As filed with the Securities and Exchange Commission on November _, 1999
Registration No. __________
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ROEX, INC.
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(Name of Small Business Issuer in its charter)
California 2833 86-0888532
- ----------------------------- ---------------------------- ----------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Code Number)
2801 BUSINESS CENTER DRIVE, SUITE 185
IRVINE, CA 92612
(949) 476-8675
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(Address and telephone number of Registrant's principal
executive offices and principal place of business)
Rodney H. Burreson, President
Roex, Inc.
2081 Business Center Drive, Suite 185
Irvine, CA 92612
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Name, address, and telephone number of agent for service)
Copies to:
William B. Barnett, Esq.
Law Offices of William B. Barnett
15233 Ventura Boulevard, Suite 1110
Sherman Oaks, CA 91403
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
<PAGE>2
If this Form is filed to register additional securities for an offeringpursuant
to Rule 462(b) under the Securities Act, please check the following boxand list
the Securities Act registration number of the earlier effectiveregistration
statement for the same offering. / /
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) underthe Securities Act, check the following box
and list the Securities Actregistration statement number of the earlier
effective registration statementfor the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
underthe Securities Act, check the following box and list the Securities
Actregistration statement number of the earlier effective Registration
statementfor the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434,check the following box. / /
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. / /
<TABLE>
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CALCULATION OF REGISTRATION FEE
Title of Each Class of Proposed Maximum
Securities to be Amount to be Offering Price Proposed Maximum Amount of
Registered Registered Per Share Aggregate Offering Registration Fee
- ----------------------- -------------- ------------------ -------------------- -----------------
Common Stock 1,000,000 $ 5.00 $5,000,000 $1,475 #
Total 1,000,000 $5,000,000 $1,475
</TABLE>
- ----------------
# Estimated solely for purposes of calculating the registration fee.
We may amend this registration statement on such date or dates as may be
necessary to delay its effective date until we file a further amendment which
specifically states that this registration statement shall later become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the registration statement becomes effective on a date that the Securities and
Exchange Commission, acting under Section 8(a), may determine.
<PAGE>3
SUBJECT TO COMPLETION. DATED NOVEMBER ___, 1999
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE'RE NOT ALLOWED TO SELL THE COMMON STOCK OFFERED BY THIS PROSPECTUS
UNTIL THE REGISTRATION STATEMENT THAT WE HAVE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") BECOMES EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS
NOT AN OFFER TO SELL OUR STOCK NOR DOES IT SOLICIT OFFERS TO BUY OUR STOCK IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
1,000,000 Shares
ROEX, INC.
Common Stock
This is an initial public offering of shares of ROEX, Inc. All of the 1,000,000
shares of common stock are being sold by ROEX directly to the investors. No
underwriter or broker/dealer has been retained by ROEX to assist in the sale of
the shares.
There is no public market for the shares covered by this offering. Upon the
close of this offering, application will be made for quotation of the common
stock on the NASD's OTC Bulletin Board under the symbol "ROEX." The initial
offering price of $5.00 per share may not reflect the market price after the
initial offering.
The shares offered in this Offering are highly speculative and involve a high
degree of risk to public investors and should be purchased only by persons who
can afford to lose their entire investment. SEE "RISK FACTORS" BEGINNING ON PAGE
7 TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF OUR SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS ILLEGAL.
<TABLE>
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Underwiting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- ---------------------- ------------ ------------------- ----------------
Per Share $ 5.00 -- $ --
- ---------------------- ------------ ------------------- ----------------
Total - Minimum $2,500,000 -- $2,500,000
- ---------------------- ------------ ------------------- ----------------
Total - Maximum $5,000,000 -- $5,000,000
- ---------------------- ------------ ------------------- ----------------
</TABLE>
See Notes on following page.
The Offering is being made on a "best efforts, all-or-none" basis as to the
first 500,000 shares, and on a "best efforts" basis as to the remaining shares.
This means that Roex must sell the minimum number of shares (500,000) if any are
sold. If 500,000 shares are not sold within 90 days from the date of this
prospectus (which period can be extended for an additional 90 days by Roex), all
funds received will be promptly refunded to investors in full, without interest,
or deduction, in accordance with an escrow agreement with (Bank). If 500,000
shares are sold, the Offering will continue without any provision for refund:
(1) until all of the remaining 500,000 shares are sold; (2) until 90 days (up to
180 days if so extended) from the date of this prospectus, or (3) upon the prior
termination of the Offering by Roex, whichever occurs first
<PAGE>4
Notes to Table
(1) Although there are currently no placement agents or NASD broker/dealers
associated with our offering, we may retain them to assist us in selling
the shares. We may pay selling commissions to such placement agents and/or
broker/dealers of up to 13% of the gross offering proceeds.
(2) The Proceeds will be reduced by other expenses of the Offering, such as
legal, accounting and printing, payable by Roex estimated to be $200,000.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from or
additional to that contained in this prospectus. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of time of delivery of this prospectus or of any sale of our common stock.
ADDITIONAL INFORMATION IS AVAILABLE
This prospectus is part of a registration statement on Form SB-2 filed under the
Securities Act of 1933, as amended (which is referred to later as the
"Securities Act"). This prospectus does not contain all of the information in
the Registration Statement and its exhibits. Statements in this prospectus about
any contract or other document are just summaries. You may be able to read the
complete document as an exhibit to the Registration Statement.
Roex will have to file reports under the Securities Exchange Act of 1934, as
amended (which is referred to later as the "Exchange Act"). You may read and
copy the Registration Statement and our report at the Securities and Exchange
Commission's (which is referred to later as the "Commission") public reference
rooms at 450 Fifth Street, N.W., Washington, D.C. 20549, Seven World Trade
Center, 13th Floor, New York, New York 10048, and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. (You may telephone the Commission's Public
Reference Branch at 800-SEC-0330.) Our Registration Statement and reports are
also available on the Commission's Internet site at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing financial
statements audited by an independent public accounting firm after the end of
each fiscal year.
PROSPECTUS SUMMARY
The following summary does not contain all the information that may be important
to you. You should read this entire prospectus carefully, especially "Risk
Factors" and the financial statements and related notes included elsewhere in
this prospectus, before deciding to invest in shares of our common stock. This
prospectus contains forward-looking statements that are based upon the beliefs
of our management, but involve risks and uncertainties. Our actual results or
experience could differ significantly from the results discussed in the
forward-looking statements.
<PAGE>5
ROEX
Our company, Roex, Inc. ("the Company" or "Roex"), was incorporated in
California on October 5, 1994 to develop and market its own line of dietary
supplement products using scientifically based branded ingredients. Our founder
and President, Rodney H. Burreson, has been an athlete and body builder for a
number of years and has experienced a myriad of ailments and injuries resulting
from these activities. He became committed to finding and developing
non-pharmaceutical solutions to improve his own quality of life. Not content
with the then current products and formulas on the market, Mr. Burreson, through
education and research, began to develop his own formulas that combined the
highest quality and best ingredients to form more comprehensive products that
would meet his own specific health needs. The Company's first product was the
super antioxidant, called Procyanidin or PC-95, a grape seed extract, which was
first sold in April 1995. Since introducing PC-95, the Company has added twelve
more dietary supplement products to its product line and is committed to
providing only the highest quality products to meet its customers' specific
health needs. The Company, has grown from under a million dollars of annual
sales to approximately $4 million for the year ended December 31, 1998, and in
excess of $4 million for the first nine months of 1999. The Company currently
markets its products primarily through radio programming. Mr. Burreson appears
live on local talk radio shows in New York, Los Angeles and Southern Florida.
The format is one-half and one-hour radio infomercials, with interactive
customer call-ins. We have recently added the Internet as a vehicle for
marketing the Roex products.
Our Address/How to Contact Us
Our principal executive office is located at 2081 Business Center Drive, Suite
185, Irvine, California 92612 and our telephone number is (949) 476-8675, our
FAX number is (949) 476-8682. Our main website address is www.roex.com.
THE OFFERING
Common Stock offered
by the Company(1). . . . . . . . . 1,000,000 Shares (maximum offering)
. . . . . . . . . 500,000 Shares (minimum offering)
Common Stock to be outstanding
after this Offering . . . . . . . 6,288,584 Shares (maximum offering)
. . . . . . . 5,788,584 Shares (minimum offering)
Use of Proceeds . . . . . . . . . . . We will use the proceeds to,
increase our inventory of
products, add new radio markets,
reduce our debt and for working
capital and other general corporate
purposes.
Proposed NASD's OTC
Bulletin Board Symbol . . . . . . . ROEX
HOW TO PURCHASE SHARES
Included as the final page of this prospectus is a subscription agreement which
must be completed by the potential investors in order to purchase the Common
Stock offered hereby. The page containing the subscription agreement is
perforated to enable it to be detached. In order to subscribe to purchase the
Common Stock, please detach, complete and execute the subscription agreement,
include a check made payable to "Roex Subscription Account" and return the
executed subscription agreement and payment to the Roex Subscription Account,
2081 Business Center Drive, Suite 185, Irvine, CA 92612 as soon as possible. The
minimum amount that may be subscribed for is 100 shares. There is no maximum.
Subscriptions will be given priority based upon their date of receipt. In the
<PAGE>6
event that the minimum number of 500,000 shares is not subscribed, all amounts
received will be returned without interest or deduction. In the event that the
Company terminates this offering after the Initial Closing, all amounts received
shall be returned without interest or deduction.
SUMMARY OF FINANCIAL INFORMATION
The following table summarizes the financial data of our business. You should
read this information with the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and notes to those statements included elsewhere in this prospectus.
<TABLE>
<S> <C> <C> <C> <C>
Nine Year
Months Ended Ended
September 30 December 31
1999 1998 1998 1997
----------- ----------- ------------ -----------
(Unaudited) (Audited)
Operating Data
Net Sales $ 4,115,068 $ 3,002,565 $ 3,934,910 $ 3,023,518
Net Income (Loss) $ 417,212 $ (437,327) $ (463,264) $ (511,847)
Net Income (Loss)
Per Share:
Basic and Diluted $ 0.08 $ (0.09) $ (0.10) $ (0.11)
Weighted Average
Common Equivalent
Shares Outstanding:
Basic and Diluted 5,288,201 4,686,059 4,826,870 4,536,233
</TABLE>
September 30 December 31
1999 1998
------------ -------------
(Unaudited) (Audited)
Balance Sheet Data
Working Capital(Deficit) $ (312,448) $ (267,223)
Total Assets 628,623 383,182
Net Stockholders'
Equity(Deficit) (512,079) (940,541)
<PAGE>7
RISK FACTORS
An investment in our Common Stock offered hereby is speculative in nature and
involves a high degree of risk. In addition to the other information contained
in this prospectus, the following factors should be considered carefully before
making any investment decisions with respect to purchasing our Common Stock.
This prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. Roex's actual results may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause or contribute to such difference include, but are not
limited to, those discussed below, as well as those discussed elsewhere in this
prospectus.
Risks Associated With Our Financial Position.
Our business has only recently shown a profit. Since we commenced operations in
October 1994, we have accumulated net losses through September 30, 1999 of
$1,144,766 and a stockholders' deficit of $512,079. Although we operated
profitably for the nine months ended September 30, 1999, we still had a net
working capital deficit of $312,448. Although we expect to be profitable for the
year ending December 31, 1999, we cannot assure that a year-end profit will be
realized or that profitability will continue in the future.
We have a high level of debt. As of September 30, 1999, our debt, including
short term and long term, was approximately $1,140,000, of which, $100,000 was
obtained as a bridge finance for this offering, while our total assets were only
$628,623. We intend to use approximately $800,000 of the proceeds from this
offering to reduce debt substantially.
Best Efforts Offering; Minimum Number of Shares to be Sold. Roex is offering its
Common Stock on a "best efforts" basis. There can be no assurance that all of
the 1,000,000 shares of Common Stock will be sold. If we are unable to sell at
least 500,000 shares of our Common Stock, this offering will be cancelled and
all monies collected from subscribers and held in escrow will be returned to
such subscribers without interest or deduction. Furthermore, if all of the
1,000,000 shares of Common Stock being offered are not sold, we may be unable to
fund all the intended uses described herein. If net proceeds from this offering
are less than anticipated, funds from alternative sources or working capital
generated by us may not be sufficient to fund any uses not financed by the
proceeds of the offering. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources" and "Plan of Distribution."
Offering Price has been arbitrarily determined by management. The initial public
offering price of the Common Stock has been arbitrarily determined by us and may
not be indicative of the price at which shares of Common Stock will sell after
this offering. In determining the offering price, our Board of Directors
considered, among other things, our earnings, its view of our prospects, the
earnings of comparable publicly traded nutritional supplement companies and the
trading price of the stock of those companies. We make no representations as to
any objectively reasonable value of the Common Stock. Since we have not retained
an underwriter for purposes of this offering, the offering price has not been
subject to evaluation by any third party as would be the case in an underwritten
offering. Prices for the shares of our Common Stock after this offering will be
determined in the available market and may be influenced by many factors,
including the depth and liquidity of the market for our Common Stock, the
perception of Roex by other investors, the nutritional supplement industry as a
whole, and general economic and market conditions.
<PAGE>8
The Effect of Unfavorable Publicity. We believe that the dietary supplement
market is affected by national media attention regarding the consumption of
dietary supplements. Future scientific research or publicity may not be
favorable to the dietary supplement industry or to any particular product, and
may not be consistent with earlier favorable research or publicity. Because we
are dependent on consumers' perceptions, any adverse publicity associated with
illness or other adverse effects resulting from the consumption of our products,
or any similar products distributed by other companies, and future reports of
research that are perceived as less favorable or that question earlier research,
could have a material adverse effect on our business, financial condition and
results of operations. Thus, the mere publication of reports asserting that such
products may be harmful, or questioning their efficacy could have a material
adverse effect on our business, regardless of whether such reports are
scientifically supported or whether the claimed harmful effects would be present
at the dosages recommended for such products. See "--Absence of Conclusive
Clinical Studies."
We Are Dependent On New Radio Markets for Future Growth. We believe the growth
of our net sales is substantially dependent upon our ability to open up new
radio markets. Currently, 90% of our sales are generated from our radio health
shows in New York City, Los Angeles, Miami and Tampa. Our business plan is to
expand our radio health show to between four and eight additional cities in the
next twelve months. The success of these radio shows depend on a number of facts
including the following:
. selection of radio stations and time slots that appeal to the demographics
of our customers (e.g. individuals over 45 years of age)
. consumer acceptance (ratings) of the show
. consumer acceptance of our products advertised on the show
. competition from other health and talk shows on the same or other stations
. changes in radio station policy which removes the program from their
schedule
We can't guarantee that we will be successful in new radio markets. In addition,
even if we are successful in some new radio markets, we may not maintain that
success over time.
Our Business is subject to compliance with Various Government Regulations. We
are subject to regulation by numerous governmental agencies, the most active of
which is the U.S. Food and Drug Administration (the "FDA"), which regulates our
products under the Federal Food, Drug and Cosmetic Act (the "FDCA"). In
addition, the Federal Communications Commission ("FCC") regulates "on air"
content of radio shows. These regulations involve, among other things:
- - the formulation, manufacturing, packaging, labeling, distribution,
importation, sale and storage of our products;
- - health and safety;
- - product claims and advertising by us.
If we fail to comply with applicable FDA or FCC regulatory requirements, it may
result in, among other things, injunctions, product withdrawals, recalls,
product seizures, fines and criminal prosecution.
If We Lose Our Key Personnel, Especially Our Founder and Spokesperson, Rodney
Burreson, Our Business May Suffer. We depend substantially on the continued
services and performance of our senior management and, in particular, Mr.
Burreson. Our business may be hurt if he or one or more of our senior management
or key employees leave Roex. Although we have an employment agreement with Mr.
Burreson for an initial term of five years, this does not guarantee that he will
remain with us for the entire term. If we lose the services of Mr. Burreson or
any of these executive officers or other key employees, we may not be able to
attract and retain additional qualified personnel to fill their positions in the
future. We have recently obtained a $1,000,000 key man life insurance policy, of
<PAGE>9
which we will be the beneficiary, on the life of Mr. Burreson.
Failure Of Our Outside Suppliers To Provide Our Products In Sufficient
Quantities and In a Timely Fashion May Cause Our Business To Suffer. All of our
products are provided by outside suppliers. Our profit margins and ability to
deliver our products on a timely basis are dependent upon the ability of our
outside suppliers to provide quality products in a timely and
cost-efficient manner. Three large companies provide 60% of our products. Our
ability to enter new markets and sustain satisfactory levels of sales in each
market is dependent upon the ability of these or other suitable outside
suppliers to respond to our needs. Further, the development of new products in
the future will depend in part on these outside suppliers. The failure of any
supplier to provide the products or ingredients of products that we require
could have an adverse effect on our business, profitability and growth
prospects.
We believe we have dependable alternative suppliers for all our ingredients. We
believe that we can produce or replace any of our ingredients if our current
suppliers are unable to supply our ingredients. However, any delay in replacing
or substituting such ingredients could also hurt our business.
If Our Current Or New Products and Ingredients Have Harmful Side Effects or Do
Not Have the Healthful Effects Intended, Our Business May Suffer. Although many
of the ingredients in our products are vitamins, minerals, herbs and other
substances that have been consumed by individuals for many years, some of our
products contain newly-introduced ingredients or combinations of ingredients. We
believe all of our products are safe when taken as directed by Roex, but there
is a lack of long-term experience with individuals consuming our
newly-introduced product ingredients or combinations of ingredients. Even though
we perform research and tests when we formulate and produce our products, we
cannot guarantee that our products, even when used as directed, will have the
healthful effects intended or will not have harmful effects on our customers. If
any of our products were shown to be harmful or negative publicity resulted from
an individual who was allegedly harmed by one of our products, it could hurt our
business, profitability and growth prospects.
We are smaller than most of our national competitors and, consequently, we may
lack the financial resources to enter new markets or increase existing market
share. We compete with many companies marketing products similar to the ones we
sell. Most of these companies have longer histories, more products and greater
name recognition and financial resources than we do. Many of our competitors
have thousands of distributors operating under network marketing systems and
others are selling products through the traditional retail stores. Our primary
competitors include Metagenics, Twin Labs, Enzymatic Therapy, Country Life,
Natreol and Now Foods. Our business, profitability and growth prospects could be
hurt if we are unable to compete successfully against our competitors.
If The Board of Directors Issues Preferred Stock, The Rights and Market Price of
Our Common Stock May Be Adversely Affected. The board of directors has the
authority to issue one or more classes or series of preferred stock without
shareholder approval. The board of directors may also change the number of
shares constituting any series of preferred stock and may fix and determine the
designation and preferences, limitations and relative rights, including voting
rights, of these shares of preferred stock, in each case without shareholder
approval. Accordingly, preferred stock may be given preference over the common
stock as to dividend rights, liquidation preference or both, may have full or
limited voting rights and may be convertible into shares of common stock.
Undesignated preferred stock may enable the board of directors to discourage a
change in control by means of a tender offer, proxy contest, merger or
otherwise, and thereby protect our management, which may adversely affect the
market price and rights of holders of our common stock.
<PAGE>10
If Our Information Technology Systems Fail, Our Operations Could Suffer. Our
business is very dependent upon information technology and its related systems
to manage and operate many of our key business functions, including:
. order processing;
. customer service;
. distribution of products;
. commission processing; and
. cash receipts and payments
. marketing inventory
. ordering ingredients and product.
If our information technology systems fail, we would not be able to conduct our
day-to-day business. Depending upon the severity and duration of the failure and
our ability to remedy the cause, our business could be hurt.
If We Do Not Adequately Address Year 2000 Issues, Our Business May Suffer. The
risks posed by Year 2000 issues could hurt our business in a number of
significant ways. Our information technology system is designed to comply with
Year 2000 considerations, however, unforeseen or unpreventable circumstances
could cause our information technology system could be substantially impaired or
cease to operate. We have not made any material expenditures to address the Year
2000 problem and we do not anticipate that we will be required to make any such
material expenditure in the future. Additionally, we rely on the information
technology of our vendors, associates and other third parties, which may not be
Year 2000 compliant. Year 2000 problems experienced by us, our associates, our
vendors or other third parties could hurt our business. If any or all of our
applications fail to perform on January 1, 2000, we will resort to temporary
manual processing which would slow our operations and decrease our efficiency.
We have begun contacting our vendors and other third parties to ascertain their
Year 2000 status. Failure to achieve Year 2000 readiness by any of our vendors
or other third parties could disrupt our operations and hurt our business. We
intend to continue to make efforts to ensure that third parties with whom we
have relationships are Year 2000 compliant.
Factors that May Adversely Affect Our Common Stock.
- - There may be no active public market for our common stock after this
offering. Because this is the initial public offering of our common stock,
we can't assure you that there will be an active public market for our
shares. And the stock market -- especially the market for our shares -- may
be highly volatile because of general market conditions, as well as factors
relating to our own performance and our ability to meet market
expectations.
- - There may be price volatility. Upon completion of this offering, it is
expected that the Common Stock will be quoted on the Nasdaq Small Cap
Market, which has experienced and is likely to experience in the future
significant price and volume fluctuations which could adversely affect the
market price of the Common Stock without regard to the operating
performance of the Company. In addition, the Company believes that factors
such as quarterly fluctuations in the financial results of the Company, the
Company's earnings, changes in earnings estimates by analysts, financial
and business announcements by the Company or its competitors, the overall
economy and the condition of the financial markets could cause the market
price of the Common Stock to fluctuate substantially. There can be no
assurance that the market price of the Common Stock will not decline below
the initial public offering price.
- - We don't plan to pay dividends. We don't expect to pay dividends on common
stock anytime soon. We expect to use all earnings, and the proceeds from
this offering, to pay outstanding debt and to develop our business. Our
<PAGE>11
board will decide on any future payment of dividends, depending on our
results of operations, financial condition, capital requirements, and any
other relevant factors.
- - Shares Eligible For Future Sale. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely
affect the market price for the Common Stock. Upon completion of this
offering, there is expected to be a minimum of 5,788,584 shares and a
maximum of 6,288,584 shares of Common Stock outstanding. All of the shares
offered hereby will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act ("Rule 144") described below.
The remaining 5,288,584 shares of Common Stock outstanding upon completion
of this offering are "restricted securities," as that term is defined in
Rule 144 (the "Restricted Shares"). All of the Restricted Shares will be
eligible for sale in the open market after the effective date of the
Registration Statement, all under and subject to the restrictions contained
in Rule 144 and Rule 701.
Prior to the completion of this offering, the Company intends to enter into
lock-up agreements (the "Lock-up Agreements") with each of the Company's
officers, directors and shareholders owning 5% or more of the Company's
Common Stock. Pursuant to the Lock-up Agreements, each such shareholder
will agree, subject to certain exceptions, not to sell or otherwise dispose
of any of its shares of Common Stock until 180 days after the completion of
this offering (the "Lock-up Expiration Date").
Under the Company's 1999 Stock Incentive Plan (the "1999 Stock Incentive
Plan"), as of September 30, 1999, options to purchase 220,000 shares of
Common Stock were outstanding, none of which will become exercisable until
90 days after the completion of this offering and 135,833 of which will be
exercisable on September 30, 2000, assuming completion of this offering. An
additional 780,000 remain available for future option grants. The Company
intends to register on Form S-8 under the Securities Act the offering and
sale of Common Stock issuable under the 1999 Stock Incentive Plan as soon
as practicable after the date of this Prospectus.
In addition, 496,350 shares of Common Stock are issuable upon the exercise
of outstanding non-qualified stock options at an exercise price of $.50 to
$1.65 per share, which are currently exercisable.
- - You will experience dilution. You'll experience immediate and substantial
dilution in negative net tangible book value. Our net tangible book value
as of September 30, 1999 was a negative $512,079, or a negative $0.10 per
share. After giving effect to the maximum offering at an assumed offering
price to the public of $5.00 per share, and our planned use of the offering
proceeds as though both had occurred on September 30, 1999, our tangible
book value at that date would have been $4,787,921. This results in an
immediate increase in net tangible book value to our existing stockholders
of $0.68 per share and an immediate dilution to you of $4.32 per share.
FORWARD-LOOKING STATEMENTS
In General
This prospectus contains statements that plan for or anticipate the future.
Forward-looking statements include statements about the future of the vitamin
supplement industry, statements about our future business plans and strategies,
and most other statements that are not historical in nature. In this prospectus,
forward-looking statements are generally identified by the words "anticipate,"
"plan," "believe," "expect," "estimate," and the like. Because forward-looking
statements involve future risks and uncertainties, there are factors that could
cause actual results to differ materially from those expressed or implied. For
<PAGE>12
example, a few of the uncertainties that could affect the accuracy of
forward-looking statements include:
(A) changes in general economic and business conditions affecting the vitamin
supplement industry;
(B) our ability to design, order and stock merchandise that appeals to our
customers;
(C) technical developments that make our products or services obsolete;
(D) our costs in the pricing of our products;
(E) the level of demand for our products; and
(F) changes in our business strategies.
DILUTION
At September 30, 1999, we had a negative net tangible book value of $512,079, or
approximately $(.10) per share of outstanding Common Stock. "Net tangible book
value" per share represents the amount of our total tangible assets less our
total liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the receipt of the estimated net proceeds from our sale
of the 500,000 shares and 1,000,000 shares of Common Stock offered hereby, at an
assumed initial public offering price of $5.00 per share of Common Stock (after
deducting Offering expenses payable by us), the net tangible book value of Roex
at September 30, 1999, would have been approximately $1,787,921 and $4,287,921
or $.31 and $.68 per share of Common Stock, respectively. This would represent
an immediate increase in the net tangible book value per share of Common Stock
of $.41 (if 500,000 shares are sold) and $.78 (if 1,000,000 shares are sold) to
existing shareholders and an immediate dilution of $4.69, or $4.32,
respectively, per share to new investors purchasing shares of Common Stock in
the Offering. "Dilution" is determined by subtracting net tangible book value
per share after the Offering from the offering price to investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
If 500,000 If 1,000,000
Shares are Shares are
Sold Sold
-------------- -------------
Initial offering price per share of Common Stock $ 5.00 $ 5.00
Net tangible book value per share of Common Stock
Before the Offering $ (.10) $ (.10)
Increase attributable to new investors $ 0.41 $ 0.78
Proforma net tangible book value after Offering $ .31 $ .68
Dilution to new investors $ 4.69 $ 4.32
Percentage of dilution to new investors 94% 86%
</TABLE>
The following table summarizes the number of shares of Common Stock purchased
from the Company (assuming the sale of the minimum offering of 500,000 shares),
the total consideration paid and the average price per share paid by (i)
existing shareholders of the Company at September 30, 1999, and (ii) new
<PAGE>13
investors purchasing shares of Common Stock in this Offering, before deducting
the underwriting discounts and estimated offering expenses payable by us.
Shares Purchased Consideration Paid
---------------------- -----------------------
Number Percentage Amount Percentage
----------- ----------- ---------- -----------
Existing Shareholders 5,288,584 92% $ 632,687 20%
New Investors 500,000 8% $2,500,000 80%
----------- ---------- ---------- ---------
Total 5,788,584 100% $3,132,687 100%
The following table summarizes the number of shares of Common Stock purchased
from Roex (assuming the sale of the maximum offering of 1,000,000 shares), the
total consideration paid and the average price per share paid by (i) existing
shareholders of Roex at September 30, 1999, and (ii) new investors purchasing
shares of Common Stock in this Offering, before deducting commissions and
estimated offering expenses payable by us.
Shares Purchased Consideration Paid
----------------------- ---------------------------
Number Percentage Amount Percentage
----------- ----------- ------------- -----------
Existing Shareholders 5,288,584 84% $ 632,687 11%
New Investors 1,000,000 16% $5,000,000 89%
----------- ----------- ------------- -----------
Total 6,288,564 100% $5,632,687 100%
USE OF PROCEEDS
The net proceeds to Roex from the sale of the 500,000 shares and 1,000,000
shares of Common Stock offered hereby at an offering price of $5.00 per share,
after deducting offering expenses payable by us, estimated to total
approximately $200,000, are $2,300,000 and $4,800,000, respectively.
The following table sets forth our anticipated use of the net offering proceeds,
assuming the sale, respectively, of the minimum of 500,000 shares and the
maximum of 1,000,000 shares of Common Stock offered hereby.
Minimum Maximum
500,000 1,000,000
Shares Sold Shares Sold
------------- -------------
Sources of Funds:
Offering Proceeds $ 2,500,000 $ 5,000,000
Offering Expenses (1) 200,000 200,000
------------- ------------
Net Proceeds $ 2,300,000 $ 4,800,000
------------- ------------
Use of Net Proceeds:
Expand Radio Markets (2) $ 650,000 $ 770,000
Marketing and Advertising (3) 200,000 880,000
Debt Reduction (4) 800,000 800,000
New Product Development (5) 400,000
Inventory (6) 150,000 200,000
Video Production (7) 200,000 300,000
Developing Internet e-commerce(8) 150,000 350,000
Working Capital (9) 150,000 $ 1,100,000
------------- ------------
Total Uses $ 2,300,000 $ 4,800,000
------------- ------------
<PAGE>14
- -------------------------------------
(1) Legal, accounting and Placement Agent and printing.
(2) Adding radio broadcasts in four to five cities.
(3) Marketing and advertising to support our base and our growth.
(4) Reduction of a portion of our long term and short term debt due to Bison
Development and others. The interest rates for these long and short term
debts range from 12% to 16%. As of September 30, 1999, $878,226 was
outstanding under these debt obligations. See "Note 6 to Notes to the
Financial Statements."
(5) New product development is expected to result in the introduction of three
or four new products per year.
(6) Inventory needs to increase to accommodate a higher sales level.
(7) The Company is planning an exercise video to complement its nutritional
supplements.
(8) This is for expansion of Roex's e-commerce on the Internet.
(9) Includes overhead and administrative expenses.
The foregoing represents our best estimate of the allocation of the net proceeds
of the Offering, based upon our current status of operations and anticipated
business plans. It is possible that the application of funds may vary depending
on numerous factors including, but not limited to, changes in the economic
climate or unanticipated complications, delay and expenses. We currently
estimate that the net proceeds from this Offering will be sufficient to meet our
liquidity and working capital requirements for the next 12 months. However,
there can be no assurance that the net proceeds of this Offering will satisfy
our requirements for any particular period of time. Additional financing may be
required to implement our long-term business plan. There can be no assurance
that any such additional financing will be available when needed on terms
acceptable to us, if at all. Pending use of the proceeds of this Offering, we
may make temporary investments in bank certificates of deposit, interest bearing
savings accounts, prime commercial paper, U.S. Government obligations and money
market funds. Any income derived from these short term investments will be used
for working capital. Because we anticipate selling the shares through the
efforts of our officers and directors, the numbers above do not include any
deductions for selling commissions. If broker/dealers are used in the sale of
the shares, up to 13% of any gross proceeds raised in this offering will
probably be payable to one or more NASD registered broker/dealers. In such
event, net proceeds to us will be decreased and the use of proceeds may be
proportionately reallocated in management's sole discretion. There are no
current agreements, arrangements or other understandings in connection with any
of the foregoing.
DIVIDEND POLICY
We have never paid dividends and do not anticipate paying dividends in the
foreseeable future.
<PAGE>15
CAPITALIZATION
The following table sets forth, as of September 30, 1999, the capitalization of
Roex, actual and as adjusted for the issuance and sale of 500,000 and 1,000,000
shares of Common Stock offered hereby at $5.00 per share, after deducting
estimated Offering expenses and underwriting discounts and the initial
application of the proceeds therefrom.
As As
Actual Adjusted(2) Adjusted(3)
---------- ----------- -----------
Long-term Debt . . . . . . . . . . . . . $ 358,115 $ -0- $ -0-
Stockholders' equity Common Stock(no
par value) 15,000,000 shares authorized;
5,288,584 shares issued and outstanding
(actual)(1); 5,788,584 as
adjusted (minimum)(2) and 6,288,584
as adjusted (maximum)(3) . . . . . . . $ 677,687 $ 2,977,687 $5,477,687
Preferred Stock, $.01 par value;
5,000,000 Shares authorized; no
shares issued and outstanding
(actual) as adjusted (3). . . . . . . . 0 0 0
Additional paid-in capital. . . . . . . . $ 35,000 $ 35,000 $ 35,000
Accumulated Deficit . . . . . . . . . . (1,144,766) (1,144,766) (1,144,766)
Stock Receivable. . . . . . . . . . . . (80,000) (80,000) (80,000)
------------ ----------- ----------
Total stockholders' equity (deficit). . (512,009) 1,787,921 4,287,921
Total capitalization (deficit). . . . . $ (153,964) $ 1,787,921 $4,287,921
============ =========== ===========
(1) Excludes the issuance of (i) up to 100,000 shares of Common Stock
issuable pursuant to the Placement Agent's Warrants; and (ii) up to 903,850
shares of Common Stock reserved for issuance under outstanding stock options.
(2) As adjusted to give effect to the issuance of 500,000 shares of Common
Stock offered by the Company hereby at an assumed offering price of $5.00 per
share and the application of the estimated net proceeds therefrom.
(3) As adjusted to give effect to the sale of 1,000,000 shares of Common
Stock offered by the Company hereby at an assumed offering price of $5.00 per
share and the application of the estimated net proceeds therefrom.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
for the nine months ended September 30, 1999 and 1998 and the years ended
December 31, 1998 and 1997 should be read in conjunction with our financial
statements and related notes thereto, and other financial data included
elsewhere in this prospectus.
Results of Operations
Nine month periods ended September 30 1999 and 1998.
Components of revenue and expenses as a percentage of revenue are given in the
following table.
<PAGE>16
<TABLE>
<S> <C> <C> <C> <C>
Nine Months Ended Fiscal Year Ended
September 30 December 31
1999 1998 1998 1997
----- ----- ----- ----
Revenues 100% 100% 100% 100%
Cogs 23% 28% 27% 28%
Gross Profit 77% 72% 73% 72%
Operating Expenses
Payroll 27% 32% 32% 36%
Sales & Marketing 20% 24% 24% 26%
General & Admin. 18% 21% 20% 23%
Other 2% 10% 9% 4%
Net Income (Loss) 10% -15% -12% 17%
</TABLE>
Sales are recognized when products are shipped. For the nine months ended
September 30, 1999, net sales increased to $4,115,068 which is 37% greater than
the same period in 1998. The increase was due to an improved marketing effort to
better establish our brand name, the introduction of new products and an
increase in our loyal steady reordering from our existing customer base.
During the same period our operating margin increased to 77% from 72% because of
greater buying economies, and our operating expenses were reduced to 67% of
sales from 87%, because of greater internal efficiencies. Net income before
taxes rose to $417,212 (10%) from a loss of $437,327 (15%) because of a
combination of increased sales, improved profit margins and operating
efficiencies. This resulted in a profit of $.08 per share compared to a loss of
$.09 for the same period of the prior year.
Monthly sales for the first nine months of 1999 and 1998 are as follows.
1999 1998
---- ----
(In Thousands)
January $ 380 $ 332
February 354 311
March 516 347
April 460 325
May 472 300
June 480 418
July 458 300
August 485 330
September 510 340
------- -------
$4,115 $3,003
Years ended December 31, 1998 and 1997.
For the year ended December 31, 1998, our net sales showed a 30% increase over
1997. Profit margins increased slightly to 73% compared to 72%. Operating
expenses decrease to 85% of sales from 89%. The result was a pretax loss of 12%
of sales compared to 17% the prior year. The per share loss was slightly reduced
to $.10 from $.11.
In summary, our sales and profits have been increasing each period and we have
transitioned from heavy losses to light losses to profits.
<PAGE>17
Current Revenue by Market is as shown below. Total revenues are expected to
increase if the radio shows in Los Angeles and Florida increase in popularity
and as additional cities are added.
New York 70%
Los Angeles 20%
Florida 8%
Other 2%
----
100%
Liquidity and Capital Resources
Nine month period ended September 30 1999
As of September 30, 1999 our current liabilities exceeded our current assets by
$312,448, which was a 17% improvement from December 31, 1998. This improvement
occurred even with an increase of current maturities of notes and loans payable
of $361,473 due to a shift into expiration of the notes in les than 12 months.
The long term portion of notes and loans payable, less current maturities, was
reduced by $392,758, even though $100,000 was borrowed in the last quarter to
help fund this public stock offering. As of September 30, 1999 the total
stockholders' deficit was reduced by 46% to $512,079 compared to December 31,
1998. This reduction was due primarily to net income of $417,212 for the nine
month period.
Our cash as of September 30, 1999 was $151,287, a 180% increase from December
31, 1998. This was due to a $417,212 profit for the nine months, adjusted for
cash used in operations and financing. $231,512 cash was provided by operations,
including depreciation and changes in receivables, inventory and payables, with
the largest single factor being a pay down of $188,595 of trade payables.
$120,748 was used for financing activities (net of $100,000 obtained from
bridge financing agreements), with the major contributors being payments on
loans and capital leases and deferred offering costs.
Year ended December 31, 1998
At December 31, 1998 our current liabilities exceeded our current assets by
$267,223, our accumulated deficit was $1,561,978 and our stockholders' deficit
was $940,541. These negative results were primarily due to the low revenues and
high costs of building revenues to a level where we could achieve the
profitability and growth potential, which was shown for the first nine months of
1999.
For 1998 an operating loss of $463,264 was reduced to a negative $107,434 cash
provided by operations, due mainly to adjustments provided by depreciation, loan
fees and an increase in trade payables. After investing activities, including a
$59,162 private placement, cash was reduced by $85,288 for the year, leaving
$54,307.
We expect to have adequate working capital for the next 12 months, without
proceeds from this offering, mainly from cash flow from operations. Proceeds
from this offering will provide funds for growth and to pay down existing loans.
Year 2000 Compliance
Roex expects to be fully compliant by the end of the year. We are currently in
Y2K compliance with our merchant card processing center. Should any or all of
the applications currently in use fail to perform properly, Roex can switch
temporarily to a manual system without substantial losses in the operation
although our efficiency would be decreased.
<PAGE>18
BUSINESS
Introduction
Our company, Roex, Inc. ("us", "the Company" or "Roex"), was incorporated in
California on October 5, 1994 to develop and market its own line of dietary
supplement products using scientifically based branded ingredients. Our founder
and President, Rodney H. Burreson, has been an athlete and body builder for a
number of years and has experienced a myriad of ailments and injuries resulting
from these activities. He became committed to finding and developing
non-pharmaceutical solutions to improve his own quality of life. Not content
with the then current products and formulas on the market, Mr. Burreson, through
education and research, began to develop his own formulas that combined the
highest quality and best ingredients to form more comprehensive products that
would meet his own specific health needs. The Company's first product was the
super antioxidant, called Procyanidin or PC-95, a grape seed extract, which was
first sold in April 1995. Since introducing PC-95, the Company has added
thirteen more dietary supplement products to its product line and is committed
to providing only the highest quality products to meet its customers' specific
health needs. The Company, has grown from under a million dollars of annual
sales to approximately $4 million for the year ended December 31, 1998 and in
excess of $4 million for the first nine months of 1999. Roex remains committed
to providing the highest quality products that will continue to meet its
customers' specific health needs, now and into the next millennium. The Company
currently markets its products primarily through radio programming. Mr. Burreson
appears live on local talk radio shows in New York, Los Angeles and Southern
Florida. The format is half hour and one-hour radio infomercials, with
interactive customer call-ins. We have recently added the Internet as a vehicle
for marketing the Roex products.
Our Industry
The Dietary Supplement Industry has formally been in existence for approximately
80 years. In the 1920's, supplement pioneers began encapsulating whole foods,
specifically vegetables, for the purpose of concentrating their nutrients as
adjuncts to the daily diet. Research had just been completed showing that
vitamins, metabolic components of foods, were key constituents of the healthy
body. Many developing nations used herbs and herbal formulations as standard
recognized "medicines" for treating disease. With the advent of antibiotic
therapy in the 1930's, many of the herbs were removed from the U.S.
Pharmacopoeia and fell into disuse in this country. Vitamin research continued
at a very slow pace due to lack of funding by pharmaceutical companies to
underwrite research as synthesized chemical constituents dominated U.S.
scientific research at that time.
Over time, select health care practitioners began to notice severe problems with
the prescription medications of pharmaceutical manufacturers. Chief among these
problems were (and still are today), toxic levels and methods by which most
synthesized drugs work within the body. Further, astute clinicians began to
notice that while pharmaceuticals were "treating" a disease state, they were
doing nothing to prevent these diseases. Whole food therapy began to be
practiced, based upon many epidemiological studies that illustrated the direct
connection between diet, nutrients and health. Dietary supplement manufacturers
began to concentrate the active ingredients in the whole foods, and thus the
dietary supplement industry was born.
Today, the industry is thriving as never before in its history. According to the
January/February 1997 edition of the Nutrition Business Journal, the dietary
supplement industry is a $46 billion (U.S. dollars) global market. The industry
product is comprised of food supplements which may be broken down into a variety
of categories based on botanical and/or chemical classification of ingredients
or raw materials, such as vitamins, herbs, amino acids, botanicals, metabolites,
etc.
<PAGE>19
This classification brings with it a broad use of ingredients and as such, today
dietary supplements may be found in tablet, capsules, liquid or powdered form
among others, as long as the product meets the definition cited below. This
broadly based interpretation leaves room for a multiplicity of products.
Throughout this document, the term "dietary supplement" will refer to raw
material ingredients classified according to the FDA definition and made
available to the public in the form of tablets and/or capsules.
Because the original purpose of this industry was to focus on prevention of
disease as opposed to therapeutic "cure", and due to the U.S. government
creation of narrowly defined descriptions of "drugs", the benefits of dietary
supplementation in health care has frequently been overlooked in U.S. scientific
research. Only recently has any research been documented in the United States in
contrast to the European community which has long recognized nutritional
therapy, in disease prevention and cure; in fact, today the majority of clinical
research demonstrating the efficacy of nutritional and herbal therapy has come
from Europe, with Germany being the leader in herbal efficacy and scientific
documentation.
Hundreds of companies, big and small, cater to the nutritional supplement
market. Most of them manufacture and distribute using conventional distribution
channels of retail nutritional stores, drug stores or discount stores. Some sell
on the Internet. Some sell via TV or radio infomercials. Some sell through
multilevel marketing. To the best of our knowledge,Roex is the only company that
sells through talk radio with interactive listener phone calls. This method is
very effective in educating our customers and thus building a loyal following
that develops the customer confidence in Roex products because they know that
they can trust the quality and efficacy of our products. This loyalty translates
into greater repeat purchases.
Our Company
Roex products are promoted on radio shows in which health related questions of
the listening audience are answered. Roex maintains a full time telemarketing
department to expedite direct radio induced orders via a toll free "800" number
given out during the radio program. At present, Roex does 29 radio shows per
week broadcasting on 4 radio stations in New York City, Los Angeles, California,
Miami and Tampa, Florida. Roex recently entered multiple managed markets
utilizing third party sales and marketing organizations to sell Roex products to
their established customer bases. To date, these markets include independent
pharmacies, chiropractors and retail food chains. We have recently added the
Internet as a supplemental means of marketing our products.
Our Market
As a result of the Company's advertising methodology, the Company's existing
target market has become the senior citizen group, those individuals from the
age of approximately 55+ years old. Demographics testify to the strength of this
customer base, as at least half of all shoppers over the age of 50 "strongly
agree" that it is important to take a vitamin or mineral supplement every day.
According to Nielsen surveys, seniors spend more on multi-vitamins than any
other demographic group. Demographic data and forecasts anticipate an increasing
number of senior citizens in the immediate future. Roex products address health
concerns for seniors such as osteoporosis, free-radical damage, hypertension,
sleeplessness and suppressed immune function resulting in slowed or impaired
immune response throughout the body. Roex products, while not intended to
diagnose, treat, cure or prevent any disease, are used by our customers to
provide optimal bodily functions, providing incentive for use today and
tomorrow.
The Company's future market will focus on the largest purchasing population of
individuals the United States has ever known: "Baby Boomers". This is a large
new market for Roex to pursue as it has by its very nature, built-in motivators
for enhancing and maintaining health and longevity. The baby boomers not only
<PAGE>20
add to the number of customers, but will add "quality customers" who are capable
and willing to pay for high quality products.
Our Marketing Strategy
Our marketing strategy is built upon creating brand identity with customer
loyalty. Our customers listen to us on the radio and ask questions, hear the
questions of others and the answers of our CEO, Rod Burreson, or one of the
other two experts on our radio shows. We believe customers will continue to buy
our products because of confidence in the product, its effectiveness and its
quality. These loyal customers will accept no substitutes, because of fear of
compromise in these qualities. We now have talk radio shows in four cities and,
as we expand, we will selectively add cites and develop customer bases that are
as loyal as our present customers. To further increase revenues, we will
selectively add products for our existing customers as a result of research and
development. Our radio stations and time slots are carefully chosen because they
appeal to our demographic base, currently affluent senior citizens. When we
expand to the baby boomers we will choose appropriate radio stations and time
slots for their appeal to this group. Expansion of Internet sales will be based
upon continuing to build brand identity and providing quality information on our
web site, as well as quality products.
Roex products are currently available for purchase by consumers directly from
Roex via a toll free "800" line. Calls are handled by Roex's in-house
telemarketing department with computer access to prior ordering patterns. The
telemarketers are assigned specific customers for continuity. They are primarily
compensated by commission. We intend to build further sales by having
telemarketing personnel do outbound calling. We are also adding a web site
ordering capability. Also, we currently have limited direct sales through third
party distributors resale to their established customer bases of retail stores.
Future plans call for television "infomercials" and sales to specialty grocery
and similar stores for resale. The Company has not yet conducted any formal or
scientific marketing studies in the development of these strategies, but will do
so before committing any substantial investment. The marketing strategies
presented here are based upon consumer demand, past success of existing
marketing programs and common industry wide practices, all specialized by the
unique Roex marketing and design approach.
Radio. Roex has a unique way of marketing in that the majority of its sales are
generated by direct sales through radio programming. The Company currently
markets its products almost exclusively through radio programming. The Company's
president and founder, Rodney H. Burreson, appears live on local talk radio
shows in New York, Los Angeles, Miami and Tampa in half-hour and one-hour
infomercial formats. The shows promote Roex's products and listening audiences'
health related questions are answered. We have recently added a second radio
host to help with the heavy load of live programming, and plan to recruit
additional live radio hosts, such as nutritionists or influential health
specialists. All shows are broadcast from the Company's facilities in Irvine,
California live through ISDN telephone lines to the stations. The Company
maintains a full-time telemarketing department to expedite direct radio induced
orders via a toll free "800" number given out during the radio program. At
present, Roex presents 29 radio shows per week, broadcasting on 4 radio stations
in New York, Los Angeles, Miami and Tampa. We plan to add up to 8 selected new
cities and radio stations with proceeds of this offering, which should
substantially increase revenue. Later we plan syndicate the program so as to
reach up to 200 stations via satellite. We are also currently testing 30 and
60-second radio spots in the New York market.
Telemarketing. Roex's database of customers is currently about 30,000 and
growing at the rate of 1,500 per month. Each telemarketer is responsible for his
or her customer list within the database. Telemarketers are frequently able to
up-sell and promote the Company's other products when a customer places an
order. Soon they will also routinely make outbound calls during non-peak hours
and send out newsletters, promotional flyers, gift certificates and new product
information. ACT Software is used to keep track of each telemarketer's calls to
and from new and existing customers. We estimate that approximately 60% of our
<PAGE>21
orders come from reorders from existing customers.
Direct Sales. To supplement its radio and telemarketing sales, the Company
recently started using established distributors to sell Roex products to their
established customer bases of retail stores. This approach requires a much
smaller direct sales organization and serves to create for greater market
exposure in targeted areas.
Television. We believe that a direct response television campaign could be a
cost/effective means of increasing sales. With cable TV we can target well
defined markets whose demographics correspond to our established customer base.
With proceeds from this offering we will engage an experienced TV production
company specializing in direct response television to design and coordinate the
campaign.
Internet Marketing. We have an extensive web site that provides product
information to prospective customers and is being augmented with a library of
pertinent articles about nutritional supplements. It also provides archives of
Roex's radio broadcasts so that customers may listen to broadcasts that they may
have missed. This site also features articles authored by experts within or
associated with the Company. Roex has significant linking arrangements with
other web sites. Roex authors articles for this web site and in return receives
cross link traffic. Roex will soon set up e-commerce on its web site to take
orders and reorders directly for customers. It is expected that the wealth of
nutritional supplement information available at the site will be a confidence
builder to attract some customers who become loyal to the Roex products in a
similar manner to how their loyalty is built through Roex's radio shows. Plans
are also being made to use Extractor-Pro to obtain lists of people sending
e-mails to other nutritional supplement sites and send them Roex invitational
e-mails.
Promotions and newsletters. Roex sends periodic newsletters to its customers
featuring special promotions to educate and to stimulate phone-in orders. It
also features special promotions from time to time, such as awards for free
trips for large orders.
Customer referral program. Customers participate in a referral program where
they earn credits toward their own future nutritional supplement orders based
upon how much product is ordered by new customers who they refer.
Seminars. Part of the Roex marketing strategy is to hold seminars in each city
covered by our radio broadcasts. One of these seminars was held in May 1999 in
New York City. A crowd of over 800 people attended to hear Roex's President, Rod
Burreson, speak about nutritional supplements and answer questions from the
audience. Roex's products are also sold at the seminars. The seminar was
publicized on Roex's local New York radio show. Additional seminars are have
been or will be held in September, October and November, 1999 in Los Angeles,
Miami, Tampa and New York.
Competition
Competitors abound in this industry due to its perceived unregulated status by
the Food and Drug Administration, making it possible for someone to
"manufacture" supplements in their home and market them for sale to the public
through whatever means they may find. While the playing field may be large,
those who are self-regulating and adhere to FDA manufacturing standards referred
to as "Good Manufacturing Practices" or "GMP's" dominate it. To this end, the
mainstream competitors to Roex products primarily consist of Metagenics,
Anabolic Laboratories, Twin Labs, Standard Process, Enzymatic Therapy, Nature's
Plus, Bodyonics, Ltd., Country Life, Nature's Way, PharmaNutrients, Irwin
Naturals, Natrol, Now Foods, Nature's Herbs, Solaray, Solgar, Douglas
Laboratories, Da Vinci Laboratories and Weider Laboratories. All of these major
competitors carry products similar to Roex products in form, function and
manufacturing efficacy.
<PAGE>22
The Company has a unique advantage in competing with this pool of manufacturers
due to its brand identification with a loyal customer base. These customers
continue to buy our products because of confidence in the product, its
effectiveness and its quality. These loyal customers will accept no substitutes,
because of fear of compromise in these qualities.
Our Products
Roex currently has fourteen products, which are classified as "dietary
supplements" by the U.S. Food and Drug Administration, and two other products.
Dietary supplements are defined as "a product intended to supplement the diet
that contains one or more of the following ingredients: a vitamin; a mineral; an
herb or other botanical; an amino acid; a dietary substance for use to
supplement the diet by increasing the total dietary intake; or a concentrate,
metabolite, constituent, extract or combination of any of the previously
mentioned ingredients ... the term dietary supplement means a product that is
labeled as a dietary supplement'. Vitamins and minerals are essential nutrients
that, in general, our bodies cannot manufacture. They are needed for good health
and many vital functions. More than 40 different nutrients are required for
normal growth and maintenance of body tissues. In addition, scientific research
is showing that generous intakes of vitamins, minerals and other nutrients may
play an important role in reducing the risk of various common, chronic disease
conditions such as osteoporosis, cataracts, cancer and heart disease.
Our Current Products:
Procyanidin 95 - (PC-95 A Grape Seed Extract). PC-95 grape seed extract is a
rich source of one of the most beneficial groups of plant phytochemicals
(fi-to-chemicals), and procyanidins (pro-cy-an-i-dins), which exert many health
promoting effects. Studies show the procyanidins found in PC-95 are more potent
in their antioxidant abilities of vitamins C and E, yet these same
phytochernicals provide antioxidant protection for both these vitamins in the
body. Procyanidins were first isolated by Jacques Masquelier, a Ph.D. candidate
at the University of Bordeaux in France in 1950. Research indicates that on a
cellular level, procyanidins are incorporated within the cell membrane,
protecting against both water and fat-soluble free radicals. Free radicals have
been implicated in as many as 60 degenerative diseases. PC- 95, imported
directly from France, can assist in maintaining optimum health without adverse
side effects. Roex Procyanidin 95 pharmaceutical grade, grape seed extract is
patented under US Patent #4,698,360 by Dr. Masquelier.
B-Complex. According to the 15th annual consumer survey published in August of
1997, sponsored by Whole Foods, Inc. (an industry manufacturer) and conducted
through Energy Times Magazine (the largest health food store supported magazine
in the industry), over 88% of respondents purchased a B-complex formula in 1996.
The inclusion of a high-quality vitamin B complex greatly enhances Roex's
product line, as B vitamins are vital to almost every metabolic function within
the body. Management believes this product is essential for Roex to include in
its product line to maintain a competitive edge in the marketplace.
Calcium & Mineral Formula, The Ultimate. The Ultimate Calcium & Mineral Formula
is one of the most comprehensive calcium product on the market today containing
five different forms of absorbable calcium, including high collagen
microcrystalline hydroxyapatite calcium, chelated and transporter-bound minerals
to encourage maximum absorption, trace minerals, silica and vitamin D3 for
absorption and utilization. Clinical studies have shown calcium to be helpful in
building and maintaining healthy bones, hair, skin and nails as well as
assisting with regulation of heartbeat. Regular use of this product may be
helpful in reducing the risk of bone loss in women from puberty to middle age,
in elderly men and women and in those with a family history of bone loss.
Colostrum, Mother's Gift Colostrum contains all four of the key Immunoglobulins:
<PAGE>23
IgM, IgG, IgA and secretary IgA These Immunoglobulins all neutralize bacteria,
viruses, and yeasts. Colostrum contains natural growth factors that are very
important to promote wound healing and tissue repair, increase the breakdown of
fat, and to balance the blood sugar. Studies show bovine Colostrum contains up
to 100 times the mitogenic potency of human Colostrum. Lactoferron also found in
Colostrum has been shown to reduce the damaging effects of free radicals, which
are known to be cancer risk factors. Colostrum may also have certain healing
properties. Capsules can be opened and applied directly to cuts, abrasions, or
irritable skin conditions; and/or applied directly to gums in cases of sensitive
teeth and mouth sores. Roex Mother's Gift comes from New Zealand pasture fed
cows certified to be free of antibiotics and hormones
Ester-C. Ester-C is a superior quality vitamin C, made as the only patented
non-acidic vitamin C available today. This unique product is manufactured under
a natural process that neutralizes the PH making it the same as distilled water
and non-acidic, producing a gentle effect in the system. Clinical studies show
this non-acidic Vitamin C is absorbed into the bloodstream faster, in larger
amounts, and penetrates the white blood cells more efficiently than other types
of vitamin C. Low blood levels of vitamin C have been linked to immune
suppression and bone fragility. Known for its antioxidant and immune stimulating
properties, vitamin C has also been shown to be beneficial in promoting collagen
formation, an essential component of skin and connective tissue as well as
assisting in maintaining the integrity of capillary walls. Ester-C is a
registered trademark of Inter-Cal Corporation, U.S. Patent No. -4,833,816.
Immortale for Men & Immortale For Women. Immortale is a specially designed
formulation of herb and plant extracts, phytochernicals that promote hormonal
balance, lean muscle mass, and enhance sexuality and vitality. The main
ingredient Tribulus terristris, has been used by athletes in Eastern European
countries for its positive effect on the immune system and for assistance in
improving stamina and muscle strength without harmful side effects.
Advanced Men's Formula (Prostate Formula). The Roex Prostate Formula for Men
ingredients are chosen due to there documented nutritional support for a healthy
prostate. Key to this formula is the herb Saw Palmetto, which has been shown to
provide nutritional support for a healthy prostate. To this formula Roex adds
additional supportive ingredients such as Zinc chelate, Pumpkin seed, Pygeum
Africanum extract, Cranberry extract, Stinging Nettle, Echinacea Purpurea,
Lysine HCI (hydrochloride), and Glutamic Acid, as well as Vitamins B6, D and E.
Roex Advanced Prostate Formula for Men is based on the latest scientific
research for optimal prostate health.
Melatonin. Melatonin is a synthetically produced, pharmaceutical grade dietary
supplement formulated to compliment the naturally occurring master Melatonin
hormone secreted from the pineal gland (located in the center of the brain),
which has been shown to assist the body's natural circadian rhythms, or
sleep/wake cycles. Current research indicates that natural melatonin levels peak
in puberty and continue to drop as we age. Roex Melatonin, imported from
Switzerland, supplements the body's natural melatonin and is enhanced with
vitamin B6 to encourage the body's natural production of melatonin. People whose
schedules require re-setting their internal time clocks and those on shift work
may find this product a helpful adjunct to regulating their natural circadian
rhythms in addition to many other health benefits.
MSM (Methylsoulfonylmethane; Natural Dietary Sulphur). Roex MSM, is a dietary
supplement and the fourth most prominent mineral in the body. Studies show that
sulfur is an integral part of many proteins (constituting hair, nails and skin),
hormones and other substances critical to healthy body metabolism. Sulfur is a
vital nutrient in human nutrition, is often overlooked in nutritional therapy.
Sulfur can be found in many fresh fruits, vegetables, grains and dairy products.
Modern food processing and cooking destroy the viability of the sulfur naturally
occurring in foods due to its organically unstable nature.
<PAGE>24
Oleuropein (Olive Leaf Extract). Oleuropein is a natural plant extract, obtained
from specially selected olive tree leaves, imported from the western
Mediterranean. Clinical studies have shown Oleuropein may enhance the body's
immune system and assist the body in enhancing immunity. The most recent
published material on Olive Leaf Extract is a book by Dr. Morton Walker called
"Natures Antibiotic Olive Leaf Extract. With the dawn of exotic new viruses, and
microbes resistant to drugs that have been developed over the past 50 years,
there has been more of a need for alternative therapy. Antibiotics are failing.
With this in mind the excitement of Olive Leaf Extract, (the active ingredient
Oleuropein) is becoming one of the most talked about alternative therapies of
our time.
"WOW"TM is designed to cleanse, purify, strengthen, and tone the entire
gastrointestinal tract. It serves as a natural laxative and bowel toning agent.
The inclusion of Barberry root, Dandelion root and Red Clover has been shown to
be very supportive in cleansing the blood as well as detoxifying and supporting
the function of the liver. Good health begins in the colon. Many times the real
cause of sickness and disease is the retention and reabsorbtion of years of
toxic fecal matter build up.
The Advanced Weight Loss Formulas
CitriGenics l With the recent negative media attention to prescription weight
loss, particularly the negative findings and side affects of the Pharmaceutical
drug combination Phen-Fen, pharmacists, healthcare providers and individuals all
are looking for safe and effective alternatives for weight loss. Roex,
CitriGenics I is an answer. CitriGenics I works as a fat inhibitor and energy
promoter by working at the biochemical level to promote a feeling of satiety
more rapidly. It is formulated with CitriMaxTm (hydroxycitric acid (HCA) from
the Garcina Cambogia fruit), L-Camitine and ChromeMateTm, with a total of 24
different nutrients that hinder fat absorption and stimulate fat burning into
the body. CitriGenics I includes vitaniins A, B, C and E, chromium and mineral
cofactors and enzymes, which work as catalysts assisting with chemical changes
in the body to promote and maintain optimum health and a healthy inunune system.
Thermogenic herbs function at a cellular level to aid the body in utilizing body
fat reserves. Only the highest potency materials are used in the CitriGenicsTm
Formulas. (CitimaxTm and ChromeMateTm are the registered trademarks of
InterHealth Company.)
CitriGenics ll (93% Deacetylated Chitosan). Roex CitriGenics 2 provides dietary
fiber, which assists in inhibiting lipid (fat) absorption. Chitosan, a powdered
granulation of the exoskeleton of marine shellfish (such as crab) has been found
to attract fat molecules prior to digestion and to dispose of them through the
body's waste removal process. Studies indicate 1 mg of Chitosan is able to
absorb 5mg of dietary lipids (fat). CitriGenicsTm 2 is a unique fiber since it
absorbs both fat and water and is completely safe and non-toxic. Fiber is a
necessary dietary ingredient; its most documented metabolic function is to
assist with elimination of waste from the body. Current research has indicated
that most Americans do not consume adequate quantities in their daily diets.
Roex CitriGenics 2 - Chitosan provides a nutritional adjunct to weight loss
programs, when combined with a healthy diet and physical exercise. Only the
highest potency materials are used in the CitriGenices Formulas.
Other Products
VitaMinder. Roex recently became a distributor for The VitaMinder Company
whereby Roex will sell VitaMinder's entire product line. VitaMinder is a
manufacturer of a complete line of tablet cases, stackers, splatters, cutters
and airlock tablet dispensers. VitaMinder has agreed to supply Roex with 25,000
single sheet product descriptions at no charge to Roex to insert into its
January Newsletter to be sent to its entire database list of tablet using
customers. We also plan to promote the sale of these products along with its
supplement products in our radio programming. VitaMinder has agreed to supply us
with an inventory of their entire product line on consignment. Roex will supply
<PAGE>25
VitaMinder with an inventory count every thirty days and will pay for only
actual product shipped at wholesale prices.
Water Distiller. Roex is also a distributor for West Bend Water Systems, an
affiliate of The West Bend Company of West Bend, Wisconsin, to sell through our
marketing channels the entire West Bend Water Systems product line of water
distillers and related products. Distillation of water has proven to be far
superior to any filtration system available on the market today. Distillation is
a natural process. Health advocates prefer distilled water because it is free of
minerals, bacteria and virtually all contaminants. It has also proven to be far
more economical than any filtration system currently available. West Bend's
product line consists of a counter top distiller that will produce one gallon of
pure distilled water every four hours. This unit is designed for family use. In
addition there is a line of three automatic distillers available in three
different sizes, three- gallon, seven-gallon and twelve-gallon.
Future Products
Roex currently plans to add several new products into its line during the next
calendar year. These new products will include a memory enhancement formula, a
digestive enzyme, and a multivitamin. A description of each of these new
products follows:
Memory Mind Formula Roex intends on shortly launching "For Your Mind Only", a
mind/memory enhancement formula providing Ginkgo Biloba for improved vascular
circulation in the brain along with Phosphatidyal Serine, an amino acid
necessary for neuron firing in processing and recognition tasks performed by the
brain. This product directly impacts Roex existing customer base of senior
citizens as both a therapeutic adjunct as well as a preventative supplement, and
assists all other market groups in enhancing mental performance and processing
systems. Current clinical studies have shown the efficacy of treating
memory-loss patients with Ginkgo Biloba and the positive outcomes of said
clinical trials. According to the previously referenced Whole Foods survey, 85%
of respondents purchased Ginkgo Biloba in 1996.
Multivitamin. The final scheduled new product to be introduced to the Roex
product line is the Roex Multivitamin. According to the 1994 Health Focus Trend
Report, 50% of senior shoppers surveyed believe the American diet alone is
inadequate to provide necessary nutrition to prevent degenerative disease and
therefore strongly agree that taking a daily multi-vitamin and mineral
supplement is important. The report further states that according to Nielsen
surveys, " seniors spend more on ... multivitamins than any other demographic
group." By developing a multivitamin, Roex keeps its competitive edge by
continuing to expand the product line with popular industry standard products,
pre-programmed for success by market demand via all sales avenues, and therefore
guaranteed to stimulate sales. Most importantly, this product is purchased by
senior citizens at least 50% of the time they make vitamin purchases, generating
guaranteed launch success for Roex, as the majority of the Company's existing
customer base at this time are what would be considered senior citizens.
Book. The new product arena will include a book on Health, Life Style and
Exercise, authored by our CEO, Rod Burreson. Timing for the book is the second
quarter, year 2000. Much of the content of the Book is already assembled. The
title is "Yesterday, Today and Tomorrow." The theme of the book suggests that
what a person did yesterday in terms of decisions, health, abuse and thought
plays a very significant role in how one feels and looks today. The decisions,
attitude and effort one puts forth today influences how one feels, looks and
functions tomorrow. It will also include a step by step exercise program and
nutritional instruction for people of all capabilities.
Exercise Video. The exercise video, "Staying Alive at 55," will be an action
video with our CEO, Rod Burreson, illustrating the different exercises that he
<PAGE>26
does to maintain his health, physique and peace of mind. The exercise program is
used in conjunction with a nutrition program to help people understand their
body as well as listen to it. The video will indicate that no matter where you
start in terms of health, peace of mind and dexterity, you must start and
continue; then the benefits will be yours. The video will precede the Book and
is scheduled for release during the first quarter of year 2000. Much of the
video has already been completed.
Our Operations
Most orders are received when customers call our "800" number during or after a
radio show. The Telemarketing agent receiving the call has computer access to
our data base by the customer's name, so that he can view the customer's
previous buying pattern. For new customers, the salesperson takes all of their
identification, shipping and billing information, to add the new customer to the
data base. Established customers are assigned to specific sales people for
continuity.
Orders entered into the computer are then checked to verify payment with either
credit charge approval or check clearance. As payments are verified the order is
sent to fulfillment and shipping, electronically. There they are filled by a
product picker and boxed for shipment. The shipping label is automatically
prepared and shipping charge is calculated. This shipping charge is then
verified by scale. When shipping is verified, in whole or in part, appropriate
credit card charges are put through.
The single entry computer system keeps a running inventory and generates
suggested purchase orders at inventory break points. Actual inventory levels
vary with product based upon rate of consumption, order lead times for
ingredients and quantity price break points for new orders. The computer
generated purchase orders are reviewed before the orders are placed. Roex orders
the ingredients and has them delivered to the Food and Drug Administration (FDA)
Good Manufacturing Process (GMP) approved fulfillment house to make the pills or
capsules, bottle them and affix the Roex labels. Finished product is then
shipped to Roex for storage and filling customer orders.
We have a full refund policy, but have experienced less than 1% returns.
Returned items are examined for seal integrity and expiration date before being
returned to inventory.
Our Research and Product Development
We believe that a well-developed and dynamic research and development structure
is an essential component of a company in the nutritional supplement area. Of
vital necessity is the maintenance of a well-developed research library, which
is the backbone of the research and development effort and is required by the
Dietary Supplement Health Education Act ("DSHEA"). To maintain our
competitiveness in the marketplace as well as to stay current with new
scientific research on nutrient therapies and phytomedicine advances, we have
developed and maintain a research library consisting of published research
works, biochemical and botanical research, marketing and competitive analyses,
clinical and scientific research, pharmacopoeias, and regulatory treatises. The
research library also serves as a reference source for the purpose of
formulations, drug and ingredient interaction and perhaps most importantly, as
validation of the efficacy and function of all existing and future Roex
formulations and raw materials. In order to successfully market and sell our
products, it is essential to continually develop and update the research and
product development library.
We do not conduct primary research for the development of new ingredients.
Instead, our research efforts are focused on developing new products in response
to market trends and consumer demands. Our staff also continually reformulates
existing Roex products in response to changes in nationally advertised brand
formulas in order to maintain product comparability. We are, however,
responsible for the formulation and development of each Roex product. Each
<PAGE>27
product that is formulated is researched intensively. In the beginning stages,
research begins with how the raw materials) work biochemically and where the
very best source in the world is for this product, how the product(s) are
marketed and a competitive analysis is done (if possible). Often, our products
are new to the nutritional supplement marketplace, and no competitive analysis
is available. The next stage is to formulate the product. This step is done by
one of our laboratories' biochemists and our staff. We currently use several
pharmaceutical laboratories all of which are high quality laboratories with
excellent reputations in the dietary supplement industry. At the laboratory, the
tablet's exact formulation, size, shape, color, coating, compression, etc. is
decided. Comparative analysis is then done regarding the industry standards (if
any), or possible changes to the industry standards for formulation, size,
shape, color, coating, compression, etc. Lastly, the product formulation is
finalized and the manufacturing phase begins. In the final stage of the
manufacturing process, the tablets are bottled by the laboratory and labeled.
Samples of each product are archived for every batch that is run for quality
control purposes. Throughout the manufacturing process, the product is inspected
to pharmaceutical standards to ensure quality control.
Government Regulation
On January 4, 1994, President Clinton signed into law on behalf of the U.S. Food
& Drug Administration, the "Dietary Supplement Health Education Act' ("DSHEA"),
concerning among other things, the nutritional labeling of dietary supplements.
One of the things that this law has done is to determine exactly what a dietary
supplement is, which is defined as: "A product intended to supplement the diet
by providing a dietary ingredient intended for ingestion in a supplement form
not represented as a sole item of a meal or the diet which is labeled as a
dietary supplement and if it is an approved new drug, it was marketed as a
dietary supplement prior to such approval. If it is an approved new drug or a
drug authorized for investigation for which substantial clinical investigations
have been instituted and the existence of which has been made public, and it was
not marketed as a dietary supplement prior to the approval, it does not qualify
for the definition of nutritional supplement. Also included in the definition of
dietary supplements are vitamins, minerals, herbs, botanicals, amino acids,
dietary substances used by man to supplement the diet by increasing total
dietary intake and concentrates, metabolites, constituents, extracts, or
combination of any of these substances."
"DSHEA" requires that all claims made by a manufacturer in the marketing of
these products conform to language composed in "structure/function" phraseology.
This structure is somewhat limited due to the requirement that no verbiage,
claim or act may suggest the product(s)/ingredient(s) act in any way as to:
diagnose, treat, cure or prevent any disease. All materials including but not
limited to labeling, product literature, oral and verbal sales materials and
presentations etc., are required to conform to these restrictions.
According to DSHEA a "statement of dietary support" may be made about a product
and/or ingredients if:
o the statement claims a benefit related to a classical nutrient deficiency
disease and discloses the prevalence of such disease in the United States,
and/or
o describes the role of the nutrient or dietary ingredient intended to affect
the structure or function in humans o documents the mechanism by which the
nutrient or dietary ingredient acts to maintain such structure or function,
and/or
o describes general well-being from consumption of a nutrient or dietary
ingredient
o the manufacturer of the supplement has substantiation that such statement
is truthful and not misleading
<PAGE>28
o the statement contains prominently displayed and in boldface the following:
"This statement has not been evaluated by the Food and Drug Administration.
This product is not intended to diagnose, treat, cure or prevent any
disease."
DSHEA requires that manufacturers notify the FDA of a nutritional support
statement within 30 days after the first marketing of a supplement with the
dietary support statement. This reporting provision does not permit FDA Premark
approval or require FDA Premark review of the claim(s). At present time, there
is no working definition of "substantiation" for a statement. Once the FDA is
notified that the statement is being made, it can request the substantiation,
and if it disagrees, take legal action where the adequacy of the substantiation
would be determined in court. The industry and FDA interpretation of this rating
is that making such statements without FDA notification is a violation of this
portion of the law.
Further, DSHEA establishes mandatory labeling requirements for dietary
supplements. A supplement will be deemed misbranded:
o if the label or labeling fails to list the name of each ingredient of the
supplement that qualifies as a dietary supplement and the quantity of each
such ingredient; if the product is a proprietary blend it is misbranded if
the total quantity of all ingredients in the blend is not listed;
o the product does not bear a product identity as a "dietary supplement';
o it contains an herb or other botanical as a supplement and fails to
disclose the part of the plant from which the ingredient is derived; and
o if a supplement is covered by compendium (e.g. United States Pharmacopoeia)
specifications and is represented to conform to such specifications, but
fails to do so or; the supplement is not in a compendium and fails to have
the identity and strength it is represented to possess or fails to meet
specifications based on valid assays or other appropriate methods that it
is represented to meet.
Dietary supplement labels must also conform to the requirements that nutrition
information shall:
o first list those dietary ingredients present in the product in a
significant amount and for which an RDI (Recommended Daily Intake) has been
established, followed by other dietary ingredients for which no RDI has
been established and a listing of the quantity per serving of the dietary
supplement (with a statement of source being optional).
The nutrition information must immediately precede ingredient-listing
information, but no ingredient need be listed twice. The law also provides that
a statement of the level of a dietary ingredient in a product for which there is
not an RDI does not result in the product being misbranded.
o Finally, DSHEA addresses new dietary ingredients, i.e. a dietary ingredient
that was not marketed in the United States prior to October 15, 1994. The
law specifically states that a dietary ingredient marketed prior to October
15, 1994 is not a new dietary ingredient. In order to market a new dietary
ingredient without the product being adulterated, the product must:
o contain only dietary ingredients that have been present in the food supply
as an article used for food in a form in which the food has not been
chemically altered (i.e. an ingredient in a "food" that has not previously
been sold as a dietary supplement) or
o there is a history of use or other evidence of safety for the ingredient
when used as recommended and the manufacturer or distributor provides all
relevant information to the FDA 75 days before introducing the product into
interstate commerce. The information is to be kept confidential by the FDA
for a period of 90 days after its receipt, after which time, the
information will be made available to the public. This law also provides a
mechanism for petitioning.
<PAGE>29
Trademarks. Roex is a registered trademark of the Company. In addition, the
names "PC-95", "WOW", "Incite", and "Advanced Men's Formula" are all pending,
with applications having been filed in the U.S. Patent and Trademark Office.
These registrations are being monitored by our regulatory and trademark
attorney.
Licensing Agreements. Roex maintains licensing agreements with a number of raw
material suppliers which allows inclusion of that supplier's trademarked logos
on all marketing materials containing these ingredients. These agreements allow
use of camera ready logos to be displayed on packaging, labels, and collateral
materials, providing instant national recognition to the consumer of high-
quality ingredients within Roex formulations. As an added benefit to Roex,
several of these licensing agreements also provide a financial discount off the
bulk purchase price of raw materials from these suppliers. These agreements are
effective at the time of contract signing and remain in effect throughout the
life of each product.
Our Employees
We currently employ 32 full time employees of whom seven are in management and
administration, 22 sales and marketing and three in warehousing and
distribution. Our employees are not unionized, and we believe our relationship
with our employees is good.
Our Facilities
Our principal offices are located at 2081 Business Center Drive, Suite 185,
Irvine, California 92612, telephone number (714) 476-8675. We lease
approximately 7,400 square feet of space under an operating lease, which
encompasses most operations: administration telemarketing, shipping/receiving,
and inventory control. The annual rent is approximatley $120,000 and the lease
expires February 28, 2001. Shipping and receiving operate in a separate 2,000
square foot facility with lease expiring on the same date as the main facility.
We anticipate that we will require additional office space of approximately
5,000 square feet within the next six months. Office space of this size is
readily available in the proximity of our location.
Legal Proceedings
We are not a party to any legal proceedings.
MANAGEMENT
Executive Officers and Directors
Our officers and directors and their ages are as follows:
<TABLE>
<S> <C> <C> <C>
First Year
Position Elected
Nominees with Company Director Age
- -------- ----------------------- -------- ---
Rodney H. Burreson Chairman of the Board, 1994 66
President and Chief
Executive Officer
Derek Burreson Director, Chief Operating 1999 31
Officer and Secretary
William B. Barnett Director 1998 58
Robert Stuckelman Director 1998 67
Shri K. Mishra, M.D., M.S. Director 1999 57
</TABLE>
<PAGE>30
BUSINESS EXPERIENCE OF DIRECTORS
Rodney H. Burreson is the Founder, Chairman of the Board of Directors, Chief
Executive Officer and President of the Company and has served in those
capacities since its inception in July 1994. Since earning his degree in
business in 1960 from the University of Minnesota, Mr. Burreson has spent his
entire career in sales and marketing in a myriad of industries, including, but
not limited to, insurance, real estate, and financial services. Always
interested in the nutrition/fitness industry, Mr. Burreson, through his radio
talk shows and seminars, has become a recognized name in nutrition and dietary
supplement industries.
Derek Burreson is the Chief Operating Officer and Secretary of Roex and was
elected a director in July 1999. His primary responsibilities include
telemarketing,management information systems, shipping and customer services.
Other responsibilities include media manager (radio and TV) as well as hosting
daily live radio programs. Prior to joining the Company in January 1996, Mr.
Burreson was a registered cta (commodities trading advisor) and broker whose
responsibilities included publishing a monthly newsletter (trend watch),
customer account executive, head of market analysis and daily market
recommendations. Mr. Burreson graduated in 1992 from Cal State San Bernardino
University with a degree in marketing and finance.
William B. Barnett has served as a Director of the Company since September 1998.
Mr. Barnett has been an attorney for over 25 years, specializing in corporate
and securities law and is in private practice in Sherman Oaks, California. Mr.
Barnett formerly taught corporate and securities law in the paralegal program at
California State University at Los Angeles. Mr. Barnett received his L.L.B. from
De Paul University Law School in Chicago, Illinois.
Robert Stuckelman has served as a director of the Company since September 1998.
He founded and served as President of CompuMed, Inc. (a manufacturer and
distributor of medical products), from 1973 to 1982 and from 1989 to 1994. He
has been a director of CompuMed since its inception to the present. From 1982 to
1989 and from 1994 until the present he has been a business consultant to small
companies and large corporations. He has been on the Board of Directors of the
Board of Medical Resources Management, Inc. since 1996 to the present. He holds
a Master's degree in Electrical Engineering from USC and a Bachelor's degree in
Electrical Engineering from Cornell University.
Shri K. Mishra, M.D., M.S. (Administrative Medicine), was appointed a director
in 1999. He has been a practicing neurologist, a teaching professor and a
researcher and administrator as Associate Dean at the USC School of Medicine
since 1987. He is also the coordinator of the Integrative (alternative and
conventional) Medicine program at USC and is a staff neurologist at the
Sepulveda VA Hospital. He has been Medical Director of the VA out patient clinic
in Los Angeles. He is involved at USC on the World Bank AIDS prevention program
in India. He previously served as the Chief of Neurology at the University of
Mississippi Medical Center. He lectures extensively at medical conferences in
the United States, India, and other foreign countries. He received his initial
medical degree from BHU Varanasi, India, in 1964. He subsequently received M.D.
medical degree from the University of Toronto in 1971. He was board certified in
Neurology in 1976, and received his M.S. in Administrative Medicine from the
University of Wisconsin, in Madison, in 1990. He also has a Doctor of Ayurvedic
Medicine from BHU Varanasi, India. He is Chair of Study Section of National
Center for Complementary Alternative Medicine of the National Institute of
Health. He has been involved as a health care consultant for profit and
non-profit organizations.
Election of Directors
Each Director of Roex is elected at the annual meeting of shareholders and holds
office until the next annual meeting of shareholders, or until his or her
successor is elected and qualified. The Bylaws permit the Board of Directors to
<PAGE>31
fill any vacancy and such director may serve until the next annual meeting of
shareholders or until his or her successor is elected or qualified.
Directors' Compensation
Directors who are not employees of Roex are paid $500 per meeting and are
reimbursed for reasonable out-of-pocket expenses incurred in attending meetings.
Directors are also eligible to participate in Roex's 1999 Stock Incentive Plan.
Committees of the Board of Directors
The Board of Directors has appointed a Compensation Committee consisting of
Messrs. Mishra, Barnett and Stuckelman. The Compensation Committee reviews and
evaluates the compensation and benefits of all of Roex's officers, reviews
general policy matters relating to compensation and benefits of Roex's employees
and makes recommendations concerning these matters to the Board of Directors.
The Compensation Committee also administers Roex's stock option plan.
The Board of Directors has also appointed an Audit Committee consisting of
Messrs. R. Burreson, Barnett and Stuckelman. The Audit Committee reviews, with
Roex's independent auditors, the scope and timing of the auditors' services, the
auditors' report on Roex's financial statements following completion of the
auditors' audit, and Roex's internal accounting and financial control policies
and procedures. In addition, the Audit Committee will make annual
recommendations to the Board of Directors for the appointment of independent
auditors for the ensuing year.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Articles of Incorporation, as amended, limit the liability of directors to
the maximum extent permitted by California law. California law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (a) any
breach of their duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemptions or (d) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Our Articles of Incorporation and Bylaws provide that we will indemnify our
directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our Bylaws covers at least negligence and gross
negligence on the part of the indemnified parties. Our Bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether or not California law would permit indemnification.
<PAGE>32
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of Roex pursuant to
the provisions of our charter documents or California law, we have 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.
Executive Compensation
The following table sets forth the compensation earned by Rodney H. Burreson,
Roex's founder and Chief Executive Officer, during the fiscal year ended
December 31, 1998. Mr. Burreson is the only officer of Roex whose salary
exceeded $100,000 for such fiscal year. No bonuses have ever been paid to Mr.
Burreson. Mr. Burreson receives as a salary 6% of the gross sales of Roex, plus
$750/month car allowance.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Long-Term Compensation
Name and Awards All Other
Principal Annual Compensation Securities Underlying Compen-
Position Year Salary($) Bonus($) Other($) Options ation($)
- ------------ ------- ----------- --------- --------- ----------------------- -----------
Rodney H.
Burreson, 1998 $218,168 -0- * -0- ** -0-
Pres. & CEO 1997 207,554 -0- * -0- -0-
1996 61,193 -0- -0- -0- -0-
- --------------------
</TABLE>
* Mr. Burreson receives a car allowance of $750.00 per month.
** No options were granted to Mr. Burreson in 1998. Mr. Burreson did receive
options in 1999. See "1999 Stock Incentive Plan."
1999 Stock Incentive Plan
On May 12, 1999, our Board of Directors approved a 1999 Stock Incentive Plan
(the "1999 Plan"). The purpose of the 1999 Plan is to enable us to recruit and
retain selected officers and other employees by providing equity participation
in Roex to such individuals. Under the 1999 Plan, regular salaried employees,
including directors who are full time employees, may be granted options
exercisable at not less than 100% of the fair value of the share at the date of
grant. The exercise price of any option granted to an optionee who owns stock
possessing more than 10% of the voting power of all classes of stock of the
Company must be 110% of the fair market value of the Common Stock on the date of
grant and the duration may not exceed five years. Since there is no public
market for our shares, the fair market value has been determined from time to
time by the Board of Directors. Options generally become exercisable at a rate
of 33% of the shares subject to option one year after grant. The remaining
shares generally become exercisable ratably over an additional 24 months. The
duration of options may not exceed ten years. Options under the Plan are
nonassignable, except in the case of death and may be exercised only while the
optionee is employed by Roex or, in certain cases, within a specified period
after termination of employment (within three months) or death (within twelve
months). The purchase price and number of shares that may be purchased upon
exercise of options are subject to adjustment in certain cases, including stock
splits, recapitalizations and reorganizations.
The amount of options granted and to whom, are determined by the Compensation
Committee of the Board of Directors at their discretion. There are no specific
criteria, performance formulas or measures.
Under the 1999 Plan, there are 1,000,000 common shares available for grant.
<PAGE>33
The following table sets forth certain information with respect to all qualified
and non-qualified stock options held as of September 30, 1999 by our executive
officers under the 1999 Plan. All options are exercisable at a price equal to
fair market value on date of grant and terminate ten years from date of grant,
or such shorter period as is determined by the Board of Directors.
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of
Shares
Date of Amount of Exercise Expiration Currently
Name Grant Shares Price Date Exercisable
- ------------------- ----------- ------------- ---------- ------------ -------------
Rodney H. Burreson 7/14/99 60,000 $1.65 7/13/04 -0-
7/14/99 90,000 (1) 1.50 7/13/09 90,000
Derek Burreson 7/14/99 60,000 1.50 7/13/09 -0-
7/14/99 40,000 (1) 1.50 7/13/09 40,000
Peter Weber 7/14/99 50,000 1.50 7/13/09 -0-
Dennis M. Watson 7/14/99 50,000 1.50 7/13/09 -0-
William B. Barnett 7/14/99 75,000 (1) 1.50 7/13/09 75,000
8/19/98 25,000 (1) .50 8/18/08 25,000
Robert Stuckelman 7/14/99 75,000 (1) 1.50 7/13/09 75,000
8/19/98 25,000 (1) .50 8/18/08 25,000
Shri K. Mishra 7/14/99 50,000 (1) 1.50 7/13/09 50,000
</TABLE>
(1) Non-qualified stock options.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT(1)
The following table sets forth certain information known to Roex regarding
beneficial ownership of Roex's common stock at October 31, 1999 and as adjusted
to reflect the sale of the shares of common stock in this offering by:
- - each person known by Roex to be the beneficial owner of more than 5% of
Roex's common stock;
- - Roex's Chief Executive Officer, the only executive officer whose salary and
bonus during the fiscal year ended December 31, 1998 exceeded $100,000 for
such fiscal year;
- - each of Roex's directors and executive officers; and
- - all executive officers and directors as a group.
<PAGE>34
<TABLE>
<S> <C> <C> <C> <C>
Percentage of Outstanding
Common Stock
Shares Prior to Offering After Offering
Name and Address Beneficially ------------------ -----------------
of Beneficial Owner Owned (1) Minimum Maximum
- ------------------- --------------- -------- --------
Rodney H. Burreson 2,890,000 54.7 46.8 42.6
2081 Business Center Drive
Suite 185
Irvine, CA 92612
Derek Burreson 90,000 * * *
2081 Business Center Drive
Suite 185
Irvine, CA 92612
Peter Weber -0- * * *
2081 Business Center Drive
Suite 185
Irvine, CA 92612
William B. Barnett 115,000(2) * * *
15233 Ventura Boulevard
Suite 1110
Sherman Oaks, CA 91403
Robert Stuckelman 115,000(3) * * *
2081 Business Center Drive
Suite 185
Irvine, CA 92612
Shri M. Mishra, M.D., M.S 50,000(4) * * *
2081 Business Center Drive
Suite 185
Irvine, CA 92612
Bison Group 698,100 13.2 11.3 10.3
315 Arden Drive
Glendale, CA 91206
All Officers and Directors
as a group (6 in number) 3,260,000 61.7 52.7 48.1
</TABLE>
* Represents less than 1% of issued and outstanding shares.
(1) The information contained in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under
the Exchange Act. All information with respect to the beneficial ownership
of any shareholder has been furnished by such shareholder and, except as
otherwise indicated or pursuant to community property laws, each
shareholder has sole voting and investment power with respect to shares
listed as beneficially owned by such shareholder. Pursuant to the rules of
the Commission, in calculating percentage ownership, each person is deemed
to beneficially own shares subject to options or warrants exercisable
within 60 days of the date of this Prospectus, but shares subject to
options or warrants owned by others (even if exercisable within 60 days)
are deemed not to be outstanding.
(2) Does not include $25,000 of debentures which may be converted into 36,333
shares of common stock.
(3) Does not include $25,000 of debentures which may be converted into 36,333
shares of common stock .
<PAGE>35
(4) Does not include $4,000 of debentures which may be converted into 2,667
shares of common stock.
METHOD OF DISTRIBUTION
We are offering to sell up to 1,000,000 shares of our Common Stock. The Common
Stock will be offered by our officers and directors on a "mini-max basis. If we
are unable to sell at least 500,000 shares of the Common Stock offered hereby,
we will cancel this offering and return all monies collected from subscribers
and held in escrow without interest or deduction. We may retain a Placement
Agent and/or use the services of NASD member broker/dealers to assist us in the
sale of the shares. There are currently no placement agents or brokier/dealers
involved in this offering. We may pay broker/dealers or placement agents fees of
up to 13% of the gross offering proceeds.
The Common Stock will be sold at the price of $5.00 per share. The minimum
number of shares a subscriber is required to purchase in order to subscribe to
the offering hereby will be 100 shares. We reserve the right to withdraw, cancel
or modify the offering hereby and to reject subscriptions, in whole or in part,
for any reason.
DETERMINATION OF OFFERING PRICE
Prior to the offering hereby, there has been no public market for the Common
Stock. The offering price has been arbitrarily determined by the Company and may
not be indicative of the market price for the Common Stock after this offering.
In determining the offering price, the Company considered, among other things,
the earnings of comparable publicly traded nutritional supplement companies and
the trading price of the stock of those companies. The Company makes no
representations as to any objectively determinable value of the Common Stock.
SUBSCRIPTION PROCEDURES
After the registration statement has been declared effective, the Company will
provide to each prospective investor a copy of the final Prospectus relating to
this offering which includes an agreement to purchase shares of the Common Stock
(the "Subscription Agreement"). Completed Subscription Agreements, together with
the appropriate payment for the Common Stock, must be mailed to the Escrow
Agent. See "Summary - How to Purchase Shares." The Company's acceptance of a
subscription shall be evidenced solely by the delivery to the Subscriber of a
written confirmation of sale. Receipt of a Subscription Agreement and/or deposit
with the Escrow Agent for the subscribed shares as described herein shall not
constitute acceptance of a subscription. All subscription payments and executed
Subscription Agreements will be delivered to[BANK], the Escrow Agent. Until the
Initial Closing, the subscription payments will be deposited into an escrow
account established with the Escrow Agent, subject to the Initial Closing on
such escrowed funds once the Company has accepted subscriptions for at least
500,000 shares. After the Initial Closing, subscription proceeds shall be
deposited by the Escrow Agent in a segregated account, subject to subsequent
closings on additional subscriptions received from time to time as determined by
Roex. Roex Agent will process and consider for acceptance all qualified
subscriptions in the order received. Stock certificates will not be issued to
subscribers until such time as good funds related to the purchase of Common
Stock by such subscribers are released from the escrow account to Roex by the
Escrow Agent with respect to the initial closing, or from the segregated
subscription account to Roex, with respect to subsequent closings. Until such
time as stock certificates are issued to the subscribers, the subscribers will
not be considered shareholders of Roex.
<PAGE>36
Subscribers will have no right to a return of their subscription payment held in
the escrow account or the segregated subscription account until Roex decides not
to accept such payment; all interest earned on such funds will belong to Roex.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding a total of 6,288,584
shares of Common Stock, assuming the sale of all of the shares covered by this
offering. Of these shares, the 1,000,000 shares offered hereby will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Act"), unless held by "affiliates" of Roex, as that term
is defined in Rule 144 under the Act ("Rule 144"). The remaining 5,281,084
shares of Common Stock outstanding upon completion of the offering are
"restricted securities" as that term is defined in Rule 144. All of these shares
will be eligible for sale in the public market after the date of this
Prospectus, all under and subject to the restrictions contained in Rule 144.
In addition, we have reserved a total of 220,000 shares of Common Stock for
issuance upon conversion of the outstanding Convertible Notes and 496,350 for
issuance upon exercise of the outstanding Warrants and options. The shares of
Common Stock issuable upon such conversion and exercise will be "restricted
securities" and may be resold upon compliance with the holding period, volume
limitations, manner of sale and other provisions of Rule 144. Generally, the
holding period for the shares issuable on such conversion of Notes will begin
upon purchase of the Notes and the holding period for shares relating to the
Warrants will not begin until the effective date of such exercise.
In general, under Rule 144 as currently in effect, a person (or persons whose
stock is aggregated) who has beneficially owned the stock for at least one year
(including the holding period of any prior owner except an affiliate from whom
such stock was purchased) is entitled to sell in "broker's transactions" or to
market makers, within any three-month period commencing 90 days after the date
of this Prospectus, a number of shares of stock that does not exceed the greater
of (a) one percent of the number of shares of Common Stock then outstanding, or
(b) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the required filing of a Form 144 with respect to such
sale. Sales under Rule 144 are generally subject to the availability of current
public information about Roex. Persons other than affiliates who have
beneficially owned such stock for at least two years are not subject to the
notice, manner of sale, volume or public information requirements and may sell
such shares immediately following the Offering.
Prior to the Offering, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair our ability to
raise capital through the sale of equity securities.
DESCRIPTION OF CAPITAL STOCK
The Amended Articles of Incorporation authorize capital stock consisting of
50,000,000 shares of common stock, no par value, and 5,000,000 shares of
preferred stock, $.01 par value.
Common Stock
As of September 30, 1999, there were 5,288,584 shares of common stock
outstanding that were held of record by approximately 40 shareholders.
Each outstanding share of common stock is entitled to one vote on all matters to
be submitted to a vote of shareholders, except that, upon giving the notice
required by law, shareholders may cumulate their votes in the election of
directors. Holders do not have preemptive rights, so we may issue additional
<PAGE>37
shares that may reduce each holder's voting and financial interest in our
company. The right of holders of our common stock to receive dividends may be
restricted by the terms of any shares of our preferred stock issued in the
future. If we were to liquidate, dissolve, or wind up our affairs, holders of
common stock would share proportionately in our assets that remain after payment
of all of our debts and obligations and after any liquidation payments with
respect to preferred stock.
Preferred Stock
Our board has authority, without further action by the shareholders, to issue up
to 5,000,000 of preferred stock, par value $.01. We can issue shares of
preferred stock in series with such preferences and designations as our board of
directors may determine. Our board can, without shareholder approval, issue
preferred stock with voting, dividend, liquidation, and conversion rights. This
could dilute the voting strength of the holders of common stock and may help our
management impede a takeover or attempted change in control.
Convertible Notes
We have issued in two private placements Convertible Promissory Notes in the
aggregate principal amount of $145,000. All of the Notes have an interest rate
of 12% per annum. $30,000 of the Notes are due and payable on October 4, 2000,
and $115,000 are due and payable on June 30, 2002. Each of the Notes was issued
in exchange for cash.
The Notes issued under both placements may be converted into shares of common
stock at any time prior to maturity. For the Notes issued under the placement
commenced September 1998, the holder may convert the Note into that number of
shares of common stock determined by dividing the face amount of the Note by
$.50. For the Notes issued under the placement commenced June 1999, the holder
may convert the Note into that number of shares of common stock determined by
dividing the face amount of the Note by $1.50. We have reserved for issuance on
conversion of the Notes a total of 220,000 shares of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, 2nd Floor, Glendale, CA 91204; telephone:
(818) 502-1404.
LEGAL MATTERS
The legality of our securities offered will be passed on for Roex by the Law
Offices of William B. Barnett, 15233 Ventura Boulevard, Suite 1110, Sherman
Oaks, California 91403. Mr. Barnett is a Director of the Company and owns 15,000
shares of the Company's common stock. He is also owed $25,000 by the Company and
holds a convertible debenture for this amount.
EXPERTS
The audited financial statements of Roex included in this Prospectus and
elsewhere in the Registration Statement have been audited by Stonefield,
Josephson, Inc., independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance given upon their
authority of said firm as experts in accounting and auditing.
<PAGE>38
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2 relating to the shares covered by this offering. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. For further information with respect to
Roex and the shares offered hereby, reference is made to such Registration
Statement and such exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. For
further information with respect to Roex and the shares, reference is made to
the Registration Statement and the exhibits and schedules thereto. You may read
any document we file with the Commission at its public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information about the public reference
rooms. Our filings with the Commission also are available to the public from the
Commission's Web site at http://www.sec.gov.
After the completion of this Offering, we will be subject to the information and
periodic reporting requirements of the Securities Exchange Act of 1934, and in
accordance therewith will file periodic reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected or copied at the Commission's public reference
rooms and through the Commission's Web site (http://www.sec.gov).
<PAGE>39
ROEX, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
CONTENTS
Page
------
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Deficit 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-14
<PAGE>1
INDEPENDENT AUDITORS' REPORT
Board of Directors
Roex, Inc.
Irvine, California
We have audited the accompanying balance sheet of Roex, Inc. as of December 31,
1998, and the related statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 1998 and 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 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 financial position of Roex, Inc. as of December 31,
1998, and the results of its operations and its cash flows for the years ended
December 31, 1998 and 1997, in conformity with generally accepted accounting
principles.
CERTIFIED PUBLIC ACCOUNTANTS
Newport Beach, California
April 27, 1999, except for Note 6 as to which
the date is August 31, 1999
<PAGE>2
ROEX, INC.
BALANCE SHEETS
<TABLE>
<S> <C> <C>
ASSETS September 30, December 31,
1999 1998
--------------- --------------
(unaudited)
Current assets:
Cash $ 151,287 $ 54,307
Accounts receivable, net 5,827 3,737
Loans to officer-stockholder 29,152 29,152
Inventory 224,035 200,576
Prepaid expense 11,778 3,114
--------------- --------------
Total current assets 422,079 290,886
--------------- --------------
Property and equipment, net of
accumulated depreciation and amortization 100,544 80,945
--------------- --------------
Other assets:
Deposits 14,623 11,351
Deferred offering costs 91,377 -
Total other assets 106,000 11,351
--------------- --------------
$ 628,623 $ 383,182
=============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 191,626 $ 380,221
Current maturities of obligations under capitalized leases 22,790 19,250
Current maturities of notes and loans payable 520,111 158,638
--------------- --------------
Total current liabilities 734,527 558,109
--------------- --------------
Obligations under capitalized leases,
less current maturities 48,060 14,741
--------------- --------------
Notes and loan payable, less current maturities 358,115 750,873
--------------- --------------
Stockholders' deficit:
Common stock; no par value, 15,000,000 shares
authorized, 5,281,084 shares issued and outstanding 677,687 666,437
Additional paid-in capital 35,000 35,000
Stock receivable (80,000) (80,000)
Accumulated deficit (1,144,766) (1,561,978)
--------------- --------------
Total stockholders' deficit (512,079) (940,541)
--------------- --------------
$ 628,623 $ 383,182
=============== ==============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>3
ROEX, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine months ended Nine months ended
September 30, 1999 September 30, 1998 Year ended Year ended
(unaudited) (unaudited) December 31, 1998 December 31, 1997
Amount Percent Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- ------- ------------ -------
Net sales $ 4,115,068 100.0% $ 3,002,886 100.0% $ 3,934,910 100.0% $ 3,023,518 100.0%
Cost of sales 939,962 22.8 851,546 28.4 1,070,590 27.2 839,474 27.8
----------- ------- ----------- ------- ----------- ------- ------------ -------
Gross profit 3,175,106 77.2 2,151,340 71.6 2,864,320 72.8 2,184,044 72.2
----------- ------- ----------- ------- ----------- ------- ------------ -------
Operating expenses:
Payroll expenses,
including payroll
taxes 1,121,457 27.3 966,576 32.2 1,273,716 32.4 1,080,212 35.7
Sales and marketing 827,007 20.1 714,317 23.8 936,764 23.8 804,490 26.6
General and
administrative 717,791 17.4 608,323 20.2 772,901 19.7 692,905 22.9
Debt restructuring
and loan fees - 220,775 7.4 229,775 5.8 -
Interest 90,839 2.2 77,876 2.6 113,628 2.9 117,484 3.9
----------- ------- ----------- ------- ----------- ------- ------------ -------
2,757,094 67.0 2,587,867 86.2 3,326,784 84.6 2,695,091 89.1
----------- ------- ----------- ------- ----------- ------- ------------ -------
Net income (loss)
before provision
for income taxes 418,012 10.2 (436,527) (14.6) (462,464) (11.8) (511,047) (16.9)
Provision for income
taxes 800 800 800 800
----------- ------- ----------- ------- ----------- ------- ------------ -------
Net income (loss) $ 417,212 10.2% $ (437,327) (14.6)% $ (463,264) (11.8)% $ (511,847) (16.9)%
=========== ======= =========== ======= =========== ======== ============ =======
Net income (loss) per
share -
Basic and diluted $ 0.08 $ (0.09) $ (0.10) $ (0.11)
=========== =========== =========== ============
Weighted average common
equivalent shares
outstanding -
Basic and diluted 5,288,201 4,686,059 4,826,870 4,536,233
=========== =========== =========== ============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>4
ROEX, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common stock Additional Total
--------------------------- Stock paid-in Accumulated stockholders'
Shares Amount receivable capital deficit deficit
---------- ---------- ------------ ----------- -------------- ---------------
Balance at January 1, 1997 4,475,000 $ 393,750 $ (50,000) $ $ (586,867) $ (243,117)
Issuance of common stock 200,000 40,000 (40,000)
Net loss for the year ended
December 31, 1997 (511,847) (511,847)
---------- ---------- ------------ ----------- -------------- ---------------
Balance at December 31, 1997 4,675,000 433,750 (90,000) (1,098,714) (754,964)
Common stock surrendered (50,000) (10,000) 10,000
Issuance of common stock from
private placement offering 44,334 59,162 59,162
Issuance of common stock related
to debt restructuring and loan
fees 611,750 183,525 183,525
Issuance of common stock options
related to debt restructuring 35,000 35,000
Net loss for the year ended
December 31, 1998 (463,264) (463,264)
---------- ---------- ------------ ----------- -------------- ---------------
Balance at December 31, 1998 5,281,084 666,437 (80,000) 35,000 (1,561,978) (940,541)
Issuance of common stock from
private placement offering 7,500 11,250 11,250
Net income for the nine months
ended September 30, 1999
(unaudited) 417,212 417,212
---------- ---------- ------------ ----------- -------------- ---------------
Balance at September 30, 1999
(unaudited) 5,288,584 $ 677,687 $ (80,000) $ 35,000 $(1,144,766) $ (512,079)
=========== =========== =========== ============ ============ ===============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>5
ROEX, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C> <C> <C>
Nine months ended Year ended
----------------------------- ------------------------------
September 30, September 30, December December
1999 1998 1998 1997
-------------- ------------- -------------- -------------
(unaudited) (unaudited)
Cash flows provided by (used for)
operating activities:
Net income (loss) $ 417,212 $ (437,326) $ (463,264) $ (511,847)
-------------- ------------- --------------- ------------
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Allowance for doubtful accounts - - 4,950 -
Depreciation and amortization 40,400 41,169 62,187 48,263
Loan fees related to debt restructuring - 220,775 218,525 -
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (2,089) (20,468) (3,548) (5,139)
Inventory (23,459) (4,989) 11,206 (76,566)
Prepaid expenses (8,665) 9,092 6,770 (9,884)
Other assets (3,272) (10,197) (10,473) 16,237
Increase (decrease) in liabilities -
accounts payable and accrued expenses (188,595) 157,965 66,213 240,653
-------------- ------------- --------------- ------------
Total adjustments (185,680) 393,347 355,830 213,564
-------------- ------------- --------------- ------------
Net cash provided by (used for)
operating activities 231,532 (43,979) (107,434) (298,283)
-------------- ------------- --------------- ------------
Cash flows used for investing activities -
payments to acquire property and equipment (13,804) (5,931) (5,352) (27,170)
-------------- ------------- --------------- ------------
Cash flows provided by (used for)
financing activities:
Advances to officer-stockholder - (1,892) (1,892) (31,667)
Payments on notes and loan payable, other (131,286) (131,169) (14,580) -
Proceeds from notes and loan payable, other 100,000 100,000 - 501,530
Deferred offering costs (91,377) - - -
Payments on obligation under capital leases (9,335) (13,045) (15,192) (39,093)
Proceeds from private placement, net of
offering costs 11,250 - 59,162 -
-------------- ------------- --------------- ------------
Net cash provided by (used for)
financing activities (120,748) (46,106) 27,498 430,770
-------------- ------------- --------------- ------------
Net increase (decrease) in cash 96,980 (96,016) (85,288) 105,317
Cash and cash equivalents, beginning of year 54,307 139,595 139,595 34,278
-------------- ------------- --------------- ------------
Cash and cash equivalents,
end of year and/or period $ 151,287 $ 43,579 $ 54,307 $ 139,595
============== ============= ============== ============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>6
ROEX, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C> <C> <C> <C>
Nine months ended Year ended
------------------------------ ----------------------------
September 30, September 30, December December
1999 1998 1998 1997
-------------- ------------- ------------- -------------
(unaudited) (unaudited)
Supplemental disclosure of cash flow
information:
Interest paid $ 90,839 $ 77,876 $ 113,628 $ 117,484
============== ============ ============== ============
Income taxes paid $ 800 $ 800 $ 800 $ 800
============== ============ ============== ============
Supplemental disclosure of non-cash
investing and financing activities:
Issuance of common stock related to
debt restructure $ - $ 174,525 $ 183,525 $ -
============== ============ ============== ============
Issuance of common stock options
related to debt restructure $ - $ 35,000 $ 35,000 $ -
============== ============ ============== ============
Cancellation of stocks in exchange for
elimination of receivable $ - $ 10,000 $ 10,000 $ -
============== ============ ============== ============
Property and equipment acquired under
capital lease $ 46,194 $ - $ - $ -
============== ============ ============== ============
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
<PAGE>7
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(1) Summary of Significant Accounting Policies:
General:
Roex, Inc. ("the Company") was incorporated in the State of
California on October 5, 1994 as a C corporation.
Business Activity:
The Company retails nutritional supplements to the general
public through radio advertising and telemarketing.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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 results
could differ from those estimates.
Cash:
Equivalents
For purposes of the statement of cash flows, cash
equivalents include all highly liquid debt instruments with
original maturities of three months or less which are not
securing any corporate obligations.
Concentration
The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts.
Income Taxes:
The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes," which adopts the asset and liability approach
to measurement of temporary differences between financial
reporting and income tax return reporting. The principal
temporary difference is the net operating loss carryforward
of approximately $1,400,000 at December 31, 1998. A deferred
asset has been provided and completely offset by a valuation
allowance, because its utilization does not appear to be
reasonably assured.
The Company is liable for and has provided for corporate
state taxes.
See accompanying independent auditors' report.
<PAGE>8
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
(1) Summary of Significant Accounting Policies, Continued:
Net Loss Per Share:
The Company has adopted Statement of Financial Accounting
Standard No. 128, Earnings per Share, which is effective for
amended and interim periods beginning after December 15,
1997.
Basic and diluted net loss per share have been calculated
based upon the weighted average number of common shares
outstanding during the period. Common stock equivalents,
consisting of outstanding common stock options, are not
included since they either reduce loss per share, or for the
period ended September 30, 1999 (unaudited) are immaterial.
New Accounting Pronouncements:
The Company has adopted Statements of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" and No.
133 "Accounting for Derivative Instruments and Hedging
Activities." The Company also adopted Statement of Position
No. 98-5 "Reporting on the Costs of Start-up Activities."
Adoption of these activities did not materially affect the
financial statements.
Interim Financial Statements (Unaudited):
The accompanying unaudited condensed financial statements
for the interim periods ended September 30, 1999 and 1998
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-QSB and Regulation S-B.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1999.
(2) Loans to Officer-Stockholder:
Loans to officer-stockholder are due on demand, non-interest bearing
and unsecured.
See accompanying independent auditors' report.
<PAGE>9
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
(3) Inventory:
Inventory is comprised of the following:
<TABLE>
<S> <C> <C>
September 30, December 31,
1999 1998
(unaudited)
Finished goods $ 192,175 $ 175,890
Labels and packaging 31,860 24,686
-------------- --------------
$ 224,035 $ 200,576
============== ==============
(4) Property and Equipment:
Property and equipment is comprised of the following:
Computer equipment and software $ 165,972
Office furniture and equipment 35,786
Vehicle 24,778
Leasehold improvements 4,003
--------------
230,539
Less accumulated depreciation and amortization 149,594
--------------
$ 80,945
==============
</TABLE>
Total depreciation and amortization expense for the years ended
December 31, 1998 and 1997 amounted to $62,187 and $48,263,
respectively.
(5) Major Vendor:
Purchases from three vendors amounted to approximately $648,000 for
the year ended December 31, 1998 representing approximately 60% of
total purchases. Included in accounts payable and accrued expenses at
December 31, 1998 is approximately $98,000 due to these vendors.
Purchases from four vendors amounted to approximately $614,000 for the
year ended December 31, 1997 representing approximately 76% of total
purchases.
See accompanying independent auditors' report.
<PAGE>10
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C>
(6) Notes and Loans Payable:
Notes and loans payable is comprised of the following:
Note payable to stockholder, secured by all assets of the
Company and the personal guarantee of the principal- stockholder,
with monthly payments of $16,697 including principal and interest at
13.25% per annum through November 1, 2001. $ 482,550
Notes payable, unsecured, principal originally due at various times
starting December 1, 1999 through January 27, 2000, bearing interest
at 12.0% per annum and payable monthly. As of August 31, 1999, the
due dates were extended to September 30, 2000. 200,000
Notes payable unsecured, payable on demand with interest ranging from
12.0% to 16.0% per annum, payable monthly, convertible
into 437,500 shares of common stock. 87,500
Note payable, bank, secured by all assets of the Company, with annual
principal payments of $20,000 through August 5, 2001,
interest due monthly at 13.25% per annum. 60,000
Notes payable to stockholders/directors, unsecured, due on October 14,
2000 with interest at 12.0% per annum, convertible
into 60,000 shares of common stock. 30,000
Note payable, related party, unsecured, payable on demand with
interest at 12.0%. 30,000
Loan payable, other, secured by related vehicle, bearing interest at
9.0% per annum, payable in monthly installments of $635, including
interest, due November 27, 2001. 19,461
---------------
909,511
Less current maturities 158,638
---------------
$ 750,873
===============
</TABLE>
The note payable, related party in the amount of $30,000 requires the
Company to pay $0.50 per bottle of a certain product sold or $300 per
month (interest at 12%), whichever is greater through December 2000.
See accompanying independent auditors' report.
<PAGE>11
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
(6) Notes and Loans Payable, Continued:
In September 1998, the Company restructured its debt obligation to a
current stockholder. Pursuant to this debt restructuring agreement, an
additional $100,000 was loaned to the Company for working capital. The
payment terms were extended through November 1, 2001 and the interest
rate was increased from 12.5% to 13.25%. In addition, the Company
issued 581,750 shares of its common stock valued at $0.30 per share,
paid a $11,250 loan fee and granted 116,350 common stock options with
an exercise price of $0.50 per share (see Note 9). These options may
be exercised at anytime during the period which expires on the fourth
anniversary from the date the Company becomes a publicly traded
company. The Company has recorded $229,775 in debt restructuring and
loan fees in the accompanying statement of operations related to this
transaction.
In October 1998, two directors loaned the Company $30,000 ($15,000
each) for working capital. These notes bear interest at 12.0% per
annum and are due on October 14, 2000. As part of this transaction,
the Company issued these directors a total of 30,000 shares valued at
$0.30 per share, which is recorded as debt restructuring and loan fees
in the accompanying statement of operations.
The following table summarizes the aggregate maturities of the notes
and loan payable as of December 31, 1998:
Year ending December 31,
1999 $ 158,638
2000 552,138
2001 198,735
--------------
$ 909,511
==============
Total interest expense for the years ended December 31, 1998 and 1997,
including interest on obligations under capital leases, amounted to
$113,628 and $117,484, respectively.
Bridge Financing (Unaudited)
During July 1999, the Company issued 12% subordinated convertible notes
in the amount of $100,000, which are included in notes and loans
payable as non-current. These notes are due on June 30, 2002, are
unsecured, and interest is payable at the end of each quarter. These
notes may be converted at any time prior to the due date into common
stock shares of the Company at the conversion rate of $1.50 of debt for
one common stock share.
See accompanying independent auditors' report.
<PAGE>12
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
(7) Obligations Under Capitalized Leases:
The Company leases office and computer equipment from unrelated parties
under capital leases which are secured by related assets costing
$143,117. The following is a schedule by year of future minimum lease
payments required under capital leases together with the present value
of the net minimum lease payments as of December 31, 1998:
Year ending December 31,
1999 $ 23,903
2000 12,225
2001 8,499
--------------
Total minimum lease payments 44,627
Less amounts representing interest 10,636
Present value of net minimum lease payments 33,991
Less current maturities 19,250
--------------
$ 14,741
==============
(8) Commitments, Contingencies and Other:
Lease Proceedings
The Company is involved in various routine legal proceedings incidental
to the conduct of its normal business operations. The Company's
management believes that none of these legal proceedings will have a
material adverse impact on the financial condition or results of
operations of the Company.
Operating Leases
The Company leases its warehouse and office space under two
non-renewable operating leases, which expire on February 28, 2001.
Pursuant to these lease agreements, the Company is also responsible for
maintaining certain minimum insurance requirements and for its
proportionate share (approximately 15%) of common area expenses.
The following is a schedule by years of future minimum rental payments
required under operating leases that have noncancellable lease terms in
excess of one year as of December 31, 1998:
<TABLE>
<S> <C> <C> <C>
Warehouse and
office space Equipment Total
--------------- ------------- ---------------
Year ending December 31,
1999 $ 120,833 $ 23,980 $ 144,813
2000 120,833 23,980 144,813
2001 20,139 11,990 32,129
--------------- ------------- ---------------
$ 261,805 $ 59,950 $ 321,755
=============== ============= ===============
</TABLE>
See accompanying independent auditors' report.
<PAGE>13
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
(8) Commitments, Contingencies and Other, Continued:
Operating Leases, Continued
Total rent expense amounted to $127,841 and $75,697 for the years ended
December 31, 1998 and 1997.
Royalty Agreement, Related Party
The Company is party to a royalty agreement with a minority
stockholder, which requires the payment of a minimum royalty of $0.50
per bottle of a particular product sold. The agreement expires in
November 2003. Total royalty expense for the years ended December 31,
1998 and 1997 paid to this stockholder amounted to $19,027 and $15,238,
respectively.
Advertising
Advertising costs, consisting primarily of radio advertising, are
expensed when incurred, which amounted to approximately $794,000 and
$641,000 for the years ended December 31, 1998 and 1997, respectively.
Principal Stockholder-Officer Compensation
Effective November 1998, the Board of Directors of the Company approved
the compensation of the principal stockholder-officer at 6% of net
sales payable monthly.
(9) Common Stock:
On November 18, 1998, the Company initiated a private placement
offering (the "Private Placement") of 666,667 shares of the Company's
common stock at an offering price of $1.50 per share. The Private
Placement was exempt from the registration provisions of the Securities
and Exchange Commission Act of 1933 and Rule 504 of Regulation D. As of
December 31, 1998, net proceeds amounted to $59,162, which is net of
related offering costs of $7,339, from the issuance of 44,334 shares of
its common stock.
The Company has adopted an incentive Stock Option Plan (the "1999
Plan") that provides for granting of options to acquire common stock
of the Company ("Options"). Options under the Plan may be issued to
directors, executives, key employees and consultants providing
valuable services to the Company. A maximum of 1,000,000 shares of the
Company's common stock maybe issued under the Plan. The Board of
Directors administers the Plan, selects recipients to whom options are
granted and determines the number of shares to be granted. Options
granted under the Plan are exercisable at a price determined by the
Board of Directors at the time of grant, but in no event less than
fair market value. As of December 31, 1998, no options had been
granted under this Plan (see Note 6).
See accompanying independent auditors' report.
<PAGE>14
ROEX, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
(9) Common Stock, Continued:
Pursuant to a debt and debt-restructuring agreement with a current
stockholder (See Note 6), the Company granted 116,350 common stock
options with an average exercise price of $0.50 per option as an
incentive to re-negotiate. The Company also granted 50,000 common
stock options to two of its directors at an exercise price of $0.50
per share.
The number and weighted average exercise prices of options granted for
the years ended December 31, 1998 and 1997 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997
------------------------------- ---------------------------
Average Average
Exercise Exercise
Number Price Number Price
--------- ----------- --------- ----------
Outstanding at beginning of the year 581,750 $ 0.50 - $ -
Outstanding at end of the year 166,350 0.50 581,750 0.50
Exercisable at end of the year 166,350 0.50 - -
Granted during the year 166,350 0.50 581,750 0.50
Exercised during the year - - - -
Cancelled during the year 581,750 0.50 - -
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the fair market value of the
underlying stock on the date of grant, no compensation expense is
recognized.
Proforma information regarding net income and earnings per share, if
the Company had accounted for its employee stock options under the fair
value method of FASB Statement No. 123 has not been presented as the
amounts are immaterial.
See accompanying independent auditors' report.
<PAGE>ii-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 204(a)(10) of the California General Corporation Law (the "GCL")
permits corporations to eliminate the liability of a Director to the corporation
or its stockholders for monetary damages for breach of the Director's fiduciary
duty of care. Our Articles of Incorporation include such a provision eliminating
the liability of Directors to the fullest extent permissible under California
law. Under the GCL directors will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (a) any
breach of their duty of loyalty to the corporation or its stockholders, (b) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) unlawful payments of dividends or unlawful stock
repurchases or redemptions or (d) any transaction from which the director
derived an improper personal benefit. Such limitation of liability does not
apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Our Articles of Incorporation and Bylaws provide that we will indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our Bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether or not California law would permit indemnification.
We are not obligated to indemnify the indemnitee with respect to (a) acts,
omissions or transactions from which the indemnitee may not be relieved of
liability under applicable law, (b) claims initiated or brought voluntarily by
the indemnitee and not by way of defense, except in certain situations, (c)
proceedings instituted by the indemnitee to enforce the Indemnification
Agreements which are not made in good faith or are frivolous, or (d) violations
of Section 16(b) of the Securities Exchange Act of 1934 or any similar statute.
<PAGE>ii-2
While not requiring the maintenance of directors' and officers' liability
insurance, if there is such insurance, the indemnitee must be provided with the
maximum coverage afforded to Directors, officers, key employees, agents or
fiduciaries if indemnitee is a Director, officer, key employee, agent or
fiduciary, respectively. Any award of indemnification to an agent would come
directly from our assets, thereby affecting a stockholder's investment.
These indemnification provisions may be broad enough to permit indemnification
of our officers and Directors for liabilities (including reimbursement of
expenses) arising under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by the
Registrant, are as follows:
SEC Filing Fee $ 1,475
Nasdaq Listing Fees
NASD Filing Fee
Printing Expenses
Accounting Fees and Expenses
Legal Fees and Expenses
Blue Sky Fees and Expenses
Registrar and Transfer Agent Fees
Miscellaneous
Total
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
NOTES AND LOANS PAYABLE. On December 31, 1996, Roex issued promissory notes
("Notes") in the amount of $100,000 each to two non-related parties. The Notes
were due December 31, 1999 and carried interest of 12% per annum. On August 31,
1999, the two holders of the Notes agreed to extend the due date of the Notes to
September 30, 2000.
In January 1998, Roex borrowed $30,000 from Prostate, Ltd., a limited
partnership comprised of three non-affiliated limited partners. The borrowing is
evidenced by a demand promissory note with interest at 12% per annum.
In September 1998, we restructured our debt obligation to a current stockholder.
Pursuant to this debt restructuring agreement, an additional $100,000 was loaned
to us for working capital. The payment terms were extended through November 1,
2001, and the interest rate was increased from 12.5% to 13.25%. In addition, we
issued 581,750 shares of our Common Stock, valued at $0.30 per share, paid an
$11,250 loan fee and granted 116,350 Common Stock options with an exercise price
of $0.50 per share to the lender. These options may be exercised at any time
during the period which expires on the fourth anniversary from the date we
become a publicly traded company.
<PAGE>ii-3
In October 1998, two of our directors loaned us an aggregate of $30,000,
evidenced by convertible subordinated promissory notes with interest at 12% per
annum (the "Notes"). The Notes are due on October 4, 2000. The holders of the
Notes may convert the Notes into 60,000 shares of Roex Common Stock at any time
prior to October 4, 2000. In connection with this loan, Roex issued 30,000
shares valued at $0.30 per share to the two directors.
Between December 1998 and January 1999, we sold 51,834 shares of our Common
Stock at $1.50 per share (or an aggregate of $86,751) to 27 persons. The sales
were made pursuant to a private placement and were sold by the officers and
directors of Roex. No commissions were paid for sales of stock.
Between July and November 1999, pursuant to a private placement, we issued
Convertible Promissory Notes (the "Notes") to 11 people in the aggregate amount
of $165,000. The notes have interest rates of 12% per annum and are convertible
into shares of Common Stock at $1.50 per share at any time prior to the due date
of June 30, 2002.
No commissions were paid for the sale of the Notes.
Roex's issuance of all of the foregoing securities were effected in transactions
exempt from registration under section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder.
ITEM 27. EXHIBITS.
The following Exhibits are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B:
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
Charter Documents
3 3.1 Articles of Incorporation
3.2 Bylaws
4 Instruments defining rights of holders
4.1 Form of Convertible Promissory Note issued October 1998
4.2 Form of Convertible Promissory Note issued between
July and October, 1999
4.3 Subscription Agreement for this Offering
5 Opinion of Law Offices of William B. Barnett*
10 Material Contracts
10.1 Escrow Agreement with _________________ applicable
to this Offering*
10.2 1999 Stock Incentive Plan
10.3 Loan Restructure Agreement with Bison Development Fund,
L.P.
10.4 Stock Option granted to Bison Development Fund, L.P.
<PAGE>ii-4
23 Consents of Experts and Counsel
23.1 Consent of Law Offices of William B. Barnett (filed as
part of Exhibit 5 hereto)*
23.2 Consent of Stonefield, Josephson, Inc.
* To be filed by amendment
ITEM 28. UNDERTAKINGS.
The undersigned registrant undertakes:
(1) To provide at the initial closing and each subsequent interim
closing of this offering stock certificates in such denominations and registered
in such names so as to permit our prompt delivery of the certificates to the
investors participating in such closing.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectusany facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
information statement;
(iii)to include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
<PAGE>ii-5
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>ii-6
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 for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on November ___, 1999.
ROEX, INC.
By: /s/ RODNEY H. BURRESON
------------------------------------------
Rodney H. Burreson, Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rodney H. Burreson, Derek Burreson and each of
them, such person's true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments, exhibits thereto, and other documents in
connection therewith to this Registration Statement and any subsequent
registration statement filed by the Registrant pursuant to Rule 462(b) of the
Securities Act, which relates to this Registration Statement) and to file the
same with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or any of them,
or their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
<PAGE>ii-7
NAME TITLE
DATE
/s/ RODNEY H. BURRESON Chairman of the Board and Chief Executive Officer
- ----------------------
Rodney H. Burreson
November ___, 1999
/s/ DEREK BURRESON Chief Operating Officer, Secretary and Director
- ----------------------
Derek Burreson
November ___, 1999
/s/ PETER WEBER Chief Financial Officer (Principal Financial and
- --------------------- Accounting Officer)
Peter Weber
November ___, 1999
/s/ ROBERT STUCKELMAN
- ---------------------------- Director
Robert Stuckelman
November ___, 1999
/s/ WILLIAM B. BARNETT
- ---------------------------- Director
William B. Barnett
November ___, 1999
/s/ SHRI K. MISHRA
- -------------------------- Director
Shri K. Mishra, M.D., M.S.
November ___, 1999
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
ROEX, INC.
I.
The name of this corporation is ROEX, INC.
II.
The purpose of this corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
The name and address in the State of California of this corporation's initial
agent for service of process is: William M. McCarty, 3067 Fifth Avenue, San
Diego, CA 92103.
IV.
This corporation is authorized to issue only one class of shares of stock; and
the total number of shares which this corporation is authorized to issue is
25,000.
/s/ LEWIS E. LAUGHLIN
-------------------------------
Lewis E. Laughlin, Incorporator
1914138
ENDORSED-FILED
In the office of the Secretary of
State of the State of California
October 5, 1994
TONY MILLER, Acting Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
Rodney H. Burreson and Derek Burreson certify that:
1. They are the president and secretary, respectively, of Roex Inc., a
California corporation.
2. Article IV of the articles of incorporation of this corporation is amended to
read as follows:
"IV
"The total number of shares which this corporation shall be authorized
to issue is: 55,000,000. Said shares shall be in two (2) classes to be
designated Common shares and Preferred shares. The total number of
Common shares authorized shall be 50,000,000, no par value per share;
and the total number of Preferred shares shall be 5,000,000 at $.01 par
value per share.
"The Preferred shares may be issued from time to time in one or more
series. The Board of Directors is authorized to fix the number of
shares of any series of Preferred shares and to determine the
designation of any such series. The Board of Directors is also
authorized to determine or alter the rights, preferences, privileges,
and restrictions granted to or imposed upon any wholly unissued series
of Preferred shares and, within the limits and restrictions stated in
any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent to the
issue of shares of that series."
3. the foregoing amendment of articles of incorporation has been duly approved
by the board of directors.
<PAGE>
4. The foregoing amendment of articles of incorporation has been duly
approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding
shares of the corporation is 5,238,584. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The
percentage vote was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: September 22, 1999
/s/ RODNEY H. BURRESON
------------------------------
Rodney H. Burreson, President
/s/ DEREK BURRESON
----------------------------
Derek Burreson, Secretary
AMENDED AND RESTATED BY-LAWS OF
ROEX, INC.
A California Corporation
ARTICLE I
SHAREHOLDERS' MEETINGS
Section l.TIME.An annual meeting for the election of directors and for the
transaction of any other proper business and any special meeting shall be held
on the date and at the time as the Board of Directors shall from time to time
fix.
Time of Meeting: 10:00 o'clock A.M.
Date of Meeting: The 3rd day of the 2nd week in July
Section 2.PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of California, as the Directors may, from
time to time, fix. Whenever the Directors shall fail to fix such place, the
meetings shall be held at the principal executive office of the corporation.
Section 3.CALL. Annual meetings may be called by the Directors, by the Chairman
of the Board, if any, Vice Chairman of the Board, if any, the President, if any,
the Secretary, or by any officer instructed by the Directors to call the
meeting. Special meetings may be called in like manner and by the holders of
shares entitled to cast not less than ten percent of the votes at the meeting
being called.
Section 4.NOTICE. Written notice stating the place, day and hour of each
meeting, and, in the case of a special meeting, the general nature of the
business to be transacted or, in the case of an Annual Meeting, those matters
which the Board of Directors, at the time of mailing of the notice, intends to
present for action by the shareholders, shall be given not less than ten days
(or not less than any such other minimum period of days as may be prescribed by
the General Corporation Law) or more than sixty days (or not less than any such
maximum period of days as may be prescribed by the General Corporation Law)
before the date of the meeting, by mail, personally, or by other means of
written communication, charges prepaid by or at the direction of the Directors,
the President, if any, the Secretary or the officer or persons calling the
meeting, addressed to each shareholder at his address appearing on the books of
the corporation or given by him to the corporation for the purpose of notice,
or, if no such address appears or is given, at the place where the principal
executive office of the corporation is located or by publication at least once
in a newspaper of general circulation in the county in which the said principal
executive office is located.
Such notice shall be deemed to be delivered when deposited in the
United States mail with first class postage therein prepaid, or sent by other
means of written communication addressed to the shareholder at his address as it
appears on the stock transfer books
<PAGE>
of the corporation. The notice of any meeting at which directors are to be
elected shall include the names of nominees intended at the time of notice to be
presented by management for election. At an annual meeting of shareholders, any
matter relating to the affairs of the corporation, whether or not stated in the
notice of the meeting, may be brought up for action except matters which the
General Corporation Law requires to be stated in the notice of the meeting. The
notice of any annual or special meeting shall also include, or be accompanied
by, any additional statements, information, or documents prescribed by the
General Corporation Law. When a meeting is adjourned to another time or place,
notice of the adjourned meeting need not be given if the time and place thereof
are announced at the meeting at which the adjournment is taken; provided that,
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
Section 5.CONSENT. The transaction of any meeting, however called and noticed,
and wherever held, shall be as valid as though had a meeting duly held after
regular call and notice, if a quorum is present and if, either before or after
the meeting, each of the shareholders or his proxy signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Attendance of a
person at a meeting constitutes a waiver of notice of such meeting, except when
the person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except that
attendance at a meeting shall not constitute a waiver of any right to object to
the consideration of matters required by the General Corporation Law to be
included in the notice if such objection is expressly made at the meeting.
Except as otherwise provided in subdivision (f) of Section 601 of the General
Corporation Law, neither the business to be transacted at nor the purpose of any
regular or special meeting need be specified in any written waiver of notice.
Section 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting -- the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, if any, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
shareholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but, if neither the
Secretary nor an Assistant Secretary is present, the Chairman of the meeting
shall appoint a secretary of the meeting.
Section 7.PROXY REPRESENTATION. Every shareholder may authorize another person
or persons to act as his proxy at a meeting or by written action. No proxy shall
be valid after the expiration of eleven months from the date of its execution
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the person executing it prior to the vote or written action pursuant
thereto, except as otherwise provided by the General
<PAGE>
Corporation Law. As used herein, a "proxy" shall be deemed to mean a written
authorization signed by a shareholder or a shareholder's attorney in fact giving
another person or persons power to vote or consent in writing with respect to
the shares of such shareholder, and "Signed" as used herein shall be deemed to
me an the placing of such shareholder's name on the proxy, whether by manual
signature, typewriting, telegraphic transmission or otherwise by such
shareholder or such shareholder's attorney in fact. Where applicable, the form
of any proxy shall comply with the provisions of Section 604 of the General
Corporation Law.
Section 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of
Directors may appoint inspectors of election to act at the meeting and any
adjournment thereof. If inspectors of election are not so appointed, or, if any
persons so appointed fail to appear or refuse to act, the Chairman of any
meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election, or persons to replace
any of those who so fail or refuse, at the meeting. The number of inspectors
shall be either one or three. If appointed at a meeting on the request of one or
more shareholders or proxies, the majority of shares represented shall determine
whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity, and effect of proxies,
receive votes, ballots, if any, or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, Count and
tabulate all votes or consents, determine when the polls shall close, determine
the result, and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders. If there are three inspectors of election,
the decision, act, or certificate of a majority shall be effective in all
respects as the decision, act, or certificate of all.
Section 9. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a corporation, the shares of which possessing more than
25% of the total combined voting power of all classes of shares entitled to
vote, are owned directly or indirectly through one or more subsidiaries.
Section 10 QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the
voting shares shall constitute a quorum at a meeting of shareholders for the
transaction of any business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough shareholders to leave less
than a quorum if any action taken, other than adjournment, is approved by at
least a majority of the shares required to constitute a quorum. In the absence
of a quorum, any meeting of shareholders may be adjourned from time to time by
the vote of a majority of the shares represented thereat, but no other business
may be transacted except as hereinbefore provided.
<PAGE>
In the election of directors, a plurality of the votes cast shall
elect. No shareholder shall be entitled to exercise the right of cumulative
voting at a meeting for the election of directors unless the candidate's name or
the candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
such candidates in nomination.
Except as otherwise provided by the General Corporation Law, the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at a meeting at which a quorum is present shall be authorized by the
affirmative vote of a majority of the shares represented at the meeting.
Except in the election of directors by written consent in lieu of a
meeting, and except as may otherwise be provided by the General Corporation Law,
the Articles of Incorporation or these Bylaws, any action which may be taken at
any annual or special meeting may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by holders of shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Directors may not be
elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors. Notice of any shareholder
approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less
than unanimous written consent shall be given at least ten days before the
consummation of the action authorized by such approval, and prompt notice shall
be given of the taking of any other corporate action approved by shareholders
without a meeting by less than unanimous written consent to those shareholders
entitled to vote who have not consented in writing.
Section 11. BALLOT. Elections of directors at a meeting need not be by
ballot unless a shareholder demands election by ballot at the election and
before the voting begins. In all other matters, voting need not be by ballot.
Section 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in
the event this corporation elects to become a close corporation, an agreement
between two or more shareholders thereof, if in writing and signed by the
parties thereof, may provide that in exercising any voting rights the shares
held by them shall be voted as provided therein or in Section 706, and may
otherwise modify these provisions as to shareholders' meetings and actions.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section l.FUNCTIONS. The business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
its Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the corporation to a management
company or other person, provided that the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board of Directors. The Board of Directors shall
have authority to fix the compensation of directors for services in any lawful
capacity.
Each director shall perform the duties of a director, including duties
as a member of any committee of the board upon which the director may serve in
good faith, in the manner such director believes to be in the best interests of
the corporation and its shareholders and with such care, including reasonable
inquiry, as an ordinary prudent person in a like position would use under
similar circumstances (Section 309).
Section 2.EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of
Section 1, in the event that this corporation shall elect to become a close
corporation as defined in Section 186, its shareholders may enter into a
Shareholders Agreement as provided in Section 300(b). Said Agreement may provide
for the exercise of corporate powers and the management of the business and
affairs of this corporation by the shareholders, provided however such agreement
shall, to the extent and so long as the discretion or the powers of the Board in
its management of corporate affairs is controlled by such agreement, impose upon
each shareholder who is a party thereof, liability for managerial acts performed
or omitted by such person pursuant thereto otherwise imposed upon Directors as
provided in Section 300(d).
Section 3.QUALIFICATIONS AND NUMBER. A director need not be a shareholder of the
corporation, a citizen of the United States, or a resident of the State of
California. The authorized number of directors constituting the Board of
Director until further changed shall be not less than five (5) directors nor
more than nine (9) directors. Thereafter, the authorized number of directors
constituting the Board shall be at least three provided that whenever the
corporation shall have only two shareholders, the number of directors may be at
least two, and, whenever the corporation shall have only one shareholder, the
number of directors may be at east one. Subject to the foregoing provisions, the
number of directors may be changed from time to time by an amendment of these
By-laws adopted by the shareholders. Any such amendment reducing the number of
directors to fewer than five cannot be adopted if the votes cast against its
adoption at a meeting or the shares not consenting in writing in the case of
action by written consent are equal to more than sixteen and twothirds percent
of the outstanding shares. No decrease in the authorized number of directors
shall have the effect of shortening the term of any incumbent director.
Section 4.ELECTION AND TERM. The initial Board of Directors shall
<PAGE>
consist of the persons elected at the meeting of the incorporator, all of whom
shall hold office until the first annual meeting of shareholders and until their
successors have been elected and qualified, or until their earlier resignation
or removal from office. Thereafter, directors who are elected to replace any or
all of the members of the initial Board of Directors or who are elected at an
annual meeting of shareholders, and directors who are elected in the interim to
fill vacancies, shall hold office until the next annual meeting of shareholders
and until their successors have been elected and qualified, or until their
earlier resignation, removal from office, or death. In the interim between
annual meetings of shareholders or of special meetings of shareholders called
for the election of directors, any vacancies in the Board of Directors,
including vacancies resulting from an increase in the authorized number of
directors which have not been filled by the shareholders, including any other
vacancies which the General Corporation Law authorizes directors to fill, and
including vacancies resulting from the removal of directors which are not filled
at the meeting of shareholders at which any such removal has been effected, if
the Articles of Incorporation or a Bylaw adopted by the shareholders so
provides, may be filled by the vote of a majority of the directors then in
office or of the sole remaining director, although less than a quorum exists.
Any director may resign effective upon giving written notice to the Chairman of
the Board, if any, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to the office when the resignation becomes effective.
The shareholders may elect a director at any time to fill any vacancy
which the directors are entitled to fill, but which they have not filled. Any
such election by written consent shall require the consent of a majority of the
shares.
Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
corporation may indemnify any Director, Officer, agent or employee as to those
liabilities and on those terms and conditions as are specified in Section 317.
In any event, the corporation shall have the right to purchase and maintain
insurance on behalf of any such persons whether or not the corporation would
have the power to indemnify such person against the liability insured against.
Section 6. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
PLACE. Meetings may be held at any place, within or without the State
of California, which has been designated in any notice of the meeting, or, if
not stated in said notice, or, if there is no notice given, at the place
designated by resolution of the Board of Directors.
CALL. Meetings may be called by the Chairman of the Board, if any
and acting, by the Vice Chairman of the Board, if any, by the
<PAGE>
President, if any, by any Vice President or Secretary, or by any two directors.
NOTICE AND WAIVER THEREOF. No notice shall be required for regular
meetings for which the time and place have been fixed by the Board of Directors.
Special meetings shall be held upon at least four days' notice by mail or upon
at least forty-eight hours' notice delivered personally or by telephone or
telegraph. Notice of a meeting need not be given to any director who signs a
waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. A notice or waiver of notice need not specify the
purpose of any regular or special meeting of the Board of Directors.
Section 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event
only one director is required by the Bylaws or Articles of Incorporation, then
any reference herein to notices, waivers, consents, meetings or other actions by
a majority or quorum of the directors shall be deemed to refer to such notice,
waiver, etc., by such sole director, who shall have all the rights and duties
and shall be entitled to exercise all of the powers and shall assume all the
responsibilities otherwise herein described as given to a Board of Directors.
Section 8.QUORUM AND ACTION. A majority of the authorized number of directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided such majority shall constitute at least either one-third of the
authorized number of directors or at least two directors, whichever is larger,
or unless the authorized number of directors is only one. A majority of the
directors present, whether or not a quorum is present, may adjourn any meeting
to another time and place. If the meeting is adjourned for more than twenty-four
hours, notice of any adjournment to another time or place shall be given prior
to the time of the adjourned meeting to the directors, if any, who were not
present at the time of the adjournment. Except as the Articles of Incorporation,
these Bylaws and the General Corporation Law may otherwise provide, the act or
decision done or made by a majority of the Directors present at a meeting duly
held at which a quorum is present shall be the act of the Board of Directors.
Members of the Board of Directors may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another, and participation by such
use shall be deemed to constitute presence in person at any such meeting.
Ameeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, provided that any
action which may be taken is approved by at least a majority of the required
quorum for such meeting.
Section 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and
if present and acting, the Vice Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the
<PAGE>
President, if any and present and acting, or any director chosen by the Board,
shall preside.
Section 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed from office without cause by approval of the
holders of at least a majority of the shares provided, that unless the entire
Board is removed, an individual director shall not be removed when the votes
cast against such removal, or not consenting in writing to such removal, would
be sufficient to elect such director if voted cumulatively at an election of
directors at which the same total number of votes were cast, or, if such action
is taken by written consent, in lieu of a meeting, all shares entitled to vote
were voted, and the entire number of directors authorized at the time of the
director's most recent election were then being elected. If any or all directors
are so removed, new directors may be elected at the same meeting or by such
written consent. The Board of Directors may declare vacant the office of any
director who has been declared of unsound mind by an order of court or convicted
of a felony.
Section 11. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the authorized number of directors, may designate one or more
committees, ~ach consisting of two or more directors to serve at the pleasure of
the Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any such committee, who may replace any absent
member at any meeting of such committee. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors except such authority as may not be
delegated by the provisions of the General Corporation Law.
Section 12. INFORMAL ACTION. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 13. WRITTEN ACTION. Any action required or permitted to be taken may be
taken without a meeting if all of the members of the Board of Directors shall
individually or collectively consent in writing to such action. Any such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
ARTICLE III
OFFICERS
Section l.OFFICERS. The officers of the corporation shall be a Chairman of the
Board or a President or both, a Secretary and a Chief Financial Officer. The
corporation may also have, at the discretion of the Board of Directors, one or
more Vice Presidents, one or more
<PAGE>
Assistant Secretaries and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article. One person may hold two or
more offices.
Section 2.ELECTION. The officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 3 or Section 5 of this
Article shall be chosen annually by the Board of Directors, and each shall hold
his office until he shall resign or shall be removed or otherwise disqualified
to serve, or his successor shall be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the Board of Directors may from time to time
determine.
Section 4.REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board, or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Board of Directors, or to the President, or to the Secretary of the corporation.
Any such resignation shall take effect at the date of the receipt of such notice
or at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 5.VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the Bylaws for regular appointments to such office.
Section 6.CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
Section 7.PRESIDENT. Subject to such supervisory powers, if any, as may be given
by the Board of Directors to the Chairman of the Board, if there be such an
officer, the President shall be the Chief Executive Officer of the corporation
and shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.
<PAGE>
Section 8. VICE PRESIDENT. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the Bylaws.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Directors' meetings, the
number of shares present or represented at Shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to by given, notice of all the
meetings of the shareholders and of the Board of Directors required by the
Bylaws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the Bylaws.
Section 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or
cause to be kept and maintained in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (Or surplus) and
shares. The books of account shall at all reasonable times be open to inspection
by any director.
This officer shall deposit all moneys and othdr valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, shall render to the President and
directors, whenever they request it, an account of all his transactions and of
the financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or the
Bylaws.
<PAGE>
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
Section 1. CERTIFICATES FOR SHARES. Each certificate for shares of the
corporation shall set forth therein the name of the record holder of the shares
represented thereby, the number of shares and the class or series of shares
owned by said holder, the par value, if any, of the shares represented thereby,
and such other statements, as applicable, prescribed by Sections 416-419,
inclusive, and other relevant Sections of the General Corporation Law of the
State of California (the "General Corporation Law") and such other statements,
as applicable, which may be prescribed by the Corporate Securities Law of the
State of California and any other applicable provision of the law. Each such
certificate issued shall be signed in the name of the corporation by the
Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of
Directors, if any, the President, if any, or a Vice President, if any, and by
the Chief Financial Officer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. Any or all of the signatures on a certificate for shares
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate for
shares shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if such person were an officer, transfer agent or registrar at the
date of issue.
In the event that the corporation shall issue the whole or any part of
its shares as partly paid and subject to call for the remainder of the
consideration to be paid therefor, any such certificate for shares shall set
forth thereon the statements prescribed by Section 409 of the General
Corporation Law.
Section 2.LOST OR DESTROYED CERTIFICATES FOR SHARES. The corporation may issue a
new certificate for shares or for any other security in the place of any other
certificate theretofore issued by it, which is alleged to have been lost, stolen
or destroyed. As a condition to such issuance, the corporation may require any
such owner of the allegedly lost, stolen or destroyed certificate or any such
owner's legal representative to give the corporation a bond, or other adequate
security, sufficient to indemnify it against any claim that may be made against
it, including any expense or liability, on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 3. SHARE TRANSFERS. Upon compliance with any provisions of the General
Corporation Law and/or the Corporate Securities Law of 1968 which may restrict
the transferability of shares, transfers of shares of the corporation shall be
made only on the record of shareholders of the corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes, if
any, due thereon.
Section 4.RECORD DATE FOR SHAREHOLDERS. In order that the corporation
<PAGE>
may determine the shareholders entitled to notice of any meeting or to vote or
be entitled to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in respect of any
other lawful action, the Board of Directors may fix, in advance a record date,
which shall not be more than sixty days or fewer than ten days prior to the date
of such meeting or more than sixty days prior to any other action.
If the Board of Directors shall not have fixed a record date as
aforesaid, the record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; the record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given; and the record date for determining shareholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the sixtieth day
prior to the day of such other action, whichever is later.
Adetermination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five days from the date set for the original
meeting.
Except as may be otherwise provided by the General Corporation Law,
shareholders on the record date shall be entitled to notice and to vote or to
receive any dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date.
Section 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
Corporations standing in the name of this corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
corporation by the Chairman of the Board, the President or any Vice President or
any other person authorized by resolution of the Board of Directors.
Section 6. MEANING OF CERTAIN TERMS. As used in these Bylaws in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to assent or consent or dissent in writing in
lieu of a meeting, as the case may be, the term "share" or "shares" or
"shareholder" or "shareholders" refers to an outstanding share or shares and to
a holder or holders record or outstanding shares when the corporation is
authorized to issue only one class of shares, and said reference is also
intended to include any outstanding share or shares and any holder or holders of
record of outstanding shares of any class upon which or upon whom the Articles
of Incorporation confer such rights here there are two or more classes or series
of shares or upon which or upon whom the
<PAGE>
General Corporation Law confers such rights notwithstanding that the Articles of
Incorporation may provide for more than one class or series of shares, one or
more of which are limited or denied such rights thereunder.
Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares
of this corporation, in the event it shall elect to become a close corporation,
shall contain the legend required by Section 418(c).
ARTICLE V
EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION
Any shareholders' Agreement authorized by Section 300(b) shall only be
effective to modify the terms of these By-laws if this corporation elects to
become a close corporation with appropriate filing of or amendment to its
Articles as required by Section 202 and shall terminate when this corporation
ceases to be a close corporation. Such an agreement cannot waive or alter
Sections 158 (defining close corporations), 202 (requirements of Articles of
Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e)
(reorganization) or chapters 15 (Records and Reports, 16 (Rights of Inspection),
18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions
of the Code or these By-laws may be altered or waived thereby, but to the extent
they are not so altered or waived, these By-laws shall be applicable.
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENTS - HOW EXECUTED
The Board of Directors, except as in the By-laws otherwise provided,
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation. Such authority may be general or confined to specific instances.
Unless so authorized by the Board of Directors, no officer, agent or employee
shall have any power or authority to bind the corporation by any contract or
agreement, or to pledge its credit, or to render it liable for any purposes or
any amount, except as provided in Section 313 of the Corporations Code.
ARTICLE VII
CONTROL OVER BY-LAWS
The By-laws may be amended or repealed or new By-laws may be adopted by
the shareholders entitled to exercise a majority of the voting power or by the
Board of Directors; provided, however, that the Board of Directors shall have no
control over any by-law which fixes or changes the authorized number of
directors of the corporation; provided, further, that any control over the
By-laws herein vested in the Board of Directors shall be subject to the
authority of the aforesaid shareholders to amend or repeal the Bylaws or to
adopt new By-laws.
<PAGE>
ARTICLE VIII
BOOKS AND RECORDS
Section 1. RECORDS: STORAGE AND INSPECTION. The corporation shall keep at its
principal executive office in the State of California, or, if its principal
executive office is not in the State of California, the original or a copy of
the Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours. If the principal
executive office of the Corporation is outside the State of California, and, if
the corporation has no principal business office in the State of California, it
shall upon request of any shareholder furnish a copy of the Bylaws as amended to
date.
The corporation shall keep adequate and correct books and records of
account and shall keep minutes of the proceedings of its shareholders, Board of
Directors and committees, if any, of the Board of Directors. The corporation
shall keep at its principal executive office, or at the office of its transfer
agent or registrar, a record of its shareholders, giving the names and addresses
of all shareholders and the number and class of shares held by each. Such
minutes shall be in written form. Such other books and records shall be kept
either in written form or in any other form capable of being converted into
written form.
Section 2.RECORD OF PAYMENTS. All checks, drafts or other orders or payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
Section 3.ANNUAL REPORT. Whenever the corporation shall have fewer than one
hundred shareholders, the Board of Directors shall not be required to cause to
be sent to the shareholders of the corporation the annual report prescribed by
Section 1501 of the General Corporation Law unless it shall determine that a
useful purpose would be served by causing the same to be sent or unless the
Department of Corporations, pursuant to the provisions of the Corporate
Securities Law of 1968, shall direct the sending of the same.
<PAGE>
CERTIFICATE BY SECRETARY OF ADOPTION OF THE AMENDED AND RESTATED BY-LAWS OF
ROEX, INC. BY SHAREHOLDERS' VOTE.
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of the
above-named corporation and that the above and foregoing Code of By-laws was
approved by shareholders entitled to exercise the majority of the voting power
of said corporation on September 29, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand this 29th day of
September, 1999.
/s/ DEREK BURRESON
---------------------------
Derek Burreson, Secretary
ROEX, INC.
(A California Corporation)
12% SUBORDINATED CONVERTIBLE NOTE
$15,000.00 PRINCIPAL AMOUNT
DUE OCTOBER 14, 2000
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF AS
PROVIDED HEREIN HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE LAWS OF ANY STATE OR OTHER JURISDICTION. TRANSFER OF THIS
NOTE AND SUCH SECURITIES IS RESTRICTED PURSUANT TO SUCH LAWS.
Irvine, California
$ October ____, 1998
- ---------------
1. Note.
1.1 Roex, Inc., a California corporation (the "Company" or the
"Borrower"), hereby promises to pay to the order of
____________________________________ (the "Holder") the amount of $15,000.00 by
October 14, 2000 ("Due Date") and to pay interest at twelve percent (12%) per
annum on the outstanding principal. Interest payments shall be made quarterly
beginning on January 15, 1999 and thereafter on each April 15, July 15, October
15 and January 15, until the Note is paid in full, to the Holder in lawful money
of the United States at ____________________, or at such other place as the
Holder may specify in writing.
1.2 In the event the Company does not make, when due, any payment of
principal or interest required to be made hereunder, the Company will pay, on
demand, interest on the amount of any overdue payment of principal or interest
for the period following the Due Date of such payment, at a rate of thirteen
percent (13%) per annum.
<PAGE>
2. Default.
In the event of an occurrence of an occurrence of any event of default
specified below, the principal and all accrued interest on the Note shall become
immediately due and payable without notice, except as specified below. The
occurrence of any of the following events shall constitute an event of default
under this Note:
2.1 The Company fails to make any payment hereunder when due,
which failure has not been cured within fifteen (15) days following such
failure.
2.2 If the Borrower shall file a petition to take advantage of
any insolvency act; make an assignment for the benefit of its creditors;
commence a proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself of a whole or any substantial part of its property; file a
petition or answer seeking reorganization or arrangement or similar relief under
the federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state; or
2.3 If a court of competent jurisdiction shall enter an order,
judgment or decree appointing a custodian, receiver, trustee, liquidator or
conservator of the Borrower or of the whole or any substantial part of its
properties, or approve a petition filed against the Borrower seeking
reorganization or arrangement or similar relief under the federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state; or if, under the provisions of any other law for the relief or aid of
debtors, a court of competent jurisdiction shall assume custody or control of
the Borrower or of the whole or any substantial part of its properties; or if
there is commenced against the Borrower any proceeding for any of the foregoing
relief and such proceeding or petition remains undismissed for a period of 30
days; or if the Borrower by any act indicates its consent to or approval of any
such proceeding or petition; or
2.4 If (i) any judgment, remaining unpaid, unstayed or
undismissed for a period of 60 days is rendered against the Borrower which by
itself or together with all other such judgments rendered against the Borrower
remaining unpaid, unstayed or undismissed for a period of 60 days, is in excess
of $50,000, or (ii) there is any attachment or execution against the Borrower's
properties remaining unstayed or undismissed for a period of 60 days which by
itself or together with all other attachments and executions against the
Borrower's properties remaining unstayed or undismissed for a period of 60 days
is for an amount in excess of $50,000.
3. Conversion.
3.1 Conversion Rights. The Holder will have the right, at its
option, to convert the Note into Shares of Common Stock of the Company (the
"Shares") at any time before the close of business on October 14, 2000 at the
conversion rate then in effect.
The initial conversion rate is 2,000 Shares of Common Stock per $1,000 principal
amount at maturity of the Note, or a total of 30,000 shares, subject to
adjustments in certain
<PAGE>
events. No fractional Share or scrip representing a fractional Share will be
issued upon conversion of the Notes. Cash will be paid in lieu of any fractional
Shares equal to the then current market value of such fractional Share. A Holder
may convert a portion of the Notes provided that the portion is $1,000 principal
amount at maturity or an integral multiple thereof.
The conversion rate will be appropriately adjusted if the
Company (a) pays a dividend or makes a distribution on its Shares of Common
Stock which is paid or made in Shares of Common Stock, (b) subdivides or
reclassifies its outstanding Shares of Common Stock, (c) combines its
outstanding Shares of Common Stock into a smaller number of Shares of Common
Stock, (d) issues Shares of Common Stock, or issues rights or warrants to all
Holders of its Common Stock entitling them to subscribe for or purchase Shares
of Common Stock (or securities convertible into Common Stock other than
promissory notes similar to the Note up to $150,000.00), at a price per Share
less than $3.00 per Share, or (e) distributes to all Holders of its Common Stock
evidences of its indebtedness or assets (excluding any dividend paid in cash out
of legally available funds) subject to the limitation that adjustments by reason
of any of the foregoing need not be made until they result in a cumulative
change in the conversion rate of at least five percent (5%). The conversion rate
will not be adjusted upon the conversion of presently outstanding stock options
or warrants.
In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the surviving corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in case of any statutory exchange of securities with another
corporation, there will be no adjustment of the conversion price, but each
Holder of the Notes then outstanding will have the right thereafter to convert
such Notes into the kind and amount of securities, cash or other property which
he would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had such Notes
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale or conveyance. In the case of a cash merger of
the Company into another corporation or any other cash transaction of the type
mentioned above, the effect of these provisions would be that the conversion
features of the Notes would thereafter be limited to converting the Notes at the
conversion price in effect at such time into the same amount of cash per Share
that such Holder would have received had such Holder converted the Notes into
Common Stock immediately prior to the effective date of such cash merger or
transaction.
3.2 Mechanics of Conversion
The Note may be converted upon surrender of the Notes at
any time prior to the close of business on October 14, 2000 at the offices of
the Company, 2081 Business Center Drive, Suite 185, Irvine, California, with the
form of "Notice of Conversion" duly completed and executed as indicated. Shares
of Common Stock issued upon conversion will be fully paid and non-assessable.
<PAGE>
4. Prepayment. Borrower may prepay any or all amounts due under this
Note at any time without penalty; provided, however, that Borrower, as a
condition to prepayment of some or all of the balance hereof, shall deliver
written notice of its intention to prepay at least 30 calendar days prior to the
date of such prepayment ("Prepayment Date") and cooperate with Holder in
Holder's exercise of Holder's convertibility rights, as set forth in Paragraph
3, above, if Holder elects to exercise such rights prior to prepayment.
5. Subordination. The indebtedness evidenced by this Note shall be
subordinated in right of payment to the prior payment in full of all existing
and future Senior Indebtedness of the Company. Senior Indebtedness is defined in
the Promissory Note Purchase Agreement between the Company and the Holder.
6. Securities Law Compliance. The Holder understands that the right of
conversion of this Note is subject to full compliance with the provisions of all
applicable securities laws and the availability thereunder upon any conversion
of any exemption from registration thereunder for such conversion, and that the
certificate or certificates evidencing such Note and Shares will bear a legend
to the following effect:
"THE SECURITIES EVIDENCED HEREBY MAY NOT BE TRANSFERRED WITHOUT
(i) THE OPINION OF COUNSEL SATISFACTORY TO THIS CORPORATION THAT
SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
FEDERAL SECURITIES ACT OF 1933, AS AMENDED, OR (ii) SUCH
REGISTRATION."
7. "Piggyback" Registration. If the Company, at any time after the date of
this Note and before two years thereafter, files a registration statement under
the Securities Act of 1933, as amended (the "Act"), relating to any shares of
Roex, Inc. Common Stock to be offered and sold by the Company pursuant to an
underwriting (except with respect to registration statements filed on Forms S-8
or S-14, or any other inappropriate form), the Company shall give written notice
to the the Holder of this Note (the "Holder") as promptly as possible for the
proposed filing of such registration statement and will use all reasonable
efforts to cause such number of shares of Common Stock issuable upon conversion
of this Note as the Holder shall request in writing, within fifteen days after
the giving of such notice, to be included in such registration statement for
offering and sale upon the same terms and in the same manner as the Company
proposes to offer and to sell such shares of its Common Stock pursuant thereto;
provided, that (a) the Company shall not be required to include any Common Stock
in any such registration statement if the Company is advised by its investment
banking firm that the inclusion of such shares may, in such firm's opinion,
interfere with the orderly sale and distribution of the shares of Roex, Inc.
Common Stock to be offered and sold by the Company; and (b) the Company, at its
sole discretion, and without the consent of the Holder, may decide not to file
or to withdraw such registration statement and may abandon the proposed offering
at any time.
<PAGE>
In connection with any registration statement in which Common Stock is
included, the Company will pay all Commission and "blue sky" registration and
other necessary filing fees, printing expenses, fees and disbursements of legal
counsel for the Company and "blue sky" counsel, transfer agents' and registrars'
fees, fees and disbursements of experts used by the Company in connection with
such registration and expenses incidental to any post-effective amendment to
such registration statement. The Holder/Seller shall pay all other expenses
attributable to inclusion in the offering of Common Stock, including, without
limitation, Commission and "blue sky" registration and other necessary filing
fees and underwriting discounts, commissions and expenses attributable thereto
and fees and disbursements of the Holder/Seller's counsel, accountants and
experts, if any.
The Common Stock issued upon conversion of the Note, which bear
restrictive legends as a result of the manner in which they were issued by the
Company, generally may be sold in the public market (in the absence of
registration) only if the sale is made in compliance with Rule 144 under the
Act. In general, under Rule 144, a person (or persons whose shares are
aggregated with those of others) who has beneficially owned "restricted" shares
for at least two years, and a person who is deemed to be an "affiliate" of the
Company, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the then outstanding shares of Common
Stock or the average weekly trading volume in the over-the-counter market during
the four calendar weeks preceding such sale. Non-affiliates who have held their
shares for at least three years are entitled to sell their shares under Rule 144
without regard to volume limitations. The Common Stock bearing restrictive
legends should satisfy the two-year holding period required by Rule 144, from
time to time, commencing two years from the date of this Note.
8. Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served, sent by United States Mail, certified,
or by overnight delivery service. For the purposes hereof, the address of the
Holder and the address of the Company shall be as reflected in the Promissory
Note Purchase Agreement between the Purchaser and the Company of even date
herewith. Both the Holder and the Company may change the address for service by
written notice to the other as herein provided.
9. No Waiver: Rights and Remedies Cumulative. No failure on the part of
the Holder to exercise, and no delay in exercising any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise by the
Holder of any right hereunder preclude any other or further exercise thereof or
the exercise of any other right. The rights and remedies herein provided are
cumulative and not exclusive of any remedies or rights provided by law or by any
other agreement between the Borrower and the Holder.
10. Costs and Expenses. The Borrower shall reimburse the Purchaser for
all costs and expenses incurred by the Purchaser in connection with the
preparation, execution and closing of this Note and shall pay the reasonable
fees and disbursements of counsel to the Purchaser in connection with the
enforcement of the Purchaser's rights hereunder.
11. Amendments. No amendment, modification or waiver of any provision of
this Note nor consent to any departure by the Holder therefrom shall be
effective unless the same shall be in
<PAGE>
writing and signed by the Holder and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
12. Successors and Assigns. This Note shall be binding upon the Borrower
and its successors and assigns and the terms hereof shall inure to the benefit
of the Holder and its successors and assigns, including subsequent holders
hereof.
13. Severability. The provisions of this Note are severable, and if any
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Note in any jurisdiction.
14. Waiver of Notice. The Borrower hereby waives presentment, demand for
payment, notice of protest and all other demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
15. Governing Law. this Note has been executed in and shall be governed
by the laws of the State of California.
16. Note Holder is Not a Shareholder. No Holder of this Note, solely by
virtue of the ownership of this Note, shall be considered a shareholder of the
Company for any purpose, nor shall anything in this Note be construed to confer
on any Holder of this Note any rights of a shareholder of the Company including,
without limitation, any right to vote, give or withhold consent to any corporate
action, receive notice of meetings of shareholders or receive dividends.
17. Exchange and Replacement of Note. Upon surrender of this Note to the
Borrower, the Borrower shall execute and deliver, at its expense, one or more
new Notes of such denominations and in such names, as requested by the holder of
the surrendered Note. Upon receipt of evidence satisfactory to the Company of
the loss, theft, mutilation, or destruction of any Note, the Borrower will make
and deliver a new Note, of like tenor, at the request of the holder of such
Note.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
by its authorized officers as of the _______ day of November, 1998.
ATTEST: ROEX, INC.
By: By:
DEREK BURRESON RODNEY H. BURRESON
Secretary President and CEO
ROEX, INC.
(A California Corporation)
12% SUBORDINATED CONVERTIBLE NOTE
$___________ PRINCIPAL AMOUNT
DUE JUNE 30, 2002
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF AS
PROVIDED HEREIN HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE LAWS OF ANY STATE OR OTHER JURISDICTION. TRANSFER OF THIS
NOTE AND SUCH SECURITIES IS RESTRICTED PURSUANT TO SUCH LAWS.
Irvine, California
, 1999
$
-------------
1. Note.
1.1 Roex, Inc., a California corporation (the "Company" or the
"Borrower"), hereby promises to pay to the order of ___________________________
(the "Holder") the amount of $_____________ by June 30, 2002 ("Due Date") and to
pay interest at twelve percent (12%) per annum on the outstanding principal.
Interest payments shall be made quarterly beginning on September 30, 1999 and
thereafter on each June 30, September 30, December 31 and March 31 until the
Note is paid in full, to the Holder in lawful money of the United States at
________________________________ , or at such other place as the Holder may
specify in writing.
1.2 In the event the Company does not make, when due, any payment of
principal or interest required to be made hereunder, the Company will pay, on
demand, interest on the amount of any overdue payment of principal or interest
for the period following the Due Date of such payment, at a rate of thirteen
percent (13%) per annum.
<PAGE>
2. Default.
In the event of an occurrence of an occurrence of any event of default
specified below, the principal and all accrued interest on the Note shall become
immediately due and payable without notice, except as specified below. The
occurrence of any of the following events shall constitute an event of default
under this Note:
2.1 The Company fails to make any payment hereunder when due,
which failure has not been cured within thirty (30) days following such failure.
2.2 If the Borrower shall file a petition to take advantage of
any insolvency act; make an assignment for the benefit of its creditors;
commence a proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself of a whole or any substantial part of its property; file a
petition or answer seeking reorganization or arrangement or similar relief under
the federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state; or
2.3 If a court of competent jurisdiction shall enter an order,
judgment or decree appointing a custodian, receiver, trustee, liquidator or
conservator of the Borrower or of the whole or any substantial part of its
properties, or approve a petition filed against the Borrower seeking
reorganization or arrangement or similar relief under the federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state; or if, under the provisions of any other law for the relief or aid of
debtors, a court of competent jurisdiction shall assume custody or control of
the Borrower or of the whole or any substantial part of its properties; or if
there is commenced against the Borrower any proceeding for any of the foregoing
relief and such proceeding or petition remains undismissed for a period of 30
days; or if the Borrower by any act indicates its consent to or approval of any
such proceeding or petition; or
2.4 If (i) any judgment, remaining unpaid, unstayed or
undismissed for a period of 60 days is rendered against the Borrower which by
itself or together with all other such judgments rendered against the Borrower
remaining unpaid, unstayed or undismissed for a period of 60 days, is in excess
of $50,000, or (ii) there is any attachment or execution against the Borrower's
properties remaining unstayed or undismissed for a period of 60 days which by
itself or together with all other attachments and executions against the
Borrower's properties remaining unstayed or undismissed for a period of 60 days
is for an amount in excess of $50,000.
3. Conversion.
3.1 Conversion Rights. The Holder will have the right, at its
option, to convert the Note into Shares of Common Stock of the Company (the
"Shares") at any time before the close of business on June 30, 2002 at the
conversion rate then in effect.
The initial conversion rate is 1,333 Shares of Common
Stock per $2,000 principal amount at maturity of the Note, subject to
adjustments in certain events. No fractional Share or scrip representing a
fractional Share will be issued upon conversion of the Notes. Cash will be paid
in lieu of any fractional Shares equal to the then current market value of such
fractional Share. A Holder may
<PAGE>
convert a portion of the Notes provided that the portion is $1,000 principal
amount at maturity or an integral multiple thereof.
The conversion rate will be appropriately adjusted if the
Company (a) pays a dividend or makes a distribution on its Shares of Common
Stock which is paid or made in Shares of Common Stock, (b) subdivides or
reclassifies its outstanding Shares of Common Stock, (c) combines its
outstanding Shares of Common Stock into a smaller number of Shares of Common
Stock, (d) issues Shares of Common Stock, or issues rights or warrants to all
Holders of its Common Stock entitling them to subscribe for or purchase Shares
of Common Stock (or securities convertible into Common Stock other than
promissory notes similar to the Note up to $240,000.00), at a price per Share
less than $1.50 per Share, or (e) distributes to all Holders of its Common Stock
evidences of its indebtedness or assets (excluding any dividend paid in cash out
of legally available funds) subject to the limitation that adjustments by reason
of any of the foregoing need not be made until they result in a cumulative
change in the conversion rate of at least five percent (5%). The conversion rate
will not be adjusted upon the conversion of presently outstanding stock options
or warrants.
In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the surviving corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in case of any statutory exchange of securities with another
corporation, there will be no adjustment of the conversion price, but each
Holder of the Notes then outstanding will have the right thereafter to convert
such Notes into the kind and amount of securities, cash or other property which
he would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had such Notes
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale or conveyance. In the case of a cash merger of
the Company into another corporation or any other cash transaction of the type
mentioned above, the effect of these provisions would be that the conversion
features of the Notes would thereafter be limited to converting the Notes at the
conversion price in effect at such time into the same amount of cash per Share
that such Holder would have received had such Holder converted the Notes into
Common Stock immediately prior to the effective date of such cash merger or
transaction.
3.2 Mechanics of Conversion
The Note may be converted upon surrender of the Notes at
any time prior to the close of business on March 31, 2001 at the offices of the
Company, 2081 Business Center Drive, Suite 185, Irvine, California, with the
form of "Notice of Conversion" duly completed and executed as indicated. Shares
of Common Stock issued upon conversion will be fully paid and non-assessable.
4. Prepayment. Borrower may prepay any or all amounts due under this
Note at any time after one year from the date of this Note at 110% of the
principal amount of the Note together with accrued interest; provided, however,
that Borrower, as a condition to prepayment of some or all of the balance
hereof, shall deliver written notice of its intention to prepay at least 30
calendar days prior to the date of such prepayment ("Prepayment Date") and
cooperate with Holder in Holder's exercise of Holder's convertibility rights, as
set forth in Paragraph 3, above, if Holder elects to exercise such rights prior
to prepayment.
<PAGE>
5. Subordination. The indebtedness evidenced by this Note shall be
subordinated in right of payment to the prior payment in full of all existing
and future Senior Indebtedness of the Company. Senior Indebtedness is defined in
the Promissory Note Purchase Agreement between the Company and the Holder.
6. Securities Law Compliance. The Holder understands that the right of
conversion of this Note is subject to full compliance with the provisions of all
applicable securities laws and the availability thereunder upon any conversion
of any exemption from registration thereunder for such conversion, and that the
certificate or certificates evidencing such Note and Shares will bear a legend
to the following effect:
"THE SECURITIES EVIDENCED HEREBY MAY NOT BE TRANSFERRED WITHOUT
(i) THE OPINION OF COUNSEL SATISFACTORY TO THIS CORPORATION THAT
SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
FEDERAL SECURITIES ACT OF 1933, AS AMENDED, OR (ii) SUCH
REGISTRATION."
7. Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served, sent by United States Mail, certified,
or by overnight delivery service. For the purposes hereof, the address of the
Holder and the address of the Company shall be as reflected in the Promissory
Note Purchase Agreement between the Purchaser and the Company of even date
herewith. Both the Holder and the Company may change the address for service by
written notice to the other as herein provided.
8. No Waiver: Rights and Remedies Cumulative. No failure on the part of
the Holder to exercise, and no delay in exercising any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise by the
Holder of any right hereunder preclude any other or further exercise thereof or
the exercise of any other right. The rights and remedies herein provided are
cumulative and not exclusive of any remedies or rights provided by law or by any
other agreement between the Borrower and the Holder.
9. Costs and Expenses. The Borrower shall reimburse the Purchaser for
all costs and expenses incurred by the Purchaser in connection with the
preparation, execution and closing of this Note and shall pay the reasonable
fees and disbursements of counsel to the Purchaser in connection with the
enforcement of the Purchaser's rights hereunder.
10. Amendments. No amendment, modification or waiver of any provision of
this Note nor consent to any departure by the Holder therefrom shall be
effective unless the same shall be in writing and signed by the Holder and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
11. Successors and Assigns. This Note shall be binding upon the Borrower
and its successors and assigns and the terms hereof shall inure to the benefit
of the Holder and its successors and assigns, including subsequent holders
hereof.
<PAGE>
12. Severability. The provisions of this Note are severable, and if any
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Note in any jurisdiction.
13. Waiver of Notice. The Borrower hereby waives presentment, demand for
payment, notice of protest and all other demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
14. Governing Law. this Note has been executed in and shall be governed
by the laws of the State of California.
15. Note Holder is Not a Shareholder. No Holder of this Note, solely by
virtue of the ownership of this Note, shall be considered a shareholder of the
Company for any purpose, nor shall anything in this Note be construed to confer
on any Holder of this Note any rights of a shareholder of the Company including,
without limitation, any right to vote, give or withhold consent to any corporate
action, receive notice of meetings of shareholders or receive dividends.
16. Exchange and Replacement of Note. Upon surrender of this Note to the
Borrower, the Borrower shall execute and deliver, at its expense, one or more
new Notes of such denominations and in such names, as requested by the holder of
the surrendered Note. Upon receipt of evidence satisfactory to the Company of
the loss, theft, mutilation, or destruction of any Note, the Borrower will make
and deliver a new Note, of like tenor, at the request of the holder of such
Note.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
by its authorized officers as of the _______ day of _________________, 1999.
ATTEST: ROEX, INC.
By: By:
DEREK BURRESON RODNEY H. BURRESON
Secretary President and CEO
ROEX, INC.
SUBSCRIPTION AGREEMENT
1. SUBSCRIPTION. The undersigned hereby subscribes to purchase
___________ shares of the common stock, no par value (the "Common Stock"), of
Roex, Inc. (the "Company") for a purchase price equal to $5.00 per share or
$______________ total. A check payable to "Roex, Inc. Subscription Account" in
the full amount of the purchase price is enclosed with this Subscription
Agreement.
2. SUBSCRIPTION FUNDS. The undersigned understands that the subscription
funds will be held in an escrow account at [BANK] ("Escrow Agent") or in a
segregated account established for such purpose by the Company, if such funds
are received after the initial closing on the Common Stock has taken place. In
the event this Subscription Agreement is rejected in whole by the Company, or if
subscriptions for a minimum of 500,000 shares have not been received and
accepted by the Escrow Agent, the funds will be promptly returned to the
undersigned without interest or deduction, and this Subscription Agreement will
be null and void. In the event this Subscription Agreement is accepted, in whole
or in part, the funds deposited in the escrow account or the segregated
subscription account will be paid over to the Company at a closing and applied
as described in the Prospectus (and any amounts which the undersigned has
tendered in excess of the cash subscription for the Shares allocated to the
undersigned will be returned).
3. ACKNOWLEDGEMENT. The undersigned acknowledges that, prior to signing
this Subscription Agreement, he or she has received the Prospectus describing
the offering of shares of Common Stock by the Company and has carefully reviewed
the risks of, and other considerations relevant to, a purchase of the Common
Stock, including those described under the caption "Risk Factors" in the
Prospectus.
4. SUBSCRIPTION IRREVOCABLE. This Subscription Agreement is not
transferable or assignable and is irrevocable, except that the execution and
delivery of this Subscription Agreement will not constitute an agreement between
the undersigned and the Company until this subscription is accepted on behalf of
the Company. This Subscription Agreement shall survive the death or disability
of the undersigned and shall be binding upon the undersigned's heirs and legal
representatives.
The undersigned hereby executes this Subscription Agreement as of
the ______ day of _____________________, 2000, at _____________________,
(city)
_____________.
(state)
<PAGE>
SUBSTITUTE FORM W-9
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBERS
Under the penalties of perjury, I certify that: (1) the Social Security Number
or Taxpayer Identification Number given below is correct; and (2) I am not
subject to backup withholding. INSTRUCTION: YOU MUST CROSS OUT NUMBER 2 ABOVE IF
YOU HAVE BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX
RETURN.
MAIL TO:
Signature:___________________________
Print Name:__________________________
Federal Employer Identification Number:_____________________________
Social Security Number:_____________________________________________
Street Address:_____________________________________________________
City, State and Zip Code: __________________________________________
Telephone Number: ____________________
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.............................................................
Risk Factors...................................................................
Use of Proceeds................................................................
Dividend Policy................................................................
Capitalization.................................................................
Dilution.......................................................................
Selected Financial Data........................................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................
Business.......................................................................
Management.....................................................................
Certain Transactions...........................................................
Principal and Selling Shareholders.............................................
Description of Capital Stock...................................................
Shares Eligible for Future Sale................................................
Plan of Distribution...........................................................
Legal Matters..................................................................
Experts........................................................................
Additional Information.........................................................
Index to Financial Statements.................................................
------------------
UNTIL _________, 2000 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTI8NG TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNHSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
A MINIMUM OF
500,000 SHARES
AND
A MAXIMUM OF
1,000,000 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
_____________, 1999
ROEX, INC.
1999 STOCK INCENTIVE PLAN
1. GENERAL PROVISIONS
1.1 Purpose.
The 1999 Stock Incentive Plan (the "Plan") is intended to allow designated
officers and employees (all of whom are sometimes collectively referred to
herein as "Employees") and certain Non-Employee Directors of Roex, Inc. ("ROEX")
and its Subsidiaries which it may have from time to time (ROEX and such
Subsidiaries are referred to herein as the "Company") to receive certain options
("Stock Options") to purchase ROEX's common stock, no par value ("Common
Stock"), and to receive grants of Common Stock subject to certain restrictions
("Awards"). As used in this Plan, the term "Subsidiary" shall mean each
corporation which is a "subsidiary corporation" of ROEX within the meaning of
Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
The purpose of this Plan is to provide Employees with equity-based compensation
incentives to make significant and extraordinary contributions to the long-term
performance and growth of the Company, and to attract and retain Employees of
exceptional ability.
1.2 Administration.
1.2.1 The Plan shall be administered by the Compensation Committee
(the "Committee") of, or appointed by, the Board of Directors of ROEX (the
"Board"). Each member of the Committee shall be a "disinterested person" as
that term is defined in Rule 16b-3 promulgated by the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act"), but no action of the Committee shall be
in valid if this requirement is not met. The Committee shall select one of
its members as Chairman and shall act by vote of a majority of a quorum, or
by unanimous written consent. A majority of its members shall constitute a
quorum. The Committee shall be governed by the provisions of ROEX's By-Laws
and of California law applicable to the Board, except as otherwise provided
herein or determined by the Board.
1.2.2 The Committee shall have full and complete authority, in its
discretion, but subject to the express provisions of the Plan: to approve
the Employees nominated by the management of the Company to be granted
Awards or Stock Options; to determine the number of Awards or Stock Options
to be granted to an Employee; to determine the time or times at which
Awards or Stock Options shall be granted; to establish the terms and
conditions upon which Awards or Stock Options may be exercised; to remove
or adjust any restrictions and condi tions upon Awards or Stock Options; to
specify, at the time of grant, provisions relating to exercisability of
Stock Options and to accelerate or otherwise modify the exercisability of
any Stock Options; and to adopt such rules and regulations and to make all
other determinations deemed necessary or desirable for the administration
of the Plan. All interpretations and constructions of the Plan by the
Committee, and all of its actions hereunder, shall be binding and
conclusive on all persons for all purposes.
<PAGE>2
1.2.3 The Company hereby agrees to indemnify and hold harmless each
Committee member and each employee of the Company, and the estate and heirs
of such Committee member or employee, against all claims, liabilities,
expenses, penalties, damages or other pecuniary losses, including legal
fees, which such Committee member or employee, his or her estate or heirs
may suffer as a result of his or her responsibilities, obligations or
duties in connection with the Plan, to the extent that insurance, if any,
does not cover the payment of such items. No member of the Committee or the
Board shall be liable for any action or determination made in good faith
with respect to the Plan or any Award or Stock Option granted pursuant to
the Plan.
1.3 Eligibility and Participation.
Employees eligible under the Plan shall be approved by the Committee
from those Employees who, in the opinion of the management of the Company,
are in positions which enable them to make significant and extraordinary
contributions to the long-term performance and growth of the Company. In
selecting Employees to whom Stock Options or Awards may be granted,
consideration shall be given to factors such as employment position, duties
and respon sibilities, ability, productivity, length of service, morale,
interest in the Company and recommendations of supervisors. No member of
the Committee shall be eligible to participate under the Plan or under any
other Company plan if such participation would contravene the standard of
paragraph 1.2.1 above relating to "disinterested persons."
1.4 Shares Subject to the Plan.
The maximum number of shares of Common Stock that may be issued
pursuant to the Plan shall be 1,000,000, subject to adjustment pursuant to
the provisions of paragraph 4.1. If shares of Common Stock awarded or
issued under the Plan are reacquired by the Company due to a forfeiture or
for any other reason, such shares shall be cancelled and thereafter shall
again be available for purposes of the Plan. If a Stock Option expires,
terminates or is cancelled for any reason without having been exercised in
full, the shares of Common Stock not purchased thereunder shall again be
available for purposes of the Plan.
2. PROVISIONS RELATING TO STOCK OPTIONS
2.1 Grants of Stock Options.
The Committee may grant Stock Options in such amounts, at such times,
and to such Employees nominated by the management of the Company as the
Committee, in its discretion, may determine. Stock Options granted under
the Plan shall constitute "incentive stock options" within the meaning of
Section 422 of the Code, if so designated by the Committee on the date of
grant. The Committee shall also have the discretion to grant Stock Options
which do not constitute incentive stock options, and any such Stock Options
shall be designated non-statutory stock options by the Committee on the
date of grant. The aggregate fair market value (determined as of the time
an incentive stock option is granted) of the Common Stock with respect to
which incentive stock options are exercisable for the first time by any
Employee during any one calendar
<PAGE>
year (under all plans of the Company and any parent or Subsidiary of the
Company) may not exceed the maximum amount permitted under Section 422 of
the Code (currently $100,000.00). Non-statutory stock options shall not be
subject to the limitations relating to incentive stock options contained in
the preceding sentence. Each Stock Option shall be evidenced by a written
agreement (the "Option Agreement") in a form approved by the Committee,
which shall be executed on behalf of the Company and by the Employee to
whom the Stock Option is granted, and which shall be subject to the terms
and conditions of this Plan. In the discretion of the Committee, Stock
Options may include provisions (which need not be uniform), authorized by
the Committee in its discretion, that accelerate an Employee's rights to
exercise Stock Options following a "Change in Control," upon termination of
such Employee employment by the Company without "Cause" or by the Employee
for "Good Reason," as such terms are defined in paragraph 3.1 hereof. The
holder of a Stock Option shall not be entitled to the privileges of stock
ownership as to any shares of Common Stock not actually issued to such
holder.
2.2 Purchase Price.
The purchase price (the "Exercise Price") of shares of Common Stock
subject to each Stock Option ("Option Shares") shall equal the fair market
value ("Fair Market Value") of such shares on the date of grant of such
Stock Option. Notwithstanding the foregoing, the Exercise Price of Option
Shares subject to an incentive stock option granted to an Employee who at
the time of grant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any parent or
Subsidiary shall be at least equal to 110% of the Fair Market Value of such
shares on the date of grant of such Stock Option. The Fair Market Value of
a share of Common Stock on any date shall be equal to the closing price (or
if no closing price is reported, the average of the last bid and asked
prices) of the Common Stock for the last preceding day on which ROEX's
shares were traded, and the method for determining the closing price shall
be determined by the Committee.
2.3 Option Period.
The Stock Option period (the "Term") shall commence on the date of
grant of the Stock Option and shall be ten years or such shorter period as
is determined by the Committee. Notwithstanding the foregoing, the Term of
an incentive stock option granted to an Employee who at the time of grant
owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of any parent or Subsidiary shall
not exceed five years. Each Stock Option shall provide that it is
exercisable over its term in such periodic installments as the Committee in
its sole discretion may determine. Such provisions need not be uniform.
Notwithstanding the foregoing, but subject to the provisions of paragraphs
1.2.2 and 2.1, Stock Options granted to Employees who are subject to the
reporting requirements of Section 16(a) of the Exchange Act ("Section 16
Reporting Persons") shall not be exercisable until at least six months and
one day from the date the Stock Option is granted.
<PAGE>
2.4 Exercise of Options.
2.4.1 Each Stock Option may be exercised in whole or in part (but
not as to fractional shares) by delivering it for surrender or
endorsement to the Company, attention of the Corporate Secretary, at
the principal office of the Company, together with payment of the
Exercise Price and an executed Notice and Agreement of Exercise in the
form prescribed by paragraph 2.4.2. Payment may be made (i) in cash,
(ii) by cashier's or certified check, (iii) by surrender of previously
owned shares of the Company's Common Stock valued pursuant to
paragraph 2.2 (if the Committee authorizes payment in stock in its
discretion), (iv) by withholding from the Option Shares which would
otherwise be issuable upon the exercise of the Stock Option that
number of Option Shares having an aggregate fair market value
(determined in the manner prescribed by paragraph 2.2) as of the date
of the exercise of the Stock Option equal to the exercise price of the
Stock Option, if such withholding is authorized by the Committee in
its discretion, or (v) in the discretion of the Committee, by the
delivery to the Company of the optionee's promissory note secured by
the Option Shares, bearing interest at a rate sufficient to prevent
the imputation of interest under Sections 483 or 1274 of the Code, and
having such other terms and conditions as may be satisfactory to the
Committee.
2.4.2 Exercise of each Stock Option is conditioned upon the
agreement of the Employee to the terms and conditions of this Plan and
of such Stock Option as evidenced by the Employee's execution and
delivery of a Notice and Agreement of Exercise in a form to be
determined by the Committee in its discretion. Such Notice and
Agreement of Exercise shall set forth the agreement of the Employee
that: (a) no Option Shares will be sold or otherwise distributed in
violation of the Securities Act of 1933 (the "Securities Act") or any
other applicable federal or state securities laws, (b) each Option
Share certificate may be imprinted with legends reflecting any
applicable federal and state securities law restrictions and
conditions, (c) the Company may comply with said securities law
restrictions and issue "stop transfer" instructions to its Transfer
Agent and Registrar without liability, (d) if the Employee is a
Section 16 Reporting Person, the Employee will furnish to the Company
a copy of each Form 4 or Form 5 filed by said Employee and will timely
file all reports required under federal securities laws, and (e) the
Employee will report all sales of Option Shares to the Company in
writing on a form prescribed by the Company.
2.4.3 No Stock Option shall be exercisable unless and until any
applicable registration or qualification requirements of federal and
state securities laws, and all other legal requirements, have been
fully complied with. The Company will use reasonable efforts to
maintain the effectiveness of a Registration Statement under the
Securities Act for the issuance of Stock Options and shares acquired
thereunder, but there may be times when no such Registration Statement
will be currently effective. The exercise of Stock Options may be
temporarily suspended without liability to the Company during times
when no such Registration Statement is currently effective, or during
times when, in the reasonable opinion of the Committee, such
suspension is necessary to preclude violation of any requirements of
applicable law or regulatory bodies having jurisdiction over the
Company. If any Stock Option would expire for any reason except the
end of its term during such a suspension, then if exercise of such
Stock Option is duly tendered before its expiration, such Stock Option
shall be exercisable and exercised (unless the attempted exercise
<PAGE>
is withdrawn) as of the first day after the end of such suspension. The
Company shall have no obligation to file any Registration Statement
covering resales of Option Shares.
2.5 Continuous Employment.
Except as provided in paragraph 2.7 below, an Employee may not
exercise a Stock Option unless from the date of grant to the date of
exercise such Employee remains continuously in the employ of the Company.
For purposes of this paragraph 2.5, the period of continuous employment of
an Employee with the Company shall be deemed to include (without extending
the term of the Stock Option) any period during which such Employee is on
leave of absence with the consent of the Company, provided that such leave
of absence shall not exceed three months and that such Employee returns to
the employ of the Company at the expiration of such leave of absence. If
such Employee fails to return to the employ of the Company at the
expiration of such leave of absence, such Employee's employment with the
Company shall be deemed terminated as of the date such leave of absence
commenced. The continuous employment of an Employee with the Company shall
also be deemed to include any period during which such Employee is a member
of the Armed Forces of the United States, provided that such Employee
returns to the employ of the Company within 90 days (or such longer period
as may be prescribed by law) from the date such Employee first becomes
entitled to discharge. If an Employee does not return to the employ of the
Company within 90 days (or such longer period as may be prescribed by law)
from the date such Employee first becomes entitled to discharge, such
Employee's employment with the Company shall be deemed to have terminated
as of the date such Employee's military service ended.
2.6 Restrictions on Transfer.
Each Stock Option granted under this Plan shall be transferable only
by will or the laws of descent and distribution. No interest of any
Employee under the Plan shall be subject to attachment, execution,
garnishment, sequestration, the laws of bankruptcy or any other legal or
equitable process. Each Stock Option granted under this Plan shall be
exercisable during an Employee's lifetime only by such Employee or by such
Employee's legal representative.
2.7 Termination of Employment.
2.7.1 Upon an Employee's Retirement, Disability or death, (a) all
Stock Options to the extent then presently exercisable shall remain in
full force and effect and may be exercised pursuant to the provisions
thereof, including expiration at the end of the fixed term thereof,
and (b) unless otherwise provided by the Committee, all Stock Options
to the extent not then presently exercisable by such Employee shall
terminate as of the date of such termination of employment and shall
not be exercisable thereafter.
2.7.2 Upon the termination of the employment of an Employee with
the Company for any reason other than the reasons set forth in
paragraph 2.7.1 hereof, (a) all Stock Options to the extent then
presently exercisable by such Employee shall remain exercisable only
for a period of 90 days after the date of such termination of
employment (except that the 90-day
<PAGE>
period shall be extended to 12 months if the Employee shall die during
such 90-day period), and may be exercised pursuant to the provisions
thereof, including expiration at the end of the fixed term thereof,
and (b) unless otherwise provided by the Committee, all Stock Options
to the extent not then presently exercisable by such Employee shall
terminate as of the date of such termination of employment and shall
not be exercisable thereafter.
2.7.3 For purposes of this Plan:
(a) "Retirement" shall mean an Employee's retirement from the employ of
the Company on or after the date on which such Employee attains the
age of sixty-five (65) years; and
(b) "Disability" shall mean total and permanent incapacity of an Employee,
due to physical impairment or legally established mental incompetence,
to perform the usual duties of such Employee's employment with the
Company, which disability shall be determined: (i) on medical evidence
by a licensed physician designated by the Committee, or (ii) on
evidence that the Employee has become entitled to receive primary
benefits as a disabled employee under the Social Security Act in
effect on the date of such disability.
2.8 Grants of Options to Non-Employee Directors.
Each member of the Board who is not an Employee (a "Non- Employee
Director:), whether or not such member is a member of the Committee, shall
automatically be granted non-statutory Stock Options to purchase 5,000
shares of Common Stock on each anniversary of such Non-Employee Director's
continuous service on the Board. The term of each such Stock Option granted
to a Non-Employee Director shall commence on the date of grant and shall be
for ten years thereafter. Each such Stock Option granted to a Non-Employee
Director shall first be exercisable six months and one day from the later
of the date of grant or the date of shareholder approval of this Plan, and
thereafter shall be exercisable at any time until the expiration of its
term, whether or not the Non-Employee Director is a member of the Board at
the time of exercise or later enters the employ of the Company.
Notwithstanding the foregoing or any other provision of this Plan, all
unexercised Stock Options held by a Non-Employee Director shall
automatically terminate as of the date his or her directorship is
terminated, if such directorship is terminated on account of any act of
fraud, embezzlement, misappropriation or conversion of assets or
opportunities of the Company. Upon termination of such Stock Options, such
Non-Employee Director shall forfeit all rights and benefits under this
Plan. Notwith-standing the provisions of paragraph 4.4, the provisions of
this paragraph 2.8 may not be amended more than once every six months,
other than to comport with changes in the Code or the regulations
thereunder. The Committee shall not grant any Awards to Non-Employee
Directors and shall have no discretion as to (a) the selection of
Non-Employee Directors to whom Stock Options may be granted, (b) the number
of Stock Options granted to any Non-Employee Director, (c) the times at
which or the periods within which Stock Options may be granted to, or
exercised by, Non-Employee Directors, or (d) except to the limited extent
provided in paragraph 2.2, the price at which any Stock Option granted to a
Non-Employee Director may be exercised. Except as specifically set forth in
this
<PAGE>
paragraph 2.8, Stock Options granted to Non-Employee Directors will be
governed by all of the other terms and provisions of this Plan.
3. PROVISIONS RELATING TO AWARDS
3.1 Grant of Awards.
Subject to the provisions of the Plan, the Committee shall have full
and complete authority, in its discretion, but subject to the express
provisions of this Plan, to (i) grant Awards pursuant to the Plan, (ii)
determine the number of shares of Common Stock subject to each Award
("Award Shares"), (iii) determine the terms and conditions (which need not
be identical) of each Award, including the consideration (if any) to be
paid by the Employee for such Common Stock, which may, in the Committee's
discretion, consist of the delivery of the Employee's promissory note
meeting the requirements of paragraph 2.4.1, (iv) establish and modify
performance criteria for Awards, and (v) make all of the determinations
necessary or advisable with respect to Awards under the Plan. Each award
under the Plan shall consist of a grant of shares of Common Stock subject
to a restriction period (after which the restrictions shall lapse), which
shall be a period commencing on the date the award is granted and ending on
such date as the Committee shall determine (the "Restriction Period"). The
Committee may provide for the lapse of restrictions in installments, for
acceleration of the lapse of restrictions upon the satisfaction of such
performance or other criteria or upon the occurrence of such events as the
Committee shall determine, and for the early expiration of the Restriction
Period upon an Employee's death, Disability or Retirement as defined in
paragraph 2.7.3, or, following a Change of Control, upon termination of an
Employee's employment by the Company without "Cause" or by the Employee for
"Good Reason," as those terms are defined herein. For purposes of this
Plan:
"Change of Control" shall be deemed to occur (a) on the date the
Company first has actual knowledge that any person (as such term is used in
Sections 13(d) and 14(d) (2) of the Exchange Act) has become the beneficial
owner (as defined in Rule 13(d)-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding securities, or (b)
on the date the shareholders of the Company approve (i) a merger of the
Company with or into any other corporation in which the Company is not the
surviving corporation or in which the Company survives as a subsidiary of
another corporation, (ii) a consolidation of the Company with any other
corporation, or (iii) the sale or disposition of all or substantially all
of the Company's assets or a plan of complete liquidation.
"Cause," when used with reference to termination of the employment of
an Employee by the Company for "Cause," shall mean:
(a) the Employee's continuing wilful and material breach of his or her
duties to the Company after he or she receives a demand from the Chief
Executive of the Company specifying the manner in which he or she has
wilfully and materially breached such duties, other than any such
failure resulting from Disability of the Employee or his or her
resignation for "Good Reason," as defined herein; or
<PAGE>
(b) the conviction of the Employee of a felony; or
(c) the Employee's commission of fraud in the course of his or her
employment with the Company, such as embezzlement or other material
and intentional violation of law against the Company; or
(d) the Employee's gross misconduct causing material harm to the Company.
"Good Reason" shall mean any one or more of the following, occurring
following or in connection with a Change of Control and within 90 days
prior to the Employee's resignation, unless the Employee shall have
consented thereto in writing:
(a) the assignment to the Employee of duties inconsistent with his or her
executive status prior to the Change of Control or a substantive
change in the officer or officers to whom he or she reports from the
officer or officers to whom he or she reported immediately prior to
the Change of Control; or
(b) the elimination or reassignment of a majority of the duties and
responsibilities that were assigned to the Employee immediately prior
to the Change of Control; or
(c) a reduction by the Company in the Employee's annual base salary as in
effect immediately prior to the Change of Control; or
(d) the Company's requiring the Employee to be based anywhere outside a
35-mile radius from his or her place of employment immediately prior
to the Change of Control, except for required travel on the Company's
business to an extent substantially consistent with the Employee's
business travel obligations immediately prior to the Change of
Control; or
(e) the failure of the Company to grant the Employee a performance bonus
reasonably equivalent to the same percentage of salary the Employee
normally received prior to the Change of Control, given comparable
performance by the Company and the Employee; or
(f) the failure of the Company to obtain a satisfactory Assumption
Agreement (as defined in paragraph 4.12 of the Plan) from a successor,
or the failure of such successor to perform such Assumption Agreement.
3.2 Incentive Agreements.
Each Award granted under the Plan shall be evidenced by a written
agreement (an "Incentive Agreement") in a form approved by the Committee
and executed by the Company and the Employee to whom the Award is granted.
Each Incentive Agreement shall be
<PAGE>
subject to the terms and conditions of the Plan and other such terms and
conditions as the Committee may specify.
3.3 Waiver of Restrictions.
The Committee may modify or amend any Award under the Plan or
waive any restrictions or conditions applicable to such Awards; provided,
however, that the Committee may not undertake any such modifications, amendments
or waivers if the effect thereof materially increases the benefits to any
Employee, or adversely affects the rights of any Employee without his or her
consent.
3.4 Terms and Conditions of Awards.
3.4.1 Upon receipt of an Award of shares of Common Stock under
the Plan, even during the Restriction Period, an Employee shall be the
holder of record of the shares and shall have all the rights of a
shareholder with respect to such shares, subject to the terms and
conditions of the Plan and the Award.
3.4.2 Except as otherwise provided in this paragraph 3.4, no
shares of Common Stock received pursuant to the Plan shall be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed of
during the Restriction Period applicable to such shares. Any purported
disposition of such Common Stock in violation of this paragraph 3.4.2
shall be null and void.
3.4.3 If an Employee's employment with the Company terminates
prior to the expiration of the Restriction Period for an Award,
subject to any provisions of the Award with respect to the Employee's
death, Disability or Retirement, or Change of Control, all shares of
Common Stock subject to the Award shall be immediately forfeited by
the Employee and reacquired by the Company, and the Employee shall
have no further rights with respect to the Award. In the discretion of
the Committee, an Incentive Agreement may provide that, upon the
forfeiture by an Employee of Award Shares, the Company shall repay to
the Employee the consideration (if any) which the Employee paid for
the Award Shares on the grant of the Award. In the discretion of the
Committee, an Incentive Agreement may also provide that such repayment
shall include an interest factor on such consideration from the date
of the grant of the Award to the date of such repayment.
3.4.4 The Committee may require under such terms and conditions
as it deems appropriate or desirable that (i) the certificates for
Common Stock delivered under the Plan are to be held in custody by the
Company or a person or institution designated by the Company until the
Restriction Period expires, (ii) such certificates shall bear a legend
referring to the restrictions on the Common Stock pursuant to the
Plan, and (iii) the Employee shall have delivered to the Company a
stock power endorsed in blank relating to the Common Stock.
<PAGE>
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Change in Capitalization.
4.1.1 The number and class of shares subject to each outstanding
Stock Option, the Exercise Price thereof (but not the total price),
the maximum number of Stock Options that may be granted under the
Plan, the minimum number of shares as to which a Stock Option may be
exercised at any one time, and the number and class of shares subject
to each outstanding Award, shall be proportionately adjusted in the
event of any increase or decrease in the number of the issued shares
of Common Stock which results from a split-up or consolidation of
shares, payment of a stock dividend or dividends exceeding a total of
5% for which the record dates occur in any one fiscal year, a
recapitalization (other than the conversion of convertible securities
according to their terms), a combination of shares or other like
capital adjustment, so that (i) upon exercise of the Stock Option, the
Employee shall receive the number and class of shares such Employee
would have received had such Employee been the holder of the number of
shares of Common Stock for which the Stock Option is being exercised
upon the date of such change or increase or decrease in the number of
issued shares of the Company, and (ii) upon the lapse of restrictions
of the Award Shares, the Employee shall receive the number and class
of shares such Employee would have received if the restrictions on the
Award Shares had lapsed on the date of such change or increase or
decrease in the number of issued shares of the Company.
4.1.2 Upon a reorganization, merger or consolidation of the
Company with one or more corporations as a result of which ROEX is not
the surviving corporation or in which ROEX survives as a wholly-owned
subsidiary of another corporation, or upon a sale of all or
substantially all of the property of the Company to another
corporation, or any dividend or distribution to shareholders of more
than 10% of the Company's assets, adequate adjustment or other
provisions shall be made by the Company or other party to such
transaction so that there shall remain and/or be substituted for the
Option Shares and Award Shares provided for herein, the shares,
securities or assets which would have been issuable or payable in
respect of or in exchange for such Option Shares and Award Shares then
remaining, as if the Employee had been the owner of such shares as of
the applicable date. Any securities so substituted shall be subject to
similar successive adjustments.
4.2 Withholding Taxes.
The Company shall have the right at the time of exercise of any Stock
Option, the grant of an Award, or the lapse of restrictions on Award
Shares, to make adequate provision for any federal, state, local or foreign
taxes which it believes are or may be required by law to be withheld with
respect to such exercise ("Tax Liability"), to ensure the payment of any
such Tax Liability. The Company may provide for the payment of any Tax
Liability by any of the following means or a combination of such means, as
determined by the Committee in its sole and absolute discretion in the
particular case: (i) by requiring the Employee to tender a cash payment to
the Company, (ii) by withholding from the Employee's salary, (iii) by
withholding from the Option Shares which would otherwise be issuable upon
exercise of the Stock Option, or from the Award Shares on their grant or
date of lapse of restrictions, that number of Option Shares or
<PAGE>
Award Shares having an aggregate fair market value (determined in the
manner prescribed by paragraph 2.2) as of the date the withholding tax
obligation arises in an amount which is equal to the Employee's Tax
Liability or (iv) by any other method deemed appropriate by the Committee.
Satisfaction of the Tax Liability of a Section 16 Reporting Person may be
made by the method of payment specified in clause (iii) above only if the
following two conditions are satisfied:
(a) the withholding of Option Shares or Award Shares and the exercise of
the related Stock Option occur at least six months and one day
following the date of grant of such Stock Option or Award; and
(b) the withholding of Option Shares or Award Shares is made either (i)
pursuant to an irrevocable election ("Withholding Election") made by
such Employee at least six months in advance of the withholding of
Options Shares or Award Shares, or (ii) on a day within a ten-day
"window period" beginning on the third business day following the date
of release of the Company's quarterly or annual summary statement of
sales and earnings.
Anything herein to the contrary notwithstanding, a Withholding Election may be
disapproved by the Committee at any time.
4.3 Relationship to Other Employee Benefit Plans.
Stock Options and Awards granted hereunder shall not be deemed to be
salary or other compensation to any Employee for purposes of any pension,
thrift, profit-sharing, stock purchase or any other employee benefit plan
now maintained or hereafter adopted by the Company.
4.4 Amendments and Termination.
The Board of Directors may at any time suspend, amend or terminate
this Plan. No amendment, except as provided in paragraph 2.8, or
modification of this Plan may be adopted, except subject to stockholder
approval, which would: (a) materially increase the benefits accruing to
Employees under this Plan, (b) materially increase the number of securities
which may be issued under this Plan (except for adjustments pursuant to
paragraph 4.1 hereof), or (c) materially modify the requirements as to
eligibility for participation in the Plan.
4.5 Successors in Interest.
The provisions of this Plan and the actions of the Committee shall be
binding upon all heirs, successors and assigns of the Company and of
Employees.
4.6 Other Documents.
All documents prepared, executed or delivered in connection with this
Plan (including, without limitation, Option Agreements and Incentive
Agreements) shall be, in substance and form, as established and modified by
the Committee; provided, however, that all such
<PAGE>
documents shall be subject in every respect to the provisions of this Plan,
and in the event of any conflict between the terms of any such document and
this Plan, the provisions of this Plan shall prevail.
4.7 No Obligation to Continue Employment.
This Plan and grants hereunder shall not impose any obligation on the
Company to continue to employ any Employee. Moreover, no provision of this
Plan or any document executed or delivered pursuant to this Plan shall be
deemed modified in any way by any employment contract between an Employee
(or other employee) and the Company.
4.8 Misconduct of an Employee.
Notwithstanding any other provision of this Plan, if an Employee
commits fraud or dishonesty toward the Company or wrongfully uses or
discloses any trade secret, confidential data or other information
proprietary to the Company, or intentionally takes any other action
materially inimical to the best interests of the Company, as determined by
the Committee, in its sole and absolute discretion, such Employee shall
forfeit all rights and benefits under this Plan.
4.9 Term of Plan.
This Plan was adopted by the Board effective May 12, 1999. No Stock
Options or Awards may be granted under this Plan after May 12, 2009.
4.10 Governing Law.
This Plan shall be construed in accordance with, and governed by, the
laws of the State of California.
4.11 Shareholder Approval.
No Stock Option shall be exercisable, or Award granted, unless and
until the Shareholders of the Company have approved this Plan and all other
legal requirements have been fully complied with.
4.12 Assumption Agreements.
The Company will require each successor, (direct or indirect, whether
by purchase, merger, consolidation or otherwise), to all or substantially
all of the business or assets of the Company, prior to the consummation of
each such transaction, to assume and agree to perform the terms and
provisions remaining to be performed by the Company under each Incentive
Agreement and Stock Option and to preserve the benefits to the Employees
thereunder. Such assumption and agreement shall be set forth in a written
agreement in form and substance satisfactory to the Committee (an
"Assumption Agreement"), and shall include such adjustments,
<PAGE>
if any, in the application of the provisions of the Incentive Agreements
and Stock Options and such additional provisions, if any, as the Committee
shall require and approve, in order to preserve such benefits to the
Employees. Without limiting the generality of the foregoing, the Committee
may require an Assumption Agreement to include satisfactory undertakings by
a successor:
(a) to provide liquidity to the Employees at the end of the Restriction
Period applicable to Common Stock awarded to them under the Plan, or
on the exercise of Stock Options;
(b) if the succession occurs before the expiration of any period specified
in the Incentive Agreements for satisfaction of performance criteria
applicable to the Common Stock awarded thereunder, to refrain from
interfering with the Company's ability to satisfy such performance
criteria or to agree to modify such performance criteria and/or waive
any criteria that cannot be satisfied as a result of the succession;
(c) to require any future successor to enter into an Assumption Agreement;
and
(d) to take or refrain from taking such other actions as the Committee may
require and approve, in its discretion.
The Committee referred to in this paragraph 4.12 is the Committee appointed by a
Board of Directors in office prior to the succession then under consideration.
4.13 Compliance With Rule 16B-3.
Transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3. To the extent that any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
IN WITNESS WHEREOF, this Plan has been executed effective as of the 12th
day of May, 1999.
ROEX, INC.
By: Rodney H. Burreson
President
LOAN RESTRUCTURE AGREEMENT
by and between
ROEX, INC.
and
BISON DEVELOPMENT FUND, L.P.
September 8, 1998
<PAGE>
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
Page
1. Acknowledgement and Affirmation of the
Existing Bison Obligations ......................................................2
2. Restructure of the Existing Bison Obligations....................................2
3. Interest Rate to be Charged on Obligations ......................................2
4. Repayment of the Obligations.....................................................3
A. Monthly Payments......................................................3
B. Means of Payment......................................................3
C. Prepayment............................................................3
5. Collateral Security for the Obligations..........................................3
6. Maturity Date....................................................................3
7 General Release of All Claims against Bison......................................3
8. Representations and Warranties...................................................4
9. Covenants........................................................................5
A. Affirmative Covenants.................................................5
B. Negative Covenants....................................................6
10. Conditions to Effectiveness of this Agreement....................................7
11. No Further Financing Commitment..................................................8
12. Events of Default and Default Remedies...........................................8
13. Reimbursement of Bison's Lender's Expenses
and Payment of Processing Fee....................................................9
14. Confidentiality..................................................................10
15. Integration......................................................................10
<PAGE>
16. Further Assurances................................................................10
17. Notices...........................................................................10
18. No Assignment; Binding Effect....................................................11
19. Governing Law.....................................................................11
20. Severability......................................................................11
21. Supremacy.........................................................................11
22. Counterparts......................................................................11
23. Jurisdiction and Venue............................................................11
24. Waiver of Right to Trial By Jury..................................................12
</TABLE>
<PAGE>
LOAN RESTRUCTURE AGREEMENT
THIS LOAN RESTRUCTURE AGREEMENT (this "Agreement"), dated as of
September 8, 1998, is entered into by and between ROEX, INC., a California
corporation, having its principal place of business at 2081 Business Center
Drive, Suite 185, Irvine, California 92612 ("Roex"), and Bison Development Fund,
L.P., a California Limited Partnership, having its principal place of business
at 315 Arden Avenue, Glendale, California 91206 ("Bison"), in light of the
following facts:
RECITALS
A. Roex and Bison are parties to (i) that certain Installment Promissory
Note dated August 14, 1997, in the original principal amount of Five hundred
Thousand Dollars ($500,000.00), executed by Roex to the order of Bison; (ii)
that certain Deferral of Installment Payments of Installment Promissory Note
dated April 29, 1998; (iii) that certain Collateral Security Agreement dated
August 14, 1997; and (iv) that certain Financing Statement filed August 10, 1998
(collectively, the "Bison Financing Agreements").
B. For value received and to induce Bison to enter into the Bison
Financing Agreements, Rodney H. Burreson, an individual ("Burreson"), executed
in favor of and delivered to Bison a written Continuing Guaranty dated August
14, 1997 (the "Burreson Guaranty").
C. For value received and to induce Bison to enter into the Bison
Financial Agreements, Rodney H. Burreson, an individual, executed in favor of
and delivered to Bison a written Stock Pledge Agreement dated August 14, 1997
(the "Burreson Stock Pledge Agreement").
D. Roex is currently in default of its obligations to Bison under the
Bison Financing Agreements. As of the date of this Agreement, Roex owes Bison:
(i) Three Hundred Ninety-Three Seven Hundred Ninety-Five and
59/100 Dollars ($393,795.59) and attorneys' fees, and all other costs, fees and
expenses of Bison for which Roex is obligated under the Bison Financing
Agreements in the amount of One Thousand Two Hundred Fifty Dollars ($1,250.00).
(ii) One Hundred Thousand Dollars ($100,000.00) loaned to Roex by
Bison on August 13, 1998 (collectively, with the Bison Financing Agreements, the
"Existing Bison Obligations").
<PAGE>
(iii) Roex acknowledges and agrees that it has defaulted on its
payment and performance obligations to Bison under the Bison Financial
Agreements, and that payment thereunder is justly due and owing to Bison.
E. Bison is willing to continue the obligations owed to it by Roex
provided Roex enters into this Agreement with Bison whereby the terms and
conditions of the Existing Bison Obligations will be restructured, all as set
forth below.
F. In order to induce Bison to restructure hereby the Existing Bison
Obligations, Roex is willing to enter into this Agreement with Bison.
NOW, THEREFORE, in consideration of the above premises, the covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Acknowledgement and Affirmation of the Existing Bison Obligations.
Roex hereby acknowledges and reaffirms its liability to Bison for the full
amount of the Existing Bison Obligations. Roex hereby further acknowledges and
agrees that it has no defense, counterclaim, right of offset, cross-complaint,
claim or demand of any kind or nature whatsoever (collectively, "Bison Claims")
that can be asserted to reduce or eliminate all or any part of its liability to
Bison for the Existing Bison Obligations, nor any right to seek affirmative
relief or damages of any kind or nature from Bison, arising out of or relating
to the Existing Bison Obligations. To the extent that Roex holds any such Bison
Claims or right to seek affirmative relief or damages against Bison in
connection with the Existing Bison Obligations, Roex hereby fully, forever and
irrevocably releases such Bison Claims and rights as provided in Section 6
hereof.
2. Restructure of the Existing Bison Obligations. Roex hereby
acknowledges and agrees that the Existing Bison Obligations are hereby combined
and restructured into a single loan. The Existing Bison Obligations as hereby
combined and restructured are hereinafter collectively referred to as the
"Obligations." The Obligations shall be (i) evidenced by and payable in
accordance with the Financing Agreements as amended and supplemented by this
Agreement; (ii) secured by the collateral described in the Financing Agreements,
as amended and supplemented by this Agreement; and (iii) guaranteed by the
Burreson Guaranty required to be delivered to Bison under Section 10 hereof.
3. Interest Rate to be Charged on the Obligations. The Obligations shall
hereinafter bear interest, prior to the occurrence of an Event of Default, at a
rate per annum equal to Thirteen and one-quarter percent (13.25%). Following the
occurrence of an Event of Default, the Obligations shall bear interest at a per
annum rate equal to the highest rate permitted under California law. Interest
chargeable hereunder shall be calculated on the basis of a three hundred sixty
(360) day year for actual days elapsed.
<PAGE>
4. Repayment of the Obligations.
A. Monthly Payments. Roex shall pay to Bison the following
monthly payments with respect to the Obligations:
(i) Roex shall make the following interest only payments
to Bison:
(a) September 8, 1998 - $4,902.04
(b) October 1, 1998 - $5,452.33
(c) November 1, 1998 - $5,452.33
(ii) Commencing on December 1, 1998, and continuing on the first (1st) day of
each calendar month thereafter for so long as the Obligations are outstanding,
Roex shall pay to Bison monthly installments of principal and interest each in
an amount that would permit the Obligations to be fully amortized over thirty
(36) months from December 1, 1998.
B. Means of Payment. All payments required hereunder shall be
made in immediately lawful money of the United States of America.
C. Prepayment. Roex may prepay any or all of the Obligations at
any time without penalty upon 15 days advance notice in writing to Bison.
5. Collateral Security for the Obligations. As collateral security for
Roex's prompt and faithful payment and performance of the Obligations and of any
and all future indebtedness and obligations of Roex to Bison, whether evidenced
or arising out of this Agreement or any other future oral or written agreement
between Roex and Bison, Roex hereby grants and assigns to Bison a continuing,
first-priority security interest in and lien on all of Roex's present and future
accounts, equipment, inventory, general intangibles, chattel paper, deposit
accounts, goods, documents, instruments (as the foregoing terms are defined in
the California Uniform Commercial Code), and in any and all other personal
property of Roex and the proceeds (including, without limitation, insurance
proceeds) and products of any and all of the foregoing (collectively, the
"Collateral").
6. Maturity Date. The Obligations and any and all interest accrued
thereon or other amounts payable in connection therewith shall mature and be due
and payable in full on November 30, 2001 (the "Maturity Date").
7. General Release of All Claims Against Bison. To the extent Roex holds
any claim against Bison, whether in connection with the Existing Bison
Obligations, or in connection with any other transaction between Bison and Roex,
Roex, on behalf of itself and its successors and assigns, hereby forever and
irrevocably releases Bison and its respective officers, representatives, agents,
attorneys, employees, predecessors, successors and assigns from any and all
claims, demands, damages, suits, cross-complaints, causes of actions and debts
of any kind and nature whatsoever, whether known or unknown and whenever and
howsoever arising. Roex hereby acknowledges that the foregoing release is a
general release of the foregoing claims and other rights of Roex, and Roex
<PAGE>
hereby acknowledges that it is familiar with the provisions of Section 1542 of
the California Civil Code, which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
Roex has been advised by counsel with respect to the release
contained herein. Upon advice of such counsel, Roex hereby waives and
relinquishes all of the rights and benefits which it has, or may have, under
Section 1542 of the California Civil Code.
8. Representations and Warranties. As a material inducement to Bison to
enter into this Agreement, and acknowledging that Bison would not enter into
this Agreement but for its reliance upon the truth and accuracy of the
representations and warranties of Roex set forth herein, Roex hereby
acknowledges and reaffirms each and every representation and warranty set forth
in the Bison Financing Agreements, and acknowledges and agrees that such
representations and warranties apply to this Agreement with the same effect as
if they were contained herein. In addition, Roex hereby represents and warrants
to Bison as follows, which representations and warranties shall replace and
supersede any conflicting representations and warranties in the Bison Financing
Agreements:
(i) Roex is a corporation properly organized, existing and in
good standing under the laws of the State of California;
(ii) Roex has all requisite power and authority to own its
property and to carry on the business that is now being conducted and as is
presently proposed to be conducted, and is properly qualified and authorized to
do business and is in good standing as a foreign corporation in any jurisdiction
or territory where the ownership or character of its property or the nature of
its business and activities make such qualification necessary and where the
failure to qualify would have a materially adverse effect on its business or
financial condition;
(iii) Roex has the corporate power and authority to execute,
deliver and perform this Agreement and all of the other agreements, documents
and instruments contemplated hereunder, and this Agreement and all other
documents, instruments and agreements executed in connection herewith have been
duly authorized, executed and delivered by Roex;
(iv) No governmental or public body or authority is required to
authorize the execution, delivery and performance by Roex of this Agreement or
any of the other agreements, documents and instruments contemplated herein;
(v) This Agreement and all other agreements, documents and
instruments executed by Roex in connection herewith, when executed and delivered
by Roex, constitute the valid, binding and legally enforceable obligations of
Roex, in accordance with their respective terms and conditions;
<PAGE>
(vi) Roex possesses all material licenses and franchises that are
required to conduct its business as it is now being conducted;
(vii) Neither the execution or delivery of this Agreement, or any
of the other agreements, documents or instruments executed in connection
herewith, nor the fulfillment of or compliance with the terms and provisions
hereof or thereof will conflict with or result in a breach of the terms,
conditions, provisions of, constitute a default under or result in any violation
of Roex's articles of incorporation or bylaws or the provisions of any Judgment,
contract or agreement to which Roex is a party or may be bound. Roex is not in
default (a) of any outstanding debt instrument, other than the Bison Financing
Agreements; (b) of any payment of principal or interest on any outstanding
obligations, other than Obligations; (c) under its contracts or agreements; or
(d) under any instrument by which it is bound.
9. Covenants.
A. Affirmative Covenants. In addition to complying with any
and all affirmative covenants contained in the Bison Financing Agreements Roex
shall:
(i) commencing November 15, 1998, deliver to Bison, on
or before the fifteenth (15th) day of each month during the term of this
Agreement, a company-prepared financial statement (including a balance sheet and
income and cash flow statement), an inventory report, and information concerning
Roex's customers, all in form and substance acceptable to Bison;
(ii) commencing January 8, 1999, and on each Monday during
the term of this Agreement, a company-prepared cash flow statement for the
previous week, all in form and substance acceptable to Bison;
(iii) deliver to Bison within ninety (90) days after the
end of each fiscal year, full financial statements, prepared in accordance with
generally accepted accounting principles and in a manner consistent with Roex's
prior practices. Such financial statements shall be in reasonable detail and
shall be accompanied by a review report of a firm of independent certified
public accountants;
(iv) make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bison, on demand, appropriate certificates
attesting to the payment or deposit thereof. Roex will make timely payment or
deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will, upon request, furnish Bison with proof satisfactory
to Bison indicating that Roex has made such payments or deposits. Roex agrees to
deliver to Bison copies of each of Roex's future federal income tax returns, and
any amendments thereto, within thirty (30) calendar days of the filing thereof
with the Internal Revenue Service. Roex further agrees to deliver to Bison
promptly, upon request by Bison, copies of all receipts issued to Roex for the
payment of federal withholding taxes required of it;
<PAGE>
(v) at its expense, keep and maintain its inventory and equipment
insured against loss or damage by fire, theft, explosion, sprinklers and all
other hazards and risks ordinarily insured against by other owners in similar
businesses for the full insurable value thereof. Roex shall also keep and
maintain business interruption, public liability and property damage insurance
relating to Roex's ownership and use of its inventory, equipment and other
assets. All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be satisfactory to Bison. Roex shall
deliver to Bison promptly, upon request, certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bison showing Bison as
sole loss payee thereof, and containing a waiver of warranties on a 438-BFU or
other similar endorsement, and all proceeds payable thereunder shall be payable
to Bison to be applied to reduce the outstanding principal balance of the
Obligations, but shall not reduce Roex's obligation to make the next succeeding
principal payment. Bison shall only be entitled to the amount of proceeds
necessary to pay the Obligations in full; and
(vi) commencing December 1, 1998 and at all times thereafter,
maintain a standard and modern system of accounting with ledger and account
cards or computer tapes, discs, printouts and records pertaining to the
Collateral which contain information as may from time to time be requested by
Bison. Roex shall not modify or change its method of accounting or enter into,
modify or terminate any agreement currently existing, or at any time hereafter
entered into with any third party accounting firm or service bureau for the
preparation or storage of Roex's accounting records without such accounting firm
or service bureau agreeing to provide to Bison information regarding the
Collateral or Roex's financial condition. Roex agrees to permit Bison and any of
its employees, officers or agents, upon demand, during Roex's usual business
hours, or the usual business hours of third parties having control thereof, to
have access to and examine all of Roex's books and, connection therewith, to
permit Bison or any of its agents, employees or officers to copy and make
extracts therefrom.
B. Negative Covenants. In addition to complying with any and
all negative covenants contained in the Bison Financing Agreements, Roex shall
not, without Bison's prior written consent:
(i) sell, lease or otherwise dispose of, move, relocate or
transfer, whether by sale or otherwise, any of Roex's assets other than sales of
inventory in the ordinary and usual course of business as currently conducted;
(ii) change Roex's name or identity, or add any new fictitious
name without providing Bison with forty-five (45) calendar days' prior written
notice;
(iii) acquire, merge or consolidate with or into any other
business organization;
(iv) enter into any transaction not: (i) in the ordinary and
usual course of Roex's business; or (ii) otherwise permitted hereunder;
<PAGE>
(v) or otherwise become in any way liable with respect to the
obligations of any third party;
(vi) make any change in Roex's financial structure or in any of
its business operations which could materially adversely effect Roex's ability
to repay the Obligations;
(vii) incur any debts outside the ordinary and usual course of
Roex's business except for renewals or extensions of existing debts;
(viii) make any advance or loan except to its customers in the
ordinary and usual course of business;
(ix) prepay, modify or repay any obligation or any existing debt
to officers or shareholders of Roex or relatives thereof (except the
Obligations) for borrowed money, or enter into or modify any agreement in a way
which would be materially adverse to Bison's interests or, as a result of which,
the terms of payment of any of the foregoing debt are accelerated, waived or
modified;
(x) pay, whether directly or indirectly, in money or otherwise,
compensation, including salaries, withdrawals, fees, bonuses, commissions,
drawing accounts and other payments, and management or consulting fees to Roex's
directors, or any other shareholders (or any relatives, consultants, advisers or
any affiliates of any of the foregoing on terms no less favorable than could be
obtained from an unrelated party, and except for Derek Burreson); provided,
however, Roex may make each of the following payments to individuals identified
below during each year of the term hereof: (i) continue to pay to Rodney H.
Burreson his current salary; and (ii) a director's fee of Five Hundred Dollars
($500.00) per meeting plus an option to purchase 25,000 shares of Roex common
stock at an exercise price of $.50 per share to any non-employee director of
Roex; provided, further, however, Roex may increase the aggregate amount of the
payments permitted to non-employee directors by up to ten percent (10%) per year
during the term of this Agreement so long as at the time of any such increase
there shall not have occurred any Events of Default hereunder;
(xi) make any distribution or declare or pay any dividends (in
cash or in stock) on, or purchase, acquire, redeem or retire, any of its capital
stock of any class, whether now or hereafter outstanding.
10. Conditions Precedent to Effectiveness of this Agreement. The
effectiveness of this Agreement and of the transactions contemplated hereunder
shall be conditioned upon the prior satisfaction of each of the following
conditions precedent in a manner acceptable to Bison and its counsel:
(i) Bison shall have received an original of this
Agreement, executed by Roex;
<PAGE>
(ii) Bison shall have received the original of that
certain Stock Option Agreement, of even date herewith, executed by Roex in favor
of Bison to purchase up to approximately 116,350 shares of the common stock of
Roex on a fully-diluted basis at an exercise price of $.50 per share;
(iii) Bison shall have received a full recourse Continuing
Guaranty in its favor, executed by Rodney H. Burreson;
(iv) Bison shall have received an appropriate California
UCC-1 Financing Statement executed by Roex as debtor and reflecting Bison as
secured party.
11. No Further Financing Commitment. Roex hereby acknowledges and agrees
that although Bison has agreed hereby to permit the Obligations to remain
outstanding during the term hereof, Bison has not committed hereby to extend any
additional financing to Roex. If Bison, upon the written approval of Roex
without any obligation on its part to do so, elects to extend any additional
financing to Roex, such additional financing shall, upon Bison's extension to
Roex thereof, become part of the Obligations, shall be secured by the Collateral
and supported by the Burreson Guaranty identified in and required under Section
10 hereof, and shall be payable in accordance with, and subject to, all the
terms and conditions of the written or oral understanding or agreement between
Bison and Roex pursuant to which such discretionary financing was extended.
12. Events of Default and Default Remedies. Any one or more of the
following events shall constitute an event of default (an "Event of Default")
hereunder:
(i) If Roex fails to pay when due and payable or when declared
due and payable, all or any portion of the Obligations (whether of principal,
interest or reimbursement of Bison's Expenses);
(ii) If Roex or any other party thereto other than Bison fails or
neglects to perform, keep or observe any term, provision, condition or covenant
in this Agreement, in any agreement, document or instrument entered into in
connection with this Agreement, in any of the other Bison Financing Agreements,
or in any other present or future agreement between Roex and Bison;
(iii) If there is a material impairment of the prospect of
repayment of the Obligations or of the value or priority of Bison's interest in
the Collateral;
(iv) If Roex makes any payment on account of indebtedness which
has been subordinated to the Obligations other than in the ordinary course of
business or as permitted under this Agreement;
(v) If any material portion of Roex's assets are attached,
seized, subjected to a writ or distress warrant, or are levied upon, or come
into the possession of any trustee, receiver, controller, custodian, assignee
for the benefit of creditor;
<PAGE>
(vi) If any proceeding under any provision of the federal
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors and formal or informal
moratoriums, compositions or extensions generally with Roex's creditors (an
"Insolvency Proceeding") is commenced by Roex;
(vii) If an Insolvency Proceeding is commenced against Roex and
is not dismissed within 45 days;
(viii) If Roex is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
(ix) If a notice of lien, levy or assessment is filed of record
with respect to any of Roex's assets by the United States Government, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien for an amount
in excess of Five Thousand Dollars ($5,000.00), whether choate or otherwise,
upon any of Roex's assets and the same is not paid on the payment date thereof;
(x) If a judgment or other claim becomes a lien upon any material
portion of Roex's assets.
Upon the occurrence of an Event of Default, Bison may, in its sole and
absolute discretion, and without notice to Roex, do any one or more of the
following:
(a) accelerate the Obligations and declare them to be immediately due and
payable;
(b) exercise any and all legal or equitable remedies afforded to Bison
under the Bison Financing Agreements, as amended hereby, or under any
other agreement, document, or instrument heretofore or hereafter
entered into between Bison and Roex, and as provided for under the
California Uniform Commercial Code or any other applicable law; and
(c) seek the appointment of a receiver for Roex.
The rights and remedies granted to Bison in this Section 11 are
cumulative, and Bison shall have the right to exercise any one or more of such
rights and remedies alternatively, successively or concurrently as Bison may, in
its sole and absolute discretion, deem advisable.
13. Reimbursement of Bison's Lender Expenses and Payment of Processing
Fee. Roex shall immediately, upon demand, reimburse Bison for all sums expended
by Bison which constitute Lender Expenses and Roex hereby authorizes and
approves all advances and payments by Bison for items constituting Lender
Expenses. For the purposes of this Section 13, Lender Expenses means all (i)
filing, recording, publication, search, or appraisal costs, paid or incurred by
Bison in connection with the transactions contemplated by this Agreement the
security, guaranty and other
<PAGE>
ancillary agreements, documents and instruments entered into in connection
herewith, and the Bison Financing Agreements (collectively, the "Loan
Documents"); (ii) reasonable costs and expenses incurred by Bison to administer
the transactions contemplated by the Loan Documents to cure any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale or advertising to sell the Collateral, irrespective of whether a sale is
consummated; (iii) reasonable costs and expenses of suit incurred by Bison in
enforcing or defending the Loan Documents or any portion thereof, including,
without limitation, actions brought by a trustee or any third party; or (vi)
Bison's attorneys' fees and expenses incurred in relation to advising,
analyzing, structuring, drafting, reviewing, amending, terminating, enforcing,
defending or concerning the Loan Documents, or any portion thereof, irrespective
of whether suit is brought.
14. Confidentiality. Except as otherwise required by law or as required
or advisable in connection with Bison's dealings with any of its accountants,
attorneys, auditors, lenders, participants, assignees or similar entities or
individuals, Bison agrees that any information furnished to it by Roex or
obtained by it hereunder shall be maintained by Bison in confidence, shall not
be disclosed by Bison to any third party and shall be used by Bison solely for
purposes related to this Agreement; provided, however, the foregoing shall not
in any way restrict Bison from exercising its rights and remedies provided for
in this Agreement to the full extent set forth herein.
15. Integration. This Agreement, and all agreements, documents and
instruments referred to or executed in connection herewith, including, without
limitation, the Bison Financing Agreements, shall constitute the complete
agreement of the parties hereto with respect to the subject matter referred to
herein, and shall supersede all prior or contemporaneous negotiations, promises,
covenants, agreements or representations of every kind or nature whatsoever with
respect thereto, all of which have become merged and finally integrated into
this Agreement. Each of the parties understands that in the event of any
subsequent litigation, controversy or dispute concerning any of the terms,
conditions or provisions of this Agreement, neither party shall be permitted to
offer or introduce any oral evidence concerning any other oral promises or oral
agreements between the parties relating to the subject matters of this Agreement
not included or referred to herein and not reflected by writing. This Agreement
cannot be amended, modified, or supplemented except by written document signed
by all parties hereto. In the case of a conflict between the provisions of this
Agreement and the Bison Financing Agreements, the provisions of this Agreement
shall control.
16. Further Assurances. Roex agrees that it will execute such other
documents and instruments and perform such other acts as Bison may reasonably
deem necessary or advisable, in its sole and absolute discretion, to carry out
and effectuate the purpose and intent of this Agreement.
17. Notices. All notices, requests and demands required to be given
hereunder, shall be in writing and shall be deemed to have been duly given upon
the date of such service if served personally upon the party for whom intended,
or if mailed, by first class, registered or certified mail, return receipt
requested, postage prepaid, upon three days after the date of such mailing, to
such party at its address as shown below or otherwise hereafter designated by
such party in writing:
<PAGE>
If to Roex:
Roex, Inc.
2081 Business Center Drive, Suite 185
Irvine, California 91612
Attention: Rodney H. Burreson, President
If to Bison:
Bison Development Fund, L.P.
315 Arden Avenue
Glendale, California 91206
Attention: Jay Murphy
18. No Assignment; Binding Effect. This Agreement may be assigned by
Bison in whole or in part in its sole and absolute discretion. This Agreement is
personal to Roex and shall not be assigned by Roex to any other person or
entity, and any such assignment shall be in violation hereof and null and void.
Notwithstanding the above, this Agreement shall be binding upon and shall inure
to the benefit of the respective parties hereto and their respective successors,
and upon the assigns of Bison.
19. Governing Law. Notwithstanding anything to the contrary contained in
the Bison Financing Agreements, the Bison Financing Agreements as amended by
this Agreement shall be governed by and construed in accordance with the laws of
the State of California applicable to contracts made and to be performed
entirely within such state.
20. Severability. If any provisions of this Agreement shall be invalid,
illegal or otherwise unenforceable, such provision shall be severable from the
remainder of such agreement, instrument or document, and the validity, legality
and enforceability of the remaining provisions shall not be adversely affected
or impaired thereby and shall remain in full force and effect.
21. Supremacy. In the event of a conflict between this Agreement and the
Bison Financing Agreements, the provisions and intent of this Agreement shall
prevail.
22. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
23. JURISDICTION AND VENUE. ROEX AND BISON, AND EACH OF THEM, HEREBY
AGREE THAT VENUE SHALL BE PROPER IN ANY COURT OF COMPETENT JURISDICTION LOCATED
IN LOS ANGELES, CALIFORNIA. THE PARTIES HERETO ACKNOWLEDGE THAT SUCH COURT HAS
THE JURISDICTION TO INTERPRET AND ENFORCE THE PROVISIONS OF THIS AGREEMENT, AND
THE PARTIES HERETO WAIVE ANY AND ALL OBJECTIONS THAT THEY MAY HAVE AS TO
JURISDICTION OR VENUE
<PAGE>
IN SUCH COURT. IN ADDITION, THE PARTIES HERETO CONSENT TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED IN CALIFORNIA.
24. WAIVER OF RIGHT TO TRIAL BY JURY. ROEX AND BISON EACH HEREBY WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THE LOAN
DOCUMENTS, THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREUNDER OR
HEREUNDER.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ROEX, INC.,
A California corporation
By:
Rodney H. Burreson
President and CEO
BISON DEVELOPMENT FUND, L.P.
A California Limited Partnership
By:
Jay Murphy
CEO of Bison Investments, Inc.,
General Partner
ROEX, INC.
STOCK OPTION AGREEMENT
(Non-Qualified)
This Stock Option Agreement is made this ____ day of September, 1998,
between Roex, Inc. (the "Company"), and Bison Development Fund, L.P. and/or its
Assigns (the "Option Holder").
R E C I T A L S
A. The Board of Directors has determined that it is to the advantage and
best interest of the Company and its shareholders to grant an option to the
Option Holder covering shares of the Company's Common Stock as an inducement to
loan to the Company $500,000, and has approved the execution of this Stock
Option Agreement between the Company and the Option Holder.
B. The option granted hereby is to an independent contractor and is not
intended to qualify as an "incentive stock option", in regard to Employees,
under Section 422A of the Internal Revenue Code of 1954, as amended.
NOW THEREFORE, the parties hereto agree as follows:
1. The Company grants to the Option Holder the right and option to
purchase on the terms and conditions hereinafter set forth, all or any part of
an aggregate of 116,350 shares of the Common Stock of the Company at the
purchase price of $0.50 per share, and exercisable from time to time in
accordance with the provisions of this Agreement during a period expiring on the
fourth anniversary from the date the Company becomes a publicly traded company
(the "Expiration Date").
2. The Option Holder may purchase any or all shares by exercise of this
Option between the date of this Agreement and the Expiration Date. The number of
shares which may be purchased shall be calculated to the nearest full share and
shall not be for fewer than 100 shares. The foregoing limitations shall
similarly apply to the transferees and assigns of the Option Holder by will or
by the laws of descent or distribution, so that said transferees and.or assigns
shall be entitled (provided they act within twelve (12) months after the death
of the Option Holder but in no event later than the Expiration Date) to purchase
by exercise of this Option all or any portion of the shares subject to this
Option which the Option Holder could have purchased by the exercise of the
option at the time of the Option Holder's death but with respect to which this
Option was not previously exercised, and no more. This Option may be exercised
during the lifetime of the Option Holder only by the Option Holder, or within
twelve (12) months after his death by his transferees by will or the laws of the
descent or distribution, and not otherwise, regardless of any community property
interest therein of
<PAGE>
the spouse of the Option Holder, or such spouse's successors in interest. If the
spouse of the Option Holder shall have acquired a community property interest in
this Option, the Option Holder, or Option Holder's permitted successors in
interest, may exercise the option on behalf of the spouse of the Option Holder
or such spouse's successors in interest.
3. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Company, specifying the number of
shares to be purchased and accompanied by payment to the Company of the full
purchase price of the shares to be purchased. The purchase price of the shares
upon exercise of an option shall be paid (i) in cash or by certified or
cashier's check payable to the order of the Company, (ii) by delivery of shares
of Common Stock of the Company already owned by and in the possession of the
option holder, or (iii) by a promissory note made by option holder in favor of
the Company, upon the terms and conditions determined by the Board of Directors
and secured by the shares issuable upon exercise complying with applicable law
(including, without limitation, state, corporate and federal margin
requirements), or any combination thereof. Shares of Common Stock used to
satisfy the exercise price of this Option shall be valued at their fair market
value determined as of the close of the business day immediately preceding the
date of exercise.
4. The fair market value of a share of Common Stock shall be determined
for purposes of this Agreement by reference to the most recent sale price of the
Company's Common Stock and such other factors as the Board of Directors may deem
appropriate to reflect the then fair market thereof, unless such shares are
publicly traded on a stock exchange or otherwise, in which case such value shall
be determined by reference to the closing price of such share on the principal
stock exchange on which such shares are traded, or, if such shares are not then
traded on a principal stock exchange, the mean between the bid and asked price
of a share as supplied by the National Association of Securities Dealers through
NASDAQ (or its successor in function), in each case as reported by The Wall
Street Journal, for the business day immediately preceding the date on which the
option is exercised.
5. No shares issuable upon the exercise of this Option shall be issued
and delivered unless and until there shall have been full compliance with all
applicable registration requirements of the Securities Act of 1933, all
applicable listing requirements of any national securities exchange on which
shares of the same class are then listed and any other requirements of law or of
any regulatory bodies having jurisdiction over such issuance and delivery.
Without limiting the foregoing, the undersigned hereby agrees
that unless and until the shares of stock covered by this Option have been
registered with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, he will purchase all shares of stock to be issued upon
exercise of this Option for investment and not for resale or for distribution
and that upon each exercise of any portion of this Option the person entitled to
exercise the same shall, upon the request of the Company, furnish evidence
satisfactory to the Company (including a written and signed representation) to
that effect in form and substance satisfactory to the Company, including an
indemnification of the Company in the event of any violation of the Securities
Act of 1933 by such person. Furthermore, the Company may, if it deems
appropriate, affix a legend to certificates
<PAGE>
representing shares of stock upon exercise of options indicating that such
shares have not been registered with the Securities and Exchange Commission and
may so notify its Transfer Agent, and may take such other action as it deems
necessary or advisable to comply with any other regulatory or governmental
requirements.
6. If Option Holder or Option Holder's permitted successors in interest
disposes of shares of Common Stock acquired pursuant to the exercise of this
Option, the Company shall have the right to require Option Holder or Option
Holder's permitted successor in interest to pay the Company the amount of any
taxes, which the Company may be required to withhold with respect to such
shares.
7. If the outstanding shares of the Common Stock of the Company are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities of the Company through reorganization,
recapitalization,reclassification, stock dividend, stock split or reverse stock
split, an appropriate and proportionate adjustment (to be conclusively
determined by the Board of Directors of the Company) shall be made in the number
and kind of securities receivable upon the exercise of this Option, without
change in the total price applicable to the unexercised portion of this Option
but with a corresponding adjustment in the price for each unit of any security
covered by this Option.
Upon the reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the Company is not the
surviving corporation, or upon the sale of substantially all the property or
more than 80% of the then outstanding stock of the Company to another
corporation, the Company or such successor or purchasing corporation (or an
affiliate of such successor or purchasing corporation), as the case may be,
agrees that the Option Holder shall have the right thereafter upon payment of
the Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Option the kind and amount of shares and other securities and
property (including cash) which he would have owned or have been entitled to
receive after the happening of such reorganization, consolidation, merger, sale
or conveyance had such Option been exercised immediately prior to such action.
The provisions of this paragraph shall similarly apply to successive
reorganizations, consolidations, mergers, sales or conveyances. Adjustments
under this paragraph 7 shall be made by the Board of Directors, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. No fractional shares shall be issued
under any such adjustment.
8. Neither the Option Holder nor any other person legally entitled to
exercise this option shall be entitled to any of the rights or privileges of a
shareholder of the Company in respect of any shares issuable upon any exercise
of this Option unless and until a certificate or certificates representing such
shares shall have been actually issued and delivered to him.
<PAGE>
9. This Option has been executed and delivered the day and year first
above-written at Irvine, California, and the interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California.
ROEX, INC.
By:__________________________________
Rodney H. Burreson
President
BISON DEVELOPMENT FUND, L.P.
By:_________________________________
Jay Murphy, President of
Bison Investment Group, Inc.,
General Partner
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 27, 1999, except for Note 6 as to which the date
is August 31, 1999, in the Registration Statement (Form SB-2) and related
Prospectus of Roex, Inc. for the registration of 1,000,000 shares of its common
stock.
STONEFIELD JOSPHSON, INC.
Santa Monica, California
December 3, 1999
