<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
NORTON MOTORS INTERNATIONAL INC.
(Name of Small Business Issuer in Its Charter)
------------------------------
<TABLE>
<S> <C> <C>
MINNESOTA 3751 41-1828797
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
</TABLE>
--------------------------
14252 23RD AVENUE NORTH
PLYMOUTH, MINNESOTA 55447-4910
(612) 694-9880
(Address and Telephone Number of Principal Executive Offices)
14252 23RD AVENUE NORTH
PLYMOUTH, MINNESOTA 55447-4910
(Address of Principal Place of Business or Intended Principal Place of Business)
MYRON CALOF
NORTON MOTORS INTERNATIONAL INC.
14252 23RD AVENUE NORTH
PLYMOUTH, MINNESOTA 55447-4910
(612) 694-9880
(Name, Address and Telephone Number of Agent For Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT H. FRIEDMAN, ESQ. LAWRENCE B. FISHER, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP ORRICK HERRINGTON & SUTCLIFFE LLP
505 PARK AVENUE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10103
(212) 753-7200 (212) 506-5000
(212) 755-1467 (TELECOPIER) (212) 506-5151 (TELECOPIER)
</TABLE>
--------------------------
Approximate Date of Commencement of Proposed Sale to Public:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box / /
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED PRICE(1) FEE
<S> <C> <C>
Common Stock, $.01 par value(2)......................................................... 22,425,000(3) $6,615.38
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes 450,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(3) Based upon a proposed maximum offering price of $6.50 per share of Common
Stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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, DATED JUNE 19, 1998
PROSPECTUS
[LOGO]
MOTORS INTERNATIONAL INC.
3,000,000 SHARES OF COMMON STOCK
Norton Motors International Inc., a Minnesota corporation (the "Company"),
hereby offers (the "Offering") 3,000,000 shares (the "Shares") of common stock,
$.01 par value per share ("Common Stock"). See "Description of Securities."
Prior to this Offering, there has been no public market for the Common Stock
and there can be no assurance that such a market will develop after completion
of this Offering, or if developed, that it will be sustained. It is currently
anticipated that the initial public offering price of the Common Stock will
between $5.50 and $6.50 per Share. For information regarding the factors
considered in determining the initial public offering price of the Shares, see
"Risk Factors" and "Underwriting." The Company intends to apply for listing of
the Common Stock on the American Stock Exchange under the symbol "NRN".
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND
"DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING
PUBLIC DISCOUNTS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(3)............................................. $ $ $
</TABLE>
(1) Does not include additional compensation to Dirks & Company, Inc., the
representative (the "Representative") of the several Underwriters (the
"Underwriters"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification and
contribution arrangements with the Underwriters and other compensation
payable to the Representative.
(2) Before deducting estimated expenses of $500,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option, exercisable within
forty-five (45) days after the date of this Prospectus, to purchase up to
450,000 additional Shares, upon the same terms and conditions as set forth
above, solely to cover over-allotments, if any (the "Over-Allotment
Option"). If such Over-Allotment Option is exercised in full, the total
Price to Public, Underwriting Discounts and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of the Shares will be made at the offices of Dirks & Company, Inc., New
York, New York, on or about , 1998.
DIRKS & COMPANY, INC.
The date of this Prospectus is , 1998
<PAGE>
[PICTURES OF COMPANY'S NEW MOTORCYCLES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE THE MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS (I)
GIVES EFFECT TO (A) THE CONVERSION OF $2,516,000 IN AGGREGATE PRINCIPAL AMOUNT
OF CERTAIN CONVERTIBLE DEBENTURES INTO AN AGGREGATE OF 1,258,000 SHARES OF
COMMON STOCK ON THE DATE OF CONSUMMATION OF THIS OFFERING (ASSUMING AN INITIAL
PUBLIC OFFERING PRICE OF $6.00 PER SHARE), (B) THE ISSUANCE TO MELLING
CONSULTANCY DESIGN LIMITED OF 166,666 SHARES OF COMMON STOCK IN EXCHANGE FOR
CANCELLATION OF CERTAIN ROYALTY PAYMENTS PAYABLE BY THE COMPANY, (C) THE
REPURCHASE BY THE COMPANY OF 90,000 SHARES OF COMMON STOCK AND WARRANTS TO
PURCHASE 90,000 SHARES OF COMMON STOCK FROM A FORMER DIRECTOR OF THE COMPANY AND
(D) A 3-FOR-2 STOCK SPLIT OF THE COMMON STOCK EFFECTIVE SEPTEMBER 1, 1997 AND
(II) DOES NOT GIVE EFFECT TO (X) ANY EXERCISE OF THE OVER-ALLOTMENT OPTION AND
(Y) ANY EXERCISE BY THE REPRESENTATIVE OF WARRANTS TO PURCHASE 300,000 SHARES OF
COMMON STOCK. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION,"
"BUSINESS--PRIME CONTRACTOR DEVELOPMENT AGREEMENT," "UNDERWRITING," AND "CERTAIN
TRANSACTIONS."
THE COMPANY
Norton Motors International Inc. (the "Company"), a development stage
company, is currently developing, and plans to manufacture, market and sell,
high performance motorcycles, each intended for a distinct segment of the
motorcycle market. The Company introduced a non-running motorcycle model, the
1500cc V8 powered Norton Nemesis (the "Nemesis") in April 1998. The Nemesis is
anticipated to be the Company's flagship motorcycle, and is expected to produce
235 brake horsepower ("bhp") with a projected top speed exceeding 200 miles per
hour ("mph"). The Company also intends to introduce the Norton Manx Superbike
(the "Manx") in fall 1998, which will be powered by a 750cc in-line four
cylinder engine expected to produce 160 bhp. Development of the Nemesis and the
Manx has been substantially completed, and the Company expects to commence
limited production and initial delivery of the Nemesis and the Manx by the end
of 1998 or early 1999.
In addition to the Nemesis and the Manx, the Company is currently developing
three other models which it plans to introduce over the twenty-four months
following the date of this Prospectus. The three additional models are: (i) the
Norton Commando Cruiser, a 1500cc V8 powered motorcycle designed specifically
for the American market (the "Commando"); (ii) the Norton International 600cc
Sportbike (the "International"); and (iii) the 900cc Norton Atlas (the "Atlas,"
and together with the Nemesis, the Manx, the Commando and the International, the
"Initial Product Line"). The motorcycles in the Initial Product Line will be
offered in different segments of the motorcycle market and are anticipated to
range in price from approximately $10,000 to $35,000. The Company believes that
each of the motorcycles in the Initial Product Line will be positioned as a
premier product in the market segment in which the respective motorcycle is
sold. In addition to the Initial Product Line, the Company plans to offer
various other motorcycle models, including a trailbike and a supermotard, both
to be powered by versions of the Company's 600cc engine, and an advanced version
of the Nemesis, for which the Company has commenced preliminary research and
design. The Company believes that these and future models will enable the
Company to achieve its desired market penetration for its motorcycles.
The Company believes that the following factors will help to distinguish the
Company's products from its competitors:
- innovative technology which borrows from advanced engineering fields such
as Formula 1 racing and the aerospace industry;
- the 100 year history and tradition of Norton motorcycles; and
- the continuing popularity of the Norton brand name among motorcycle
enthusiasts worldwide.
The Company believes that the technology used in the Initial Product Line is
among the most advanced in the motorcycle industry, with materials such as
lightweight but strong aluminum and
3
<PAGE>
magnesium alloys and carbon-fiber composites (generally used in the aerospace
industry), which the Company believes will enable the Company's motorcycles to
be lighter and stronger than similar motorcycles made of steel.
Motorcycles have been sold under the Norton brand name for nearly the past
century. The Company believes that the Norton brand name is one of the premium
names in the motorcycle industry. The Norton Manufacturing Co., Ltd. was
established in 1898 in England to produce components for the bicycle and
motorcycle industries and produced the first Norton motorcycle in 1902. In 1907,
a Norton motorcycle won the Multi-Cylinder Race at the first Touring Trophy on
the Isle of Man, and Norton motorcycles enjoyed racing success and set new speed
records consistently before and after World War I and into the 1930's. As late
as 1992, a Norton motorcycle won the Senior Touring Trophy on the Isle of Man.
To this day, the Company believes the Norton name continues to be known
throughout the world, as evidenced by the many Norton owners clubs throughout
the United States, the United Kingdom, Europe, and elsewhere.
Most of the design of the Initial Product Line has been completed, the
development of the Manx and the Nemesis has been substantially completed, and
the remaining development of the Initial Product Line is to be completed, by the
firm of Melling Consultancy Design Limited of Rochdale, England ("MCD") under
existing long-term contracts with the Company. The owner of MCD, Mr. Al Melling,
is a director of the Company. Mr. Melling has designed numerous automobile
engines, and designed enhancements for many others, working for such firms as
General Motors, Porsche, Ferrari, Lamborghini, Alfa Romeo and various Japanese
motorcycle manufacturers. Mr. Melling has recently achieved prominence in the
engine design industry as the designer of a V8 engine for TVR, a British high
performance engine and specialty vehicle manufacturer, and a Formula 1 V10
engine for Lola, a British designer of high performance motor sport vehicles.
The Company anticipates assembling the Initial Product Line at its
production facility in Shenstone, England, which was acquired as part of the
Norton Asset Acquisition (as defined herein). The Company intends to upgrade and
renovate this facility during the fourth quarter of 1998. The Company believes
that the Shenstone facility currently has the capacity for high volume
production of the Initial Product Line and has the capability to accommodate
anticipated production levels.
The Company intends to market and distribute its products internationally
through a combination of dealers and country-wide and/or regional distributors.
The Company is currently negotiating terms with potential distributors and
dealers in both the United States and abroad. The Company has commenced offering
apparel bearing the Norton brand name on its website and anticipates offering a
wide variety of apparel and motorcycle accessories through its anticipated
motorcycle distributors and dealers.
The Company acquired all of the rights held by Norton Motorcycles Limited
(U.K.) ("NML") to the "Norton" trademarks and tradenames among other assets, in
early 1998 (the "Norton Asset Acquisition") from NML, a company in which
Aquilini Investment Group ("Aquilini") of Vancouver, Canada, an investment and
holding group with extensive business, property and financial interests
throughout Canada, was a significant stockholder. The Company is presently being
managed by a management team which includes several officers of the current
majority shareholders of the Company and Aquilini. This management team is led
by Myron Calof, the Chief Executive Officer of the Company and executive vice
president of Aquilini and Joseph Novogratz, the President and a founder of the
Company.
The Company was initially incorporated in October 1995 as March Motors
Limited, a United Kingdom corporation, and was reorganized as a Minnesota
corporation in August 1996. The Company's executive offices are currently
located at 14252 23rd Avenue North, Plymouth, Minnesota 55447-4910, and its
telephone number is (612) 694-9880. The Company's website can be accessed at
www.nortonmotorcycles.com. Information contained on the Company's website will
not be deemed to be a part of this Prospectus.
The following registered and unregistered trademarks of the Company are used
in this Prospectus:
"Norton," "Nemesis," "Manx," "Commando," "International" and "Atlas"
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... 3,000,000 shares of Common Stock.
Common Stock Outstanding Prior to this
Offering................................... 8,611,094 shares(1)
Common Stock to be Outstanding After this
Offering................................... 11,611,094 shares(1)
Use of Proceeds.............................. The Company intends to use the net proceeds
of this Offering (i) to repay certain
indebtedness of the Company, (ii) for funding
research and development costs, (iii) for
sales and marketing costs, (iv) for capital
expenditures, (v) for the purchase of
motorcycle components and inventory, (vi) for
intellectual property filing costs and
expenses related thereto, and (vii) for
working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors................................. An investment in the Shares offered hereby
involves a high degree of risk and immediate
and substantial dilution and should be made
only by investors who can afford the loss of
their entire investment. See "Risk Factors"
and "Dilution."
Proposed American Stock Exchange Symbol:
Common Stock............................... NRN
</TABLE>
- ------------------------
(1) Excludes (i) 2,193,597 shares of Common Stock issuable upon the exercise of
outstanding warrants with a weighted average exercise price of $2.65 per
share, all of which are currently exercisable and (ii) 687,500 shares of
Common Stock issuable upon the exercise of stock options outstanding under
the Company's 1997 Incentive and Stock Option Plan with a weighted average
exercise price of $5.45 per share, of which options to purchase 487,500
shares are currently exercisable and options to purchase 62,500 shares are
available for future grants. See "Management--1997 Incentive and Stock
Option Plan" and Note 6 of the Notes to Financial Statements
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
OCTOBER 12, FROM
1995 SIX MONTHS INCEPTION
(INCEPTION) ENDED THREE MONTHS ENDED OCTOBER 12,
TO YEAR ENDED DECEMBER MARCH 31 1995 TO
JUNE 30, JUNE 30, 31, -------------------------- MARCH 31,
1996 1997 1997(1) 1997 1998 1998
----------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Costs and expenses:
Research and development
expense......................... $529,996 $903,901 $1,557,219 $264,343 $314,127 $3,305,243
General and administrative
expense......................... 153,564 354,962 443,944 37,692 342,612 1,295,082
Other expenses(2)................. -- -- 254,595 -- 1,799,349 2,053,944
----------- ------------- ------------- ----------- ------------- -------------
683,560 1,258,863 2,255,758 302,035 2,456,088 6,654,269
Interest expense.................. 136,600 11,217 33,826 11,217 38,327 219,970
----------- ------------- ------------- ----------- ------------- -------------
Net (loss)...................... $ (820,160) $ (1,270,080) $ (2,289,584) $ (313,352) $ (2,494,415) $ (6,874,239)
----------- ------------- ------------- ----------- ------------- -------------
----------- ------------- ------------- ----------- ------------- -------------
Pro forma net (loss) per common
share(3).......................... $(0.16) $(0.26) $(0.27)
------------- ------------- -------------
------------- ------------- -------------
Shares of Common Stock used for
purpose of computing pro forma net
(loss) per share(3)............... 8,006,692 8,972,275 9,210,037
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
<S> <C> <C> <C>
PRO FORMA AS
ACTUAL PRO FORMA(4) ADJUSTED(4)(5)
------------- ------------- -------------
BALANCE SHEET DATA:
Working capital (deficiency)........................................ $ (4,268,742) $ (1,953,736) $13,206,264
Total assets........................................................ 1,802,377 2,790,371 14,894,971
Total liabilities................................................... 4,366,222 2,958,216 --
Stockholders' equity (deficit)...................................... (2,563,845) (167,845) 14,894,971
</TABLE>
- ------------------------
(1) In the fourth quarter of 1997 the Company changed its reporting year from
June 30 to December 31.
(2) Other expenses include the write-off of deposits related to a proposed
acquisition during the six months ended December 31, 1997, expenses related
to the settlement of a royalty and product distribution agreement, and
certain expenses associated with the Norton Asset Acquisition during the
three months ended March 31, 1998. See "Management's Discussion and Analysis
of Financial Condition and Plan of Operation", "Certain Transactions" and
Financial Statements and Notes thereto.
(3) Computed on the basis described in Note 1 to the Financial Statements of the
Company
(4) Gives pro forma effect to (i) the conversion of $2,516,000 aggregate
principal amount of certain debentures into 1,258,000 shares of Common
Stock, (ii) the issuance of 166,666 shares of Common Stock in connection
with a royalty settlement with MCD, (iii) the repurchase for $120,000 of
90,000 shares of Common Stock and warrants to purchase 90,000 shares of
Common Stock from a former director of the Company, (iv) the repurchase for
$180,000 of certain product distribution rights from a former director of
the Company, (v) the issuance of an additional $1,207,000 of principal
amount of Series A 1998 10% Notes (the "Series A Notes") subsequent to March
31, 1998 (the "1998 Financing") and (vi) a purchase price adjustment in
connection with the Norton Asset Acquisition as evidenced by the issuance of
an additional $80,994 of principal amount of Series A Notes. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation" and "Certain Transactions."
(5) Gives effect on a pro forma as adjusted basis to the sale of 3,000,000
shares of Common Stock offered hereby at the assumed initial public offering
price of $6.00 per Share and the initial application of the net proceeds
therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED BY THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. IN ADDITION, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE SAFE HARBOR PROVISIONS OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT") THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN THIS PROSPECTUS. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, BEFORE PURCHASING THE SHARES OFFERED HEREBY.
LIMITED OPERATING HISTORY; WORKING CAPITAL DEFICIT; ACCUMULATED DEFICIT AND
ANTICIPATED FUTURE LOSSES
The Company is a development stage company and has only a limited operating
history upon which evaluation of its prospects can be made. The Company has not
had any sales to date and does not anticipate motorcycle sales until late 1998,
at the earliest. As of March 31, 1998, the Company had a working capital
deficiency of $4,268,742 and an accumulated deficit of $6,874,239. As a
development stage company, the success of the Company will be affected by
expenses, operational difficulties and other factors frequently encountered in
the development of a new business enterprise in a competitive environment, many
of which may be beyond the Company's control. The Company expects operating
losses and negative operating cash flow to increase as its product development,
marketing and sales, manufacturing and administrative functions expand prior to
and during the initial stage of motorcycle sales. There can be no assurance that
the Company will ever generate motorcycle sales or become profitable. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation" and Financial Statements and Notes thereto.
MOTORCYCLE MANUFACTURING RISK; NO MANUFACTURING HISTORY
Production of motorcycles by the Company is dependent upon establishing a
motorcycle production line, engaging reliable suppliers to manufacture
components for the Company's products, hiring additional engineering and
manufacturing personnel and completing the development of the Nemesis, Manx,
Commando, International and Atlas. Factors that may affect the successful
completion of such items include delays and problems in establishing the
motorcycle production line, the inability of the Company to locate competent
suppliers or obtain adequate quantities of components and supplies at reasonable
costs, the inability of the Company to hire additional qualified personnel and
the inability of the Company's engineering and manufacturing staff to design,
engineer and produce the Company's motorcycles. In addition, in order for the
Company to be successful, its products must be manufactured to meet high quality
standards in commercial production. The Company has never attempted to
manufacture motorcycles. The transition to commercial production will involve
various risks and uncertainties that may not be apparent at this time and there
can be no assurance that the Company will be able to successfully react to
unanticipated difficulties. Any failure by the Company to successfully
commercially produce motorcycles, or delays in the anticipated introduction date
of the Company's motorcycles, could have a material adverse effect on the
Company. See "Business--Manufacturing and Suppliers."
MARKET ACCEPTANCE
The Company's success will depend upon market acceptance of its motorcycles.
Market acceptance depends upon the ability of the Company to maintain its
intended brand image and reputation for high quality and to differentiate its
products from its competitors. There can be no assurance that the Company's
proposed or future products will be perceived as being of high quality and
differentiated from such other products, or that the Company will be successful
in maintaining its intended brand image. Any
7
<PAGE>
failure relating to market acceptance of its motorcycles could have a material
adverse effect on the Company. See "Business."
COMPETITION
The marketing and sale of motorcycles is competitive worldwide, and many of
the established motorcycle manufacturers have substantially greater financial,
personnel, marketing and other resources than those of the Company. The
Company's competitors may be able to develop products comparable or superior to
those to be offered by the Company or adapt more quickly than the Company to new
technologies or evolving customer requirements. There can be no assurance the
Company will be able to compete successfully against current and future
competitors, or that the competitive pressures faced by the Company will not
adversely affect its operations and business. The Company will operate in a
competitive environment against established motorcycle manufacturers such as
Harley-Davidson, Inc., ("Harley-Davidson"), BMW Group, Ducati Motor S.p.A.,
Honda Motor Co., Ltd., Kawasaki Motors Corp., U.S.A. and Moto Guzzi in addition
to other manufacturers who have recently entered the industry, and a number of
small companies who build motorcycles from non-proprietary parts. See
"Business--Competition."
TECHNOLOGICAL CHANGES; POSSIBLE OBSOLESCENCE
The motorcycle industry and marketplace involves frequent technological and
design changes and innovations, including changes in customer tastes, frequent
new product introductions and evolving industry design and performance
standards. The Company's future success will depend in part upon its ability to
develop and introduce new products and features which meet changing customer
requirements and emerging industry standards on a timely basis. There can be no
assurance that the Company will successfully complete the development or
introduction of new products on a timely basis. Failure by the Company to
anticipate or respond to such technological or design changes and advances could
have a material adverse effect on the Company. Moreover, there can be no
assurance that the Company's technological innovations and intended product
design and performance will not be made obsolete by competitors employing
alternative or more advanced technologies than those used by the Company. There
also can be no assurance that competitors of the Company will not copy and
incorporate any successful features developed by the Company, or that they will
not develop features and components technologically superior to those of the
Company, and there can be no assurance that such developments by others will not
render the Company's proposed motorcycles utilizing carbon fiber or other
component technologies noncompetitive or obsolete.
RISKS ASSOCIATED WITH RAPID EXPANSION
The Company's proposed expansion is expected to place a strain on its
management, administrative, operational, financial and other resources. The
Company's successful expansion will be largely dependent upon its ability to
maintain its operating margins, successfully market new products, hire and
retain skilled management, marketing and other personnel and successfully manage
growth (including monitoring operations, controlling costs and maintaining
effective management and credit controls). The Company has no experience in
effectuating rapid expansion or in managing a broader and more dispersed range
of services and operations. There can be no assurance that the Company will be
able to successfully expand its operations or manage growth. The Company expects
that the expenses related to the planned expansion generally will precede the
Company's realization of the benefits, if any, of such expansion. Accordingly,
the Company expects that the incurrence of these expenses will adversely affect
the Company's financial condition and results of operations prior to the
Company's realization of the benefits, if any, of any expansion. There can be no
assurance that the Company's systems, procedures or controls will be adequate to
support its current or future operations or that the Company's management will
be able to manage the expansion and still achieve the rapid execution necessary
to exploit fully the market for the Company's
8
<PAGE>
motorcycles. If the Company were to not manage its expansion effectively, it
could have a material adverse effect upon the Company.
As the Company moves closer to commercial production of motorcycles, there
will be increasing demands on the Company's management, operational and
financial resources. Successful management of growth will require the Company to
constantly improve its management abilities and production processes. In
addition, commercial production of motorcycles will depend on the ability of the
Company to hire additional qualified personnel and the ability of the Company's
management to integrate such persons into the Company. Competition is intense
for highly skilled workers, and there can be no assurance that the Company will
be successful in attracting, training and retaining such personnel.
DEPENDENCE ON ONE PRODUCTION FACILITY
It is anticipated that all of the Company's products will be assembled at
the Company's Shenstone, England facility acquired in connection with the Norton
Asset Acquisition. The Company intends to upgrade and renovate this facility
during the fourth quarter of 1998. The Company could be adversely affected in
the event the renovation is delayed, if there is material damage to the
Company's production facility or if the facility were unable to assemble
motorcycles, for any reason. See "Business--Facilities."
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company's capital requirements have been and will continue to be
significant. The Company requires the net proceeds of this Offering to complete
the design, development and production of its Initial Product Line and to
continue research and development of additional motorcycle models. The Company
anticipates that the net proceeds of this Offering will be adequate to enable it
to meet its capital and operational requirements for at least the 12 months
following the date of this Prospectus. However, (i) if the Company's estimates
of the amount of financing needed to commence production of such motorcycles are
incorrect due to unanticipated additional costs of upgrading, renovating and
equipping the Company's production facility, (ii) if unanticipated problems in
the development or production of the Company's motorcycles occur, (iii) if labor
costs, costs of motorcycle parts and raw materials, marketing and dealer network
development expenses or rates of consumption of available cash resources are
higher than anticipated or (iv) if other unanticipated events occur, then the
Company may need additional equity or debt financing in excess of the net
proceeds of this Offering prior to or shortly after commencement of production
of its Initial Product Line. In addition, the lack of an operating history on
which to base forecasts creates a substantial possibility that the Company's
forecasts of operating revenue will prove to be inaccurate. For this and a
variety of other reasons, the Company may require additional capital. The
Company has no commitment from others to provide additional capital and there
can be no assurance that such funding will be available when needed, or if
available, that its terms will be favorable or acceptable to the Company.
Significant additional dilution may be incurred by investors in this Offering as
a result of additional equity financing. New investors may seek and obtain
significantly better terms than those granted to present investors. Should the
Company be unable to obtain additional capital, when and if needed, it could be
forced to either curtail operations or cease business activities altogether.
DEPENDENCE ON SUPPLIERS
The Company will rely on outside vendors to supply substantially all of the
proprietary and non-proprietary components used to manufacture its motorcycles.
For certain of the components, the Company may from time to time rely on single
sources of supply. Such reliance involves a number of significant risks,
including the unavailability of or interruptions in delivery of such components,
manufacturing delays caused by such unavailability or interruptions and
fluctuations in the quality and price of such components. Any significant
adverse variation in the quantity, quality or cost of such components
manufactured by outside vendors, especially single-source vendors, could
materially adversely affect the Company. The Company anticipates that it will
purchase a number of its components from foreign vendors. In addition to
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<PAGE>
the risks of dependence on suppliers described above, the risks of dependence on
foreign suppliers include currency fluctuations affecting the value of goods
purchased, trade restrictions, changes in tariffs and difficulties of enforcing
supply arrangements. See "Business--Manufacturing and Suppliers."
DISTRIBUTION NETWORK; ABILITY TO SUPPORT DEALERS
The Company does not currently have a dealer network for its motorcycles.
Prior to production, the Company will need to attract dealers to sell its
motorcycles. There can be no assurance that the Company will be able to attract
the number of dealers the Company may need or that such dealers will be
successful in selling its motorcycles. In addition, the Company will be required
to support its dealers through, among other things, making floor plan financing
available through third parties, continuing education about the Company's
motorcycles, supplying parts and accessories and training repair personnel. The
Company does not have any experience in such dealer support and there can be no
assurance that the Company will be able to successfully support its dealer
network. If the Company is unable to provide such support, the Company may lose
dealers and, consequently, distribution of its motorcycles would be adversely
affected, which would have a material adverse effect on the Company. See
"Business--Sales and Marketing."
DISCRETIONARY PRODUCT
Purchases of motorcycles, such as the motorcycles that the Company plans to
produce, are discretionary for consumers. The success of the Company will be
influenced by a number of economic factors affecting discretionary consumer
income, such as employment levels, business conditions, interest rates and
taxation rates, which are beyond the Company's control. Adverse economic changes
affecting these factors may restrict consumer spending and thereby adversely
affect the Company's growth and profitability.
RISK OF DEFECTS
The Company's motorcycles may encounter unanticipated defects. Such defects
could give rise to recalls of the Company's motorcycles and adversely affect
their market appeal. Such recalls or other defects would be costly to the
Company and could have a material adverse effect on the Company. Although the
Company has substantially completed the design and development for two of the
motorcycles in the Initial Product Line, commercial production has not
commenced. Accordingly, there can be no assurance that any motorcycle model
offered by the Company will operate as designed.
PRODUCT LIABILITY RISK
Given the nature of the Company's products, the Company expects that it will
be subject to potential product liability claims that could, in the absence of
sufficient insurance coverage, have a material adverse effect on the Company.
Although the Company intends to obtain adequate insurance coverage prior to
commencing commercial production, there can be no assurance that the Company
will be able to secure or maintain adequate liability insurance to cover all
product liability claims at a reasonable cost. The Company may therefore be
required to self insure a portion of its product liability risk. Particularly,
as a new market entrant, any large product liability suits occurring early in
the Company's operations may significantly adversely affect the Company's
ability to market its motorcycles and could have a material adverse effect upon
the Company.
DEPENDENCE UPON KEY PERSONNEL
The Company has assembled the key members of its management team and intends
to hire additional members as needed. The success of the Company will be
materially dependent upon the services and efforts of these and other members of
its executive management team. The Company has entered into employment
agreements with certain of its key officers, including Joseph Novogratz and
Myron Calof. In
10
<PAGE>
addition, the Company has entered into certain agreements with Al Melling, the
owner of MCD and a director of the Company. There can be no assurance that such
persons will continue to perform services for the Company. In addition, as a
development stage company, the Company has had in the past, and expects in the
future to have, management turnover as the Company develops its management team.
The unavailability or loss of the services of Joseph Novogratz, Myron Calof, Al
Melling or any other members of the Company's management could have a material
adverse effect on the Company. Each of Messrs. Novogratz and Calof currently
have other business interests, and intend to continue apportioning their time
between the Company and such other interests, as required. The Company is
currently conducting a search for a new chief executive officer and president.
See "Management--Employment Agreements" and "Business--Prime Contractor
Development Agreements."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company will rely upon a combination of patent, trade secret, trademark
and copyright law to protect its intellectual and proprietary property rights
from unauthorized use and copying by others. Although the Company intends to
apply for design and utility patents, no such patents have been applied for, nor
have patentability searches been conducted as of the date of this Prospectus.
Several of the Company's trademarks are registered in the United States and in
other countries, and registration of other marks is being sought. However, there
can be no assurance that the means utilized by the Company to protect its
intellectual property rights will be adequate, or that any protection of
proprietary rights ultimately obtained by the Company will afford any meaningful
protection for its motorcycles or its competitive position in the industry. In
general, failure by the Company to obtain adequate protection for its
proprietary rights and technology could have a material adverse effect on the
Company.
Patent applications in the United States are currently maintained in secrecy
until a patent issues, and in many other countries, are not published until
eighteen months after the home-country filing date. Therefore, even after
completing patentability searches, the Company cannot be certain that others
have not already filed patent applications for technology corresponding to the
Company's technology, or that such pending applications will not prevent the
Company from securing patents on its technology.
Moreover, patents issuing to competitors on such pending patent applications
may dominate the Company's patent rights. Under such circumstances, the Company
may have to pay royalties to use its own technology, or may even be precluded
from using such technology, if the owner of a dominating patent refuses to grant
a license. In addition, there can be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide proprietary protection or commercial advantage
to the Company.
The Company also relies on trade secrets and proprietary know-how which it
plans to protect, in part, through confidentiality agreements with employees,
consultants, collaborative partners and others. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any such breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors.
The Company acquired all of the rights to the Norton tradenames and
trademarks in the Norton Asset Acquisition from NML. To the extent NML did not
have exclusive rights to the Norton trademarks and tradenames, the Company does
not have any additional rights. There can be no assurance that the Company
acquired exclusive rights to the Norton tradenames and trademarks in the Norton
Asset Acquisition.
The Company believes that it has the right to use the trademark "Norton" in
the United States, the United Kingdom, Canada, Australia, India, and portions of
Europe, Asia, Africa and South America in connection with the sale of
motorcycles and ancillary products. The ability of the Company to use the
trademark "Norton" in certain European countries is less certain. In 1988, the
predecessor to NML formed a joint venture in Germany wherein the predecessor
acquired a 50% interest in the German joint
11
<PAGE>
venture Norton Motors Deutschland GMBH ("GMBH") and a German partner acquired
the remaining 50%. In due course, GMBH registered trademarks on the word
"Norton" in certain European countries, including Italy, Germany, Switzerland,
France, Belgium, Luxembourg and the Netherlands. Upon NML acquiring the assets
of its predecessor, certain formalities required for the transfer of the German
joint venture interest may not have been followed, and subsequently disputes
arose between the German partner and NML. The Company is currently in
negotiations which it believes will enable it to utilize the trademark "Norton"
in those countries. There can be no assurance that the Company will be able to
successfully negotiate an agreement by which it will be able to utilize the
trademark "Norton" in such countries. The Company is currently developing
alternative trademark strategies to enable the Company to sell its products in
these countries. If the Company is unsuccessful in negotiating an acceptable
agreement, the Company may not be permitted to sell products in such countries
under the trademark "Norton," which may have a material adverse effect on the
Company.
The Company also believes that it has the exclusive right to use certain
other word and design trademarks (the "Model Marks") to identify all models of
the motorcycles it intends to sell and in connection with ancillary products.
GMBH has not claimed any rights to the Model Marks, and the Company does not
believe that there is any basis for such a claim or that GMBH would make such a
claim. Given the Company's actual use of trademarks to enhance the Company's
brand names and marketing appeal of its motorcycles, a successful challenge to
its use of the trademark "Norton" and/or any of the Model Marks in connection
with motorcycles and ancillary products would adversely affect the Company's
business. Although the Company intends to vigorously defend its intellectual
property rights, if necessary, litigation could be costly and consume resources
of the Company, thereby adversely affecting operating results. See
"Business--Patents and Proprietary Rights."
The Company attempts to avoid infringing known proprietary rights of third
parties in its product development efforts. However, the Company has not
conducted and does not conduct comprehensive patent or trademark searches to
determine whether it infringes patents or other proprietary rights held by third
parties. If the Company were to discover that its products violate third-party
proprietary rights, there can be no assurance that it would be able to obtain
licenses to continue offering such products without substantial reengineering or
that any effort to undertake such reengineering would be successful, that any
such licenses would be available on commercially reasonable terms, if at all, or
that litigation regarding alleged infringement could be avoided or settled
without substantial expense and damage awards. Any claims against the Company
relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and in injunctions preventing the Company from distributing
certain products. Such claims could materially adversely affect the Company.
GOVERNMENT REGULATION
The Company must comply with numerous federal, state and foreign regulations
governing environmental and safety factors with respect to its motorcycles,
which generally relate to air, water and noise pollution, as well as various
safety matters. Any failure by the Company to obtain the necessary
certifications or authorizations required by such governmental standards, or to
maintain them, would have a material adverse effect on the Company. In the
United States, motorcycles are subject to rigorous regulation by the
Environmental Protection Agency ("EPA"). If the Company fails to comply with
applicable requirements, it may be subject to administrative or judicially
imposed sanctions such as civil penalties, criminal prosecution of the Company
or its officers and employees, injunctions, product seizure or detention,
product recalls and total or partial suspension of production.
Motorcycles are also subject to the provisions of the National Traffic and
Motor Vehicle Safety Act and the rules promulgated thereunder by the National
Highway Traffic Safety Administration ("NHTSA"). The Company could be forced to
recall its motorcycles if they fail to satisfy all applicable safety standards
administered by the NHTSA.
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<PAGE>
Even if required EPA and NHTSA compliance has been obtained with respect to
a product, foreign regulatory approval of a product must be obtained prior to
marketing the product internationally. Foreign approval varies from country to
country and the time required for approval may delay or prevent marketing. In
certain instances the Company may seek approval to market and sell certain of
its products outside of the United States before submitting an application for
United States approval to the EPA or NHTSA. The regulatory procedures for
approval of new motorcycles vary significantly among foreign countries. The
testing requirements and the time required to obtain foreign regulatory
approvals may differ from that required for EPA or NHTSA approval. Although
there is now a centralized European Union ("EU") approval mechanism in place,
each EU country may nonetheless impose its own procedures and requirements, some
of which are stricter than in the United States and many of which are time
consuming and expensive, and some EU countries require price approval as part of
the regulatory process. Thus, there can be substantial delays in obtaining the
required approvals of the Company's proposed products from both the EPA and
NHTSA and foreign regulatory authorities after the relevant applications are
filed, and approval in any single country may not be a meaningful indication
that the product will thereafter be approved in another country.
The Company is also subject to regulation under various federal, state and
foreign regulations regarding, among other things, occupational safety,
environmental protection, hazardous substance control and product advertising
and promotion. The Company believes that its proposed designs currently meet all
known applicable regulations. See "Business--Government Regulation."
RISKS OF INTERNATIONAL SALES
The Company believes a significant portion of its sales will be made in
foreign markets. As a result, the Company will be subject to various inherent
risks from overseas operations including unexpected changes in regulatory
requirements, fluctuations in currency exchange ratios, longer payment cycles,
difficulties or delays in collecting accounts receivable, import and export
restrictions and tariffs, compliance with various foreign laws and tax
consequences, difficulties with protection of proprietary rights and exposure to
increased political and economic instability. Such limitations and interruptions
could have a material adverse effect on the Company. See "Business--Motorcycle
Industry and Market" and "Business--Sales and Marketing."
SUBSTANTIAL CONTROL BY OFFICERS, DIRECTORS AND THEIR AFFILIATES
Following this Offering, the Company's officers and directors and their
affiliates will beneficially own or control approximately 18.6% of the
outstanding shares of Common Stock. Accordingly, such officers, directors and
their affiliates may be able to influence the outcome of stockholder votes,
including votes concerning election of directors, adoption of amendments to the
Company's Articles of Incorporation and Bylaws and approval of mergers and other
significant corporate transactions. See "Principal Stockholders."
CONFLICTS OF INTEREST
Several transactions have occurred between the Company and its directors or
MCD which present a potential conflict of interest. Al Melling, a director of
the Company, is also the owner of MCD, the Company's prime development
contractor. MCD does not work exclusively for the Company, and therefore may
have the opportunity to supply designs and other services to the Company's
competitors. There can be no assurance that such conflicts of interest will not
have a material adverse effect on the Company. See "Certain Transactions."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by shareholders and option holders could have
an adverse effect on the market price of the Shares. Upon completion of this
Offering, the Company will have 11,611,094 shares
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<PAGE>
of Common Stock outstanding, of which the 3,000,000 Shares offered hereby will
be transferable without restriction under the Securities Act. The Company, its
officers and directors and all holders of outstanding shares of Common Stock or
securities exercisable for or convertible into shares of Common Stock, including
the Company's 10% Convertible Subordinated Debentures, Series 1997 due September
30, 2000 (the "Series 1997 Debentures"), have entered into contractual
arrangements (the "Lock-Up Agreements") and have agreed not to, directly or
indirectly, issue, offer to sell, transfer, pledge, assign, hypothecate or
otherwise encumber or dispose of any such shares or securities or any beneficial
interest therein for a period of 13 months following the date of this Prospectus
(and with respect to 125,000 of such shares for a period of 24 months following
the date of this Prospectus)(the "Lock-Up Period") without the prior written
consent of the Representative. As a result, notwithstanding the possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701 under the
Securities Act, shares of Common Stock subject to the Lock-Up Agreements will
not be saleable until the Lock-Up Period expires or the terms of the Lock-Up
Agreements are waived by the Representative. Assuming that the Representative
does not release the shareholders from the Lock-Up Agreements, after the Lock-Up
Period, all of the shares of Common Stock subject to this restriction will be
eligible for sale in the public market. Of such shares of Common Stock,
4,707,928 shares of Common Stock will be eligible for sale under Rule 144
(subject to volume limitations imposed by such rule), 3,903,166 shares of Common
Stock will be eligible for sale under Rule 144(k) of the Securities Act, and
687,500 shares of Common Stock will be eligible for sale under Rule 701 of the
Securities Act. In addition, 550,000 shares of Common Stock and an additional
550,000 shares issuable upon exercise of outstanding warrants are subject to
registration rights. Furthermore, the Company intends to register on Form S-8
under the Securities Act, as soon as possible after the date of this Prospectus,
shares of Common Stock issuable under options granted under the 1997 Incentive
and Stock Option Plan. Such registration becomes effective immediately upon its
filing with the Securities and Exchange Commission (the "Commission"). As of the
date of this Prospectus, options to purchase a total of 687,500 shares of Common
Stock were outstanding and options to purchase an additional 62,500 shares of
Common Stock were reserved for future issuance under the 1997 Incentive and
Stock Option Plan. See "Management--1997 Incentive and Stock Option Plan," and
"Description of Securities--Registration Rights."
No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will have
on the market price of the Common Stock prevailing from time to time. The sale
or issuance, or the potential for sale or issuance, of Common Stock after the
Lock-Up Period could have an adverse impact on the market price of the Common
Stock. See "Underwriting" and "Shares Eligible for Future Sale."
LIMITED EXPERIENCE OF REPRESENTATIVE
The Representative commenced operations in July 1997 and has co-managed two
public offerings of securities as managing underwriter and participated in an
additional two public offerings of securities as an underwriter. Accordingly,
the Representative has limited experience as an underwriter of public offerings
of securities.
MANAGEMENT'S DISCRETION IN USE OF PROCEEDS
Approximately $4.16 million or approximately 28% of the estimated net
proceeds of this Offering has been allocated to working capital and general
corporate purposes. Accordingly, the Company's Board of Directors will have
discretion with respect to the allocation of such net proceeds.
IMMEDIATE AND SUBSTANTIAL DILUTION
Based upon the pro forma net tangible book value of the Company at March 31,
1998, and based upon an assumed initial public offering price of $6.00 per
Share, investors in this Offering will suffer an immediate and substantial
dilution of their investment of $4.76 per Share. See "Dilution."
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<PAGE>
NO DIVIDENDS
The Company has never declared or paid cash dividends on the Common Stock
and does not anticipate paying any cash dividends in the foreseeable future.
Accordingly, investors should not purchase the Shares with a view towards the
receipt of dividends. See "Dividend Policy."
ANTI-TAKEOVER CONSIDERATIONS
As a Minnesota corporation, the Company is subject to certain anti-takeover
provisions of the Minnesota Business Corporation Act (the "MBCA"). Certain
provisions of the MBCA could have the effect of delaying, deferring or
preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over the then prevailing market price of the Common
Stock, and may adversely affect the market price of, and the voting and other
rights of the holders of, the Common Stock. Among other things, the Articles of
Incorporation will be amended prior to the effective date of the Offering to
allow the Board of Directors to issue up to five million shares of Preferred
Stock and fix the rights, privileges and preferences of those shares without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. See
"Description of Securities."
LIMITATION OF LIABILITY OF DIRECTORS TO STOCKHOLDERS
The Company has included in its By-laws a provision to indemnify its
directors and officers and advance litigation expenses to the fullest extent
permitted or required by Minnesota law, including circumstances in which
indemnification is otherwise discretionary. Such indemnification may be
available for liabilities arising in connection with this Offering. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to such indemnification provisions, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The Company has adopted in its Articles of Incorporation a provision that
limits the personal liability of a director for breach of the director's
fiduciary duty, except under certain circumstances involving any breach of the
director's duty of loyalty to the Company or its shareholders, acts or omissions
not made in good faith or that involve intentional misconduct or a knowing
violation of law, any unlawful acts under Sections 302A.559 or 80A.23 of the
MBCA, or any transaction from which a director derives an improper personal
benefit.
ABSENCE OF PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
There is currently no public market for the Shares and there can be no
assurance that an active trading market will develop in the Shares or, if
developed, be sustained after this Offering. The initial public offering price
of the Shares will be determined by negotiation between the Company and the
Representative and will not necessarily relate to or reflect the Company's
assets, book value, results of operations or any other established criteria of
value. For factors that may be considered in determining the initial public
offering price, see "Underwriting." After completion of this Offering, the
market price of the Shares could be subject to significant fluctuations in
response to various factors and events, including the liquidity of the market
for the Shares, variations in the Company's operating results, new statutes or
regulations or changes in the interpretation of existing statutes or regulations
affecting the motorcycle or automobile industries. In addition, the stock market
in recent years has experienced broad price and volume fluctuations that often
have been unrelated to the operating performance of particular companies. These
market fluctuations also may adversely affect the market price of the Shares.
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<PAGE>
POTENTIAL LITIGATION LIABILITY
The Company was previously party to an agreement (the "Agreement") with
Tom's GB Limited, a United Kingdom corporation ("Tom's"), pursuant to which the
Company was to acquire 100% of the outstanding common stock of Tom's. The
Company terminated the Agreement on February 27, 1998 pursuant to the terms of
the Agreement, and has made a claim against Tom's for a return of the refundable
portion of its deposit in the amount of $100,000. Although the Company believes
that the Agreement was terminated pursuant to its terms, there can be no
assurance that Tom's will not dispute such termination of the Agreement by the
Company and commence an action for damages against the Company. In the event
Tom's were to prevail in an action against the Company, there can be no
assurance the amount of judgment, if any, would not be material.
PORTION OF OFFERING PROCEEDS BENEFITTING MANAGEMENT AND CERTAIN STOCKHOLDERS
A portion of the net proceeds to the Company from the sale of the Shares
offered hereby will be used to (i) pay certain deferred compensation to Joseph
Novogratz, President of the Company, pursuant to his employment agreement, (ii)
repay certain notes payable held by Mr. Novogratz, (iii) pay certain fees owed
to Global Coin Corporation ("GCC"), pursuant to its consulting agreement with
the Company and (iv) repay certain notes payable held by GCC. See "Use of
Proceeds," "Management--Employment Agreements" and "Certain Transactions."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS.
This Prospectus contains certain forward-looking statements, including,
without limitation, the plans and objectives of management for future products
and future operations. The forward-looking statements included herein are based
on current expectations that involve numerous risks and uncertainties. The
Company's plans and objectives are based on a successful execution of the
Company's strategy, the assumption that the motorcycle industry will not change
materially or adversely, and that there will be no unanticipated material
adverse change in the Company's operations or business. Assumptions relating to
the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that its
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, particularly in view of the
Company's early stage of operations, the inclusion of such information should
not be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
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USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
3,000,000 Shares offered hereby, assuming an initial public offering price of
$6.00 per Share, are estimated to be approximately $15.16 million (approximately
$17.5 million if the Over-Allotment Option is exercised in full) after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by the Company. The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
NET PROCEEDS PERCENT OF TOTAL
------------- -----------------
<S> <C> <C>
Repayment of certain indebtedness................................................. $ 2,900,000 19%
Research and development expenditures............................................. 900,000 6%
Sales and marketing expenditures.................................................. 500,000 3%
Capital expenditures.............................................................. 1,100,000 7%
Motorcycle components and inventory............................................... 5,000,000 33%
Intellectual property expenditures................................................ 300,000 2%
Regulatory approval............................................................... 300,000 2%
Working capital and general corporate purposes.................................... 4,160,000 28%
------------- ---
$ 15,160,000 100%
------------- ---
------------- ---
</TABLE>
REPAYMENT OF CERTAIN INDEBTEDNESS. The Company plans to apply approximately
$2,900,000 to repay certain indebtedness, including (i) $1,510,247 to repay
principal of Series A 1998 Notes issued from March 1998 to June 12, 1998, (ii)
$1,150,000 to repay principal of the Norton Note (as defined herein) issued in
March 1998 and (iii) $228,153 to repay principal of the Series C 1998 Note
issued in March 1998, each bearing interest at a rate of 10% per annum, and due
on the closing of this Offering. See "Description of Securities", "Certain
Transactions", and "Management's Discussion and Analysis and Plan of Operation."
RESEARCH AND DEVELOPMENT EXPENDITURES. The Company expects to apply
approximately $900,000 to complete development of all five models of the
Company's Initial Product Line. See "Business--The Company's Motorcycles."
SALES AND MARKETING EXPENDITURES. The Company plans to use approximately
$500,000 for product marketing and sales efforts, including establishing a sales
force of experienced marketing personnel, performing market research, product
advertising and promotion, attending trade shows, implementing a Norton racing
program, selecting domestic and international dealers and distributors and other
general marketing and sales support activities. See "Business--Sales and
Marketing."
CAPITAL EXPENDITURES. The Company intends to apply approximately $1,100,000
for capital expenditures including (i) approximately $500,000 to renovate and
upgrade the Company's production facility; (ii) approximately $400,000 to
acquire manufacturing tooling for the various motorcycle models targeted for
commercial production in 1998 and 1999; and (iii) approximately $200,000 for
purchasing and installing equipment and fixtures in the Company's production
facility.
MOTORCYCLE COMPONENTS AND INVENTORY. The Company plans to apply
approximately $5,000,000 to purchase inventories of components and subassemblies
from vendors and subcontractors necessary to begin commercial production of the
Company's motorcycles.
INTELLECTUAL PROPERTY EXPENDITURES. The Company expects to apply
approximately $300,000 to acquire and preserve proprietary intellectual
property, including protection and enhancement of current brand names, logos and
trademarks, obtaining additional trademarks and related logos, and filing
applications for patents on certain technology incorporated into the Company's
motorcycles.
17
<PAGE>
REGULATORY APPROVALS. The Company intends to apply approximately $300,000
to obtain approvals and certifications required by governmental regulations with
regard to noise, emissions and safety characteristics of its motorcycles. See
"Business--Governmental Regulation."
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. The remaining proceeds
designated for working capital and general corporate purposes will be available
for payment of salaries of management and marketing and production personnel,
deferred compensation, consulting fees, financing of accounts receivable,
product distribution and administrative support and utilities and general
overhead expenses.
Pending utilization as described above, the net proceeds of this Offering
will be invested primarily in United States government securities, short term
certificates of deposit, money market funds or other short term interest-bearing
investments.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering, based on the current state of its operations,
its current plans and current economic conditions. Proceeds may be reapportioned
among the categories listed above. The amount and timing of expenditures will
vary depending upon a number of factors, including progress of the Company's
operations, technical advances and changes in competitive conditions.
The Company currently anticipates that the net proceeds of this Offering
will enable it to meet its operational and capital requirements for at least the
12 months following the date of this Prospectus. However, there can be no
assurance that the net proceeds of this Offering will satisfy the Company's
requirements for any particular period of time. To the extent capital resources
are insufficient to meet future capital requirements, the Company will have to
raise additional funds to satisfy the Company's requirements. There can be no
assurance that such funds will be available on favorable terms, or at all. See
"Risk Factors--Possible Need for Additional Financing."
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1998, the capitalization of
the Company (i) on an actual basis, (ii) on a pro forma basis giving effect to
(a) to the conversion of $2,516,000 in aggregate principal amount of certain
convertible debentures into an aggregate of 1,258,000 shares of Common Stock on
the date of consummation of this Offering, (b) the issuance to MCD of 166,666
shares of Common Stock in exchange for cancellation of certain royalty payments
payable by the Company, (c) the repurchase for $120,000 by the Company of 90,000
shares of Common Stock and warrants to purchase 90,000 shares of Common Stock
from a former director of the Company, (d) the 1998 Financing and (e) a purchase
price adjustment in connection with the Norton Asset Acquisition as evidenced by
the issuance of an additional $80,994 of principal amount of Series A Notes and
(iii) on a pro forma as adjusted basis giving effect to the sale of 3,000,000
Shares offered hereby at an assumed initial public offering price of $6.00 per
share, less underwriting discounts and commissions and estimated offering
expenses, and the initial application of the net proceeds therefrom. This table
should be read in conjunction with the Financial Statements and Notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------------------
<S> <C> <C> <C>
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------- -------------
Convertible subordinated debentures................................... $ 2,516,000 $ -- $ --
------------ ------------- -------------
Notes payable......................................................... 1,600,405 2,888,399 --
------------ ------------- -------------
Stockholders' equity (deficit):
Preferred Stock, $.10 par value per share, 5,000,000 shares
authorized, none issued and outstanding (1)....................... -- -- --
Common Stock, $.01 par value per share, 50,000,000 shares
authorized; issued and outstanding 7,276,428 actual, 8,611,094 pro
forma, and 11,611,094 shares pro forma as adjusted (2)............ 72,764 86,111 116,111
Additional paid-in capital.......................................... 4,246,030 6,628,683 21,661,499
Subscription receivable............................................. (8,400) (8,400) (8,400)
(Deficit) accumulated during the development stage.................. (6,874,239) (6,874,239) (6,874,239)
------------ ------------- -------------
Total stockholders' equity (deficit).................................. (2,563,845) (167,845) 14,894,971
------------ ------------- -------------
Total capitalization.................................................. $ 1,552,560 $ 2,720,554 $ 14,894,971
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
- ------------------------
(1) Prior to the effective date of this Prospectus, the Company will amend its
Articles of Incorporation to provide for the Preferred Stock.
(2) Excludes (i) 2,193,557 shares of Common Stock issuable upon the exercise of
outstanding warrants with a weighted average exercise price of $2.65 per
share, all of which are currently exercisable and (ii) 687,500 shares of
Common Stock issuable upon the exercise of stock options outstanding under
the Company's 1997 Incentive and Stock Option Plan with a weighted average
exercise price of $5.45 per share, of which options to purchase 487,500
shares are currently exercisable and options to purchase 62,500 shares are
available for future grants. See "Management--1997 Incentive and Stock
Option Plan" and Note 6 of the Notes to Financial Statements.
19
<PAGE>
DILUTION
The pro forma negative net tangible book value of the Company as of March
31, 1998 was $(707,629), or $(0.08) per share of Common Stock. Pro forma
negative net tangible book value per share represents the Company's net tangible
assets less total liabilities divided by the number of shares of Common Stock
outstanding after giving effect to (i) the conversion of $2,516,000 in aggregate
principal amount of certain convertible debentures into an aggregate 1,258,000
shares of Common Stock, (ii) the issuance to MCD of 166,666 shares of Common
Stock in exchange for cancellation of certain royalty payments payable by the
Company, and (iii) the repurchase for $120,000 by the Company of 90,000 shares
of Common Stock and warrants to purchase 90,000 shares of Common Stock from a
former director of the Company. After giving effect to the sale of the 3,000,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $6.00 per Share and the initial application of the net proceeds
therefrom, the Company's pro forma net tangible book value as of March 31, 1998
would have been $14,452,371 or $1.24 per share. This represents an immediate
increase in net tangible book value of $1.32 per share to existing stockholders
and an immediate dilution of $4.76 per share to investors purchasing the Shares
in this Offering. The following table illustrates this pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Share.............................. $ 6.00
Pro forma net negative tangible book value per Share before Offering......... $ (0.08)
Increase in net tangible book value per Share attributable to Offering....... 1.32
---------
Pro forma net tangible book value per Share after Offering................... 1.24
---------
Dilution per Share to new investors.......................................... $ 4.76
---------
---------
</TABLE>
The computations in this table set forth above assume that the
Over-Allotment Option is not exercised. If the Over-Allotment Option in
exercised in full, the pro forma net tangible book value as of March 31, 1998
would have been $16,792,371 or $1.39 per share of Common Stock, resulting in
dilution to new investors of $4.61 per share of Common Stock.
The following table sets forth, on a pro forma basis as of March 31, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and the new investors purchasing Shares from the Company in this Offering
(before deducting estimated underwriting discounts and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.......................... 8,611,094 74.2% $ 5,756,889 24.2% $ 0.67
Investors in this Offering..................... 3,000,000 25.8 18,000,000 75.8% $ 6.00
------------ ----- ------------- -----
Total.................................... 11,611,094 100.0% $ 23,756,889 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and it is
currently the intention of the Company not to pay cash dividends on its Common
Stock for the foreseeable future. Management intends to reinvest earnings, if
any, in the development and expansion of the Company's business. Any future
declaration of cash dividends will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions, contractual provisions and
other pertinent factors.
20
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected statement of operations and balance
sheet data for the periods presented. The selected statement of operations data
for the period from October 12, 1995 (inception) to June 30, 1996 have been
derived from the Company's financial statements, which have been audited by
Stirtz Bernards Boyden Surdel & Larter, independent auditors, and are included
elsewhere in this Prospectus. The selected statement of operations data for the
year ended June 30, 1997 and for the six months ended December 31, 1997, and the
selected balance sheet data as of June 30, 1997 and December 31, 1997 have been
derived from the Company's Financial Statements, which have been audited by
Pannell Kerr Forster PC, independent auditors, and are included elsewhere in
this Prospectus. The selected balance sheet data as of March 31, 1998 and the
selected statement of operations data for the three months ended March 31, 1998
and 1997 and for the period from October 12, 1995 (inception) to March 31, 1998
have been derived from the Company's unaudited financial statements, which are
included elsewhere in this Prospectus. In the opinion of management, such data
for such interim periods presented below includes all adjustments (consisting
only of normal, recurring accruals) necessary to present fairly the financial
position and results of operations of the Company as of the dates and for the
periods indicated on a basis consistent with the audited Financial Statements.
The results for any interim period are not necessarily indicative of results for
a full year. The selected financial data set forth below is qualified in its
entirety by and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Plan of Operation," the audited Financial
Statements and Notes thereto and other financial information of the Company
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 12, FROM
1995 INCEPTION
(INCEPTION) SIX MONTHS THREE MONTHS ENDED OCTOBER 12,
TO YEAR ENDED ENDED MARCH 31 1995 TO
JUNE 30, JUNE 30, DECEMBER 31, -------------------------- MARCH 31,
1996 1997 1997(1) 1997 1998 1998
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cost and expenses;
Research and development $529,996 $903,901 $1,557,219 $264,343 $314,127 $3,305,243
expense.........................
General and administrative 153,564 354,962 443,944 37,692 342,612 1,295,082
expense.........................
Other expenses(2)................. -- -- 254,595 -- 1,799,349 2,053,944
----------- ------------ ------------ ------------ ------------ ------------
683,560 1,258,863 2,255,758 302,035 2,456,088 6,654,269
Interest expense.................. 136,600 11,217 33,826 11,217 38,327 219,970
----------- ------------ ------------ ------------ ------------ ------------
Net (loss)...................... $ (820,160 ) $ (1,270,080) $(2,289,584 ) $(313,352) $(2,494,415) $(6,874,239)
----------- ------------ ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------ ------------
Pro forma net (loss) per common $(0.16) $(0.26 ) $(0.27)
share(3)..........................
------------ ------------ ------------
------------ ------------ ------------
Shares of Common Stock used for 8,006,692 8,972,275 9,210,037
purpose of computing pro forma net
(loss) per share(3)...............
<CAPTION>
JUNE 30, DECEMBER 31, MARCH 31,
1997 1997 1998
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)........ $(249,674) $(1,229,902 ) $ (4,268,742)
Total assets........................ 135,575 244,437 1,802,377
Total liabilities................... (274,810) 1,400,716 4,366,222
Stockholders' equity (deficit)...... (139,235) (1,156,279 ) (2,563,845)
</TABLE>
- ------------------------
(1) In the fourth quarter of 1997 the Company changed its reporting year from
June 30 to December 31.
(2) Other expenses include the write-off of deposits related to a proposed
acquisition during the six months ended December 31, 1997, expenses related
to the settlement of a royalty and product distribution agreement, and
certain expenses associated with the Norton Asset Acquisition during the
three months ended March 31, 1998. See "Management's Discussion and Analysis
of Financial Condition and Plan of Operation--Liquidity and Capital
Resources," "Certain Transactions" and Financial Statements and Notes
thereto.
(3) Computed on the basis described in Note 1 to the Financial Statements of the
Company
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, WHICH ARE APPLICABLE TO ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN.
OVERVIEW
The Company was initially incorporated in October 1995 as March Motors
Limited, a United Kingdom corporation. March Motors Limited was founded by John
R. Silseth, Sr., Donald F. Shiff and Joseph Novogratz. In connection with the
organization of March Motors Limited, the founders and certain consultants
associated with them received an aggregate of 840,000 shares of Common Stock of
March Motors Limited for nominal consideration, of which Mr. Silseth received
525,000 shares of Common Stock, Mr. Shiff received 90,000 shares of Common Stock
and Mr. Novogratz received 75,000 shares of Common Stock. All motorcycle
development of the Company was conducted through March Motors Limited until the
Company was reorganized as a Minnesota corporation in August 1996. Pursuant to
the reorganization, all shareholders and holders of stock options and warrants
of March Motors Limited exchanged all of their shares of Common Stock, stock
options and warrants for an identical number of shares of Common Stock, stock
options and warrants of the Company. Accordingly, March Motors Limited then
became a wholly-owned subsidiary of the Company. All transactions described with
respect to shares of Common Stock, stock options and warrants in this Prospectus
prior to August 1996 relate to transactions which occurred with the United
Kingdom corporation.
The Company is currently developing and plans to manufacture, market and
sell various high performance motorcycles, each intended for a distinct segment
of the motorcycle market. The Company is in the development stage and its
operations are subject to all of the risks inherent in the establishment of a
new business enterprise, including the risk that full-scale operations may not
occur. The Company does not anticipate having motorcycle sales until late 1998
or early 1999, at the earliest. The Company's deficit accumulated during the
development stage was $6,874,239 at March 31, 1998. Since October 12, 1995, the
inception of the Company, through March 31, 1998, the Company had no revenues,
with research and development costs of $3,305,243 equal to approximately 48% of
the Company's aggregate expenses. The remaining expenses of the Company were for
general and administrative expense, interest and other expenses. Historic
spending levels are not indicative of future spending levels because the Company
is entering a period in which it will increase spending on product research and
development, marketing and dealer network development and staffing and other
general operating expenses. For these reasons, the Company believes its
expenses, losses, and deficit accumulated during the development stage will
increase significantly before any material product sales are generated. In the
fourth quarter of 1997, the Company effected a change of its fiscal year-end
date from June 30 to December 31.
NORTON ASSET ACQUISITION
On March 31, 1998, the Company consummated the Norton Asset Acquisition
pursuant to which the Company acquired all of the rights held by NML to the
trademarks and pending applications for trademarks of the name and/or word
"Norton", certain intellectual technology (including design and technical data
related to various motorcycle models) and a factory located in Shenstone,
England, including all supplies and raw materials, parts and stock in trade as
well as all plant, machinery, office fixtures and furnishings held by NML.
22
<PAGE>
The Norton Asset Acquisition was effectuated by the Company for strategic
purposes to unite the Norton brand name with the Company's motorcycle
technology. The Company believes that the combination of its existing motorcycle
technology with the Norton brand name will allow the Company greater ease of
acceptance and higher potential sales than were previously available for its
proposed motorcycles.
The Norton Asset Acquisition included the following terms:
- The Company issued a total of 3,684,948 shares of Common Stock to NML
(which amount was equal to the total of (i) all then issued and
outstanding shares of Common Stock of the Company plus (ii) any and all
pending issuances plus (iii) the amount of shares of Common Stock that
could otherwise be obtained or issued through conversion of certain
indebtedness, subscriptions, rights, plans, instruments, warrants options
or otherwise) such that NML became a 50% owner of the Company.
- The Company issued 10% Subordinated Convertible Debentures Series 1997
(the "Series 1997 Debenture") to NML in the principal amount of
approximately $1,272,500 (the "Norton Debenture"), an amount equal to the
entire outstanding principal and accrued interest on all of the then
currently outstanding Series 1997 Debentures of the Company. The Norton
Debenture will automatically convert into 636,250 shares of Common Stock
upon closing of the Offering.
- The Company issued warrants to NML to purchase an additional 550,000
shares of Common Stock of the Company, exercisable at $3.00 per share,
expiring four years from the closing of the Norton Asset Acquisition.
- The Company issued $1,150,000 principal amount of Series A Notes (the
"Norton Note") to NML to be repaid at the closing of the Offering. See
"Use of Proceeds." The Norton Note is collateralized by a mortgage on the
Shenstone production facility and its contents. In addition, warrants to
purchase 383,333 shares of Common Stock at an exercise price of $3.00 per
share expiring four years from the closing of the Norton Asset Acquisition
were issued to NML in connection with the Norton Note.
- In June 1998 the Company made a purchase price adjustment in connection
with the Norton Asset Acquisition and issued $80,994 principal amount of
Series A Notes to certain stockholders of NML.
The consideration received by NML from the Company in connection with the
Norton Asset Acquisition was assigned to certain stockholders of NML in exchange
for the cancellation of certain indebtedness owing to such stockholders by NML.
PLAN OF OPERATION
The Company's plan of operation for the twelve to twenty-four months
following the date of this Prospectus is to complete development of all five
models of motorcycles in the Initial Product Line and to commence commercial
production and marketing of these motorcycles. All production of the Company's
motorcycles will take place in England, and marketing will be conducted
throughout the United States, the United Kingdom, Europe, and in major
international markets in South America, Asia, Australia and Africa. The Company
intends to accomplish this operational business strategy through the following
activities:
- Completing final development and performance testing of the Nemesis and
the Manx and obtaining compliance with and certifications under
regulations in initial selected markets governing environmental and safety
factors to ensure that the Company's motorcycles satisfy applicable
standards to permit their sale in the markets targeted by the Company,
which the Company anticipates completing by late 1998 or early 1999.
- Identifying alternate suppliers for production of raw materials,
components and subassemblies to be added to the Company's current British
suppliers and subcontractors.
23
<PAGE>
- Materially increasing marketing activities by hiring 2-3 additional
marketing personnel including a technical sales support person; promoting
products through advertising, attendance at major industry tradeshows,
expanded use of the Company's Internet website, and creation of
professional product brochures; and establishing a broad network of
dealers throughout North America and the United Kingdom and distributors
in major foreign markets including Europe, South America, Asia, Australia
and Africa. The Company anticipates substantially completing these
marketing program enhancements by the end of 1998, although many of these
activities will be ongoing as the Company expands its market presence.
- Completing the upgrading and renovation of the Company's production
facility in Shenstone, England by the fourth quarter of 1998.
- Commencing limited production of the Nemesis and the Manx in late 1998 or
early 1999 in the United Kingdom to fill anticipated orders and
establishing a quality control department to ensure that high quality
standards are employed in assembly procedures and performance testing,
including extensive operational testing of initial production units and
any related continuation engineering needed to correct any defects or
problems encountered during testing.
- Implementing an active racing program for the Manx in order to enter
certain superbike racing events in 2000, as well as conducting extensive
track testing at selected United Kingdom racetracks. The Company
anticipates obtaining at least one major sponsor to finance its planned
superbike racing program. Through an existing agreement with MCD, the
Company also will institute its planned Norton Racing Series program which
will consist of a European racing series featuring races limited to
drivers of Norton Internationals, and current plans include conducting at
least four Norton Racing Series events within the two years following the
date of this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations largely through the
sale of warrants, loans from shareholders, private sales of common stock, and
proceeds from issuances of notes payable and convertible subordinated
debentures.
Cash used by operating activities from October 12, 1995 (inception) to March
31, 1998 approximated $3.1 million and was largely affected by operating losses
of the Company net of add backs for non-cash transactions. Cash flows provided
by financing activities approximated $3.2 million for the period October 12,
1995 (inception) to March 31, 1998. Cash from financing activities includes
proceeds from (i) advances payable of approximately $500,000, (ii) the issuance
of convertible subordinated debentures approximating $1.2 million, (iii) the
issuance of approximately $200,000 of notes payable and (iv) net proceeds from
the issuance of shares of Common Stock of approximately $1.3 million.
From October 1995 (inception) through June 1996 the Company offered shares
of Common Stock for sale in a private placement at a price of $.67 per share and
sold 9,000 shares of Common Stock in a private placement to one investor at a
price of $1.67 per share of Common Stock. A total of 684,000 shares of Common
Stock were sold with net proceeds to the Company of approximately $456,000. See
"Certain Transactions."
In December 1996 the Company completed a private placement of 303,200 units
(the "Units") at a purchase price of $2.50 per Unit, with each Unit consisting
of (i) 1.5 shares of Common Stock and (ii) a warrant to purchase 1.5 shares of
Common Stock at an exercise price of $2.67 per share. Net proceeds to the
Company from such private placement were $758,000. The agent for the private
placement was given an agent's warrant to purchase 45,480 shares at $1.67 for
five years which upon expiration is converted into a three year warrant
thereafter to purchase 45,480 shares at $2.67 per share.
24
<PAGE>
In 1997 and early 1998 the Company issued Series 1997 Debentures in a
private placement to investors in the aggregate principal amount of $1,243,500.
The Series 1997 Debentures are due September 30, 2000 and automatically convert
upon the Offering into shares of Common Stock at the lesser of $2.00 per share
or one-half of the price of the Shares offered in this Offering.
From March 1998 to June 12, 1998, the Company issued Series A Notes in a
private placement to investors, in an aggregate principal amount of $1,377,000.
The Series A Notes are due on the earlier of nine months after the issuance date
of each Series A Note or five days after the consummation of the Offering, and
were issued together with a warrant to purchase Common Stock of the Company at
an exercise price of $3.00 per share. See "Use of Proceeds." Proceeds from the
sale of the Series A Notes were used for working capital.
In March 1998, the Company issued a Series A Note in the principal amount of
$52,252 to Donald Shiff, a founder of the Company, and a Series C 1998 10% Note
("Series C Note") in the principal amount of $228,153 to Joseph Novogratz. The
Series A and Series C Notes were issued to Mr. Shiff and Mr. Novogratz for the
conversion of certain operating advances made by Mr. Shiff and Mr. Novogratz to
the Company, plus accrued interest. The Series C Note is due on the earlier of
March 31, 2000 or within five days after the consummation of the Offering, and
was issued in connection with a warrant to purchase Common Stock of the Company
at an exercise price of $3.00 per share. See "Use of Proceeds."
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1997, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $2,500,000. The net operating loss
carryforwards expire through 2012 and are subject to review and possible
adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 contains
provisions that may limit the net operating loss carryforward available to be
used in any given year in the event of significant change in ownership interest.
YEAR 2000 IMPACT
Based on an internal analysis, the Company does not believe that its
information technology systems will be materially affected by the Year 2000
issue. The Company intends to solicit Year 2000 status information from its
current and prospective suppliers for confirmation that the Year 2000 issue will
not affect the Company's supply chain.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes the standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains and losses) as part of a full set of financial statements. This
statement requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. Since this standard applies only to the presentation of
comprehensive income, it will not have any impact on the Company's results of
operations, financial position or cash flows.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
is effective for financial statements for fiscal years beginning after December
15, 1997, and therefore the Company will adopt the new requirements
retroactively in 1999. Management has not completed its review of SFAS No. 131,
but does not anticipate that the adoption of this statement will have a
significant effect on the Company's reported segments.
25
<PAGE>
BUSINESS
GENERAL
The Company is currently developing, and plans to manufacture, market and
sell, high performance motorcycles, each intended for a distinct segment of the
motorcycle market. The Company introduced a non-running motorcycle model, the
Nemesis, in April 1998 which will be powered by a 1500cc V8 engine. The Nemesis
is anticipated to be the Company's flagship motorcycle, and is expected to
produce 235 bhp with a projected top speed exceeding 200 mph. The Company also
intends to introduce the Manx in fall 1998, which will be powered by a 750cc
in-line four cylinder engine expected to produce 160 bhp. Development of the
Nemesis and the Manx has been substantially completed, and the Company expects
to commence limited production and initial delivery of the Nemesis and the Manx
by the end of 1998 or early 1999.
In addition to the Nemesis and the Manx, the Company is currently developing
three other models which it plans to introduce over the twenty-four months
following the date of this Prospectus. The three additional models are: (i) the
Commando; (ii) the International; and (iii) the Atlas. The motorcycles in the
Initial Product Line will be offered in different segments of the motorcycle
market and are anticipated to range in price from approximately $10,000 to
$35,000. The Company believes that each of the motorcycles in the Initial
Product Line will be positioned as a premier product in the market segment in
which the respective motorcycle is sold. In addition to the Initial Product
Line, the Company plans to offer various other motorcycle models, including a
trailbike and a supermotard, both to be powered by versions of the Company's
600cc engine, and an advanced version of the Nemesis, for which the Company has
commenced preliminary research and design. The Company believes that these and
future models will enable the Company to achieve its desired market penetration
for its motorcycles.
The Company believes that the following factors will help to distinguish the
Company's products from its competitors:
- innovative technology which borrows from advanced engineering fields such
as Formula 1 racing and the aerospace industry;
- the 100 year history and tradition of Norton motorcycles; and
- the continuing popularity of the Norton brand name among motorcycle
enthusiasts worldwide.
The Company believes that the technology used in the Initial Product Line
will be some of the most advanced in the motorcycle industry, with material such
as lightweight but strong aluminum and magnesium alloys and carbon-fiber
composites (generally used in the aerospace industry), which the Company
believes will enable the Initial Product Line motorcycles to be lighter and
stronger than similar motorcycles made of steel.
Most of the design of the Initial Product Line has been completed, the
development of the Manx and the Nemesis has been substantially completed, and
the remaining development of the Initial Product Line is to be completed, by MCD
under existing long-term contracts with the Company. The owner of MCD, Mr. Al
Melling, is a director of the Company. Mr. Melling has designed numerous
automobile engines, and designed enhancements for many others, working for such
firms as General Motors, Porsche, Ferrari, Lamborghini, Alfa Romeo and various
Japanese motorcycle manufacturers. Mr. Melling has recently achieved prominence
in the engine design industry as the designer of a V8 engine for TVR, a British
high performance engine and specialty vehicle manufacturer, and a Formula 1 V10
engine for Lola, a British designer of high performance motor sport vehicles.
The Company anticipates assembling the Initial Product Line at its
production facility in Shenstone, England, which was acquired as part of the
Norton Asset Acquisition. The Company intends to upgrade and renovate this
facility during the fourth quarter of 1998. The Company believes that the
Shenstone
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facility currently has the capacity for high volume production of the Initial
Product Line and has the capability to accommodate anticipated production
levels.
The Company intends to market and distribute its products internationally
through a combination of dealers and distributors. The Company is currently
negotiating terms with potential distributors and dealers in both the United
States and abroad. The Company has commenced offering apparel bearing the Norton
brand name on its website and anticipates offering a wide variety of apparel and
motorcycle accessories through its anticipated motorcycle distributers and
dealers.
THE NORTON HERITAGE
Motorcycles sold under the Norton brand name have a long and illustrious
history. The Norton Manufacturing Co., Ltd. was established in England in 1898,
and the first Norton motorcycle was produced in 1902. In 1907 a Norton
motorcycle won the Multi-Cylinder Race at the first Touring Trophy on the Isle
of Man. In the early part of the century, Norton motorcycles established
themselves as a force in the industry by winning numerous races and awards. In
their time, Norton motorcycles were considered some of the fastest and most
well-built models in the world. In addition to setting new speed records, in the
1950's Norton was the first company to introduce the "Featherbed" frame, a
lightweight but strong frame which became the standard for years to come. Until
the late 1980's, Norton motorcycles were still being produced and sold as
premium motorcycles. In the early 1990's, motorcycles ceased being produced
under the Norton brand name. In 1993, NML acquired substantially all of the
assets of the Norton motorcycle business.
In March 1998, the Company, through the Norton Asset Acquisition, purchased
all of the rights held by NML to the Norton trademarks and tradenames, as well
as certain equipment and properties. It is the Company's belief that combining
its motorcycle designs and development with the Norton brand name will create a
new era of Norton motorcycles, with a view towards rekindling the aura of the
Norton motorcycle. The Company anticipates that its motorcycle products, some of
which, like the Manx and Commando, bear the same name as previous Norton
motorcycles, will continue to accentuate cutting-edge technology and high
performance.
In order to link the past with the present, the Company intends to devote
substantial efforts toward cultivating long-term relationships with buyers of
its motorcycles, as well as current Norton motorcycle owners and the numerous
Norton Owners Clubs and associations which are active worldwide. The Company
intends to work with and support and encourage the growth and vitality of these
clubs to build loyalty among existing and future Norton owners. The Company
intends to promote sales in part by assisting new buyers to become members of
their local Norton Owners Club. The Company strongly believes that the continual
fostering and support of such a Norton "family" of related owners will assist
significantly in the future sale and promotion of its motorcycles.
MOTORCYCLE INDUSTRY AND MARKET
Within the motorcycle industry, motorcycles are often characterized as
either heavyweight or lightweight models, and although market analyses and
publications differ, a displacement of 600-650cc appears to mark the lower end
of the heavyweight range. Motorcycles are further subdivided into four main
styles, namely: (i) STANDARD, which emphasize simplicity and cost; (ii)
PERFORMANCE, which emphasize handling and speed; (iii) TOURING, which emphasize
comfort and amenities for long-distance travel; and (iv) CRUISER, which feature
the distinctive styling of classic American motorcycles built during the early
years of the motorcycling industry and are designed to facilitate customization
by individual owners. The Company's Initial Product Line will include a model in
each of the performance and cruiser styles. Historically, cruiser motorcycles
are more popular in the United States and performance motorcycles are more
popular in Europe, and have been traditionally sold in approximately equal
numbers throughout the rest of the world.
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All of the Company's motorcycles will be characterized by the Company as
being within the heavyweight category. Although the engine displacement of the
International is 600cc, the Company believes that the design, handling and power
of the International allows it to be considered a heavyweight motorcycle.
Heavyweight motorcycle sales have increased worldwide in each of 1995, 1996 and
1997 by 4.5%, 7.5% and 17%, respectively.
Based on industry data, the Company believes that its customer base will
come primarily from experienced male motorcycle riders of 35 years of age or
older, with relatively high incomes, who are looking to purchase a motorcycle
for recreational purposes. Moreover, the Company believes that this customer
base will expand considerably over the coming years due in part to the
population bulge caused by the post-World War II baby boom. The age group 45 to
54 is projected to increase 15% from 1997 to 2002. Many males from that
generation are entering the peak earning years of their lives and are prime
prospects for purchasing luxury recreational motorsport products.
THE COMPANY'S MOTORCYCLES
The Company is developing five models of high performance motorcycles, with
each model intended for a distinct segment of the motorcycle marketplace. All
models will include innovative high performance design and engineering features
for their engines, power delivery systems, framework, suspension systems and
brakes. Projected retail prices for the Company's motorcycles will range from
approximately $10,000 to $35,000.
THE NORTON NEMESIS -- The Nemesis, of which a non-running prototype was
introduced in April 1998, will be the Company's most powerful and most expensive
premium motorcycle, powered by a 1500cc fuel-injected V8 engine which the
Company anticipates will give the Nemesis a top speed exceeding 200 m.p.h. The
V8 engine is controlled by what the Company believes to be a state-of-the-art
electronic engine management system designed to produce full power of 235 bhp
for maximum torque and high-speed performance. The framework of the Nemesis will
be manufactured from an aluminum alloy and the body work will utilize extensive
carbon-fiber composite materials for maximum chassis strength with a relatively
light weight, and the Nemesis will feature a custom designed proprietary
suspension system. Other specially designed features of the Nemesis include
customized Champion spark plugs and ignition coils, two camshafts per cylinder
bank, a 6-speed gearbox and 4 valves per cylinder. Limited production of the
Nemesis is anticipated to commence in late 1998 or early 1999.
THE NORTON MANX (SUPERBIKE) -- The Manx has been under development since
1995, and it incorporates innovative design features in both engine and chassis
technology. The Company has focused significant efforts toward the design and
development of versions of the Manx for both superbike racing and street use.
Its 750cc engine will have four inline cylinders which will produce an
anticipated power of 160 bhp controlled by a computerized electronic management
system to promote optimal fuel injection conditions, provide maximum power
delivery, and insure clean emissions to satisfy various worldwide environmental
standards. The bodywork for the Manx will be manufactured from a carbon-fiber
composite, which is both light weight and strong, similar to that used in the
aerospace industry. The Company believes this composite is relatively new to the
motorcycle industry. Front and rear wheel systems will feature specially
designed high-quality braking and suspension systems. The Manx is currently
undergoing certain final re-engineering development, and the Company expects to
commence limited production in late 1998 or early 1999.
THE NORTON COMMANDO (CRUISER) -- The Commando will be powered by a V8 engine
similar to that of the Nemesis. The Commando's 1500cc V8 engine, with its
electronically managed fuel-injection system, will be modified to provide peak
power of 110 bhp. The Commando will also feature high quality proprietary
braking and suspension systems and seating designed for maximum rider comfort.
The Commando will employ a tubular-steel frame and swing-arm, aluminum alloy
forks and wheels and a combination of carbon-fiber materials for bodywork and
other components resulting in it being stronger
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and lighter in weight than traditional premium-priced cruiser motorcycles. The
entire development of the Commando is being handled by MCD, the Company's prime
motorcycle contractor, and MCD has designed and engineered this cruiser to
produce a rumbling engine sound typical of American cruisers, as well as a
low-slung, naked component chassis design with leather accents which conveys a
traditional powerful macho image. All technical and styling work has been
completed for the Commando, and prototype development of both its engine and
bodywork is currently underway. The Company expects to commence commercial
production of the Commando in 1999.
THE NORTON INTERNATIONAL (SPORTBIKE) -- The International will feature a
high-performance 600cc single-cylinder engine featuring desmodromic valves and
other advanced engine technology. The 75 bhp engine will provide a lightweight
power delivery system emphasizing simplicity and ease of maintenance. The
framework for this sportbike will be made from a high quality aluminum alloy,
and it will also include an electronic engine management system and proprietary
components for braking and suspension systems. Although most of the development
for the prototype of the International has been completed, the Company will not
proceed with the final development and testing of the International until all
development and prototype testing has been completed on the Nemesis, the Manx
and the Commando. Accordingly, the Company does not expect to begin to
commercially produce the International until 1999. Based on engineering
calculations, the Company believes the International will be more powerful and
lighter than other sportbikes in its class offered by competitors. Accordingly,
the Company believes the International will become a particularly appealing
racing bike for the many independent sportbike racers who enter racing events
for this class of motorcycles. The Company plans to promote the International
strongly for use in 600cc racing events. See "--Racing Program."
THE NORTON ATLAS -- This second generation superbike will be powered by a
900cc version of the inline 4-cylinder engine of the Manx. The framework will
feature the design principles developed in connection with the other motorcycles
in the Initial Product Line and will be manufactured from some of the new
materials used by the Company in other parts of the Initial Product Line,
including extensive use of carbon-fiber composites for many of the motorcycle's
chassis and suspension components, as well as its bodywork. Considerable Formula
1 auto technology will be incorporated in the development of the Atlas,
including proprietary wheels made from a special magnesium alloy. This luxury
motorcycle will be designed for highway touring in comfort, yet it will be
engineered to readily compete in speed and performance with competing superbike
motorcycles in its class. The Company plans to begin commercial production of
the Atlas in 2000.
PLANNED FUTURE MODELS
Upon completion of development of the Initial Product Line, the Company
anticipates developing at least two additional models to be powered by its
single-cylinder 600cc engine, and an advanced Nemesis, each to be marketed under
the Norton brand name. The Company anticipates commercial production of these
additional motorcycle models to commence in 2000.
NORTON SUPERMOTARD -- The first of these planned 600cc bikes will be a
Supermotard ("Superbiker" in French), a versatile and increasingly popular type
of motorcycle designed for effortless handling and overall performance.
Supermotards arose out of a racing class originated in the United States in the
1980s and were used at hybrid racetracks with both asphalt and dirt surface
sections. Supermotards have become popular in France and there are now a number
of supermotard racing series throughout Europe, with street-legal production
models of these bikes becoming increasingly available in Europe and Japan.
Supermotards feature a hybrid design incorporating principles of street
sportbikes, dirtbikes, and motocross bikes. They feature easy, overall handling
on all surface types and conditions, are lightweight with a relatively high
center of gravity and short wheelbase and motocross-type suspension, and are
particularly easy to handle in heavy urban traffic conditions. In short, they
are designed to be "fun" to ride.
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NORTON TRAIL BIKE -- Another 600cc bike to be developed by the Company is a
trail bike for offroad use, which is a fast-growing leisure sport in the United
States and many other countries. To round out its motorcycle model line, the
Company intends to apply substantial design and development efforts toward
positioning the Company with a high quality premium bike in this offroad
recreational segment of the motorcycle market. The Company believes that its
600cc single-cylinder engine will provide the instant torque demanded by both
its Supermotard and Trail Bike models.
ADVANCED NEMESIS -- This advanced Nemesis will be built substantially upon
the design of the Nemesis but will produce 280 bhp, incorporate 3 spark plugs
per cylinder, giving the motorcycle greater fuel efficiency and power, and have
push button shifting and an active suspension.
SALES AND MARKETING
The Company intends to market its motorcycles outside the United States,
Canada and the United Kingdom primarily through distributors with specified
market territories. These distributors will be responsible for establishing
effective networks of experienced dealers in their respective territories. In
certain areas not effectively served by a distributor, or where the Company is
unable to retain a satisfactory distributor, the Company will establish dealers
supported directly by the Company. Current plans for the United Kingdom, the
United States and Canada will not involve distributors, but rather the Company
will support dealers in those countries directly from its production facility
and its United States headquarters. The Company has completed a preliminary
marketing plan for penetration of the premium priced motorcycle market in late
1998 and the first half of 1999.
The Company intends to have dealers (either supported by the Company
directly, or by distributors) in major population centers and in the major
motorcycling markets. Within the industry, a significant percentage of dealers
handle more than one line of motorcycle, and the Company expects that its
dealers will also sell other motorcycle product lines. The Company intends to
select dealers who meet certain stringent criteria, namely those distributors
who have a strong commitment to the Company's brand of products and its success,
an established reputation for excellence, profitable operations, a sales floor
sufficient to display the Company's motorcycles and related products, the
ability to maintain adequate inventories of motorcycles, parts supplies and
other merchandise, a knowledgeable sales staff, the ability to provide
full-service maintenance and who demonstrate the ability to add value by
promoting lifestyle motorcycle products and events. The Company plans to provide
support for its dealers and customers by maintaining adequate quantities of
repair parts and accessories, training for service technicians, warranty
coverage and assistance with respect to sales promotions.
The Company's initial sales and marketing efforts will be conducted from its
Minnesota headquarters in suburban Minneapolis, and be guided by its Director of
Sales and his support staff. Since the Company believes a significant portion of
its future sales will come from international markets, the Company intends to
establish one or more distinct sales divisions for overseas markets headed by a
marketing director or directors experienced in international marketing.
Substantial marketing efforts and expenses will be directed toward promoting
sales of the Company's products in targeted international markets, and the
Company anticipates that its international sales will come primarily from the
United Kingdom, Europe, Canada, Australia, Africa, South America and Asia. The
Company believes its superbikes and cruisers will be entering the international
market at a particularly good time, since the overseas market for such
heavyweight motorcycles has been growing in recent years.
The Company will conduct ongoing marketing activities to support its
distributors and dealers and promote its motorcycles to the general public,
including advertising in trade publications and leading popular motorcycle
magazines, participation in major industry trade shows, production of quality
technical product manuals and product sales brochures, creation of quality video
tapes to describe and visually illustrate the high performance features of
motorcycles, direct mail promotions toward specific potential customers, and an
active public relations effort directed to the motorcycle industry media. The
Company
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also believes that its planned involvement in motorcycle racing will provide
certain indirect support to its dealers and distributors. See "--Racing
Program."
The Company also intends to devote a substantial effort toward cultivating
long-term relationships with buyers of its motorcycles, as well as the many
current Norton motorcycle owners and numerous Norton owners clubs and
associations which are active worldwide. There are numerous owners clubs in the
United States, in addition to the Norton owners clubs of the United Kingdom and
many other countries. The Company intends to work with and support and encourage
the growth and vitality of these clubs to build loyalty among existing and
future Norton owners. The Company intends to promote sales in part by assisting
new buyers to become member of their local Norton owners club. The Company's
activities in this regard will be much like the Harley Owners Group. The Company
strongly believes that the continual fostering and support of such a Norton
"family" of related owners will assist significantly in the future sale and
promotion of its high performance products. The Company also plans to establish
a motorcycle newsletter which will be circulated periodically to Norton owners
club members and other targeted motorcycle enthusiasts.
The Company has begun offering a small line of apparel to the motorcycle
community and the general public. The Company intends to expand its apparel
range to coincide with initial motorcycle distribution by the end of 1998, and
this range will eventually include denim and leather motorcycle clothing,
including jackets and pants, T-shirts and other shirts, gloves and boots,
watches and other jewelry, sunglasses and goggles, and numerous customized bike
components and add-ons, all of which will feature not only the "Norton" logo but
other marks as well, such as the Company's Model Marks. In addition to apparel
and memorabilia, the Company in the future plans to begin offering motorcycle
accessories bearing the Company's trademarks, Model Marks, and slogans. These
will include saddlebags and other carriers, helmets, oils and lubricants,
cleaning and polishing compounds, and tire and leather treatments. The Company
believes there is and will be a market for apparel and accessories bearing the
Norton logo.
The Company intends to market its apparel and accessories through Norton
dealers and distributors and to a limited extent through its website. The
Company believes this strategy will appeal to dealers and distributors with whom
the Company wishes to engender strong relations, as well as Norton owners and
enthusiasts who may find value in the limited availability of the apparel and
accessories. In exchange for this exclusivity, the Company will require dealers
to purchase minimum quantities of accessories and apparel with motorcycle
orders.
In view of the recent increase in worldwide use of the Internet for
disseminating general corporate information and promoting product sales, the
Company has established a website to promote its products, communicate with
current Norton owners and potential Norton buyers, and inform the general public
about its products and the Company. The Company's Internet address is
www.nortonmotorcycles.com.
RACING PROGRAM
The Company believes that the ability of its motorcycles to perform well in
major racing events will help promote its future motorcycle sales and overall
business success. Since its inception, the Company has focused a significant
effort toward the design and development of a racing Manx as a basis for the
sale of the Company's Manx 750cc Superbike to the consumer market. The Company's
founders believed from the outset that they would need to retain experienced and
high quality prime contractors who would provide the innovative design and
engineering required for the high performance engine and bodywork development
that is critical to success in superbike racing. Accordingly, the Company has
contracted its motorcycle design and development to a prime contractor in
England which has broad experience and success in the development and production
of high performance engines and bodywork for motorsport racing. See "--Prime
Contractor Development Agreements."
Motorcycle racing of all kinds has experienced rapid worldwide growth over
recent years, both in racetrack attendance and in TV racing audiences. In
particular, the World Superbike series of races has
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become increasingly popular with motorcycle enthusiasts. This annual racing
circuit is held at various key international venues and requires participating
motorcycles to be based on genuine commercial production models made for the
consumer market, much like NASCAR stock car races. The Company plans to enter
the Manx in World Superbike or similar racing competitions. The Company believes
that the success of its motorcycle entrants in such racing competitions will
promote future sales of its motorcycles.
In 1997 the Company entered into a written contract with Al Melling and MCD
for the purpose of establishing a proprietary racing series to promote sales of
the International (the "Racing Series"). Under this contract, MCD and Mr.
Melling have agreed to use their best efforts to establish, oversee and promote
a Racing Series featuring the International, with each racing event to consist
of five or more races and at least one of the races being limited to drivers
riding only the Company's International. MCD and Mr. Melling are responsible for
race planning and scheduling, organizing appropriate sponsorship, choosing the
racetracks for these events, safety and insurance concerns, maintenance of the
Internationals, and overall promotion of these racing events. MCD and Mr.
Melling are being paid L5,000 (approximately $8,000) monthly under this
contract, which monthly payments will continue at this rate until the expiration
of the contract in September 1999. The Company has also agreed to reimburse Mr.
Melling for any out-of-pocket expenses incurred by him in connection with this
Racing Series. The contract provides for automatic one-year renewals unless
either party exercises its right of termination prior to the original term.
Certain leading motorcycle manufacturers, including Harley-Davidson, American
Suzuki Motor Corporation and Triumph Motorcycles already hold similar racing
events which are limited to their brand of motorcycles. Planning for the
Company's Racing Series has been commenced by Mr. Melling and MCD, with the
first races anticipated to be held in England in early 2000, followed by similar
races in other European countries. If this Racing Series proves effective in
promoting sales of the International, the Company intends to expand its Racing
Series beyond Europe and establish similar racing events in the United States.
MANUFACTURING AND SUPPLIERS
Engine components, electronic engine management systems, gearboxes, frames,
engines, body work, wheels, carbon-fiber and composite materials components, and
some brake and suspension components will be manufactured for the Company by
various English subcontractors in accordance with specifications furnished to
them by MCD, the Company's prime development contractor. Certain off-the-shelf
components and parts will be supplied by various third-party vendors selected by
MCD. Direct production operations of the Company at its production facility in
Shenstone, England will consist mostly of assembly and quality control
operations. Finished motorcycles will be subjected to rigorous performance and
quality testing before being released for delivery to the marketplace. The
Company and MCD have selected most of the manufacturing subcontractors and
third-party suppliers to be used for commercial production of the Company's
motorcycles and are currently involved in the process of negotiating pricing and
delivery schedules with them.
MCD is responsible for the assembly and testing of all prototypes, and in
this process will check all prototype components to ensure that they meet
technical and qualitative specifications. Furthermore, MCD is responsible for
supplying the necessary personnel to assist the Company in all phases of the
manufacture and assembly of the Company's motorcycles. One or more MCD technical
personnel will be on the factory premises, assisting with quality control and
production, until both the Company and MCD agree that this assistance is no
longer required.
The Shenstone, England factory, which was acquired in connection with the
Norton Asset Acquisition, where the Company currently anticipates assembling the
Initial Product Line, would be divided into three areas. The Engine Assembly
Area will house a team of technicians with the responsibility of assembling the
various engine models and transmissions from the engine and transmission
components which have arrived from various subcontractors. Company personnel,
with the assistance of MCD technicians, will inspect the quality of all
components and assembled engines and transmissions. Assembled engines and
transmissions
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will then be transferred to the main Motorcycle Assembly Area. The Motorcycle
Assembly Area will contain all of the motorcycle parts and components, and be
adjacent to various assembly lines, each either wholly dedicated, or for various
periods of time dependent on inventory levels, order, etc., to specific models.
Periodic quality control testing will be employed at different stages along each
assembly line. Each assembly line will have its own team of assemblymen and a
supervisor responsible for ensuring that standards of quality and workmanship
are maintained. Finally, at the end of each assembly line completed motorcycles
will be rolled onto a stationary rolling test track where they will be fueled,
started and operated for a final running inspection by a dedicated test foreman
before being approved for containerization and shipping. Overall factory
operations will be supervised by a plant manager.
There are alternative sources for obtaining components and supplies needed
for production of the Company's motorcycles, and the Company does not expect
that the loss of any supplier or subcontractor will cause any significant
adverse effect or material delay in its production operations, although there is
no assurance adverse consequences will not occur from such an event. In
addition, since the Company owns all of the dies, molds and tooling required to
manufacture its motorcycle components, the Company believes it can change
subcontractors with little difficulty. The Company will attempt to schedule
timely delivery of components and supplies from its subcontractors and vendors
so as to maximize efficiency and minimize holding excess inventories.
PRIME CONTRACTOR DEVELOPMENT AGREEMENTS
The motorcycles and engines previously described, with the exception of the
Atlas (which was designed by March Group Plc) have all been designed, and
production prototypes thereof assembled (or will be assembled), by MCD.
Currently, MCD is the only design/development contractor working for the
Company. Al Melling, a director of the Company, is the principal owner and Chief
Executive Officer of MCD. MCD continually conducts multiple engine and bodywork
design and development projects from its Rochdale, England facility, with
two-thirds of its business consisting of new engine and bodywork design and
one-third of its business consisting of diagnostic work to improve existing
engines of clients. Al Melling has designed numerous engines, and improved upon
many others, working for such firms as General Motors, Porsche, Ferrari,
Lamborghini, Alfa Romeo and various Japanese motorcycle manufacturers. Modern
innovative engines which have been designed by MCD include a Formula 1 V10
engine for Lola, and both a V8 engine and an inline-6 engine for TVR.
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MCD has conducted its development work under various written contracts with
the Company and a royalty agreement (the "MCD Contracts"). Motorcycle
development to be performed by MCD under the contracts include (i) completion of
the Nemesis motorcycle, to be integrated with the Nemesis 1500cc V8 engine, (ii)
the design and development of the Manx and its 750cc in-line 4 cylinder engine,
(iii) completion of the design and development of the Commando and its 1500cc
engine, (iv) design and development of a Supermotard motorcycle and an off-road
Trail Bike motorcycle and (v) completion of the design and development of the
International and its 600cc single cylinder engine including a racing model to
be used in racing events.
The MCD Contracts provide for MCD to provide motorcycle development
services. In September 1997, in exchange for the cancellation of royalties
provided for under the MCD Contracts, the Company agreed to issue to MCD 166,666
shares of Common Stock (determined by dividing $1,000,000 by the initial public
offering price per share which is assumed for purposes hereof to be $6.00).
Additionally, during 1997 the Company issued 59,680 shares of Common Stock
valued at $3.00 per share in satisfaction of certain development fees due MCD.
The MCD Contracts currently require the Company to pay MCD total monthly
consideration of L31,000 (approximately $51,000) including L21,000
(approximately $35,000) for ongoing design and development work and L10,000
(approximately $16,000) for ongoing consulting services. Design and development
work payments will continue as long as MCD is involved in development of the
Company's Initial Product Line, which the Company believes will extend at least
to 2000. Monthly consulting payments to MCD will continue at their current rate
until January 1, 2000 at which time they will increase to L25,000 (approximately
$40,000) monthly for an additional three-year term. These dollar approximations
are based on current currency exchange rates, and are subject to changes in
prevailing rates from time to time.
The MCD Contracts provide for the Company to retain all rights and title to
design technology and development performed by MCD for the Company, including
any trade secrets and patents. MCD is to pay all costs of prototype development
and provide knowledgeable and competent engineering and other technical
personnel as necessary to conduct all development required by the MCD Contracts
and to assist the Company in commercial production and assembly. In addition,
MCD has agreed to indemnify the Company for damages in the event any MCD product
development or technology infringes on the proprietary rights of others. MCD
also has warranted that its product development will conform to contract
specifications and will be free from any material defects.
The MCD Contracts include standard non-compete and non-disclosure terms to
protect the proprietary rights of the Company, and provide that MCD and the
Company will use their best efforts to cooperate in the commercial production
and marketing of the Company's motorcycles. MCD and the Company also have
certain contract termination rights in the event of material breaches or
insolvency of either party.
In addition to design and development work, MCD is also required to provide
the Company with various consulting services including training and advisory
consulting incident to commercial production and marketing of the Company's
proposed motorcycles, as well as consulting services relating to the design and
development of future products of the Company. Any designs or inventions
conceived by MCD incident to these consulting services are the sole and
exclusive property of the Company.
The Company's Atlas was developed by March Group Plc and its development
contract requires the Company to pay monthly royalties of 2.5% of the net
selling price of any future sales of the Atlas if sold under the "March" name
and royalties of 1% each of the net selling price of future sales of spare
parts, merchandise and piston engines, if sold under the "March" name. The
Company does not anticipate selling the Atlas or such products under the "March"
name. March Group Plc was a leading British motorsport development and racing
company, and was responsible for the development of several championship Indy
500 and Formula 1 racing cars.
From the Company's inception through March 1998, the Company expended
approximately $3,300,000 for motorcycle design and development, including
payments to MCD and to English subcontract vendors for machining and casting
engine and bodywork parts and components for prototype
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motorcycles. The Company intends to continue conducting a design and development
program over the coming years, both for the development of new motorcycle
products and for engineering to improve and enhance existing products. For the
foreseeable future, the Company will continue utilizing outsourced contractors
for future design and development, paying for such services on a
project-by-project basis. The Company believes that its use of experienced and
reputable outside contractors has provided it with significant technological
advantages regarding both engine and bodywork development, especially since MCD
has significant experience both with motorsport racing products and with the
"street versions" of such products.
COMPETITION
The marketing and sale of motorcycles is competitive worldwide, and many of
the established motorcycle manufacturers have substantially greater financial,
personnel, marketing and other resources than those of the Company. There can be
no assurance the Company will be able to compete successfully against current
and future competitors, or that the competitive pressures faced by the Company
will not adversely affect its operations and business. The Company will operate
in a competitive environment and compete against established motorcycle
manufacturers such as Harley-Davidson, BMW Group, Ducati Motor S.p.A, Honda
Motor Co., Ltd, Kawasaki Motors Corp., U.S.A. and Moto Guzzi, in addition to new
manufacturers who may attempt to enter the industry and also a number of small
companies who currently build motorcycles from non-proprietary parts.
The Company believes that the principal competitive factors in its industry
include styling and performance of motorcycles, product reliability and
durability, overall product quality, marketing and distribution networks,
pricing and the availability of support services. The Company believes it will
be able to compete effectively in all of these areas. See "--Motorcycle Industry
and Market."
Prices of the many motorcycle models available to the consumer vary
considerably from the low-priced entry models to the premium high-performance
superbikes. The Company believes it can compete successfully at the high-priced
end of the market because of the considerable innovative and high quality
features of its products including appealing modern styling, racing design
principles, maximum use of light-weight but strong aluminum and magnesium alloys
and carbon-fiber composites and state-of-the-art electronics such as electronic
fuel injection and engine management systems.
PATENTS AND PROPRIETARY RIGHTS
Norton motorcycles have historically been sold under a variety of names in
addition to "Norton", including Commando, Manx, International, Atlas and others.
The Company intends to publicize, promote and market its motorcycles,
merchandise, clothing and other products under the Norton brand name, the Model
Marks and other new logos and symbols, alone or in combination through
advertising, news releases, interviews and articles in motorcycle publications,
promotions, brochures, manuals, memorabilia and merchandise, and all of such
publicity, promotion and marketing will be designed to solidify the link among
Norton, the Model Marks, any new additional logos and symbols of the Company and
the Company's products. The Company has commenced a trademark expansion program
by registering the Norton name, along with the Model Marks, in countries
throughout South America, Asia, Australia, Europe, the United Kingdom,
Scandinavia, portions of the former Eastern bloc of countries, Mexico, the
United States and Canada (including countries in which the Company already owns
the trademark to the Norton name, in which cases the Model Marks have been
registered and the classes of goods covered by the Norton name have been
expanded). In addition, the Company intends to apply for additional trademarks
with respect to the aforementioned additional symbols and logos.
The Company acquired all of the rights to the Norton tradenames and
trademarks in the Norton Asset Acquisition from NML. To the extent NML did not
have exclusive rights to the Norton trademarks and tradenames, the Company does
not have any additional rights. There can be no assurance that the Company
acquired exclusive rights to the Norton tradenames and trademarks in the Norton
Asset Acquisition. The Company believes that it has the right to use the
trademark "Norton" in the United States, the United Kingdom, Canada, Australia,
India, and portions of Europe, Asia, Africa and South
35
<PAGE>
America in connection with the sale of motorcycles and ancillary products. The
ability of the Company to use the trademark "Norton" in certain European
countries is less certain. In 1988, the predecessor to NML formed a joint
venture in Germany wherein the predecessor acquired a 50% interest in the German
joint venture GMBH and a German partner acquired the remaining 50%. In due
course, GMBH registered trademarks on the word "Norton" in certain European
countries, including Italy, Germany, Switzerland, France, Belgium, Luxembourg
and the Netherlands. Upon NML acquiring the assets of its predecessor, certain
formalities required for the transfer of the German joint venture interest may
not have been followed, and subsequently disputes arose between the German
partner and NML. The Company is currently in negotiations which it believes will
enable it to utilize the trademark "Norton" in those countries. There can be no
assurance that the Company will be able to successfully negotiate an agreement
by which it will be able to utilize the trademark "Norton" in such countries.
The Company is currently developing alternative trademark strategies to enable
the Company to sell its products in these countries. If the Company is
unsuccessful in negotiating an acceptable agreement, the Company may not be
permitted to sell products in such countries under the trademark "Norton," which
may have a material adverse effect on the Company.
The Company also believes that it has the exclusive right to use the Model
Marks to identify all models of the motorcycles it intends to sell, and in
connection with ancillary products. GMBH has not claimed any rights to the Model
Marks, and the Company does not believe that there is any basis for such a claim
or that GMBH would make such a claim. Given the Company's actual use of
trademarks to enhance the Company's brand names and marketing appeal of its
motorcycles, a successful challenge to its use of the trademark "Norton" and/or
any of the Model Marks in connection with motorcycles and ancillary products
would adversely affect the Company's business. Although the Company intends to
vigorously defend its intellectual property rights, if necessary, litigation
could be costly and consume resources of the Company, thereby adversely
affecting operating results.
The Company has created and obtained technology rights incident to its
motorcycle development over the past few years, and the Company regards these
rights as proprietary and valuable. The Company will rely primarily upon
patents, trade secret law and confidentiality agreements to protect its
proprietary technology, and on established trademark law for its trademarks
(including the Norton mark and the Model Marks). Key employees of the Company
will be required to enter into standard non-compete and non-disclosure terms,
and will be obligated to assign inventions or other intellectual property
developed incident to their employment with the Company, as will certain
consultants and third-party contractors. There can be no assurance that any
measures taken by the Company to protect its proprietary intellectual property
will be sufficient or that such property will provide the Company with any
competitive advantage.
Although the Company intends to apply for certain patents and to seek
registration of new trademarks for its products from time to time, there is no
assurance that the Company will ever obtain any significant patent or new
trademark protection. The Company believes, however, that its Norton trademarks
and its proprietary trade secrets and technology "know-how" rights will be
substantially more important to its business and operations than any future
patent or new trademark protection it may acquire.
The Company attempts to avoid infringing known proprietary rights of third
parties in its product development efforts. However, the Company has not
conducted and does not conduct comprehensive patent or trademark searches to
determine whether it infringes patents or proprietary rights held by third
parties. If the Company were to discover that its products violate third-party
proprietary rights, there can be no assurance that it would be able to obtain
licenses to continue offering such products without substantial reengineering or
that any effort to undertake such reengineering would be successful, that any
such licenses would be available on commercially reasonable terms, if at all, or
that litigation regarding alleged infringement could be avoided or settled
without substantial expense and damage awards. Any claims against the Company
relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and in injunctions preventing the Company from distributing
certain products. Such claims could materially adversely affect the Company.
36
<PAGE>
GOVERNMENT REGULATION
The Company will be required to obtain approvals and make certifications
regarding compliance with federal, state and local regulations regarding the
noise, emissions and safety characteristics of its motorcycles. In addition, the
Company's manufacturing facility will be required to comply with environmental
and safety standards. The potential delays and costs that could result from
obtaining such regulatory approvals and complying with, or failing to comply
with, such regulations could result in a delay in motorcycle production and
adversely affect operating results. The Company believes all of its motorcycle
and engine designs currently meet all known applicable government regulations.
The Company must comply with numerous federal, state and foreign regulations
governing environmental and safety factors in respect to its motorcycles, which
generally relate to air, water and noise pollution as well as various safety
matters. Any failure by the Company to obtain necessary certifications or
authorizations required by such governmental standards, or to maintain them,
would have a material adverse effect on the Company. In the United States,
motorcycles are subject to rigorous regulation by the EPA. If the Company fails
to comply with applicable requirements, it may be subject to administrative or
judicially imposed sanctions such as civil penalties, criminal prosecution of
the Company or its officers and employees, injunctions, product seizure or
detention, product recalls, total or partial suspension of production.
Motorcycles are also subject to the provisions of the National Traffic and
Motor Vehicle Safety Act and the rules promulgated thereunder by the NHTSA. The
Company could be forced to recall its motorcycles if it fails to satisfy all
applicable safety standards administered by the NHTSA.
Even if required EPA and NHTSA compliance has been obtained with respect to
a product, foreign regulatory approval of a product must be obtained prior to
marketing the product internationally. Foreign approval varies from country to
country and the time required for approval may delay or prevent marketing. In
certain instances the Company may seek approval to market and sell certain of
its products outside of the United States before submitting an application for
United States approval to the EPA or NHTSA. The regulatory procedures for
approval of new motorcycles vary significantly among foreign countries. The
testing requirement and the time required to obtain foreign regulatory approvals
may differ from that required for EPA or NHTSA approval. Although there is now
an EU approval mechanism in place, each EU country may nonetheless impose its
own procedures and requirements, some of which are stricter than in the United
States and many of which are time consuming and expensive, and some EU countries
require price approval as part of the regulatory process. Thus, there can be
substantial delays in obtaining required approvals of the Company's proposed
products from both the EPA and NHTSA and foreign regulatory authorities after
the relevant applications are filed, and approval in any single country may not
be a meaningful indication that the product will thereafter be approved in
another country.
The Company is also subject to regulation under various federal, state and
foreign regulations regarding. among other things, occupational safety,
environmental protection, hazardous substance control and product advertising
and promotion.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings or litigation,
nor is the Company aware of any such legal proceedings or litigation threatened
against it.
EMPLOYEES
The Company has ten employees, including the Chief Executive Officer,
President, Chief Financial Officer, Director of Sales, a factory manager, and
five technicians. The Company believes it has good relations with all its
employees. Upon consummation of this Offering, the Company intends to hire
additional personnel for planned production and marketing activities related to
producing and selling its motorcycles and achieving commercial viability for its
products under its plan of operation. None of the Company's employees is
represented by a labor union.
37
<PAGE>
When renovations to the Company's manufacturing facility get underway, and
the Company prepares for production start-up, additional staff will be added in
such areas as production, quality control supervision, inventory and shipping,
marketing, dealer and distributor relations, financial control and technical
support.
FACILITIES
For its corporate headquarters, the Company leases, pursuant to an oral
lease, administrative and management offices in Plymouth, Minnesota, a suburb of
Minneapolis. The Company believes this facility is adequate to satisfy its
office needs for the present time, and additional premises are available for
expansion. There is also adjoining warehouse space available to the Company in
close proximity to its offices for future rental when needed to store
inventories of its motorcycles for distribution in North America.
The Company leases 5,000 square feet of production space in Rochdale,
England for engine and motorcycle development and prototype assembly facilities
pursuant to a five-year lease expiring in August 2001. These facilities are
being leased from Al Melling, the prime development contractor of the Company,
and rental under this lease is at an annual rate of L9,000 (approximately
$15,000) until August 1998, at which time the rental for the remaining three
years of the lease term either will be mutually agreed upon by the parties to
the lease or determined by an independent arbitrator, if such mutual agreement
cannot be reached. See "Certain Transactions."
The Company's production facility is located in Shenstone, England, about 13
miles north of Birmingham. The facility consists of a steel-framed brick
building of approximately 33,500 square feet including production spaces on one
story of approximately 21,500 square feet divided into separate
workshop/assembly areas, adjoining two-story office spaces of about 5,000 square
feet, and an ancillary workshop area of approximately 7,000 square feet
presently leased to an unrelated company manufacturing aircraft products. The
Company may terminate the lease relating to the 7,000 square foot area on eight
month's prior written notice.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Joseph Novogratz(1) 50 Co-Chairman of the Board, President, Secretary,
Treasurer and Director
Luigi Aquilini (1) 65 Co-Chairman of the Board and Director
Myron Calof(2) 51 Chief Executive Officer and Director
Al Melling(2) 54 Director
Anthony Vaughan(3) 49 Director
Robert Cieslukowski(3)(4) 61 Director
Stephen R. Cieslukowski(4) 34 Chief Financial Officer
Steven Swenson 33 Director of Sales
</TABLE>
- ------------------------
(1) Messrs. Novogratz and Aquilini are currently serving terms under the
Company's staggered election procedure until the regular meeting of
shareholders in 2001.
(2) Messrs. Melling and Calof are currently serving terms under the Company's
staggered election procedure until the regular meeting of shareholders in
2000.
(3) Messrs. Vaughan and Cieslukowski are currently serving terms under the
Company's staggered election procedure until the regular meeting of
shareholders in 1999.
(4) Robert Cieslukowski, a director, is the father of Stephen Cieslukowski, the
Company's Chief Financial Officer.
JOSEPH NOVOGRATZ, one of the Company's founders, has served as President of
the Company since October 1997. Mr. Novogratz also served as President of the
Company from its inception in October 1995 until December 1996 and Chairman of
the Board of Directors from October 1995 to March 1998, when he became
Co-Chairman of the Board. Mr. Novogratz founded Insulation Distributors, Inc.,
which distributes insulation products in 20 states, in 1979 and has served as
its President since then. Mr. Novogratz is also President of B.G. Automotive, an
aftermarket petroleum products company.
LUIGI AQUILINI has been a Director and Co-Chairman of the Board of the
Company since March 31, 1998. Mr. Aquilini is the chairman and principal owner
of the Aquilini Investment Group, a large Canadian holding company, which he
founded in 1956. The Aquilini Investment Group owns extensive holdings of both
real estate properties, financial interests and business operations throughout
Canada.
MYRON CALOF has been the Chief Executive Officer of the Company since June
1, 1998. He has been the Executive Vice President of Aquilini Investment Group
since 1994. Prior to that he was Senior Vice President of the Triple 5 Group of
companies in Edmonton, Alberta since 1985.
AL MELLING has been a Director of the Company since March 31, 1998 and is
the owner and Chief Executive Officer of MCD, which he founded in 1964. Mr.
Melling has been an independent design and development consultant for over 30
years. Through MCD, Mr. Melling is the principal party responsible for the
design and development of the Initial Product Line for the Company.
ANTHONY VAUGHAN has been a Director of the Company since May 1998. He is a
senior partner with Fladgate Fielder, a leading firm of solicitors based in the
West End of London, and has practiced corporate and commercial law since 1980.
ROBERT CIESLUKOWSKI has been a Director of the Company since May 1998.
Before retiring in 1996, he was Chairman of the Board, President and Chief
Executive Officer of Minnesota Valley Engineering, Inc.,
39
<PAGE>
the world's largest manufacturer of cryogenic equipment, since 1977. Mr.
Cieslukowski is currently serving on the board of directors of Kerngas, Ltd., a
French chemical company, and Churchill Gunmakers, a United Kingdom company.
STEPHEN R. CIESLUKOWSKI has been the Chief Financial Officer of the Company
since June 1998. He was the Manager of International Sales/Business Development
of the Biological Products Division of MVE, Inc., a manufacturer of vacuum
insulated products based in Minnesota since 1997. Prior thereto, for a six year
period Mr. Cieslukowski held various other positions with MVE, Inc.
STEVEN SWENSON has been the Director of Sales of the Company since April
1998. He was the Sales and Marketing Representative of Premier Pontoons, a
Minnesota-based large manufacturer and marketer of recreational pontoon boats,
from 1995 to 1998. Prior thereto, for a six year period Mr. Swenson was employed
in various positions by Polaris Industries and Yamaha.
In March 1998, the shareholders of the Company adopted a procedure of
electing directors on a staggered basis whereby one-third of the six directors
of the Company will stand for election each year at the regular meeting of
shareholders of the Company and until their successors are elected and
qualified. Officers serve at the discretion of the Board of Directors.
There are three committees of the Board of Directors: an Audit Committee, a
Compensation Committee and a Stock Option Committee. The members of the Audit
Committee are Anthony Vaughan, Robert Cieslukowski and Myron Calof. The Audit
Committee will be charged with reviewing the Company's annual audit and meeting
with the Company's independent accountants to review the Company's internal
controls and financial management practices. The members of the Compensation
Committee are Luigi Aquilini, Joseph Novogratz and Robert Cieslukowski. The
Compensation Committee recommends to the Board of Directors compensation for the
Company's key employees. The members of the Stock Option Committee are Anthony
Vaughan, Robert Cieslukowski and Luigi Aquilini. The Stock Option Committee
administers the Company's 1997 Incentive and Stock Option Plan. See "-1997
Incentive and Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the Company's
Chief Executive Officer during the fiscal year ended June 30, 1997 and six
months ended December 31, 1997. No other executive officer's salary and bonus
exceeded $100,000 for services rendered to the Company during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION(1) ----------------------------
FISCAL YEAR --------------- RESTRICTED
NAME AND PRINCIPAL POSITION ENDED SALARY STOCK AWARDS(#) OPTIONS(#)
- ------------------------------ ----------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Joseph Novogratz, President... June 30, 1997 -- 75,000 75,000
December 31, 1997(1) -- -- --
</TABLE>
- ------------------------
(1) Represents a six-month period. Effective December 31, 1997, the Company
changed its fiscal year end to December 31.
The following table sets forth information regarding stock option grants
made to the Company's Chief Executive Officer during the fiscal year ended June
30, 1997 and six months ended December 31, 1997.
40
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
EMPLOYEES OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME PERIOD GRANTED# YEAR ($/SH) DATE
- ---------------------------------------------------------- ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Joseph Novogratz.......................................... Year ended 75,000 28.6% $ 4.00 12/31/06
June 30,
1997
Six months -- -- -- --
ended
December
31, 1997
</TABLE>
The following table sets forth certain information regarding unexercised
stock options held by the Company's Chief Executive Officer as of December 31,
1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED
OPTIONS AT VALUE OF UNEXERCISED
DECEMBER 31, IN-THE-MONEY OPTIONS AT
1997(#) DECEMBER 31, 1997($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Joseph Novogratz............................................... 75,000/0 $ 150,000/0
</TABLE>
- ------------------------
(1) The value of the options is based upon the difference between the exercise
price and the assumed initial public offering price of $6.00 per Share.
EMPLOYMENT AGREEMENTS
Joseph Novogratz has been retained as President of the Company under a
three-year employment agreement dated January 1, 1998, subject to early
voluntary termination by Mr. Novogratz or the Company. Compensation under this
agreement consists of (i) salary of $60,000 per year, (ii) a one time restricted
stock grant of 100,000 shares of Common Stock and (iii) a stock option for
300,000 shares of Common Stock exercisable at $6.00 per share, 100,000 shares of
which are immediately exercisable, 100,000 of which are exercisable on the first
anniversary of the grant date and 100,000 of which are exercisable on the second
anniversary of the grant date. The agreement also provides that Mr. Novogratz
will not compete with the Company during the term of his employment, and
contains non-disclosure provisions requiring him to keep confidential any
documents or information concerning the Company and its business. Under an
amendment to Mr. Novogratz' employment agreement, Mr. Novogratz agreed to defer
all such compensation until the Company completes the Offering, at which time
Mr. Novogratz will receive all deferred compensation from a portion of the net
proceeds of the Offering which as of May 31, 1998 was approximately $25,000. See
"Risk Factors--Portion of Offering Proceeds Benefitting Management and Certain
Stockholders" and "Use of Proceeds."
Myron Calof has been retained as Chief Executive Officer of the Company
under a one-year employment agreement dated as of June 1, 1998, subject to early
voluntary termination by Mr. Calof or the Company. Compensation under this
agreement consists of (i) a salary of $1.00 per year and (ii) a stock option for
100,000 shares of Common Stock exercisable at $6.00 per share. The agreement
also provides
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<PAGE>
Mr. Calof will not compete with the Company during the term of his employment,
and contains non-disclosure provisions requiring him to keep confidential any
documents or information concerning the Company and its business.
1997 INCENTIVE AND STOCK OPTION PLAN
The 1997 Incentive and Stock Option Plan (the "Stock Plan") was adopted by
the Board and approved by the stockholders in March 1997. As of June 1, 1998, a
total of 750,000 shares of Common Stock were reserved for issuance under the
Stock Plan. As of March 31, 1998, no options to purchase shares of Common Stock
had been exercised, options to purchase a total of 687,500 shares of Common
Stock at a weighted average exercise price of approximately $5.45 per share were
outstanding and 62,500 shares remained available for future option grants.
The purpose of the Stock Plan is to promote the interests of the Company and
its shareholders by aiding the Company in attracting and retaining employees and
non-employee directors capable of contributing to the growth and success of, and
providing strategic direction to, the Company. By offering such employees and
directors an opportunity to acquire a proprietary interest in the Company, the
Stock Plan thereby provides incentives to put forth maximum efforts for the
success of the Company. The Stock Plan provides for the granting to full- or
part-time employees (including officers and directors who are employees) of the
Company of "incentive stock options" within the meaning of Section 422 of the
Code and for the grant of nonstatutory stock options to employees, consultants,
independent contractors and directors of the Company. To the extent an optionee
would have the right in any calendar year to exercise for the first time
incentive stock options for shares of Common Stock having an aggregate fair
market value (under all plans of the Company and determined for each share of
Common Stock as of the grant date) in excess of $100,000, any excess options are
automatically converted to a nonstatutory stock option.
The Stock Plan is administered by the Board of Directors or the Stock Option
Committee (the "Administrator"). The Administrator determines the type and terms
of options and purchase rights granted under the Stock Plan, including the
number of shares of Common Stock covered, exercise price, term and conditions
for exercise of the option. The exercise price of all stock options granted
under the Stock Plan must be at least 100% of the fair market value of the
Common Stock on the grant date. The term of an incentive stock option may not
exceed ten years from the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of stock
of the Company, the exercise price of any incentive stock option granted shall
be at least 110% of the fair market value of the Common Stock on the grant date
and the term of such option may not exceed five years. Payment of the exercise
price may be, at the discretion of the Administrator, in cash or shares of
Common Stock held by the optionee, or shares issuable upon exercise of the
option, or a combination thereof. No option may be transferred by the optionee
other than by will or the laws of descent and distribution.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation limit the liability of directors to
the Company or its stockholders for monetary damages to the maximum extent
permitted by Minnesota law. Such limitation of liability has no effect on the
availability of equitable remedies, such as injunctive relief or rescission. The
Company's Bylaws provide that the Company will indemnify its directors and
officers as a contractual obligation and may indemnify its employees and agents
against certain liabilities to the fullest extent permitted by Minnesota law.
The Company intends to enter into indemnification agreements with each of its
current directors and officers.
42
<PAGE>
CERTAIN TRANSACTIONS
The Company was initially incorporated in October 1995 as March Motors
Limited, a United Kingdom corporation. March Motors Limited was founded by John
R. Silseth, Sr., Donald F. Shiff and Joseph Novogratz. In connection with the
organization of March Motors Limited, the founders and certain consultants
associated with them received an aggregate of 840,000 shares of Common Stock of
March Motors Limited for nominal consideration, of which Mr. Silseth received
525,000 shares of Common Stock, Mr. Shiff received 90,000 shares of Common
Stocks and Mr. Novogratz received 75,000 shares of Common Stock. All motorcycle
development of the Company was conducted through March Motors Limited until the
Company was reorganized as a Minnesota corporation in August 1996. Pursuant to
the reorganization, all shareholders and holders of stock options and warrants
of March Motors Limited exchanged all of their shares of Common Stock, stock
options and warrants for an identical number of shares of Common Stock, stock
options and warrants in the Company. Accordingly, March Motors Limited then
became a wholly-owned subsidiary of the Company.
In March 1996, the three founders of the Company purchased an additional
total of 225,000 shares of Common Stock at $.67 per share, including 75,000
shares of Common Stock by Mr. Novogratz, 75,000 shares of Common Stock by Mr.
Shiff, and 75,000 shares of Common Stock by Mr. Silseth.
In June 1996, the Company obtained $300,000 in working capital through the
sale of 450,000 shares of Common Stock at $.67 per share in a private placement,
of which John T. Kubinski, a former director of the Company, purchased 37,500
shares of Common Stock.
In December 1996, the Company completed a private placement of 303,200 units
(the "Units") at a purchase price of $2.50 per Unit, with each unit consisting
of 1.5 shares of Common Stock and a warrant to purchase 1.5 shares of Common
Stock at an exercise price of $2.67 per share of which Joseph Novogratz
purchased 13,200 Units, Donald F. Shiff purchased 10,000 Units, John T. Kubinski
purchased 5,000 Units and James D. Kramer purchased 4,000 Units through his
401(k) retirement plan. Alex G. Daneman, a former director of the Company, also
purchased 60,000 Units of this private placement through his conversion of an
outstanding loan owed to him by the Company in the amount of $150,000.
During 1996 and 1997, the Company granted two five-year warrants and one
five-year stock option to Joseph Novogratz, a founder and director and President
of the Company, in consideration for his providing financing totaling $195,000
and management consulting services. Mr. Novogratz received (i) a warrant to
purchase 225,000 shares of Common Stock at $.45 per share, all of which have
been exercised by Mr. Novogratz through his conversion of a note in the
principal amount of $100,000 owed to him by the Company, (ii) a warrant to
purchase 27,000 shares of Common Stock at $1.67 per share, which was later
reduced to $.67 per share and exercised by Mr. Novogratz, and (iii) a stock
option to purchase 225,000 shares of Common Stock at $.67 per share, of which
129,000 shares of Common Stock have been issued to Mr. Novogratz and 96,000
shares of Common Stock have been issued to assignees of Mr. Novogratz, with one
of these assignees being James D. Kramer who has been issued 60,000 of such
shares of Common Stock.
During 1996 and 1997, the Company also granted three five-year warrants to
Donald F. Shiff, a founder of the Company, for consulting services and providing
loan financing of $35,000. Mr. Shiff received (i) a warrant to purchase 45,000
shares of Common Stock at $.67 per share, all of which have been exercised by
Mr. Shiff. (ii) a warrant to purchase 21,000 shares of Common Stock at $1.67 per
share, which was later reduced to $.67 per share and exercised by Mr. Shiff, and
(iii) a warrant to purchase 75,000 shares of Common Stock at $1.67 per share
which was later reduced to $.67 per share and all exercised by assignees of Mr.
Shiff, including Michael F. Bank, David L. Bank and Neil Sell.
In March 1996 the Company granted a five-year warrant to Alex G. Daneman, a
former director of the Company, in consideration for his providing $150,000
financing to the Company, to purchase 225,000 shares of Common Stock at $.67 per
share.
43
<PAGE>
In June 1996 the Company granted a five-year warrant to John T. Kubinski, a
former director of the Company, for consulting services, to purchase 150,000
shares of Common Stock at $.67 per share, of which 60,000 shares of Common Stock
have been issued to Mr. Kubinski and the balance of 90,000 shares of Common
Stock have been issued to assignees of Mr. Kubinski.
In June 1996 the Company granted a five-year option to Leslie C. MacTaggart,
a former director and officer of the Company, for consulting services, to
purchase 37,500 shares of Common Stock at $.67 per share, all of which have been
assigned to and exercised by Mr. Novogratz.
Incident to their long-term investment purchases of securities of the
Company from a private placement of Units (with each Unit equal to 1.5 shares of
Common Stock and one warrant to purchase 1.5 shares of Common Stock at an
exercise price of $2.67 per share) which closed in December 1996, certain
founders and directors of the Company were granted three-year warrants to
purchase an aggregate of 138,300 shares of Common Stock at $2.67 per share,
including (i) a warrant for 90,000 shares of Common Stock to Alex G. Daneman
incident to his private placement investment of $150,000, (ii) a warrant for
19,800 shares of Common Stock to Joseph Novogratz incident to his private
placement investment of $33,000, (iii) a warrant for 15,000 shares of Common
Stock to Donald F. Shiff incident to his private placement investment of
$25,000, (iv) a warrant for 7,500 shares of Common Stock to John T. Kubinski
incident to his private placement investment of $12,500 and (v) a warrant for
6,000 shares of Common Stock to the 401(k) retirement plan of James D. Kramer
incident to his private placement investment of $10,000.
In June 1997, the Company entered into a Resignation and Agreement with
James D. Kramer, a former director and officer of the Company. Under the terms
of the Resignation and Agreement, Mr. Kramer resigned as an officer and director
of the Company and agreed to terminate his employment agreement with the
Company. In addition, Mr. Kramer retained options to purchase 75,000 shares of
Common Stock of the Company granted to him under his employment agreement, with
an exercise price equal to the price for which the Shares are offered in this
Offering.
Incident to the Company's relationship with MCD, as defined by the MCD
Contracts, and as consideration for the settlement of certain royalty payments,
the Company agreed to issue to MCD 166,666 shares of Common Stock (determined by
dividing $1,000,000 by the initial public offering price per share which is
assumed for purposes hereof to be $6.00). Additionally, in October 1997, the
Company issued to MCD 59,680 shares of Common Stock valued at $3.00 per share in
satisfaction of certain development fees due to MCD. Al Melling, the owner of
MCD, is a director of the Company. In addition, the Company is currently renting
certain production space from MCD. See "Business--Facilities", and
"Business--Prime Contractor Development Agreements."
In March 1998, the Company entered into a settlement of its finders
agreement relating to the Norton Asset Acquisition. Under the terms of the
settlement, the Company agreed to issue Minneapple Capital Ltd. 250,000 shares
of Common Stock valued at $3.00 per share, as full consideration for all
services rendered under the finders agreement, and the release of all present
and future claims relating to such finders agreement.
In March 1998, the Company issued a Series A Note in the principal amount of
$52,252 to Donald Shiff, a founder of the Company, and a Series C Note in the
principal amount of $228,153 to Joseph Novogratz. The Series A and Series C
Notes were issued to Mr. Shiff and Mr. Novogratz for the conversion of certain
operating advances made by Mr. Shiff and Mr. Novogratz to the Company, plus
accrued interest.
On March 31, 1998 the Company entered into a three-year consulting agreement
(the "Consulting Agreement") with Global Coin Corporation, a British Columbia,
Canada corporation ("GCC") whereby the Company engaged GCC to assist the Company
in its development program, start-up and operations. Under the terms of the
Consulting Agreement GCC is to receive compensation in the form of (i) an
44
<PAGE>
annual sum of $60,000, payable in equal monthly installments of $5,000 and (ii)
benefit plan provisions on the same terms as such benefits are available or
granted to senior executives of the Company to one employee nominee of GCC. The
Consulting Agreement also provides that GCC will not compete with the Company
during the term of the Consulting Agreement, and contains non-disclosure
provisions requiring GCC to keep confidential any documents or information
concerning the Company and its business acquired during its engagement by the
Company. The Consulting Agreement provides that GCC agrees to defer the $60,000
annual sum. GCC has expressed an intent to be paid all compensation due out of a
portion of the net proceeds of the Offering which as of May 31, 1998 was
approximately $10,000. See "Use of Proceeds." This agreement automatically
renews for successive one-year terms unless either party gives a 60-day written
notice of termination to the other party.
Incident to two letters to the Company dated January 5, 1998, the Company
entered into an agreement with North Pacific Lines ("NPL") and Alex Daneman, a
director of NPL, whereby, among other things, Mr. Daneman agreed to the
termination of his North American distribution rights in respect of the
Company's products and relinquished all claims to stock, stock options, warrants
and other rights in the Company, including the repurchase by the Company of
90,000 shares of Common Stock, warrants to purchase 90,000 shares of Common
Stock and 225,000 warrants to purchase shares of Common Stock, in exchange for
consideration in the form of (i) payment to NPL of $120,000 on or before the
first to occur of consummation of the Offering or June 30, 1998 (with interest
at 10% per year), (ii) the grant to NPL of a fully exercisable, five-year option
to purchase 225,000 shares of Common Stock at an exercise price of $.67 per
share, (iii) payment of $7,800 to Mr. Daneman for reimbursable expenses and (iv)
payment to Mr. Daneman of $180,000 on or before the first to occur of
consummation of the Offering or June 30, 1998 (with interest at 10% per year).
In connection with this agreement, Mr. Daneman resigned as a director of the
Company.
From March 1998 to June 12, 1998, the Company issued Series A Notes in a
private placement to investors, in an aggregate principal amount of $1,457,995
including, (i) $10,000 principal amount to Joseph Novogratz, (ii) $200,000
principal amount to Robert Cieslukowski, a director of the Company, (iii)
$90,000 principal amount to Cataract, N.V., ("Cataract") a principal stockholder
of the Company and (iv) $10,000 principal amount to GCC, a principal stockholder
of the Company. Included therein, in June 1998, the Company issued an aggregate
of $80,994 principal amount of Series A Notes to GCC and Cataract as a purchase
price adjustment in connection with the Norton Asset Acquisition.
PRINCIPAL STOCKHOLDERS
As of June 1, 1998, the following table sets forth certain information
regarding the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to be beneficial owner of more than 5% of the
Company's Common Stock, (ii) each director, (iii) each executive officer named
in the Summary Compensation Table and (iv) all directors and executive officers
as a group. Except as otherwise noted, each person maintains a business address
c/o Norton Motors International Inc., 14252 23rd Avenue North, Plymouth,
Minnesota, 55447-4910, and has sole voting and vesting power over the shares of
Common Stock shown as beneficially owned.
45
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE PERCENTAGE
OF COMMON STOCK OWNERSHIP PRIOR TO OWNERSHIP AFTER THIS
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED THIS OFFERING OFFERING
- ------------------------------ ---------------------------- ------------------ --------------------
<S> <C> <C> <C>
Joseph Novogratz.............. 1,312,484(1) 14.4% 10.9%
Al Melling.................... 226,346(2) 2.6% 1.9%
Minneapple Capital Ltd.(3).... 850,000 9.9% 7.3%
Cataract N.V.(4).............. 4,783,404(5) 47.5% 36.6%
Global Coin Corporation(6).... 531,489(7) 6.1% 4.5%
Luigi Aquilini................ 531,489(8) 6.1% 4.5%
Myron Calof................... 100,000(9) 1.1% .9%
Robert Cieslukowski........... 191,666(10) 2.2% 1.6%
Anthony Vaughan............... -- -- --
All directors and officers as
a group (7 persons)......... 2,361,985(1)(2)(7)(9)(10) 24.3% 18.6%
</TABLE>
- ------------------------
(1) Includes (i) 375,000 shares of Common Stock issuable upon exercise of
options and (ii) 99,184 shares of Common Stock issuable upon the exercise of
warrants.
(2) Includes 166,666 shares of Common Stock to be issued to Mr. Melling, upon
completion of the Offering, as consideration for the settlement of certain
royalty payments, assuming an initial public offering price of $6.00 per
share. See "Certain Transactions."
(3) The address for this stockholder is Mineapple Capital, Ltd., 5507 Malibu
Drive, Edina, MN 55436.
(4) The address for this stockholder is De Ruyterkade 62, Curacao, Netherlands
Antilles
(5) Includes (i) 572,653 shares of Common Stock issuable upon conversion of
$1,145,306 principal amount of Series 1997 Debentures, and (ii) 894,298
shares of Common Stock issuable upon the exercise of warrants at an exercise
price of $3.00 per share.
(6) The address for this stockholder is Global Coin Corporation, c/o Aquilini
Investment Group, Main Level, Standard Building, 510 West Hastings Street,
Vancouver, BCV6B IL8.
(7) Includes (i) 63,628 shares of Common Stock issuable upon conversion of
$127,256 principal amount of Series 1997 Debentures, and (ii) 99,366 shares
of Common Stock issuable upon the exercise of warrants at an exercise price
of $3.00 per share.
(8) Represents shares owned by Global Coin Corporation, all of the stockholders
of which are the wife and children of Mr. Aquilini. Mr. Aquilini disclaims
beneficial ownership of all such shares.
(9) Consists of 100,000 shares of Common Stock issuable upon the exercise of
options held by Myron Calof.
(10) Consists of (i) 125,000 shares of Common Stock issuable upon the conversion
of $250,000 principal amount of Series 1997 Debentures and (ii) 66,666
shares of Common Stock issuable upon the exercise of warrants at an exercise
price of $3.00 per share.
46
<PAGE>
DESCRIPTION OF SECURITIES
The following description of the securities of the Company and certain
provisions of the Company's Amended and Restated Articles of Incorporation and
Bylaws to be effective upon completion of the Offering is a summary and is
qualified in its entirety by the provisions of the Articles of Incorporation and
Bylaws, which have been filed as exhibits to the Company's Registration
Statement, of which this Prospectus is a part.
Upon completion of the Offering, the authorized capital stock of the Company
will consist of 50,000,000 shares of Common Stock, $.01 par value and 5,000,000
shares of Preferred Stock, $.10 par value.
COMMON STOCK
Upon completion of this Offering, there will be 11,611,094 shares of Common
Stock issued and outstanding. Holders of Common Stock are entitled to one vote
per share for the election of directors and on all matters to be voted upon by
the shareholders of the Company and there are no cumulative voting rights. The
holders of Common Stock are entitled to receive dividends, if any, as may be
declared by the Board of Directors in accordance with the MBCA. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share in assets remaining after payment of liabilities in
accordance with the MBCA. The holders of Common Stock have no preemptive rights.
The outstanding shares of Common Stock are, and the Shares offered by the
Company in the Offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to, and may be adversely affected by, the rights of holders of
shares of Common Stock of any series of preferred stock which the Company may
designate and issue in the future.
PREFERRED STOCK
The Company's Amended and Restated Articles of Incorporation shall be
amended prior to the effective date of the Offering to include a provision
authorizing 5,000,000 shares of a class of undesignated Preferred Stock, which
allows the Board of Directors of the Company, without further stockholder
action, to issue Preferred Stock with, among other things, rights to vote for
the election of directors of the Company and in amounts that could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of the Company.
ANTI-TAKEOVER PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT; ARTICLES OF
INCORPORATION
Certain provisions of Minnesota law and the Company's Articles of
Incorporation described below could have an antitakeover effect. These
provisions are intended to provide management flexibility to enhance the
likelihood of continuity and stability in the composition of the Company's Board
of Directors and in the policies formulated by the Board and to discourage an
unsolicited takeover of the Company, if the Board determines that such a
takeover is not in the best interests of the Company and its shareholders.
However, these provisions could have the effect of discouraging certain attempts
to acquire the Company which could deprive the Company's shareholders of
opportunities to sell their shares of Common Stock at prices higher than
prevailing market prices.
Section 302A.671 of the MBCA applies, with certain exceptions, to any
acquisitions of voting stock of the Company (from a person other than the
Company, and other than in connection with certain mergers and exchanges to
which the Company is a party) resulting in the beneficial ownership of 20% or
more of the voting stock then outstanding. Section 302A.671 requires approval of
the granting of voting rights for the shares received pursuant to any such
acquisition by a majority vote of the shareholders of the Company. In general,
shares acquired without such approval are denied voting rights and are
redeemable at their then fair market value by the Company within 30 days after
the acquiring person has failed to
47
<PAGE>
deliver a timely information statement to the Company or the date the
shareholders voted not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the MBCA generally prohibits any business combination by
the Company, or any subsidiary of the Company, with any shareholder which
purchases 10% or more of the Company's voting shares (an "interested
shareholder") within four years following such interested shareholder's share
acquisition date, unless the business combination is approved by a committee of
all of the disinterested members of the Board of Directors of the Company before
the interested shareholder's share acquisition date.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and NML, following the
Offering, 550,000 shares of Common Stock of the Company currently held by
Cataract, and GCC in connection with the Norton Asset Acquisition, as well as an
additional 550,000 shares of Common Stock of the Company issuable to Cataract
and GCC upon the exercise of warrants held by them in connection with the Norton
Asset Acquisition, are subject to registration rights upon the request of the
holders of at least a majority of such shares. Upon such a request, the Company
will be required to prepare and file a registration statement under the
Securities Act of 1933, as amended, covering such shares. The Company is not
required to prepare and file such registration statement until the Company
becomes eligible to use Form S-3, or until 24 months following the effective
date of this Offering, whichever occurs first. All of such shares are subject to
Lock-Up Agreements for a period of thirteen months following the date of this
Prospectus. See "Shares Eligible For Future Sale."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Company.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 11,611,094 shares of
Common Stock outstanding, of which the 3,000,000 Shares offered hereby will be
transferable without restriction under the Securities Act. The other 8,611,094
outstanding shares of Common Stock are "restricted securities" (as that term is
defined in Rule 144 promulgated under the Securities Act) which may be publicly
sold only if registered under the Securities Act or if sold in accordance with
an applicable exemption from registration such as Rule 144. In general, under
the holding period requirements of Rule 144, subject to the satisfaction of
certain other conditions a person, including an affiliate of the Company, who
has beneficially owned restricted securities for at least one year, is entitled
to sell (together with any person with whom such individual is required to
aggregate sales) within any three-month period, a number of shares of Common
Stock that does not exceed the greater of 1% of the total number of outstanding
shares of Common Stock of the same class, or, if the Common Stock is quoted on
the American Stock Exchange or another national securities exchange, the average
weekly trading volume during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements, and the availability of current public information regarding the
Company. A person who has not been an affiliate of the Company for at least
three months, and who has beneficially owned restricted securities for at least
two years, is entitled to sell such restricted shares of Common Stock under Rule
144(k) without regard to any of the limitations described above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares of Common Stock purchased from the Company by its
employees, directors, officers or consultants prior to the date of this
Prospectus pursuant to written compensatory benefit plans such as the Stock Plan
and written contracts such as option agreements. Rule 701 is also available for
sales of shares of Common Stock acquired by persons pursuant to the exercise of
options granted prior to the effective date of this Prospectus, regardless of
whether the option exercise occurs before or after the effective date of this
Prospectus. Securities issued in reliance on Rule 701 are "restricted
securities" within the meaning of Rule 144 and, beginning 90 days after the date
of this Prospectus. may be sold by persons other than affiliates of the Company
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirement.
As of June 1, 1998, options granted under the Stock Plan to purchase a total
of 687,500 shares of Common Stock were outstanding and options to purchase an
additional 62,500 shares of Common Stock were reserved for future issuance under
the Stock Plan. Of the options granted under the Stock Plan, 487,500 of such
options were currently exercisable. Shares of Common Stock issued upon the
exercise of outstanding options will be "restricted securities" and may not be
sold in the absence of registration under the Securities Act unless an exemption
from registration is available. Potential exemptions include those available
under Rule 144 and Rule 701.
No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sale, will have
on the market price of the Common Stock prevailing from time to time. Pursuant
to the Lock-Up Agreements, the Company, all officers and directors of the
Company and all holders of outstanding securities exercisable for or convertible
into Common Stock have agreed not to, directly or indirectly, issue, agree or
offer to sell, transfer, assign, distribute, grant an option for purchase or
sale of, pledge, hypothecate or otherwise encumber or dispose of any beneficial
interest in such securities for a period of 13 months following the date of this
Prospectus (and with respect to 125,000 shares for a period of 24 months
following the date of this Prospectus) without the prior written consent of the
Representative. The Representative has no general policy with respect to the
release of shares of Common Stock prior to the expiration of the Lock-Up period
and no present intention to waive or modify any of these restrictions on the
sale of Company securities. Assuming that the Representative does not release
the shareholders from the Lock-Up Agreements, after the Lock-Up Period all of
the shares of Common Stock will be eligible for sale in the public market. Of
such shares of Common Stock, 4,707,928 shares of Common Stock will be eligible
for sale under Rule 144 (subject to volume limitations imposed by such rule),
3,903,166 shares of Common Stock will be eligible for sale under Rule 144(k),
and 687,500 shares of Common Stock will be eligible for sale under Rule 701. In
addition, 550,000 shares of Common Stock and an additional 550,000 shares
issuable upon exercise of outstanding warrants are subject to registration
rights. The sale or issuance, or the potential for sale or issuance, of Common
Stock after the Lock-Up Period could have an adverse impact on the market price
of the Common Stock. Sales of substantial amounts of Common Stock or the
perception that such sales could occur could adversely affect the prevailing
market price for the Common Stock. See "Underwriting" and "Description of
Securities-- Registration Rights."
49
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Dirks & Company,
Inc. is acting as Representative, have severally agreed subject to the terms and
conditions contained in the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of shares of
Common Stock set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Dirks & Company, Inc.............................................................
----------
Total 3,000,000
----------
----------
</TABLE>
The Underwriters are committed to purchase all the Shares offered hereby, if
any of the Shares are purchased. The Underwriting Agreement provides that the
obligations of the several Underwriters are subject to the conditions precedent
specified therein.
The Company has been advised by the Representative that the Underwriters
initially propose to offer the Shares to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers
concessions not in excess of $[ ] per Share. Such dealers may reallow a
concession not in excess of $[ ] per Share to certain other dealers. After
the commencement of the Offering, the public offering price, concessions and
reallowances may be changed by the Representative. The Representative has
informed the Company that it does not expect sales to discretionary accounts by
the Underwriters to exceed five percent of the Shares offered by the Company
hereby.
The Company has agreed that, for (5) years after the date of this
Prospectus, it will use its best efforts to cause one individual designated by
the Representative, if any, to be elected to the Company's Board of Directors.
Such individual may be a director, officer, employee or affiliate of the
Representative. In the event the Representative elects not to designate a person
to serve on the Company's Board of Directors, the Representative may designate a
person to attend meetings of the Board of Directors. In addition, the
Underwriting Agreement provides that the Company, its subsidiaries and its
affiliates will grant to the Representative a right of first-refusal for a
period of three (3) years after the date of this Prospectus, for any sale of
securities to be made by the Company, its affiliates or any of its present or
future subsidiaries.
The Company has granted to the Underwriters the Over-Allotment Option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase from the Company up to an additional 450,000 Shares at the initial
public offering price, less underwriting discounts and the non-accountable
expense allowance. Such option may be exercised only for the purpose of covering
over-allotments, if any, incurred in the sale of the Shares offered hereby. To
the extent such option is exercised in whole or in part, each Underwriter will
have a firm commitment, subject to certain conditions, to purchase the number of
the additional Shares proportionate to its initial commitment.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make. The Company has agreed to pay
to the Representative a non-accountable expense allowance equal to three percent
of the gross proceeds derived from the sale of the Shares underwritten, of which
$25,000 has been paid to date.
50
<PAGE>
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Shares. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
the Shares for the purpose of stabilizing its market price. The Underwriters
also may create a short position for the account of the Underwriters by selling
more Shares in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase Shares in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 450,000 Shares by exercising the Over-Allotment Option referred
to above. In addition, the Representative may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the Offering) for the account of other
Underwriters, the selling concession with respect to the Shares that are
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the prices of the Shares at a level
above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Company's directors, and executive officers, and all holders of shares
of Common Stock, options, warrants or other securities convertible, exercisable
or exchangeable for Common Stock, have, pursuant to certain lock-up agreements
(the "Lock-up Agreements"), agreed not to offer, sell, or otherwise dispose of
any shares of Common Stock for a period of 13 months following the date of this
Prospectus (and with respect to 125,000 shares for a period of 24 months
following the date of this Prospectus) without the prior written consent of the
Representative and the Company. An appropriate legend shall be placed on the
certificates representing such securities. The Representative has no general
policy with respect to the release of shares prior to the expiration of the
lock-up period and no present intention to waive or modify any of these
restrictions on the sale of Company securities.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock has
been determined by negotiation between the Company and the Representative and
does not necessarily bear any relationship to the Company's asset value, net
worth or other established criteria of value. The factors considered in such
negotiations, in addition to prevailing market conditions, included the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, its capital structure
and such other factors as were deemed relevant.
Dirks & Company, Inc., the Representative, commenced operations in July
1997. The Representative has co-managed two public offerings of securities and
participated in an additional two public offerings of securities as an
underwriter. Accordingly, the Representative has limited experience as an
underwriter of public offerings of securities.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. See "Additional Information."
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby are
being passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New
York, New York. Orrick Herrington & Sutcliffe LLP, New York, New York, has
served as counsel to the Underwriters in connection with this Offering.
51
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1997 and for the
six months ended December 31, 1997 and for the year ended June 30, 1997
appearing in this Prospectus and the Registration Statement, have been audited
by Pannell Kerr Forster PC, independent auditors, as set forth in their report
thereon included elsewhere in this Prospectus and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing. The financial statements of the
Company for the period October 12, 1995 (inception) to June 30, 1996, appearing
in this Prospectus and the Registration Statement, have been audited by Stirtz
Bernards Boyden Surdel & Larter P.A., independent auditors, as set forth in
their report thereon included elsewhere in this Prospectus and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, the "Registration Statement") on Form SB-2 under the
Securities Act with respect to the Securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain portions of which are omitted in accordance with the rules and
regulations of the Commission. In addition, statements contained in this
Prospectus concerning the provisions of any document filed as an exhibit are of
necessity brief descriptions thereof and are not necessarily complete, and in
each instance reference is made to the copy of the document filed as an exhibit
to the Registration Statement, each such statement being qualified in its
entirety by this reference.
The Registration Statement, including all exhibits and schedules thereto,
may be inspected and copied at public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 500 West Madison
Street, Chicago, Illinois 60661; 7 World Trade Center, New York, New York 10048;
and 5757 Wilshire Boulevard, Los Angeles, California 90036. Copies of such
material, including the Registration Statement, can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such material may also be accessed electronically at
the Commission's site on the World Wide Web located at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent certified public
accountants and will make available copies of quarterly reports containing
unaudited interim financial statements for the first three quarters of each
fiscal year.
52
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Reports.............................................................................. F-2
Balance Sheet.............................................................................................. F-4
Statement of Operations.................................................................................... F-5
Statement of Stockholders' (Deficit)....................................................................... F-6
Statement of Cash Flows.................................................................................... F-7
Notes to Financial Statements.............................................................................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Norton Motors International Inc.
(A Development Stage Enterprise)
We have audited the accompanying balance sheet of Norton Motors
International Inc., (a development stage enterprise) as of December 31, 1997 and
the related statements of operations, stockholders' (deficit) and cash flows for
the year ended June 30, 1997 and for the six months ended December 31, 1997.
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.
The Company is in the development stage and has incurred operating losses of
$6,874,239 (unaudited) through March 31, 1998. The Company has $97,480
(unaudited) of cash as of March 31, 1998, which is not sufficient to fund
operations for one year. The Company plans to file for an initial public
offering of its common stock which, if completed, is expected to provide the
Company with the working capital necessary to fund operations for at least one
year.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Norton Motors International
Inc., (a development stage enterprise) as of December 31, 1997, and the results
of its operations and its cash flows for the year ended June 30, 1997 and for
the six months ended December 31, 1997, in conformity with generally accepted
accounting principles.
Pannell Kerr Forster PC
New York, NY
April 20, 1998
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Norton Motors International Inc.
(A Development Stage Enterprise)
We have audited the accompanying statements of operations, stockholders'
(deficit) and cash flows of Norton Motors International Inc., (formerly March
Motors International, Inc.) (a development stage enterprise) for the period
October 12, 1995 (inception) through June 30, 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Norton
Motors International Inc., (a development stage enterprise) for the period
October 12, 1995 (inception) to June 30, 1996, in conformity with generally
accepted accounting principles.
Stirtz Bernards Boyden Surdel &
Larter, P.A.
Edina, Minnesota
March 18, 1997
F-3
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1998
(UNAUDITED)
DECEMBER 31, --------------------------
1997 ACTUAL PRO FORMA
------------- ----------- -------------
<S> <C> <C> <C>
(SEE NOTE 1)
Current assets
Cash................................................................ $ 110,231 $ 97,480
Prepaid expenses.................................................... 60,583 --
------------- -----------
Total current assets.............................................. 170,814 97,480
------------- -----------
Property and equipment--at cost
Land and building (note 2).......................................... -- 1,150,000
Equipment........................................................... 19,836 19,836
------------- -----------
19,836 1,169,836
Less accumulated depreciation....................................... (4,013) (4,723)
------------- -----------
15,823 1,165,113
------------- -----------
Deferred public offering costs........................................ 55,000 97,184
Intellectual property (note 2)........................................ -- 440,000
Other assets.......................................................... 2,800 2,600
------------- -----------
57,800 539,784
------------- -----------
Total assets...................................................... $ 244,437 $ 1,802,377
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued expenses............................... $ 21,046 $ 220,741 $ 220,741
Accrued interest payable............................................ 33,826 29,076 29,076
Advances payable--related parties (note 3).......................... 248,844 -- --
Convertible subordinated debentures (note 5)........................ 1,097,000 2,516,000 --
Notes payable--related parties (note 4)............................. -- 1,600,405 1,600,405
------------- ----------- -------------
Total current liabilities......................................... 1,400,716 4,366,222 1,850,222
------------- ----------- -------------
Commitments and contingencies (note 7)
Stockholders' (deficit) (note 6)
Common stock, $.01 par value; 50,000,000 shares authorized; issued
and outstanding at December 31,1997--3,241,480; at March 31,
1998--7,276,428, pro forma--8,611,094............................. 32,415 72,764 86,111
Additional paid-in capital.......................................... 3,199,530 4,246,030 6,628,683
Subscription receivable............................................. (8,400) (8,400) (8,400)
(Deficit) accumulated during the development stage.................. (4,379,824) (6,874,239) (6,874,239)
------------- ----------- -------------
Total stockholders' (deficit)..................................... (1,156,279) (2,563,845) (167,845)
------------- ----------- -------------
Total liabilities and stockholders' (deficit)..................... $ 244,437 $ 1,802,377 $ 1,682,377
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
See notes to financial statements
F-4
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 12, FROM
1995 INCEPTION
(INCEPTION) SIX MONTHS THREE MONTHS ENDED OCTOBER 12,
TO YEAR ENDED ENDED MARCH 31 1995 TO
JUNE 30, JUNE 30, DECEMBER 31, -------------------------- MARCH 31,
1996 1997 1997 1997 1998 1998
----------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cost and expenses:
Research and development expense
(note 7)........................ $ 529,996 $ 903,901 $ 1,557,219 $ 264,343 $ 314,127 $ 3,305,243
General and administrative
expense......................... 153,564 354,962 443,944 37,692 342,612 1,295,082
Other expenses
(notes 2 and 7)................. -- -- 254,595 -- 1,799,349 2,053,944
----------- ------------- ------------- ----------- ------------- -------------
683,560 1,258,863 2,255,758 302,035 2,456,088 6,654,269
Interest expense.................. 136,600 11,217 33,826 11,217 38,327 219,970
----------- ------------- ------------- ----------- ------------- -------------
Net (loss)...................... $ (820,160) $ (1,270,080) $ (2,289,584) $(313,352) $ (2,494,415) $ (6,874,239)
----------- ------------- ------------- ----------- ------------- -------------
----------- ------------- ------------- ----------- ------------- -------------
Pro forma net (loss) per common
share (note 1).................... $ (0.16) $ (0.26) $ (0.27)
------------- ------------- -------------
------------- ------------- -------------
Shares of Common Stock used for
purpose of computing pro forma net
(loss) per share (note 1)......... 8,006,692 8,972,275 9,210,037
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements
F-5
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE PERIOD FROM OCTOBER 12, 1995 (INCEPTION)
TO MARCH 31, 1998
<TABLE>
<CAPTION>
(DEFICIT)
COMMON STOCK ACCUMULATED
------------------------ ADDITIONAL DURING THE
NUMBER OF PAID-IN SUBSCRIPTION DEVELOPMENT
SHARES PAR VALUE CAPITAL RECEIVABLE STAGE TOTAL
----------- ----------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance - October 12, 1995.................... $ -- $ -- $ -- $ -- $ --
Founders shares at $.01 per share........... 840,000 8,400 -- (8,400) -- --
Common stock issued for cash at $.67 per
share..................................... 675,000 6,750 443,250 -- -- 450,000
Stock issued for services................... 75,000 750 49,250 -- -- 50,000
Common stock issued for cash at $1.67 per
share..................................... 9,000 90 14,910 -- -- 15,000
Issuance of stock warrants for services..... -- -- 79,100 -- -- 79,100
Issuance of stock warrants for loan......... -- -- 130,500 -- -- 130,500
Offering costs.............................. -- -- (39,000) -- -- (39,000)
Net (loss).................................. -- -- -- -- (820,160) (820,160)
----------- ----------- ----------- ------------- ------------ ----------
Balance - June 30, 1996....................... 1,599,000 15,990 678,010 (8,400) (820,160) (134,560)
Common stock issued for cash at $1.67 per
share..................................... 364,800 3,648 604,352 -- -- 608,000
Common stock issued through loan conversion
at $1.67 per share........................ 90,000 900 149,100 -- -- 150,000
Exercise of stock options/warrants at $.67
per share................................. 447,750 4,477 294,023 -- -- 298,500
Stock issued for services................... 315,000 3,150 206,850 -- -- 210,000
Loan conversion at $.45 share............... 225,000 2,250 97,750 -- -- 100,000
Offering costs.............................. -- -- (101,095) -- -- (101,095)
Net (loss).................................. -- -- -- -- (1,270,080) (1,270,080)
----------- ----------- ----------- ------------- ------------ ----------
Balance - June 30, 1997....................... 3,041,550 30,415 1,928,990 (8,400) (2,090,240) (139,235)
Exercise of warrants at $.67 per share...... 36,750 368 24,132 -- -- 24,500
Exercise of warrants at $.67 through loan
conversion................................ 103,500 1,035 67,965 -- -- 69,000
Stock issued for services................... 59,680 597 178,443 -- -- 179,040
Stock to be issued for services (note 7).... -- -- 1,000,000 -- -- 1,000,000
Net (loss) for the six months ended December
31, 1997.................................. -- -- -- -- (2,289,584) (2,289,584)
----------- ----------- ----------- ------------- ------------ ----------
Balance - December 31, 1997................... 3,241,480 32,415 3,199,530 (8,400) (4,379,824) (1,156,279)
Stock issued for services................... 350,000 3,500 1,046,500 -- -- 1,050,000
Stock issued for purchase of intellectual
assets (note 2)........................... 3,684,948 36,849 -- -- -- 36,849
Net (loss) for the three months ended March
31, 1998.................................. -- -- -- -- (2,494,415) (2,494,415)
----------- ----------- ----------- ------------- ------------ ----------
Balance - March 31, 1998 (unaudited).......... 7,276,428 $ 72,764 $4,246,030 $ (8,400) $(6,874,239) $(2,563,845)
----------- ----------- ----------- ------------- ------------ ----------
----------- ----------- ----------- ------------- ------------ ----------
</TABLE>
See notes to financial statements
F-6
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FROM
OCTOBER 12, INCEPTION
1995 SIX MONTHS THREE MONTHS ENDED OCTOBER 12,
(INCEPTION) YEAR ENDED ENDED MARCH 31 1995 TO
TO JUNE 30, JUNE 30, DECEMBER 31, ------------------------ MARCH 31,
1996 1997 1997 1997 1998 1998
----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash flows from operating activities
Net (loss).............................. $(820,160) ($1,270,080) $(2,289,584) $(313,352) ($2,494,415) ($6,874,239)
Adjustments to reconcile net (loss) to
net cash (used) by operating
activities
Stock issued for services............. 97,100 210,000 1,179,040 -- 1,050,000 2,536,140
Asset acquisition expense............. -- -- -- -- 869,349 869,349
Non-cash expenses..................... -- 56,653 21,122 -- -- 77,775
Accrued interest expense.............. 130,500 -- 33,826 -- 27,310 191,636
Depreciation and amortization......... -- 3,397 1,816 1,412 910 6,123
Changes in certain other accounts
Prepaid expenses.................... (4,768) 4,768 (60,583) (232) 60,583 --
Deferred costs and other assets..... (4,000) (90,000) 36,046 (90,000) (42,488) (100,442)
Accounts payable and accrued
expenses.......................... 86,100 39,700 (105,800) 64,138 200,000 220,000
----------- ----------- ------------ ----------- ----------- -----------
Net cash (used) by operating
activities...................... (515,228) (1,045,562) (1,184,117) (338,034) (328,751) (3,073,658)
----------- ----------- ------------ ----------- ----------- -----------
Cash flows (used) by investing activities
Purchase of equipment................... -- (19,836) -- (19,836) -- (19,836)
----------- ----------- ------------ ----------- ----------- -----------
Cash flows from financing activities
Proceeds from advances payable.......... 250,000 92,357 212,638 -- -- 554,995
Repayment of advances payable........... -- -- (64,926) -- -- (64,926)
Proceeds from issuing convertible
subordinated debentures............... -- -- 1,097,000 -- 146,000 1,243,000
Proceeds from issuing notes payable..... -- -- -- -- 170,000 170,000
Proceeds from issuing common stock...... 465,000 906,500 24,500 218,500 -- 1,396,000
Offering costs.......................... (7,000) (101,095) -- -- -- (108,095)
----------- ----------- ------------ ----------- ----------- -----------
Net cash provided by financing
activities...................... 708,000 897,762 1,269,212 218,500 316,000 3,190,974
----------- ----------- ------------ ----------- ----------- -----------
Net increase (decrease) in cash... 192,772 (167,636) 85,095 (139,370) (12,751) 97,480
Cash at beginning of period............... -- 192,772 25,136 195,732 110,231 --
----------- ----------- ------------ ----------- ----------- -----------
Cash at end of period..................... $ 192,772 $ 25,136 $ 110,231 $ 56,362 $ 97,480 $ 97,480
----------- ----------- ------------ ----------- ----------- -----------
----------- ----------- ------------ ----------- ----------- -----------
</TABLE>
See notes to financial statements
F-7
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND AND CHANGES IN CORPORATE NAME AND YEAR-END
March Motors Limited (Limited) was formed in 1995 to design and develop high
performance motorcycles to be marketed in the premium-priced segment of the
worldwide motorcycle marketplace. In August 1996, March Motors International,
Inc. (March) was incorporated in the state of Minnesota concurrent with an
exchange of shares whereby, shareholders of Limited exchanged their shares for
an equal number of shares in March; and Limited became a wholly-owned subsidiary
of March. March completed a strategic business transaction at the end of March
1998 through its acquisition (Norton Asset Acquisition) of trademarks,
tradenames, a manufacturing facility, and certain other assets from Norton
Motorcycles Limited (Norton) (see note 2).
Subsequent to the Norton Asset Acquisition, March changed its official name
to Norton Motors International Inc. (the Company) Additionally, the Company also
changed its reporting fiscal year from June 30 to December 31.
The Company intends to market and distribute its products through dealers
and distributors in the United States and abroad.
DEVELOPMENT STAGE ACTIVITY
Through March 31, 1998, the Company's development activities consisted
primarily of efforts to raise funds and the development of motorcycles and other
bodywork components. The Company has not yet commenced the selling of its
products and, therefore, has not generated any revenue therefrom. Accordingly,
at March 31, 1998, the Company is considered to be in the development stage, as
defined in Statement of Financial Accounting Standards No. 7.
Since inception (October 12, 1995) through March 31, 1998 the Company has
incurred losses of $6,874,239. Management of the Company expects to incur
additional substantial losses in the near term. The Company has not marketed any
products or generated revenues from operations since inception. Future revenues,
if any, are expected to be generated from sales of products. No assurance can be
given that the development of the Company's products will be successfully
completed and that such products can be manufactured at acceptable costs and
with appropriate quality or that any products can be successfully marketed.
The likelihood of the success of the Company must be considered in light of
the uncertainty caused by problems, expenses, complications and delays
frequently encountered in connection with the development of new business
ventures. These business risks include the possible need for additional capital,
dependence on a limited number of key personnel, competition and the ability to
obtain required regulatory approvals and market its products and services.
Management is actively pursuing an initial public offering (IPO) of its common
stock to finance operations of the Company (see note 8).
F-8
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 1--BUSINESS AND 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 the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
UNAUDITED INTERIM FINANCIAL DATA
The interim financial data as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998 and for the period from inception (October 12,
1995) through March 31, 1998 are unaudited; however, in the opinion of
management, the interim financial data include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results of operations for these interim periods. The interim financial data are
not necessarily indicative of the results of operations for a full fiscal year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments approximates fair
value.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
PROPERTY AND EQUIPMENT
The building is stated at cost (see note 2) and will be depreciated on a
straight-line basis over 39 years from the date of acquisition. Equipment is
also stated at cost and is being depreciated on a straight-line basis over 7
years.
INTELLECTUAL PROPERTY ASSETS
Intellectual property assets obtained from Norton (see note 2), which
consists mainly of trademarks, will be amortized on a straight-line basis over
17 years.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Under the asset and liability method, deferred
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating
loss and tax credit carryforwards.
F-9
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has not recorded any income tax expense during the period from
inception to March 31, 1998 because of operating losses incurred since
inception.
At December 31, 1997, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $2,500,000. The net operating loss
carryforwards expire through 2012 and are subject to review and possible
adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 contains
provisions that may limit the net operating loss carryforward available to be
used in any given year in the event of significant changes in ownership
interest.
NONMONETARY TRANSACTION
Common stock, options and warrants issued for services are generally
recorded at the estimated fair value of the instrument given or the services
rendered, whichever is more readily determinable.
PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share is computed using the weighted-average
number of common and common equivalent shares outstanding during the periods
presented. Common equivalent shares include convertible subordinated debentures
and stock options and warrants. Common equivalent shares are excluded from the
computation if their effect is antidilutive, except that, pursuant to the rules
of the Securities and Exchange Commission, common equivalent shares (using the
treasury stock method and an assumed initial public offering price of $6 per
share) issued during the twelve months prior to the initial filing date of the
proposed public offering have been included in the computation as if they were
outstanding for all periods presented.
Historical net loss per share information is not considered meaningful due
to the significant changes in the Company's stockholders' equity prior to the
consummation of the IPO. Accordingly, such per share information is not
presented.
The pro forma net loss per common share assumes a three for two stock split
(see note 6).
In early 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS
128). SFAS 128 replaced the calculation of primary and fully diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of stock options, warrants and convertible securities.
Dilutive earnings per share is very similar to the previously reported fully
diluted earnings per share.
PRO FORMA BALANCE SHEET PRESENTATION
The pro forma balance sheet at March 31, 1998 reflects (1) the automatic
conversion of all outstanding convertible subordinated debentures into 1,258,000
shares of common stock (see note 5) (2) the issuance of 166,666 shares of common
stock as settlement of a royalty agreement (see note 7c) and (3) the repurchase
of 90,000 shares of stock and warrants to purchase 90,000 shares of Common Stock
from a former director of the Company (see note 7d), all of which will occur
either before or upon the consummation of the Company's initial public offering
(see note 8).
F-10
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" (APB Opinion No. 25) and related interpretations
in accounting for its stock option plan. FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued in October 1995 and, if fully
adopted, changes the methods for recognition of cost on plans similar to those
of the Company. Adoption of SFAS 123 is optional; however, pro forma disclosures
as if the Company adopted the cost recognition requirements under SFAS 123 are
provided, if applicable.
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash investing and financing activity is summarized as follows:
Advances payable to related parties converted into common stock amounted
to $250,000 during the year ended June 30, 1997 and $38,000 during the six
months ended December 31, 1997.
Notes payable were issued in exchange for real and personal property
($1,150,000) and advances payable to related parties ($280,405) during the
three months ended March 31, 1998.
During the three months ended March 31, 1998, the Company issued
$1,272,500 of convertible subordinated debentures and 3,684,948 shares of
common stock (par value--$36,849) in exchange for intellectual property
valued at $440,000. (See note 2)
NOTE 2--ACQUISITION OF CERTAIN NORTON ASSETS
On March 11, 1998, March and Norton entered into an asset purchase agreement
whereby March acquired various trademarks, tradenames and intellectual property
(the Intellectual property assets) and certain property, equipment and other
assets (the Factory assets) from Norton.
A summary of the consideration paid to Norton for its Intellectual property
assets and the Factory assets is as follows:
1. In consideration for the Intellectual property assets, March issued
3,684,948 shares of common stock to the owners of Norton which amount was
equal to the total of (1) all then issued and outstanding shares of common
stock (2) all pending issuances, and (3) the amount of shares of common
stock that could otherwise be obtained or issued through conversion of
certain indebtedness, subscriptions, rights, plans, instruments, warrants,
options or otherwise such that the shareholders of Norton collectively
became a 50% owner of the Company. In addition, the Company issued
$1,272,500 in convertible subordinated debentures (see note 5) to the Norton
shareholders (Norton Debentures) which was an amount equal to the entire
principal ($1,243,500) and accrued interest ($29,000) on all of the then
currently outstanding debentures (the Norton Debentures are automatically
converted to common stock upon the consummation of the pending IPO of the
Company). The Company also issued warrants to the Norton shareholders for
the purchase of 550,000 common shares of the Company which are exercisable
at $3 per share and expire in four years.
F-11
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 2--ACQUISITION OF CERTAIN NORTON ASSETS (CONTINUED)
2. In consideration for the Norton Factory assets, the Company issued a
Series A note payable to the Norton shareholders in the amount of $1,150,000
(see note 4). This note is collateralized by the Factory assets through a
mortgage on the Company's production facility and all supplies therein. The
Company also issued a warrant to purchase 383,333 shares of common stock at
$3 per share.
Incident to this acquisition of the Norton assets, the Company did not
assume any liabilities or obligations of Norton of any kind or nature currently
outstanding or to be outstanding in the future.
Norton had not been active in the production and marketing of motorcycles
and its Factory assets had not been used for the production of motorcycles for a
number of years. Accordingly, the Company has accounted for these transactions
as an acquisition of assets. The acquisition of the Factory assets have been
recorded at the value of the principal amount of the Series A note payable in
the amount of $1,150,000 which approximates the Factory assets fair value. The
acquisition of the Intellectual property assets have been recorded at $440,000,
the historical cost basis carried over from the Norton shareholders. The
difference between the face value of the convertible subordinated debentures
($1,272,500) and the par value of the common stock ($36,849) issued to the
Norton shareholders and the historical cost of the intellectual property assets
($440,000) amounted to $869,349 and has been included as part of other expenses
in the three month period ended March 31, 1998. Additionally, no value has been
assigned to the 550,000 warrants issued in connection with the acquisition of
the Intellectual property assets. (See note 6)
NOTE 3--ADVANCES PAYABLE--RELATED PARTY
The advances payable to related parties consists of various operating
advances made by certain officers of March. At March 31, 1998 these advances and
accrued interest were converted into Series A and Series C notes payable (see
note 4).
Interest expense on these advances during the six months ended December 31,
1997 and the three months ended March 31, 1998 amounted to $6,750 and $9,252,
respectively.
NOTE 4--NOTES PAYABLE--RELATED PARTIES
The Company has issued both Series A and Series C notes during the three
months ended March 31, 1998. These notes were issued as a result of (1) the
conversion of $280,405 in advances and accrued interest payable (see note 3),
(2) $170,000 in operating advances from shareholders of March and Norton, and
(3) $1,150,000 in connection with the purchase of the Norton Factory assets (see
note 2). Each note was issued with warrants equivalent to one-third of the
principal amount of the note. The warrants are
F-12
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 4--NOTES PAYABLE--RELATED PARTIES (CONTINUED)
exercisable at $3 per share and expire three years from the date of issuance. A
summary of these notes at March 31, 1998 is as follows:
<TABLE>
<CAPTION>
MARCH
31, 1998
--------------
<S> <C>
(UNAUDITED)
Series A notes bear interest at 10% per annum and mature at the earlier of nine months from the
date of issuance or upon the closing of an IPO.................................................. $ 1,372,252
Series C note bears interest at 10% per annum and mature at the earlier of 2 years from the date
of issuance or upon the closing of an IPO....................................................... 228,153
--------------
$ 1,600,405
--------------
</TABLE>
All of the above notes have been issued to current shareholders and/or
directors of the Company. Interest expense on these notes for the three month
period ended March 31, 1998 was not material. Subsequent to March 31, 1998, the
Company issued an additional $1,287,994 in Series A notes.
NOTE 5--CONVERTIBLE SUBORDINATED DEBENTURES
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
(UNAUDITED)
The convertible subordinated debentures (Debentures) bear interest at 10% per annum,
payable semi-annually, and mature in September 2000. The Debentures are
automatically convertible into common stock of the Company upon the consummation of
the IPO. The Debentures may also be converted at any time into common shares at the
option of the holder based upon the lesser of $2 per share or one-half the proposed
IPO price........................................................................... $ 1,097,000 $ 2,516,000
------------ ------------
</TABLE>
NOTE 6--STOCKHOLDERS' (DEFICIT)
STOCK SPLIT
In September 1997, the Board of Directors approved a three-for-two stock
split of issued and outstanding common shares. In addition, in March 1998 the
Board of Directors approved an increase in the authorized number of shares of
common stock to 50,000,000. All shares, per share, option and warrant
information in the accompanying financial statements has been restated to
reflect the effect of the split and change in authorized shares.
STOCK OPTION PLANS
Under the Company's stock option plan, incentive and nonqualified stock
options may be granted to employees, consultants and outside directors, to
purchase a maximum of 750,000 shares of Common Stock.
F-13
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 6--STOCKHOLDERS' (DEFICIT) (CONTINUED)
Under the incentive plan, the exercise price of each option shall not be less
than fair value of the share on the date of grant, and an option's maximum term
is ten years.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its non-qualified stock option plan as stock options granted
under this plan have an exercise price equal to or greater than the estimated
fair value on the date of grant. Since inception, the Company has issued options
to three of its employees/ directors. If compensation costs had been determined
based upon the fair value at the grant date for awards consistent with SFAS No.
123, the effects on net loss and pro forma net loss per share would not have
been material.
The following table summarizes the Company's stock option activity for the
periods ended June 30, 1997, December 31, 1997 and March 31, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1997 DECEMBER 31, 1997 MARCH 31, 1998
----------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period...................... 262,500 $ .67 262,500 $ 4.57 262,500 $ 4.57
Granted............................................... 262,500 4.57 -- -- 325,000 6.00
Exercised............................................. (262,500) .67 -- -- -- --
---------- --------- ---------
Outstanding at end of period............................ 262,500 4.57 262,500 4.57 587,500 5.36
---------- ----- --------- ----- --------- -----
</TABLE>
The number of stock options exercisable at June 30, 1997, December 31, 1997
and March 31, 1998 was 262,500, 262,500 and 387,500, respectively.
The following table summarizes information about the Company's stock options
outstanding:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------- ----------- --------------- ----------- ----------- -----------
December 31, 1997................................ $ 4 - $6 262,500 9 $ 4.57 262,500 $ 4.57
March 31, 1998................................... $ 4 - $6 587,500 9.34 5.36 387,500 5.03
</TABLE>
WARRANTS
In early 1996, the Company issued warrants to purchase 450,000 shares of
common stock at $.45 and $.67 per share in connection with certain loans made by
directors of the Company. The fair value of those warrants were estimated at
$130,500 and have been reflected as part of interest expense in the accompanying
statement of operations for the period ended June 30, 1996. Additionally, in
June 1996 the Company
F-14
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 6--STOCKHOLDERS' (DEFICIT) (CONTINUED)
issued warrants to purchase 270,000 shares of common stock at $.67 per share.
These warrants were issued for consulting services and were valued at $47,100.
During the year ended June 30, 1997, March issued 545,760 warrants at $2.67 per
share in connection with private placement offerings and 55,500 warrants at $.67
per share in connection with advances made by certain directors of the Company.
Additionally, in connection with the issuance of Series A and Series C notes
(see note 4) during the three months ended March 31, 1998, the Company issued
533,466 warrants exercisable at $3 per share. During March 1998, in connection
with the Norton Asset Acquisition (see note 2), the Company issued 550,000
warrants exercisable at $3 per share, expiring four years from the date of
issuance. The value of these warrants at the time of issuance was estimated by
management and determined not to be material to the Company's results of
operations and financial position.
The following table summarizes activity for warrants through March 31, 1998:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OUTSTANDING PRICE
----------- --------------
<S> <C> <C>
Balance, June 30, 1996.............................................................. 720,000 $.45 to $.67
Issued............................................................................ 601,260 .67 to 2.67
Exercised......................................................................... (410,250) .45 to .67
----------- --------------
Balance, June 30, 1997.............................................................. 911,010 .67 to 2.67
Issued............................................................................ -- --
Exercised......................................................................... (140,250) .67
----------- --------------
Balance, December 31, 1997.......................................................... 770,760 .67 to 2.67
Issued............................................................................ 1,083,466 3.00
Exercised......................................................................... -- --
----------- --------------
Balance, March 31, 1998 (unaudited)................................................. 1,854,226 $.67 to $3.00
----------- --------------
</TABLE>
NOTE 7--COMMITMENTS AND CONTINGENCIES
A. EMPLOYMENT AGREEMENTS
The Company has a three year employment agreement with its President which
expires in January 2001. This agreement provides for salary levels of $60,000
per annum, a one time restricted stock grant of 100,000 shares, and a stock
option for 300,000 shares of common stock exercisable at $6 per share 100,000
shares of which are immediately exercisable, 100,000 of which are exercisable on
the first anniversary of the grant date and 100,000 of which are exercisable on
the second anniversary of the grant date. The President may defer all
compensation until the consummation of the Company's proposed IPO, and convert
such amount into shares of common stock at the rate of $3 per share.
In June 1998, the Company entered into a one year employment agreement with
its Chief Executive Officer. Terms of the agreement provide for stock options of
100,000 shares of common stock exercisable at $6 per share.
F-15
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED)
B. DEVELOPMENT AGREEMENTS
The Company has entered into agreements (Development Contracts) to develop
various components for five models of high performance motorcycles, with each
model intended for a distinct segment of the premium-priced motorcycle
marketplace. A substantial amount of the Company's design and development has
been completed, with all remaining development to be accomplished by Melling
Consultancy Design Limited (MCD) under the above mentioned Development
Contracts. The owner of MCD is also a stockholder and director of the Company.
Manufacture and assembly of the Company's products will take place at its
recently acquired production facility in England. Under the terms of the
Development Contracts the Company is required to make future payments as
described below:
<TABLE>
<S> <C>
1998............................................................ $ 691,200
1999............................................................ 691,200
2000............................................................ 480,000
2001............................................................ 480,000
2002............................................................ 480,000
---------
$2,822,400
---------
</TABLE>
The Development Contracts provide for the Company to retain all rights and
title to design technology and development performed by MCD for the Company
including any trade secrets and patents. The Development Contracts also contain
non-compete and non-disclosure terms to protect the proprietary rights of the
Company, and also provide that MCD and the Company will use their best efforts
to cooperate in the commercial production and marketing of the Company's
motorcycle products. MCD and the Company also have certain termination rights in
the event of material breaches or insolvency of either party, with the Company
retaining complete ownership of all technology and products developed by MCD
prior to any such terminations.
A substantial amount of the research and development costs included in the
accompanying statement of operations is related to the above Development
Contracts.
C. ROYALTY SETTLEMENT
In September 1997, the Company entered into an agreement with one of its
developers (who is also a stockholder and director of the Company) whereby the
Company agreed to issue the developer shares of Common Stock equal to
$1,000,000, based upon the proposed IPO price per share, in exchange for all of
the developer's rights to receive royalty payments on future sales. This
transaction has been reflected as a part of research and development expenses
and as additional paid-in capital, in the six month period ended December 31,
1997.
D. PRODUCT DISTRIBUTION SETTLEMENT
In January 1998, the Company entered into a settlement agreement with a
former director. Under the terms of the agreement, the Company regained certain
product distribution rights in North America which
F-16
<PAGE>
NORTON MOTORS INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS THEN ENDED IS UNAUDITED)
NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED)
had previously been owned by the former director, in exchange for $180,000
payable at the earlier of an IPO or June 30, 1998. Additionally, the Company has
agreed to repurchase 90,000 shares of its common stock along with the 90,000
warrants from this former director for $120,000. Payment of the $120,000 is also
due at the earlier of an IPO or June 30, 1998. The accompanying March 31, 1998
financial statements include an accrual and a charge to other expenses for the
$180,000 production distribution rights settlement.
E. ACQUISITION FINDERS AGREEMENT
In February 1998, March entered into a settlement of its finders agreement
relating to the Norton Asset Acquisition by issuing 250,000 shares of its common
stock (valued at $3 per share). The settlement amounted to $750,000 and is
included as part of other expenses in the three months ended March 31, 1998.
F. WRITE-OFF OF ACQUISITION DEPOSIT
During the six months ended December 31, 1997 the Company terminated an
agreement relating to the proposed acquisition of a race car manufacturer. As a
result, the Company wrote off, to other expense, $254,595 representing its
initial deposit on the proposed acquisition.
G. CONSULTING AGREEMENT
On March 31, 1998 the Company entered into a three-year consulting agreement
with Global Coin Corporation ("GCC") whereby the Company engaged GCC to assist
the Company in its development program, start-up and operations. Under the terms
of the consulting agreement, GCC is to receive compensation in the form of an
annual sum of $60,000, payable in equal monthly installments of $5,000.
NOTE 8--SUBSEQUENT EVENT
PROPOSED PUBLIC OFFERING
The Company intends to file a Registration Statement with the SEC for the
sale of 3,000,000 shares of Common Stock (excluding the underwriters'
over-allotment option for additional shares). Upon the effectiveness of this
offering:
- All outstanding convertible subordinated debentures will convert to
1,258,000 shares of common stock (see note 5).
- The Company will be required to issue to one of its directors $1,000,000
worth of shares of its common stock based upon the IPO price (see note
7c).
- The Company will be required to repay the principal and interest due on
all outstanding notes payable (see note 4).
F-17
<PAGE>
[PICTURES OF HISTORICAL NORTON MOTORCYCLES]
CLASSIC NORTON MOTORCYCLES
THESE PICTURES DEPICT NORTON MOTORCYCLES MADE EARLIER IN THIS CENTURY.
NORTON MOTORS INTERNATIONAL INC. IS A NEW COMPANY ORGANIZED IN 1995 AND IS NOT
RELATED TO THE COMPANIES WHICH SOLD SUCH NORTON MOTORCYCLES, EXCEPT THAT NORTON
MOTORS INTERNATIONAL INC. BELIEVES IT HAS SECURED CERTAIN TRADEMARKS PREVIOUSLY
USED BY THE FORMER NORTON COMPANIES.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 7
Use of Proceeds.................................. 17
Capitalization................................... 19
Dilution......................................... 20
Dividend Policy.................................. 20
Selected Financial Data.......................... 21
Management's Discussion and Analysis of Financial
Condition and Plan of Operation................ 22
Business......................................... 26
Management....................................... 39
Certain Transactions............................. 43
Principal Stockholders........................... 45
Description of Securities........................ 47
Shares Eligible For Future Sale.................. 49
Underwriting..................................... 50
Legal Matters.................................... 51
Experts.......................................... 52
Available Information............................ 52
Index to Financial Statements.................... F-1
</TABLE>
------------------------
UNTIL , 1998 (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.
[LOGO]
MOTORS INTERNATIONAL INC.
3,000,000 SHARES
OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
DIRKS & COMPANY, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as hereinafter set forth, there is no statute, charter provision,
by-law, contract or other arrangement under which any controlling person,
director or officer of Norton Motors International Inc. is insured or
indemnified in any manner against liability which he may incur in his capacity
as such.
The Articles of Incorporation, as amended ("Articles of Incorporation"), of
the Company provides that the Company shall indemnify to the fullest extent
permitted by Minnesota law any person whom it may indemnify thereunder,
including directors, officers, employees and agents of the Company. Such
indemnification (other than as ordered by a court) shall be made by the Company
only upon a determination that indemnification is proper in the circumstances
because the individual met the applicable standard of conduct. Advances for such
indemnification may be made pending such determination. Such determination shall
be made by a majority vote of a quorum consisting of disinterested directors, or
by independent legal counsel or by the stockholders. In addition, the Articles
of Incorporation provides for the elimination, to the extent permitted by
Minnesota law, of personal liability of directors to the Company and its
stockholders for monetary damages for breach of fiduciary duty as directors.
The Company has obtained a directors and officers insurance and company
reimbursement policy in the amount of $1,000,000. The policy insures directors
and officers against unindemnified loss arising from certain wrongful acts in
their capacities and would reimburse the Company for such loss for which the
Company has lawfully indemnified the directors and officers.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission with respect to
the effect of any indemnification for liabilities arising under the Securities
Act of 1933, as amended ("Securities Act").
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be borne
by the Company in connection with the offering described in the Registration
Statement, other than underwriting commissions and discounts. With the exception
of the SEC Registration Fee and NASD Filing Fee, all amounts shown are
estimates.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 6,615.38
American Stock Exchange Fee.................................... 50,000.00
NASD Filing Fee................................................ 2,743.00
Legal Fees and Expenses........................................ 150,000.00
Accounting Fees and Expenses................................... 90,000.00
Printing and Engraving Expenses................................ 75,000.00
Blue Sky Fees and Expenses..................................... 40,000.00
Transfer Agent's and Registrar's Fees.......................... 5,000.00
Miscellaneous Expenses......................................... 80,641.62
----------
Total...................................................... $500,000.00
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the following securities were sold by the
Company without registration under the Securities Act. Except as otherwise
indicated, the securities were sold by the Company in reliance upon the
exemption provided by Section 4(2) of the Securities Act. With respect to such
transactions, each purchaser of securities represented to the Company that such
purchaser (i) had sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the risks and merits of the
transaction and was capable of bearing the economic risks of such investment
II-1
<PAGE>
including a complete loss of its investment, (ii) had an opportunity to discuss
the business, management and financial affairs of the Company with the Company's
representatives, (iii) acquired the securities for his own account for the
purpose of investment and not with a view to or for resale in connection with
any distribution thereof and (iv) understood that (a) the securities had not
been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof, (b) the securities must be held indefinitely
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration, (c) the securities would bear a legend to
such effect and (d) the Company will make a notation on its transfer books to
such effect. All transactions have been adjusted to reflect the stock split of
the Company's outstanding Common Stock effected in September 1997 on the basis
of 3 shares of Common Stock for every 2 shares of Common Stock.
In October 1995, the Company issued the following shares of Common Stock at
a per share offering price of $.01 to the following persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
John R. Silseth Sr....................................................... 525,000
Donald F. Shiff.......................................................... 90,000
Joseph Novogratz......................................................... 75,000
Wm. Delmonico............................................................ 37,500
Dennis J. Hinton......................................................... 75,000
Genesis Capital Group.................................................... 37,500
</TABLE>
From March 1996 through June 1996, the Company issued the following shares
of Common Stock at a per share offering price of $.67 per share to the following
persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Neal Broten.............................................................. 15,000
Douglas Anderson......................................................... 15,000
Howard Cox............................................................... 37,500
Michael F. Bank.......................................................... 15,000
John Tsatsos............................................................. 15,000
J&J Acres Trust.......................................................... 37,500
Ernest Roberg............................................................ 37,500
David L. Bank............................................................ 30,000
Steven Graybow........................................................... 22,500
Scott C. Bullock......................................................... 15,000
John T. Kubinski......................................................... 37,500
Marvin D. Bullock........................................................ 37,500
Timothy D. Burns......................................................... 15,000
Wayne W. Mills........................................................... 22,500
Barry Gilbert Shiff...................................................... 7,500
John C. Field............................................................ 7,500
Frederick C. Boos........................................................ 30,000
Joseph I. Langer......................................................... 15,000
Dresser Family Trust..................................................... 15,000
John R. Silseth, Sr...................................................... 75,000
Donald F. Shiff.......................................................... 75,000
Joseph Novogratz......................................................... 75,000
Thomas Hay Trust......................................................... 22,500
</TABLE>
II-2
<PAGE>
In June 1996, the Company issued the following shares of Common Stock at a
per share offering price of $1.67 to the following person:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- ---------------------
<S> <C>
Joel Ronning............................................................. 9,000
</TABLE>
In June 1996, the Company issued the following shares of Common Stock in
exchange for services rendered:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Joseph Novogratz......................................................... 75,000
</TABLE>
In December 1996, the Company issued the following Units at an offering
price of $2.50 per Unit (each Unit equal to 1.5 shares of Common Stock and one
warrant to purchase 1.5 shares of Common Stock at an exercise price of $2.67 of
per share) to the following persons. In connection with this private placement,
R.J. Steichen, the agent for the private placement, was given an agent's warrant
to purchase 45,480 shares at $1.67 for five years which upon expiration is
converted into a three year warrant to purchase 45,480 shares at $2.67 per
share.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
J&J Acres Trust............................................................ 30,000
Douglas Anderson........................................................... 7,500
Frederick C. Boos.......................................................... 10,500
Scott Bullock.............................................................. 7,500
Alex Daneman............................................................... 90,000
Darwin J. DeRosier......................................................... 7,500
Timothy D. Foster.......................................................... 30,000
Robert L. Gearou........................................................... 15,000
Sam Hong................................................................... 6,000
Dr. Michael King........................................................... 7,500
James & Eliz Kochiras...................................................... 15,000
James Kramer 401(k)........................................................ 6,000
John T. Kubinski........................................................... 7,500
Wayne W. Mills............................................................. 30,000
Joseph Novogratz........................................................... 19,800
D. Bradly Olah............................................................. 15,000
Noel P. Rahn............................................................... 30,000
Donald F. Shiff............................................................ 15,000
John F. Stapleton.......................................................... 30,000
Nicolas P. Streglis Trust.................................................. 15,000
Gary & Leslie Troyer....................................................... 30,000
Frederick Watson Trust..................................................... 30,000
</TABLE>
In May 1997, the Company issued the following shares of Common Stock
pursuant to the exercise of warrants at an exercise price of $.45 per share to
the following person:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Joseph Novogratz........................................................... 225,000
</TABLE>
II-3
<PAGE>
In February 1997, the Company issued the following shares of Common Stock
for services rendered to the following persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME COMMON STOCK
- --------------------------------------------------------------------------- -----------------
<S> <C>
Joseph Novogratz........................................................... 75,000
Robert O. Knutson.......................................................... 75,000
James Kramer............................................................... 15,000
Austin Friars House........................................................ 150,000
</TABLE>
In February 1997, the Company issued the following shares of Common Stock
upon the exercise of certain options and warrants at an exercise price of $.67
per share to the following persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
John Kubinski............................................................ 60,000
Wayne Mills.............................................................. 75,000
Maru Partners............................................................ 15,000
</TABLE>
In February and July 1997, the Company issued the following shares of Common
Stock upon the exercise of certain options and warrants at an exercise price of
$.67 per share to the following persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Donald F. Shiff.......................................................... 51,000
Real Estate Graphics..................................................... 30,000
Neil Sell................................................................ 3,750
Thomas Petters........................................................... 7,500
Michael F. Bank.......................................................... 6,000
David L. Bank............................................................ 6,000
Neil Sell................................................................ 3,750
Michael F. Bank.......................................................... 9,000
David L. Bank............................................................ 9,000
Carol M. Kramer.......................................................... 7,500
Donald F. Shiff.......................................................... 15,000
</TABLE>
In February 1997 the Company issued the following shares of Common Stock
pursuant to option exercises at an exercise price of $.67 per share to the
following persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Joseph Novogratz......................................................... 193,500
James Kramer............................................................. 60,000
Larry Kramer............................................................. 15,000
Harvey Swenson........................................................... 15,000
Dennis Herkal............................................................ 6,000
</TABLE>
II-4
<PAGE>
In 1997, the Company issued the following principal amounts of 10%
Convertible Subordinated Debentures Series 1997 to the following persons:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF DEBENTURES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Robert L. Gearou............................................................ $ 50,000
Bob Inc..................................................................... 50,000
John T. Vetscher............................................................ 40,000
Gus W. Boosalis............................................................. 30,000
Timothy Burns............................................................... 10,000
Howard S. Cox............................................................... 25,000
W. Merton & J. Dresser, JTWROS.............................................. 30,000
Gary H. & Jaqueline Frana, JTWROS........................................... 21,000
George C. Klima............................................................. 15,000
Richfield Bank & Trust Co, TTEE FBO George C. Klima IRA..................... 35,000
Joseph I. Langer............................................................ 25,000
Robert R. Olson............................................................. 18,000
Richard R. Tieva............................................................ 24,000
Gary & Leslie Troyer JTWROS................................................. 30,000
John Tsatsos................................................................ 10,000
Frederick O. Watson Trust................................................... 60,000
William S. & Nancy A. Wright JTWROS......................................... 30,000
David Boyd.................................................................. 25,000
Ann E. Nardini.............................................................. 7,500
Donald F. Shiff............................................................. 10,000
Robert E. Long.............................................................. 26,000
Gene J. Helsing............................................................. 10,000
Lester Goetzke.............................................................. 4,000
REG Partners LLP............................................................ 140,000
Donald Blakstad............................................................. 50,000
Ruth Lordan................................................................. 20,000
Jeff L. Whitmore............................................................ 10,000
KB Development Co. II LLP................................................... 25,000
Chia-Hao & Jane Sun Ha Chang, JTWROS........................................ 5,000
Paul and Shirley Kramer..................................................... 10,000
Edward & Mary Kramer........................................................ 12,000
Dennis Herkal............................................................... 38,000
James and Carol Kramer...................................................... 46,000
Duane Peterson.............................................................. 20,000
Relience/Kramer............................................................. 15,000
Robert Cieslukowski......................................................... 250,000
Gene Helseng................................................................ 5,000
Kramer Debt Conversion...................................................... 12,000
</TABLE>
In October 1997, in exchange for payables in the amount of $179,040, the
Company issued Common Stock to the following person at $3.00 per share:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
Al Melling................................................................................... 59,680
</TABLE>
II-5
<PAGE>
In March 1998, the Company issued Common Stock in exchange for services
rendered to the following persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Joseph Novogratz......................................................... 100,000
Minneapple Capital....................................................... 250,000
</TABLE>
In March 1998, the Company issued the following principal amounts of 10%
Convertible Subordinated Debentures, Series 1997 in connection with the Norton
Asset Acquisition to the following entities:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF
NAME DEBENTURES
- -------------------------------------------------------------------------- ------------------
<S> <C>
Cataract N.V.(1).......................................................... $ 1,145,250
Global Coin Corporation(2)................................................ 127,250
</TABLE>
In March 1998, the Company issued the following principal amounts of Series
A 1998 10% Notes in connection with the Norton Asset Acquisition to the
following entities:
<TABLE>
<CAPTION>
AMOUNT OF SERIES A
NAME NOTES
- --------------------------------------------------------------------- -----------------------
<S> <C>
Cataract N.V.(1)..................................................... $ 1,035,000
Global Coin Corporation(2)........................................... 115,000
</TABLE>
- ------------------------
(1) In connection with the Norton Asset Acquisition and a cash contribution of
$90,000, Cataract N.V. was given 870,000 warrants to purchase Common Stock
at $3.00 per share. Such warrants were attached to the Series A Notes.
(2) In connection with the Norton Asset Acquisition and a cash contribution of
$10,000, Global Coin Corporation was given 96,666 warrants to purchase
Common Stock at $3.00 per share. Such warrants were attached to the Series A
Notes.
In March 1998, the Company issued Common Stock in connection with the
acquisition of certain assets of Norton Motors Limited to the following
entities.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Cataract N.V............................................................. 3,316,453
Global Coin Corporation.................................................. 368,495
</TABLE>
In March 1998, the Company issued the following principal amount of Series C
1998 10% Note to the following person upon the conversion of certain advances
payable. The Series C 1998 Note has a warrant to purchase shares of Common Stock
equal to 1/3 of the principal amount of the note at $3.00 per share:
<TABLE>
<CAPTION>
NAME AMOUNT OF NOTE
- ------------------------------------------------------------------------------ --------------
<S> <C>
Joseph Novogratz.............................................................. $ 228,153
</TABLE>
In March 1998, the Company issued the following principal amount of Series A
1998 10% Note to the following person upon the conversion of certain advances
payable. The Series A 1998 Note has a warrant to purchase shares of Common Stock
equal to 1/3 of the principal amount of the note at $3.00 per share:
<TABLE>
<CAPTION>
NAME AMOUNT OF NOTE
- ------------------------------------------------------------------------------ --------------
<S> <C>
Donald Shiff.................................................................. $ 52,252
</TABLE>
II-6
<PAGE>
From March 1998 to June 12, 1998, the Company issued the following principal
amounts of Series A 1998 10% Notes in a private placement to the following
persons. Each Series A 1998 Note has a warrant to purchase shares of Common
Stock equal to 1/3 of the principal amount of the note at $3.00 per share:
<TABLE>
<CAPTION>
NAME AMOUNT OF NOTES
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Cataract, N.V................................................................ $ 90,000
Global Coin Corporation...................................................... 10,000
Joseph Novogratz............................................................. 10,000
Donald Shiff................................................................. 20,000
6400 Partnership............................................................. 40,000
Edward Homes................................................................. 50,000
Richard Wawrzniak............................................................ 5,000
Robert Cieslukowski.......................................................... 200,000
Edward Kramer................................................................ 20,000
Vernon M. Pollard............................................................ 20,000
David G. Ness................................................................ 21,000
Michael Baghodoian........................................................... 500,000
Hemisphere Management........................................................ 120,000
BOB Inc...................................................................... 50,000
Steven Graybow............................................................... 21,000
Robert L. Gearou............................................................. 50,000
Fidelity Trust............................................................... 150,000
Cataract N.V................................................................. 72,895
Global Coin Corporation...................................................... 8,099
</TABLE>
The sales set forth above are claimed to be exempt from registration with
the Securities and Exchange Commission pursuant to Section 4(2) of the
Securities Act of 1933, as amended, as transactions by an issuer not involving
any public offering. All certificates representing the shares of Common Stock
issued by the Registrant referred to herein and currently outstanding have been
properly legended.
II-7
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.
*3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 By-laws of the Company, as amended.
4.1 Form of Common Stock Certificate.
4.2 Grant of Registration Rights of Common Stock and Warrant Stock by March Motors International, Inc. dated
March 31, 1998.
4.3 Form of Series A 1998 10% Note.
4.4 Form of Series C 1998 10% Note.
4.5 Form of Warrant Certificate (attached to 1998 10% Note).
4.6 Form of 10% Convertible Subordinated Debenture, Series 1997 due September 30, 2000.
4.7 Representative's Warrant Agreement between the Company and the Representative.
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
*10.1 Asset Purchase Agreement dated as of March 11, 1998 by and between March Motors International, Inc. and
Norton Motorcycles Limited, as amended.
10.2 Development and Marketing Agreement dated December 15, 1995 by and between March Group PLC and March
Motors Limited.
10.3 Development and Marketing Agreement dated December 15, 1995 by and between M.C.D. Limited and March
Motors Limited.
10.4 Development and Marketing Agreement dated as of November 1, 1996 by and between M.C.D. Limited, March
Motors Limited and Al Melling.
10.5 Promotional Agreement dated as of February 26, 1997 by and between M.C.D. Limited, March Motors
Manufacturing Company and Al Melling.
10.6 Agreement dated as of September 4, 1997 by and between M.C.D. Limited and March Motors International,
Inc.
10.7 Employment Agreement by and between March Motors International, Inc. and Joseph F. Novogratz dated
January 1, 1998, as amended.
10.8 Consulting Agreement by and between March Motors International, Inc. and Global Coin Corporation dated
March 31, 1998.
10.9 Financial Advisory Services Agreement dated February 25, 1997 by and between March Motors Manufacturing
Company and Austin Friars Securities Limited.
10.10 Settlement Letter Agreements dated January 5, 1998 between North Pacific Lines, Alex Daneman and March
Motors Ltd.
10.11 Employment Agreement by and between Norton Motors International Inc. and Myron Calof dated as June 1,
1998.
10.12 Finders Agreement dated February 15, 1997 between Minneapple Capital, Ltd. and March Motors
Manufacturing Company.
10.13 Settlement Agreement dated as of March 31, 1998 between Minneapple Capital, Ltd. and Norton Motors
International Inc.
10.14 Norton Motors International Inc. 1997 Incentive and Stock Option Plan.
*23.1 Consent of Olshan Grundman Frome & Rosenzweig LLP, included in Exhibit 5.
23.2 Consent of Pannell Kerr Forster PC, independent auditors.
23.3 Consent of Stirtz Bernards Boyden Surdel & Larter, P.A. independent accountants.
24 Power of Attorney (included in Part II, page II-9).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
II-8
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) File, during any period in which it offers or sales securities, a
post-effective amendment to this registration statement to;
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the
securities offered, in the offering of such securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The undersigned small business issuer will provide to the Representative at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer 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 Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of the securities at that time as the initial
bona fide offering of those securities.
II-9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement, to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 18th day of June,
1998.
NORTON MOTORS INTERNATIONAL INC.
BY: /S/ MYRON CALOF
-----------------------------------------
Name: Myron Calof
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph Novogratz and Myron Calof, and each one of
them individual, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this registration statement, and any registration
statement relating to the offering hereunder pursuant to Rule 462 under the
Securities Act of 1933, as amended, and to file the same with the Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ JOSEPH NOVOGRATZ Co-Chairman of the Board, June 18, 1998
- ------------------------------ President and Director
Joseph Novogratz
/s/ LUIGI AQUILINI Co-Chairman of the Board June 18, 1998
- ------------------------------ and Director
Luigi Aquilini
/s/ MYRON CALOF Chief Executive Officer and June 18, 1998
- ------------------------------ Director (Principal
Myron Calof Executive Officer)
Chief Financial Officer June 18, 1998
/s/ STEPHEN R. CIESLUKOWSKI (Principal Officer and
- ------------------------------ Principal Accounting
Stephen R. Cieslukowski Officer)
/s/ AL MELLING Director June 18, 1998
- ------------------------------
Al Melling
/s/ ROBERT CIESLUKOWSKI Director June 18, 1998
- ------------------------------
Robert Cieslukowski
/s/ ANTHONY VAUGHAN Director June 18, 1998
- ------------------------------
Anthony Vaughan
II-10
<PAGE>
Exhibit 1
OHS DRAFT
6/10/98
[Form of Underwriting Agreement - Subject to Additional Review]
3,000,000 Shares of Common Stock
NORTON MOTORS INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1998
DIRKS & COMPANY, INC.
As Representative of the
several Underwriters named
in Schedule A to Exhibit A
annexed hereto
520 Madison Avenue
10th Floor
New York, New York 10022
Ladies and Gentlemen:
Norton Motors International, Inc., a Minnesota corporation (the
"Company"), confirms its agreement with Dirks & Company, Inc. ("Dirks") and each
of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom Dirks is acting as Representative
(in such capacity, Dirks shall hereinafter be referred to as "you" or the
"Representative"), with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective number of
shares ("Shares") of the Company's common stock, $0.01 par value per share
("Common Stock"). The aggregate 3,000,000 shares of Common Stock are hereinafter
referred to as the "Firm Securities".
Upon your request, as provided in Section 2(b) of this Agreement,
the Company shall also issue and sell to the Underwriters, acting severally and
not jointly, up to an additional 450,000 shares of Common Stock for the purpose
of covering over-allotments, if any. Such 450,000 shares of Common Stock are
hereinafter collectively referred to as the "Option
<PAGE>
Securities." The Company also proposes to issue and sell to you warrants (the
"Representative's Warrants") pursuant to the Representative's Warrant Agreement
(the "Representative's Warrant Agreement") for the purchase of an additional
450,000 shares of Common Stock. The shares of Common Stock issuable upon
exercise of the Representative's Warrants are hereinafter referred to as the
"Representative's Securities." The Firm Securities, the Option Securities, the
Representative's Warrants and the Representative's Securities (collectively,
hereinafter referred to as the "Securities") are more fully described in the
Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-_________), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Securities, the Option Securities and the Representative's
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement",
and the form of prospectus in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or any part of any thereof
and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus, the
Registration Statement and Prospectus at the time of filing thereof conformed
with the requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement or Prospectus at the time of
filing thereof contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that this representation and warranty does not apply to
statements made in reliance upon
2
<PAGE>
and in conformity with written information furnished to the Company with respect
to the Underwriters by or on behalf of the Underwriters expressly for use in
such Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in strict conformity with information
furnished to the Company in writing by or on behalf of any Underwriter expressly
for use in the Preliminary Prospectus, Registration Statement or Prospectus or
any amendment thereof or supplement thereto.
(d) Each of the Company and the Company's wholly-owned
subsidiary, March Motors Limited, a Minnesota corporation ("March") (such
subsidiary is hereinafter referred to as the "Subsidiary"), has been duly
organized and is validly existing as a corporation in good standing under the
laws of the state of its incorporation. Except as set forth in the Prospectus,
neither Company nor the Subsidiary owns an interest in any corporation,
partnership, trust, joint venture or other business entity. Each of the Company
and the Subsidiary is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such qualification or
licensing. The Company owns, directly or indirectly, one hundred percent (100%)
of the outstanding capital stock of the Subsidiary, and all of such shares have
been validly issued, are fully paid and non-assessable, were not issued in
violation of any preemptive rights and are owned free and clear of any liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever. Each of the Company and the
Subsidiary has all requisite power and authority (corporate and other), and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the Company and the
Subsidiary is and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all applicable federal, state, local and foreign laws, rules and
regulations; and neither the Company nor the Subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The disclosures in
the Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the
3
<PAGE>
Company's and the Subsidiary's business as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Representative's Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
or, when issued and paid for, will conform, in all respects to all statements
with respect thereto contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable and the holders thereof
have no rights of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company. The
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any liability solely
as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities will be in due and proper form.
Upon the issuance and delivery pursuant to the terms hereof of the Securities to
be sold by the Company hereunder, the Underwriters or the Representative, as the
case may be, will acquire good and marketable title to such Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any kind whatsoever.
(f) The consolidated financial statements of the Company and
the Subsidiary, together with the related notes and schedules thereto, included
in the Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position, income, changes in cash flow, changes in
stockholders' equity and the results of operations of the Company and the
Subsidiary at the respective dates and for the respective periods to which they
apply and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved and such financial
statements as are audited have been examined by Stirtz Bernards Boyden Surdel &
Larter and Pannell Kerr Foster, P.C., who are independent certified public
accountants within the meaning of the Act and the Rules and Regulations, as
indicated in their respective reports filed therewith. There has been no adverse
change or development involving a prospective adverse change in the condition,
financial or otherwise, or in the earnings, position, prospects, value,
operation, properties, business, or results of operations of the Company or the
Subsidiary, whether or not arising in the ordinary course of business, since the
date of the financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and intangible,
and the business of the Company
4
<PAGE>
and the Subsidiary, conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. Financial
information (including, without limitation, any pro forma financial information)
set forth in the Prospectus under the headings "Summary Financial Data,"
"Selected Financial Data," "Capitalization," and "Management's Discussion and
Analysis of Financial Condition and Plan of Operation," fairly present, on the
basis stated in the Prospectus, the information set forth therein, and have been
derived from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus; and, in the case of pro forma
financial information, if any, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein. The amounts shown as
accrued for current and deferred income and other taxes in such financial
statements are sufficient for the payment of all accrued and unpaid federal,
state, local and foreign income taxes, interest, penalties, assessments or
deficiencies applicable to the Company and the Subsidiary, whether disputed or
not, for the applicable period then ended and periods prior thereto; adequate
allowance for doubtful accounts has been provided for unindemnified losses due
to the operations of the Company and the Subsidiary; and the statements of
income do not contain any items of special or nonrecurring income not earned in
the ordinary course of business, except as specified in the notes thereto.
(g) Each of the Company and the Subsidiary (i) has paid all
federal, state, local, and foreign taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriters of the
Firm Securities and the Option Securities from the Company and the purchase by
the Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
(i) Each of the Company and the Subsidiary maintains insurance
policies, including, but not limited to, general liability, and property
insurance, which insures each of the Company, the Subsidiary and their
respective employees, against such losses and risks generally insured against by
comparable businesses. Neither the Company nor the Subsidiary (A) has failed to
give notice or present any insurance claim with respect to any matter, including
but not limited to the Company's business, property or employees, under any
insurance policy or surety bond in a due and timely manner, (B) has any disputes
or claims against any underwriter of such insurance policies or surety bonds or
has failed to pay any premiums due and payable thereunder, or (C) has failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company or the Subsidiary.
5
<PAGE>
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or circumstances
that may give rise to the same), or involving the properties or business of, the
Company or the Subsidiary which (i) questions the validity of the capital stock
of the Company, this Agreement or the Representative's Warrant Agreement, or of
any action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Representative's Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties, business or
results of operations of the Company or the Subsidiary.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement and
the Representative's Warrant Agreement and to consummate the transactions
provided for in this Agreement and the Representative's Warrant Agreement; and
this Agreement and the Representative's Warrant Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company or the Subsidiary pursuant to
the terms of (i) the certificate of incorporation or by-laws of the Company or
the Subsidiary, (ii) any license, contract, collective bargaining agreement,
indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or instrument
to which the Company or the Subsidiary is a party or by which the Company or the
Subsidiary is or may be bound or to which its or assets (tangible or intangible)
is or may be subject, or any indebtedness, or (iii) any statute, judgment,
decree, order, rule or regulation applicable to the Company or the Subsidiary of
any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or the Subsidiary or any of its or their
respective activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this Agreement
and the Representative's Warrant Agreement and the transactions contemplated
hereby and thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have for the issue
and/or sale of any of
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the Securities, except such as have been or may be obtained under the Act or may
be required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Firm Securities and the Option
Securities, and the Representative's Warrants to be sold by the Company
hereunder.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company or the Subsidiary is a party or
by which it or they may be bound or to which its or their respective assets,
properties or business may be subject have been duly and validly authorized,
executed and delivered by the Company or the Subsidiary and constitute the
legal, valid and binding agreements of the Company or the Subsidiary, as the
case may be, enforceable against it in accordance with its terms. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2, and there are no contracts or other documents
which are required by the Act to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or filed
as required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor the Subsidiary has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any change in the debt (long or short term) or liabilities or material adverse
change in or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of the Company or the Subsidiary.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which the Company or the Subsidiary is a party or by
which the Company or the Subsidiary may be bound or to which the property or
assets (tangible or intangible) of the Company or the Subsidiary is subject or
affected.
(p) Each of the Company and the Subsidiary has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance with all federal, state, local and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company or the Subsidiary by the U.S. Department of Labor, or any other
governmental agency responsible for the enforcement of such federal, state,
local, or foreign laws and regulations. There is no unfair labor practice charge
or complaint against the Company or the Subsidiary pending before the National
Labor Relations Board or any lockout, strike,
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picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or the Subsidiary, or any predecessor entity, and none
has ever occurred. No representation question exists respecting the employees of
the Company or the Subsidiary, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or the
Subsidiary. No grievance or arbitration proceeding is pending under any expired
or existing collective bargaining agreements of the Company or the Subsidiary.
No labor dispute with the employees of the Company or the Subsidiary exists, or,
is imminent.
(q) Neither the Company nor the Subsidiary maintains, sponsors
or contributes to any program or arrangement that is an "employee pension
benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" as
such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor the Subsidiary maintains or contributes, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company or the Subsidiary to any tax
penalty on prohibited transactions and which has not adequately been corrected.
Each ERISA Plan is in compliance with all reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
Neither the Company nor the Subsidiary has never completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company, the Subsidiary nor any of its or
their respective employees, directors, stockholders, partners, or affiliates
(within the meaning of the Rules and Regulations) of any of the foregoing has
taken or will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of
the patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company or the Subsidiary, are in dispute so far as known by the Company or
are in any conflict with the right of any other person or entity. Each of the
Company and the Subsidiary (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects
or other restrictions or equities of any kind whatsoever, all patents,
trademarks, service marks, trade names and copyrights, technology and licenses
and rights with respect to the foregoing, used in the conduct of its business as
now conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payment by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service mark, trade name, copyright, know-how, technology
or other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise.
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<PAGE>
(t) Each of the Company and the Subsidiary owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "intellectual
property") that are material to the development, manufacture, operation and sale
of all products and services sold or proposed to be sold by the Company, free
and clear of and without violating any right, lien, or claim of others,
including without limitation, former employers of its employees; provided,
however, that the possibility exists that other persons or entities, completely
independent of the Company or the Subsidiary, or its or their respective
employees or agents, could have developed trade secrets or items of technical
information similar or identical to those of the Company or the Subsidiary.
Neither the Company nor the Subsidiary is aware of any such development of
similar or identical trade secrets or technical information by others.
(u) Each of the Company and the Subsidiary has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(v) Stirtz Bernards Boyden Surdel & Larter and Pannell Kerr
Foster, P.C., whose reports are filed with the Commission as a part of the
Registration Statement, are independent certified public accountants as required
by the Act and the Rules and Regulations.
(w) The Company has caused to be duly executed legally binding
and enforceable agreements pursuant to which each of the Company's officers,
directors, stockholders and holders of securities exchangeable or exercisable
for or convertible into shares of Common Stock (except for the holders of the
Company's 10% Convertible Subordinated Notes Due September 30, 2000) has agreed
not to, directly or indirectly, issue, offer, offer to sell, sell, grant any
option for the sale or purchase of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than thirteen (13) months following
the effective date of the Registration Statement (the "Lock-Up Period") without
the prior written consent of the Representative and the Company. During the 13
month period commencing on the effective date of the Registration Statement, the
Company shall not, without the prior written consent of the Representative,
sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any shares of Common Stock, except
pursuant to (i) options granted and available to be granted pursuant to the
Company's 1997 Incentive and Stock Option Plan and (ii) warrants issued in
connection with the sale of the Company's Series A 1998 10% Notes. In the case
of the holders of the Company's 10% Convertible Subordinated Notes Due September
30, 2000, the Lock-Up Period shall be 12 months following the effective date of
the Registration Statement. The Company will cause the Transfer Agent (as
hereinafter defined) to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
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<PAGE>
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(y) The Common Stock has been approved for listing on the
American Stock Exchange ("Amex").
(z) Neither the Company, the Subsidiary nor any of their
respective officers, employees, agents or any other person acting on behalf of
the Company or the Subsidiary has, directly or indirectly, given or agreed to
give any money, gift or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company or the Subsidiary (or assist the Company or
the Subsidiary in connection with any actual or proposed transaction) which (a)
might subject the Company or the Subsidiary, or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had a
material adverse effect on the assets, business or operations of the Company or
the Subsidiary, or (c) if not continued in the future, might adversely affect
the assets, business, condition, financial or otherwise, earnings, position,
properties, value, operations or prospects of the Company or the Subsidiary. The
Company's internal accounting controls are sufficient to cause the Company to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer,
director, stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or the Subsidiary, or (B)
purchases from or sells or furnishes to the Company or the Subsidiary any goods
or services, or (ii) a beneficial interest in any contract or agreement to which
the Company or the Subsidiary is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company or the Subsidiary, and any officer, director, or 5% or greater
securityholder of the Company, or any partner, affiliate or associate of any of
the foregoing persons or entities.
(bb) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
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<PAGE>
(cc) The minute books of the Company have been made available
to the Underwriters and contain a complete summary of all meetings and actions
of the directors (including committees thereof) and stockholders of the Company,
since the time of its incorporation, and reflect all transactions referred to in
such minutes accurately in all material respects.
(dd) Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
(ee) The Company has as of the effective date of the
Registration Statement entered into an employment agreement with each of Joseph
Novogratz and Myron Calof in the form filed as Exhibits ____ and ____,
respectively, to the Registration Statement.
(ff) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(gg) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(hh) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparations of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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<PAGE>
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [91% of the initial public offering price per share of Common Stock]
per share of Common Stock, that number of Firm Securities set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Representative in its sole discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional number of Firm Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 450,000 shares of Common Stock at a price of $_________ per share of
Common Stock [10% of the initial public offering price per share of Common
Stock]. The option granted hereby will expire forty-five (45) days after (i) the
date the Registration Statement becomes effective, if the Company has elected
not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A under the Rules
and Regulations, and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Firm Securities upon notice by the
Representative to the Company setting forth the number of Option Securities as
to which the several Underwriters are then exercising the option and the time
and date of payment and delivery for any such Option Securities. Any such time
and date of delivery (an "Option Closing Date") shall be determined by the
Representative, but shall not be later than three (3) full business days after
the exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Representative and the
Company. Nothing herein contained shall obligate the Underwriters to make any
over-allotments. No Option Securities shall be delivered unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of Dirks at
520 Madison Avenue, 10th Floor, New York, New York 10022, or at such other place
as shall be agreed upon by the Representative and the Company. Such delivery and
payment shall be made at 10:00 a.m. (New York City time) on ________, 1998 or at
such other time and date as shall be agreed upon by the Representative and the
Company, but not less than three (3) nor more than five (5) full business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above-mentioned office of the
Representative or at such other place as shall be agreed upon by the
Representative and the Company on each Option Closing Date as specified in the
notice from the Representative to the Company. Delivery of the certificates for
the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly,
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<PAGE>
of the purchase price for the Firm Securities and the Option Securities, if any,
to the order of the Company for the Firm Securities and the Option Securities,
if any, by New York Clearing House funds. In the event such option is exercised,
each of the Underwriters, acting severally and not jointly, shall purchase that
proportion of the total number of Option Securities then being purchased which
the number of Firm Securities set forth in Schedule A hereto opposite the name
of such Underwriter bears to the total number of Firm Securities, subject in
each case to such adjustments as the Representative in its discretion shall make
to eliminate any sales or purchases of fractional shares. Certificates for the
Firm Securities and the Option Securities, if any, shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be in such
denominations and registered in such names as the Underwriters may request in
writing at least two (2) business days prior to the Closing Date or the relevant
Option Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Representative Representative's Warrants at a purchase price of $.0001 per
warrant, which Representative's Warrants shall entitle the holders thereof to
purchase an aggregate of 300,000 shares of Common Stock. The Representative's
Warrants shall be exercisable for a period of four (4) years commencing one (1)
year from the effective date of the Registration Statement at a price equaling
one hundred twenty percent (120%) of the respective initial public offering
price of the Shares. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit [___] to the
Registration Statement. Payment for the Representative's Warrants shall be made
on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Securities is required
and has not become effective) at the price and upon the other terms set forth in
the Prospectus. The Representative may from time to time increase or decrease
the public offering price after distribution of the Shares has been completed to
such extent as the Representative, in its sole discretion deems advisable. The
Underwriters may enter into one of more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and
agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
by the Underwriters of which the Representative shall not previously have been
advised and furnished with a copy, or to which the Representative shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Rules and Regulations.
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(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Representative,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifth business day after the effective date of
the Registration Statement.
(d) The Company will give the Representative notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters'
Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Representative, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as the Representative may designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications, file
such documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such
14
<PAGE>
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representative promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Representative:
(i) concurrently with furnishing such quarterly reports
to its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders and
certified by the Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports
to its stockholders, a balance sheet of the Company as at the end of
the preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;
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<PAGE>
(iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the
Company, or its affairs, which was released or prepared by or on behalf
of the Company; and
(vi) any additional information of a public nature
concerning the Company (and any future subsidiary) or its businesses
which the Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent and warrant
agent ("Transfer Agent") and, if necessary under the jurisdiction of
incorporation of the Company, a Registrar (which may be the same entity as the
Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with true original
copies of duly executed, legally binding and enforceable agreements pursuant to
which, for a period of thirteen (13) months from the effective date of the
Registration Statement, each of the Company's stockholders and holders of
securities exchangeable or exercisable for or convertible into shares of Common
Stock (except for the holders of the Company's 10% Convertible Subordinated
Notes Due September 30, 2000) agrees that it or he or she will not, directly or
indirectly, issue, offer to sell, sell, grant an option for the sale or purchase
of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of
any shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein without the prior
consent of the Representatives (collectively, the "Lock-up Agreements"). During
the 13 month period commencing on the effective date of the Registration
Statement, the Company shall not, without the prior written consent of the
Representative, sell, contract or offer to sell, issue, transfer, assign,
pledge, distribute, or otherwise dispose of,
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directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock except pursuant to (i)
options granted and available to be granted pursuant to the Company's 1997
Incentive and Stock Option Plan and (ii) warrants issued in connection with the
sale of the Company's Series A 1998 10% Notes. In the case of the holders of the
Company's 10% Convertible Subordinated Notes Due September 30, 2000, the Lock-up
Agreement shall be for a period of 12 months following the effective date of the
Registration Statement. On or before the Closing Date, the Company shall deliver
instructions to the Transfer Agent authorizing it to place appropriate legends
on the certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the Company's
ledgers.
(l) Neither the Company, the Subsidiary, nor any of their
respective officers, directors, stockholders, nor any of their respective
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of
the Securities in the manner, and subject to the conditions, set forth under
"Use of Proceeds" in the Prospectus. No portion of the net proceeds will be
used, directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Representative as early
as practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(k) and 6(l) hereof.
(p) The Company shall cause the Common Stock to be quoted on
Amex and, for a period of seven (7) years from the date hereof, use its best
efforts to maintain the Amex quotation of the Common Stock to the extent
outstanding.
(q) For a period of five (5) years from the Closing Date, the
Company shall furnish to the Representative at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Common Stock, (ii) the list
of holders of all of the Company's securities and (iii) a Blue Sky "Trading
Survey" for secondary sales of the Company's securities prepared by counsel to
the Company.
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(r) As soon as practicable, (i) but in no event more than five
(5) business days before the effective date of the Registration Statement, file
a Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
(s) The Company hereby agrees that it will not, for a period
of thirteen (13) months from the effective date of the Registration Statement,
adopt, propose to adopt or otherwise permit to exist any employee, officer,
director, consultant or compensation plan or similar arrangement permitting (i)
the grant, issue, sale or entry into any agreement to grant, issue or sell any
option, warrant or other contract right (x) at an exercise price that is less
than the greater of the public offering price of the Shares set forth herein and
the fair market value on the date of grant or sale or (y) to any of its
executive officers or directors or to any holder of 5% or more of the Common
Stock; (ii) the maximum number of shares of Common Stock or other securities of
the Company purchasable at any time pursuant to options or warrants issued by
the Company to exceed the aggregate 500,000 shares reserved for future issuance
under the Company's 1997 Incentive and Stock Option Plan; (iii) the payment for
such securities with any form of consideration other than cash; or (iv) the
existence of stock appreciation rights, phantom options or similar arrangements.
(t) Until the completion of the distribution of the
Securities, the Company shall not, without the prior written consent of the
Representative and Underwriters' Counsel, issue, directly or indirectly, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering contemplated hereby, other than
trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for the
registration under the Act of the Representative's Securities.
(v) For a period of three (3) years from the effective date of
the Registration Statement, the Company hereby agrees to grant the
Representative a preferential right of first refusal on the terms and subject to
the conditions set forth in this paragraph, to purchase for its account, or to
sell for the account of the Company, or of any present or future subsidiaries,
any securities issued or to be issued by the Company, or any present or future
subsidiaries, with respect to which the Company, or any present or future
subsidiaries may seek a sale of such securities and the Company will consult,
and will cause any such present or future subsidiaries to consult with the
Representative with regard to any such offering or placement and will offer, or
cause any of its present or future subsidiaries to offer, to the Representative
the opportunity, on terms not more favorable to the Company, or any present or
future subsidiary than they can secure elsewhere, to purchase or sell any such
securities. If the Representative fails to accept in writing such proposal made
by the Company, or any present or future subsidiaries within thirty (30)
business days after receipt of a notice containing such proposal (which notice
may be
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delivered to the Representative simultaneously), then the Representative shall
have no further claim or right with respect to the proposal contained in such
notice. If, thereafter such proposal is modified, the Company shall again
consult, and cause any present or future subsidiary to consult, with the
Representative in connection with such modification and shall in all respects
have the same obligations and adopt the same procedures with respect to such
proposal as are provided hereinabove with respect to the original proposal,
except that the thirty (30) business day period provided hereinabove shall
instead be twenty (20) business days.
(w) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual selected
by the Representative to be elected to the board of directors of the Company, if
requested by the Representative. In the event that the Representative shall not
have designated such individual at the time of any meeting of the Company's
board of directors or in the event that such individual has not been elected or
is unavailable to serve, the Company shall notify the Representative of each
meeting of its board of directors and, in such event, an individual selected by
the Representative shall be permitted to attend all meetings of the Company's
board of directors as a non-voting advisor and to receive all notices and other
correspondence and communications sent by the Company to the members of its
board of directors. Such board member or non-voting advisor shall receive no
more or less director compensation than is paid to other non-officer directors
of the Company for attendance at meetings of the Company's board of directors
and such board member or non-voting advisor shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to, food, lodging and transportation. The Company
hereby agrees to indemnify and hold such director or non-voting advisor
harmless, to the maximum extent permitted by law, against any and all actions,
suits, proceedings, inquiries, arbitrations, investigations, litigation,
governmental or other proceedings, domestic or foreign, and awards and judgments
arising out of such individual's service as a director or non-voting advisor
and, in the event that the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, and/or in the
event that the Company has entered into an indemnification agreement with any of
its officers or directors, the Company agrees to include such director or
non-voting advisor as an insured under such insurance policy and/or to enter
into an indemnification agreement with such director or non-voting advisor which
is at least as favorable to such individual as any indemnification agreement
that the Company has entered into with any of its officers or directors. The
rights and benefits of such indemnification and the benefits of such insurance
shall, to the maximum extent possible, extend to the Representative insofar as
it may be or may be alleged to be responsible for such director or non-voting
advisor. The Company agrees to provide its outside directors with compensation
as deemed appropriate and customary for similar companies.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing
Date and the Option Closing Date (to the extent not paid at the Closing Date)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement and the Representative's Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the
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Prospectus and any amendments and supplements thereto and the printing, mailing
(including the payment of postage with respect thereto) and delivery of this
Agreement, the Representative's Warrant Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Firm Securities and the Option Securities and the purchase by the
Representative of the Representative's Warrants from the Company, (y) the
consummation by the Company of any of its obligations under this Agreement and
the Representative's Warrant Agreement, and (z) resale of the Firm Securities
and the Option Securities by the Underwriters in connection with the
distribution contemplated hereby, (iv) the qualification of the Securities under
state or foreign securities or "Blue Sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) costs and expenses incurred by the
Company in connection with the "road show", (vi) fees and expenses of the
Transfer Agent and registrar and all issue and transfer taxes, if any, (vii)
applications for assignment of a rating of the Securities by qualified rating
agencies, (viii) the fees payable to the Commission and the NASD, and (ix) the
fees and expenses incurred in connection with the quotation of the Securities on
Amex and any other exchange.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12, the Company shall
reimburse and indemnify the Underwriters for all of their actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Representative on the Closing Date by certified or bank cashier's check or,
at the election of the Representative, by deduction from the proceeds of the
offering of the Firm Securities, a non-accountable expense allowance equal to 3%
of the gross proceeds received by the Company from the sale of the Firm
Securities, $35,000 of which has been paid to date. In the event the
Representative elects to exercise the overallotment option described in Section
2(b) hereof, the Company further agrees to pay to the Representative on each
Option Closing Date, by certified or bank cashier's check, or at the
Representative's election, by deduction from the proceeds of the Option
Securities purchased on such Option Closing Date, a non-accountable expense
allowance equal to 3% of the gross proceeds received by the Company from the
sale of such Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the
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<PAGE>
performance by the Company on and as of the Closing Date and each Option Closing
Date, if any, of its covenants and obligations hereunder and to the following
further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 P.M., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Representative,
and, at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
any price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Representative's opinion, is material, or omits
to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material, or
omits to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option
Closing Date, if any, the Representative shall have received from Underwriters'
Counsel, such opinion or opinions with respect to the organization of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Representative may request and
Underwriters' Counsel shall have received such papers and information as they
request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received
the favorable opinion of Olshan Grundman Frome & Rosenzweig LLP, counsel to the
Company, dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect that:
(i) each of the Company and the Subsidiary (A) has been
duly organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction, (B) is duly qualified and
licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing,
and (C) has all requisite corporate power and authority, and has
obtained any and all necessary
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authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; each of the
Company and the Subsidiary is and has been doing business in compliance
with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state and local
laws, rules and regulations; and, neither the Company nor the
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the business, operations,
condition, financial or otherwise, or the earnings, business affairs,
position, prospects, value, operation, properties, business or results
of operations of the Company or the Subsidiary. The disclosures in the
Registration Statement concerning the effects of federal, state and
local laws, rules and regulations on the Company's business as
currently conducted and as contemplated are correct in all material
respects and do not omit to state a fact required to be stated therein
or necessary to make the statements contained therein not misleading in
light of the circumstances in which they were made.
(ii) the Company owns, directly or indirectly, one
hundred percent (100%) of the outstanding capital stock of the
Subsidiary, and all such shares have been validly issued, are fully
paid and non-assessable, were not issued in violation of any preemptive
rights and are owned free and clear of any liens, charges, claims,
encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever.
(iii) except as described in the Prospectus, the
Company does not own an interest in any other corporation, partnership,
joint venture, trust or other business entity;
(iv) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "CAPITALIZATION", and neither
the Company nor the Subsidiary is a party to or bound by any
instrument, agreement or other arrangement providing for it to issue,
sell, transfer, purchase or redeem any capital stock, rights, warrants,
options or other securities, except for this Agreement and the
Representative's Warrant Agreement and as described in the Prospectus.
The Securities and all other securities issued or issuable by the
Company conform in all material respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. All
issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission with respect thereto,
and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or any
similar rights granted by the Company. The Securities to be sold by the
Company hereunder and under the Representative's Warrant Agreement are
not and will not be subject to any preemptive or other similar rights
of any stockholder, have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable and conform to the
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description thereof contained in the Prospectus; the holders thereof
will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and
sale of the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and proper form.
The Representative's Warrants constitute valid and binding obligations
of the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for
thereby. Upon the issuance and delivery pursuant to this Agreement of
the Firm Securities and the Option Securities and the Representative's
Warrants to be sold by the Company, the Underwriters and the
Representative, respectively, will acquire good and marketable title to
the Firm Securities and the Option Securities and the Representative's
Warrants free and clear of any pledge, lien, charge, claim,
encumbrance, pledge, security interest, or other restriction or equity
of any kind whatsoever. No transfer tax is payable by or on behalf of
the Underwriters in connection with (A) the issuance by the Company of
the Securities, (B) the purchase by the Underwriters of the Firm
Securities and the Option Securities from the Company, and the purchase
by the Representative of the Representative's Warrants from the Company
(C) the consummation by the Company of any of its obligations under
this Agreement or the Representative's Warrant Agreement, or (D)
resales of the Firm Securities and the Option Securities in connection
with the distribution contemplated hereby.
(v) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to
the best of such counsel's knowledge, threatened or contemplated under
the Act;
(vi) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments or
supplements thereto (other than the financial statements and other
financial and statistical data included therein, as to which no opinion
need be rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(vii) to the best of such counsel's knowledge, (A)
there are no agreements, contracts or other documents required by the
Act to be described in the Registration Statement and the Prospectus
and filed as exhibits to the Registration Statement other than those
described in the Registration Statement (or required to be filed under
the Exchange Act if upon such filing they would be incorporated, in
whole or in part, by reference therein) and the Prospectus and filed as
exhibits thereto, and the exhibits which have been filed are correct
copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and other documents to
which the Company or the Subsidiary is a party or by which it is bound,
including any document to which the Company or the Subsidiary is a
party or by which it is bound, incorporated by reference into the
Prospectus and any supplement or amendment thereto, are accurate and
fairly represent the information required to be shown by Form SB-2; (C)
there is not
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pending or threatened against the Company or the Subsidiary any action,
arbitration, suit, proceeding, inquiry, investigation, litigation,
governmental or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of the
Company or the Subsidiary which (x) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings
as are summarized in the Registration Statement are accurately
summarized in all respects), (y) questions the validity of the capital
stock of the Company or this Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E) there
is no action, suit or proceeding pending, or threatened, against or
affecting the Company or the Subsidiary before any court or arbitrator
or governmental body, agency or official (or any basis thereof known to
such counsel) in which there is a reasonable possibility of a decision
which may result in a material adverse change in the condition,
financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results
of operations of the Company or the Subsidiary, which could adversely
affect the present or prospective ability of the Company to perform its
obligations under this Agreement or the Representative's Warrant
Agreement or which in any manner draws into question the validity or
enforceability of this Agreement or the Representative's Warrant
Agreement;
(viii) the Company has full legal right, power and
authority to enter into each of this Agreement and the Representative's
Warrant Agreement, and to consummate the transactions provided for
therein; and each of this Agreement and the Representative's Warrant
Agreement has been duly authorized, executed and delivered by the
Company. Each of this Agreement and the Representative's Warrant
Agreement, assuming due authorization, execution and delivery by each
other party thereto constitutes a legal, valid and binding agreement of
the Company enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any action, legal
or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or
delivery of this Agreement and the Representative's Warrant Agreement,
its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company or the Subsidiary
pursuant to the terms of, (A) the certificate of incorporation or
by-laws of the Company or the Subsidiary, (B) any license, contract,
collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or
credit agreement or any other agreement or instrument to which
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the Company or the Subsidiary is a party or by which it is or they are
or may be bound or to which any of its or their respective properties
or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company or the Subsidiary of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or the Subsidiary or any
of their respective activities or properties.
(ix) no consent, approval, authorization or order, and
no filing with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws, as to
which no opinion need be rendered) is required in connection with the
issuance of the Firm Securities and the Option Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the
Representative's Warrants, the performance of this Agreement and the
Representative's Warrant Agreement, and the transactions contemplated
hereby and thereby;
(x) the properties and business of the Company conforms
in all material respects to the description thereof contained in the
Registration Statement and the Prospectus; and each of the Company and
the Subsidiary has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, in each
case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities
of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable;
(xi) neither the Company nor the Subsidiary is in
breach of, or in default under, any term or provision of any license,
contract, collective bargaining agreement, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement, note, loan
or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company or the Subsidiary is a party or by which the Company
or the Subsidiary may be bound or to which the properties or assets
(tangible or intangible) of the Company or the Subsidiary is subject or
affected; and neither the Company nor the Subsidiary is in violation of
any term or provision of its Articles of Incorporation or By-Laws or in
violation of any franchise, license, permit, judgment, decree, order,
statute, rule or regulation;
(xii) the statements in the Prospectus under "RISK
FACTORS," "THE COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL
STOCKHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES," and
"SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel,
and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects;
(xiii) the Securities have been accepted for quotation
on Amex;
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(xiv) the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
(xv) neither the Company nor the Subsidiary, nor any of
their respective officers, stockholders, employees or agents, nor any
other person acting on behalf of the Company or the Subsidiary has,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or
agent of a customer or supplier, or official or employee of any
governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or
hinder the business of the Company or the Subsidiary (or assist it in
connection with any actual or proposed transaction) which (A) might
subject the Company or the Subsidiary to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (B) if not
given in the past, might have had an adverse effect on the assets,
business or operations of the Company or the Subsidiary, as reflected
in any of the financial statements contained in the Registration
Statement, or (C) if not continued in the future, might adversely
affect the assets, business, operations or prospects of the Company or
the Subsidiary;
(xvi) no person, corporation, trust, partnership,
association or other entity has the right to include and/or register
any securities of the Company in the Registration Statement, require
the Company to file any registration statement or, if filed, to include
any security in such registration statement;
(xvii) except as described in the Prospectus, there are
no claims, payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with respect to
the sale of the Securities hereunder or financial consulting
arrangements or any other arrangements, agreements, understandings,
payments or issuances that may affect the Underwriters' compensation,
as determined by the NASD;
(xviii) assuming due execution by the parties thereto
other than the Company, the Lock-up Agreements are legal, valid and
binding obligations of the parties thereto, enforceable against the
party and any subsequent holder of the securities subject thereto in
accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement
of creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity or
contribution may be limited by applicable law);
(xix) except as described in the Prospectus, neither
the Company nor the Subsidiary (A) maintains, sponsors or contributes
to any ERISA Plans, (B) maintains or contributes, now or at any time
previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA, and (C) has ever completely or partially withdrawn from a
"multiemployer plan";
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(xx) the Company is in compliance with all provisions
of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to
Disclosure of Doing Business with Cuba;
(xxi) neither the Company, the Subsidiary or any of
their affiliates shall be subject to the requirements of or shall be
deemed an "Investment Company," pursuant to and as defined under,
respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representative,
Underwriters' Counsel and they are each justified in relying thereon. Any
opinion of counsel for the Company and the Subsidiary shall not state that it is
to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991) or any comparable state accord.
(e) At the Closing Date, the Underwriters shall have received
the favorable opinion of __________________ , patent counsel to the Company and
the Subsidiary, dated the Closing Date, addressed to the Underwriters, in form
and substance satisfactory to Underwriters' Counsel and in substantially the
form of Schedule B hereto.
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(f) At each Option Closing Date, if any, the Underwriters
shall have received the favorable opinions of each of Olshan Grundman Frome &
Rosenzweig LLP, counsel to the Company and the Subsidiary, and
__________________, patent counsel to the Company and the Subsidiary dated such
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing Date
the statements made by each of Oshan Grundman Frome & Rosenzweig LLP, and
__________________, in their respective opinions delivered on the Closing Date.
(g) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company herein contained.
(h) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, earnings, position, value, properties, results of operations,
prospects, stockholders' equity or the business activities of the Company or the
Subsidiary, whether or not in the ordinary course of business, from the latest
dates as of which such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company or the Subsidiary, from the
latest date as of which the financial condition of the Company is set forth in
the Registration Statement and Prospectus which is adverse to the Company; (iii)
neither the Company nor the Subsidiary shall be in default under any provision
of any instrument relating to any outstanding indebtedness; (iv) the Company
shall not have issued any securities (other than the Securities) or declared or
paid any dividend or made any distribution in respect of its capital stock of
any class and there has not been any change in the capital stock or any material
change in the debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the assets of the
Company or the Subsidiary shall have been pledged or mortgaged, except as set
forth in the Registration Statement and Prospectus; (vi) no action, suit or
proceeding, at law or in equity, shall have been pending or threatened (or
circumstances giving rise to same) against the Company or the Subsidiary, or
affecting any of its or their respective properties or businesses before or by
any court or federal, state or foreign commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding may adversely affect
the business, operations, earnings, position, value, properties, results of
operations, prospects or financial condition or income of the Company or the
Subsidiary; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(i) At each of the Closing Date and each Option Closing Date,
if any, the Underwriters shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
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(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and the
Company has complied with all agreements and covenants and satisfied
all conditions contained in this Agreement on its part to be performed
or satisfied at or prior to such Closing Date or Option Closing Date,
as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to
the best of each of such person's knowledge, are contemplated or
threatened under the Act;
(iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto, contain all
statements and information required to be included therein, and none of
the Registration Statement, the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and neither the
Preliminary Prospectus or any supplement thereto included 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, in light of the circumstances under which they were made, not
misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(a) the Company has not incurred up to and including the Closing Date
or the Option Closing Date, as the case may be, other than in the
ordinary course of its business, any material liabilities or
obligations, direct or contingent; (b) the Company has not paid or
declared any dividends or other distributions on its capital stock; (c)
neither the Company nor the Subsidiary has entered into any
transactions not in the ordinary course of business; (d) there has not
been any change in the capital stock or long-term debt or any increase
in the short-term borrowings (other than any increase in the short-term
borrowings in the ordinary course of business) of the Company; (e)
neither the Company nor the Subsidiary has sustained any loss or damage
to its properties or assets, whether or not insured; (f) there is no
litigation which is pending or threatened (or circumstances giving rise
to same) against the Company or the Subsidiary or any affiliated party
which is required to be set forth in an amended or supplemented
Prospectus which has not been set forth; and (g) there has occurred no
event required to be set forth in an amended or supplemented Prospectus
which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(i) are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
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<PAGE>
(k) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) in all respects
to the Underwriters and Underwriters' Counsel, from Pannell Kerr Foster, P.C.:
(i) confirming that they are independent certified
public accountants with respect to the Company and the Subsidiary
within the meaning of the Act and the applicable Rules and Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company included
in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Representative may rely
upon the opinion of Pannell Kerr Foster, P.C. with respect to the
financial statements and supporting schedules included in the
Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim
financial statements of the Company, a reading of the latest available
minutes of the stockholders and board of directors and the various
committees of the board of directors of the Company, consultations with
officers and other employees of the Company responsible for financial
and accounting matters and other specified procedures and inquiries,
nothing has come to their attention which would lead them to believe
that (A) the unaudited financial statements and supporting schedules of
the Company included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financial statements of the Company included in the Registration
Statement, or (B) at a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there has been any
change in the capital stock or long-term debt of the Company, or any
decrease in the stockholders' equity or net current assets or net
assets of the Company as compared with amounts shown in the March 31,
1998 balance sheet included in the Registration Statement, other than
as set forth in or contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the amount of such
change or decrease, and (C) during the period from March 31, 1998 to a
specified date not more than five (5) days prior to the effective date
of the Registration Statement, there was any decrease in net revenues,
net earnings or increase in net earnings per common share of any of the
Company or the Subsidiary, in each case as compared with the
corresponding period beginning March 31, 1997, other than as set forth
in or contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;
(iv) setting forth, at a date not later than five (5)
days prior to the date of the Registration Statement, the amount of
liabilities of the Company and the Subsidiary taken as a whole
(including a break-down of commercial paper and notes payable to
banks);
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<PAGE>
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the Company
set forth in the Prospectus in each case to the extent that such
amounts, numbers, percentages, statements and information may be
derived from the general accounting records, including work sheets, of
the Company and excluding any questions requiring an interpretation by
legal counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter and
found them to be in agreement;
(vi) statements as to such other matters incident to
the transaction contemplated hereby as the Representatives may request.
(l) At the time this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory in all respects to the Underwriters and
Underwriters' Counsel from Stirtz Bernards Boyden Surdel & Larter:
(i) confirming that they are independent certified
public accountants with respect to the Company within the meaning of
the Act and the applicable rules and regulations; and
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company included
in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Rules and Regulations thereunder and that the Representative may rely
upon the opinion of Stirtz Bernards Boyden Surdel & Larter with respect
to the financial statements and supporting schedules included in the
Registration Statement.
(m) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received from each of Pannell Kerr Foster, P.C. and
Stirtz Bernards Boyden Surdel & Larter a letter, dated as of the Closing Date or
the Option Closing Date, as the case may be, to the effect that they reaffirm
the statements made in the letter furnished pursuant to subsection (k) and
subsection (l) of this Section, except that the specified date referred to shall
be a date not more than five (5) days prior to the Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (k) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(n) On each of the Closing Date and each Option Closing Date,
if any, there shall have been duly tendered to the Representative for the
several Underwriters' accounts the appropriate number of Securities.
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(o) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(p) On or before the Closing Date, the Company shall have
executed and delivered to the Representative, (i) the Representative's Warrant
Agreement substantially in the form filed as Exhibit [___] to the Registration
Statement, in final form and substance satisfactory to the Representative, and
(ii) the Representative's Warrants in such denominations and to such designees
as shall have been provided to the Company.
(q) On or before the Closing Date, the Firm Securities and
Option Securities shall have been duly approved for quotation on Amex, subject
to official notice of issuance.
(r) On or before the Closing Date, there shall have been
delivered to the Representative all of the Lock-up Agreements, in form and
substance satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, Amex or any other
securities exchange; (B) the omission or alleged
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<PAGE>
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
the light of the circumstances under which they were made), or (C) any breach of
any representation, warranty, covenant or agreement of the Company contained
herein or in any certificate by or on behalf of the Company or any of its
officers delivered pursuant hereto, unless, in the case of clause (A) or (B)
above, such statement or omission was made in reliance upon and in strict
conformity with written information furnished to the Company with respect to any
Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any claim, action, suit,
investigation, inquiry, proceeding or litigation, such indemnified party shall,
if a claim in respect thereof is to be made against one or more indemnifying
parties under this Section 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been prejudiced
in any material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of
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such counsel shall be at the expense of such indemnified party or parties unless
(i) the employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of thereof at the expense of
the indemnifying party, (ii) the indemnifying parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of the
defense thereof within a reasonable time after notice of commencement thereof,
or (iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense thereof on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one claim, action, suit, investigation, inquiry, proceeding or litigation or
separate but similar or related claims, actions, suits, investigations,
inquiries, proceedings or litigation in the same jurisdiction arising out of the
same general allegations or circumstances. Anything in this Section 7 to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim, action, suit, investigation, inquiry, proceeding or
litigation effected without its written consent; provided, however, that such
consent was not unreasonably withheld. An indemnifying party will not, without
the prior written consent of the indemnified parties, settle, compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit, investigation, inquiry, proceeding or litigation in respect
of which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim, action,
suit, investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, 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 this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified on the other hand in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is the contributing party and the Underwriters are
the indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before
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deducting expenses) bear to the total underwriting discounts received by the
Underwriters hereunder, in each case as set forth in the table on the Cover Page
of the Prospectus. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Firm Securities and the Option
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company or the Underwriter within the meaning of the Act,
each officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
subsection (d). Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect to which a claim for contribution may be made against another party
or parties under this subsection (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
subsection (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the
35
<PAGE>
release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has materially adversely
disrupted, or in the Representative's opinion will in the immediate future
materially adversely disrupt, the financial markets; or (ii) if any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
NASD, the Boston Stock Exchange, the Commission or any governmental authority
having jurisdiction over such matters; or (iv) if trading of any of the
securities of the Company shall have been suspended, or any of the securities of
the Company shall have been delisted, on any exchange or in any over-the-counter
market; (v) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if a moratorium in foreign exchange trading has been
declared; or (viii) if the Company or the Subsidiary shall have sustained a loss
material or substantial to the Company by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in the Representative's opinion,
make it inadvisable to proceed with the offering, sale and/or delivery of the
Securities; or (ix) if there shall have been such a material adverse change in
the conditions or prospects of the Company, or such material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere, that, in each case, in the Representative's judgment, would make it
inadvisable to proceed with the offering, sale and/or delivery of the Securities
or (x) if either Joseph Novogratz, Al Melling or Myron Calof shall no longer
serve the Company in their respective present capacities.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
(less amounts previously paid pursuant to Section 5(c) above). Notwithstanding
any contrary provision contained in this Agreement, if this Agreement shall not
be carried out within the time specified herein, or any extension thereof
granted to the Representative, by reason of any failure on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement by
it to be performed or satisfied (including, without limitation, pursuant to
Section 6 or Section 12) then, the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and disbursements,
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof),
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not
36
<PAGE>
be in any way affected by such election or termination or failure to carry out
the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Securities to be purchased on
such date, the non-defaulting Underwriters shall be obligated to
purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Securities, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriters (or,
if such default shall occur with respect to any Option Securities to be
purchased on an Option Closing Date, the Underwriters may at the
Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such -------
Underwriter under this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period not exceeding seven (7) days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be
37
<PAGE>
directed to the Representative at Dirks & Company, Inc., 520 Madison Avenue,
10th Floor, New York, New York 10022, Attention: Jessy W. Dirks, Chairman, with
a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be
directed to the Company at 14252 23rd Avenue North, Plymouth, Minnesota
55447-4910, Attention: Joseph Novogratz, Co-Chairman of the Board of Directors,
with a copy to: Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New
York, New York 10022, Attention: Robert H. Friedman, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
38
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
NORTON MOTORS INTERNATIONAL, INC.
By:
-------------------------------------
Joseph Novogratz
Co-Chairman
Confirmed and accepted as of
the date first above written.
DIRKS & COMPANY, INC.
For itself and as Representative of the
several Underwriters named in
Schedule A hereto.
By:
--------------------------------
Name:
Title:
39
<PAGE>
SCHEDULE A
Number of Shares
Name of Underwriters to be Purchased
- -------------------- ---------------
Dirks & Company, Inc...................................
Total..................................................
--------------------
====================
A-1
<PAGE>
SCHEDULE B
[FORM OF INTELLECTUAL PROPERTY OPINION]
___________________, 1998
DIRKS & COMPANY, INC.
As Representative of the
several Underwriters named
in Schedule A to Exhibit A
annexed hereto
520 Madison Avenue
10th Floor
New York, New York 10022
Re: Initial Public Offering of 3,000,000 Shares of
Common Stock of Norton Motors International, Inc.
-------------------------------------------------
Gentlemen:
We have acted as special counsel to Norton Motors International,
Inc. a Minnesota corporation (the "Company"), in connection with the entering
into by the Company of that certain Underwriting Agreement by and between Dirks
& Company, Inc. (as Representative of the several underwriters named therein)
(the "Representative") and the Company, dated _______________, 1998 (the
"Underwriting Agreement"). This opinion is provided to you pursuant to Section
6(e) of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we have
reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Form SB-2 as filed by the Company with the
Securities and Exchange Commission on ______, 1998, together with
any and all exhibits and schedules and all heretofore filed
amendments thereto (collectively, the "Registration Statement");
(iii) the Company's prospectus dated _______________, 1998 (the
"Prospectus");
(iv) a search of the United States Patent and Trademark Office
records relevant to ownership of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed on
Schedule A annexed hereto and hereby incorporated by reference
herein (collectively, the "Patents")), and trademarks,
trademark
B-1
<PAGE>
applications, service marks and service mark applications
(collectively, the "Marks") (including, without limitation,
the Marks listed on Schedule B annexed hereto and hereby
incorporated by reference herein (collectively, the
"Trademarks")),
owned, purportedly owned or licensed by the Company (including, those patents,
patent applications and Marks licensed, without limitation, pursuant to the
licenses listed on Schedule C annexed hereto and hereby incorporated by
reference herein (collectively, the "Licenses")), conducted by
______________________________ and certified as true and correct as of
_______________________, 1998 (no earlier than 5 days prior to the effective
date of the Registration Statement);
(v) a search of the United States Copyright Office records relevant
to ownership of any and all copyrighted material (including, without
limitation, the copyright in, or license permitting the Company's
actual use of, the material licensed or otherwise distributed by
either the Company and listed on Schedule D annexed hereto and
hereby incorporated by reference herein (collectively, the
"Copyrighted Material")), owned, purportedly owned or licensed by
the Company conducted by _____________________ and certified as true
and correct as of __________________, 1998 (no earlier than 5 days
prior to the effective date of the Registration Statement);
(vi) an intellectual property litigation search with respect to all
Patents, Trademarks, Licenses and Copyrighted Material, listed on
Schedules A, B, C and D, respectively;
(i) a search of the Uniform Commercial Code ("UCC") recordation
offices, in the following jurisdictions - Minnesota, Delaware and
New York, with respect to the following two categories of general
intangibles:
(a) the intellectual property general intangibles of the Company,
including, without limitation, the Company's patents, patent
applications, inventions, know how, trademarks, service marks,
copyrights, service and trade names, intellectual property licenses
and other rights, and
(b) the intellectual property general intangibles licensed to the
Company, including, without limitation, the patents, patent
applications, inventions, know how, trademarks, service marks,
copyrights, service and trade names and other intellectual property
rights licensed to the Company pursuant to the Licenses (listed on
Schedule C),
said search certified to us as complete and accurate by
________________ and current through ________________________, 1998 (no
earlier than 5 days prior to the effective date of the Registration
Statement) and said jurisdictions being the only jurisdictions in which
filing of UCC financing statements or other documents may be filed to
effectively evidence a security or other interest in said general
intangibles; and
B-2
<PAGE>
(viii) any and all records, documents, instruments and agreements in
our possession or under our control relating to the Company.
We have also examined such corporate records, documents, instruments
and agreements, and inquired into such other matters, as we have deemed
necessary or appropriate as a basis for the opinions set forth herein. Whenever
our opinion herein is qualified by the phrase "to the best of our knowledge" or
"to the best of our knowledge, after due inquiry," such language means that,
based upon (i) our inquiries of officers of the Company, (ii) our review of the
Documents, and (iii) our review of such other corporate records, documents,
instruments and agreements described in the first sentence of this paragraph, we
believe that such opinions are factually correct.
To the best of our knowledge, as to all matters of fact represented
to you by the Company, we advise you that nothing has come to our attention that
would cause us to believe that such facts are incorrect, incomplete or
misleading or that reliance thereon is not warranted under the circumstances. We
call to your attention that our opinion is limited to such facts as they exist
on the date hereof and do not take into account any change of circumstances,
fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion that:
1. To the best of our knowledge, after due inquiry, except as
described in the Prospectus, the Company owns or has the right to use,
free and clear of all liens, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind whatsoever,
(i) all patents and patent applications (including, without
limitation, the Patents),
(ii) all trademarks and service marks (including, without
limitation, the Trademarks),
(iii) all copyrights (including, without limitation, the
Copyrighted Material),
(iv) all service and trade names, and
(v) all intellectual property licenses (including, without
limitation, the Licenses),
used in, or required for, the conduct of the Company's business.
2. To the best of our knowledge, after due inquiry, the
Company possesses all material intellectual property licenses or rights
used in, or required for, the conduct of its respective business
(including, the Licenses and without limitation, any such licenses or
rights described in the Prospectus as being owned, possessed or
licensed by the Company) and such licenses and rights are in full force
and effect.
B-3
<PAGE>
3. To the best of our knowledge, after due inquiry, there is
no claim or action, pending, threatened or potential, which affects or
could affect the rights of the Company with respect to any trademarks,
service marks, copyrights, service names, trade names, patents, patent
applications or licenses used in, or required for, the conduct of the
Company's business.
4. To the best of our knowledge, after due inquiry, there is
no intellectual property based claim or action, pending, threatened or
potential, which affects or could affect the rights of the Company with
respect to any products, services, processes or licenses, including,
without limitation, the Licenses used in the conduct of the Company's
business.
5. To the best of our knowledge, after due inquiry, except as
described in the Prospectus, the Company is not under any obligation to
pay royalties or fees to any third party with respect to any material,
technology or intellectual properties developed, employed, licensed or
used by the Company.
6. To the best of our knowledge, after due inquiry, the
statements in the Prospectus under the headings, "Risk Factors -
Uncertainty Regarding Patents and Proprietary Rights," and "Business -
Patents and Proprietary Rights", are accurate in all material respects,
fairly represent the information disclosed therein and do not omit to
state any fact necessary to make the statements made therein complete
and accurate.
7. To the best of our knowledge, after due inquiry, the
statements in the Registration Statement and Prospectus do not contain
any untrue statement of a material fact with respect to the
intellectual property position of the Company, or omit to state any
material fact relating to the intellectual property position of the
Company which is required to be stated in the Registration Statement
and the Prospectus or is necessary to make the statements therein not
misleading.
We call your attention to the fact that the members of this firm are
licensed to practice law in the State of ______________ and before the United
States Patent and Trademark Office as Registered Patent Attorneys. Accordingly,
we express no opinion with respect to the laws, rules and regulations of any
jurisdictions other than the State of ___________ and the United States of
America.
The opinions expressed herein are for the sole benefit of, and may be
relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP.
Very truly yours,
B-4
<PAGE>
Exhibit 3.2
BYLAWS
OF
NORTON MOTORS INTERNATIONAL INC.
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Registered Office. The registered office of the
corporation in Minnesota shall be set forth in the articles of incorporation or
in the most recent amendment of the articles of incorporation or resolution of
the directors filed with the secretary of state of Minnesota changing the
registered office.
Section 1.02. Other Offices. The corporation may have such other
offices, within or without the state of Minnesota, as the directors shall, from
time to time, determine.
Section 1.03. Corporate Seal. The corporation shall have no seal.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meetings. Except as provided
otherwise by the Minnesota Business Corporation Act, meetings of the
shareholders may be held at any place, within or without of the state of
Minnesota, as may from time to time be designated by the directors and in the
absence of such designation, shall be held at the registered office of the
corporation in the state of Minnesota. The directors shall designate the time of
day for each meeting and, in the absence of such designation, every meeting of
shareholders shall be held at ten o'clock a.m.
Section 2.02. Regular Meetings.
(a) A regular meeting of the shareholders shall be held on such
a date, as the board of directors shall be resolution
establish.
(b) At a regular meeting the shareholders, voting as provided in
the articles of incorporation and these bylaws, shall elect
qualified successors for directors who serve for an
indefinite term or whose terms have expired or are due to
expire within six months after the date of the meeting and
shall transact such other business as may properly come
before them.
Section 2.03. Special Meetings. Special Meetings of the shareholders
any be held at any time and for any purpose and may be called by the chief
executive officer, the chief financial officer, two or more directors or by a
shareholder or shareholders holding 10% or more of the voting power of all
shares entitled to vote, except that a special meeting for the purpose of
considering any action to directly or indirectly facilitate or affect a business
combination, including any action to change or otherwise affect the composition
of the board of directors for that purpose, must be called by 25% or more of the
voting power of all shares
<PAGE>
entitled to vote. A shareholder or shareholders holding the requisite percentage
of the voting power of all shares entitled to vote may demand a special meeting
of the shareholders by written notice of demand given to the chief executive
officer or chief financial officer of the corporation and containing the
purposes of the meeting. Within 30 days after receipt of the demand, by one of
those offices, the board of directors shall cause a special meeting of
shareholders to be called and held on notice no later than 90 days after receipt
of the demand, at the expense of the corporation. Special meetings shall be hold
on the date and at the time and place fixed by the chief executive officer or
the board of directors, except that a special meeting called by or at demand of
a shareholder or shareholders shall be held in the county where the principle
executive office is located. The business transacted at a special meeting shall
be limited to the purposes as stated in the notice of the meeting.
Section 2.04. Quorum, Adjourned Meetings. The holders of a majority
of the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular meeting, the meeting may be adjourned from time to time
without notice other than the announcement at the time of adjournment of the
date, time and place of the adjourned meeting. If a quorum is present, a meeting
may be adjourned from time to time without notice other than the announcement at
the time of adjournment of the date, time, and place of the adjourned meeting.
At adjourned meetings at which a quorum is present, any business may be
transacted at the meeting as originally noticed. If a quorum is present when a
meeting is convened, the shareholders present may continue to transact business
until adjournment notwithstanding the withdrawal of enough shareholders
originally present to leave less than a quorum.
Section 2.05. Voting. At each meeting of the shareholders every
shareholder have the right to vote shall be entitled to vote either in person or
by proxy. Each shareholder, unless the articles of incorporation or statutes
provide otherwise, shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
those shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote except if otherwise required by statute, the
articles of incorporation, or these bylaws.
Section 2.06. Record Date. The board of directors may fix a date,
not exceeding 60 days preceding the date of any meeting of shareholders, as a
record date for the determination of the shareholders entitled to notice of, and
to vote at, such meeting, notwithstanding any transfer of shares on the books of
the corporation after any record date so fixed. If the board of directors fails
to fix a record date of determination of the shareholders, the record date shall
be the 20th day preceding the date of such meeting.
Section 2.07. Notice of Meetings. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his or her address as shown by the books of the corporation, a
notice setting out the time and place of each regular meeting and each special
meeting, except (unless otherwise provided in section 2.04 hereof) where the
meeting is an adjourned meeting and the date, time and place of the meeting were
announced at the time of adjournment, which notice shall be mailed at least five
days prior
<PAGE>
thereto (unless otherwise provided in section 2.04 hereof); except that notice
of a meeting at which a plan of merger or exchange is to be considered shall be
mailed to all shareholders of record, whether entitled to vote or not, at least
fourteen days prior thereto. Every notice of any special meeting called pursuant
to section 2.03 here of shall state the purpose or purposes for which the
meeting has been called, and the business transacted at all special meetings
shall be confined to the purposes stated in the notice. The written notice of
any meeting at which a plan of merger or exchange is to be considered shall so
state such as a purpose of the meeting. A copy or short description of the plan
of merger or exchange shall be included in or enclosed with such notice.
Section 2.08. Waiver of Notice. Notice of any regular or special
meeting may be waived by any shareholder either before, at or after such meeting
orally or in writing signed by such shareholder or a representative entitled to
vote the shares of such shareholder. A shareholder, by his or her attendance at
any meeting of shareholders, shall be deemed to have waived notice of such
meeting, except where the shareholder objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened, or objects before a vote on an item of business because the item may
not lawfully be considered at that meeting and does not participate in the
consideration of the item of that meeting.
Section 2.09. Written Action. Any action which might be taken at a
meeting of the shareholders may be taken without a meeting if done in writing
and signed by all of the shareholders entitled to vote on that action.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the
corporation shall be managed by or under the authority of the board of
directors, except as otherwise permitted by statute.
Section 3.02. Number, Qualification and Term of Office. Until the
organizational meeting of the board of directors, the number of directors shall
be the number named in the articles of incorporation. Thereafter, the number of
directors shall be increased or decreased from time to time by resolution of the
board of directors or the shareholders. Directors need not be shareholders. Each
of the directors shall hold office until the regular meeting of shareholders
next held after such director's election and until such director's successor
shall have been elected and shall qualify, or until the earlier death,
resignation, removal, or disqualification of such director.
Section 3.03. Board Meetings. Meetings of the board of directors may
be held from time to time at such time and place within or without the state of
Minnesota as may be designated in the notice of such meeting.
Section 3.04. Calling Meetings; Notice. Meetings of the board of
directors may be called by the chairman of the board by giving at least
twenty-four hours notice, or by any other director by giving at least five days'
notice, of the date, time and place thereof to each director by mail, telephone,
telegram, or in person. If the day or date, time and place of a meeting of the
<PAGE>
board of directors has been announced at a previous meeting of the board, no
notice is required. Notice of an adjourned meeting of the board of directors
need not be given other than by announcement at the meeting at which adjournment
is taken.
Section 3.05. Waiver of Notice. Notice of any meeting of the board
of directors may be waived by any director either before, at or after such
meeting orally or in a writing signed by such director. A director, by his or
her attendance at any meeting of the board of directors, shall be deemed to have
waived notice of such meeting, except where the director objects at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened and does not participate thereafter in the
meeting.
Section 3.06. Quorum. A majority of the directors holding office
immediately prior to a meeting of the board of directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the board of
directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 3.08. Conference Communications. Any or all directors may
participate in any meeting of the board of directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this section 3.08 shall be deemed present in person at
the meeting; and the placed of the meeting shall be the place of origination of
the conference telephone conversation or other comparable communication
technique.
Section 3.09. Vacancies; Newly Created Directorships. Vacancies on
the board of directors of this corporation occurring by reason of death,
resignation, removal, or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the board although less than a
quorum; newly created directorships resulting from an increase in the authorized
number of directors by action of the board of directors as permitted by section
3.02 may be filled by a majority vote of the directors serving at the time of
such increase; and each director elected pursuant to this section 3.09 shall be
a director until such director's successor is elected by the shareholders at
their next regular or special meeting.
Section 3.10. Removal. Any or all of the directors may be removed
from office at any time, with or without cause, by the affirmative vote of the
shareholders entitled to vote at an election of directors except, as otherwise
provided by the Minnesota Business Corporation Act, Section 302A.223, as amended
when the shareholders have the right to cumulate their votes. A director named
by the board of directors to fill a vacancy may be removed from office at any
time, with or without cause, by the affirmative vote of the remaining directors
if the shareholders
<PAGE>
have not elected directors in the interim between the time of the appointment to
fill such vacancy and the time of the removal. In the event that the entire
board or any one or more directors be so removed, new directors may be elected
at the same meeting.
Section 3.11. Committees. A resolution approved by the affirmative
vote of a majority of the board of directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the board of
directors.
A majority of the committee present at a meeting is a quorum for the
transaction of business, unless a larger or smaller proportion or number is
provided in a resolution approved by the affirmative vote of a majority of the
directors present.
Section 3.12. Written Action. Any action which might be taken at a
meeting of the board of directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by all of the
directors or committee members, unless the articles provide otherwise and the
action need not be approved by the shareholders.
Section 3.13. Compensation. Directors who are not salaried officers
of this corporation shall receive such fixed sum per meeting attended or such
fixed annual sum as shall be determined, from time to time, by resolution of the
board of directors. The board of directors may, by resolution, provide that all
directors shall receive their expenses, if any, attendance at meetings of the
board of directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
ARTICLE IV.
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist
of a chairman of the board (if one is elected by the board), the president, one
or more vice presidents (if desired by the board), a treasurer, a secretary (if
one is elected by the board) and such other officers and agents as may, from
time to time, be elected by the board of directors. Any number of offices may be
held by the same person.
Section 4.02. Election, Term of Office and Qualifications. The board
of directors shall elect or appoint, by resolution approved by the affirmative
vote of a majority of the directors present, from within or without their
number, the president, treasurer and such other officers as may be deemed
advisable, each whom shall have the powers, rights, duties, responsibilities and
terms of office provided for in these bylaws or a resolution of the board of
directors not inconsistent therewith. The president and all other officers who
may be directors shall continue to hold office until the election and
qualification of their successors, notwithstanding an earlier termination of
their directorship.
<PAGE>
Section 4.03. Removal and Vacancies. Any officer may be removed from
his or her office by the board of directors at any time with or without cause.
Such removal, however, shall be without prejudiced to the contract rights of the
person so removed. If there be a vacancy in an office of the corporation by
reason of death, resignation or otherwise, such vacancy shall be filled for the
unexpired term.
Section 4.04. Chairman of the Board. The chairman of the board, if
one is elected, shall preside at all meetings of the shareholders and directors
and shall have such other duties as may be prescribed, from time to time, by the
board of directors.
Section 4.05. President. The president shall be the chief executive
officer and shall have general active management of the business of the
corporation. In the absence of the chairman of the board, he or she shall
preside at all meetings of the shareholders and directors. He or she shall see
that all orders and resolutions of the board of directors are carried into
effect. He or she shall execute and deliver, in the name of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments pertaining to the
business of the corporation unless the authority to execute and deliver is
required by law to be exercised by another person or is expressly delegated by
the articles or bylaws or by the board of directors to some other officer or
agent of the corporation. He or she shall maintain records of and , whenever
necessary, certify all proceedings of the board of directors and the
shareholders, and in general, shall perform all duties usually incident to the
office of the president. He or she shall have such other duties as may, from
time to time, be prescribed by the board of directors.
Section 4.06. Vice President. Each vice president, if one or more is
elected, shall have such powers and shall perform such duties as prescribed by
the board of directors or by the president. In the event of the absence or
disability of the president, the vice president(s) shall succeed to his or her
power and duties in the order designated by the board of directors.
Section 4.07. Secretary. The secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and board of
directors and shall record all proceedings of such meetings in the minute book
of the corporation. He or she shall give proper notice of meetings of
shareholders and directors. He or she shall perform such other duties as may,
from time to time, be prescribed by the board of directors or by the president.
Section 4.08. Treasurer. The treasurer shall be the chief financial
officer and shall keep accurate financial records for the corporation. He or she
shall deposit all moneys, drafts and checks in the name of, and to the credit
of, the corporation in such banks and depositories as the board of directors
shall, from time to time designate. He or she shall have power to endorse, for
deposit, all notes, checks and drafts received by the corporation. He or she
shall disburse the funds of the corporation, as ordered by the board of
directors, making proper vouchers therefor. He or she shall render to the
president and the directors, whenever requested, an account of all his or her
transactions as treasurer and of the financial condition of the corporation, and
shall perform such other duties as may, from time to time, be prescribed by the
board of directors or by the president.
<PAGE>
Section 4.09. Compensation. The officers of the corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the board of directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. All shares of the corporation
shall be certified shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
board of directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed in the name of the
corporation, by the president and by the secretary or an assistant secretary or
by such officers as the board of directors may designate. If the certificate
surrendered to the corporation for exchange or transfer shall be cancelled, and
no new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so cancelled, except
in cases provided for in section 5.04.
Section 5.02. Issuance of Shares. The board of directors is
authorized to cause to issued shares of the corporation up to the full amount
authorized by the articles of incorporation in such amounts as may be determined
by the board of directors as may be permitted by law. Shares may be issued for
any consideration, including, without limitation, in consideration of cash or
other property, tangible or intangible, received or to be received by the
corporation under a written agreement, of services rendered or to be rendered to
the corporation under a written agreement, or of an amount transferred from
surpuls to stated captial upon a share dividend. At the time of approval of the
issuance of shares, the board of directors shall state by resolution, its
determination of the fair value to the corporation in monetary terms of any
consideration other than cash for which shares are to be issued.
Section 5.03. Transfer of shares. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares. The corporation may treat as the absolute owner of
shares of the corporation, the person or persons in whose name shares are
registered on the books of the corporation.
Section 5.04. Loss of Certificates. Except as otherwise provided by
the Minnesota Business Corporation Act, Section 302A.419, any shareholder
claiming a certificate for shares to be lost, stolen, or destroyed shall make an
affidavit of that fact in such form as the board of directors shall require and
shall, if the board of directors so requires, give the corporation a bond of
indemnity in form, in an amount, and with one or more sureties satisfactory to
the board of directors, to indemnify the corporation against any claim which may
be made against it on account of the reissue of such certificate, whereupon a
new certificate may be issued in the same tenor and for the same number of
shares as the one alleged to have been lost, stolen or destroyed.
<PAGE>
ARTICLE VI.
DISTRIBUTIONS, RECORD DATE
Section 6.01. Distributions. Subject to the provisions of the
articles of incorporation, of these bylaws, and of law, the board of directors
may authorize and cause the corporation o make distributions whenever and in
such amounts or forms as, in its opinion, are deemed advisable.
Section 6.02. Record Date. Subject to any provisions of the articles
of incorporation, the board of directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any distribution as the record date
for the determination of the shareholders entitled to receive payment of such
distribution notwithstanding any transfer of shares on the books of the
corporation.
ARTICLE VII.
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01. Share Register. The board of directors of the
corporation shall cause to be dept at its principal executive office, or at any
other place or places within the United States determined by the board:
(1) a share register not more than one year old,
containing the names and addresses of the
shareholders and the number and classes of shares
held by each shareholder; and
(2) a record of the dates on which certificates or
transaction statements representing shares were
issued.
Section 7.02. Other Books and Records. The board of directors shall
cause to be kept at its principal executive office, or it its principal
executive office is not in Minnesota, shall make available at its Minnesota
registered office within ten days after receipt by an officer of the corporation
of a written demand for them make by a shareholder or other person authorized by
the Minnesota Business Corporation Act, Section 302A.461, originals or copies
of:
(1) records of all proceedings of shareholders for the last three
years;
(2) records of all proceedings of the board for the last three
years;
(3) its articles and all amendments currently in effect;
(4) its bylaws and all amendments currently in effect;
(5) financial statements required by the Minnesota Business
Corporation Act, Section 302A.463 and the financial statements
for the most recent interim period prepared in the course of
the operation of the corporation for distribution to the
shareholders or to a governmental agency as a matter of public
record;
<PAGE>
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers; and
(8) any shareholder voting or control agreements of which the
corporation is aware.
Section 7.03. Fiscal Year. The fiscal year of the corporation shall
be determined by the board of directors.
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
Section 8.01. The corporation may lend money to, guarantee an
obligation of, become a surety for, or otherwise financially assist a person if
the transaction, or a class of transaction belongs, is approved by the
affirmative vote of a majority of the directors present, and:
(1) is in the usual and regular course of business of the
corporation;
(2) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial
interest, an organization with which the corporation has a
business relationship, or an organization to which the
corporation has the power to make donations;
(3) is with, or for the benefit of, an officer or other employee
of the corporation or a subsidiary, including an officer or
employee who is a director of the corporation or a subsidiary,
and may reasonably be expected, in the judgement of the board,
to benefit the corporation; or
(4) has been approved by (a) the holders of two-thirds of the
voting power of the shares entitled to vote which are owned by
persons other than the interested person or persons, or (b)
the unanimous affirmative vote of the holders of all
outstanding shares whether or not entitled to vote.
Such loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors present approve, including, without limitation, a
pledge of or other security interest in shares of the corporation. Nothing in
the section shall be deemed to deny, limit or restrict the powers of guaranty,
surety, or warranty of the corporation at common law or under a statute of the
state of Minnesota.
ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. The corporation shall indemnify all officers and
directors of the corporation, for such expenses and liabilities, in such manner,
under such circumstances and to
<PAGE>
such extent as permitted by Section 302A.521 of the Minnesota Business
Corporation Act, as now enacted or hereafter amended. The Board of Directors may
authorize the purchase and maintenance of insurance and/or the execution of
individual agreements for the purpose of such indemnification, and the
corporation shall advance all reasonable costs and expenses (including
attorneys' fees) incurred in defending any action, suit or proceeding to all
persons entitled to indemnification under this section 9.01, all in the manner,
under the circumstance and to the extent permitted by Section 302A.521 of the
Minnesota Business Corporation Act, as now enacted or hereafter amended. Unless
otherwise approved by the Board of Directors, the corporation shall not
indemnify any employee of the corporation who is not otherwise entitled to
indemnification pursuant to this section 9.01.
ARTICLE X.
AMENDMENTS
Section 10.01. These bylaws may be amended or altered by a vote of
the majority of the whole board of directors at any meeting. Such authority of
the board of directors is subject to the power of the shareholders, exercisable
in the manner provided in the Minnesota Business Corporation Act, Section
302A.181, subd. 3, to adopt, amend, or repeal bylaws adopted, amended, or
repealed by the board of directors. After the adoption of the initial bylaws,
the board of directors shall not make or alter any bylaws fixing a quorum for
meetings of shareholders, prescribing procedures for removing directors or
filling vacancies in the board of directors, or fixing the number of directors
or their classifications, qualifications, or terms of office, except that the
board of directors may adopt or amend any bylaw to increase their number.
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01. Voting Securities Held by the Corporation. Unless
otherwise ordered by the board of directors, the president shall have full power
and authority on behalf of the corporation (a) to attend any meeting of security
holders of other corporations in which the corporation may hold securities and
to vote such securities on behalf of this corporation; (b) to execute any proxy
for such meeting on behalf of the corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
corporation. At such meeting, the president shall possess and may exercise any
and all rights and powers incident to the ownership of such securities that the
corporation possesses. The board of directors may, from time to time, grant such
power and authority to one or more other persons and may remove such power and
authority from the president or any other person or persons.
Section 11.02. Purchase and Sale of Securities. Unless otherwise
ordered by the board of directors, the president shall have full power and
authority on behalf the corporation to purchase, sell, transfer or encumber any
and all securities of any other corporation owned by the corporation, and may
execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer, or encumbrance. The board of directors may, from time
to time, confer like powers upon any other person or persons.
<PAGE>
Exhibit 4.1
Number Shares
*________* *________*
MARCH MOTORS MANUFACTURING COMPANY
10,000,000 Authorized Common Shares, $.01 Par Value
This certifies that_____________________________________ is the registered
holder of _______________________ Shares transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this 1st day of September A.D. 97
The shares represented by this certificate may not be
transferred without (I) the opinion of counsel Joseph Novogratz
satisfactory to this corporation that such transfer may Chairman/Secretary
lawfully be made without registration or qualification
under the Federal Securities Act of 1933 and applicable
state securities laws; or (II) such registration or
qualification.
<PAGE>
For Value Received ______________________________ hereby sell, assign and
transfer unto _________________________________________ Shares represented by
the within certificate and do hereby irrevocably constitute and appoint
_________________________________________ Attorney to transfer the said Shares
on the books of the within named Corporation within the full power of
substitution in the premises.
Dated_________________________________
In the presence of _____________________ ___________________________________
<PAGE>
Exhibit 4.2
GRANT
OF
REGISTRATION RIGHTS
OF
COMMON STOCK AND WARRANT STOCK
BY
MARCH MOTORS INTERNATIONAL, INC.
WHEREAS, March Motors International, Inc., a Minnesota corporation
("March"), and Norton Motorcycles Limited, a company incorporated under the laws
of Great Britain ("Norton") have entered into an Asset Purchase Agreement dated
March 15, 1998 (the "Asset Purchase Agreement"); and
WHEREAS, a portion of the purchase price to be paid by March under
such agreement is to be paid by delivery to Norton (or its nominees, as the case
may be) of: (i) a certain number of shares of common stock of March, par value
$.01 per share ("Common Stock"), as provided in Paragraph 2 of the Asset
Purchase Agreement; and (ii) certain warrants to acquire 550,000 additional
shares of Common Stock, exercisable at $3.00 per share (the "Warrants"); and
WHEREAS, such shares of Common Stock issued to Norton pursuant to
the Asset Purchase Agreement or which may be acquired upon exercise of the
Warrants will be "restricted securities"; and
WHEREAS, as a condition of closing of the transactions contemplated
by the Asset Purchase Agreement, March has agreed to grant to Norton (or its
nominees) certain registration rights with respect to some of the shares of
Common Stock to be issued pursuant to the Asset Purchase Agreement and all
shares of Common Stock to be acquired upon exercise of the Warrants; and
WHEREAS, Pursuant to the Asset Purchase Agreement, Norton has the
right to assign its shares of the Company to nominees of Norton's choosing; and
WHEREAS, Norton has assigned a certain number of the "Registrable
Shares" (as defined below) to Cataract N.V., a Netherlands Antilles company
("Cataract")and Global Coin Corporation, a British Columbia company ("Global");
NOW, THEREFORE, it is hereby agreed as follows:
AGREEMENT
1.) Definitions.
(a) As used herein, "Registrable Shares" shall mean 495,000 and
55,000 shares of the Common Stock issued to Cataract and Global (or their
respective assignees), respectively, at the Closing, and any and all shares
of Common Stock issuable to Cataract or Global (or their respective
assignees) upon exercise of the Warrants, which shares (i) have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and
<PAGE>
(ii) are not eligible for resale by the holder thereof pursuant to Rules
144(k) (or any successor provision thereto).
(b) The determination of a "majority of Registrable Shares" or
similar term used herein shall be made by reference to the 550,000 shares
issued to Cataract and Global pursuant to the Asset Purchase Agreement and
having rights hereunder, together with shares issued or issuable to
Cataract and Global (or their respective assignees) upon exercise of the
Warrants, computed by reference only to all such shares as a single group
but without reference to any other shares of March which may have, either
at Closing or thereafter, registration rights.
(c) All other capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Asset Purchase Agreement.
2.) Required Registration.
(a) Following a registration relating to an initial public offering
(an "Initial Public Offering") of March's equity securities under Section 5
of the Securities Act and upon request of holders of at least a majority of
Registrable Shares March shall prepare and file a registration statement
under the Securities Act covering the Registrable Shares which are the
subject of such requests and shall use its best efforts to cause such
registration statements to become effective; provided, however:
(1) All Registrable Shares covered by such registration
statement shall be converted into Common Stock
prior to effectiveness of such registration
statement;
(2) March shall not be obligated to cause a
registration statement to become effective prior to
ninety (90) days following the effective date of a
Company-initiated registration (other than a
registration effected solely to qualify an employee
benefit plan or to effect a business combination
pursuant to Rule 145);
(3) March shall not be obligated to prepare and file
such registration statement until March becomes
eligible to use Securities Act Form S-3 or until
twenty-four (24) months following the effective
date of the registration statement for the Initial
Public Offering, whichever first occurs; and
(4) March shall not be obligated to effect more than
one such registration pursuant to which the holders
of Registrable Shares have been provided with the
opportunity to register their Registrable Shares
under this Section 2, such registration has been
declared or ordered effective and the securities
offered pursuant to such registration have been
sold.
(b) Upon the receipt of a request from holders of Registrable
Shares described in Section 2(a), March shall promptly give written notice
to all other record holders of Registrable Shares that such registration is
to be effected. March shall include in such
2.
<PAGE>
registration statement such Registrable Shares for which is has received
written requests to register by such other record holders within fifteen
(15) days after March's written notice to such other record holders.
(c) In the event that the holders of a majority of Registrable
Shares for which registration has been requested pursuant to this Section
determine for any reason not to proceed with a registration at any time
before the registration statement has been declared effective by the
Securities and Exchange Commission (the "Commission"), and such holders
thereafter request March to withdraw such registration statement, the
holders of such Registrable Shares agree to bear their own expenses
incurred in connection therewith and to reimburse March for the expenses
incurred by it attributable to such registration statement, and in such
event, the holders of such Registrable Shares shall not be deemed to have
exercised their right to require March to register Registrable Shares
pursuant to this Section 2.
3.) Incidental Registration.
(a) If March shall determine to register any of its equity
securities pursuant to a registration statement to be filed with the
Commission on or prior to August 15, 1999, either for its own account or
the account of a security holder or holders, other than: (i) March's
Initial Public Offering; (ii) a registration relating solely to employee
benefit plans; or (iii) a registration solely to effect a business
combination pursuant to Rule 145 promulgated under the Securities Act,
March shall:
(1) promptly give to each record holder of Registrable
Shares written notice thereof; and
(2) use its best efforts to include in such
registration (and any related qualification under
blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable
Shares specified in a written request or requests,
made within fifteen (15) days after March's written
notice to record holders of Registrable Shares;
provided, however, that all such Registrable Shares
to be so registered shall be converted into Common
Stock prior to sale pursuant to such registration
statement, and that for purposes of this sentence,
"best efforts" shall not require March to reduce
the amount of sale price of the securities it
proposes to distribute for its own account.
(b) If any registration pursuant to this section shall be
underwritten in whole or in part, March may require that the Registrable
Shares requested for inclusion pursuant to this Section 3 be included in
the underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters (including, without
limitation, provisions requiring indemnification differing from or in
addition to the provisions requiring indemnification hereunder). In
addition, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the number of Registrable Shares to be
included in the registration and underwriting. In such event, March shall
so advise all
3.
<PAGE>
holders of Registrable Shares which would otherwise be registered and
underwritten pursuant hereto, and the number of shares of securities that
may be included in the registration and underwriting shall be allocated
among all holders of Registrable Shares requesting inclusion in the
registration in proportion, as nearly as practicable, to the respective
amounts of Registrable Shares originally requested by such holders to be
included in the registration statement. Those securities which are thus
excluded from the underwritten public offering, and any other Common Stock
owned by such holders, shall be withheld from the market by the holders
thereof for a period, not to exceed one hundred eighty (180) days, which
the managing underwriter reasonably determines is necessary in order to
effect the underwritten public offering.
(c) If any holder of Registrable Shares to be included disapproves
of the terms of any such underwriting, such holder may elect to withdraw
therefrom by written notice to March and the managing underwriter. Any
Registrable Shares excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(d) March shall have the right to terminate or withdraw any
registration initiated by it under this Section 3 prior to the
effectiveness of such registration whether or not any holder of Registrable
Shares has elected to include securities in such registration.
4.) Registration Procedures. If and whenever March is required by
the provisions of Section 2 or Section 3 of this Grant to effect the
registration of any Registrable Shares under the Securities Act, March will:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Shares, and with respect to a registration
under Section 2, use its best efforts to cause such registration statement
to become and remain effective for a period of twelve (12) months or such
lesser time if all such Registrable Shares have been sold pursuant to such
registration statement;
(b) With respect to registrations under Section 2, prepare and file
with the Commission such amendments to such registration statement and
supplements to the prospectus contained therein as may be necessary to keep
such registration statement effective for at least twelve (12) months or
such lesser time if all such Registrable Shares have been sold pursuant to
such registration statement;
(c) Furnish to the security holders participating in such
registration and to the underwriters of the Registrable Shares being
registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
security holders and underwriters may reasonably request in order to
facilitate the public offering of such Registrable Shares;
` (d) Use its best efforts to register or qualify the Registrable
Shares covered by such registration statement under such state securities
or blue sky laws of such jurisdictions as such participating holders may
reasonably request within ten (10) days following the original filing of
such registration statement, except that March shall not for any purpose
4.
<PAGE>
be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified;
(e) Notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
and
(f) Prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when the prospectus relating to
such securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading.
5.) Expenses. With respect to any registration requested pursuant
to Section 2 (except as otherwise provided in such section with respect to
registrations voluntarily terminated at the request of the requesting security
holders) and with respect to each inclusion of securities in a registration
statement pursuant to Section 3, March shall bear the following fees, costs and
expenses: all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for March, fees and disbursements of
counsel for the underwriter or underwriters of such securities (if March is
required by the underwriter or underwriters to bear such fees and
disbursements), all internal Company expenses, the premiums and other costs of
policies of insurance of March against liability arising out of the public
offering, and all legal fees and disbursements and other expenses of complying
with state securities or blue sky laws of any jurisdictions in which the
securities to be offered are to be registered or qualified. Fees and
disbursements of counsel and accountants for the selling security holders,
underwriting discounts and commissions and transfer taxes for selling security
holders and any other expenses incurred by the selling holders not expressly
included above shall be borne by the selling security holders.
6.) Indemnification.
(a) March will indemnify each holder of Registrable Shares to be
included in a registration pursuant to Section 2 or 3 hereof, each of its
officers, directors and partners and such holder's legal counsel and
independent accountants, and each person controlled by or controlling such
holder within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification or compliance has been effected
pursuant to Section 2 or 3 hereof, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification
5.
<PAGE>
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading, or any violation by March of the Securities Act or
the Securities Exchange Act of 1934, as amended, or securities act of any
state or any rule or regulation thereunder, and relating to action or
inaction required by March in connection with any such registration,
qualification or compliance, and will reimburse each such holder, each of
its officers, directors and partners and such holder's legal counsel and
independent accountants, and each person controlled by or controlling such
holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that March will not be liable in any
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to March by an instrument
duly executed by such holder or underwriter and stated to be specifically
for use therein; and provided, further, that March will not be liable to
any such person or entity with respect to any such untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus that is corrected in the final prospectus filed with the
Commission pursuant to Rule 424(b) promulgated under the Securities Act (or
any amendment or supplement to such prospectus) if the person asserting any
such loss, claim, damage or liability purchased securities but was not sent
or given a copy of the prospectus (as amended or supplemented) at or prior
to the written confirmation of the sale of such securities to such person
in any case where such delivery of the prospectus (as amended or
supplemented) is required by the Securities Act, unless such failure to
deliver the prospectus (as amended or supplemented) was a result of March's
failure to provide such prospectus (as amended or supplemented).
(b) Each holder will, if shares held by such holder are included in
the securities as to which such registration, qualification or compliance
is being effected, indemnify March, each of its directors and officers and
its legal counsel and independent accountants, each underwriter, if any, of
March's securities covered by such a registration statement, each person
who controls March or such underwriter within the meaning of Section 15 of
the Securities Act, and each other such holder, each of its officers,
directors and partners and each person controlling such holder within the
meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or 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 March, such
holders, such directors, officers, legal counsel, independent accounts,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
6.
<PAGE>
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to March
by an instrument duly executed by such holder and stated to be specifically
for use therein; provided, however, that the obligations of such holders
hereunder shall be limited to an amount equal to the gross proceeds before
expenses and commissions to each such holder of shares to be registered
sold as contemplated herein.
(c) Each party entitled to indemnification under this section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting thereof, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement, except to the extent, but only to the extent, that the
Indemnifying Party's ability to defend against such claim or litigation is
impaired as a result of such failure to give notice. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 31st day of March, 1998.
MARCH:
MARCH MOTORS INTERNATIONAL, INC.
By: /s/ Joseph Novogratz
--------------------------------
Its: Chairman
CATARACT:
CATARACT, N.V.,
By: /s/ W. J. Langeveld
--------------------------------
Its: Managing Director
GLOBAL:
GLOBAL COIN CORPORATION,
By: /s/ Roberto Aquilini
--------------------------------
Its: President
<PAGE>
Exhibit 4.3
Series A 1998 10% Bridge Note
SERIAL NUMBER ________________________ DATED _______________________, 1998
PRINCIPAL AMOUNT (US$) $____________________
NORTON MOTORS INTERNATIONAL INC., a Minnesota corporation (hereinafter referred
to as "Maker"), for value received, hereby promises to pay to the order of
_______________________________________ at the address designated below, or to
any registered transferee (hereinafter "Noteholder"), the principal sum of $ ,
on the earlier of (i) the date which is within five (5) days of receipt of funds
by Maker of its Initial Public Offering (hereinafter referred to as an "IPO",
defined as a registered offering raising net proceeds to Maker of at least
$4,000,000, which the Maker intends to conduct but of which there is no
assurance) proceeds, or (ii) the date which is nine (9) months after the
above-stated issuance date of this Bridge Note, together with interest from the
issuance date hereof until all principal hereof is paid at the rate of Ten
Percent (10%) simple per annum, in lawful money of the United States of America.
Payment of all accrued interest shall be made at the same time as the payment of
principal hereof.
1. Part of Class. This note is one of an issue of Series A 1998 10% Bridge Notes
of Maker authorized to be issued incident to a limited private placement being
offered to private "accredited investors" to fund completion of motorcycle
development, acquisition of certain assets, and pay certain IPO expenses.
2. Payment of Interest. Interest on this Bridge Note shall accrue from the date
of issuance hereof and shall be due in full upon the maturity of the principal
hereof.
3. Acceleration of Maturity. In the event of any bankruptcy, liquidation,,
dissolution or other insolvency of Maker, then the Noteholder may declare the
entire principal and accrued interest due and payable immedi-ately without
further notice, demand or presentation.
4. Status of Note. This Bridge Note is unsecured in all respects, and this Note
shall rank equally with all other unsecured debt of the Maker to the extent such
other unsecured debt is not superior by its terms in right of payment to this
Note.
5. Obligation of Maker. This Note shall constitute a binding obligation of the
Maker until satisfied in full. No director, officer, employee, or personal
representative of Maker shall have any personal liability for any obligations of
Maker hereunder or for any claim whatsoever based on this Note.
6. Investment Intent of Noteholder. Noteholder hereof acknowledges and
represents that Noteholder has acquired this Note for investment and without a
view to any distribution, transfer or resale hereof within the meaning of the
Securities Act of 1933; and that no transfer of this Note shall be valid unless
made in compliance with appropriate securities laws restrictions set forth
hereon.
7. Covenants of Maker. The Maker hereof agrees that for so long as this Note, or
any portion thereof, is outstanding, the Maker will;
<PAGE>
i. Maintain and preserve its corporate existence and all rights,
franchises, and other authority adequate for the conduct of its
business; maintain its properties, equipment, facilitiies and
intellectual property in good status, order and repair; and conduct its
business in an orderly manner without voluntary interruption.
ii. Maintain adequate insurance including public liability, property
damage, fire and other hazards in respect to the property and business
of Maker, with responsible insurance carriers.
iii. Pay and discharge, before becoming delinquent, all taxes,
assessments, and governmental charges upon or against the Maker or its
properties, and all its other material liabilities as they become due,
except to the extent and so long as any of such taxes, assessments,
charges, or other liabilities are being contested by Maker in good
faith.
iv. Promptly notify Noteholder in writing of any event of default
hereunder.
v. Maker will not make any substantial change in the character of its
business.
vi. Maker shall not make any loans or advances to any person or entity
other than in the ordinary course of its business, nor shall the Maker
guarantee the obligations of any other party unless it is a subsidiary
of Maker, nor shall the Maker incur or assume any material mortgage,
pledge, encumbrance or lien against the property of Maker unless for a
valid business purpose.
vii. Maker shall not liquidate, dissolve, merge, consolidate, or enter
into a material business combina- tion with another entity unless in
the normal and ordinary course of business; nor shall Maker sell,
lease, assign or transfer any substantial part of its business or fixed
assets or material intellectual property; provided, however, that Maker
shall have the authority to complete the acquisition of assets from
Norton Motorcycles Limited.
8. Event of Default. The following shall be a default on this Note:
(a) The Maker shall fail to make any payment of interest or principal
to the Noteholder when due under this Note, or
(b) An event specified in paragraph 3 of this Note has occurred, or
(c) Maker shall fail to perform and observe any of the covenants
contained herein and such default shall remain uncured for 30 days
after written notice thereof from Noteholder to Maker.
9. Transfer. This Note may not be sold, pledged or otherwise transferred to any
person other than an "accredited investor" as such term is defined under
Regulation D of the Securities Act of 1933. Any transfer of this Bridge Note
shall be made only by surrendering this Note duly endorsed to Maker for
cancellation, together with written instructions to Maker that a replacement
Note of like principal amount be issued to such qualified transferee(s).
10. Remedy on Default. In the event of any default hereunder, the Noteholder
hereof shall have the option to declare the principal amount hereof plus any
accrued interest herein to be immediately due and payable upon written notice by
Noteholder to Maker without further notice, demand, presentment for payment,
notice of intention to accelerate or acceleration. The Maker hereby guarantees
payment of this Note and waives demand for payment, presentation for payment,
notice of non-payment, protest, notice of protest, notice of dishonor, notice of
acceleration of maturity, and any other such or similar notices. The Maker
further agrees to pay all costs and expenses of collection, including reasonable
attorneys' fees, incurred by Noteholder in collecting any indebtedness on this
Note.
11. General. Noteholder shall not by any act, delay, omission or otherwise be
deemed to have waived any of Noteholder's rights or remedies hereunder, and no
waiver of any kind shall be valid unless in writing and signed by Noteholder.
This Note has been executed in the State of Minnesota and shall be construed and
governed by the laws of Minnesota. No modification or amendment of the terms of
this Note shall be effective unless made in writing signed by Maker and
Noteholder. This shall be
2
<PAGE>
binding on Maker and any successors or assigns, provided Maker shall not assign
its obligations under this Note without the required written consent of
Noteholder.
12. Notice. All demands and notices to be given hereunder shall be delivered or
mailed to Maker at 7667 Equitable Drive, Eden Prairie, MN 55344 (or at such new
substituted address notified to Noteholder by Maker); and in the case of
Noteholder to the address written below (or at such new substituted address
notified to Maker by Noteholder.)
IN WITNESS WHEREOF, the Maker has caused this Bridge Note to be signed by its
duly authorized officer as of the aforesaid date of issuance.
NORTON MOTORS INTERNATIONAL INC.
By_________________________________
Joseph Novogratz, President
Restrictive Legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR ANY APPLICABLE BLUE SKY LAWS; AND ACCORDINGLY THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT AND APPLICABLE BLUE SKY LAWS, OR SATISFYING THE
CONDITIONS OF AN EXEMPTION FROM SUCH REGISTRATION TO THE REASONABLE SATISFACTION
OF LEGAL COUNSEL OF THE MAKER.
Further Representation of Noteholder:
This Bridge Note is accompanied by a Stock Purchase Warrant of Maker, of a
3-year term, which grants Noteholder the right to purchase restricted common
shares of Maker at $3/share up to the original principal amount of this Note.
Noteholder hereby acknowledges and represents that any future exercise of such
Warrant by Noteholder (or any qualified transferee of Noteholder) will be
acquired for long-term investment with no intention at such time of exercise of
reselling, transferring, distributing to the public, or otherwise disposing of
such common shares; and Noteholder further represents and agrees that any common
stock to be issued to Noteholder incident to exercise of such Warrant shall be
legended by Maker to evidence such restricted status under relevant securities
laws and regulations.
___________________________________
Signature of Noteholder
___________________________________
Printed or typed name of Noteholder
___________________________________
Name of Noteholder organization
(if applicable)
___________________________________
Street Address of Noteholder
___________________________________
City, State, and Zip of Noteholder
3
<PAGE>
Exhibit 4.4
MARCH MOTORS INTERNATIONAL, INC.
Series C 1998 10% Bridge Note
Serial No. _________ Dated: _______,1998
Principal Amount: $____________
MARCH MOTORS INTERNATIONAL, INC., a Minnesota corporation
(hereinafter "Maker"), for value received, hereby promises to pay to the order
of
at the address designated below, or to any registered transferee (hereinafter
"Noteholder), the principal sum of $_______________, on the earlier of (i) the
date which is within five (5) days of receipt of funds by Maker of its Initial
Public Offering (herein after referred to as an "IPO", defined as a registered
offering raising net proceeds to Maker of at least $4,000,000, which the Maker
intends to conduct but of which there is no assurance) proceeds, or (ii) the
date which is nine (9) months after the above-stated issuance date of this
Bridge Note, together with interest from the issuance date hereof until all
principal hereof is paid at the rate of Ten Percent (10) simple per annum, in
lawful money of the United States of America. Payment of all accrued interest
shall be made at the same time as the payment of principal hereof.
1. Description of Note. This note is a single bridge Note being issued
to Noteholder to evidence certain outstanding debt owed to Noteholder incident
to Noteholder's providing bridge and working capital financing to Maker, receipt
of all of which is hereby acknowledged.
2. Payment of Interest. Interest on this Bridge Note shall accrue from
the date of issuance hereof and shall be due in full upon the maturity of the
principal hereof.
3. Acceleration of Maturity. In the event of any bankruptcy,
liquidation, dissolution or other insolvency of Maker, then the Noteholder may
declare the entire principal and accrued interest due and payable immediately
without further notice, demand or presentment.
4. Status of Note. This Bridge Note is unsecured in all respects, and
this Note shall rank equally with all other unsecured debt of the Maker to the
extent such other unsecured debt is not superior by its terms in right of
payment to this Note, except that this Bridge Note shall be superior to any and
all Series A 1998 10% Bridge Notes now or hereafter issued by Maker.
5. Obligation of Maker. This Note shall constitute a binding obligation
of the Maker until satisfied in full. No director, officer, employee or personal
representative of Maker shall have any personal liability for any obligations of
Maker hereunder or for an claim whatsoever based on this Note.
6. Investment Intent of Noteholder. Noteholder hereof acknowledges and
represents that Noteholder has acquired this Note for investment and without a
view to any distribution, transfer or resale hereof within the meaning of the
Securities Act of 1933; and that no transfer of this Note shall be valid unless
made in compliance with appropriate securities laws restrictions set forth
hereon.
<PAGE>
7. Covenants of Maker. The Maker hereof agrees that for so long as this
Note, or any portion thereof, is outstanding, the Maker will:
i. Maintain and preserve its corporate existence and all rights,
franchises, and other authority adequate for the conduct of its business;
maintain its properties, equipment, facilities and intellectual property in good
status, order and repair; and conduct its business in an orderly manner without
voluntary interruption.
ii. Maintain adequate insurance including public liability, property
damage, fire and other hazards in respect to the property and business of Maker,
with responsible insurance carriers.
iii. Pay and discharge, before becoming delinquent, all taxes,
assessments, and governmental charges upon or against the Maker of its
properties, and all its other material liabilities as they become due, except to
the extent and so long as any of such taxes, assessments, charges, or other
liabilities are being contested by Maker in good faith.
v. Promptly notify Noteholder in writing of any event of default
hereunder.
vi. Maker will not make any substantial change in the character of its
business.
vii. Maker shall not make any loans or advances to any person or entity
other than in the ordinary course of its business, nor shall the Maker guarantee
the obligations of any other party unless it is a subsidiary of Maker, nor shall
the Maker incur or assume any material mortgage, pledge, encumbrance or lien
against the property of Maker unless for a valid business purpose.
viii. Maker shall not liquidate, dissolve, merge, consolidate, or enter
into a material business combination with another entity unless in the normal
and ordinary course of business; nor shall Maker sell, lease, assign or transfer
any substantial part of its business or fixed assets or material intellectual
property; provided, however, that Maker shall have the authority to complete the
acquisition of assets from Norton Motorcycles Limited.
8. Event of Default. The following shall be a default on this Note:
(a) The Maker shall fail to make any payment of interest or principal
to the Noteholder when due under this Note, or
(b) An event specified in paragraph 3 of this Note has occurred, or
(c) Maker shall fail to perform and observe any of the covenants
contained herein and such default shall remain uncured for 30 days after written
notice thereof from Noteholder to Maker.
9. Transfer. This Note may not be sold, pledged or otherwise
transferred to any person Securities Act of 1933. Any transfer of this Bridge
Note shall be made only by other than an "accredited investor" as such term is
defined under Regulation D of the surrendering this Note duly endorsed to Maker
for cancellation, together with written instructions to Maker that a replacement
Note of like principal amount be issued to such qualified transferee(s).
10. Remedy on Default. In the event of any default hereunder, the
Noteholder hereof shall have the option to declare the principal amount hereof
plus any accrued interest hereon to be immediately due and payable upon written
notice by Noteholder to Maker without further notice, demand, presentment for
payment, notice of intention to accelerate or acceleration. The Maker hereby
guaranties payment of this Note and waives demand for payment, presentment for
payment, notice of non-payment, protest, notice of protest, notice of dishonor,
notice of acceleration of maturity, and any other such or similar notices. The
Maker further agrees to pay all costs and expenses of collection, including
reasonable attorney's fees, incurred by Noteholder in collecting any
indebtedness on this Note.
11. General. Noteholder shall not by any act, delay, omission or
otherwise be deemed to have waived any of Noteholder's rights or remedies
hereunder, and no waiver of any kind shall be valid unless in writing and signed
by Noteholder. This Note has been executed in the State of Minnesota and shall
be construed and governed by the laws of Minnesota. No modification or amendment
of the terms of this Note shall be effective unless made in writing assigned by
Maker and Noteholder. This Note shall be binding on Maker and any successors or
assigns, provided Maker shall not assign its obligations under this Note without
the required written consent of Note holder.
12. Notices. All demands and notices to be given hereunder shall be
delivered or mailed to Maker at 7667 Equitable Drive, Eden Prairie, Minnesota
55344 (or at such new substituted address notified to Noteholder by Maker); and
in the case of Noteholder to the address written below (or at such new
substituted address notified to Maker by Noteholder).
IN WITNESS WHEREOF, the Maker has caused this Bridge Note to be signed by its
duly authorized officer as of the aforesaid date of issuance.
MARCH MOTORS INTERNATIONAL, INC.
By_______________________________________
Joseph Novogratz, President
Restrictive Legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR ANY APPLICABLE BLUE SKY LAWS; AND ACCORDINGLY THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT AND APPLICABLE BLUE SKY LAWS, OR SATISFYING THE
CONDITIONS OF AN EXEMPTION FROM SUCH REGISTRATION TO THE REASONABLE SATISFACTION
OF LEGAL COUNSEL OF THE MAKER.
Further Representation of Noteholder:
This Bridge Note is accompanied by a Stock Purchase Warrant of Maker, of a
3-year term, which grants Noteholder the right to purchase restricted common
shares of Maker at $3/share up to the original principal amount of this Note.
Noteholder hereby acknowledges and represents that any future exercises of such
Warrant by Noteholder (or any qualified transferee of Noteholder) will be
acquired for long-term investment with no intention at such time of exercise of
reselling, transfering, distributing to the public, or otherwise disposing of
such common shares; and Noteholder further represents and agrees that any common
stock to be issued to
3
<PAGE>
Noteholder incident to exercise of such Warrant shall be legended by Maker to
evidence such restricted status under relevant securities laws and regulations.
________________________________
Signature of Noteholder
________________________________
Printed or typed name of Noteholder
________________________________
Address of Noteholder
________________________________
City State ZIP
4
<PAGE>
MARCH MOTORS INTERNATIONAL, INC.
No._____________ Warrant Certificate Certificate for _________ Warrants
THIS CERTIFIES THAT
or registered assigns is the owner of the number of Warrants
specified above, of which each one entitles the holder thereof to
purchase one fully paid and nonassessable common share, subject to
adjustment as provided herein, no par value, of March Motors
International, Inc. a Minnesota corporation ("the Company") at any
time after the date hereof at a exercise price of $3.00 per share.
Each such Warrant may be exercised on nay business day before
the Expiration Date which is 3 years after the date of this
Warrant Certificate, and the holder hereof or any assigns, as the
case may be, here by acknowledges that the restricted common stock
to be issued underlying these Warrants shall constitute
"restricted securities" as defined under the Securities Act of
1933. The Company is under no obligation to register common shares
underlying these Warrants, and accordingly the holder hereof, or
any assigns, recognizes that any common stock purchased incident
to exercise of these Warrants will be purchased as a long-term
investment with no view toward transfer, resale, disposition, or
distribution to the public. Upon payment for any common shares
incident to exercise of these Warrants, all of such shares shall
be legally and validly issued and fully paid and nonassessable.
The Warrants represented hereby are exercisable upon presentation and
surrender of this Warrant Certificate, with the election to purchase duly
executed by the holder hereof in writing, at the corporate office of the
Company, and upon payment to the Company of the Warrant exercise price for the
shares of common stock purchasable upon such exercise in US Dollars in cash or
other immediately available funds, or upon surrender of obligations of the
Company having an unpaid principal balance equal to such exercise price.
These Warrants are exercisable at the election of the holder hereof
or any assigns either in whole or in part anytime and from time to time up to
the number of shares specified above. Such shares shall be deemed issued as of
the date of surrender of the Warrant Certificate and receipt by the Company of
the exercise price herein. In the event this Warrant Certificate is exercised in
respect to less than all of such shares, a new Warrant Certificate or
Certificates shall be issued on surrender hereof for the number of shares
represented by Warrants which have not yet been exercised. The Company shall not
be required to issue any fractional shares incident to any exercise of these
Warrants; rather any exercise hereof shall be rounded off to the nearest whole
common share of the Company.
5
<PAGE>
These Warrants are issued to the above-named holder incident to the
terms of a Bridge Note of the Company which is a single Note known as the
Company's Series C 1998 10% Bridge Note.
Prior to exercise of any Warrants represented hereby, the holder
hereof shall not be entitled to any rights of a stockholder of the Company,
including without limitation the right to vote or receive dividends or other
distributions.
The Purchase Price, the number of shares purchasable upon exercise
hereof, and the number of Warrants outstanding anytime during the term hereof
are subject to adjustment from time to time on the occurrence of any event such
as declarations of stock dividends, stock splits (forward or reverse),
reorganizations or mergers or other business combinations, reclassification of
shares, consolidation, or any other such event, so the Holder of any Warrant
exercised after such event or time shall be entitled to receive the number and
price of shares which, if such Warrant had been exercised immediately prior to
such event, such Holder would have owned. Such adjustment or adjustments shall
be made successively whenever such event shall occur.
This Warrant Certificate and these Warrants have not been registered
under any securities laws and cannot be transferred or sold in public market
transactions unless they have been registered under relevant federal and state
securities laws, or they satisfy an appropriate exemption from such
registration. This restriction on further transfer, sale or disposition of the
common shares underlying these Warrants shall be affixed by standard restrictive
legend on any certificates for common shares issued incident to exercise hereof.
Prior to presentment for transfer of any of there Warrants to the
Company or its transfer agent, as the case may be, the Company may deem and
treat the registered holder hereof as the absolute owner hereof and of each
Warrant for all purposes, and the Company shall not be affected by any notice to
the contrary.
This Warrant Certificate and each Warrant represented hereby shall
be construed and governed by the laws of the State of Minnesota.
EXECUTED duly by the Company on the day and year first stated
herein.
MARCH MOTORS INTERNATIONAL, INC.
By______________________________________
Joseph Novogratz, President
--------------------------------------------------------------
ASSIGNMENT FORM
(To Be Executed By The Registered Holder Hereof To Transfer Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, transfers and assigns
______________ of the Warrants represented by this Certificate to
_______________ and does hereby irrevocably constitute and appoint ____________
Attorney to transfer this Warrant Certificate on the records of the Company with
full power of substitution in the premises.
7
<PAGE>
Signature(s)________________________________
________________________________
________________________________
Dated:__________________
<PAGE>
Exhibit 4.5
NORTON MOTORS INTERNATIONAL INC.
Warrant Certificate
No. W-_____________ Certificate for _________ Warrants
THIS CERTIFIES THAT
- --------------------------------------------------------------------------------
or registered assigns is the owner of the number of Warrants specified above, of
which each one entitles the holder thereof to purchase one fully paid
and nonassessable common share, subject to adjustment as provided herein, no par
value, of March Motors International, Inc. a Minnesota corporation ("the
Company") at any time after the date hereof at a exercise price of $3.00 per
share.
Each such Warrant may be exercised on nay business day before the Expiration
Date which is 3 years after the date of this Warrant Certificate, and the holder
hereof or any assigns, as the case may be, here by acknowledges that the
restricted common stock to be issued underlying these Warrants shall constitute
"restricted securities" as defined under the Securities Act of 1933. The Company
is under no obligation to register common shares underlying these Warrants, and
accordingly the holder hereof, or any assigns, recognizes that any common stock
purchased incident to exercise of these Warrants will be purchased as a
long-term investment with no view toward transfer, resale, disposition, or
distribution to the public. Upon payment for any common shares incident to
exercise of these Warrants, all of such shares shall be legally and validly
issued and fully paid and nonassessable.
The Warrants represented hereby are exercisable upon presentation and
surrender of this Warrant Certificate, with the election to purchase duly
executed by the holder hereof in writing, at the corporate office of the
Company, and upon payment to the Company of the Warrant exercise price for the
shares of common stock purchasable upon such exercise in US Dollars in cash or
other immediately available funds, or upon surrender of obligations of the
Company having an unpaid principal balance equal to such exercise price.
These Warrants are exercisable at the election of the holder hereof
or any assigns either in whole or in part anytime and from time to time up to
the number of shares specified above. Such shares shall be deemed issued as of
the date of surrender of the Warrant Certificate and receipt by the Company of
the exercise price herein. In the event this Warrant Certificate is exercised in
respect to less than all of such shares, a new Warrant Certificate or
Certificates shall be issued on surrender hereof for the number of shares
represented by Warrants which have not yet been exercised. The Company shall not
be required to issue any fractional shares incident to any exercise of these
Warrants; rather any exercise hereof shall be rounded off to the nearest whole
common share of the Company.
5
<PAGE>
These Warrants are issued to the initial holder hereof incident to
the terms of a Bridge Note of the Company purchased by such initial holder
which Bridge Note is part of the Company's Series A 1998 10% Bridge Note.
Prior to exercise of any Warrants represented hereby, the holder
hereof shall not be entitled to any rights of a stockholder of the Company,
including without limitation the right to vote or receive dividends or other
distributions.
The Purchase Price, the number of shares purchasable upon exercise
hereof, and the number of Warrants outstanding anytime during the term hereof
are subject to adjustment from time to time on the occurrence of any event such
as declarations of stock dividends, stock splits (forward or reverse),
reorganizations or mergers or other business combinations, reclassification of
shares, consolidation, or any other such event, so the Holder of any Warrant
exercised after such event or time shall be entitled to receive the number and
price of shares which, if such Warrant had been exercised immediately prior to
such event, such Holder would have owned. Such adjustment or adjustments shall
be made successively whenever such event shall occur.
This Warrant Certificate and these Warrants have not been registered
under any securities laws and cannot be transferred or sold in public market
transactions unless they have been registered under relevant federal and state
securities laws, or they satisfy an appropriate exemption from such
registration. This restriction on further transfer, sale or disposition of the
common shares underlying these Warrants shall be affixed by standard restrictive
legend on any certificates for common shares issued incident to exercise hereof.
Prior to presentment for transfer of any of there Warrants to the
Company or its transfer agent, as the case may be, the Company may deem and
treat the registered holder hereof as the absolute owner hereof and of each
Warrant for all purposes, and the Company shall not be affected by any notice to
the contrary.
This Warrant Certificate and each Warrant represented hereby shall
be construed and governed by the laws of the State of Minnesota.
EXECUTED duly by the Company on the day and year first stated
herein.
MARCH MOTORS INTERNATIONAL, INC.
By______________________________________
Joseph Novogratz, President
--------------------------------------------------------------
ASSIGNMENT FORM
(To Be Executed By The Registered Holder Hereof To Transfer Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, transfers and assigns
______________ of the Warrants represented by this Certificate to
_______________ and does hereby irrevocably constitute and appoint ____________
Attorney to transfer this Warrant Certificate on the records of the Company with
full power of substitution in the premises.
7
<PAGE>
Signature(s)________________________________
________________________________
________________________________
Dated:__________________
<PAGE>
Exhibit 4.6
MARCH MOTORS INTERNATIONAL, INC.
10% Convertible Subordinated Debenture, Series 1997
Serial No._____
$___________________ Dated: October 29, 1997
MARCH MOTORS INTERNATIONAL, INC., a Minnesota corporation (hereafter called
"Holder"), the principle sum of $_____________, on the due date of September 30,
2000 (subject to earlier conversion thereof), together with interest from the
date hereof until paid at the rate of ten percent (10%) simple per annum, in
lawful money of the United States of America. Maker covenants and agrees that so
long as any portion of this debenture principal remains outstanding and unpaid
either to the principal hereof or any interest heron, Maker will comply with the
following provisions, to which this debenture is subject and by which it will be
governed:
1. Part of Class. This debenture is one of an issue of 10% subordinated
convertible debentures, series 1997, of Maker provided to be issued incident to
a private placement authorizing a total principal amount of $1,500,000 being
offered to private investors.
2. Payment of Interest. Interest at the rate of 10% per annum shall be paid
semi-annually on the 30th day of December and the 30th day of June of each year
of the term hereof commencing December 30, 1997.
3. Acceleration of Maturity. In the event of nonpayment by Maker to Holder
within 30 days of the date due of any principal or interest hereunder, or any
portion thereof, or in the event of any bankruptcy, liquidation, dissolution or
other insolvency of Maker, then and in either event the Holder may declare the
entire principal and accrued interest due and payable immediately without
further notice, demand or presentment. Maker also agrees to pay all reasonable
costs of collection, including reasonable attorney fees, in case payment shall
not be made under the terms and conditions of this debenture.
4. Subordination. The indebtedness evidenced by this debenture shall be
subordinate in right of payment to all Senior Debt, with the term "Senior Debt"
meaning indebtedness to financial institutions for purchase money loans secured
by real or personal property, or for financing collateralized by inventories and
accounts receivable and constituting working capital used in the business of the
Maker, whether created , assumed, or incurred before or after the date hereof,
and renewals, extensions and refundings of any such indebtedness. The
subordination provisions contained herein are expressly and only for the benefit
of third party Senior creditors of Maker. Payment of Principal and interest on
this debenture shall not be subordinated to the prior payment and interest on
this debenture shall not be subordinated to the prior payment of any such Senior
Debt as to all amounts which actually are paid by Maker hereunder if Maker is
not in default under the terms of any such Senior Debt at such time or times
such payment or payments are made hereunder to holder.
<PAGE>
5. Conversion.
i) This debenture shall be automatically converted into common stock
of the Maker in whole on the effective date of registration of an Initial Public
Offering (IPO) of the Maker, with such automatic IPO conversion basis being the
lesser of $2.00 per share ($3 pre-split) or one-half of the IPO offering price.
ii) This debenture shall be convertible anytime in whole or in part,
and from time to time, at the option of the holder, at the rate of one(1) share
of common stock of the Maker for each Two Dollars ($2.00) of principal amount
hereof being converted ($3 pre-split).
iii) The Maker shall not be required to issue any fractional shares
of common stock incident to any conversion of this debenture, and any resulting
fractional amount shall be rounded off to the nearest whole common share.
6. Manner of Conversion. In order to convert this debenture into common
stock of Maker, the Holder shall surrender, at the principal office of Maker,
this debenture duly endorsed to Maker, or in blank,. and give written notice to
Maker that all or part of this debenture is to be converted, such notice is to
specify clearly the portion to be converted. As of the time of such written
notice, the Holder shall be treated for all purposes as the record holder of the
common stock into which this debenture is converted, and the portion converted
shall be deemed to be satisfied and discharged, and the shares of common stock
of Maker into which this debenture is converted shall be fully paid and
nonassessable. In the event only a portion of this debenture has been converted,
Marker shall issue and deliver to Holder a new debenture identical to the one
surrendered except that it shall be in the correct principal amount not yet
converted into common stock of Maker.
7. Anti-Dilution. If Maker shall change the number of shares of its common
stock issued and outstanding as of the date hereof by stock dividend, stock
split, sale without consideration, reorganization, recapitalization, merger or
other business combination, then and in each such event a proportionate
adjustment shall be make to the conversion rate herein as well as to any common
stock previously issued upon conversion of this debenture.
8. Transfers and Investment Representation. By accepting this debenture
Holder represents that the principal amount of this debenture and all shares of
common stock of Maker acquired upon conversion hereof are acquired and will be
acquired for Holder's own account for long-term investment and with no intention
at the time of acquisition of distributing or reselling the same or and part
thereof to the public, and Holder further agrees that any common stock into
which this debenture is converted shall be legended to evidence its status as
restricted securities under relevant securities laws.
Any transfer of this debenture shall be made only by surrendering this
debenture duly endorsed to Maker, or in blank, for a cancellation, together with
written instructions to Maker, that a new debenture of like principal amount
should be issued to the transferee(s) designated by Holder in exchange therefor.
9. Registration. Neither this debenture nor the shares of common stock
issuable upon conversion thereof have been registered under the Securities Act
of 1993 or any other securities laws. The Holder hereof agrees that prior to
making any disposition of the debenture or of any common stock issued upon
conversion thereof, Holder will give written notice to the Company
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<PAGE>
of such proposed disposition and Holder further will not make any such
disposition until, in the opinion of counsel for the Maker, either (i)
registration is not required for such disposition, or (ii) a registration
covering the proposed disposition has become effective. Upon receipt by Maker of
such written notice of proposed disposition by Holder, Maker will use its best
efforts to ascertain as promptly as possible whether or not registration is
required and will advise Holder promptly with respect thereto.
10. Notices. All demands and notices to be given hereunder shall be
delivered or mailed to Marker at 7667 Equitable Drive, Eden Prairie, Minnesota
55344, until a new address shall be substituted by like notice from Maker; and
in the case of Holder to the address written below, until a new address is
substituted by Holder by like notice to Maker.
MARCH MOTORS INTERNATIONAL, INC.
By__________________________________
Joseph Novorgratz
------------------------------------
President
------------------------------------
Holder
------------------------------------
Address
------------------------------------
City State Zip
------------------------------------
SS# or Tax ID# of Holder
<PAGE>
Exhibit 4.7
- --------------------------------------------------------------------------------
NORTON MOTORS INTERNATIONAL, INC.
AND
DIRKS & COMPANY, INC.
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of , 1998
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _________, 1998 between
NORTON MOTORS INTERNATIONAL, INC., a Minnesota corporation (the "Company"), and
DIRKS & COMPANY, INC. (hereinafter referred to variously as the "Holder" or
"Holders" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative warrants
("Warrants") to purchase up to an aggregate 300,000 shares of Common Stock,
$0.01 par value, of the Company; and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the several Underwriters listed therein to act as the Representative
in connection with the Company's proposed public offering of up to 3,000,000
shares of Common Stock at a public offering price of $______ per share of Common
Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate thirty dollars ($30.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby granted the
right to purchase, at any time from _____________, 1999 [twelve months after
date of this Agreement],
<PAGE>
until 5:30 P.M., New York time, on ___________, 2003 [five years after date of
this Agreement], up to an aggregate of 300,000 shares of Common Stock at an
initial exercise price (subject to adjustment as provided in Section 8 hereof)
of $_____ per share of Common Stock [120% of initial public offering price per
share of Common Stock], subject to the terms and conditions of this Agreement.
Except as set forth herein, the shares of Common Stock are in all respects
identical to the shares of Common Stock being purchased by the Underwriters for
resale to the public pursuant to the terms and provisions of the Underwriting
Agreement. The shares of Common Stock are sometimes hereinafter referred to
collectively as the "Securities."
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
Section 3.1 Method of Exercise. The Warrants initially are exercisable
at an aggregate initial exercise price (subject to adjustment as provided in
Section 8 hereof) per share of Common Stock set forth in Section 6 hereof
payable by certified or official bank check in New York Clearing House funds,
subject to adjustment as provided in Section 8 hereof. Upon surrender of a
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal executive offices in
Minnesota (presently located at 14252-23rd Avenue North, Plymouth, Minnesota
55447-4910) the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to
2
<PAGE>
fractional shares of the Common Stock). Warrants may be exercised to purchase
all or part of the shares of Common Stock. In the case of the purchase of less
than all the shares of Common Stock purchasable under any Warrant Certificate,
the Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the shares of Common Stock purchasable thereunder.
Section 3.2 Exercise by Surrender of Warrant. In addition to the method
of payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 hereof. The
number of shares of Common Stock to be issued pursuant to this Section 3.2 shall
be equal to the difference between (a) the number of shares of Common Stock in
respect of which the Warrants are exercised and (b) a fraction, the numerator of
which shall be the number of shares of Common Stock in respect of which the
Warrants are exercised multiplied by the Exercise Price and the denominator of
which shall be the Market Price (as defined in Section 3.3 hereof) of the shares
of Common Stock. Solely for the purposes of this paragraph, Market Price shall
be calculated either (i) on the date on which the form of election attached
hereto is deemed to have been sent to the Company pursuant to Section 14 hereof
("Notice Date") or (ii) as the average of the Market Prices for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
Section 3.3 Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be when referring to the Common
Stock, the last reported sale price, or, in case no such reported sale takes
place on such day, the average of the last reported sale prices for the last
three (3) trading days, in either case as officially reported by the principal
securities exchange on which the Common Stock is listed or admitted to trading
or by the American Stock
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<PAGE>
Exchange ("Amex") or by the National Association of Securities Dealers Automated
Quotation System ("Nasdaq"), or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted by Nasdaq, the average
closing bid price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, as determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock (and/or other securities, property or rights issuable upon the
exercise of the Warrants) shall be executed on behalf of the Company by the
manual or facsimile signature of the then Chairman or Vice Chairman of the Board
of Directors or President or Vice President of the Company. Warrant
4
<PAGE>
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer. Certificates
representing the shares of Common Stock (and/or other securities, property or
rights issuable upon exercise of the Warrants) shall be dated as of the Notice
Date (regardless of when executed or delivered) and dividend bearing securities
so issued shall accrue dividends from the Notice Date.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Representative.
6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $_____ per share of Common Stock [120% of the initial public offering price
of the Common Stock]. The adjusted exercise price shall be the price which shall
result from time to time from any and all adjustments of the initial exercise
price in accordance with the provisions of Section 8 hereof. Any transfer of a
Warrant shall constitute an automatic transfer and assignment of the
registration rights set forth in Section 7 hereof with respect to the Securities
or other securities, properties or rights underlying the Warrants.
Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
5
<PAGE>
7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock, or other securities issuable upon exercise
of the Warrants (collectively, the "Warrant Securities") have been registered
under the Securities Act of 1933, as amended (the "Act") pursuant to the
Company's Registration Statement on Form SB-2 (Registration No. 333-_______)
(the "Registration Statement"). All of the representations and warranties of the
Company contained in the Underwriting Agreement relating to the Registration
Statement, the Preliminary Prospectus and Prospectus (as such terms are defined
in the Underwriting Agreement) and made as of the dates provided therein, are
incorporated by reference herein. The Company agrees and covenants promptly to
file post-effective amendments to such Registration Statement as may be
necessary in order to maintain its effectiveness and otherwise to take such
action as may be necessary to maintain the effectiveness of the Registration
Statement as long as any Warrants are outstanding. In the event that, for any
reason, whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement, the certificates representing the Warrant Securities
shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered or sold except pursuant to
(i) an effective registration statement under the Act, (ii)
to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel, if such opinion
shall be reasonably satisfactory to counsel to the issuer,
that an exemption from registration under such Act is
available.
Section 7.2 Piggyback Registration. If, at any time commencing after
the date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-4,
Form S-8 or a comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing
6
<PAGE>
of each such registration statement, to the Representative and to all other
Holders of the Warrants and/or the Warrant Securities of its intention to do so.
If the Representative or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) business days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the Representative and such
Holders of the Warrants and/or Warrant Securities the opportunity to have any
such Warrant Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring five (5)
years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other
7
<PAGE>
Holders of the Warrants and/or Warrant Securities who notify the Company within
ten (10) days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 (whether such request is made
pursuant to Section 7.3(a) or 7.3(c) hereof) by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
Section 7.3(a), at any time commencing after the date hereof and expiring five
(5) years thereafter, any Holder(s) of Warrants and/or Warrant Securities shall
have the right, exercisable by written request to the Company, to have the
Company prepare and file with the Commission, on one occasion, a registration
statement so as to permit a public offering and sale for nine (9) consecutive
months by any such Holder(s) of its or their Warrants and/or Warrant Securities;
provided, however, that the provisions of Section 7.4(b) hereof shall not apply
to any such registration request and all costs incident thereto shall be at the
expense of the Holders) making such request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Common Stock, determined as of (x) the date of the notice sent pursuant to
Section 7.3(a) or (y) the expiration of the period specified in Section 7.4(a)
and (ii) any and all Warrants of such Holders at such Market Price less the
Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds
8
<PAGE>
and shall close within two (2) days after the later of (i) the expiration of the
period specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(d).
Section 7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of
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<PAGE>
1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify each of the
Underwriters contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof (other than (i) shelf
10
<PAGE>
registrations effective prior thereto and (ii) registrations on Form S-4 or
S-8), without the prior written consent of the Holders of the Warrants and
Warrant Securities representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement) relating to the due incorporation of
the Company, the validity of the shares being issued, the due execution and
delivery of the underwriting agreement and Rule 10b-5, and (ii) a "cold comfort"
letter dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, with respect to events subsequent to the date of such
financial statements, as are customarily covered in accountants' letters
delivered to underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing
11
<PAGE>
underwriters, copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested pursuant to Section 7.3(a) to be
included in such underwriting, which may be the Representative. Such agreement
shall be satisfactory in form and substance to the Company, each Holder and such
managing underwriter(s), and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter(s). The Holders shall
be parties to any underwriting agreement relating to an underwritten sale of
their Warrant Securities whether pursuant to Section 7.2 or Section 7.3(a) and
may, at their option, require that any or all of the representations, warranties
and covenants of the Company to or for the benefit of such underwriter(s) shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as they may relate to such Holders and
their intended methods of distribution.
12
<PAGE>
(l) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the Company
shall pay a dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
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<PAGE>
Section 8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
Section 8.5 Merger or Consolidation. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of securities of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than two cents (2) per Warrant Security, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and
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<PAGE>
together with the next subsequent adjustment which, together with any adjustment
so carried forward, shall amount to at least two cents (2?) per Warrant
Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
11. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price
15
<PAGE>
therefor, all shares of Common Stock, and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Common Stock issuable upon the exercise of the Warrants to be listed (subject
to official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on the Amex or Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive
a dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings or capital surplus (in accordance with applicable
law), as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
16
<PAGE>
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as
an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
14. Supplements and Amendments. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any
17
<PAGE>
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interests of the Holders of Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of
business on __________, 2005. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _________, 2011.
17. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree that
any action, proceeding or claim against it arising out of, or relating in any
way to, this Agreement shall be brought and enforced in the courts of the State
of New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Representative
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in Section 13 hereof. Such mailing shall be
18
<PAGE>
deemed personal service and shall be legal and binding upon the party so served
in any action, proceeding or claim. The Company, the Representative and the
Holders agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its/their
reasonable legal costs and expenses relating to such action or proceeding and/or
incurred in connection with the preparation therefore.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Representative and any other registered Holders of Warrant Certificates or
Warrant Securities.
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<PAGE>
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
NORTON MOTORS INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
Attest:
- ----------------------------
Secretary
DIRKS & COMPANY, INC.
By:
-------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ___________, 2003
No. W- Warrants to Purchase
____ shares of Common
Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns, is the
registered holder of Warrants to purchase initially, at any time from _________,
1999 until 5:30 p.m. New York time on __________, 2003 ("Expiration Date"), up
to __________ fully-paid and non-assessable shares of common stock, $0.01 par
value ("Common Stock"), of NORTON MOTORS INTERNATIONAL, INC., a Minnesota
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $_____ per share of
Common Stock upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of _________,
1998 between the Company and DIRKS & COMPANY, INC. (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified or official bank check
in New York Clearing House funds payable to the order of the Company or by
surrender of this Warrant Certificate.
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of _____________, 1998
NORTON MOTORS INTERNATIONAL, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
/ / __________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Norton Motors
International, Inc. in the amount of $_______________________, all in accordance
with the terms of Section 3.1 of the Representative's Warrant Agreement dated as
of _________, 1998 between Norton Motors International, Inc. and Dirks &
Company, Inc. The undersigned requests that a certificate for such securities be
registered in the name of whose address is and that such Certificate be
delivered to whose address is .
Dated:
Signature
-------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
24
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
/ / _____________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of ________, 1998 between Norton Motors International, Inc.
and Dirks & Company, Inc. The undersigned requests that a certificate for such
securities be registered in the name of whose address is and that such
Certificate be delivered to whose address is .
Dated:
Signature
------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
----------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
25
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: Signature:
-----------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
----------------------------------------
Insert Social Security or Other
Identifying Number of Assignee)
26
<PAGE>
Exhibit 10.2
DEVELOPMENT AND MARKETING AGREEMENT
THIS DEVELOPMENT AND MARKETING AGREEMENT ("Agreement") is made as of
this 15th day of December, 1995 (the "Effective Date") by and between March
Group PLC, a corporation formed under the laws of the United States Kingdom
("March Group") and March Motors Limited, a corporation formed under the laws of
the United Kingdom (the "Company").
WHEREAS, March Group is engaged in the business of designing,
developing, manufacturing and selling high performance chassis for performance
motor vehicles including motorcycles;
WHEREAS, the Company is interested in producing, marketing and
selling superbikes for sale to the general public; and
WHEREAS, March Group and the Company are desirous of working
toghether cooperatively to design and develop a superbike for sale by the
Company on a worldwide basis.
NOW, THEREFORE, in consideration of the mutual promises contained in
the Agreement, the parties hereto agree as follows:
1: Definitions
As used herein, the following terms shall have the following
meanings:
a. "Affiliates" means corporations or other business
organizations that, either directly or through one or more intermediaries,
control, are controlled by, or are under common control with, a party hereto.
b. "Control" means ownership of 50% or more of the voting
securities of an entity.
c. "Development Program" means March Group's efforts to design
and develop the Superbike and produce a prototype of the Superbike as more fully
described on Exhibit A attached hereto.
d. "Intellectual Property" means copyrights, patents,
trademarks and trade secrets, whether or not registered, filed, applied for or
the like, and all related rights.
e. "Licensed Name" shall mean the name and mark "March"
including all common law rights and registrations of March Group in the same.
<PAGE>
f. "Licensed Products" shall mean any motorcycle or piston
engine developed, produced or manufactured by or for the Company and all
merchandise sold by the Company which utilized the Licensed Name.
g. "March Group Technology" means the proprietary technology
and related Intellectual Property of March Group, and improvements and
modifications to such technology, necessary to develop and produce the
Superbike.
h. "Service Components" as used in this Agreement shall mean
those components sold by the Company for use as service parts for Licensed
Products previously sold.
i. "Specifications" means the specifications for the design,
performance and manufacturability of the Superbike, which are to be developed by
the March Group hereunder.
j. "Superbike" means the certain high performance motorcycle
developed by March Group pursuant to the Development Program.
2. Development Program
March Group agrees to use all commercially reasonable efforts
to complete the Development Program within ten (10) months of the Effective
Date. The parties agree that the estimated cost of designing the Superbike is
approximately Three Hundred Thousand Pounds (300,000) and the estimated cost of
production of a working prototype of the Superbike is approximately Two Hundred
Thousand Pounds (200,000). The Company hereby agrees to pay March Group the sum
of Five Hundred Thousand Pounds (500,000) in consideration of March Group's
continuing compliance with the Development Program. Such amount will be payable
in ten (10) equal installments of Fifty Thousand Pounds(50,000) each, with the
first such installment being due and payable on December 15, 1995, and the
remaining installments being due and payable on the first day of each succeeding
month, such installment payments shall be contingent upon and subject to March
Group's continued compliance with the Development Program. Upon each installment
payment made by the Company pursuant to this Section 2, the Company shall obtain
and retain all right, title and interest in and to the Specifications, the
Superbike and all Intellectual Property therein. Except as otherwise provided
for in this Agreement, March Group shall be responsible for all costs and
expenses incurred in carrying out the Development Program. March Group agrees to
consult with the Company on a regular basis regarding the progress of the
Development Program, and will give the Company the opportunity to review and
approve the functional specifications prior to commencing the engineering design
phase of the Development Program. In connection with the Development Program,
March Group agrees to assist in creating an operating manual for the Superbike
which the Company will distribute to purchasers and end-users of the Superbike.
If March Group fails to develop the
2
<PAGE>
Superbike within ten (10) months of the Effective Date, the Company shall have
the right to terminate this Agreement pursuant to Section 12 hereunder.
3. Ownership of Technology.
a. March Group Technology. March Group owns and possesses all
right, title, and interest in the March Group Technology and the Licensed Name.
March Group has not licensed any of the March Group Technology or the Licensed
Name to any third party. March Group has taken all necessary action to protect
the March Group Technology and the Licensed Name. March Group has not received
any notice of, nor are there any facts known to March Group which indicate a
likelihood of, any infringement or misappropriation by, or conflict from, any
third party contesting the validity of the March Group Technology or the
Licensed Name has been made, is currently outstanding or, to the best knowledge
of March Group, is threatened; March Group has not received any notice of any
infringement, misappropriation or violation by it of any intellectual property
rights of any third parties and March Group has not infringed, misappropriated
or otherwise violated any such intellectual property rights; and no
infringement, illicit copying, misappropriation or violation has occurred or
will occur with respect to the products currently under development (in their
present state of development), including the Superbike, or with respect to the
conduct of the March Group's business as now conducted. The parties agree that
March Group shall retain all right, title, and interest in and to the March
Group Technology and all Intellectual Property therein, subject only to the
license granted hereunder.
b. Company Technology. The parties agree that the company
shall retain all right, title, and interest in an to the Specifications, the
Superbike and all Intellectual Property therein, subject only to the royalty
obligation.
4. License
a. License to the Company. Subject to the terms and conditions
of this agreement, March Group hereby grants to the Company, and the Company
hereby accepts for the term of this Agreement, an irrevocable, exclusive and
worldwide license to use the Licensed Name in connection with the manufacture,
marketing and sale of Licensed Products. In addition to the foregoing, March
Group hereby consents to the use of, and grants to the Company a royalty-free
license to use, the Licensed Name in the Company's legal name.
b. Sublicenses. The Company shall have the right to sublicense
the license granted under Section 4(a) to its Affiliates, and the Company shall
have the right to sublicense the license granted under Section 4(a) to third
parties solely to the extent necessary to allow subcontractors to modify the
Licensed Products or provide a component of the Superbike with the Licensed
Name, to allow distributors and similar
3
<PAGE>
parties to sell the Licensed Products, and to allow end-users to use (on a
perpetual basis) the Superbike. Except as set forth in this Section 4(b), the
license granted under Section 4(a) may not be sublicensed.
c. Royalties.
i. The Company, in consideration of the grant of the
license in Section 4(a), agrees to pay to March Group royalties at the rate of
two and one-half percent (2.5%) of the net selling price of Superbikes sold by
the Company plus one percent (1%) in the Superbike's spare parts sales. For this
purpose, "net selling price" shall mean the dealer invoice price for each
Superbike sold by the Company utilizing the Licensed Name, less returns,
allowances and shipping charges.
ii. The Company, in consideration of the grant of the
license in Section 4(a), agrees to pay to March Group royalties at the rate of
one percent (1.0%) of the net selling price of motorcycles piston engines sold
by the Company utilizing the Licensed Name. For this purpose, "net selling
price" shall mean the invoice price for each engine sold by the Company, except
for those engines sold as part of a Superbike for which no additional royalty
shall be payable, less returns, allowances and shipping charges.
iii. The Company, in consideration of the grant of the
license in Section 4(a), agrees to pay to March Group royalties at the rate of
one percent (1.0%) of the net selling price of all merchandise sold by the
Company which utilizes the Licensed Name. For this purpose, "net selling price"
shall mean the sales price of any such merchandise sold by the Company utilizing
the Licensed Name, less returns, allowances and shipping charges.
iv. All royalties calculated pursuant to Section 4(c)(i)
and 4(c)(iii) shall be paid to March Group net of any tax or charge imposed by
any United Kingdom government or political subdivision thereof except for income
tax or tax in lieu of income tax imposed thereon and required to be withheld by
the Company pursuant to valid governmental authority. With respect to any such
tax properly withheld, the Company shall furnish March Group with receipts
showing the withheld taxes to have been duly deposited with the taxing
authority. The Company shall be solely responsible for payment of any value
added tax on this Agreement or any payments made pursuant to this Agreement.
v. Royalties are to be paid in monthly installments (less
taxes provided in Section 4(c)(iv) within thirty (30) days after the Company's
receipt of final payments for any Licensed Product. Each installment will be
payable in British Pounds by wire transfer to a bank account designated by March
Group.
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<PAGE>
vi. For as long as royalties are due under this Agreement,
the Company will keep true and accurate records adequate to permit royalties due
to March Group to be computed and verified. The records will be open at all
reasonable times during business hours for inspection by a duly authorized
representative of March Group to the extent necessary for the determination of
the accuracy of the reports made hereunder. March Group's representative will
have the right to make companies of the relevant records.
vii. The Company acknowledges that nothing contained in
this Agreement shall be interpreted so as to grant the Company the right to use
the Licensed Name in connection with the development, manufacturing, marketing
or sale of four wheeled vehicles.
d. Technical Assistance. March Group will provide
knowledgeable and competent personnel as reasonable necessary (at its own
expense) to complete the development of the Superbike and to ensure that the
Superbike operates in accordance with the Specifications.
5. Supply of Superbike to the Company. March Group agrees touse
all commercially reasonsable efforts to identify and introduce sources of
suppliers and employees required by the Company to produce and manufacture the
Superbike.
6. Marketing Obligations
a. Best Efforts to Promote Marketing. At all times during the
term of this Agreement, both parties will use best efforts to promote the
manufacture, sale, marketing, and distribution of the Superbike.
b. Marketing Practices. Both parties agree to (I) conduct
business in a manner that reflects favorably at all times on the good name,
goodwill and reputation of the other party, (ii) not engage in deceptive,
misleading or unethical practices that are or might be detrimental to the other
party, (iii) not make any false or misleading representation with regard to the
other party or its products, (iv) not publish or utilize or cooperate in the
publication or utilization of any misleading or deceptive advertising material
that relates in any way to the other party and its products, (v) not make any
representation or warranty to anyone with respect to the specifications,
features or capabilities of the other party's products that are inconsistent
with the literature distributed by distributed by the other party, including all
disclaimers contained in such literature, and (vi) not make any warranty or
representation to anyone that would give the recipient any claim of action
against the other party.
c. Establishing of March Racing, Ltd. The Company will form a
company to be named March Racing, Ltd., or some other name as similar to March
Racing, Ltd. as possible ("March Racing"). The parties agree to share equally
the costs of formation of March Racing. Upon the formation of March Racing, the
Company and
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<PAGE>
March Group will each own 50% of the voting securities of March Racing. The
Company and March Group will each appoint two (2) individuals to serve on the
Board of Directors of March Racing. March Group will appoint Robin Herd as the
Chairman of the Board of Directors of March Group if Mr. Herd shall consent to
the appointment to such position.
d. Sponsorship for the Superbike. March Group use all
commercially reasonable efforts to organize sponsors for the Superbike and for
the business and conduct of March Racing.
7. Additional Covenants of the Company.
a. Board of Directors. The Company will permit March Group to
designate one member of the Company's Board of Directors at all times during the
term of this Agreement. The Company will continue to use all commercially
reasonable efforts to keep such individuals on the Board of Directors of the
Company during the term of this Agreement.
b. Engine Development Agreement. The Company will use all
commercially reasonable efforts to enter into an agreement with M.C.D. Limited
to design and develop a working prototype of a 750 cc, four cylinder motorcycle
engine (the "engine") for the Superbikes to be designed and supplied under this
Agreement.
8. Additional Covenants of March Group.
a. Agreement not to Compete.
(i) Except as a contemplated by this Agreement, March Group
agrees that during the term of this Agreement and for a period of five (5) years
after the termination of this Agreement, it will not, directly or indirectly,
engage in competition with the Company in any manner or capacity (e.g., as an
advisor, principal, agent, partner, officer, director, stockholder, employee,
member of any association or otherwise) in any phase of the business which the
Company is conducting during the term of this Agreement.
(ii) The obligation of March Group under Section 8(a)(i)
shall apply to any geographic area in which the Company (y) has engaged in
business during the term of this agreement through production, promotional,
sales or marketing activity, or otherwise, or (z) has otherwise goodwill,
business reputation, or any customer relations.
(iii) Ownership by March Group, as a passive investment, of
less than 1% of the outstanding shares of capital stock of any corporation
listed on a securities exchange or publicly traded on any recognized market
shall not constitute a breach of this Section 8.
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(iv) March Group further agrees that during the term of
this Agreement it will not, directly or indirectly, assist or encourage any
other person in carrying out, directly or indirectly , any activity that would
be prohibited by the foregoing provisions of this Section 8 if such activity
were carried out by March Group, either directly or indirectly. In particular,
March Group agrees that it will not, directly or indirectly, induce any employee
of March Group to carry out, directly or indirectly, any such activity.
b. Engine Development Assistance. In connection with the
Company's covenant set forth above in Section 7(b), March Group hereby agrees to
attend bi-weekly progress meetings with Al Melling of M.C.D. Limited, or any
other engineer of M.C.D. Limited as the Company shall indicate to March Group in
writing, to discuss the integration of the engine into the Specifications for
the Superbike.
9. Confidentiality.
a. Obligation. Each party shall keep confidential and not
disclose to any third party or use for its own benefit, except as expressly
permitted herein, or for the other party to it (collectively "Confidential
Information"); (i) any information provided to it by the other party marked with
a proprietary, confidential or other similar notice, or orally disclosed to it
by the other party and followed by a writing with thirty (30 ) days of such oral
disclosure indicating said information was confidential, and (ii) even if not so
marked, information that is reasonably understood by it to be confidential,
including the March Group Technology, on the one hand, and the Specifications
and the Company Technology, on the other hand.
b. Exclusions. The term "Confidential Information" shall not
include information which (i) is or becomes generally known or available through
no act or failure to act by the receiving party, (ii) is already known by the
receiving party at the time of receipt as evidenced by its records, (iii) is
hereafter furnished to the receiving party by a third party, as a matter of
right and without restriction on disclosure, (iv) is disclosed by written
permission of the party disclosing the Confidential Information, or (v) is
required to disclosed by court order or law, but in such event notice shall be
provided at least ten (10) days in advance of such disclosure.
c. Access to Information. Each party shall limit access to
Confidential Information to those of its employees or agents ( including
subcontractors) who have a need for such Confidential Information, or to its
sublicensees to the extent necessary to allow such sublicensee to fully use
their sublicenses, and who are under a written obligation shall be at least as
restrictive as those obligations specified in Section 9(a) above.
d. Injunction Relief. The parties acknowledge that a breach or
threatened breach of this Section 9 by any of the parties may cause the
nonbreaching party to suffer irreparable harm and injure such that no remedy at
law will adequately compensate the other party. Thus, the nonbreaching party
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shall have the right to obtain injunctive relief with respect to such breach or
threatened breach, in addition to any other available remedy or relief.
10. Warranties.
a. Warranties by March Group. March Group warrants that, for a
period of five (5) years from the date of delivery of the prototype Superbike,
such prototype shall conform to the Specifications and shall be free from
defects in materials and workmanship.
b. Warranty Pass-Through. The Company is permitted to provide
to its end-users the warranty granted to it hereunder. The Company hereby agrees
to indemnify and hold harmless March Group for any warranty or representation
made by the Company that exceeds or that is otherwise inconsistent with such
warranty.
c. Survival. The provisions of this Section 10 shall survive
the expiration of termination of this Agreement for any reason.
11. Intellectual Property Indemnification.
March Group shall indemnify the Company for any damages
finally awarded or settlement amount paid in respect of any loss, liability or
expense suffered or incurred by the Company or any of its customers for any
patent, copyright, trade secret or similar infringement claim brought against
the Company or any of its customers in respect of the Company's use or such
customer's use of the Superbike or any of the Licensed Products or the March
Group Technology (but only to the extent that such infringement claim is related
to the Superbike or such Licensed Products), or any material supplied by March
Group to the Company pursuant to this Agreement. The Company shall notify March
Group as soon as practicable of any such infringement claim brought against
either the Company or any of its customers. If the Company defends such a claim,
then, if requested by the Company, March Group shall provide the Company with
full documentation and cooperation to assist the Company in defending such
claim. If any item furnished hereunder, including without limitation the
Specification or the Superbike supplied hereunder, is in March Group's opinion
likely to or does become the subject of a claim for infringement of any patent,
copyright or other proprietary right, March Group may, at its option and
expense, procure ore the Company or any affected customer, the right to continue
using the same, or modify it so that it becomes noninfringing, but without
diminishing March Group's obligation hereunder.
12. Term, Termination, and Effect of Termination
8
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a. Term. This Agreement shall commence on the Effective Date
and, subject to earlier termination as provided herein, shall continue until the
date which is eighteen (18) months after the Effective Date.
b. Termination on Bankruptcy. Either party may terminate this
Agreement upon written notice if a petition for relief under any bankruptcy law
or legislation is filed by or against the other party, the other party makes an
assignment for the benefit of creditors, or a receiver, is appointed for an or a
substantial portion of any of the other party's assets, and such petition,
assignment or appointment is not dismissed or vacated within thirty (30) days.
c. Termination for Failure to Develop Specifications. If the
Company terminates this Agreement for failure by March Group to develop the
Specifications or the Superbike as provided herein, this Agreement shall be
terminated and all licenses granted hereunder to March Group and the Company
shall be terminated.
d. Effect of Material Breach by March Group. If March Group
materially breaches this Agreement, the Company shall have the right to
terminate this Agreement, including the license rights and obligations set forth
in Section 4, shall survive any such termination.
e. Effect of Material Breach by the Company. If the Company
materially breaches this Agreement and fails to correct such default within
sixty (60) days after written notice of such default is provided to the Company
by March Group, March Group shall have the right, at its sole option, to
terminate the Company's license under Section 4(a) or to terminate this
Agreement. If March Group terminates the Company's license, all other rights and
obligations of the parties under this Agreement shall survive and upon such
termination, the Company shall immediately refrain from distributing the
Superbike anywhere in the world using the Licensed Name.
f. Surviving Rights. Termination or expiration of this
Agreement shall not affect any other rights of the parties which may have
accrued up to the date of such termination or expiration and, in addition, (i)
no party shall be relieved of any obligation for any sums due to the other
party, (ii) the Company shall have the right to continued use of the Licensed
Name to sell any and all Licensed Products in its inventory on the date this
Agreement terminates or expires, (iii) the Company shall be entitled to take
physical possession of and ownership of all Specifications and the prototype
Superbike developed to date if this Agreement terminates for any reason prior to
the completion of the Development Program, and (iv) no party shall be relieved
of its obligations under Section 9 (Confidentiality), 10 (Warranties), 11
(Intellectual Property Indemnification), 13 (Limitation of Liability), and 14(k)
(Choice of Governing Law).
13. Compliance With Laws.
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In connection with and furtherance of its marketing and
manufacturing activities hereunder, each party shall be responsible for
obtaining, and shall use all reasonable commercial efforts to obtain, any and
all required governmental authorizations, including without limitations any
import licenses and foreign exchange permits, and, it applicable, shall be
responsible for filing or registering this Agreement with the appropriate
authorities.
14. Miscellaneous.
a. Relationship of Parties. The parties are not employees of
legal representatives of the other party for any purpose. Neither party shall
have the authority to enter into any contracts in the name of or on behalf of
the other party.
b. Further Assurances. The parties agree that each party has
the exclusive right to enjoin any infringement by a third party of any
Intellectual Property of the party related to such party's technology. In the
event that any unlawful copying of the Specifications or the Superbike,
infringement of a party's rights in the Specifications or the Superbike,
infringement or registration by a third party of the rights of March Group or
the Company comes to the attention of either party , such party shall
immediately inform the other in writing, stating the full facts of the
infringement or registration, known to it, including the identity or
registration and evidence thereof. Each of the parties agree to cooperate fully
with the other party at the expense of such other party if such other party if
other party sues to enjoin such infringements or to oppose or invalidate any
such registration.
c. Trademarks. Except as otherwise permitted by this
Agreement, the Company shall not(nor shall attempt to) adopt, use, or register
any acronym, trademark, trade names or other marketing name of Mach Group or any
confusingly similar work or symbol as part of the Company's own name or the name
of any of its Affiliates or the names of the products it markets. The Company
acknowledges the validity of the trademarks and March Group's ownership thereof.
All such trademarks and any additional marks of which March Group may in the
future be the proprietor will bear the designation TM or the designation (R) as
specified by March Group.
d. Nonassignability; Binding on Successors. Either party may
assign or otherwise transfer this Agreement to an Affiliate or in Connection
with a sale of all or substantially all of its assets, or of its business,
whether via merger or otherwise. Except as permitted in the preceding sentence,
neither party shall assign any of its right or obligations under this Agreement
without the express written consent of the other party, which consent shall not
unreasonably be withheld. Any attempted assignment under this Agreement without
such consent shall be void. In the case of any permitted assignment or transfer
of or under this Agreement without such consent shall be void. In the case of
any permitted assignment or transfer of or under this Agreement, this Agreement
or the
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<PAGE>
relevant provisions shall be binding upon the executors, heirs, representatives,
administrators and assigns of the parties hereto.
e. Severability. In the event any provision of the this
Agreement is held to be invalid or unenforceable, the valid or enforceable
portion thereof and the remaining provisions of this Agreement will remain in
full force and effect.
f. Force Majeure. Neither party shall be liable to the other
for its failure to perform any of its obligations under this Agreement, except
for payment obligations, during any period in which such performance is delayed
because rendered impracticable or impossible due to circumstances beyond its
reasonable control, including without limitation earthquakes, governmental
regulation, fire, flood, labor difficulties, civil disorder, and acts of God,
provided that the party experiencing the delay promptly notifies the other party
of the delay.
g. Waiver. Any waiver (express or implied) by either party of
any breach of this Agreement shall be in writing and shall not constitute a
waiver of any other subsequent breach.
h. Entire Agreement; Amendment. This Agreement and the
exhibits attached hereto constitute the entire, final, complete, and exclusive
agreement between the parties and supersede an previous agreements or
representations, written or oral, with respect to the subject matter of this
Agreement. This Agreement may not be modified or amended except in a writing
signed by a duly representative of each party.
i. Counterparts. This Agreement may be executed in
counterparts with the same force and effects as if the signatories had executed
the same instrument.
j. Notice. All notices, communications, requests, demands,
consents and the like required or permitted under this Agreement will be in
writing and will be deemed given and received (i) when delivered personally,
(ii) when sent by confirmed telecopy, (iii) ten(10) days after having been duly
mailed by first class, registered or certified mail, postage prepaid, or (iv)
three (3) business days after deposit with a commercial overnight carrier, with
written verification of receipt. All notices will be addressed as follows:
If to March Group:
Attention: Leslie McTaggart
Telephone: 01280-700611
Telecopy: 01280-700699
With a copy to:
Attention: Richard Ling
Telephone: 0171-628-5326
Telecopy: 0171-628-5326
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If to the Company:
Attention:
Telephone:
Telecopy:
With a copy to:
Dorsey & Whitney P.L.L.P.
Pillsbury Center South
220 S. Sixth Street
Minneapolis, Minnesota 55402
USA
Attention: Thomas S. Hay, Esq.
Telephone: (612) 340-2600
Telecopy: (612) 340-2868
or to such other address as the person to whom notice is to be given may have
furnished to the other in writing in accordance herewith, except that notices of
change of address will be effective only upon receipt. A notice given by any
means other than as specified herein will be deemed duly given when actually
received by the addressee.
k. Choice of Governing Law, Arbitration. This Agreement is
made in accordance with and shall be governed and construed under the laws of
the United Kingdom, as applied to agreements executed and performed entirely in
the United Kingdom. The official text of this Agreement and any Exhibit or any
notice given or accounts or statements required by this Agreement shall be in
English. In the event of any dispute concerning the construction or meaning of
this Agreement, reference shall be made only to this Agreement as written in
English and not to any other translation into any other language. Any dispute or
difference arising between the parties hereto will be referred binding
arbitration to be conducted in London, England in accordance with the
International Chamber of Commerce. The award of the arbitrator(s) shall be
enforceable in any court having jurisdiction over the party (or over the
property of the party) against whom enforcement is sought.
l. Rights and Remedies Cumulative. The rights and remedies
provided in this Agreement shall be cumulative and not exclusive of any other
rights and remedies provided by law or otherwise.
m. Captions and Section References. The section headings
appearing in this Agreement are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or extent of such section
or in any way affect such section.
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<PAGE>
n. Authority to Enter and Execute Agreement; Prior Grants.
Each party represents and warrants to the other that it has the right, full
power and lawful authority to enter into this Agreement for the purpose herein
(including the granting of licenses under this Agreement) and to carry out its
obligations hereunder. Each party further warrants to the other that it has no
other outstanding agreements or obligations inconsistent with the terms and
provisions hereof and that it has not made any prior grants of rights in or to
the March Group Technology, the Specifications and the Superbike, on the other
hand, to any third party which are inconsistent or would interfere in the
performance of this agreement.
o. Publicity. All notices to third parties and an other
publicity concerning this Agreement or its subject matter shall be jointly
planned and coordinated between the parties. Neither party shall act
unilaterally in this regard without the prior written approval of the other
party, which approval shall not be unreasonably withheld, and which shall be
deemed to be given when disclosure is specifically required by law. All related
communications within each party's organization shall be of a confidential
nature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MARCH GROUP PLC
By /s/ Richard Ling
_________________________
Its Chairman
______________________
MARCH MOTORS LIMITED
By /s/ Joseph Novogratz
__________________________
Its Managing Director
_______________________
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<PAGE>
Exhibit A
DEVELOPMENT PROGRAM
Time Period Work Objectives
December 1995 Begin on conceptual design; conduct stress analysis of
- -January 1996 frame and swinging arm assemblies; produce overall
design schemes; discussions with engine manufacturer
regarding power deliver, torque application and
delivery; conduct analysis of braking and cornering
forces, damper performance, lift and drag.
February 1996 Produce detail design of complete motorcycle including
theoretical weight calculations; discussions with
suppliers of brakes, wheels, instrumentation lights,
hydraulics with engine manufacturer on design program
of engine for motorcycle.
March 1996 Production of patterns and tooling for carbon fibre,
composite component parts; continuation of detail
design of complete motorcycle.
April -May 1996 Manufacture of set of carbon fibre components;
procurement of "bought-out" component parts for
prototype assembly; compilation of weight register for
all parts.
June-July 1996 Assembly of motorcycle; installation of engine;
initial shake down tests; construction of second
prototype if required; construction of essential spare
parts.
August -September 1996 Prototype completion; testing, correction,
pre-production complete.
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Amendment Agreement
This amendment Agreement (the "Amendment Agreement"), dated as of
__________, 1996 is entered into by and between March Group PLC, a corporation
formed under the laws of the United Kingdom("March Group"), and March Motors
Limited, a corporation formed under the laws of the United Kingdom (the
"Company").
WHEREAS, the Company and March Group entered into that certain
Development Agreement dated as of January 1, 1996 (the "Agreement");
WHEREAS, the Agreement originally contemplated that the Company
would pay March Group the sum of Five Hundred Thousand Pounds (500,000) in
consideration of March Group's continuing compliance with the Development
Program (as defined in the Agreement) and that such amount would be payable in
ten (10) equal installments of Fifty Thousand Pounds (50,000) each, with the
first such installments being due and payable on the first day of each
succeeding months and
WHEREAS, the Company and March Group now desire to amend the
Agreement so that the installments due and owing to March Group under the terms
of the Agreement will be as set forth below.
NOW, THEREFORE, in consideration of the continued performance by the
Company and March Group of their respective promises and obligations under the
Agreement and all documents of agreements executed and delivered pursuant to
hereto and thereto, and for other good and valuable considerations, the receipt
and adequacy of which is hereby acknowledged, the Company and March Group hereby
agrees as follows:
1. Amendment to the Agreement. The Agreement is hereby amended as
follows:
Section 2 shall be amended to read in its entirety as follows:
2. Development Agreement:
March Group agrees to use all commercial reasonable efforts to
complete the Development Program within ten (10) months of the Effective Date.
The parties agree that the estimated cost of designing the Superbike is
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<PAGE>
approximately Three Hundred Thousand Pounds (300,000) and the estimated cost of
production of a working prototype of the Superbike is approximately Two Hundred
Thousand Pounds(200,000). The Company hereby agrees to pay March Group the sum
of Five Hundred Thousand Pounds (500,000) in consideration of March Group's
continuing compliance with the Development Program. Such amount will be payable
in ten(10) installments as set forth below:
January 1996 25,000
February 1996 25,000
March 1996 30,000
April 1996 40,000
May 1996 40,000
June 1996 60,000
July 1996 60,000
August 1996 70,000
September 1996 80,000
October 1996 70,000
Each installment shall be due and payable on the first day of each
month, such installment payments shall be contingent upon and subject to March
Group's continued compliance with the Development Program. Upon each installment
payment made by the Company pursuant to this Section 2, the Company shall obtain
and retain all right, title and interest in and to the Specifications, the
Superbike and all Intellectual Property therein. Except as otherwise provided
for in this Agreement, March Group shall be responsible for all costs and
expenses incurred in carrying out the Development Program. March Group agrees to
consult with the Company on a regular basis regarding the progress of the
Development Program, and will give the Company the opportunity to review and
approve the functional specifications prior to commencing the engineering design
phase of the Development Program. In connection with the development Program,
march Group agrees to assist in creating an operating manual for the Superbike
which the Company will distribute to purchasers and end-users of the Superbike.
If March Group fails to develop the Superbike within ten (10) months of the
Effective Date, the Company shall have the right to terminate this Agreement
pursuant to Section 12 hereunder."
2. No Other Amendments: No Waivers. Except as specifically
amended herein, all of the terms, covenants and conditions of the Agreement, as
amended hereby, remain in full force and effect.
3. Recitals. The above recitals are true and correct as of the
date hereof and constitute a part of this Amendment Agreement.
4. Choice of Governing Law. This Amendment Agreement is mad in
accordance with and shall be governed and construed under the laws of the United
16
<PAGE>
Kingdom, as applied to agreements executed and performed entirely in the United
Kingdom. The official text of this Amendment Agreement and any Exhibit or any
notice given or accounts or statements by this Amendment Agreement shall be in
English.
5. Counterparts. This Amendment Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to an original, and all of which counterparts of this Amendment Agreement
when taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment Agreement as of the day and year first above written.
MARCH GROUP PLC
By _________________________
Its ____________________
MARCH MOTORS LIMITED
By __________________________
Its ____________________
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<PAGE>
ADDENDUM
TO DEVELOPMENT AND MARKETING AGREEMENT
THIS ADDENDUM TO DEVELOPMENT AND MARKETING AGREEMENT ("Addendum")
is made as of this 27th day of January, 1997 by and between March Group PLC, a
corporation formed under the laws of the United Kingdom ("March Group"), and
March Motors Limited, a corporation formed under the laws of the United Kingdom
(the "Company").
WHEREAS, March Group and the Company entered into that certain
Development and Marketing agreement dated as of December 15, 1996, as amended on
February 27, 1996 (the "Agreement").
WHEREAS, pursuant to the Agreement, the parties thereto agreed to
work together to design and develop a high performance chassis (and related
components) for use in the Company's Superbike.
WHEREAS, the parties to the Agreement have decided to amend the
Agreement to extend the term thereof.
NOW, THEREFORE, in consideration of the premises, the mutual
promises contained in the Agreement, and other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
Section 12(a) of the Agreement shall be amended in its entirety
to read as follows:
"a. Term. This Agreement shall commence on the Effective Date
and, subject to earlier termination as provided herein, shall
continue thereafter in perpetuity; provided, however, that, after
the third anniversary of the Effective Date, if the Company
(including any affiliates thereof) ceases to manufacture or
market motorcycles, spare motorcycle parts and related
merchandise, this Agreement may be terminated by either party
upon the expiration of 90-day written notice to the other party
of the first party's intention to terminate this Agreement."
This Addendum may be executed in counterparts with the same force
and effect as if each of the signatories had executed the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Addendum as of the day and year first above written.
MARCH GROUP PLC
By /s/ Richard Ling
_____________________
Its Chairman
MARCH MOTORS LIMITED
By /s/ Joseph Novogratz
______________________
Its President
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<PAGE>
Exhibit 10.3
DEVELOPMENT AND MARKETING AGREEMENT
THIS DEVELOPMENT AND MARKETING AGREEMENT ("Agreement") is made as of
this 15th date of December, 1995, (the "Effective Date") by and between M.C.D.
Limited, a corporation formed under the laws of the United Kingdom ("MCD") and
March Motors Limited, a corporation formed under the laws of the United Kingdom
(the "Company").
WHEREAS, MCD is engaged in the business of designing, developing and
selling high performance engines for performance motor vehicles including
motorcycles.
WHEREAS, the Company is interested in producing, marketing and
selling superbikes for sale to the general public;
WHEREAS, the Company is also interested in producing, marketing and
selling engines for use in Indy race cars; and
WHEREAS, MCD and the Company are desirous of working together
cooperatively to design and develop piston engines for use in the Company's
superbike and for sale for use in Indy race cars.
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement, the parties hereto agree as follows:
1. Definitions.
As used herein, the following terms shall have the following
meanings:
a. "Affiliates" means corporations or other business
organizations that, either directly or through one or more intermediaries,
control, are controlled by, or are under common control with, a party hereto.
b. "Control" means ownership of 50% or more of the voting
securities of an entity.
c. :Development Program" means MCD's efforts to design and
develop and produce working prototypes of the following engines: (i) a 750cc, 4
cylinder, twin-cam engine, drivetrain and gearbox for use with the Company's
superbike motorcycle, and (ii) an Indianapolis PPG regulation race engine.
d. "Engine(s)" means, individually or collectively, that
certain 750cc, 4 cylinder, twin-cam engine, drivetrain and gearbox for use with
the Company's superbike motorcycle and that certain Indianapolis PPG regulation
race engine, such as developed by MCD pursuant to the Development Program set
forth in this Agreement.
<PAGE>
e. "Intellectual Property" means copyrights, patents,
trademarks and trade secrets, whether or not registered,. filed, applied for or
the like, and all related rights.
f. "MCD Technology" means the proprietary technology and
related Intellectual Property of MCD, and improvements and modifications to such
technology, necessary to develop and produce the Engines.
g. "Specifications" means the drawings, specifications and
vendor lists for the design, performance and manufacturability of the Engines,
which are to be developed by MCD hereunder.
2. Development Program
MCD agrees to use all commercially reasonable efforts to
complete the Development Program with ten (10) months of the Effective Date. The
parties agree that the target cost to produce each motorcycle Engine shall be
Four Thousand Pounds (4,000), and the target cost to produce each Indy race car
Engine shall be Thirty-three Thousand Pounds (33,000). The parties agree that
the estimated cost of designing the Engines is approximately One Hundred
Thousand Pounds (100,000). The Company hereby agrees to pay MCD the sum of One
Hundred Thousand Pounds (100,000) in consideration of MCD's continuing
compliance with the Development Program. Such amount will be payable in ten (10)
equal installments of Ten Thousand Pounds (10,000) each, with the first such
installment being due and payable on December 15, 1995, and the remaining
installments being due and payable on the first day of each succeeding month,
such installment payments shall be contingent upon and subject to MCD's
continued compliance with the Development Program. Upon each installment payment
made by the Company pursuant to this Section 2, the Company shall obtain and
retain all right, title and interest in and to the Specifications, the Engines
and all Intellectual Property therein. Except as otherwise provided for in the
Agreement, MCD shall be responsible for all costs and expenses incurred in
carrying out the Development Program. MCD agrees to consult with the Company on
a regular basis regarding the progress of the Development Program, and will give
the Company the opportunity to review and approve the functional specifications
prior to commencing the engineering design phase of the Development Program. In
connection with the Development Program, MCD agrees to assist in creating an
operating manual for the Engines which the Company will distribute to purchasers
and end-users of the vehicles which the Engines are to be a part. If MCD fails
to develop the Engines within ten (10) months of the Effective Date, the Company
shall have the right to terminate this Agreement pursuant to Section 12
hereunder.
3. Ownership of Technology.
a. MCD Technology. MCD owns and possesses all right, title and
interest in the MCD Technology. MCD has not licensed any of the MCD Technology
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<PAGE>
to any third party. MCD has taken all necessary action to protect the MCD
Technology. MCD has not received any notice of, nor are there any facts known to
MCD which indicate a likelihood of, any infringement or misappropriation by, or
conflict from, any third party with respect to the MCD Technology; no claim by
any third party contesting the validity of the MCD Technology has been made, is
currently outstanding or, to the best knowledge of MCD, is threatened; MCD has
not received any notice of any infringement, misappropriation or violation by it
of any intellectual property rights of any third parties and MCD has not
infringed, misappropriated or otherwise violated any such intellectual property
rights; and no infringement, illicit copying, misappropriation or violation has
occurred or will occur with respect to the products currently under development
(in their present state of development), including the Engines, or with respect
to the conduct of the MCD's business as now conducted. The parties agree that
MCD shall retain all right, title and interest in and to the MCD Technology and
all Intellectual Property therein, subject only to the license granted
hereunder.
b. Company Technology. The parties agree that the Company
shall retain all right, title and interest in and to the Specifications, the
Engines, all Intellectual Property therein, and after the third anniversary of
this Agreement, all molds, tooling, casts and equipment used to manufacture the
Engines, subject only to the royalty obligation.
c. Technical Assistance. MCD will provide knowledgeable and
competent personnel as reasonably necessary (at its own expense) to complete the
development of the Engines and to ensure that the Engines operate in accordance
with the Specifications. MCD hereby agrees to attend bi-weekly progress meetings
with March Group PLC to discuss the integration of the motorcycle Engine into
the specifications for the motorcycle which shall utilize such Engine. MCD also
agrees to provide, at no additional cost, knowledgeable and competent personnel
as reasonably necessary, to assist the Company in all phases of assembly and
manufacture of the Engines.
4. License and Royalty.
a. License to the Company. Subject to the terms and conditions
of this Agreement, MCD hereby grants to the Company, and the Company hereby
accepts from MCD, a royalty-free, perpetual, irrevocable, exclusive and
worldwide license to use the MCD Technology in connection with the manufacture,
marketing and sale of the Engines.
b. The Company agrees to pay to MCD royalties at the rate of
two and one-half percent (2.5%) of the net selling price of motorcycles
utilizing the motorcycle Engine sold by the Company. For this purpose, "net
selling price" shall mean the dealer invoice price for each motorcycle sold by
the Company utilizing the Engine, less returns, allowances and shipping charges.
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c. The Company agrees to pay to MCD royalties at the rate of
two and one-half percent (2.5%) of the net selling price of Indy race car
Engines sold by the Company. For this purpose, "net selling price" shall mean
the dealer invoice price for each Indy race car Engine sold by the Company, less
returns, allowances and shipping charges.
d. All royalties calculated pursuant to Sections 4(b) and 4(c)
shall be paid to MCD net of any tax or charge imposed by and United Kingdom
government or political subdivision thereof except for income tax or tax in lieu
of income tax imposed thereon and required to be withheld by the Company
pursuant to valid governmental authority. With respect to any such tax properly
withheld, the Company shall furnish MCD with receipts showing the withheld taxes
to have been duly deposited with the taxing authority. The Company shall be
solely responsible for payment of any value added tax on this Agreement or any
payments made pursuant to this Agreement.
e. Royalties are to be paid in monthly installments (less
taxes as provided in Section 4(d) within thirty (30) days after the Company's
receipt of final payment for any Indy race car Engine or motorcycle utilizing
the motorcycle Engine developed pursuant to this Agreement. Each installment
will be payable in British Pounds by wire transfer to a bank account designated
by MCD.
f. For as long as royalties are due under this Agreement, the
Company will keep true and accurate records adequate to permit royalties due to
MCD to be computed and verified. The records will be open at all reasonable
times during business hours for inspection by a duly authorized representative
of MCD to the extent necessary for the determination of the accuracy of the
reports made hereunder. MCD's representative will have the right to make copies
of the relevant records.
5. Production Equipment. MCD shall provide the Company with a list
of vendors who will develop the molds, tooling, dies and casts to produce
component parts for the manufacture of the Engines. All such molds, tooling,
dies and casts shall be referred to in this Agreement as the "Production
Equipment." From the Effective Time until the third anniversary of this
Agreement, the Production Equipment shall be used by the Company, MCD, any
affiliate of the Company or MCD and their respective subcontractors for the sole
and exclusive benefit of the Company. After the third anniversary of this
Agreement, the Production Equipment shall become the property of the Company and
shall be used by the Company or its subcontractors exclusively for the
development and manufacture of the Engines pursuant to the Company's purchase
orders.
6. Marketing Obligations
a. Best Efforts to Promote Marketing. At all times during the
term of this Agreement, both parties will use best efforts to promote the
manufacture, sale, marketing and distribution of the motorcycles utilizing the
Engines.
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b., Marketing Practices. Both parties agree to (i) conduct
business in a manner that reflects favorably at all times on the good name,
goodwill and reputation of the other party, (ii) not engage in deceptive,
misleading or unethical practices that are or might be detrimental to the other
party, (iii) not make any false or misleading representation with regard to the
other party or its products, (iv) not publish or utilize or cooperate in the
publication or utilization of any misleading or deceptive advertising material
that relates in any way to the other party and its products, (v) not make any
representation or warranty to anyone with respect to the specifications,
features or capabilities of the other party's products that are inconsistent
with the literature distributed by the other party, including all disclaimers
contained in such literature, and (vi) not make any warranty or representation
to anyone that would give the recipient any claim or right of action against the
other party.
7. Additional Covenants of MCD
a. Agreement not to Compete
(i) Except for MCD's existing relationship with MotorradUnd
Zweiradwerk GmbH, and as otherwise contemplated by this Agreement, MCD agrees
that during the term of this Agreement and for a period of five (5) years after
the termination of this Agreement, it will not, directly or indirectly, engage
in competition with the Company in any manner or capacity (e.g. as an advisor,
principal, agent, partner, officer, director, stockholder, employee, member of
any association or otherwise) in any phase of the business which the Company is
conducting during the term of this Agreement.
(ii) The obligations of MCD under Section 7(a)(i) shall
apply to any geographic area in which the Company (y) has engaged in business
during the term of this Agreement through production, promotional, sales or
marketing activity, or otherwise, or (z) has otherwise established its goodwill,
business reputation, or any customer relations.
(iii) Ownership by MCD as a passive investment, of less
than 1% of the outstanding shares of capital stock of any corporation listed on
a securities exchange or publicly traded on any recognized market shall not
constitute a breach of this Section 7.
(iv) MCD further agrees that during the term of this
Agreement it will not, directly or indirectly, assist or encourage any other
person in carrying out, directly or indirectly, any activity that would be
prohibited by the foregoing provisions of this Section 7 if such activity were
carried out by MCD, either directly or indirectly. In particular, MCD agrees
that it will not, directly or indirectly, induce any employee of MCD to carry
out, directly or indirectly, any such activity.
8. Confidentiality
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a. Obligation. Each party shall keep confidential and not
disclose to any third party or use for its own benefit, except as expressly
permitted herein, or for the benefit of any third party, any of the following
information disclosed by the other party to it (collectively "Confidential
Information"): (I) any information provided to it by the other party marked with
a proprietary, confidential or other similar notice, or orally disclosed to it
by the other party and followed by a writing within thirty (30) days of such
oral disclosure indicating said information was confidential, and (ii) even if
not so marked, information that is reasonably understood by it to be
confidential, including the MCD Technology, on the one hand, and the
Specifications and the Company Technology, on the other hand.
b. Exclusions. The term "Confidential Information" shall not
include information which (i) is or becomes generally known or available through
no act or failure to act by the receiving party, (ii) is already known by the
receiving party at the time of receipt as evidenced by its records, (iii) is
hereafter furnished to the receiving party by a third party, as a matter of
right and without restriction on disclosure, (iv) is disclosed by written
permission of the party disclosing the Confidential Information, or (v) is
required to be disclosed by court order or law, but in such event notice shall
be provided at least ten (10) days in advance of such disclosure.
c. Access to Information. Each party shall limit access to
Confidential Information to those of its employees or agents (including
subcontractors) who have a need for such Confidential Information, or to its
sublicensees to the extent necessary to allow such sublicensee to fully use
their sublicenses, and who are under a written obligation to keep such
information confidential. Such written obligation shall be at least as
restrictive as those obligations specified in Section 8(a) above.
d. Injunctive Relief. The parties acknowledge that a breach or
threatened breach of this Section 8 by any of the parties may cause the
nonbreaching party to suffer irreparable harm and injury such that no remedy at
law will adequately compensate the other party. Thus, the nonbreaching party
shall have the right to obtain injunctive relief with respect to such breach or
threatened breach, in addition to any other available remedy or relief.
9. Warranties
a. Warranties by MCD. MCD warrants that, for a period of five
(5) years from the date of delivery of the prototype Engines, such prototypes
shall conform to the Specifications and shall be free from defects in materials
and workmanship.
b. Warranty Pass-Through. The Company is permitted to provide
to its end-users the warranty granted to it hereunder. The Company hereby agrees
to indemnify and hold harmless MCD for any warranty or representation made by
the Company that exceeds or that is otherwise inconsistent with such warranty.
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c. Survival. The provisions of this Section 9 shall survive
the expiration or termination of this Agreement for any reason.
10. Intellectual Property Indemnification
MCD shall indemnify the Company for any damages finally awarded
or settlement amounts paid in respect of any loss, liability or expense suffered
or incurred by the Company or any of its customers for any patent, copyright,
trade secret or similar infringement claim brought against the Company or any of
its customers in respect of the Company's use or such customer's use of the
Engines or any of the MCD Technology (but only to the extent that such
infringement claim is related to the Engines), or any material supplied by MCD
to the Company pursuant to this Agreement. The Company shall notify MCD as soon
as practicable of any such infringement claim brought against either the Company
or any of its customers. If the Company defends such a claim, then, if requested
by the Company, MCD shall provide the Company with full documentation and
cooperation to assist the Company in defending such claim. If any item furnished
hereunder, including without limitation the Specification or the Engines
supplied hereunder, is in MCD's opinion likely to or does become the subject of
a claim for infringement of any patent, copyright or other proprietary right,
MCD may, at its option and expense, procure for the Company or any affected
customer, the right to continue using the same, or modify it so that it becomes
non-infringing, but without diminishing MCD's obligations hereunder.
11. Term, Termination and Effect of Termination
a. Term. This Agreement shall commence on the Effective Date
and, subject to earlier termination as provided herein, shall continue until the
date which is five (5) years after the Effective Date. The Agreement shall be
renewable for additional one (1) year periods upon mutual written agreement by
the parties at least ninety (90) days prior to the expiration of the
then-current term.
b. Termination on Bankruptcy. Either party may terminate this
Agreement upon written notice if a petition for relief under any bankruptcy law
or legislation is filed by or against the other party, the other party makes an
assignment for the benefit of creditors, or a receiver is appointed for an or a
substantial portion of any of the other party's assets, and such petition,
assignment or appointment is not dismissed or vacated within thirty (30) days.
c. Termination for Failure to Develop Specifications. If the
Company terminates this Agreement for failure by MCD to develop the
Specifications or the Engines as provided herein, this Agreement shall be
terminated and the Company shall be entitled to all rights in and to the
Specifications, the Engines, all molds, tooling, dies, casts, and all
Intellectual Property therein, developed to date.
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d. Effect of Material Breach by MCD. If MCD materially
breaches this Agreement, the Company shall have the right to terminate this
Agreement and the Company shall be entitled to all rights in and to the
Specifications, the Engines, all molds, tooling, dies, casts and all
Intellectual Property therein, developed to date, and the continuing right to
the license granted to the Company in Section 4(a) relating to the MCD
Technology.
e. Effect of Material Breach by the Company. If the Company
materially breaches this Agreement and fails to correct such default within
sixty (60) days after written notice of such default if provided to the Company
by MCD, MCD shall have the right, at its sole option, to terminate this
Agreement and the Company shall be entitled to all rights in and to the
Specifications, the Engines, all molds, tooling, dies, casts and all
Intellectual Property therein, developed to date, and the continuing right to
the license granted to the Company in Section 4(a) relating to the MCD
Technology.
f. Surviving Rights. Termination or expiration of this
Agreement shall not affect any other rights of the parties which may have
accrued up to the date of such termination or expiration and, in addition, (I)
no party shall be relieved of any obligation for any sums due to the other
party, (ii) the Company shall be entitled to take physical possession of and
ownership of all Specifications, the Engines, all molds, tooling, dies, casts
and all Intellectual Property therein, developed to date, and the continuing
right to the license granted to the Company in Section 4(a) relating to the MCD
Technology, and (iv) no party shall be relieved of its obligations under
Sections 9 (Confidentiality), 10 (Warranties), 11 (Intellectual Property
Indemnification), 13 (Limitation of Liability, and 14(k) (Choice of Governing
Law).
13. Compliance With Laws
In connection with and in furtherance of its marketing and
manufacturing activities hereunder, each party shall be responsible for
obtaining, and shall use all reasonable commercial efforts to obtain, any and
all required governmental authorizations, including without limitation any
import licenses and foreign exchange permits, and, if applicable, shall be
responsible for filing and registering this Agreement with the appropriate
authorities.
14. Miscellaneous.
a. Relationship of Parties. The parties are not employees or
legal representatives of the other party for any purpose. Neither party shall
have the authority to enter into any contracts in the name of or on behalf of
the other party.
b. Further Assurances. The parties agree that each party has the
exclusive right to enjoin any infringement by a third party of any Intellectual
Property of the party related to such party's technology. In the event that any
unlawful copying of the Specifications or the
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Engines, infringement of a party's rights in the Specifications or the Engines,
or infringement or registration by a third party of the rights of MCD or the
Company comes to the attention of either party, such party shall immediately
inform the other in writing, stating the full facts of the infringement or
registration known to it, including the identity of the suspected infringer or
registrant, the place of the asserted infringement or registration and evidence
thereof. Each of the parties agree to cooperate fully with the other party at
the expense of such other party if such other party sues to enjoin such
infringements or to oppose or invalidate any such registration.
d. Nonassignability; Binding on Successors. Either party may
assign or otherwise transfer this Agreement to an Affiliate or in connection
with a sale of all or substantially all of its assets, or of its business,
whether via merger or otherwise. Except as permitted in the preceding sentence,
neither party shall assign any of its rights or obligations under this Agreement
without the express written consent of the other party, which consent shall not
unreasonably be withheld. Any attempted assignment under this Agreement without
such consent shall be void. In the case of any permitted assignment or transfer
of or under this Agreement, this Agreement or the relevant provisions shall be
binding upon the executors, heirs, representatives, administrators and assigns
of the parties hereto.
e. Severability. In the event any provision of this Agreement is
held to be invalid or unenforceable, the valid or enforceable portion thereof
and the remaining provisions of this Agreement will remain in full force and
effect.
f. Force Majeure. Neither party shall be liable to the other for
its failure to perform any of its obligations under this Agreement, except for
payment obligations, during any period in which such performance is delayed
because rendered impracticable or impossible due to circumstances beyond its
reasonable control, including without limitation earthquakes, governmental
regulation, fire, flood, labor difficulties, civil disorder, and acts of God,
provided that the party experiencing the delay promptly notifies the other party
of the delay.
g. Waiver. Any waiver (express or implied) by either party of
any breach of this Agreement shall be in writing and shall not constitute a
waiver of any other of subsequent breach.
h. Entire Agreement Amendment. This Agreement and the exhibits
attached hereto constitute the entire, final, complete and exclusive agreement
between the parties and supersede an previous agreements or representations,
written or oral, with respect to the subject matter of this Agreement. This
Agreement may not be modified or amended except in a writing signed by a duly
authorized representative of each party.
i. Counterparts. This agreement may be executed in counterparts
with the same force and effect as if each of the signatories had executed the
same instrument.
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j. Notice. All notices, communications, requests, demands,
consents and the like required or permitted under this Agreement will be in
writing and will be deemed given and received (I) when delivered personally,
(ii) when sent by confirmed telecopy, (iii) ten (10) days after having been duly
mailed by first class, registered or certified mail, postage prepaid, or (iv)
three (3) business days after deposit with a commercial overnight carrier, with
written verification of receipt. All notices will be addressed as follows:
If to MCD:
Attention:
Telephone"
Telecopy:
With a copy to:
Attention:
Telephone:
Telecopy:
If to the Company:
Attention:
Telephone:
Telecopy:
With a copy to:
Dorsey & Whitney P.L.L.P.
Pillsbury Center South
220 S. Sixth Street
Minneapolis, Minnesota 55402
USA
Attention: Thomas S. Hay, Esq.
Telephone: (612) 340-2600
Telecopy: (612) 340-2868
or to such other address as the person to whom notice is to be given may have
furnished to the other in writing in accordance herewith, except that notices of
change of address will be effective only upon receipt. A notice given by any
means other than as specified herein will be deemed duly given when actually
received by the addressee.
k. Choice of Governing Law, Arbitration. This Agreement is made
in accordance with and shall be governed and construed under the laws of the
United Kingdom, as applied to agreements executed and performed entirely in the
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United Kingdom. The official text of this Agreement and any Exhibit or any
notice given or accounts or statements required by this Agreement shall be in
English. In the event of any dispute concerning the construction or meaning of
this Agreement, reference shall be made only to this Agreement as written in
English and not to any other translation into any other language. Any dispute or
difference arising between the parties hereto will be referred to binding
arbitration to be conducted in London, England in accordance with the
International Chamber of Commerce. The aware of the arbitrator(s) shall be
enforceable in any court having jurisdiction over the party (or over the
property of the party) against whom enforcement is sought.
l. Rights and Remedies Cumulative. The rights and remedies
provided in this Agreement shall be cumulative and not exclusive of any other
rights and remedies provided by law or otherwise.
m. Captions and Section References. The section headings
appearing in this Agreement are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or extent of such section
or in any way affect such section..
n. Authority to Enter Into and Execute Agreement; Prior Grants.
Each party represents and warrants to the other that it has the right, full
power and lawful authority to enter into this Agreement for the purposes herein
(including the granting of licenses under this Agreement) and to carry out its
obligations hereunder. Each party further warrants to the other that it has no
other outstanding agreements or obligations inconsistent with the terms and
provisions hereof and that it has not made any prior grants of rights in or to
the MCD Technology, the Specifications and the Engines, on the one hand, or the
Company Technology, on the other hand, to any third party which are inconsistent
or would interfere in the performance of this Agreement.
o. Publicity. All notices to third parties and an other
publicity concerning this Agreement or its subject matter shall be jointly
planned and coordinated between the parties. Neither party shall act
unilaterally in this regard without the prior written approval of the other
party, which approval shall not be unreasonably withheld, and which shall be
deemed to be given when disclosure is specifically required by law. All related
communications within each party's organization shall be of a confidential
nature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
M.C.D. Limited
By: /s/ Al Melling
------------------------
Its: Principle
-----------------------
March Motors Limited
By: /s/ Joseph Novogratz
------------------------
Its: Managing Director
-----------------------
<PAGE>
Exhibit 10.4
DEVELOPMENT AND MARKETING AGREEMENT
THIS DEVELOPMENT AND MARKETING AGREEMENT ("Agreement") is made as of
this 1st day of November, 1996 (the "Effective Date") by and between M.C.D.
Limited, a corporation formed under the laws of the United Kingdom ("MCD"),
March Motors Limited, a corporation formed under the laws of the United Kingdom
(the "Company"), and Al Melling ("Consultant").
WHEREAS, MCD is engaged in the business of designing, developing and
selling high performance engines for performance motor vehicles including
motorcycles;
WHEREAS, the Company is interested in producing, marketing and
selling superbikes for sale to the general public;
WHEREAS, the Company is also interested in producing, marketing and
selling engines for use in Indy race cars; and
WHEREAS, MCD and the Company are desirous of working together
cooperatively to design and develop piston engines for use in the Company's
superbike and for sale for use in Indy race cars.
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement, the parties hereto agree as follows:
1. Definitions
As used herein, the following terms shall have the following
meanings:
a. "Affiliates" means corporations or other business
organizations that, either directly or through one or more intermediaries,
control, are controlled by, or are under common control with, a party hereto.
b. "Control" means ownership of 50% or more of the voting
securities of an entity.
c. "Design Program" means MCD's efforts to design the
following engines: (i) a 1500cc, eight cylinder, twin-cam engine, drivetrain and
gear box for use with the Company's superbike motorcycle, and (ii) a single
cylinder, twin-plug cylinder head, desmodratic valve gear, built-up bearings on
crankshaft and balancer shaft, 600cc engine, drivetrain and gearbox for use with
the 600cc Motorcycle Frame.
d. "Engine(s)" means, individually or collectively, that
certain 1500cc, 4 cylinder, twin-cam engine, drivetrain and gearbox for use with
the Company's superbike motorcycle and that certain single cylinder, twin-ply
cylinder head, desmodratic valve gear, built-up bearings on crankshaft and
balancer shaft, 600cc engine, drivetrain
<PAGE>
and gearbox for use with the Company's superbike motorcycle, each as designed by
MCD pursuant to the Development Program set forth in this Agreement.
e. "Intellectual Property" means copyrights, patents,
trademarks and trade secrets, whether or not registered, filed, applied for or
the like, and all related rights.
f. "MCD Technology" means the proprietary technology and
related Intellectual Property of MCD, and improvements and modifications to such
technology, necessary to develop and produce the Engines for the Company.
g. "600cc Motorcycle Frame" means that certain 600cc
"one-off" motorcycle frame owned by MCD, which was raced by MCD using a Rotax
motor and which is to be used by the Company as the motorcycle frame with its
600cc motorcycle Engine.
h. "Specifications" means the drawings, specifications and
vendor lists for the design, performance and manufacturability of the Engines,
which are to be designed by MCD hereunder.
i. "600cc Prototype Motorcycle" means the prototype
motorcycle to be produced by MCD as part of the Design Program by combining the
600cc Motorcycle Frame and the 600cc motorcycle Engine.
2. Design Program
MCD agrees to use all commercially reasonable efforts to
complete the Design Program by the end of May 1997. The parties agree that the
target cost to produce each 1500cc motorcycle Engine shall be Four Thousand
Pounds (4,000), and the target costs to produce each 600cc motorcycle Engine
shall be One Thousand Eight Hundred Pounds (1,800). The parties agree that the
estimated cost of designing both Engines is approximately Seventy Thousand
Pounds (70,000). The Company hereby agrees to pay MCD the sum of Seventy
Thousand Pounds (70,000) in consideration of MCD's continuing compliance with
the Design Program. Such amount will be payable in seven (7) equal installments
of Ten Thousand Pounds (10,000) each, with the first such installment being due
and payable on November 15, 1996, and the remaining installments being due and
payable on the first day of each succeeding month, such installment payments
shall be contingent upon and subject to MCD's continued compliance with the
Design Program. Upon each installment payment made by the Company pursuant to
this Section 2, the Company shall obtain and retain all right, title and
interest in and to the Specifications, the Engines and all Intellectual Property
therein. MCD also agrees to sell the Company all of MCD's rights, title and
interest in the 600cc Motorcycle Frame, including the exclusive right to design,
produce, market and sell frames based on the 600cc Motorcycle Frame, and, in
consideration therefor, the Company agrees to pay MCD the sum of Twenty-Five
Thousand Pounds (25,000) on November 15, 1996. MCD further agrees to produce one
<PAGE>
fully-operational 600cc Prototype Motorcycle as part of the Design Program.
Except for reasonable travel expenses incurred by MCD in its performance of this
Agreement which costs shall be paid for by the Company and except as otherwise
provided in this Agreement, MCD shall be responsible for all costs and expenses
incurred in carrying out the Design Program. MCD agrees to consult with the
Company on a regular basis regarding the progress of the Design Program, and
will give the Company the opportunity to review and approve the functional
specifications prior to commencing the engineering phase of the Design Program.
In connection with the Design Program, MCD agrees to assist the Company in
creating an owners' manual for the 1500cc Motorcycle Engine and the 600cc
Prototype Motorcycle which the Company will distribute to the purchasers and
end-users of such products. MCD also agrees to supply the Company with a parts
list for the 600cc Prototype Motorcycle, which list shall identify each part
comprising such Motorcycle, the name of the distributor for each such part and
the price for each such part. If MCD fails to develop the Engines and the 600cc
Prototype Motorcycle by May 31, 1997, the Company shall have the right to
terminate this Agreement pursuant to Section 12 hereunder; provided, however,
that the Company will not be able to terminate this Agreement if such delay is
directly caused by the delay or nonperformance of MCD's subcontractors.
3. Ownership of Technology.
a. MCD Technology. MCD owns and possesses all right, title
and interest in the MCD Technology. MCD has not licensed any of the MCD
Technology to any third party. MCD has taken all necessary action to protect the
MCD Technology. MCD has not received any notice of, nor are there any facts
known to MCD which indicate a likelihood of, any infringement or
misappropriation by, or conflict from, any third party with respect to the MCD
Technology; no claim by any third party contesting the validity of the MCD
Technology has been made, is currently outstanding or, to the best knowledge of
MCD, is threatened; MCD has not received any notice of any infringement,
misappropriation or violation by it of any intellectual property rights of any
third parties and MCD has not infringed, misappropriated or otherwise violated
any such intellectual property rights; and no infringement, illicit copying,
misappropriation or violation has occurred or will occur with respect to the
products currently under development (in their present state of development),
including the Engines, or with respect to the conduct of the MCD's business as
now conducted. The parties agree that MCD shall retain all right, title and
interest in and to the MCD Technology and all Intellectual Property therein,
subject only to the license granted hereunder.
b. Company Technology. The parties agree that the Company
shall retain all right, title and interest in and to the Specifications, the
Engines, all Intellectual Property therein.
c. Technical Assistance. MCD will provide knowledgeable and
competent personnel as reasonably necessary to work with the Company's
personnel, at the Company's expense, to complete the development of the Engines
and to ensure that the Engines operate in accordance with the Specifications.
MCD hereby agrees to attend
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bi-weekly progress meetings with March Group PLC to discuss the integration of
the motorcycle Engine into the specifications for the motorcycle which shall
utilize such Engine. MCD also agrees to provide knowledgeable and competent
personnel as reasonably necessary, to assist the Company in all phases of
assemble and manufacture of the Engines.
4. License and Royalty.
a. License to the Company. Subject to the terms and
conditions of this Agreement, MCD hereby grants to the Company, and the Company
hereby accepts from MCD, a royalty-free, perpetual, irrevocable, exclusive and
worldwide license to use the MCD Technology in connection with the manufacture,
marketing and sale of the Engines.
b. The Company agrees to pay to MCD royalties at the rate of
two and one-half percent (2.5%) of the net selling price of motorcycles
utilizing the motorcycle Engines sold by the Company. For this purpose, "net
selling price" shall mean the dealer invoice price for each motorcycle sold by
the Company utilizing the Engines, less returns, allowances and shipping
charges.
c. All royalties calculated pursuant to Section 4(b) shall
be paid to MCD net of any tax or charge imposed by any United Kingdom government
or political subdivision thereof except for income tax or tax in lieu of income
tax imposed thereon and required to be withheld by the Company pursuant to valid
governmental authority. With respect to any such tax properly withheld, the
Company shall furnish MCD with receipts showing the withheld taxes to have been
duly deposited with the taxing authority. The Company shall be solely
responsible for payment of any value added tax to this Agreement or any payments
made pursuant to this Agreement.
d. Royalties are to be paid in monthly installments (less
taxes as provided in Section 4(c) within thirty (30) days after the Company's
receipt of final payment for any motorcycle utilizing the motorcycle Engines
developed pursuant to this Agreement. Each installment will be payable in
British Pounds by wire transfer to a bank account designated by MCD.
e. For as long as royalties are due under this Agreement,
the Company will keep true and accurate records adequate to permit royalties due
to MCD to be computed and verified. The records will be open at all reasonable
times during business hours for inspection by a duly authorized representative
of MCD to the extent necessary for the determination of the accuracy of the
reports made hereunder. MCD's representative will have the right to make copies
of the relevant records.
5. Production Equipment. MCD shall provide the Company with a list
of vendors who will develop the molds, tooling, dies and casts to produce
component parts for the manufacture of the Engines. All such molds, tooling,
dies and casts shall be
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referred to in this Agreement as the "Production Equipment." From the Effective
Time until the third anniversary of this Agreement, the Production Equipment
shall be used by the Company, MCD, any affiliate of the Company or MCD and their
respective subcontractors for the sole and exclusive benefit of the Company.
6. Marketing Obligations.
a. Best Efforts to Promote Marketing. At all times during
the term of this Agreement, both parties will use best efforts to promote the
manufacture, sale, marketing and distribution of the motorcycles utilizing the
Engines.
b. Marketing Practices. Both parties agree to (i) conduct
business in a manner that reflects favorably at all times on the good name,
goodwill and reputation of the other party, (ii) not engage in deceptive,
misleading or unethical practices that are or might be detrimental to the other
party, (iii) not make any false or misleading representation with regard to the
other party or its products, (iv) not publish or utilize or cooperate in the
publication or utilization of any misleading or deceptive advertising material
that relates in any way to the other party and its products, (v) not make any
representation or warranty to anyone with respect to the specifications,
features or capabilities of the other party's products that are inconsistent
with the literature distributed by the other party, including all disclaimers
contained in such literature, and (vi) not make any warranty or representation
to anyone that would give the recipient any claim or right of action against the
other party.
7. Additional Covenants of MCD.
a. Agreement not to Compete.
(i) Except for MCD's existing relationship with
Motorrad-Und Zweiradwerk GmbH, and as otherwise contemplated by this Agreement,
MCD agrees that during the term of this Agreement and for a period of five (5)
years after the termination of this Agreement, it will not, directly or
indirectly, engage in competition with the Company in any manner or capacity
(e.g., as an advisor, principal, agent, partner, officer, director, stockholder,
employee, member of any association or otherwise) in any phase of the business
which the Company is conducting during the term of this Agreement. Specifically,
MCD shall not design for any other developer of competition motorcycles V-8
engines, single cylinder 500cc to 700cc engines, 750cc engines, or any engine
which would be used as a world superbike engine.
(ii) The obligations of MCD under Section 7 (a)(i) shall
apply to any geographic area in which the Company (y) has engaged in business
during the term of this Agreement through production, promotional, sales or
marketing activity, or otherwise, or (z) has otherwise established its goodwill,
business reputation, or any customer relations.
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(iii) Ownership by MCD, as a passive investment, of less
than 1% of the outstanding shares of capital stock of any corporation listed on
a securities exchange or publicly traded on any recognized market shall not
constitute a breach of this Section 7.
(iv) MCD further agrees that during the term of this
Agreement it will not, directly or indirectly, assist or encourage any other
person in carrying out, directly or indirectly, any activity that would be
prohibited by the foregoing provisions of this Section 7 if such activity were
carried out by MCD, either directly or indirectly. In particular, MCD agrees
that it will not, directly or indirectly, induce any employee of MCD to carry
out, directly or indirectly, any such activity.
8. Confidentiality.
a. Obligation. Each party shall keep confidential and not
disclose to any third party or use for its own benefit, except as expressly
permitted herein, or for the benefit of any third party, any of the following
information disclosed by the other party to it (collectively "Confidential
Information"): (i) any information provided to it by the other party marked with
a proprietary, confidential or other similar notice, or orally disclosed to it
by the other party and followed by a writing within thirty (30) days of such
oral disclosure indicating said information was confidential, and (ii) even if
not so marked, information that is reasonably understood by it to be
confidential, including the MCD Technology, on the one hand, and the
Specifications and the Company Technology, on the other hand.
b. Exclusions. the term "Confidential Information" shall not
include information which (i) is or become generally known or available through
no act or failure to act by the receiving party, (ii) is already known by the
receiving party at the time of receipt as evidenced by its records, (iii) is
hereafter furnished to the receiving party by a third party, as a matter of
right and without restriction on disclosure, (iv) is disclosed by written
permission of the party disclosing the Confidential Information, or (v) is
required to be disclosed by court order or law, but in such event notice shall
be provided at least ten (10) days in advance of such disclosure.
c. Access to Information. Each party shall limit access to
Confidential Information to those of its employees or agents (including
subcontractors) who have a need for such Confidential Information, or to its
sublicensees to the extent necessary to allow such sublicensee to fully use
their sublicensees, and who are under a written obligation to keep such
information confidential. Such written obligation shall be at least as
restrictive as those obligations specified in Section 8(a) above.
d. Injunctive Relief. The parties acknowledge that a breach
or threatened breach of this Section 8 by any of the parties may cause the
nonbreaching party to suffer irreparable harm and injury such that no remedy at
law will adequately compensate the other party. Thus, the nonbreaching party
shall have the right to obtain
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<PAGE>
injunctive relief with respect to such breach or threatened breach, in addition
to any other available remedy or relief.
9. Warranties.
a. Warranties by MCD. MCD warrants that, for a period of
five (5) years from the date of delivery of the prototype Engines, such
prototypes shall conform to the Specifications.
b. Warranty Pass-Through. The Company is permitted to
provide to its end-users the warranty granted to it hereunder. The Company
hereby agrees to indemnify and hold harmless MCD for any warranty or
representation made by the Company that exceeds or that is otherwise
inconsistent with such warranty.
c. Survival. The provisions of this Section 9 shall survive
the expiration or termination of this Agreement for any reason.
10. Intellectual Property Indemnification.
MCD shall indemnify the Company for any damages finally
awarded or settlement amounts paid in respect of any loss, liability or expense
suffered or incurred by the Company or any of its customers for any patent,
copyright, trade secret or similar infringement claim brought against the
Company or any of its customers in respect of the Company's use or such
customer's use of the Engines, the 600cc Motorcycle Frame or any of the MCD
Technology, or any material supplied by MCD to the Company pursuant to this
Agreement. The Company shall notify MCD as soon as practicable of any such
infringement claim brought against either the Company or any of its customers.
If the Company defends such a claim, then, if requested by the Company, MCD
shall provide the Company with full documentation and cooperation to assist the
Company in defending such claim. If any item furnished hereunder, including
without limitation the Specifications, the 600cc Motorcycle Frame or the Engines
supplied hereunder, is in MCD's opinion likely to or does become the subject of
a claim for infringement of any patent, copyright or other proprietary right,
MCD may, at its option and expense, procure for the Company or any affected
customer, the right to continue using the same, or modify it so that it becomes
non-infringing, but without diminishing MCD's obligations hereunder.
11. Consulting Relationship.
a. Retention of Consultant; Services to be Performed. The
Company hereby retains Consultant to render such training, consulting and
advisory services relating to the Engines, and the motorcycle engine produced
pursuant to that certain Development and Marketing agreement dated as of
December 15, 1995 by and between the Company and MCD, as the Company may
request. Consultant hereby accepts such engagement and agrees to perform such
services for the Company upon the terms and
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<PAGE>
conditions set forth in this Agreement. During the term of this Agreement,
Consultant shall devote such portion of his business time, attention, skill and
energy to the business of the Company as may be reasonably required to perform
the services required by this Agreement and shall assume and perform to the best
of his ability such reasonable responsibilities and duties as shall be assigned
to Consultant from time to time by the Company. During the term of this
Agreement, Consultant shall report to the Managing Director of the Company.
b. Compensation. As compensation in full for Consultant's
services hereunder, the Company shall pay to Consultant a consulting fee at the
rate of Ten Thousand Pounds (10,000) per month. The consulting fee shall be
payable to Consultant in arrears at the end of each calendar month beginning on
June 30, 1997 and continuing until December 31, 1999, provided, however, that if
this Agreement is terminated prior to its natural expiration, the Company shall
have no further obligations to Consultant.
In the event that Consultant becomes disabled and is unable
to perform normal consulting and/or advisory services pursuant to this
Agreement, the Company shall not be obligated for the payment of any further
compensation hereunder until such disability has ceased and Consultant is able
to resume his normal responsibilities hereunder, even though this Agreement has
not been terminated by the Company in accordance with its terms.
c. Expenses. Consultant shall be reimbursed by the Company
in accordance with the policies and procedures that are established from time to
time by the Company for all reasonable and necessary out-of-pocket expenses that
are incurred by Consultant in performing his duties under this Agreement,
including, without limitation, reasonable travel expenses incurred by
Consultant.
d. Improvements and Inventions.
(i) Notification and Disclosure. Consultant shall
promptly notify the Company in writing of the existence and nature of, and shall
promptly and fully disclose to the Company, any and all ideas, designs,
practices, processes, apparatus, improvements and inventions, whether or not
they are believed to be patentable (all of which are hereinafter sometimes
referred to as "inventions"), which Consultant has conceived or first actually
reduced to practice and/or may conceive or first actually reduce to practice
during the period of Consultant's consulting arrangement with the Company or
which Consultant may conceive or reduce to practice within six (6) months after
termination of this Agreement, if such inventions relate to a product or process
upon which Consultant worked during the term of his consulting arrangement with
the Company.
(ii) Ownership and Patenting of Inventions. All such
inventions shall be the sole and exclusive property of the Company or its
nominee, and
8
<PAGE>
during the term of this Agreement and thereafter, whenever requested to do so by
the Company, Consultant shall execute and assign any and all applications,
assignments and other instruments that the Company shall deem necessary or
convenient in order to apply for and obtain Letters Patent of the United States
and/or of any foreign countries for such inventions and in order to assign and
convey to the Company or its nominee the sole and exclusive right, title and
interest in and to such inventions. Consultant will render aid and assistance to
the Company in any interference or litigation pertaining to such inventions, and
all expenses reasonably incurred by Consultant at the request of the Company
shall be borne by the Company. In this connection, if such aid or assistance
requires any expenditure of Consultant's time after termination of this
Agreement, Consultant shall be entitled to compensation for the time requested
by the Company at an hourly rate equal to the pro rata hourly rate at which
Consultant was being paid for a normal pay period immediately prior to the end
of the term of this Agreement.
12. Term, Termination and Effect of Termination.
a. Term. This Agreement shall commence on the Effective Date
and, subject to earlier termination as provided herein, shall continue until the
date which is five (5) years after the Effective Date. The Agreement shall be
renewable for additional one (1) year periods upon mutual written agreement by
the parties at least ninety (90) days prior to the expiration of the
then-current term.
b. Termination on Bankruptcy. Either party may terminate
this Agreement upon written notice if a petition for relief under any bankruptcy
law or legislation is filed by or against the other party, the other party makes
an assignment for the benefit of creditors, or a receiver is appointed for an or
a substantial portion of any of the other party's assets, and such petition,
assignment or appointment is not dismissed or vacated within thirty (30) days.
c. Termination for Failure to Develop Specifications. If the
Company terminates this Agreement for failure by MCD to develop the
Specifications or the Engines as provided herein, this Agreement shall be
terminated and the Company shall be entitled to all rights in and to the
Specifications and all Intellectual Property therein, designed to date. MCD will
not be held responsible for late delivery from suppliers or subcontractors.
d. Effect of Material Breach by MCD. If MCD materially
breaches this Agreement, the Company shall have the right to terminate this
Agreement and the Company shall be entitled to all rights in and to the
Specifications and all Intellectual Property therein, developed to date, and the
continuing right to the license granted to the Company in Section 4(a) relating
to the MCD Technology.
e. Effect of Material Breach by the Company. If the Company
materially breaches this Agreement and fails to correct such default within
sixty (60) days after written notice of such default is provided to the Company
by MCD, MCD shall have
9
<PAGE>
the right, at its sole option, to terminate this Agreement and the Company shall
be entitled to all rights in and to the Specifications and all Intellectual
Property therein, designed and paid for to date, and the continuing right to the
license granted to the Company in Section 4 (a) relating to the MCD Technology.
f. Surviving Rights. Termination or expiration of this
Agreement shall not affect any other rights of the parties which may have
accrued up to the date of such termination or expiration and, in addition, (i)
no party shall be relieved of any obligation for any sums due to the other
party, (ii) the Company shall be entitled to take physical possession of and
ownership of all Specifications and all Intellectual Property therein, designed
to date, and the continuing right to the license granted to the Company in
Section 4(a) relating to the MCD Technology, and (iv) no party shall be relieved
of its obligations under Sections 8 (Confidentiality), 9 (Warranties), 10
(Intellectual Property Indemnification) and 14 (k) (Choice of Governing Law).
13. Compliance With Laws.
In connection with and in furtherance of its marketing and
manufacturing activities hereunder, each party shall be responsible for
obtaining, and shall use all reasonable commercial efforts to obtain, and all
required governmental authorizations, including without limitation any import
licenses and foreign exchange permits, and, if applicable, shall be responsible
for filing or registering this Agreement with the appropriate authorities.
14. Miscellaneous.
a. Relationship of Parties. The parties are not employees or
legal representatives of the other party for any purpose. Neither party shall
have the authority to enter into any contracts in the name of or on behalf of
the other party.
b. Further Assurances. The parties agree that each party has
the exclusive right to enjoin any infringement by a third party of any
Intellectual Property of the party related to such party's technology. In the
event that any unlawful copying of the Specifications, the 600cc, Motorcycle
Frame or the Engines, infringement of a party's rights in the Specifications,
the 600cc Motorcycle Frame or the Engines, or infringement or registration by a
third party of the rights of MCD or the Company comes to the attention of either
party, such party shall immediately inform the other in writing, stating the
full facts of the infringement or registration known to it, including the
identity of the suspected infringer or registrant, the place of the asserted
infringement or registration and evidence thereof. Each of the parties agree to
cooperate fully with the other party at the expense of such other party if such
other party sues to enjoin such infringements or to oppose or invalidate any
such registration.
d. Nonassignability; Binding on Successors. Either party may
assign or otherwise transfer this Agreement to an Affiliate or in connection
with a sale of all or
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substantially all of its assets, or of its business, whether via merger or
otherwise. Except as permitted in the preceding sentence, neither party shall
assign any of its rights or obligations under this Agreement without the express
written consent of the other party, which consent shall not unreasonably be
withheld. Any attempted assignment under this Agreement without such consent
shall be void. In the case of any permitted assignment or transfer of or under
this Agreement, this Agreement or the relevant provisions shall be binding upon
the executors, heirs, representatives, administrators and assigns of the parties
hereto.
e. Severability. In the event any provision of this
Agreement is held to be invalid or unenforceable, the valid or enforceable
portion thereof and the remaining provisions of this Agreement will remain in
full force and effect.
f. Force Majeure. Neither party shall be liable to the other
for its failure to perform any of its obligations under this Agreement, except
for payment obligations, during any period in which such performance is delayed
because rendered impracticable or impossible due to circumstances beyond its
reasonable control, including without limitation earthquakes, governmental
regulation, fire, flood, labor difficulties, civil disorder, and acts of God,
provided that the party experiencing the delay promptly notifies the other party
of the delay.
g. Waiver. Any waiver (express or implied) by either party
of any breach of this Agreement shall be in writing and shall not constitute a
waiver of any other or subsequent breach.
h. Entire Agreement; Amendment. This Agreement and the
exhibits attached hereto constitute the entire, final, complete and exclusive
agreement between the parties and supersede any previous agreements or
representations, written or oral, with respect to the subject matter of this
Agreement. This Agreement may not be modified or amended except in a writing
signed by a duly authorized representative of each party.
i. Counterparts. This Agreement may be executed in
counterparts with the same force and effect as if each of the signatories had
executed the same instrument.
j. Notice. All notices, communications, requests, demands,
consents and the like required or permitted under this Agreement will be in
writing and will be deemed given and received (i) when delivered personally,
(ii) when sent by confirmed telecopy, (iii) ten (10) days after having been duly
mailed by first class, registered or certified mail, postage prepaid, or (iv)
three (3) business days after deposit with a commercial overnight carrier, with
written verification of receipt. All notices will be addressed as follows:
11
<PAGE>
If to MCD:
Attention:
Telephone:
Telecopy:
With a copy to:
Attention:
Telephone:
Telecopy:
If to the Company:
March Motors Limited
c/o IDI Distributors
7667 Equitable Drive
Eden Prairie, MN 55344
U.S.A.
Attention: Joseph Novogratz
Telephone: (612) 937-2000
Telecopy: (612) 937-9809
With a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 S. Sixth Street
Minneapolis, Minnesota 55402
USA
Attention: Thomas S. Hay, Esq.
Telephone: (612) 340-2600
Telecopy: (612) 340-2868
or to such other address as the person to whom notice is to be given may have
furnished to the other in writing in accordance herewith, except that notices of
change of address will be effective only upon receipt. A notice given by any
means other than as specified herein will be deemed duly given when actually
received by the addressee.
k. Choice of Governing Law, Arbitration. This Agreement is
made in accordance with and shall be governed and construed under the laws of
the United Kingdom, as applied to agreements executed and performed entirely in
the United Kingdom. The official text of this Agreement and any Exhibit or any
notice given or accounts or statements required by this Agreement shall be in
English. In the event of any dispute concerning the construction or meaning of
this Agreement, reference shall be made only to this Agreement as written in
English and not to any other translation into any other language. Any dispute or
difference arising between the parties hereto will be
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<PAGE>
referred to binding arbitration to be conducted in London, England in accordance
with the International Chamber of Commerce. The award of the arbitrator(s) shall
be enforceable in any court having jurisdiction over the party (or over the
property of the party) against whom enforcement is sought.
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l. RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided
in this Agreement shall be cumulative and not exclusive of any other rights and
remedies provided by law or otherwise.
m. CAPTIONS AND SECTION REFERENCES. The section headings appearing
in this Agreement are inserted only as a matter of convenience and in no way
define, limit, construe or describe the scope or extent of such section or in
any way affect such section.
n. AUTHORITY TO ENTER INTO AND EXECUTE AGREEMENT; PRIOR GRANTS.
Each party represents and warrants to the other that it has the right, full
power and lawful authority to enter into this Agreement for the purposes herein
(including the granting of licenses under this Agreement) and to carry out its
obligations hereunder. Each party further warrants to the other that it has no
other outstanding agreements or obligations inconsistent with the terms and
provisions hereof and that it has not made any prior grants or rights in or to
the MCD Technology, the Specifications and the Engines, on the one hand, or the
Company Technology, on the other hand, to any third party which are inconsistent
or would interfere in the performance of this Agreement.
o. PUBLICITY. All notices to third parties and any other publicity
concerning this Agreement or its subject matter shall be jointly planned and
coordinated between the parties. Neither party shall act unilaterally in this
regard without the prior written approval of the other party, which approval
shall not be unreasonably withheld, and which shall be deemed to be given when
disclosure is specifically required by law. All related communications within
each party's organization shall be of a confidential nature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
M.C.D. LIMITED
By /s/ Al Melling
-----------------------
Its Principle
-------------------
MARCH MOTORS LIMITED
By /s/ Joseph Novogratz
-----------------------
Its President/Chairman
-------------------
/s/ Al Melling
-----------------------
Consultant
<PAGE>
Exhibit 10.5
PROMOTIONAL AGREEMENT
MARCH MARQUE RACING SERIES
THIS PROMOTIONAL AGREEMENT Agreement") is made as this 26th day of
February, 1997 (the "Effective Date") by and between M.C.D. Limited, a
corporation formed under the laws of the United Kingdom ("MCD"), March Motors
Manufacturing Company, a Minnesota corporation (the "Company"), and Al Melling
("Consultant").
WHEREAS, MCD and Consultant have expressed an interest in promoting
the sale of the Company's 600cc single cylinder motorcycle in a racing series;
WHEREAS, the Company wishes to hire MCD and Consultant to establish,
oversee and promote such a racing series to promote the commercial sale of such
motorcycle:
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. Race Promotion.
MCD and Consultant shall use best efforts to establish,
oversee and promote a European racing series which features the Company's 600cc
single cylinder motorcycle (the "Racing Series"). The Racing Series shall
consist of at least five (5) races, each featuring at least one race between
selected drivers riding only the Company's 600cc single cylinder motorcycle
(similar in nature to the International Race of Champions (IROC) automobile
racing series in the United States of America). MCD and Consultant shall be
responsible for planning, organizing sponsorship, race track scheduling, safety
concerns, insurance, maintenance of the Company's motorcycles that are used in
the Racing Series and promotion of such Racing Series.
2. Payment for Services
The Company shall pay MCD and Consultant a total of $5,000
per month beginning on May 1, 1997 and ending on April 1, 1999, with such
payments to be divided among MCD and Consultant as MCD and Consultant shall
determine; provided, however, that if this Agreement is terminated prior to its
natural expiration under Section 3(a) hereof the Company shall have no further
obligations to MCD or Consultant other then to pay any payments then in arrears.
All payments shall be made payable to the order of Al Melling.
In the event that Consultant becomes disabled and is unable
to perform under this Agreement, the Company shall not be obligated for the
payment of any further payments hereunder until such disability has ceased and
Consultant is able to resume his
<PAGE>
normal responsibilities hereunder, even though this Agreement has not been
terminated by the Company in accordance with its terms.
Consultant shall be reimbursed by the Company in accordance
with the policies and procedures that are established from time to time by the
Company for all reasonable and necessary out-of-pocket expenses that are
incurred by Consultant in performing his duties under this Agreement, including,
without limitation, reasonable travel expenses incurred by Consultant.
3. Term, Termination and Effect of Termination
a. Term. This Agreement shall commence on the Effective Date
and, subject to earlier termination as provided herein, shall continue until
April 1, 1999. Thereafter, this Agreement automatically shall renew for one (1)
year periods unless and until any party delivers written notice of its intent to
terminate this Agreement; provided that such notice is delivered to the other
parties at least ninety (90) days prior to the expiration of the then-current
term.
b. Termination on Bankruptcy. Any party may terminate this
Agreement upon written notice of a petition for relief under any bankruptcy law
or legislation is filed by or against another party, any party makes an
assignment for the benefit of creditors, or a receiver is appointed for any or a
substantial portion of any other party's assets, and such petition assignment or
appointment is not dismissed or vacated with thirty (30) days.
c. Termination for Failure to Promote. The Company may
terminate this Agreement upon written notice if either MCD or Consultant, or
both of them, shall fail to use best efforts to promote, oversee and establish
at least five (5) races pursuant to Section 1 hereof and such failure is not
cured within (60) days of receipt of such notice.
d. Effect of Material Breach by the Company. If the Company
materially breaches this Agreement and fails to correct such default within
sixty (60) days after written notice of such default is provided to the Company
by MCD or Consultant, MCD and Consultant each shall have the right to terminate
this Agreement and no party to this Agreement shall have any further obligation
hereunder except that the Company must pay any payments due as of the date of
such termination.
4. Miscellaneous.
a. Relationship of Parties. The parties are not employees or
legal representatives of the other parties for any purpose. No party shall have
the authority to enter into any contracts in the name of or on behalf of the
other parties.
b. Nonassignability; Binding on Successors. Any party may
assign or otherwise transfer this Agreement to an Affiliate or in connection
with a sale of all or
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substantially all of its assets, or of its business, whether via merger or
otherwise. Except as permitted in the preceding sentence, no party shall assign
any of its rights or obligations under this Agreement without the express
written consent of the other parties, which consent shall not unreasonably be
withheld. Any attempted assignment under this Agreement without such consent
shall be void. In the case of any permitted assignment or transfer of or under
this Agreement, this Agreement or the relevant provisions shall be binding upon
the executors, heirs, representatives, administrators and assigns of the parties
hereto.
c. Severability. In the event any provision of this
Agreement is held to be invalid or unenforceable, the valid or enforceable
portion thereof and the remaining provisions of this Agreement will remain in
full force and effect.
d. Force Majeure. No party shall be liable to the others for
its failure to perform any of its obligations under this Agreement during any
period in which such performance is delayed because rendered impracticable or
impossible due to circumstances beyond its reasonable control, including without
limitation earthquakes, governmental regulation, fire, flood, labor
difficulties, civil disorder, and acts of God, provided that the party
experiencing the delay promptly notifies the other parties of the delay.
e. Waiver. Any waiver (express or implied) by any partyof
any breach of this Agreement shall be in writing and shall not constitute a
waiver of any other or subsequent breach.
f. Entire Agreement; Amendment. This Agreement constitutes
the entire, final, complete and exclusive agreement between the parties and
supersedes any previous agreements or representations written or oral with
respect to the subject matter of this Agreement. This Agreement may not be
modified or amended except in a writing signed by a duly authorized
representative of each party.
g. Counterparts. This Agreement may be executed in
counterparts with the same force and effect as if each of the signatories had
executed the same instrument.
h. Notice. All notices, communications, requests, demands,
consents and the like required or permitted under this Agreement will be in
writing and will be deemed given and receive (i) when delivered personally, (ii)
when sent by confirmed telecopy, (iii) ten (10) days after having been duly
mailed by first class, registered or certified mail, postage prepaid, or (iv)
three (3) business days after deposit with a commercial overnight carrier, with
written verification of receipt. All notices will be addressed as follows:
3
<PAGE>
If to MCD or Consultant:
----------------------
----------------------
----------------------
----------------------
Attention: Al Melling
Telephone:
Telecopy:
If to the Company:
March Motors Manufacturing Company
c/o IDI Distributors, Inc.
7667 Equitable Drive
Eden Prairie, Minnesota 55344
USA
Attention: James Kramer
Telephone: (612) 545-7737
Telecopy: (612) 545-1782
With a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 S. Sixth Street
Minneapolis, Minnesota 55402
USA
Attention: Scott L. Barrington, Esq.
Telephone: (612) 340-5601
Telecopy: (612) 340-8738
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
M.C.D. LIMITED
By /s/ M.R. Brensky
______________________________
Its Secretary
MARCH MOTORS
MANUFACTURING COMPANY
By James J. Kramer
------------------
Its President/CEO
/s/ Al Melling
-----------------------------------
Al Melling ("Consultant")
5
<PAGE>
Exhibit 10.6
THIS AGREEMENT is made as of this 4th day of September, 1997 (the "Effective
Date") by and between MCD, an unincorporated private company owned by Al
Melling, aka M.C.D. Limited ("MCD"), and March Motors International, Inc., a
Minnesota corporation with English operations being carried on by its
wholly-owned subsidiary March Motors Limited, a U.K. corporation (March).
WHEREAS, March has been involved over the past couple years in the
design, development and marketing of three distinct motorcycle models (March
Superbike, March Sportbike and March Cruiser) as well as an engine for use in
Indy race cars;
FURTHER WHEREAS, on behalf of March, MCD has been conducting certain
and development work for March on such motorsport products pursuant to a
Development and Marketing Agreement of December 15th, 1995 covering the March
750cc Superbike engine and Indy car engine ("MCD Superbike Agreement") and a
Development and Marketing Agreement of November 1, 1996 covering the 1500cc
cruiser engine and the entire 600cc sportbike engine and bodywork ("MCD
Cruiser/Sportbike Agreement"), (which two agreements are collectively the ("MCD
Agreements"); and
FURTHER WHEREAS, the parties hereto have entered into this Agreement
(i) to make certain material amendments to the prior MCD Agreements, (ii) to
include additional extensive development by MCD covering additional products as
set forth herein, and (iii) to provide for additional consulting by MCD after
January 1, 200
NOW, THEREFORE in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Definitions- Definitions of terms contained in the MCD Agreements
shall retain the meanings set forth in such prior MCD Agreements. The
Development Program for additional motorcycle products covered by this Agreement
shall include the following:
a. Nemesis 200 - MCD shall design and develop a powerful, highspeed,
high performance premium March motorcycle for a top-of-the-line March product
based on integrating the March V-8 engine with a new chassis design with general
specifications including approximately 1500 cc engine capacity, B.H.P. of 261 at
13,000 max RPM, maximum torque of approximately 140 ft.lbs. at 11,000 RPM, four
valves and three spark plugs per cylinder, coil-over-plug ignition, two
camshafts per cylinder bank and a 6-speed gearbox, with engine design features
intended to provide a March motorcycle capable of top roadgoing speeds exceeding
200 mph.
b. March Cruiser - MCD shall design and develop an American-style
"cruiser" powered by the March V-8 engine designed to particularly create an
engine sound typical of American cruisers and a low-slung chassis design,
cylinder banks offset approximately 90 degrees from each other, and a powerful
macho image. Engine capacity shall be approximately 1800 cc with max B.H.P. of
approximately 216 and max RPM of approximately 9000, an electric fuel-injected
management system, two valves per cylinder and a 6-speed gearbox.
c. Three 600cc Motorcycles - In addition to the 600cc March
Sportbike nearing completion pursuant to the prior MCD Cruiser/Sportbike
Agreement, MCD shall design and develop the following three additional products,
all of which shall employ the one-cylinder 600cc engine which now exists and was
developed by MCD:
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i. Race Replica. MCD shall design and develop a new chassis and
related components for a March Race Replica to be intended for use in the March
Marque Racing Series.
ii. Super Motard. MCD shall design and develop a March motard-style
bike in order to provide March with this particular product segment in its full
line of motorcycles.
iii. Trail Bike. MCD will design and develop a distinctive March
Trail Bike for off-road motorcycle sporting use.
d. Re-Engineering of Superbike - MCD shall conduct a comprehensive
re-engineering of the March Superbike which is being powered by the 750cc
in-line 4-cylinder engine developed by MCD pursuant to the MCD Superbike
Agreement. Re-engineering of the Superbike shall particularly be cognizant of
its future into the World Superbike racing competition.
2. Development Program.
MCD agrees to use all commercial reasonable efforts to complete
the design and development of the foregoing products within the following
schedules, which include a running production prototype of each product:
Nemesis 200 - June 30, 1998 (full running production prototype)
March Cruiser - June 30, 1998 (full running production prototype)
600cc Race Replica - A model prototype shall be ready for show
purposes by December 31, 1997, with the running production prototype
completed by May 31, 1998.
600cc Super Motard - June 30, 1998 (full running production
prototype)
600cc Trail Bike - August 31, 1998 ( full running production
prototype)
Superbike Re-engineering - June 30, 1998 (full running production
prototype)
All chassis and related components developed by MCD under this
Development Program shall be accompanied by a complete production documentation
package, including specifications and drawings organized and indexed in a
production manual, a complete suppliers' list and bill of particulars including
component pricing, and a complete description of the various motorcycle models
including necessary schematics, line drawings and other documentation relating
to all features and components of such products. MCD also shall assist as
necessary in the preparation of professional owners' and distributors' manuals
for the use and repair of March motorcycles and components thereto. Cost
breakdowns for components shall be based on annual sales of 500 units of each
model.
In addition to the above schedule for the Nemesis 200 and March
Cruiser running production prototypes, MCD hereby also agrees to use all
commercially reasonable efforts to complete and deliver a model prototype for
each of these two motorcycles by December 31, 1997.
In addition to the foregoing development, MCD also shall use all
commercially reasonable efforts to design a V-4 750cc high performance
motorcycle engine, with complete working drawings of the V-4 by December 31,
1999. The parties hereto also acknowledge the design of the Indy-car design has
been about 80% completed, and that although the ownership of
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<PAGE>
such Indy-car design belongs to March, the completion of design and development
of such engine shall be the subject of a future agreement to be entered into by
the parties hereto. March further acknowledges that in regard to engine
development for motor car engines, MCD is not working exclusively for March, but
rather is free to conduct design and development work for third parties whether
or not they compete with March.
Future Consulting By MCD - The parties hereto further agree hereby
that MCD will provide consulting for March over a three-year period commencing
January 1, 2000 regarding future design, development and marketing of engine and
motorcycle chassis products.
Compensation to MCD - For all development and consulting to be
conducted by MCD under the development covered by this Agreement, March shall
pay MCD:
i. A monthly development payment of Twenty-one Thousand (21,000)
English Pounds with the first payment on September 1, 1997 and each monthly
payment thereafter on the 1st day of each succeeding month, provided that each
such monthly payment is contingent upon MCD's continued compliance with the
foregoing development program. Upon each such payment being made to MCD, March
shall retain all right, title and interest in and to all product and components
and their Specifications and related Intellectual Property. MCD also agrees to
consult with March on a regular basis regarding the progress of the various
segments of this Development Program, and to give March the opportunity to
review and approve the material design features of products covered by this
Agreement prior to commencing prototype models. In the event MCD fails to
develop motorcycle products and engines as required by the foregoing schedules,
March shall have the right to terminate this Agreement pursuant to Section 18
hereunder.
ii. For the consulting services to be provided by MCD over the
aforementioned 3-year period, March shall pay MCD a monthly consulting payment
of Twenty-five Thousand (25,000) English Pounds with the first payment on
January 1, 2000 and each succeeding monthly payment being due on the 1st day of
each month thereafter.
3. MCD Technology.
Regarding any prior MCD technology used for this Development
Program, MCD hereby represents the following: MCD has not licensed any of such
MCD Technology to any third party; MCD has taken all necessary action to protect
such MCD technology; MCD has not received any notice of, nor are there any facts
known to MCD which indicate a likelihood of, any infringement or
misappropriation by, or conflict from, any third party with respect to such MCD
Technology; no claim contesting the validity of such MCD Technology has been
made, or is currently outstanding or threatened; MCD has not received any notice
of any infringement, misappropriation or violation by it of any intellectual
property rights of any third parties and MCD has not infringed, misappropriated
or otherwise violated any such intellectual property rights; and no
infringement, illicit copying, misappropriation or violation has occurred or
will occur with respect to the products currently under development and to be
developed under this Agreement, or with respect to MCD's business as now
conducted.
March shall retain all right, title and interest in and to the
products being developed hereby and all related intellectual property, and any
related molds, tooling, casts and other equipment used to manufacture working
prototyped or commercial models of such products.
4. Technical Assistance.
MCD shall provide personnel and assistance as necessary to complete
the development of
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<PAGE>
all products required by the Agreement and to insure that they perform in
accordance with their respective design specifications, and further MCD shall
provide competent personnel and technical assistance as necessary to assist
March in all phases of assembly and manufacture of such products.
5. Marketing Obligations.
At all times during the term of the Agreement, the parties hereto
will use their best efforts to promote the manufacture, sale, marketing and
distribution of March motorcycles utilizing engines and bodywork developed by
MCD. MCD and March mutually agree to at all times (i) conduct business in a
manner that reflects favorably on the good name, goodwill and reputation of the
other party, (ii) not engage in deceptive, misleading or unethical practices
that are or might be detrimental to the other party, (iii) not make any false or
misleading representation with regard to the other party or its products, (iv)
not publish or utilize or cooperate in the publication or utilization of any
misleading or deceptive advertising material that relates in any way to the
other party and its products, (v) not make any representation or warranty to
anyone with respect to the specifications, features or capabilities of the other
party's products that are inconsistent with the literature distributed by the
other party, and (vi) not make any warranty or representation to anyone that
would give the recipient thereof any claim or right of action against the other
party.
6. Amendments to Prior MCD Agreements - The parties hereto agree
that the prior two MCD Agreements between the parties hereto shall be amended
hereby only as follows:
a. Engine Schedule - The 750cc in-line 4-cylinder engine shall be
completely designed by September 30, 1997 to enable MCD to furnish March with
initial detailed working drawings by that date. All development work for the
working prototype of this engine shall be completed by February 28, 1998.
Provided all components and parts are available from suppliers and
subcontractors as needed, MCD shall conduct and deliver to March comprehensive
performance dynamometer test results by February 28, 1998.
The 1500cc V-8 engine shall be completely designed by November 30,
1997 to enable MCD to furnish March with initial detailed working drawings by
that date. All development work for the working prototype of this V-8 engine
shall be completed by June 30, 1998. Provided all components and parts are
available from suppliers and subcontractors as needed, MCD shall conduct and
deliver to March comprehensive performance dynamometer test results by June 30,
1998.
The 600cc single-cylinder engine shall be completely designed by
November 30, 1997 to enable MCD to furnish March with initial detailed working
drawings by that date. All development work for the working prototype of this
engine shall be completed by April 30, 1998. Provided all components and parts
are available from suppliers and subcontractors as needed, MCD shall conduct and
deliver to March comprehensive performance dynamometer tests results by April
30, 1998.
b. Engine Logo Markings - All engines developed by MCD shall carry
the MCD logo on the Cam cover, and the March logo shall be on the outer engine
casing.
c. Royalty Rights - MCD obtained certain royalty rights under the
prior MCD Agreements, and all of such royalty rights are amended as follows:
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<PAGE>
In lieu of receiving cash royalty payments as originally provided
for between the parties hereto, MCD shall receive common stock of March equal to
$1,000,000 in U.S. currency, subject to resale pursuant to Rule 144 of the
Securities Act of 1933, with the number of shares and value thereof being based
on the IPO )Initial Public Offering) price of common stock of March. MCD hereby
acknowledges that the delivery of such common stock to MCD shall constitute full
and complete payment of any and all royalties specified in such two prior MCD
Agreements.
d. MCD has submitted certain invoices to March for work and expenses
incurred by MCD incident to development work performed on behalf of March and
which are outstanding as of the date of this Agreement. March shall make full
payment on such invoices to MCD to satisfy such outstanding invoices totaling
approximately 140,000 English pounds as follows:
i) Transfer to MCD of a Chevrolet Corvette already obtained by March
for this purpose;
ii) The value of delivery costs incurred by March to deliver said
car; and
iii) The remaining balance (beyond the value of such Corvette and
related delivery costs) shall be paid to MCD through issuance and
delivery to MCD of March common stock, subject to resale pursuant to
Rule 144, equal to such remaining balance of invoices based on a
value of $3.00 per share of common stock.
MCD shall submit to March proper invoices to verify the amount of
such outstanding balances owed to MCD incident to these expenses yet unpaid.
7. Policy Regarding Future Invoices. Incident to future development
work and expenses incurred by MCD to perform design and development for March
under this Agreement and under the Prior MCD Agreements, MCD shall notify March
of any upcoming expenses and fees prior to becoming obligated thereon, for the
purpose of obtained March approval of such expenses prior to being undertaken.
8. Time Devoted By Al Melling.
Regarding MCD's development and consulting services to be performed
under this Agreement and prior MCD Agreements, MCD and Al Melling hereby agree
that Al Melling will devote a substantial portion of his personal time and
efforts toward the development and marketing of March motor sports products
including the time he devotes incident to the March Marque Racing Series.
9. Melling Becomes Director of March.
Upon execution of this Agreement by the parties hereto, Melling also
agrees to serve on the Board of Directors of March contingent upon his being
covered by a standard "errors and omissions" insurance policy during the time he
serves in such directorship.
10. Acknowledge By Melling.
When Melling receives satisfaction of his outstanding verified
invoices pursuant to Section 6d of this Agreement, MCD and Melling hereby
acknowledge that they have received all payments due them under any and all
contracts between the parties hereto prior to the date hereof.
11. March Marque Racing Series.
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<PAGE>
In February 1997 the parties hereto entered into a "March Marque
Racing Series" Agreement for the purpose of promoting the commercial sale of
March motorcycles, and such agreement requires MCD and Melling to establish and
oversee a European racing series featuring the March 600cc Sportbike, with
certain races limited to drivers riding March Sportbikes. The parties hereto
agree that the payment to MCD and Melling under this racing series agreement
shall be increased to 5,000 English Pounds per month instead of $5,000 U.S.
Dollars per month, with such increased payments to commence for the month of
September, 1997 and extend through August, 1999. The parties hereto acknowledge
that this racing series will now be planned for 1999 instead of the initially
planned 1998. Other than the foregoing changes, all other terms and conditions
of the original racing series agreement shall remain in full force and effect.
12. Agreement Not to Compete.
Other than MCD's existing relationship with Motorrad-Und Zweiradwerk GmbH, MCD
agrees that during the term of the Agreement and for a period of five (5) years
after any termination of this Agreement, MCD and Melling will not, directly or
indirectly, engage in any competition with March in any manner or capacity (e.g.
as an advisor, principal, agent, partner, officer, director, stockholder,
employee, member of any association or otherwise) in any phase of the business
which March is conducting during the term of this Agreement.
The obligations of MCD and Melling under this section 12 of this
Agreement shall apply to any geographic area in which March has engaged in
business during the term of this Agreement through production, promotional,
sales or marketing activity, or otherwise, or has otherwise established its
goodwill, business reputation, or any customer relations. Ownership as a passive
investment of less than 1% of the capital stock of any corporation which is
publicly traded shall not constitute a breach of this Section 12.
MCD and Melling further agree that during the term of this Agreement
they will not, directly or indirectly, assist or encourage any other person in
carrying out any activity that would be prohibited by the foregoing provisions
of this Section 12 if such activity were carried out by MCD or Melling, either
directly or indirectly. In particular, MCD and Melling agree they will not,
directly or indirectly, induce any employee of MCD to carry out, directly or
indirectly, any such activity.
13. Confidentiality.
Each party hereto shall keep confidential and not disclose to any
third party or use for its own benefit, except as expressly permitted herein, or
for the benefit of any third party, any of the following information disclosed
by the other party to it (collectively "Confidential Information"): (I) any
information provided to it by the other party which is marked with a
proprietary, confidential or other similar notice, or orally disclosed to it by
the other party and followed by a writing within thirty (30) days of such oral
disclosure indicating said information was confidential, and (ii) even if not so
marked, any information that is reasonably understood by it to be confidential,
including the MCD Technology, on the one hand, and the Specifications and
Company (March) Technology, on the other hand.
The term "Confidential Information" should not include information
which (i) is or becomes generally known or available through no act or failure
to act by the receiving party, (ii)
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<PAGE>
is already known by the receiving party at the time of receipt as evidenced by
its records, (iii) is hereafter furnished to the receiving party by a third
party, as a matter of right and without restriction of disclosure, (iv) is
required to be disclosed by court order or otherwise by law, but in such event
notice shall be provided at least ten (10) days in advance of such disclosure.
Each party shall limit access to Confidential information to those
of its employees or agents (including subcontractors) who have a definite "need
to know", or to its sublicensees to the extent necessary to allow any such
sublicensee to fully use their sublicenses, and who also are under a written
obligation to keep such information confidential, with such written obligation
to be at least as restrictive as those obligations specified in this Section 13
of the Agreement.
The parties hereto particularly acknowledge to each other that a breach or
threatened breach of this Section 13 by any of the parties hereto may cause the
nonbreaching party to suffer irreparable hard and injury or such nature that no
remedy at law will adequately cure or compensate the nonbreaching party. In such
event, the nonbreaching party shall have the right to obtain injunctive relief
with respect to such breach or threatened breach, in addition to any other
available remedy or relief.
14. Warranties.
Warranties By MCD - MCD warrants that, for a period of five (5)
years from the date of delivery of the working prototypes of engines, bodywork
or any other components developed under this Agreement, such prototypes shall
conform to their specifications. Moreover, March is permitted to provide its
end-users the warranty granted to it hereunder. March also hereby agrees to
indemnify and hold harmless MCD for any warranty or representation made by March
that exceeds such warranty pass-through rights hereunder. The provisions of this
Section 14 regarding warranties of MCD shall survive the expiration or
termination of this Agreement for any reason.
15. Intellectual Property Indemnification.
MCD shall indemnify and hold harmless March for any damages finally
awarded or settlement amounts paid in respect of any loss, liability or expense
suffered or incurred by March or any of its customers for any patent, copyright,
trade secret or similar infringement claim brought against March or any of its
customers in respect to the use by March or any such customer of the engines,
bodywork or any other components developed hereunder or of any of the MCD
Technology (but only to the extent that such infringement claim involves the
engines, bodywork or other components developed hereunder), or any material
supplied by MCD to March pursuant to this Agreement. March shall notify MCD as
soon as practicable of any such infringement claim brought against either March
or any of its customers. If March defends such a claim, then, if requested by
March, MCD shall provide March with full documentation and cooperation to assist
March in defending any such claim. If any item furnished hereunder, including
without limitation the Specifications or products supplied or developed under
this Agreement, is in MCD's opinion likely to or does become subject of a claim
for infringement of any patent, copyright or other proprietary right, MCD may,
at its option and expense, procure for March or any affected customer, the right
to continue using the same, or modify it so that it becomes non-infringing, but
without diminishing MCD's obligations hereunder.
16. Compliance With Laws.
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In Connection with and in furtherance of its marketing and
manufacturing activities contemplated hereunder, each party hereto shall be
responsible for obtaining, and shall use all reasonable commercial efforts to
obtain, any and all required governmental authorizations, including without
limitation any import licenses and foreign exchange permits, and if applicable,
shall be responsible for filing and registering this Agreement with the
appropriate authorities.
17. Improvements and Inventions.
MCD and Melling shall promptly notify and fully disclose to March any and all
ideas, designs, practices, processes, improvements and inventions (all
hereinafter referred to as "inventions"), whether or not they are believed to be
patentable, which MCD or Melling have conceived or reduced to practice during
the period of this Agreement, or which are conceived or reduced to practice
within six (6) months after termination of this Agreement, if such inventions
are related to a product or process which was worked upon by MCD or Melling
incident to this Agreement or Melling's consulting arrangement with March.
All such inventions shall be the sole and exclusive property of
March or its nominee, and during the term of this Agreement and thereafter,
whenever requested to do so by March, Melling and/or MCD shall execute and
assign all applications, assignments or other instruments necessary to enable
March to apply for and obtain patents, copyrights or any other proprietary
rights in and to such inventions. MCD and Melling will also render whatever aid
and assistance to March is needed regarding any interference or litigation
pertaining to such inventions, and all expenses reasonably borne by MCD or
Melling at the request of March shall be borne by March.
18. Term, Termination and Effect of Termination.
a. Term - This Agreement shall commence upon its execution by the
parties hereto and, subject to earlier termination as provided herein, shall
continue until the date which is two (2) years after such effective date.
b. Termination on Bankruptcy - Either party hereto may terminate
this Agreement upon written notice if a petition for relief under any bankruptcy
law or legislation is filed by or against the other party, the other party makes
an assignment for the benefit of creditors, or a receiver is appointed for the
other party or a substantial portion of the assets of the other party, and such
petition, assignment or appointment is not dismissed or vacated within thirty
(30) days.
c. Termination for Failure to Develop Specifications. - If March
terminates this Agreement for failure by MCD to develop the Specifications or
the products, engines and other components as required herein, this Agreement
shall be terminated and March shall be entitled to all rights in and to the
Specifications, the engines and other products or components, all molds, tooling
dies casts and all Intellectual Property therein, developed to data pursuant to
this Agreement.
d. Effect of Material Breach by MCD - If MCD materially breaches
this Agreement, March shall have the right to terminate this Agreement and March
shall be entitled to all rights in and to the Specifications, the engines and
other products or components, and all molds, tooling, dies, casts and all
Intellectual Property therein, developed to date pursuant to this Agreement, as
well as the continuing right to the license granted to March in Section 3
hereunder regarding MCD Technology.
e. Effect of Material Breach by March - If March materially breaches
this Agreement and fails to correct such default within sixty(60) days after
written notice of default is provided to
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March by MCD, MCD shall have the right at its sole option to terminate this
Agreement and be entitled to damages caused by such termination, including
damages that may result from the term of this Agreement.
f. Surviving Rights - Termination or expiration of this Agreement
shall not affect the rights of the parties which may have accrued up to the date
of such termination or expiration and, in addition, (i) no party shall be
relieved of any obligation for any sums due to the other party, (ii) the Company
shall be entitled to take physical possession of and ownership of all
Specifications, the engines and other products and components developed
hereunder, and all molds, tooling, casts, dies and all Intellectual Property
therein, as well as the continuing right to the license granted to March in
Section 3 hereunder regarding MCD Technology, and (iii) no party shall be
relieved of its obligations under Sections 13 (Confidentiality),
14((Warranties), 15 (Intellectual Property Indemnification), 16 ( Compliance
With Laws), and 19 (Choice of Governing Law).
19. General.
a. Relationship of Parties - The respective parties hereto are not
employees or legal representatives of the other party for any purpose, and
neither party hereto shall have the right or authority to enter into any
contracts or understandings in the name of or on behalf of the other party.
b. Nonassignability; Binding on Successors - Either party hereto may
assign or otherwise transfer this Agreement or rights herein to an Affiliate or
in connection with a sale of all or substantially all of its assets, or of its
business, whether via merger or other business combination or otherwise. Except
as permitted in the preceding sentence, neither party shall assign any of its
rights or obligations hereunder without the express written consent of the other
party, which consent shall not be unreasonably withheld, and any attempted
assignment without such consent shall be void. In the event of any permitted
assignment or transfer under this Agreement, this Agreement and its provisions
shall be binding upon the executors, heirs, representatives, administrators and
assigns of the parties hereto.
c. Waiver and Severability -Any waiver (express or implied) by
either party or any broach of this Agreement or its terms shall be in writing
and shall not constitute a waiver of any other subsequent breach.
In the event any provision of this Agreement is held to be invalid
or unenforceable for any reason whatsoever, the valid or enforceable portion
thereof and any remaining provisions of this Agreement will remain in full force
and effect.
d. Force Majeure -Neither party shall be liable to the other party
for its failure to perform any of its obligations under this Agreement during
any period in which such performance is delayed because rendered impracticable
or impossible due to circumstances beyond reasonable control, including without
limitation, earthquakes, governmental regulation, fire, flood, labor
difficulties, civil disorder or war, acts of God, or otherwise, provided the
party experiencing the delay promptly notifies the other party of the delay.
e. Entire Agreement: Amendment -This Agreement constitutes the
entire, final, complete and exclusive agreement between the parties hereto along
with the prior MCD Agreements, and
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supercedes any previous understandings or representations of the parties hereto,
written or oral, with respect to the subject matter of this Agreement. This
Agreement may not be modified or amended except in a writing signed by a duly
authorized representative of each party hereto.
f. Counterparts -This Agreement may be executed by the parties
hereto in counterparts with the same force and effect as if each of the
signatures to this Agreement had executed the same instrument.
g. Cumulative Rights and Remedies -The rights and remedies provided
in this Agreement shall be cumulative and not exclusive of any other rights and
remedies provided by law or otherwise.
h. Captions and Section References -The section headings appearing
this Agreement are inserted only for the convenience and in no way to define,
limit, construe, or describe the scope or extent of such section or in any way
affect the meaning of such section.
i. Publicity -All notices to third parties and other publicity or
releases concerning this Agreement or its subject matter shall be jointly
planned and agreed to by the parties hereto. Neither party shall act
unilaterally in this regard without the prior written approval of the other
party, which approval shall not be unreasonably withheld, and which shall be
deemed to be given when such disclosure is required by securities or other laws.
All related communications within each party's organization shall be of a
strictly confidential nature.
j. Choice of Governing Law; Arbitration -This Agreement is made in
accordance with and shall be governed and construed under the laws of the United
Kingdom, as applied to agreements executed and performed entirely in the United
Kingdom. The official text of this Agreement and any other documents, notices,
or statements of account required by this Agreement shall be in English and not
construed by any other language. Any dispute or difference arising between the
parties hereto regarding this Agreement will be referred to binding arbitration
to be conducted in London, England, in accordance with the International Chamber
of Commerce, and the award of any arbitrator in such arbitration shall be
enforceable in any court having jurisdiction over the party (or the party's
property) against whom enforcement is sought.
k. Notices -All notices, communications, requests, demands, consents
and the like required or permitted under this Agreement will be in writing and
will be deemed given and received (i) when delivered personally, (ii) when sent
by confirmed telecopy, (iii) ten (10) days after having been mailed by first
class mail which is registered or certified, postage prepaid, or (iv) three
business days after deposit with a commercial overnight carrier, with written
verification of receipt. All notices shall be addressed as follows:
If to MCD: If to March:
---------- ------------
M.C.D. Limited March Motors International, Inc.
C/O Al Meiling 7667 Equitable Drive
43 Mallor Street Eden Prairie, MN 55347
Rochdale Telephone: (612) 937-2000
Lanc, England OL126XD Telecopy: (612) 937-9809
Telephone: 01706 711608
Telecopy: 01705 868125
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or to such other address as the person to whom notice is to be given may have
furnished to the other party in writing in accordance herewith, except that such
changes of address will be effective only upon receipt. A notice given in some
means other than specified herein shall be deemed duly given when and if
actually received by the addressee.
l. Authority to Enter Into Agreement; No Prior Grants -Each party
hereto represents and warrants to the other party that it has the right, full
power and lawful authority to enter into this Agreement for all purposes stated
herein, and to carryout its obligations hereunder. Each party hereto further
warrants inconsistent in any manner whatsoever with the terms and provisions of
this Agreement and that it has not make any prior grants of rights in or to the
MCD Technology, the Specifications and engines and other components covered by
this Agreement, on the one hand, or the March Technology, on the other hand, to
any third party which are inconsistent with or would interfere with the
performance of any part of this Agreement by any party hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
M.C.D. Limited
By Al Melling
---------------
Al Melling, Its Principle
MARCH MOTORS INTERNATIONAL, INC. and March
Motors Limited, its wholly-owned subsidiary
By Joseph Novogratz
----------------------
Joseph Novogratz,
Chairman and Managing
Director
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Exhibit 10.7
EMPLOYMENT AGREEMENT
BY AND BETWEEN
MARCH MOTORS INTERNATIONAL, INC.
AND
JOSEPH F. NOVOGRATZ
THIS AGREEMENT entered into on January 1, 1998, is made by and between
March Motors International, Inc. (hereinafter referred to as "March") and Joseph
F. Novogratz (hereinafter referred to as "JFN").
WHEREAS, March and JFN have been parties to an oral agreement regarding
outstanding interest-free loans made to March by JFN which shall continue until
said time as March is able to repay JFN.
WHEREAS, March desires the services of JFN to assist March in its
operations as provided herein, and JFN has agreed to provide such services;
NOW, THEREFORE, March and JFN in consideration of the mutual promises
and covenants contained herein, agree as follows:
I. EMPLOYMENT
March agrees to employ JFN as its Chairman of the Board. JFN hereby
accepts such employment. JFN will serve March under the direction of its Board
of Directors. During the term of this Agreement, JFN agrees to devote his
business time, skill, energy, and attention to the services and businesses of
March and shall perform such services in a diligent, trustworthy, loyal, and
business-like manner, all for the purpose of advancing its business of March.
II. EXCLUSIVITY OF SERVICES
JFN will devote his best efforts to the performance of his duties
hereunder. JFN will not, without he written consent of the Board of Directors of
March, engage in any activity which conflicts or interferes with the performance
of his duties hereunder during the term of this Employment Agreement, except as
specified herein. JFN may continue to operate Insulation Distributors, Inc.
III. TERM
This Employment Agreement shall have a term of three years ("initial
term") beginning on January 1, 1998 and expiring on December 31, 2020. This
Employment Agreement will, after expiration of the initial term, automatically
extend for consecutive additional one year terms ("succeeding terms") absent
sixty (60) days of written notice from either party to the other, prior to the
expiration of either the initial term or any succeeding term, or the parties'
intent not to renew the Employment Agreement. Both the initial term in any
succeeding terms shall be subject to termination before expiration under Section
VII of this Agreement.
IV. COMPENSATION
In consideration of JFN's acceptance and continued employment and
performance of duties under this Employment Agreement, including but not limited
to the provisions of Sections V and VI, March shall pay to JFN the following:
<PAGE>
(a) Salary - JFN shall be issued immediately 100,000 restricted
shares of the company's common stock as an inducement to enter
into the agreement and for all services and loans committed to
the company in 1997. JFN shall be paid a salary of $60,000.00
per year.
(b) Benefits - JFN shall, for each fiscal year this Employment
Agreement remains effective, be entitled to benefit plans on
the same terms as such benefits are generally available to
other senior executives of March, as well as any benefits
which are expressly granted to JFN by the Board of Directors
of March.
(c) Expense Reimbursement - March will pay or reimburse JFN for
all reasonable and necessary out-of-pocket expenses incurred
by him and the performance of his duties under this Employment
Agreement, subject to the presentation of appropriate vouchers
in accordance with March's normal policies for expense
verification, and in an amount not to exceed On Thousand
Dollars ($1,000.00) in any calendar month.
(d) Stock Option - For each year of employment, March will grant a
stock option to JFN in the amount of 100,000 shares at $6 per
share, effective January 1, 1998.
V. COVENANT NOT TO SOLICIT
In partial consideration of the compensation paid under this Employment
Agreement, including, but not limited to, the benefits outlined above, JFN
agrees that during the time of whether voluntary or involuntary, provided that
any involuntary termination is in compliance with this Employment Agreement, he
shall not, either personally or through an employer, firm, agent, servant,
employee, partner, shareholder, representative, affiliate or any other entity:
(a) Deliver products or services or attempt to deliver products or
services which are of the same type or nature as those which
JFN provided or offered during his employment under this
Employment Agreement, to any customer of March, except as
specifically provided herein, without prior written consent of
March. March's products and services shall be defined for
these purposes to include those products and services offered
by March during JFN's employment with March for a period of 12
months following the termination of JFN's employment with
March.
(b) Employ or offer to employ any individual employed by March
within the four (4) months proceeding the termination of JFN's
employment or request, advise, or entice any such individual
to leave the employment of March.
JFN further agrees that in the event he breaches any of the covenants
contained in Section V or VI of this Employment Agreement, irreparable harm will
result to March, that March's remedy at law will be inadequate, and that March
will be entitled to an injunction to restrain any continuing breach of this
Employment Agreement by JFN, his partners, agents, servants, employees, or
representatives, or any other persons or entities acting for or with him. March
shall, without limitation, be entitled to damages, reasonable attorneys' fees,
and any other costs and expenses incurred in connection with the enforcement of
Section V or VI of this Agreement, in addition to any other rights or remedies
which March may have at law or in equity.
-2-
<PAGE>
VI. NONDISCLOSURE OF INFORMATION
(A) JFN agrees that any information related to the
business of March, or of any March's clients or
customers, which is acquired by JFN during his
employment by March, shall be regarded as
confidential and solely for the proprietary benefit
of March. JFN shall not, except as is necessary in
the ordinary course of conducting business for March,
use such information for himself or disclose such
information to any other person or entity directly or
indirectly, either during the term of this Employment
Agreement, or any time thereafter, unless he obtains
the prior written approval of March.
(B) JFN shall not remove any records or documents from
the premises of March or March's clients or customers
in either original, duplicate, or copied form, except
as is necessary in the ordinary course of business
for March and subject to the approval of March's
management person with the authority to act upon such
matters. JFN shall immediately deliver to March, upon
termination of his employment with March, or at any
other time upon March's request, any such records or
documentation in JFN's possession or control.
VII. TERMINATION
(A) JFN's employment shall be terminated under any of the
following circumstances:
(1) By the mutual agreement of JFN and March;
(2) Upon the death of JFN; or
(3) Upon the voluntary termination of this Agreement
by March or JFN.
(B) In the event that JFN's employment is terminated
under paragraph VII, JFN's entitlement to
compensation under Section VI of this Agreement shall
be immediately cease.
VIII. CONSENT TO VENUE AND JURISDICTION
JFN and March consent to venue and jurisdiction in the District Court
of Hennepin, State of Minnesota, and in the United States District Court for the
district of Minnesota, and to service of process under Minnesota law in any
action commenced to enforce this Employment Agreement.
IX. ENTIRE AGREEMENT
This Employment Agreement constitutes the entire agreement between the
parties, and may not be amended or modified except by the mutual written
agreement of JFN and March. This agreement supersedes any previous employment
agreement, written or oral, that the parties may have entered into.
X. GOVERNING LAW
This Employment Agreement shall be construed and governed by the laws
of the State of Minnesota.
-3-
<PAGE>
XI. SEVERABILITY
If any provision of this Employment Agreement shall, for any reason, be
adjudged to be void, invalid, or unenforceable by a court of law, the remaining
provisions of this Employment Agreement shall nonetheless continue and remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement.
March Motors International, Inc.
Dated: 6th January 1998 By: /s/ Leslie MacTaggart
-------------------------------------
Its: Director
---------------------------------
/s/ Joseph Novogratz
Dated: 12-16-97 -----------------------------------------
Joseph F. Novogratz
-4-
<PAGE>
AMENDMENT OF EMPLOYMENT AGREEMENT
WHEREAS, the undersigned is currently serving under an employment agreement for
1998 with March Motors International, Inc., a Minnesota corporation, whereby he
is being paid a salary of $60,000 for his service in 1998.
NOW THEREFORE, FOR VALUABLE CONSIDERATION, the undersigned hereby agrees to the
following:
1. The undersigned will defer all his compensation under such
employment contract until the Company completes its pending Initial
Public Offering (IPO), raising net proceeds to March of
$4,000,000.00 or more at which time the undersigned will receive
all deferred 1998 compensation from the proceeds of such IPO.
2. The undersigned agrees that the consideration he has received for
this deferral of compensation is the closing of the purchase of
Norton assets by the Company.
3. This deferral of compensation shall cover all payments from January
1, 1998 forward. Joseph Novogratz may at any time convert the
amount deferred as above provided to common shares of March at the
rate of $3.00 of deferred compensation per common share.
/s/ Joseph F. Novogratz
----------------------------
Joseph F. Novogratz
<PAGE>
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment of the Employment Agreement is made as of the 1st
day of June, 1998, by and among Norton Motors International Inc. (the "Company")
and Joseph F. Novogratz ("JFN").
RECITALS
WHEREAS, the Company and JFN are parties to an Employment Agreement
dated as of January 1, 1998, as amended by an Amendment to Employment Agreement,
the terms of which are incorporated herein by reference (the "Employment
Agreement"). Any terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Employment Agreement.
WHEREAS, the Company and JFN desire to amend the Employment Agreement
as set forth herein.
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree as follows:
1. The first sentence of Article I shall be deleted in its entirety and
a new sentence shall be added as follows:
"March agrees to employ JFN as its President and Co-
Chairman of the Board."
2. Article IV, Section (c) shall be deleted in its entirety, and a new
Section (c) shall be added as follows:
"(c) Expense Reimbursement - March will pay or reimburse JFN
for all reasonable and necessary out of pocket expenses
incurred by him in the performance of the duties under this
Employment Agreement, subject to the presentation of
appropriate vouchers in accordance with March's normal
policies for expense verification.
3. Article IV, Section (d) shall be deleted in its entirety and a new
Section (d) shall be added as follows:
(d) Stock Option - The Company will grant a stock option to JFN in
the amount of 300,000 shares, at an exercise price of $6.00
per share, effective January 1, 1998. Of the 300,000 options
granted under this Section (d), options to purchase 100,000
shares shall be immediately exercisable, options to purchase
100,000 shares shall become exercisable on the first
anniversary of the Employment Agreement, and options to
purchase 100,000 shares shall become exercisable on the second
anniversary of the Employment Agreement, provided, however, at
such time as JFN is no longer either President or Co-Chairman
of the Company, all options which have not become exercisable
shall terminate.
4. Except as herein amended, the Employment Agreement, as amended, is
expressly ratified and confirmed.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment of
Employment Agreement as of the day and year first above written.
NORTON MOTORS INTERNATIONAL INC., a
Minnesota corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-----------------------------------
Joseph F. Novogratz
-2-
<PAGE>
Exhibit 10.8
CONSULTING AGREEMENT
BY AND BETWEEN
MARCH MOTORS INTERNATIONAL, INC.
AND
GLOBAL COIN CORPORATION
THIS AGREEMENT entered into on March 31st, 1998, is made by and between March
Motors International, Inc. (hereinafter referred to as "March") and Global Coin
Corporation, a Company incorporated under the laws of British Columbia, Canada
(hereinafter referred to as "Global").
WHEREAS, March desires the services of Global to assist March in its development
program, start-up, intended IPO and operations (the "Goals"), and Global has
agreed to provide such services.
NOW, THEREFORE, March and Global in consideration of the mutual promises and
covenants contained herein, agree as follows:
I. ENGAGEMENT
March hereby engaged Global to assist March in achieving the Goals.
Global hereby accepts such engagement, subject to the provisions
hereof. During the term of this Agreement Global agrees to render the
foregoing assistance in a reasonably diligent, trustworthy, loyal and
business like manner, all for the purpose of advancing the business
interests of March.
II. EXCLUSIVITY OF SERVICES
Global will devote its best efforts to the performance of its duties
hereunder. Global will not, without the written consent of the Board of
Directors of March, engage in any activity in competition with the
Goals during the term of this Agreement, except as specified herein.
Global may continue to operate and develop its other business
interests.
III. TERM
This Agreement shall have a term of approximately three years ("initial
term"), beginning on April 1, 1998 and expiring on December 31, 2000.
This Agreement will, after expiration of the initial term,
automatically extend for consecutive additional one year terms
("succeeding terms") absent sixty (60) days of written notice from
either party to the other, prior to the expiration of either the
initial term or any succeeding term, of such party's intent not to
renew this Agreement. Both the initial term and any succeeding terms
shall be subject to termination before expiration under Section VII of
this Agreement.
<PAGE>
IV. COMPENSATION
In consideration of Global's acceptance of continued engagement and the
performance of its duties under this Agreement, including but not
limited to the provisions of Sections V and VI, March shall pay to
Global the following:
(a) Direct Remuneration-Global shall be paid an annual sum of
$60,000.00 for its agreement hereunder, payable in equal
monthly installments of $5,000.00 on the 1st day of each month
during the term hereof; PROVIDED HOWEVER that Global agrees to
defer the receipt of the said sum of the following conditions:
[i] Global may at any time convert the amount deferred
to such point in time to common shares of March at
the rate of $3.00 deferred compensation per common
share;
[ii] Any deferred amount not converted to common shares
under [i] above shall be paid to Global upon the
closing of an offering of March's securities
conducted pursuant to a registration statement
filed by March under Section 5 of the Securities
Act of 1933, as amended, raising net proceeds to
March of $4,000,000.00 or more [an "IPO"]; and
[iii] The foregoing provisions of this Section IV[a]
shall survive the termination or expiration of this
Agreement.
(b) Benefits-Global shall nominate an employee to represent Global
under this Agreement. Such employee shall, for each fiscal
year this Agreement remains effective, be entitled to March
benefit plans on the same terms as such benefits are available
or granted to other senior executives of March.
(c) Expense Reimbursement-March will pay or reimburse Global for
all reasonable and necessary out-of-pocket expenses incurred
by Global in the performance of its duties under this
Agreement, subject to the presentation of appropriate vouchers
in accordance with March's normal policies for expense
verification, and in an amount not to exceed One Thousand
Dollars ($1,000.00) in any calendar month.
V. COVENANT NOT TO SOLICIT
In partial consideration of the compensation paid under this Agreement,
including, but not limited to, the benefits outlined above, Global
agrees that during the term hereof, and the term hereof regardless of
whether this Agreement is terminated
-2-
<PAGE>
with or without Global's concurrence provided that any involuntary
termination is in compliance with this Agreement, Global shall not:
(a) Deliver products or services or attempt to deliver products or
services which are of the same type or nature as those which
Global provided or offered during its engagement under this
Agreement, to any customer of March, except as specifically
provided herein, without prior written consent of March.
March's products and services shall be defined for these
purposes to include those products and services offered by
March during Global's engagement with March.
(b) Employ or offer any individual employed by March within the
four (4) months preceding the termination of Global's
engagement, or request, advise or entice any such individual
to leave the employment of March.
Global further agrees that in the event it breaches any of the
covenants contained in Section V or VI of this Agreement, irreparable
harm will result to March, that March's remedy at law will be
inadequate, and that March will be entitled to an injunction to
restrain any continuing breach of this Agreement by Global. March
shall, without limitation, be entitled to damages, reasonable
attorneys' fees, and any other costs and expenses incurred in
connection with the enforcement of Section V or VI of this Agreement,
in addition to any other rights or remedies which March may have at law
or in equity.
VI. NONDISCLOSURE OF INFORMATION
(a) Global agrees that any information related to the business of
March, or of any of March's clients or customers, which is
acquired by Global during its engagement by March, shall be
regarded as confidential and solely for the proprietary
benefit of March. Global shall not, except as is necessary in
the ordinary course of conducting business for March, use such
information for itself or disclose such information to any
other person or entity directly or indirectly, either during
the term of this Agreement, or any time thereafter, unless it
obtains the prior written approval of March.
(b) Global shall not remove any records or documents from the
premises of March or March's clients or customers in either
original, duplicate, or copies form, except as is necessary in
the ordinary course of conducting business for March and
subject to the approval of March's management person with the
authority to act upon such matters. Global shall immediately
deliver to March, upon termination of its engagement with
March, or at any other time upon March's request, any such
records or documentation in Global's possession or control.
-3-
<PAGE>
VII. TERMINATION
(a) Global's engagement hereunder shall be terminated under any of
the following circumstances:
[i] by the mutual agreement of Global and March; or
[ii] upon the termination of this Agreement by March or
Global under Section III.
(b) In the event that Global's engagement is terminated under this
paragraph VII, Global's entitlement to compensation under
Section IV of this Agreement which would be earned after
termination shall be immediately cease.
VIII. CONSENT TO VENUE AND JURISDICTION
Global and March consent to venue and jurisdiction in the District
Court of Hennepin, State of Minnesota, and in the United States
District Court for the district of Minnesota, and to service of process
under Minnesota law in any action commenced to enforce this Agreement.
IX. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties,
and may not be amended or modified except by the mutual written
agreement of Global and March. This agreement supersedes any previous
agreement, written or oral, that Global and March may have entered
into.
X. GOVERNING LAW
This Agreement shall be construed under and governed by the laws of the
State of Minnesota.
XI. SEVERABILITY
If any provision of this Agreement shall, for any reason, be adjudged
to be void, invalid, or unenforceable by a court of law, the remaining
provisions of this Agreement shall nonetheless continue and remain in
full force and effect.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
MARCH MOTORS INTERNATIONAL, INC.
By: /s/ Joseph Novogratz
------------------------------
Its: President
------------------------------
GLOBAL COIN CORPORATION
By: /s/ Myron Calof
------------------------------
Its: Vice President
------------------------------
-5-
<PAGE>
Exhibit 10.9
FINANCIAL ADVISORY SERVICES AGREEMENT
THIS AGREEMENT, made and entered into this 25th day of February, 1997, by and
between MARCH MOTORS MANUFACTURING COMPANY ("MMM"), a Minnesota corporation
headquartered in suburban Minneapolis, Minnesota, USA and AUSTIN FRIARS
SECURITIES LIMITED ("AFS"), a company registered in England, UK number 2205736;
WITNESSETH WHEREAS MMM is engaged in the development, production and marketing
of high quality motorcycle products and accessories for sale in the USA and most
overseas international regions and the design, development and production of
such motorcycle products will be carried on primarily in the United Kingdom
("UK) under contract with experienced engine and motor frame designers and
manufacturers;
FURTHER WHEREAS, AFS for many years has been involved in the business of
corporate finance and investment banking and incident thereto AFS has provided
professional financial advisory services to numerous companies both in the UK,
the USA;
FURTHER WHEREAS, MMM desires to retain the advisory services of AFS to assist
with financial and venture capital transactions, develop a well-known image for
MMM among the international investment community, assist with the promotion of
MMM products, and advised regarding any future acquisitions of MMM; and
FURTHER WHEREAS, AFS is willing to be employed in such an advisory services
capacity for MMM on the terms and conditions contained in this agreement.
NOW THEREFORE, for MMM's consideration and upon the mutual covenants and
promises contained in this Agreement, the parties hereto agree as follows:
1. Both parties hereto acknowledge that AFS has performed advisory
services to MMM during it's star up development stage which
transpired during 1996, particularly in assisting MMM in meeting and
entering into key relationships with the entities who are currently
designing and developing MMM's motorcycle products. Accordingly,
part of the consideration being given by MMM pursuant to this
Agreement is to fulfill these accrued obligations of MMM toward AFS
for the services extended by them to MMM during 1996 and early 1997
until the date of execution of this agreement.
<PAGE>
2. Engagement Period
The services to be provided by AFS for MMM incident to this
Agreement shall be for a term commencing on the date hereof and
terminating 12 months from that date, and shall continue on a month
by month basis thereafter until terminated by either party hereto
upon 30 days written notice.
3. Retention of AFS
During the engagement period of the Agreement, MMM shall retain, and
does hereby retain, AFS to provide corporate finance and investment
banking services to MMM including but not limited to the following;
i) Any structural reorganizations or recapitalisations of MMM or
its British subsidiary deemed necessary to further the growth
and visibility of MMM in its industry and with the general
investment community;
ii) Advice to MMM regarding any future capital raising, whether
through debt or equity placements, including introductions of
MMM's officers and agents to key UK and European contacts for
their potential involvement in private or public placements of
securities of MMM and its products and future business
strategies;
iii) AFS will assist MMM with the preparation of a Research Report
for use in the investment banking and financial communities,
which report shall contain a comprehensive description of MMM
and its products and future business strategies;
iv) AFS will use its best efforts to promote the business plan and
products of MMM within the investment community of the UK and
certain European venues where AFS conducts its investment
banking transactions;
v) Liaison services between MMM and its UK associates who are
developing and producing the engines and body for its
motorcycle products;
vi) Assistance in the future to enable MMM's voting securities to
be admitted to the Official List of the London Stock Exchange,
of which AFS is a limited corporate member;
2
<PAGE>
vii) Acquisition services regarding any future acquisition or
merger transactions between MMM and the UK or other overseas
companies which would develop in a synergistic and beneficial
result to both parties of any such business combination, which
in certain cases may include the actual negotiating of such
business combination of behalf of MMM.
4. Compensation
For such advisory services, AFS shall receive:
i) One hundred thousand (100,000) common shares of MMM, which
shall be issued and delivered promptly after the execution of
this agreement by the parties hereto, and after such issuance
and delivery to AFS, all of such shares shall be fully paid
and nonassessable. AFS acknowledges hereby that such common
stock shall be issued by MMM in restricted form and shall not
be freely tradable unless subsequently registered or meeting
an appropriate exemption from such registration under any
applicable securities laws and regulations.
ii) Incident to any acquisition undertaken by MMM due to the
services of AFS, MMM shall pay AFS a merger of business
combination fee being the understanding of the parties hereto
that most likely such merger compensation will be based upon a
standard percentage fee depending upon the value of such
transaction to MMM.
iii) AFS shall be completely reimbursed for any expenses incurred
by AFS due to its performance of advisory services herunder
for the benefit of MMM.
5. General
i) Notices - Any notice to be given thereunder by either party to
the other party shall be in English and be sent by airmail to
the address set forth on the execution page of this agreement,
or to such further amended address as given in writing by
either party hereto to the other party from time to time.
3
<PAGE>
ii) Severability - If any provision of this Agreement or
obligation arising hereunder is determined to be invalid, void
or unenforceable or any reason, all remaining provisions shall
nevertheless continue in full force without being invalidated
or impaired in any way.
iii) Governing Law and Language - This Agreement shall be governed
and interpreted under the laws of the state of Minnesota and
controlled in all respects by the English language.
iv) Non-Waiver of Rights - The failure of either party hereto to
enforce any of the provisions of this Agreement shall not be
considered any kind of a waiver of such provisions of this
Agreement or the right of such party thereafter to enforce any
provisions of this Agreement.
v) Entire Agreement - This Agreement constitutes the entire and
only agreement between the parties hereto relating to the
matters contemplated herein, and supersedes and cancels any
prior agreement, understandings, commitments, negotiations
and/or representations in respect thereto, whether written or
oral; and this Agreement may not be released, discharged,
abandoned, changed or modified in any manner except by mutual
consent of all parties hereto in writing.
vi) Assignment - This Agreement cannot be assigned by either party
hereto without the express written consent of the other party.
This Agreement shall inure to the benefit of and bind the
parties hereto and their respective legal representatives,
successors and permitted assigns.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be entered
into on the date first above written and executed by their respective duly
authorized representatives.
SIGNED by:
P.D. Rickett
- ----------------------
P.D. RICKETT, Director
for and on behalf of
AUSTIN FRIARS SECURITIES LIMITED
Austin Friars House
2-6 Austin Friars
London EC2N 2HE
SIGNED by:
James D. Kramer
- ----------------------
JAMES D. KROMER, president
for and on behalf of
MARCH MOTORS MANUFACTURING COMPANY
Address
7667 Equitable Drive
Eden Prairie, MN 55344
<PAGE>
Exhibit 10.10
January 5, 1998
VIA FAX AND MAIL
[FAX NO. (612) 937-9809]
Mr. Joseph Novogratz, Chairman & CEO
March Motors Ltd.
7667 Equitable Drive
Eden Prairie, MN 55344
RE: Settlement
Dear Mr. Novogratz:
Effective upon our receipt of a countersigned copy of this letter
(which must be received, if at all on or before January 7, 1998), North Pacific
Lines a corporation organized under the laws of the Cayman Islands ("NPL"),
agrees to the following terms:
(i) NPL relinquishes all claims to stock, stock options, warrants,
or other rights in March Motors;
(ii) March Motors will pay NPL the sum of $120,000 on or before the
first to occur of (a) the closing of the IPO currently being undertaken by March
Motors, or (b) June 30, 1998. Simple interest will accrue at the rate of 10% per
annum from the date of this letter and will be payable along with the $120,000;
(iii) March Motors will grant to NPL, effective immediately, a fully
exercisable, five-year option to purchase 225,000 shares of March Motors common
stock at an exercise priced of $0.66-2/3 per share;
(iv) Upon payment of all sums becoming payable as described above,
NP: will enter into a mutual release with March Motors whereby the parties shall
irrevocably release and hold harmless the other party incident to any
transactions and activities which have involved March Motors and NPL, with
respect to any claims, lawsuits, obligations, or rights whatsoever other than
those set forth herein.
<PAGE>
If the foregoing is acceptable, please fax an acknowledgement to me
[Fax No. (415) 332-1629] at your earliest convenience. Please mail the hard copy
to my attorney, Mark Ostler, Cohen & Ostler, A Professional Corporation, 525
University Avenue, Suite 410, Palo Alto, California 94301.
Very truly yours,
North Pacific Lines
Alex G. Daneman, Director
U.S. Division
ACKNOWLEDGED AND AGREED:
Joseph Novogratz
- ----------------
Joseph Novogratz
Chairman & CEO of March Motors
<PAGE>
January 5, 1998
VIA FAX AND MAIL
FAX NO. (612) 937-9809)
Mr. Joseph Novogratz, Chairman and CEO
March Motors Ltd.
7667 Equitable Drive
Eden Prairie, MN 55344
RE: Settlement
Dear Mr. Novogratz:
Effective upon my receipt of a countersigned copy of this letter
(which I must receive, if at all, on or before January 7, 1998), I agree to the
following terms:
(i) I resign as a director of March Motors;
(ii) I agree to the termination of my North American distribution
rights to March Motors;
(iii) I relinquish all claims to stock, stock options, warrants, or
other rights in March Motors;
(iv) March Motors will pay me the sum of $180,000 on or before the
first to occur of (a) the closing of the IPO currently being undertaken by
Motors, or (b) June 30, 1998. Simple interest will accrue at the rate of 10% per
annum from the date of this letter and will be payable along with the $180,000;
(v) March Motors will pay me $7,800 for reimbursable expenses upon
March Motors' countersigning this letter;
(vi) Upon payment of all sums becoming payable as describe above, I
will enter into a mutual release with March Motors whereby the parties shall
irrevocably release and hold harmless the other party incident to any
transactions and activities which have involved March Motors and Daneman, with
respect to any claims, lawsuits, obligations, or rights whatsoever other than
those set forth herein.
<PAGE>
If the foregoing is acceptable, please fax an acknowledgement to me
[Fax No. (415) 332-1629] at your earliest convenience. Please mail the hard copy
to my attorney, Mark Ostler, Cohen & Ostler, A Professional Corporation, 525
University Avenue, Suite 410, Palo Alto, California 94301.
Very truly yours,
Alex G. Daneman, Director
ACKNOWLEDGED AND AGREED:
/s/ Joseph Novogratz
- --------------------------------
Joseph Novogratz
Chairman and CEO of March Motors
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT OF MYRON CALOF
AGREEMENT made as of this 1st day of June, 1998 by and between
Norton Motors International Inc., a Minnesota corporation, with offices at 14252
23rd Avenue North, Plymouth, Minnesota 52447- 4910 (hereinafter called the
"Company") and Myron Calof, residing at c/o the Aquilini Investment Group, 2145
West 13th Avenue Vancouver, BC Canada V6K252 (hereinafter called "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ Executive and Executive
is willing to undertake such employment on the terms and subject to the
conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. Employment. For the period commencing on the date hereof
and ending on the first anniversary of the date hereof, unless extended by
written agreement between the Company and Executive, the Company hereby employs
Executive to render the services as Chief Executive Officer of the Company to
perform such duties on behalf of the Company as the Board of Directors of the
Company may from time to time determine consistent with his position with the
Company.
2. Duties. Executive hereby accepts such employment and agrees
that throughout the period of his employment hereunder, except as may otherwise
be approved in advance by the Board of Directors of the Company or permitted
below, and except during vacation periods and reasonable periods of absence due
to sickness, personal injury or other disability, Executive shall devote such
time, attention, knowledge and skills throughout the Employment Term (as defined
below) to the performance of the services required of him hereunder in
furtherance of the business of the Company. Executive shall render his services
to the Company during the Employment Term and shall use his best efforts,
judgment and energy to improve and advance the business and interests of the
Company in a manner consistent with the duties of his position and his other
obligations. Executive shall at all times be subject to, observe and carry out
such rules, regulations, policies, directions and restrictions as the Company
shall from time to time establish. Notwithstanding the foregoing, Executive is
an Executive Vice President for Aquilini Investment Group and will continue to
hold such position and perform the duties of such position during the Employment
Term.
<PAGE>
3. Term. Executive shall be employed for the period set forth
in Section 1 unless his employment is earlier terminated pursuant to the
provisions of Section 7 hereof (the "Employment Term").
4. Compensation. As full compensation for his services
hereunder, the Company shall pay to Executive $1.00 and shall issue to Executive
options to purchase 100,000 shares of Common Stock of the Company, immediately
exercisable, at an exercise price of $4.00 per share, which options shall
terminate on the fifth anniversary of the date hereof.
The payment of any salary or commissions hereunder shall be
subject to income tax, social security and other applicable withholdings as well
as such deductions as may be required under the Company's employee benefit
plans.
5. Benefits. During the Employment Term, Executive shall be:
(a) eligible to participate in any medical and
health plans or other employee welfare benefit plans that may be provided by the
Company for its employees generally in accordance with the provisions of any
such plans, as the same may be in effect on and after the date hereof, provided
that Executive shall be provided with health insurance for him and his family
substantially equivalent to that which is currently in place; and
(b) entitled to reimbursement for all reasonable
and necessary out-of-pocket business expenses and telephone usage, incurred by
Executive in the performance of his duties hereunder on behalf of the Company.
Except as specifically provided herein, Executive shall
receive no other benefits or other compensation.
6. Non-Competition Non-Disclosure. Executive hereby covenants,
agrees and acknowledges as follows:
(a) In partial consideration of the consideration
paid under this Employment Agreement, including but limited to, the benefits
outlined above, Executive agrees that during the Employment Term and for a
period of 12 months thereafter, he shall not, either personally or through an
employer, firm, agent, servant, employee, partner, shareholder, representative,
affiliate or any other entity:
(i) Deliver products or services or attempt to
deliver products or services which are of
the same type or nature as those which
Executive provided or offered, during his
employment under this Employment Agreement,
to any
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<PAGE>
customer of the Company, except as
specifically provided herein, without prior
written consent of the Company. The
Company's products and services shall be
defined for these purposes to include those
products and services offered by the Company
during Executive's employment with the
Company and for a period of 12 months
following the termination of the Executive's
employment with the Company.
(ii) Employ or offer to employ any individual
employed by the Company within the four (4)
months proceeding the termination of
Executive's employment or request, advise,
or entice any such individual to leave the
employment of the Company.
(b)
(i) Executive agrees that any information
related to the business of the Company, or
of any of the Company's clients or
customers, which is acquired by Executive
during his employment by the Company, shall
be regarded as confidential and solely for
the proprietary benefit of the Company.
Executive shall not, except as is necessary
in the ordinary course of conducting
business for the Company, use such
information for himself or disclose such
information to any other person or entity
directly or indirectly, either during the
Employment Term, or any time thereafter,
unless he obtains the prior written approval
of the Company.
(ii) Executive shall not remove any records or
documents from the premises of the Company
or the Company's clients or customers in
either original, duplicate, or copied form,
except as is necessary in the ordinary
course of conducting business for the
Company and subject to the approval of the
Company's management person with the
authority to act upon such matters.
Executive shall immediately deliver to the
Company, upon termination of his employment
with the Company, or at any other time upon
the Company's request, any such records or
documentation in Executive's possession or
control.
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<PAGE>
(c) Executive further agrees that in the event he
breaches any of the covenants contained in this Section 6, irreparable harm will
result to the Company, that the Company's remedy at law will be inadequate, and
that the Company will be entitled to an injunction to restrain any continuing
breach of this Employment Agreement by Executive, his partners, agents,
servants, employees, or representatives, or any other persons or entities acting
for or with him. The Company shall, without limitation, be entitled to damages,
reasonable attorneys' fees, and any other costs and expenses incurred in
connection with the enforcement of this Section 6, in addition to any other
rights or remedies which the Company may have at law or in equity.
7. Early Termination. The Company may at any time terminate
Executive for any of the following circumstances:
(a) By mutual agreement of the Company and the Executive
(b) Upon the death of the Executive;
(c) Upon the voluntary termination of this Agreement by
the Company or the Executive.
In the event the Employment Term is terminated by either the Company or
Executive, the Company shall pay Executive all amounts accrued and unpaid
pursuant to Section 4 through the date of such termination, and shall have no
further obligation to Executive. Following any such termination hereunder,
Executive shall retain all options granted to him under this Agreement.
8. Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and assigns.
9. Severability. Executive agrees that in the event that any
court of competent jurisdiction shall finally hold that any provision of Section
6 hereof is void or constitutes an unreasonable restriction against Executive,
such provision shall not be rendered void but shall still apply to such extent
as such court may judicially determine constitutes a reasonable restriction
under the circumstances. If any part of this Agreement other than Section 6 is
held by a court of competent jurisdiction to be invalid, illegal or incapable of
being enforced in whole or in part by reason of any rule of law or public
policy, such part shall be deemed to be severed from the remainder of this
Agreement for the purpose only of the particular legal proceedings in question
and all other covenants and provisions of this Agreement shall in every other
respect continue in full force and effect and no covenant or provision shall be
deemed dependent upon any other covenant or provision.
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<PAGE>
10. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
11. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto and no amendment or modification hereof shall be
valid or binding unless made in writing and signed by the party against whom
enforcement thereof is sought.
12. Notice. Any notice required, permitted or desired to be
given pursuant to any of the provisions of this Agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or sent by certified mail, return receipt requested, postage and fees prepaid to
the parties at their addresses set forth above. Either of the parties hereto may
at any time and from time to time change the address to which notice shall be
sent hereunder by notice to the other party given under this Section 13. The
date of the giving of any notice sent by mail shall be the date of the posting
of the mail.
13. Choice of Law. This Agreement and the legal relations
between the parties hereto shall be governed by and in accordance with the laws
of the State of Minnesota, without regard to principles of conflicts of law.
14. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the day and year first above written.
NORTON MOTORS INTERNATIONAL INC., a
Minnesota corporation
By:
--------------------------------
-----------------------------------
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<PAGE>
Exhibit 10.12
MINNEAPPLE CAPITAL, LTD.
5507 Malibu Drive
Edina, Minnesota 55436
FINDERS AGREEMENT
THIS AGREEMENT defines the terms and conditions under which MINNEAPPLE
(hereinafter referred to as "MCAP"), shall provide services for MARCH MOTORS
MANUFACTURING COMPANY, (hereinafter referred to as "CLIENT").
1. The term of this agreement shall be sixty (60) months, beginning on February
15, 1997.
2. CLIENT has retained MCAP for services to support CLIENT in arranging mergers,
acquisitions, and other financial matters.
3. MCAP shall treat all information in a confidential manner.
4. CLIENT is solely responsible for acceptance of the terms and conditions of
any agreement negotiated with a third party participant.
5. It is agreed that, as compensation for finding services rendered, CLIENT
shall pay MCAP a finder's fee equal to ten percent (10%) of the total
transaction. The term "transaction" is defined to mean in the broadest sense,
sourced by MCAP, including mergers, acquisitions, licensing fees, sales of
assets, consolidation, reorganization, corporate alliances or strategic
partnerships. Specifically, any future transaction with March Group Plc or
Norton Motors 1993 (or their affiliates), MCAP shall be deemed a finder. The fee
is payable at the time of closing in cash, or at the option of CLIENT, in cash
and equity (up to 50% of the total fee), valuing such equity at the same value
used in the financing transaction for which the fee is applicable.
6. This Agreement sets forth the entire understanding of the parties relating to
the subject matter and supersedes and cancels any prior communication,
understanding and agreements between the parties. This Agreement cannot be
modified or changed, nor can any of its provisions be waived, except by a
writing signed by all the parties.
7. This Agreement shall be governed by the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Finders Agreement to be
executed on this 15th day of February, 1997.
/s/ John R. Silseth /s/ James D. Kramer
- --------------------------------- ----------------------------------
Minneapple Capital, Ltd. March Motors Manufacturing Company
by John R. Silseth, C.E.O. by James D. Kramer, C.E.O.
<PAGE>
Exhibit 10.13
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT (the "Agreement"), made and entered into as of
this 31st day of March 1998, by and among MINNEAPPLE CAPITAL, LTD., a
Minnesota entity, having its principal place of business at 5507 Malibu Drive,
Edina, Minnesota 55435 ("Minneapple"), and Norton Motors International Inc., a
Minnesota corporation, having its principal place of business at 14252 23rd
Avenue, North, Plymouth, Minnesota 55447-4910 (the "Company").
WITNESSETH:
WHEREAS, the Company and Minneapple have entered into that certain
Finders Agreement dated February 15, 1997 (the "Finders Agreement"), defining
the terms and conditions under which Minneapple would provide services for the
Company, and subject to which Minneapple is owed certain consideration for
services rendered; and
WHEREAS, the Company and Minneapple agree that the Finders Agreement
fully and completely sets forth the relationship between the parties, and that
all other agreements, whether written or verbal, are hereby terminated by this
Settlement Agreement; and
WHEREAS, the Company and Minneapple propose to enter into this
Settlement Agreement in order to settle all outstanding compensation owed under
the Finders Agreement, such that the terms of this Settlement Agreement will
provide for the mutual settlement and release by the parties of any obligations
of each to the other, except for those obligations set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the parties hereto hereby
agree as follows:
1. Termination of Finders Agreement. The parties mutually agree that the Finders
Agreement shall be hereby terminated, subject to the terms contained herein.
Upon performance of the obligations set forth in this Agreement, the parties
shall have no further obligations under the terms of the Finders Agreement or
any other Agreement heretofore entered into between the parties, whether verbal
or otherwise.
2. Compensation for Services Rendered. The Company has issued to Minneapple
250,000 shares of Common Stock of the Company as full payment for all amounts
due to Minneapple under the Finders Agreement. The parties hereby agree that no
other compensation shall be owed or payable to Minneapple under the Finders
Agreement or any other agreement heretofore entered into between the parties,
whether verbal or otherwise.
<PAGE>
3. Mutual Release.
(a) Minneapple has remised, released and forever discharged, and by
these presents does for itself and its employees, officers, directors,
shareholders, agents, affiliates, successors and assigns, remise, release and
forever discharge the Company, its directors, officers, shareholders, employees,
attorneys, accountants and agents (collectively, the "Releasees"), and all of
the heirs, executors, administrators, successors and assigns of each of the
Releasees, of and from all manner of actions, causes of action, promises,
variances, damages, judgments, claims, liabilities, obligations, demands, suits,
debts, dues, sums of money, accounts, bonds, bills, covenants, contracts,
controversies and agreements whatsoever, in law or in equity, which against any
of the Releasees, Minneapple ever had, now has or which its successors or
assigns hereafter can, shall or may have for, upon or by reason of any manner,
cause or thing whatsoever from the beginning of the world to the date of this
Agreement.
(b) The Company, has remised, released and forever discharged, and by
these presents does for itself and its employees, officers, directors,
shareholders, agents, affiliates, successors and assigns, remise, release and
forever discharge Minneapple, its directors, officers, shareholders, employees,
attorneys, accountants and agents (the "Minneapple Releasees"), and all of the
heirs, executors, administrators, successors and assigns of each of the
Minneapple Releasees, of and from all manner of actions, causes of action,
promises, variances, damages, judgments, claims, liabilities, obligations,
demands, suits, debts, dues, sums of money, accounts, bonds, bills, covenants,
contracts, controversies and agreements whatsoever, in law or in equity, which
against Minneapple, the Company ever had, now has or which its successors or
assigns hereafter can, shall or may have for, upon or by reason of any manner,
cause or thing whatsoever from the beginning of the world to the date of this
Agreement.
4. General Provisions.
(a) Entire Agreement; Amendment and Waiver. This constitutes the entire
agreement between the parties hereto with respect to the subject matter
contained herein and supersedes all prior oral or written agreements, if any,
between the parties with respect to such subject matter. Any amendments hereto
or modifications hereof must be made in writing and executed by each of the
parties hereto.
(b) Notices. All notices hereunder shall be in writing and or mailed,
registered or certified mail, return receipt requested or delivered by a
nationally recognized overnight courier service to each party at its address set
forth above, or and, in each
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<PAGE>
case, to such other address as any party shall have given to the other party by
similar notice.
(c) Governing Law. This Agreement shall be governed by the laws of the
State of Minnesota.
(d) Binding Effect; Assignment. This Agreement and the various rights
and obligations arising hereunder shall inure to the benefit of and be binding
upon the Company and Minneapple and each of their respective successors and
assigns. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be transferred or assigned (by operation of law or otherwise) by
any of the parties hereto without the prior written consent of the other
parties. Any transfer or assignment of any of the rights, interests or
obligations hereunder in violation of the terms hereof shall be void and of no
force or effect.
(e) Counterparts. This Agreement may be executed in 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 hereto have caused this
Agreement to be made and executed on the date first above written.
MINNEAPPLE CAPITAL, LTD.
By:
------------------------------
Name:
Title:
NORTON MOTORS INTERNATIONAL INC.
By:
------------------------------
Name:
Title:
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<PAGE>
Exhibit 10.14
NORTON MOTORS INTERNATONAL INC.
1997 INCENTIVE AND STOCK OPTION PLAN
Section 1. Purpose.
The purpose of this 1997 Incentive and Stock Option Plan (the "Plan")
is to promote the interests of Norton Motors International Inc. (the
"Company") and its shareholders by aiding the Company in attracting and
retaining employees and directors capable of contributing to the growth and
success of, and providing strategic direction to, the Company, and by offering
such employees and directors an opportunity to acquire a proprietary interest in
the Company, thereby providing them with incentives to put forth maximum efforts
for the success of the Company's business and aligning the interests of such
employees and directors with those of the Company's shareholders.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, in each case as
determined by the Board of Directors.
(b) "Award" shall mean any Option granted under the Plan.
(c) "Award Agreement" shall mean any written agreement contract or
other instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of the
Company to whom the powers and duties of such Board of Directors under the Plan
may be delegated pursuant to Section 3(b) hereof, which shall consist of members
appointed from time to time by the Board of Directors and shall be composed
solely of two or more directors, each of whom is an "outside director" within
the meaning of Section 162(m) of the Code to the extent required by such
Section.
(f) "Company" shall mean March Motors Manufacturing Company, a
Minnesota corporation, and any successor corporation.
(g) "Eligible Person" shall mean any employee, officer, director,
consultant or independent contractor providing services to the Company or any
Affiliate.
(h) "Exchange Act" shall mean the Securities and Exchange Act of 1934,
as amended.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as the Board of
Directors shall establish in good faith from time to time. Where there is a
public market for the Shares, the fair market value per Share on a given date
shall be the closing price of a Share in the over-the-counter market on such
date, as reported in The Wall Street Journal (or, if not so reported, as
otherwise reported by The Nasdaq Stock Market ("Nasdaq")) or, in the event the
Shares are traded on the Nasdaq National Market ("NMS") or listed on a stock
exchange, the fair market value per Share shall be the closing price on such
system or exchange on such
<PAGE>
date, as reported in The Wall Street Journal; if such market or exchange is not
open for trading on such date, the Fair Market Value shall be determined as of
the day closest to such date when such market or exchange is open for trading.
(j) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision.
(k) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(l) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(m) "Participant" shall mean an Eligible Person whom the Board of
Directors designates to receive an Award under the Plan.
(n) "Person" shall mean any individual, corporation, partnership,
association or trust.
(o) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Exchange Act or any successor rule or
regulation.
(p) "Shares" shall mean shares of Common Stock, $.01 par value, of the
Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
Section 3. Administration.
(a) Administration by the Board of Directors. The Plan shall be
administered by the Board of Directors of the Company, with the advice of a
committee. Subject to the express provisions of the Plan and to applicable law,
the Board of Directors shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to each
Participant under the Plan; (iii) determine the number of Shares to be covered
by each Award; (iv) determine the terms and conditions of any Award or Award
Agreement; (v) amend the terms and conditions of any Award Agreement and
accelerate the exercisability of Options; (vi) interpret and administer the Plan
and any instrument or agreement relating to, or Award made under, the Plan;
(vii) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (viii) make any other determination and take any other action that the
Board of Directors deems necessary or desirable for the administration of the
Plan. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Board of Directors,
may be made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.
(b) Delegation to Committee. Notwithstanding anything to the contrary
contained herein, the Board of Directors may, at any time and from time to time,
delegate its powers and duties hereunder to a Committee solely for purposes of
complying with Section 162(m) of the Code.
(c) References to Board of Directors. Unless stated to the contrary, as
used herein, references to the Board of Directors shall mean the Committee to
whom the Board of Directors has delegated its powers and duties in the event
such powers and duties have been so delegated.
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<PAGE>
Section 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section
4(c), the aggregate number of Shares which may be issued under all Awards under
the Plan shall be 500,000 Shares to be issued under the Plan shall be authorized
but previously unissued Shares. If any Shares covered by an Award or to which an
Award relates are not purchased or are forfeited, or if an Award otherwise
terminates without delivery of any Shares, then the number of Shares counted
against the aggregate number of Shares available under the Plan with respect to
such Award, to the extent of any such forfeiture or termination, shall again be
available for granting Awards under the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to purchase Shares, the number of Shares covered by
such Award shall be counted on the date of grant of such Award against the
aggregate number of Shares available for granting Awards under the Plan.
(c) Adjustments. In the event that the Board of Directors shall
determine that any dividend or other distribution (whether in the form of cash,
Shares, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Board of
Directors to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Board of Directors shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and type of Shares (or other securities or
other property) which thereafter may be made the subject of Awards, (ii) the
number and type of Shares (or other securities or other property) subject to
outstanding Awards and (iii) the purchase or exercise price with respect to any
Award; provided, however, that the number of Shares covered by any Award or to
which such Award relates shall always be a whole number.
Section 5. Eligibility
Any Eligible Person, including any Eligible Person who is an officer or
director of the Company or any Affiliate, shall be eligible to be designated a
Participant. In determining which Eligible Persons shall receive an Award and
the terms of any Award, the Board of Directors may take into account the nature
of the services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as
the Board of Directors, in its discretion, shall deem relevant. Notwithstanding
the foregoing, an Incentive Stock Option may only be granted to full or
part-time employees (which term as used herein includes, without limitation,
officers and directors who are also employees), and an Incentive Stock Option
shall not be granted to an employee of an Affiliate unless such Affiliate is
also a "subsidiary corporation" of the Company within the meaning of Section
424(f) of the Code or any successor provision.
Section 6. Awards.
(a) Options. The Board of Directors is hereby authorized to grant
Options to Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the Plan
as the Board of Directors shall determine:
(i) Exercise Price. The purchase price per Share purchasable
under an Option shall be determined by the Board of Directors; provided,
however, that the purchase price per Share purchasable under an Incentive Stock
Option shall not be less than 100% of the Fair Market Value of a Share on the
date of grant of such Option.
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<PAGE>
(ii) Option Term. The term of each Option shall be fixed by
the Board of Directors; provided, however, that the term of an Incentive Stock
Option may not extend more than ten years from the date of grant of such
Incentive Stock Option.
(iii) Time and Method of Exercise. The Board of Directors
shall determine the time or times at which an Option may be exercised in whole
or in part and the method or methods by which, and the form or forms (including,
without limitation, cash, previously owned Shares, Shares issuable upon exercise
of the Award or any combination thereof, having a Fair Market Value on the
exercise date equal to the relevant exercise price) in deemed to have been made.
(iv) Certain Options to be Treated as Non-Qualified Stock
Options. If the aggregate Fair Market Value of all Shares subject to Incentive
Stock Options granted to a Participant under all plans of the Company and its
parent and subsidiary corporations (as described in Section 422(d) of the Code)
that are exercisable for the first time during any calendar year exceeds
$100,000 at the time an Option is granted to such Participant, then such Option
shall be treated as an Option that does not qualify as an Incentive Stock
Option.
(v) Ten Percent Shareholder Rule. Notwithstanding any other
provision in the Plan, if at the time an Option is otherwise to be granted
pursuant to the Plan to a Participant who owns, directly or indirectly (within
the meaning of Section 424(d) of the Code), Common Stock of the Company
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent or any subsidiary, then any Incentive Stock
Option to be granted to such Participant pursuant to the Plan shall satisfy the
requirements of Section 422(c)(5) of the Code, and the exercise price of such
Option shall be not less than 110% of the Fair Market Value of the Shares
covered, and such Option by its terms shall not be exercisable after the
expiration of five years from the date such Option is granted.
(vi) Option Limitations Under the Plan. No Eligible Person who
is an employee of the Company at the time of grant may be granted any Option,
the value of which is based solely on an increase in the value of the Shares
after the date of grant of such Option, covering more than 500,000 Shares in the
aggregate in any calendar year. The foregoing annual limitation specifically
includes the grant of any Option representing "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code to the extent
required by such Section.
(b) General
(i) No Cash Consideration for Awards. Awards shall be granted
for no cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) Grant of Additional Awards. An Eligible Person who has
been granted an Award under this Plan may be granted additional Awards under the
Plan if the Board of Directors shall so determine.
(iii) Limits on Transfer of Awards. No Award and no right
under any such Award shall be transferable by a Participant otherwise than by
will or by the laws of descent and distribution. No Award or right under any
such Award may be pledged, alienated, attached or otherwise encumbered, and any
purported pledge, alienation, attachment or encumbrance thereof shall be void
and unenforceable against the Company or any Affiliate.
(iv) Term of Awards. The term of each Award shall be for such
period as may be determined by the Board of Directors and the Board of Directors
shall be under no duty to provide terms of like duration for Awards granted
under the Plan.
(v) Restrictions; Securities Exchange Listing. All
certificates for Shares or other securities delivered under the Plan pursuant to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Board of Directors may deem advisable under the
Plan or the rules, regulations and other
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<PAGE>
requirements of the Securities and Exchange Commission and any applicable
federal or state securities laws, and the Board of Directors may cause a legend
or legends to be placed on such certificates to make appropriate reference to
such restrictions. If the Shares or other securities are quoted on Nasdaq,
traded on NMS or listed on a stock exchange, the Company shall not be required
to deliver any Shares or other securities covered by an Award unless and until
such Shares or other securities have been admitted for quotation or trading on
NMS or such stock exchange.
Section 7. Income Tax Withholding.
In order to comply with all applicable federal or state income tax laws
or regulations, the Company may take such action as it deems appropriate to
ensure that all applicable federal or state payroll, withholding, income or
other taxes, all of which are and shall remain the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of the
federal and state taxes to be withheld or collected upon exercise of an Award,
the Board of Directors, in its discretion and subject to such additional terms
and conditions as it may adopt, may permit the Participant to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise of such Award with a Fair Market Value
equal to the amount of such taxes or (ii) delivering to the Company Shares other
than Shares issuable upon exercise of such Award with a Fair Market Value equal
to the amount of such taxes. The election, if any, must be made on or before the
date that the amount of tax to be withheld is determined.
Section 8. General Provisions.
(a) No Rights to Awards. No Eligible Person, Participant or other
Person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatment of Eligible Persons, Participants, or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.
(b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company and, if requested by the Company, signed
by the Participant.
(c) No Limit on Other Compensation Arrangements. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or continuing
in effect other or additional compensation arrangements, and such arrangements
may be either generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained as an employee or
director of the Company or any Affiliate, nor will it affect in any way the
right of the Company or an Affiliate to terminate such employment or
directorship at any time, with or without cause. In addition, the Company or an
Affiliate may at any time dismiss a Participant from employment or directorship
free from any liability or any claim under the Plan, except as otherwise
expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the Plan or
of any Award, and any rules and regulations relating to the Plan or any Award,
shall be determined in accordance with the laws of the State of Minnesota.
(f) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Award under any law deemed applicable by the
Board of Directors, such provision shall be construed or deemed amended to
conform to applicable law, or if it cannot be so construed or deemed amended
without, in the determination of the Board of Directors, materially altering the
purpose or intent of the Plan or the Award, such provision shall be stricken as
to such jurisdiction or Award, and the remainder of the Plan or any such Award
shall remain in full force and effect.
-5-
<PAGE>
(g) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Board of Directors shall
determine whether cash shall be paid in lieu of any fractional Shares or whether
such fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) Headings. Headings are given to the Securities and subsections of
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(j) Other Benefits. No compensation or benefit awarded to or realized
by any Participant under the Plan shall be included for the purpose of computing
such Participant's compensation under any compensation-based retirement,
disability, or similar plan of the Company unless required by law or otherwise
provided by such other plan.
Section 9. Amendment and Termination; Adjustments.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the shareholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval, would:
(i) violate the rules or regulations of Nasdaq; NMS or any
stock exchange that are applicable to the Company; or
(ii) cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Board of Directors may waive any
conditions or rights of the Company under any outstanding Award, prospectively
or retroactively. The Board of Directors may not amend, alter, suspend,
discontinue or terminate any outstanding Award, prospectively or retroactively,
without the consent of the Participant or holder or beneficiary thereof, except
as otherwise provided herein or in the Award Agreement.
(c) Correction of Defects, Omissions and Inconsistencies. The Board of
Directors may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 10. Effective Date; Term.
(a) Effective Date. The Plan shall be effective as of the day on which
the Company's shareholders approve the Plan (the "Effective Date"); provided,
however, that if the Company's shareholders do not approve the Plan at the next
meeting of Shareholders, the Plan shall be null and void and all Awards granted
prior to the date of such Special Meeting shall be of no force or effect.
-6-
<PAGE>
(b) Term. Awards shall be granted under the Plan only during a 10-year
period beginning on the Effective Date. Unless otherwise expressly provided in
the Plan or in an applicable Award Agreement, however, any Award theretofore
granted may extend beyond the end of such 10-year period, and the authority of
the Board of Directors provided for hereunder, shall extend beyond the
termination of the Plan.
-7-
<PAGE>
EX. 23.2
CONSENT OF PANNELL KERR FORSTER PC
We hereby consent to the inclusion in the Registration Statement on Form SB-2 of
Norton Motors International Inc. of our report dated April 20, 1998 on our audit
of the financial statements of Norton Motors International Inc. as of December
31, 1997 and for the year ended June 30, 1997 and the six months ended December
31, 1997.
We also hereby consent to the reference to our firm under the caption "Experts"
in the Registration Statement.
Pannell Kerr Forster PC
New York, New York
June 18, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF STIRTZ BERNARDS BOYDEN SURDEL & LARTER, P.A.
We hereby consent to the inclusion in the Registration Statement on Form SB-2 of
Norton Motors International Inc. of our report dated March 18, 1997 on our audit
of the financial statements of Norton Motors International Inc. for the period
October 12, 1995 (inception) through June 30, 1996.
We also hereby consent to the reference to our firm under the caption
"Experts" in the Registration Statement.
Stirtz Bernards Boyden Surdel & Larter, P.A.
Edina, Minnesota
June 18, 1998
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