or such other date as is specified in this Lease, and ending on August 29,
1998 or any other date mutually agreed upon by Landlord and Tenant.
Section 1.06. PERMITTED USES: (See Article Five) import/export and trading
of clothing and related apparel
Section 1.07. TENANT'S GUARANTOR: (If none, so state) None
Section 1.08. BROKERS: (See Article Fourteen) (If none, so state)
Landlord's Broker: None
Tenant's Broker: None
Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ N/A
Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $2,200.00
Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: two (2) parking
spaces in the rear of the Property nearest in proximity to the alley. Tenant
may obtain additional parking spaces (if then available) on an unreserved basis
and at a cost of Fifty Dollars ($50.00) per space per month. The location of
said additional spaces shall be on the premises located at 8825 West Olympic
Boulevard, Beverly Hills, California 90211
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: Two Thousand Two Hundred and no/100 --- Dollars ($2,200.00)
per month for the first twelve (12) months, as provided in Section 3.O1, and
shall be increased on the first day of the thirteenth (13th), twenty-fifth
(25th) and thirty-seventh (37th) month(s) after the Commencement Date, as
provided in Section 3.02. (If (ii) is completed, then (i) and Section 3.02 are
inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04);
(iv) Impounds for Insurance Premiums and Property Taxes (See Section 4.07);
(v) Maintenance, Repairs and Alterations (See Article Six).
Section 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See
Section 9.05) one hundred percent (100%) of the Profit (the "Landlord's Share").
Section 1.14. RIDERS: The following Riders are attached to and made a
part of this Lease: (If none, so state) Rider to Industrial Real Estate Lease
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ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and
shall begin and end on the dates specified in Section 1.05 above, unless the
beginning or end of the Lease Term is changed under any provision of this
Lease. The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Lease Term, unless advanced or delayed under
any provision of this Lease.
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on
the Commencement Date for any reason whatsoever, including, without
limitation, the failure of the existing tenant of the Property to vacate the
Property prior to the Commencement Date. Landlord's non-delivery of the
Property to Tenant on that date shall not affect this Lease or the obligations
of Tenant under this Lease except that the Commencement Date shall be delayed
until Landlord delivers possession of the Property to Tenant and the Lease Term
shall be extended for a period equal to the delay in delivery of possession of
the Property to Tenant, plus the number of days necessary to end the Lease Term
on the last day of a month. If Landlord does not deliver possession of the
Property to Tenant within sixty (60) days after the Commencement Date, Tenant
may elect to cancel this Lease by giving written notice to Landlord within ten
(10) days after the sixty (60) -day period ends. If Tenant gives such notice,
the Lease shall be cancelled and neither Landlord nor Tenant shall have any
further obligations to the other. If Tenant does not give such notice, Tenant's
right to cancel the Lease shall expire and the Lease Term shall commence upon
the delivery of possession of the Property to Tenant. If delivery of possession
of the Property to Tenant is delayed, Landlord and Tenant shall, upon such
delivery, execute an amendment to this Lease setting forth the actual
Commencement Date and expiration date of the Lease. Failure to execute such
amendment shall not affect the actual Commencement Date and expiration date of
the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord
incurs from Tenant's delay in vacating the Property. If Tenant does not
vacate the Property upon the expiration or earlier termination of the Lease
and Landlord thereafter accepts rent from Tenant, Tenant's occupancy of the
Property shall be a "month-to-month" tenancy, subject to all of the terms
of this Lease applicable to a month-to-month tenancy, except that the Base
Rent then in effect shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. On or before the execution of
this Lease, Tenant shall pay Landlord the Base Rent in the amount stated in
Paragraph 1.12(a) above for the first month of the Lease Term. Except as
provided below, the first day of the second month of the Lease Term and each
month thereafter, Tenant shall pay Landlord the Base Rent, in advance, without
offset, deduction or prior demand. The Base Rent shall be payable at Landlord's
address or at such other place as Landlord may designate in writing.
Notwithstanding anything to the contrary contained herein, Tenant shall not be
obligated to pay Base Rent for the second full calendar month of the Lease Term.
Section 3.02. COST OF LIVING INCREASES. The Base Rent shall be increased
on each date (the "Rental Adjustment Date") stated in Paragraph 1.12(a) above
in accordance with the increase in the United States Department of Labor, Bureau
of Labor Statistics, Consumer Price Index for All Urban Consumers (all items for
the geographical Statistical Area in which the Property is located on the basis
of 1982-1984 = 100) (the "Index") as follows:
(a) The Base Rent (the "Comparison Base Rent") in effect immediately
before each Rental Adjustment Date shall be increased by the percentage that the
Index has increased from the date (the "Comparison Date") on which payment of
the Comparison Base Rent began through the month in which the applicable Rental
Adjustment Date occurs. The Base Rent shall not be reduced by reason of such
computation. Landlord shall notify Tenant of each increase by a written
statement which shall include the Index for the applicable Comparison Date, the
Index for the applicable Rental Adjustment Date, the percentage increase between
those two Indices, and the new Base Rent. Any increase in the Base Rent provided
for in this Section 3.02 shall be subject to any minimum or maximum increase, if
provided for in Paragraph 1.12(a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date. Landlord's notice may be
given after the applicable Rental Adjustment Date of the increase, and Tenant
shall pay Landlord the accrued rental adjustment for the months elapsed between
the effective date of the increase and Landlord's notice of such increase within
ten (10) days after Landlord's notice. If the format or components of the Index
are materially changed after the Commencement Date, Landlord shall substitute an
index which is published by the Bureau of Labor Statistics or similar agency and
which is most nearly equivalent to the Index in effect on the Commencement Date.
The substitute index shall be used to calculate the increase in the Base Rent
unless Tenant objects to such index in writing within fifteen (15) days after
receipt of Landlord's notice. If Tenant objects, Landlord and Tenant shall
submit the selection of the substitute index for binding arbitration in
accordance with the rules and regulations of the American Arbitration
Association at its office closest to the Property. The costs of arbitration
shall be borne equally by Landlord and Tenant.
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Section 3.03. SECURITY DEPOSIT; INCREASES.
(a) Upon the execution of this Lease, Tenant shall deposit with Landlord a
cash Security Deposit in the amount set forth in Section 1.10 above. Landlord
may apply all or part of the Security Deposit to any unpaid rent or other
charges due from Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit, Tenant shall restore the Security Deposit
to its full amount within ten (10) days after Landlord's written request.
Tenant's failure to do so shall be a material default under this Lease. No
interest shall be paid on the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from its other accounts and no trust
relationship is created with respect to the Security Deposit.
Section 3.04. TERMINATION; ADVANCE PAYMENTS. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord, and any amounts paid for real property taxes and other reserves which
apply to any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Subject to Paragraph 4.02(c) below, Tenant shall
pay all real property taxes on the Project (as defined below) including any
fees, taxes or assessments against, or as a result of, any tenant improvements
installed on the Property by or for the benefit of Tenant) during the Lease
Term. Subject to Paragraph 4.02(c) and Section 4.07 below, such payment shall be
made at least ten (10) days prior to the delinquency date of the taxes. Within
such ten (10) -day period, Tenant shall furnish Landlord with satisfactory
evidence that the real property taxes have been paid. Landlord shall reimburse
Tenant for any real property taxes paid by Tenant covering any period of time
prior to or after the Lease Term. If Tenant fails to pay the real property
taxes when due, Landlord may pay the taxes and Tenant shall reimburse Landlord
for the amount of such tax payment as Additional Rent.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i)
any fee, license fee, license tax (including, without limitation, the City of
Beverly Hills license tax) business license fee, commercial rental tax, levy,
charge, assessment, penalty or tax imposed by any taxing authority against the
Property or the Project; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
or the Project by any governmental agency; (iv) any tax imposed upon this
transaction or based upon a re-assessment of the Property or the Project due to
a change of ownership, as defined by applicable law, or other transfer of all or
part of Landlord's interest in the Property or the Project; and (v) any charge
or fee replacing any tax previously included within the definition of real
property tax. "Real property tax" does not, however, include Landlord's federal
or state income, franchise, inheritance or estate taxes.
(c) JOINT ASSESSMENT. See Rider.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord
for such personal property taxes.
(e) TENANT'S RIGHT TO CONTEST TAXES. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in
default under this Lease for nonpayment of such taxes if Tenant deposits
funds with Landlord or opens as interest-bearing account reasonably
acceptable to Landlord in the joint names of Landlord and Tenant. The amount
of such deposit shall be sufficient to pay the real property taxes plus a
reasonable estimate of the interest, costs, charges and penalties which may
accrue if Tenant's action is unsuccessful, less any applicable tax impounds
previously paid by Tenant to Landlord. The deposit shall be applied to the
real property taxes due, as determined at such proceedings. The real property
taxes shall be paid under protest from such deposit if such payment under
protest is necessary to prevent the Property from being sold under a "tax
sale" or similar enforcement proceeding.
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Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal, gardening other utilities and services
supplied to the Property. However, if any services or utilities are jointly
metered with other property, Landlord shall make a reasonable determination
of Tenant's proportionate share of the cost of such utilities and services
and Tenant shall pay such share to Landlord within fifteen (15) days after
receipt of Landlord's written statement.
Section 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such
policy. The initial amount of such insurance shall be Five Hundred Thousand
Dollars ($500,000) or more per occurrence and shall be subject to periodic
increase based upon inflation, increased liability awards, recommendation of
Landlord's professional insurance advisers and other relevant factors. The
liability insurance obtained by Tenant under this Paragraph 4.04(a) shall (i)
be primary and non-contributing; (ii) contain cross-liability endorsements; and
(iii) insure Landlord against Tenant's performance under Section 5.05, if the
matters giving rise to the indemnity under Section 5.05 result from the
negligence of Tenant. The amount and coverage of such insurance shall not limit
Tenant's liability nor relieve Tenant of any other obligation under this Lease.
Landlord may also obtain comprehensive public liability insurance in an amount
and with coverage determined by Landlord insuring Landlord against liability
arising out of ownership, operation, use or occupancy of the Property. The
policy obtained by Landlord shall not be contributory and shall not provide
primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall
contain an Inflation Guard Endorsement and shall provide protection against all
perils included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall be liable for the payment of any deductible amount under Landlord's
or Tenant's insurance policies maintained pursuant to this Section 4.04, in an
amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or
permit anything to be done which invalidates any such insurance policies.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.07, Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days after Tenant's
receipt of a copy of the premium statement or other evidence of the amount due,
except Landlord shall pay all premiums for non-primary comprehensive public
liability insurance which Landlord elects to obtain as provided in Paragraph
4.04(a). If insurance policies maintained by Landlord cover improvements on real
property other than the Property, Landlord shall deliver to Tenant a statement
of the premium applicable to the Property showing in reasonable detail how
Tenant's share of the premium was computed. If the Lease Term expires before
the expiration of an insurance policy maintained by Landlord, Tenant shall be
liable for Tenant's prorated share of the insurance premiums. Before the
Commencement Date, Tenant shall deliver to Landlord a copy of any policy of
insurance which Tenant is required to maintain under this Section 4.04. At
least thirty (30) days prior to the expiration of any such policy, Tenant shall
deliver to Landlord a renewal of such policy. As an alternative to providing a
policy of insurance, Tenant shall have the right to provide Landlord a
certificate of insurance, executed by an authorized officer of the insurance
company, showing that the insurance which Tenant is required to maintain under
this Section 4.04 is in full force and effect and containing such other
information which Landlord reasonably requires.
(d) PERSONAL PROPERTY INSURANCE. See Rider.
(e) GENERAL INSURANCE PROVISIONS.
(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time period or if
any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case
Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described
in this Section 4.04 is for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required
under the Lease, Tenant shall nevertheless maintain insurance coverage
which is customary and commercially reasonable in the insurance industry for
Tenant's type of business, as that coverage may change from time to time.
Landlord makes no representation as to the adequacy of such insurance to
protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain
any such additional property or liability insurance which Tenant deems
necessary to protect Landlord and Tenant.
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(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers
of this mutual waiver of subrogation.
Section 4.05. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, mortgage or trust deed encumbering
the Property. Therefore, if Landlord does not receive any rent payment within
ten (10) days after it becomes due, Tenant shall pay Landlord a late charge
equal to ten percent (l0%) of the overdue amount. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
Section 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
Section 4.07. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES. If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12) -month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Landlord shall hold such payments in a
non-interest bearing impound account. If unknown, Landlord shall reasonably
estimate the amount of real property taxes and insurance premiums when due.
Tenant shall pay any deficiency of funds in the impound account to Landlord upon
written request. If Tenant defaults under this Lease, Landlord may apply any
funds in the impound account to any obligation then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in or
about the Property by Tenant, its agents, employees, contractors, sublessees or
invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Material. In no
event, however, shall Landlord be required to consent to the installation or use
of any storage tanks on the Property.
Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriffs sales at the Property.
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Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property, including
any contamination of the Property or any other property resulting from the
presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with
any such claim. As a material part of the consideration to Landlord, Tenant
assumes all risk of damage to property or injury to persons in or about the
Property arising from any cause, and Tenant hereby waives all claims in respect
thereof against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material: or for any other purpose Landlord deems necessary. Landlord shall
give Tenant prior notice of such entry, except in the case of an emergency.
Landlord may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease. See Rider.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant. Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or from other sources or places; or (d) any act or omission of any
other tenant of Landlord. Landlord shall not be liable for any such damage or
injury even though the cause of or the means of repairing such damage or injury
are not accessible to Tenant. The provisions of this Section 6.02 shall not,
however, exempt Landlord from liability for Landlord's gross negligence or
willful misconduct.
Section 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of Article
Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord shall
have absolutely no responsibility to repair, maintain or replace any portion of
the Property at any time, other than the roof and exterior walls, all of
which shall be maintained by Landlord at Landlord's sole cost and expense.
Tenant waives the benefit of any present or future law which might give Tenant
the right to repair the Property at Landlord's expense or to terminate the Lease
due to the condition of the Property.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Article Seven (Damage or Destruction) and Article
Eight (Condemnation), Tenant shall keep all portions of the Property (including
structural, nonstructural, interior, exterior (including that portion of the
parking lot servicing the Property), and landscaped areas, portions, systems
and equipment) other than the roof and exterior walls in good order, condition
and repair (including interior repainting and refinishing, as needed). If any
portion of the Property or any system or equipment in the Property which Tenant
is obligated to repair cannot be fully repaired or restored, Tenant shall
promptly replace such portion of the Property or system or equipment in the
Property, regardless of whether the benefit of such replacement extends beyond
the Lease Term; but if the benefit or useful life of such replacement extends
beyond the Lease Term (as such term may be extended by exercise of any options),
the useful life of such replacement shall be prorated over the remaining portion
of the Lease Term (as extended), and Tenant shall be liable only for that
portion of the cost which is applicable to the Lease Term (as extended). Tenant
shall maintain a preventive maintenance contract providing for the regular
inspection and maintenance of the heating and air conditioning system by a
licensed heating and air conditioning contractor. If any part of the Property
is damaged by any act or omission of Tenant, Tenant shall pay Landlord the cost
of repairing or replacing such damaged property, whether or not Landlord would
otherwise be obligated to pay the cost of maintaining or repairing such
property. It is the intention of Landlord and Tenant that at all times Tenant
shall maintain the portions of the Property which Tenant is obligated to
maintain in an attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.04, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
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Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, including non-structural
alterations. Landlord may require Tenant to provide demolition and/or lien and
completion bonds in form and amount satisfactory to Landlord. Tenant shall
promptly remove any alterations, additions, or improvements constructed in
violation of this Paragraph 6.05(a) upon Landlord's written request. All
alterations, additions, and improvements shall be done in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work, Tenant shall
provide Landlord with "as built" plans, copies of all construction contracts,
and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
(c) See Rider.
Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required to
repair under Article Seven (Damage or Destruction). In addition, Landlord may
require Tenant to remove any alterations, additions or improvements (whether or
not made with Landlord's consent) prior to the expiration of the Lease and to
restore the Property to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense, any
damage to the Property caused by the removal of any such machinery or equipment.
In no event, however, shall Tenant remove any of the following materials or
equipment (which shall be deemed Landlord's property) without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and, if the
damage was due to an act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to terminate
this Lease, Tenant may elect to continue this Lease in full force and effect,
in which case Tenant shall repair any damage to the Property and any building in
which the Property is located. Tenant shall pay the cost of such repairs,
except that upon satisfactory completion of such repairs, Landlord shall deliver
to Tenant any insurance proceeds received by Landlord for the damage repaired by
Tenant. Tenant shall give Landlord written notice of such election within ten
(10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
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Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 7.04. WAIVER. Tenant waives the protection of any statute, code or
judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes title or possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property or
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than twenty percent
(20%) of the partnership interests shall require Landlord's consent. If Tenant
is a corporation, any change in the ownership of a controlling interest of the
voting stock of the corporation shall require Landlord's consent.
Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all
of Tenant's obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.
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Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease
or sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice
of the offer, the Lease shall terminate as of the date specified and all the
terms and provisions of the Lease governing termination shall apply. If
Landlord does not so elect, the Lease shall continue in effect until otherwise
terminated and the provisions of Section 9.05 with respect to any proposed
transfer shall continue to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.13) of the Profit (defined below)
on such transaction as and when received by Tenant, unless Landlord gives
written notice to Tenant and the assignee or subtenant that Landlord's
Share shall be paid by the assignee or subtenant to Landlord directly. The
"Profit" means (A) all amounts paid to Tenant for such assignment or
sublease, including "key" money, monthly rent in excess of the monthly rent
payable under the Lease, and all fees and other consideration paid for the
assignment or sublease, including fees under any collateral agreements,
less (B) costs and expenses directly incurred by Tenant in connection with
the execution and performance of such assignment or sublease for real
estate broker's commissions and costs of renovation or construction of
tenant improvements required under such assignment or sublease. Tenant is
entitled to recover such costs and expenses before Tenant is obligated to
pay the Landlord's Share to Landlord. The Profit in the case of a sublease
of less than all the Property is the rent allocable to the subleased space
as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying all
amounts to be paid from any assignment or sublease of the Property within
thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to
Landlord copies of all the transaction documentation, all of which shall be
certified by Tenant to be complete, true and correct. Landlord's receipt
of Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b)
shall be a material default of the Lease.
Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants
and conditions.
Section 10.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the Property
results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30) -day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
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(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or
for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor
in possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%) per annum, or such lesser amount as may then be the
maximum lawful rate. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%). If Tenant has abandoned the Property, Landlord shall have the option of
(i) retaking possession of the Property and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
Section 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated
Rent". Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition required
by this Lease. Tenant acknowledges that its right to receive credit for the
Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual
performance of its obligations under this Lease. If Tenant defaults and does
not cure within any applicable grace period, the Abated Rent shall immediately
become due and payable in full and this Lease shall be enforced as if there were
no such rent abatement or other rent concession. In such case Abated Rent shall
be calculated based on the full initial rent payable under this Lease.
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence
of any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful
detainer action against Tenant. On such termination, Landlord's damages for
default shall include all costs and fees, including reasonable attorneys'
fees that Landlord incurs in connection with the filing, commencement,
pursuing and/or defending of any action in any bankruptcy court or other
court with respect to the Lease; the obtaining of relief from any stay in
bankruptcy restraining any action to evict Tenant; or the pursuing of any
action with respect to Landlord's right to possession of the Property. All
such damages suffered (apart from Base Rent and other rent payable hereunder)
shall constitute pecuniary damages which must be reimbursed to Landlord prior
to assumption of the Lease by Tenant or any successor to Tenant in any
bankruptcy or other proceeding.
Section 10.06. CUMULATAIVE REMEDIES. Landlord's exercise of any right
or remedy shall not prevent it from exercising any other right or remedy.
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ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether this Lease
is dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten
(10) days after written request, Tenant hereby makes, constitutes and
irrevocably appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of the
terms or provisions of this Lease have been changed (or if they have been
changed, stating how they have been changed); (ii) that this Lease has not been
cancelled or terminated; (iii) the last date of payment of the Base Rent and
other charges and the time period covered by such payment; (iv) that Landlord is
not in default under this Lease (or, if Landlord is claimed to be in default,
stating why); and (v) such other representations or information with respect to
Tenant or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver
such statement to Landlord within ten (10) days after Landlord's request.
Landlord may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10) -day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from
denying the truth of such facts.
Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01 LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party
in whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and
costs. Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability Landlord may incur
if Landlord becomes or is made a party to any claim or action (a) instituted
by Tenant against any third party, or by any third party against Tenant, or
by or against any person holding any interest under or using the Property by
license of or agreement with Tenant; (b) for foreclosure of any lien for labor
or material furnished to or for Tenant or such other person; (c) otherwise
arising out of or resulting from any act or transaction of Tenant or such
other person; or (d) necessary to protect Landlord's interest under this
Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the
United States Code, as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable
to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for
any legal fees or costs Landlord incurs in any such claim or action.
11
<PAGE>
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's reasonable
attomeys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease only during
the time such Landlord owns such interest or title. Any Landlord who transfers
its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not
be in default under this Lease unless Landlord (or such ground lessor, mortgagee
or beneficiary) fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such thirty (30) -day period and thereafter diligently
pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles or Sections
of this Lease are to assist the parties in reading this Lease and are not a part
of the terms or provisions of this Lease. Whenever required by the context of
this Lease, the singular shall include the plural and the plural shall include
the singular. The masculine, feminine and neuter genders shall each include
the other. In any provision relating to the conduct, acts or omissions of
Tenant, the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. NOTICES. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.07. WAIVERS. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
12
<PAGE>
Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.04. NO OTHER BROKERS. Tenant represents and warrants to
Landlord that Tenant has had no dealings with any agents, brokers, finders or
other parties with whom Tenant has dealt who are or may be entitled to any
commission or fee with respect to this Lease or the Property.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED
HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE
INSERTED, PLEASE DRAW A LINE THROUGH THE SPACE BELOW.
See Rider.
13
<PAGE>
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on June 22, 1994 /s/ DAVID MILLER
-----------------------------------
David Miller, as Trustee of the
David Miller and Edis Miller
Family Trust dated January 19, l987
at 8825 West Olympic
By:
-------------------------------
Its:
-------------------------------
By:
-------------------------------
Its:
-------------------------------
"TENANT"
Signed on June 22, 1994 /s/ BORO VUKADINAVIC
-----------------------------------
Boro Vukadinavic, individually
at RETROSPETTIVA INC.
----------------------------------- -----------------------------------
By:
-------------------------------
Its:
-------------------------------
By:
-------------------------------
Its:
-------------------------------
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS,-REGISTERED TRADEMARK- INC. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS,-REGISTERED TRADEMARK- INC., ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS
NAMED HEREIN, OR THEIR EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR OF THIS TRANSACTION. LANDLORD AND
TENANT SHOULD RETAIN LEGAL COUNSEL TO ADVISE THEM ON SUCH MATTERS AND SHOULD
RELY UPON THE ADVICE OF SUCH LEGAL COUNSEL.
14
<PAGE>
RIDER TO INDUSTRIAL REAL ESTATE LEASE
This Rider to Industrial Real Estate Lease (this "Rider") is attached to
and forms a part of the Industrial Real Estate (Single-Tenant Facility) (the
"Lease") dated June 21, 1994 between David Miller, as Trustee of the David
Miller and Edis Miller Family Trust dated January 19, 1987, as Landlord, and
Boro Vukadinovic/Magellan, jointly and severally, as Tenant, covering the
property located at 8825 W. Olympic Boulevard, Beverly Hills, California, as
more particularly described in the Lease. Capitalized terms used herein and not
otherwise defined shall have the same meaning as set forth in the Lease. In
the event of any conflict or inconsistency between the terms and provisions of
this Rider and the terms and provisions of the Lease, the terms and provisions
of this Rider shall prevail.
The terms and provisions of the Lease are hereby modified or supplemented
as follows:
1. SECTION 4.02(c). JOINT ASSESSMENT. Section 4.02(c) is hereby deleted
in its entirety and the following is hereby inserted in its place:
"Landlord and Tenant hereby acknowledge and agree that the Property is
assessed together with the real property adjacent thereto commonly known as
8827 West Olympic Boulevard, Beverly Hills, California ("Adjacent
Property"). The Property and the Adjacent Property are together referred to
herein as the "Project." Notwithstanding any provision of Section 4.02(a)
to the contrary, and subject to the provisions of Paragraph 4.07 below, with
respect to the Project Tax (as defined below) only, Tenant shall pay twenty-
five percent (25%) of such Project Tax in excess of Eleven Thousand Five
Hundred Fifty-Five and No/100 Dollars ($11,555.00) in each calendar year
during the Lease Term. Notwithstanding the preceding sentence, with respect
to any and all partial calendar years during the Lease Term, the Eleven
Thousand Five Hundred Fifty-Five and No/100 Dollars ($11,555.00) figure
shall be prorated based on the actual number of calendar months, or portion
thereof, in which the Lease is in effect in the applicable calendar year.
As used herein, the term "Project Tax" means only the tax imposed against
the Project as shown on each annual tax bill for the Project, which tax is
payable in two installments, one by no later than December 10 of the year in
which the tax bill is received, and the other by no later than April 10 of
the year following the year in which the tax bill is received."
2. SECTION 4.04. INSURANCE POLICIES. The following is hereby added after
Section 4.04(c) as a new Section 4.04(d):
"(d) PERSONAL PROPERTY INSURANCE. During the Lease Term, Tenant shall
maintain policies of insurance covering loss of or damage to Tenant's trade
fixtures, furnishings, equipment, inventory, leasehold improvements made by
Tenant and other personal property belonging to Tenant at the Property in
the full amount of their replacement value. Such policy shall contain an
inflation guard endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage
and other perils which Landlord may reasonably require."
-1-
<PAGE>
3. SECTION 6.01. EXISTING CONDITIONS. The following is hereby added at
the end of Section 6.01:
"Tenant hereby acknowledges and agrees that (i) all alterations,
additions or improvements which Tenant desires to make in order to
prepare the Property for Tenant's occupancy shall be subject to
Landlord's prior written consent, and shall be made by Tenant at
Tenant's sold cost and expense; and (ii) any and all such
alterations, additions and improvements shall be performed by Tenant
in strict accordance with the provisions of Section 6.05.
Notwithstanding any provision of this Section 6.01 to the
contrary, Landlord warrants to Tenant that the existing plumbing,
electrical and HVAC systems in the Property shall be in good
operating condition on the earlier of (i) the Commencement Date or
(ii) the date that Tenant first occupies the Property. If a
non-compliance with said warranty exists as of the earlier of (i)
the Commencement Date or (ii) the date that Tenant first occupies
the Property, Landlord shall promptly, after receipt of written
notice from Tenant setting forth with specificity the nature and
extent of such non-compliance, rectify the same at Landlord's
expense. If Tenant does not give Landlord written notice of any
non-compliance with this warranty within thirty (30) days after the
earlier of (i) the Commencement Date or (ii) the date that Tenant
first occupies the Property, correction of all non-compliances
shall be the obligation of Tenant at Tenant's sole cost and
expense. Except for Landlord's obligation to correct any
non-compliance with this warranty as provided above, nothing
contained herein shall require Landlord to maintain or repair the
plumbing, electrical or HVAC systems during the Lease Term.
4. SECTION 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS. The following
is hereby added after Section 6.05(b) as a new Section 6.05(c):
"(c) Tenant shall keep the Property free and clear of all liens,
security interests and encumbrances (collectively, 'Liens') arising
out of or in connection with any alterations, additions or
improvements made by or for Tenant, or any labor, services or
materials provided for or at the request of Tenant. Tenant shall
indemnify and defend Landlord, and hold Landlord harmless, from and
against (i) all Liens; (ii) the removal of all Liens and any
actions or proceedings related thereto; and (iii) any and all
losses, costs, damages, liabilities and expenses (including,
without limitation, attorneys' fees) incurred by Landlord in
connection with the foregoing. If Tenant fails to keep the Property
free from Liens, then (A) without in any way limiting any other
rights or remedies available to Landlord as a result thereof, (B)
without inquiry into the validity of such Liens, and (C) without
regard to any defense or offset Tenant may have against the
claimant on whose behalf the Lien was filed, Landlord may take such
action as Landlord deems necessary to
-2-
<PAGE>
discharge such Liens, including, without limitation, making payment to the
claimant on whose behalf the Lien was filed, in which event Tenant shall
pay to Landlord upon demand any such sum so paid by Landlord."
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Rider concurrently with their execution of the Lease.
"LANDLORD"
/s/ DAVID MILLER
-----------------------------------
David Miller, as Trustee of the
David Miller and Edis Miller
Family Trust dated January 19, 1987
"TENANT"
/s/ BORO VUKADINOVIC
-----------------------------------
Boro Vukadinovic, individually
RETROSPETTIVA, INC.
By: President
-------------------------------
Its
----------------------------
By:
-------------------------------
Its
----------------------------
-3-
<PAGE>
[LOGO] BANK OF AMERICA
APPLICATION AND AGREEMENT
FOR COMMERCIAL LETTER OF CREDIT
To: Bank of America National Trust and Savings Association ("Bank")
A. APPLICATION.
_________________________________________ ("Customer") requests Bank to issue
an irrevocable commercial letter of credit ("Letter of Credit") as follows:
/ / Full text teletransmission / / Airmail with brief preliminary
teletransmission advice / / Airmail / /Courier
1. Advising bank and address (if left blank, Bank will select advising bank)
- -----------------------------------------------------------------------------
FOR BANK USE ONLY
2. L/C No.
---------------------------------
- -----------------------------------------------------------------------------
3. Expiration Date: DRAFTS TO BE DRAWN AND PRESENTED TO THE NEGOTIATING OR
PAYING BANK ON OR BEFORE:
___________________________________________ , 19 ______
4. For account of (Customer Name and Address)
5. In favor of (Beneficiary Name and Address)
6. Amount: ________________________________________________________________
_________________________________________________________________________
__________________________________________________ (In word and figures.)
Currency ________________________________________________________________
_________________________________________________________________________
7. Covering ________% of invoice value. (FULL INVOICE VALUE UNLESS OTHERWISE
SPECIFIED.)
8. Available by drafts at (Tenor) _________________________________ on Bank,
Bank's branch or Bank's correspondent, at Bank's option, or Bank may waive
draft requirement.
9. Partial Shipment:
/ / Permitted / / Not Permitted
10. Transhipment (NOT APPLICABLE TO AIR SHIPMENTS OR COMBINED TRANSPORT
SHIPMENTS.)
/ / Permitted / / Not Permitted
11. Shipment/Dispatch/Taking in Charge from/At Latest For Transportation To
_______________________________________________________________________________
12. Merchandise to be described in invoice as (OMIT UNNECESSARY DETAILS AND
SPECIFY PRICE BASIS IN BOX 13).
_______________________________________________________________________________
_______________________________________________________________________________
13. Price basis (CHECK ONE):
/ / FOB / / CFR / / CIF / / Other: ____________________________________
14. Documents required (Check applicable boxes below):
/ / Signed commercial invoice in duplicate.
/ / Marine and war insurance policy or certificate for 110% invoice value in
duplicate.
Insurance to be effected by: __________________________________________
/ / Original clean / / Air / / Truck / / Rail transport document.
Consigned to: _________________________________________________________
Notify (if different from consignee):
/ / Full set of original clean on board vessel marine bill of lading, to
order of shipper, blank endorsed, marked: "Notify _____________________
_____________________________________________________________________."
/ / Full set of original clean / / on board vessel / / on board inland
carrier combined transport bill of lading, to order of shipper, blank
endorsed, marked: "Notify ___________________________________________."
Bill of lading marked (select one): / / freight prepaid / / freight
collect.
/ / Other documents:_______________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
15. Special Instructions to be included in the Letter of Credit:_______________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Special Instructions for Bank of America: _________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
DOCUMENTS MUST BE PRESENTED TO THE NEGOTIATING OR PAYING BANK NO LATER THAN ___
DAYS AFTER DATE OF TRANSPORT DOCUMENT (ON BOARD VALIDATION APPLICABLE FOR OCEAN
SHIPMENT) BUT WITHIN THE VALIDITY OF THE LETTER OF CREDIT. ALL DOCUMENTS TO BE
FORWARDED IN ONE COVER, BY AIRMAIL, UNLESS OTHERWISE STATED UNDER SPECIAL
INSTRUCTIONS.
___________________________________________________________________________
CUSTOMER UNDERSTANDS THAT THE FINAL FORM OF THE LETTER OF CREDIT MAY BE
SUBJECT TO SUCH REVISIONS AND CHANGES AS ARE DEEMED NECESSARY OR APPROPRIATE
BY BANK'S LETTER OF CREDIT ISSUING UNIT AND CUSTOMER HEREBY CONSENTS TO SUCH
REVISIONS AND CHANGES.
<PAGE>
B. AGREEMENT.
In consideration of Bank issuing for the account of Customer the Letter
of Credit, Customer agrees to the following:
1. Customer shall pay Bank, on demand, all amounts paid by Bank under or
in respect of the Letter of Credit.
2. Customer shall pay Bank, on demand, commissions and fees for issuance
of the Letter of Credit, amendments to the Letter of Credit, payments under
the Letter of Credit, automatic extensions of the Letter of Credit,
cancellation of the Letter of Credit, and other services in the amounts
Customer and Bank may agree, or, in the absence of such agreement, in the
amounts customarily charged by Bank on the date of Bank's demand.
3. All payments and deposits by Customer under this Application and
Agreement shall be made at the branch or office Bank may designate from time
to time. Bank shall have no obligation to pay Customer interest on any
deposit made by Customer under this Application and Agreement.
4. (a) All payments and deposits by Customer under this Application and
Agreement shall be in the currency in which the Letter of Credit is payable,
except that Bank may, at its option, require payments and deposits by
Customer under this Application and Agreement to be made in U.S. Dollars if
the Letter of Credit is payable in a foreign currency.
(b) The amount of each payment and each deposit by Customer under this
Application and Agreement in U.S. Dollars for a Letter of Credit payable in a
foreign currency shall be determined by converting the relevant amount to
U.S. Dollars at the Conversion Rate in effect:
(i) with respect to each payment under Paragraph B.1., on the date
the payment is made by Bank under or in respect of the Letter of Credit; and
(ii) with respect to each payment not falling under the preceding
clause (i) and each deposit, on the date of Bank's demand for such payment or
deposit.
(c) If a U.S. Dollar deposit by Customer under this Application and
Agreement for a Letter of Credit payable in a foreign currency becomes less
than the U.S. Dollar equivalent of the undrawn amount of the Letter of Credit
because of any variation in rates of exchange, Customer shall deposit with
Bank, on demand, additional amounts in U.S. Dollars so that the total amount
deposited by Customer under this Application and Agreement is not less than
the U.S. Dollar equivalent of the undrawn amount of the Letter of Credit,
determined by using the Conversion Rate on the date of Bank's latest demand.
(d) "Conversion Rate" means the rate quoted by Bank in San Francisco,
California, for the purchase from Bank of the relevant foreign currency with
U.S. Dollars.
5. Customer shall reimburse or compensate Bank, on demand, for all
costs incurred, losses suffered and payments made by Bank which are applied
or allocated by Bank to the Letter of Credit (as determined by Bank) by
reason of any and all present or future reserve, deposit, assessment or
similar requirements against (or against any class of or change in or in the
amount of assets or liabilities of, or commitments or extensions of credit
by, Bank.
6. If Bank determines that any law, rule, regulation, or guideline
regarding capital adequacy affects or would affect the amount of capital
required to be maintained by Bank or any corporation controlling Bank and
that (taking into consideration Bank's policies with respect to capital
adequacy and Bank's desired return on capital) the amount of required capital
is increased as a result of Bank's obligations under the Letter of Credit,
then, on demand, Customer shall pay Bank additional amounts sufficient as
specified by Bank to compensate Bank for such increase.
7. Customer will obtain, or cause to be obtained, insurance on all
goods described in the Letter of Credit. The insurance will cover fire and
other usual risks, and any additional risks Bank may request. Customer
authorizes and empowers Bank to collect the proceeds of any insurance and
apply such proceeds against any of Customer's obligations to Bank under this
Application and Agreement.
8. Customer represents and warrants to Bank that Customer has obtained
all import and export licenses and other governmental approvals required for
the goods and the documents described in the Letter of Credit.
9. All directions and correspondence relating to the Letter of Credit
are to be sent at Customer's risk and expense.
10. (a) Customer hereby grants to Bank a security interest in the
following described property, whether now owned or hereafter acquired by
Customer ("Collateral"):
(i) All goods and documents described in the Letter of Credit;
(ii) All negotiable and nonnegotiable documents of title covering any
of the above-described property;
(iii) All rights under contracts of insurance covering any of the
above described property;
(iv) All deposit accounts now or hereafter maintained with Bank
with respect to the Letter of Credit; and
(v) All proceeds of any of the above described property.
(b) The Collateral secures and will secure all obligations and
liabilities of Customer to Bank under or in respect of this Application and
Agreement, whether now existing or hereafter incurred or created, whether due
or to become due, and whether absolute or contingent.
(c) If Customer defaults under any provision of this Application and
Agreement, Bank may enforce the security interest granted hereunder pursuant
to the California Uniform Commercial Code or any other applicable law. In
the event of any deficiency, Customer will immediately pay the same to Bank.
(d) In the event the Collateral should suffer any decline in value,
Customer shall, on demand, deliver to Bank additional Collateral satisfactory
to Bank.
11. Customer shall pay interest, on demand, on any amount not paid when
due under this Application and Agreement from the due date until payment in
full at a rate per annum equal to the rate of interest publicly announced
from time to time by Bank in San Francisco, California, as its reference rate
plus three percentage points. The reference rate is set by Bank based on
various factors, including Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing
some credits. Bank may price credit at, above or below the reference rate.
Any change in Bank's reference rate shall take effect at the opening of
business on the day specified in Bank's public announcement of a change in
Bank's reference rate. Interest will be computed on the basis of a 365 day
year and actual days elapsed.
12. Customer authorizes Bank to charge any of Customer's accounts with
Bank for all amounts then due and payable to Bank under this Application and
Agreement.
13. Customer shall pay, on demand, all costs, expenses, and attorneys'
fees (including allocated costs for in-house legal services) incurred by Bank
in connection with (a) any dispute concerning the Letter of Credit or this
Application and Agreement, or (b) the enforcement of this Application and
Agreement.
14. If any arbitration award, judgment or order is given or made for the
payment of any amount due under this Application and Agreement and such
arbitration award, judgment or order is expressed in a currency other than
the currency required under this Application and Agreement, Customer shall
indemnify Bank against and hold Bank harmless from all loss and damage
incurred by Bank as a result of any variation in rates of exchange between
the date of such arbitration award, judgment or order and the date of payment
(or, in the case of partial payments, the date of each partial payment)
thereof. This indemnity shall constitute an obligation separate and
independent from the other obligations contained in this Application and
Agreement, shall give rise to a separate and independent cause of action,
shall apply irrespective of any indulgence granted by Bank from time to time,
and shall continue in full force and effect notwithstanding any arbitration
award, judgment or order for a liquidated sum in respect of an amount due
under this Application and Agreement.
15. The word "Customer" in this Application and Agreement refers to each
signer (other than Bank) of this Application and Agreement. If this
Application and Agreement is signed by more than one Customer, their
obligations under this Application and Agreement shall be joint and several.
16. Subject to the laws, customs, and practices of the trade in the area
where the beneficiary is located, the Letter of Credit will be subject to,
and performance under the Letter of Credit by Bank, its correspondents, and
the beneficiary will be governed by, the "Uniform Customs and Practice for
Documentary Credits (1983 Revision), International Chamber of Commerce,
Publication No. 400," or by later Uniform Customs and Practice fixed by later
Congresses of the International Chamber of Commerce as in effect on the date
the Letter of Credit is issued.
17. This Application and Agreement shall be governed by and construed
under the laws of the State of California, to the jurisdiction of which the
parties hereto submit.
18. Any controversy among the parties arising out of or relating to this
Application and Agreement or the Letter of Credit shall at the request of any
party be determined by arbitration. The arbitration shall be conducted in
San Francisco, California, under the United States Arbitration Act (Title 9,
U.S. Code), notwithstanding any choice of law provision in this Application
and Agreement or the Letter of Credit, and pursuant to the Commercial Rules
of the American Arbitration Association. The arbitrators shall give effect
to statutes of limitation in determining any claim. Any controversy
concerning whether an issue is arbitrable shall be determined by the
arbitrators. Judgment upon the arbitration award may be entered in any court
having jurisdiction. This Paragraph shall not limit the right of any party
to this Application and Agreement or the Letter of Credit to exercise lawful
self-help remedies or to obtain provisional or ancillary remedies from a
court of competent jurisdiction before, during, or after the pendency of any
arbitration. The seeking, obtaining or exercising of such a remedy does not
waive the right of any party, including the party who sought such remedy, to
resort to arbitration. Notwithstanding the foregoing, no controversy shall be
submitted to arbitration under this Paragraph without the consent of all
parties if, at the time of the proposed submission, such controversy arises
from or relates to an obligation to Bank which is secured by real property
collateral.
This Application and Agreement is executed by Customer on________________, 19__.
_____________________________________
Name of Customer
By___________________________________ Title _______________________________
By___________________________________ Title _______________________________
___________________________________________________________________________
FOR OFFICE USE ONLY
___________________________________________________________________________
FX-150 TO: / / TRADE FINANCE SERVICES - Concord #6569 / / TRADE FINANCE
SERVICES - Los Angeles # 5655
___________________________________________________________________________
COMMISSION / / Per MISC-42 / / Other _________________________________________
/ / Charge Branch / / Charge customer account directly
/ / Commissions and Charges only
/ / Drawings, Commissions, and Charges / / Prepaid-UFE attached
___________________________________________________________________________
BANK OFFICER NAME (Type or Print) BANKAMERINET NO. DDA CUSTOMER A/C#
___________________________________________________________________________
BANK OFFICER SIGNATURE BRANCH/DEPT. NAME BRANCH/DEPT. NO.
___________________________________________________________________________
BANK OFFICER SIGNATURE
_______________________________________
<PAGE>
ASSIGNMENT OF LEASE
This Assignment of Lease ("Assignment") is entered into this 16th day of
April, 1996 by and between Boro Vukadinovic as Assignor ("Boro") and
Retrospettiva, Inc., a California corporation as Assignee ("Retro").
EXPLANATORY NOTES
A. An industrial Real Estate Lease dated June 21, 1994 was entered into
by and between David Miller, as Trustee of the David Miller and Edis Miller
Family Trust dated January 15, 1987 as landlord ("Landlord") and Boro as tenant
regarding approximately 2,200 rentable square feet of a building commonly known
as 8825 West Olympia Boulevard, Beverly Hills, California 90211 which was
amended by a First Amendment of Lease dated October 19, 1994 (collectively, the
"Lease"), a copy of which is attached hereto as Exhibit A and made a part
hereof.
B. Boro and Retro desire, among other things, to have (i) Boro assign to
Retro all of Boro's interest as tenant in the Lease, (ii) Retro assume all
obligations of tenant pursuant to the Lease and (iii) Retro guarantee full
performance of all tenant obligations under the Lease by Retro and indemnify and
hold Boro harmless from any and all claims and damages resulting from non-
performance by Retro as tenant under the Lease.
C. Retro is controlled by Boro and Section 9.02 of the Lease permits the
assignment of the tenant's interest, without the Landlord's consent, to any
corporation which, among other things, is controlled by the tenant.
In consideration of the foregoing explanatory notes and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Boro and Retro agree as set forth below.
1. ASSIGNMENT. Boro hereby assigns and transfers all of his right,
interest and title, including any security deposits and prepaid rents, to Retro.
2. ASSUMPTION OF OBLIGATIONS. Retro hereby assumes all obligations,
monetary and otherwise, of Boro as tenant pursuant to the Lease, warrants and
guarantees to Boro that it will timely perform all duties and obligations as
tenant under the Lease and agrees to indemnify and hold Boro harmless from any
and all duties, obligations, claims and damages, including but not limited to
attorney's fees and court costs, resulting from this Assignment and Retro's
nonperformance of any obligations or duties as tenant under the Lease.
3. REPRESENTATIONS OF BORO. Boro represents that the Lease is in full
force and effect, that there are no agreements between Boro and the Landlord
other than those contained in the Lease, that neither the Landlord nor Boro are
in default under any section or provision of the Lease and that this Assignment
does not require any approval, written or otherwise, by
<PAGE>
the Landlord. Boro further represents that he controls Retro as required
under Section 9.02 of the Lease for an assignment without Landlord's consent.
4. MISCELLANEOUS PROVISIONS.
4.1. ENTIRE AGREEMENT. This Assignment represents the entire
agreement between Boro and Retro with respect to the subject matter contained
herein, and shall supersede all other agreements, undertakings and
communications of any kind, whether written or oral.
4.2. HEADINGS. The headings contained herein are for convenience
only and have no force or effect.
4.3. BINDING EFFECT. This Assignment shall be binding upon the
parties hereto and shall inure to the benefit of their assignees, successors,
heirs or representatives.
4.4. ASSIGNMENT. This Assignment or the rights of tenant under the
Lease may not be assigned by Retro without the prior written consent of Boro
which shall not be unreasonably withheld. If Retro does assign its rights
under the Lease, the indemnification provision under Section 2 above shall
remain in full force and effect.
IN WITNESS WHEREOF, Boro and Retro have entered into this Assignment
effective on the date set forth above.
RETROSPETTIVA, INC.
/s/ BORO VUKADINOVIC By: /s/ ILLEGIBLE
- ------------------------------------- -------------------------------
BORO VUKADINOVIC President
2
<PAGE>
FIRST AMENDMENT OF LEASE
1. IDENTIFICATION AND PARTIES. This First Amendment of Lease (this
"Amendment"), dated for identification purposes only October 19, 1994, is
entered into by and between David Miller, as Trustee of the David Miller and
Edis Miller Family Trust dated January 15, 1987 ("Landlord"), and Boro
Vukadinovic/Magellan, jointly and severally ("Tenant").
2. RECITALS.
2.1. Landlord and Tenant are parties to that certain Industrial Real
Estate Lease dated June 21, 1994, covering approximately 2,200 rentable
square feet of a building commonly known as 8825 West Olympic Boulevard,
Beverly Hills, California 90211 (the "Lease"). Capitalized terms used herein
and not otherwise defined shall have the same definitions as set forth in the
Lease.
2.2. Landlord and Tenant desire, among other things, to extend the Lease
Term upon and subject to the following terms, provisions and conditions, and to
agree to other matters as set forth herein.
In consideration of the foregoing recitals and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as set forth below.
3. AMENDMENT.
3.1. LEASE TERM. Section 1.05 of the Lease is hereby amended to provide
that the Lease Term shall be for a period of five (5) years and one (1) month
beginning on January 1, 1995 and ending on January 31, 2000.
3.2. EARLY OCCUPANCY. Section 2.03 of the Lease is hereby deleted in
its entirety and is replaced with the following:
"Landlord shall permit Tenant to occupy the Property prior to the
Commencement Date from September 15, 1994 to December 31, 1994, provided
that Tenant's occupancy of the Property shall be subject to all of the
provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall not pay Base Rent
but shall pay all other charges specified in this Lease for the early
occupancy period commencing on September 15, 1994 and ending on November
30, 1994. Tenant shall pay Base Rent and all other charges specified in
this Lease for the early occupancy period commencing on December 1, 1994
and ending on December 31, 1994. For purposes of this Lease, Landlord's
forgiveness of Tenant's obligation to pay Base Rent for the early occupancy
period from September 15, 1994 through and including November 30, 1994
shall be deemed to constitute 'Abated Rent' as defined herein."
<PAGE>
3.3. BASE RENT. Section 3.01 of the Lease is hereby deleted in its
entirety and is replaced with the following:
"TIME AND MANNER OF PAYMENT. On or before the execution of this
Tenant shall pay Landlord the Base Rent in the amount stated in
Paragraph 1.12(a) above for the month of December 1994. On the first
day of the first month of the Lease Term and each month thereafter,
Tenant shall pay Landlord the Base Rent, in advance, without offset,
deduction or prior demand. The Base Rent shall be payable at
Landlord's address or at such other place as Landlord may designate in
writing."
4. MISCELLANEOUS PROVISIONS.
4.1. ENTIRE AGREEMENT. The Lease, as amended by this Amendment, represents
the entire agreement between Landlord and Tenant with respect to the subject
matter hereof, and shall supersede all other agreements, undertakings and
communications of any kind, whether written or oral.
4.2. NO OTHER MODIFICATIONS. Except as expressly amended hereby, the Lease
is unchanged and all other terms, covenants and conditions of the Lease shall
continue in full force and effect.
4.3. FURTHER ASSURANCES. From time to time, upon the reasonable request of
either Landlord or Tenant, the other party shall take further actions and shall
execute such further instruments and documents as are necessary or desirable to
implement the terms, provisions and conditions hereof. All reasonable costs
thereof shall be paid for by the requesting party.
4.4. COUNTERPARTS. This Amendment may be executed in one or more duplicate
counterparts, each of which shall be deemed an original, but all of which
together, when executed, shall constitute one and the same instrument.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Amendment on
the dates set forth opposite their respective signatures below.
"LANDLORD"
Date: 10-19-94 /s/ DAVID MILLER
-------- -----------------------------------
David Miller, as Trustee of the
David Miller and Edis Miller
Family Trust dated January 19, 1987
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
2
<PAGE>
"TENANT"
Date: 10-19-94 /s/ BORO VUKADINOVIC
-------- -----------------------------------
BORO VUKADINOVIC, individually
Magellan, a
------------------
Date: By:
------------- -------------------------------
Its:
-------------------------------
Date: By:
------------- -------------------------------
Its:
-------------------------------
3
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 20th day of April,
1996, by and between RETROSPETTIVA, INC., a California corporation (the
"Employer"), and BORIVOJE VUKADINOVIC (the "Employee").
The Employer hereby employs the Employee on a full-time basis, and the
Employee hereby accepts such full-time employment on the terms and conditions
hereinafter set forth.
1. EMPLOYMENT. Employee is employed as Chief Executive Officer and
President. Employee shall perform all duties assigned by the Board of Directors
of the Employer and shall devote full time, attention and loyalty to the affairs
of the Employer.
2. TERM. Subject to the provisions for termination provided in paragraphs
9 and 10, the initial term of this Agreement shall commence on the date hereof
and terminate three years from the date hereof. This Agreement may be extended
by the mutual written agreement of the Employee and the Employer.
3. CASH AND COMMON STOCK COMPENSATION. For all services rendered by the
Employee under this Agreement, the Employer shall pay to the Employee commencing
the 1st of the month subsequent to the closing of the Employer's private
placement dated on or about April 1996, a salary of $95,000 per year for the
full term of the Agreement. Nothing contained herein shall prohibit Employer's
Board of Directors from increasing this salary in the future based upon
Employee's performance.
4. ELIGIBILITY FOR OPTIONS. Employee shall be entitled to receive options
and to purchase 500,000 shares of the company's common stock under the
Employer's employee stock option and bonus plan subject to cancellation as
described therein.
5. BENEFITS. Employee shall receive such benefits, including health
insurance, life insurance, automobile allowance, vacation time etc., as shall be
1
<PAGE>
agreed upon by the parties in a written letter of understanding, a copy of which
shall be attached hereto.
6. RESPONSIBILITIES OF EMPLOYEE. The Employee shall devote such time as
is necessary or is deemed necessary by the Board of Directors of the Employer
to carry out all required duties and will devote full time to the Employer
during normal business hours. The Employee shall at all times faithfully, with
diligence and to the Employee's best ability, experience and talents, perform
all the duties that may be required pursuant to the express and implicit terms
hereof to the reasonable satisfaction of the Employer.
7. WORKING FACILIT!ES. The Employee shall be furnished with all
facilities and services suitable to Employee's position and adequate for
performance of Employee's duties.
8. EXPENSES. The Employee is authorized to incur reasonable expenses for
promoting the business of the Employer, including expenses for entertainment,
travel, lodging, promotion equipment rentals and purchases, engagement of
contract labor associated with the foregoing and similar items. The Employer
shall reimburse the Employee for all such expenses on the presentation by
the Employee of itemized accounts of such expenditures in accordance with
guidelines set forth by the Internal Revenue Service.
9. DISABILITY. Employee shall be entitled to continue to receive
Employee's salary hereunder if unable to perform duties by reason of illness or
incapacity for a period of up to and including a maximum of one year.
Thereafter, Employee shall not receive any further compensation until Employee
returns to full employment as required hereunder. Should Employee be absent
from employment for whatever cause for the continuous period of more than one
year, the Employer may terminate this Agreement, and all obligations of the
Employer hereunder shall cease upon such termination.
10. TERM!NATION. The Company may terminate this Agreement for cause upon
the majority vote of the Board of Directors by written notice to the
2
<PAGE>
Employee. For the purposes hereof, "cause" shall be defined as meaning (i) such
conduct by the Employee which constitutes a breach of this Agreement or (ii) a
failure to fully, competently and adequately perform employee's duties or
(iii) breach of Employee's fiduciary duty or (iv) improper or illegal conduct of
the Employee which, in the opinion of the Board of Directors of the Employer,
adversely affects the Employer, its reputation or operations.
11. CONFIDENTIALITY; COVENANT NOT TO COMPETE. The Employee shall not
divulge to others any information obtained during the course of Employee's
employment relating to the business, operations, customers, proprietary
information or trade secrets of the Employer, without the written permission of
the Employer.
If this Agreement is terminated for any reason other than due to a breach
by Employer, the Employee agrees not to own, hold an interest of any kind in, be
employed by, operate or manage, directly or indirectly, any business engaged in
any type of apparel manufacturing or any business in the same business as the
Employer in the state of California for a period of two years from the date of
such termination.
11. NOTICES. All notices required or authorized hereunder shall be deemed
sufficiently given if in writing and sent by registered or certified mail,
return receipt requested and postage prepaid to the other party at his or its
last known address.
12. ASSIGNNMENT OF AGREEMENT. Neither party may assign or otherwise
transfer this Agreement or any of its rights or obligations hereunder without
the prior written consent to such assignment or transfer by the other party
hereto; and all the provisions of this Agreement shall be binding upon the
respective employees, successors, heirs and assigns of the parties.
13. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. This Agreement
and the representations, warranties, covenants and other agreements (however
characterized or described) by both parties and contained
3
<PAGE>
herein or made pursuant to the provisions hereof shall survive the execution and
delivery of this Agreement.
14. FURTHER INSTRUMENTS. The parties shall execute and deliver any and
all such other instruments and shall take any and all such other actions as may
be reasonably necessary to carry the intent of this Agreement into full force
and effect.
15. SEVERABILITY. If any provision of this Agreement shall be held,
declared or pronounced void, voidable, invalid, unenforceable or inoperative for
any reason by any court of competent jurisdiction, governmental authority or
otherwise, such holding, declaration or pronouncement shall not affect adversely
any other provisions of this Agreement, which shall otherwise remain in full
force and effect and be enforced in accordance with its terms, and the effect of
such holding, declaration or pronouncement shall be limited to the territory or
jurisdiction in which made.
16. WAIVER. All rights and remedies of either party under this Agreement
are cumulative and not exclusive of any other rights and remedies provided by
law. No delay or failure on the part of either party in the exercise of any
right or remedy arising from a breach of this Agreement shall operate as a
waiver of any subsequent right or remedy arising from a subsequent breach of
this Agreement. The consent of any party where required hereunder to any act or
occurrence shall not be deemed to be a consent to any other act or occurrence.
17. GENERAL PROVISIONS. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the state of California. Except
as otherwise expressly stated herein, time is of the essence in performing under
this Agreement. This Agreement embodies the entire agreement and understanding
between the parties and supersedes all prior agreements and understandings
relating to the subject matter of this Agreement, and this Agreement may not be
modified or amended or any term or provision hereof waived or discharged except
in writing signed by the party against whom
4
<PAGE>
such amendment, modification, waiver or discharge is sought to be enforced. The
headings of this Agreement are for convenience in reference only and shall not
limit or otherwise affect the meaning thereof. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original but all
of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
"Employee" "Employer"
RETROSPETTIVA, INC.
/s/ BORIJOVE VUKADINOVIC /s/ BORIJOVE VUKADINOVIC
- ----------------------------------- ----------------------------------
Borijove Vukadinovic Borijove Vukadinovic
Chief Executive Officer
5
<PAGE>
AMENDMENT OF EMPLOYMENT AGREEMENT
This Amendment of Employment Agreement is entered into as of the ____ day
of August, 1996, by and between Retrospettiva, Inc., a California corporation
(the "Employer"), and Boroivoge Vukadinovic (the "Employee").
WHEREAS, on April 20, 1996, Employer and Employee entered into an
Employment Agreement (the "Employment Agreement") whereby Employee employed
Employee as its Chief Executive Officer and President subject to the terms and
conditions of the Employment Agreement; and
WHEREAS, the parties hereto desire to amend the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged between the parties, it
is agreed as follows:
1. Amendment of Employment Agreement. Section numbered 11,
"Confidentiality; Covenant Not To Compete" is hereby amended by changing the
second paragraph of such section from a covenant not to compete for two years to
a covenant not to compete for three years from the date of this Amendment of
Agreement.
2. Effectiveness of Terms of Employment Agreement. Except as amended
above, all terms and conditions of the Employment Agreement shall remain the
same and in full force and effect.
This Agreement is executed effective on the date first written above.
Employer:
RETROSPETTIVA, INC.
By:
-------------------------------
Michael D. Silberman
Chief Financial Officer
Employee:
----------------------------------
Boroivoge Vukadinovic
<PAGE>
SECOND AMENDMENT OF EMPLOYMENT AGREEMENT
This Second Amendment of Employment Agreement is entered into as of the
_____ day of April, 1997, by and between Retrospettiva, Inc., a California
corporation (the "Employer"), and Boroivoge Vukadinovic (the "Employee").
WHEREAS, on April 20, 1996, Employer and Employee entered into an
Employment Agreement (the "Employment Agreement") whereby Employee employed
Employee as its Chief Executive Officer and President subject to the terms and
conditions of the Employment Agreement; and
WHEREAS, the Employment Agreement was previously amended in August 1996
(the "First Amendment"); and
WHEREAS, the parties hereto desire to further amend the Employment
Agreement, including the First Amendment.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged between the parties,
it is agreed as follows:
1. Amendment of Employment Agreement. Section numbered 3, "Cash and
Common Stock Compensation" is hereby amended to read as follows:
"3. CASH AND COMMON STOCK COMPENSATION. For all services rendered by
the Employee under this Agreement, the Employer shall pay to the Employee a
salary of Ninety Five Thousand dollars ($95,000) per year for the full term
of the Employment Agreement commencing the first (lst) day of the month
subsequent to the earlier of (i) the closing of an initial public offering
of Employer's securities, or (ii) the closing of a merger by Employer with
or the closing of the acquisition of Employer by a public company. Nothing
contained herein shall prohibit Employer's Board of Directors from
increasing this salary in the future based upon Employee's performance."
<PAGE>
2. Effectiveness of Terms of Employment Agreement and First Amendment.
Except as amended above, all terms and conditions of the Employment Agreement
including the First Amendment shall remain the same and in full force and
effect.
This Agreement is executed effective on the date first written above.
Employer:
RETROSPETTIVA, INC.
By:
-------------------------------
Michael D. Silberman
Chief Financial Officer
Employee:
----------------------------------
Boroivoge Vukadinovic
2
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 20th day of April,
1996, by and between RETROSPETTIVA, INC., a California corporation (the
"Employer"), and MICHAEL D. SILBERMAN (the "Employee").
The Employer hereby employs the Employee on a full-time basis, and the
Employee hereby accepts such full-time employment on the terms and conditions
hereinafter set forth.
1. EMPLOYMENT Employee is employed as Chief Financial Officer.
Employee shall perform all duties assigned by the Board of Directors of the
Employer and Shall devote full time, attention and loyalty to the affairs of
the Employer.
2. TERM. Subject to the provisions for termination provided in paragraphs
9 and 10, the initial term of this Agreement shall commence on the date hereof
and terminate three years from the date hereof. This Agreement may be extended
by the mutual written agreement of the Employee and the Employer.
3. CASH AND COMMON STOCK COMPENSATION For all services rendered by
the Employee under this Agreement, the Employer shall pay to the Employee
commencing the 1st of the month subsequent to the closing of the Employer's
private placement dated on or about April 1996, a salary of $75,000 per year
for the full term of the Agreement. Nothing contained herein shall prohibit
Employer's Board of Directors from increasing this salary in the future based
upon Employee's performance. In addition, Employee shall receive upon
execution of this Agreement 34,000 shares of Employees Common Stock and a
signing bonus of $50,000.
4. ELIGIBILITY FOR OPTIONS. Employee shall be entitled to receive
options to purchase 150,000 shares of Employer's stock under the Employer's
employee stock option and bonus plan.
5. BENEFITS. Employee shall receive such benefits, including health
insurance, life insurance, automobile allowance, vacation time etc., as shall
be
1
<PAGE>
agreed upon by the parties in a written letter of understanding, a copy of
which shall be attached hereto.
6. RESPONSIBILITIES OF EMPLOYEE. The Employee shall devote such time
as is necessary or is deemed necessary by the Board of Directors of the
Employer to carry out all required duties and will devote full time to the
Employer during normal business hours. The Employee shall at all times
faithfully, with diligence and to the Employee's best ability, experience and
talents, perform all the duties that may be required pursuant to the express
and implicit terms hereof to the reasonable satisfaction of the Employer.
7. WORKING FACILITIES. The Employee shall be furnished with all
facilities and services suitable to Employee's position and adequate for the
performance of Employee's duties.
8. EXPENSES. The Employee is authorized to incur reasonable expenses for
promoting the business of the Employer, including expenses for entertainment,
travel, lodging, promotion equipment rentals and purchases, engagement of
contract labor associated with the foregoing and similar items. The Employer
shall reimburse the Employee for all such expenses on the presentation by the
Employee of Itemized accounts of such expenditures in accordance with
guidelines set forth by the Internal Revenue Service.
9. DISABILITY. Employee shall be entitled to continue to receive
Employee's salary hereunder if unable to perform duties by reason of illness
or incapacity for a period of up to and including a maximum of one year.
Thereafter, Employee shall not receive any further compensation until
Employee returns to full employment as required hereunder. Should Employee
be absent from employment for whatever cause for the continuous period of
more than one year, the Employer may terminate this Agreement, and all
obligations of the Employer hereunder shall cease upon such termination.
10. TERMINATION. The Company may terminate this Agreement for cause
upon the majority vote of the Board of Directors by written notice to the
2
<PAGE>
Employee. For the purposes hereof, "cause" shall be defined as meaning (i)
such conduct by the Employee which constitutes a breach of this Agreement or
(ii) a failure to fully, competently and adequately perform employee's
duties or (iii) breach of Employee's fiduciary duty or (iv) improper or
illegal conduct of the Employee which, in the opinion of the Board of
Directors of the Employer, adversely affects the Employer, its reputation or
operations.
11. CONFIDENTIALITY; COVENANT NOT TO COMPETE. The Employee shall not
divulge to others any information obtained during the course of Employee's
employment relating to the business, operations, customers, proprietary
information or trade secrets of the Employer, without the written permission
of the Employer.
If this Agreement is terminated for any reason other than due to a
breach by Employer, the Employee agrees not to own, hold an interest of any
kind in, be employed by, operate or manage, directly or indirectly, any
business engaged in any type of apparel manufacturing or any business in the
same business as the Employer in the state of California for a period of two
years from the date of such termination.
11. NOTICES. All notices required or authorized hereunder
shall be deemed sufficiently given if in writing and sent by
registered or certified mail, return receipt requested and postage
prepaid to the other party at his or its last known address.
12. ASSIGNMENT OF AGREEMENT. Neither party may assign or otherwise
transfer this Agreement or any of its rights or obligations hereunder without
the prior written consent to such assignment or transfer by the other party
hereto; and all the provisions of this Agreement shall be binding upon the
respective employees, successors, heirs and assigns of the parties.
13. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. This
Agreement and the representations, warranties, covenants and other agreements
(however characterized or described) by both parties and contained
3
<PAGE>
herein or made pursuant to the provisions hereof shall survive the execution
and delivery of this Agreement.
14. FURTHER INSTRUMENTS. The parties shall execute and deliver any and
all such other instruments and shall take any and all such other actions as
may be reasonably necessary to carry the intent of this Agreement into full
force and effect.
15. SEVERABILITY. If any provision of this Agreement shall be held,
declared or pronounced void, voidable, invalid, unenforceable or inoperative
for any reason by any court of competent jurisdiction, governmental authority
or otherwise, such holding, declaration or pronouncement shall not affect
adversely any other provisions of this Agreement, which shall otherwise
remain in full force and effect and be enforced in accordance with its terms,
and the effect of such holding, declaration or pronouncement shall be limited
to the territory or jurisdiction in which made.
16. WAIVER. All rights and remedies of either party under this
Agreement are cumulative and not exclusive of any other rights and remedies
provided by law. No delay or failure on the part of either party in the
exercise of any right or remedy arising from a breach of this Agreement shall
operate as a waiver of any subsequent right or remedy arising from a
subsequent breach of this Agreement. The consent of any party where required
hereunder to any act or occurrence shall not be deemed to be a consent to any
other act or occurrence.
17. GENERAL PROVISIONS. This Agreement shall be construed and enforced
in accordance with, and governed by, the laws of the state of California.
Except as otherwise expressly stated herein, time is of the essence in
performing under this Agreement. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter of this
Agreement, and this Agreement may not be modified or amended or any term or
provision discharged except in writing signed by the party against whom
4
<PAGE>
such amendment, modification, waiver or discharge is sought to be enforced.
The headings of this agreement are for convenience in reference only and
shall not limit or otherwise affect the meaning thereof. This agreement may
be executed in any number of counterparts, each of which shall be deemed an
original but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this agreement on the day and
year first above written.
"Employee" "Employer"
RETROSPETTIVA, INC.
/s/ MICHAEL D. SILBERMAN By: /s/ BORIJOVE VUKADINOVIC
- ------------------------------- ---------------------------------
Michael D. Silberman Borijove Vukadinovic
Chief Executive Officer
5
<PAGE>
AMENDMENT OF EMPLOYMENT AGREEMENT
This Amendment of Employment Agreement is entered into as of the 25th day
of November, 1996, by and between Retrospettiva, Inc., a California corporation
(the "Employer"), and Michael D. Silberman (the "Employee").
EXPLANATORY STATEMENTS
1. Employer and Employee entered into an Employment Agreement dated as
of April 20, 1996 (the "Employment Agreement") whereby the Employer employed
the Employee.
2. The Employer and Employee desire to amend and modify certain terms
and conditions of the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Employment Agreement is hereby amended and
modified as follows:
1. Section numbered 3, "Cash and Common Stock Compensation" is amended
to read as follows:
"For all services rendered by the Employee under this
Agreement, the Employer shall pay to the Employee, commencing the
first of the month subsequent to the closing of the Employer's initial
public offering of its securities (the "IPO"), a salary of $60,000 per
year for the full term of this Agreement. Nothing contained herein
shall prohibit Employer's Board of Directors from increasing the
salary in the future based upon Employee's performance. In addition,
Employee shall receive upon execution of this Agreement 34,000 shares
of Employer's no par value Common Stock (the "Common Stock") of which
20,350 shares may be offered and sold by Employee as part of the
IPO."
2. Section numbered 4, "Eligibility for Options" is hereby amended to read
as follows:
"Employee shall be entitled to receive options to purchase a
total of 50,000 shares of Employer's Common Stock pursuant to the
Employer's Incentive Stock Option Plan with options to purchase 25,000
shares of Common Stock at an exercise price of $7.50 per share and
25,000 shares of Common Stock at $9.00 per share with all options
exercisable for a period of ten (10) years and vested as of the date
of this Agreement."
3. Section numbered 5, "Benefits" is hereby amended by the addition of
the following at the end of such section:
<PAGE>
"Notwithstanding the foregoing, Employee shall be entitled to two
weeks paid vacation annually for each one year of employment with
Employer with such Employment to commence for purposes of this section
on April 20, 1996."
4. Any and all other terms and conditions of the Employment Agreement not
amended or modified herein shall remain the same and in full force and effect.
Employer:
RETROSPETTIVA, INC.
By:
---------------------------------------
Borivoje Vukadinovic
Chief Financial Officer
Employee:
----------------------------------------
Michael D. Silberman
2
<PAGE>
SECOND AMENDMENT OF EMPLOYMENT AGREEMENT
This Amendment of Employment Agreement is entered into as of the 2nd day of
June 1997, by and between Retrospettiva, Inc., a California corporation (the
"Employer"), and Michael D. Silberman (the "Employee").
EXPLANATORY STATEMENTS
1. Employer and Employee entered into an Employment Agreement dated as of
April 20, 1996 (the "Employment Agreement") whereby the Employer employed the
Employee.
2. The Employment Agreement was amended as of November 25, 1996.
3. The Employer and Employee desire to further amend and modify certain
terms and conditions of the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Employment Agreement is hereby amended and modified
as follows:
1. The last sentence of Section numbered 3, "Cash and Common Stock
Compensation" is amended to read as follows:
"In addition, Employee shall receive upon execution of this Agreement
34,000 shares of Employer's no par value Common Stock (the "Common Stock")
of which 25,000 shares may be offered and sold by Employee as part of the
IPO."
2. Any and all other terms and conditions of the Employment Agreement not
amended or modified herein shall remain the same and in full force and effect.
Employer:
RETROSPETTIVA, INC.
By:
---------------------------------------
Michael D. Silberman, Secretary
Employee:
----------------------------------------
Michael D. Silberman
<PAGE>
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------ --------------------------
1995 1996 1996 1997
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
PRIMARY EARNINGS
Net income 680,495 772,802 296,673 350,305
Shares
Weighted average number of
common shares outstanding 1,750,000 1,750,000 1,750,000 1,750,000
Primary earnings per common share:
Net income 0.39 0.44 0.17 0.20
--------- --------- --------- ---------
--------- --------- --------- ---------
FULLY DILUTED EARNINGS
Net income 680,495 772,802 296,673 350,305
Shares
Weighted average number of
common shares outstanding 1,750,000 1,750,000 1,750,000 1,750,000
Fully diluted earnings per common share:
Net income 0.39 0.44 0.17 0.20
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<PAGE>
[Letterhead]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report dated March 15, 1997 on the financial statements of Retrospettiva,
Inc., and to the reference made to our firm under the caption "Experts"
included in or made part of this Registration Statement.
/s/ A.J. ROBBINS, P.C.
A.J. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
June 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1995 DEC-31-1996 MAR-31-1996 MAR-31-1997
<CASH> 0 110,777 0 741,256
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 2,099,893 0 1,305,001
<ALLOWANCES> 0 (17,196) 0 (17,196)
<INVENTORY> 0 3,112,678 0 2,404,271
<CURRENT-ASSETS> 0 5,662,907 0 4,507,674
<PP&E> 0 106,576 0 106,576
<DEPRECIATION> 0 (45,190) 0 (49,597)
<TOTAL-ASSETS> 0 5,857,542 0 4,667,902
<CURRENT-LIABILITIES> 0 4,797,053 0 3,139,054
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 0 154,000 0 272,054
<OTHER-SE> 0 906,489 0 1,256,794
<TOTAL-LIABILITY-AND-EQUITY> 0 5,857,542 0 4,667,902
<SALES> 11,379,826 12,902,195 4,639,169 5,093,857
<TOTAL-REVENUES> 11,379,826 12,902,195 4,639,169 5,093,857
<CGS> 9,976,933 11,006,053 3,957,211 4,345,060
<TOTAL-COSTS> 230,301 170,179 51,371 47,788
<OTHER-EXPENSES> 280,816 362,621 78,572 102,440
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 21,241 61,457 12,342 13,264
<INCOME-PRETAX> 875,495 1,313,087 539,673 585,305
<INCOME-TAX> 195,000 540,285 243,000 235,000
<INCOME-CONTINUING> 680,495 772,802 296,673 350,305
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 680,495 772,802 296,673 350,305
<EPS-PRIMARY> 0.39 0.44 0.17 0.20
<EPS-DILUTED> 0.39 0.44 0.17 0.20
</TABLE>
