<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1998
REGISTRATION NO. 333-33567
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
AMENDMENT NO. 2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ROLLERBALL INTERNATIONAL INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE
(STATE OF INCORPORATION) 394 95-4478767
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
9255 DOHENY ROAD, SUITE 2705
LOS ANGELES, CALIFORNIA 90069
(310) 275-5313
(ADDRESS AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. JACK FORCELLEDO
CHIEF EXECUTIVE OFFICER
ROLLERBALL INTERNATIONAL INC.
9255 DOHENY ROAD, SUITE 2705
LOS ANGELES, CA 90069
TELEPHONE (310) 275-5313
FACSIMILE (310) 275-3081
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
VICTOR J. DIGIOIA, ESQ. KENNETH S. GOODWIN, ESQ.
BRIAN C. DAUGHNEY, ESQ. COLEMAN & RHINE LLP
GOLDSTEIN & DIGIOIA, LLP 1120 AVENUE OF THE AMERICAS
369 LEXINGTON AVENUE NEW YORK, NY 10036
NEW YORK, NY 10017 TELEPHONE (212) 840-3330
TELEPHONE (212) 599-3322 FACSIMILE (212) 840-3744
FACSIMILE (212) 557-0295
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended
("Securities Act"), please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuing basis pursuant to Rule 415 under the Securities Act,
check the following box: [X]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER MAXIMUM AGGREGATE AMOUNT OF
REGISTERED REGISTERED SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value(2)....................... 1,437,500 Shares $6.00 $8,625,000 $2,613
- --------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants(3)........ 125,000 Warrants $.001 $125 $1.00
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(4)....................... 125,000 Shares $9.90 $1,237,500 $372
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(5)....................... 495,873 Shares $3.75 $1,859,525 $563
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(6)....................... 247,936 Shares $6.00 $1,487,616 $450
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(7)....................... 140,000 Shares $6.00 $700,000 $212
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(8)....................... 152,392 Shares $6.00 $914,352 $277
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(9)....................... 82,127 Shares $6.00 $492,762 $149
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(10)...................... 106,667 Shares $6.00 $400,000 $121
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(11)...................... 120,000 Shares $6.00 $720,000 $218
- --------------------------------------------------------------------------------------------------------------------------------
Totals........................... 3,032,495 16,436,880 $4,976
================================================================================================================================
</TABLE>
(1) Total estimated solely for the purpose of determining the registration fee.
The number of shares to be received upon exercise of, and the exercise
price of convertible debentures and warrants, the underlying shares of
which are being registered hereby, are subject to adjustment in certain
circumstances. Also includes such additional shares as may be required as a
result of rounding off after conversions and contemplated stock split to be
effective prior to the effective date. See footnotes 4, 5, 6, 7 below. Of
the $4,976 total fee, $4,715 has previously been paid.
(2) Includes 187,500 shares of Common Stock subject to sale upon exercise of
over-allotment option granted to the Underwriter.
(3) Represents warrants to purchase 125,000 shares of Common Stock to be issued
to the Underwriter.
(4) Reserved for issuance upon exercise of warrants to be issued to the
Underwriter. Pursuant to Rule 416 of the Securities Act of 1933, as
amended, ("Securities Act"), there are also being registered such
additional number of shares issuable as may become issuable pursuant to the
anti-dilution provisions of the warrants.
(5) Represents shares of Common Stock issuable upon conversion of $1,859,525 of
12% convertible debentures ("12% Debentures") which shares are to be sold
by certain selling security holders. The 12% Debentures are convertible at
a per share conversion price (the "Conversion Price") equal to 75% of the
initial public offering price; therefore, as the initial public offering
price, and likewise the Conversion Price, increases or decreases, as the
case may be, the number of shares issuable upon conversion decreases or
increases, respectively. However, the maximum offering price will always
remain at $1,859,525, the aggregate principal amount of the 12% Debentures.
The number of shares registered reflects an offering price of $5.00 per
share.
(6) Represents shares of Common Stock issuable upon the exercise of 247,936
outstanding Common Stock purchase warrants issued in private placement
offerings by the Company and held by certain selling security holders. For
purposes of calculating the registration fee, the public offering price has
been assumed to be $6.00 per share, the exercise price of the warrants.
Pursuant to Rule 416 of the Securities Act, there are also being registered
such additional number of shares as may become issuable pursuant to the
anti-dilution provisions of the warrants.
(7) Represents shares of Common Stock issued, held by and to be sold by selling
security holders holding, in the aggregate, $700,000 of promissory notes.
For purposes of calculating the registration fee, the public offering price
has been assumed to be $6.00 per share.
(8) Represents issued and outstanding shares of Common Stock to be sold by
certain selling stockholders.
(9) Represents shares of Common Stock issuable upon exercise of 82,127
outstanding Common Stock purchase warrants issued to the Underwriter in
1994. For purposes of calculating the registration fee, the offering price
has been assumed to be $1.68 per share, the exercise price of the warrants.
Pursuant to Rule 416 of the Securities Act, there are also being registered
such additional number of shares of Common Stock as may become issuable
pursuant to the anti-dilution provisions of the warrants.
(10) Represents shares of Common Stock issuable upon conversion of $400,000
principal amount of promissory note which shares are to be sold by a
certain selling stockholder. The note is convertible at a per share price
equal to 75% of the initial public offering price; therefore, as the
initial public offering price, and likewise the conversion price, increases
or decreases, as the case may be, the number of shares issuable upon
conversion decreases or increases, respectively. For purposes of
calculating the registration fee, the public offering price has been
assumed to be $6.00 per share. The maximum offering price will always
remain at $400,000. The number of shares registered reflects an offering
price of $5.00 per share.
(11) Represents shares of Common Stock to be issued to a selling stockholder
holding a $600,000 promissory note which entitles the holder to such number
of shares determined by dividing the principal amount of the note by the
initial public offering price, which shares are to be sold by the Selling
Stockholder. For purposes of calculating the registration fee, the public
offering price has been assumed to be $6.00 per share. The number of shares
registered reflects an offering price of $5.00 per share.
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering of shares of Common Stock, par value $.001
per share, to be sold by the Company (the "Company Prospectus") and one to be
used in connection with the sale of 1,246,771 shares of Common Stock, par value
$.001 per share, to be sold by certain selling stockholders (the "Stockholder
Prospectus"). The Company Prospectus and the Stockholder Prospectus will be
identical in all respects except for the alternate pages for the Stockholder
Prospectus included herein which are labeled "Alternate Pages for Stockholder
Prospectus."
<PAGE> 4
CROSS REFERENCE SHEET
PURSUANT TO ITEM 502(f) OF REGULATION S-B
BETWEEN REGISTRATION STATEMENT AND FORM OF PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING CAPTION IN PROSPECTUS
----------------------- ---------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus............................ Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors............. Prospectus Summary; The Company; Risk
Factors; Summary Consolidated
Financial Information
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of
Prospectus; Underwriting
6. Dilution......................................... Dilution
7. Selling Security Holders......................... Selling Security Holders
8. Plan of Distribution............................. Inside Front Cover; Underwriting
9. Legal Proceedings................................ Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons................................ Management
11. Security Ownership of Certain Beneficial Owners
and Management................................. Management; Principal Stockholders
12. Description of Securities........................ Description of Capital Stock
13. Interests of Named Experts and Counsel........... Not Applicable
14. Disclosure of Commission Position on
Indemnification................................ Description of Capital Stock
15. Organization With Last Five Years................ Certain Relationships and Related
Transactions
16. Description of Business.......................... Business
17. Management's Discussion and Analysis or Plan..... Management's Discussion and Analysis
18. Description of Property.......................... Business -- Facilities
19. Certain Relationships and Related Transactions... Certain Relationships and Related
Transactions
20. Market for Common Equity and Related Stockholder
Matters........................................ Outside Front Cover of Prospectus;
Risk Factors
21. Executive Compensation........................... Management -- Executive Compensation
22. Financial Statements............................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............ Not Applicable
</TABLE>
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 9, 1998
PROSPECTUS
1,250,000 SHARES
ROLLERBALL INTERNATIONAL INC.
[ROLLERBALL LOGO]
COMMON STOCK
Rollerball(R) International Inc. ("Rollerball" or the "Company") is hereby
offering 1,250,000 shares (the "Shares") of its common stock, par value $.001
per share (the "Common Stock"). Prior to this offering, there has been no public
market for the Common Stock, and there can be no assurance such a market will
develop or be sustained. It is currently estimated that the initial public
offering price per Share will be between $5.00 and $6.00. The initial public
offering price of the Shares has been arbitrarily determined by negotiation
between the Company and Auerbach, Pollak & Richardson, Inc. (the "Underwriter")
and is not necessarily related to the Company's assets, book value, results of
operations, or any other established criteria of value. The Company has applied
to have its Common Stock approved for quotation on the SmallCap Market of the
Nasdaq Stock Market, Inc. ("Nasdaq") under the proposed symbol "ROLL".
This Prospectus also relates to the offer and sale by certain security
holders of the Company (the "Selling Stockholders") assuming an initial public
offering price of $5.50 per Share, of a total of 1,246,771 shares of Common
Stock comprised of: (i) an aggregate of 450,794 shares of Common Stock (the
"Conversion Shares"), issuable upon conversion of $1,859,525 principal amount of
outstanding 12% convertible debentures ("12% Debentures") at a conversion price
equal to 75% of the offering price of the Shares, which 12% Debentures were
issued by the Company in a private offering completed in September 1996 (the
"1996 Private Offering"); (ii) 225,397 shares of Common Stock (the "1996 Warrant
Shares") issuable upon exercise of outstanding warrants ("1996 Warrants") issued
by the Company in the 1996 Private Offering; (iii) 152,392 shares of issued and
outstanding Common Stock ("1994 Shares") issued by the Company in connection
with the exercise of Common Stock purchase warrants ("1994 Warrants") issued in
a private offering completed in June 1994 ("1994 Private Offering"); (iv)
140,000 shares ("Bridge Shares") of Common Stock issued by the Company in a
private offering ("1997 Bridge Offering") completed in April 1997; (v) 82,127
shares of Common Stock ("Agent Warrant Shares") issuable upon exercise of
outstanding warrants ("Agent Warrants") issued by the Company to the Underwriter
for services rendered to the Company in connection with the 1994 Private
Offering; and (vi) 206,061 shares of Common Stock ("1997 Loan Shares") issuable
by the Company at the closing of this offering to one of the Selling
Stockholders in consideration of a loan in the principal amount of $1,000,000
made by such Selling Stockholder to the Company in October 1997 ("1997 Loan").
The Conversion Shares, 1996 Warrant Shares, 1994 Shares, Bridge Shares, Agent
Warrant Shares and 1997 Loan Shares are sometimes referred to herein as the
"Selling Stockholder Shares." The Selling Stockholders have agreed not to offer,
sell or otherwise dispose of an aggregate of all 1,246,771 Selling Stockholder
Shares for a period of six months from the date hereof without the prior written
consent of the Underwriter. The Company will not receive any proceeds from the
sale of the Selling Stockholder Shares. See "Risk Factors," "Use of Proceeds"
and "Concurrent Sales."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT
SHOULD INVEST IN THE SHARES. FOR A DESCRIPTION OF CERTAIN RISKS AND IMMEDIATE
SUBSTANTIAL DILUTION, SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
=======================================================================================================================
</TABLE>
(1) Does not reflect additional compensation to be received by the Underwriter
in the form of (i) warrants to purchase 125,000 Shares of Common Stock
exercisable over a period of four years, commencing one year from the date
hereof at a per share exercise price equal to 165% of the initial public
offering price of the Shares ("Underwriter's Warrants"), which exercise
price and amount of securities is subject to adjustment in certain
circumstances and (ii) a non-accountable expense allowance equal to 3% of
the total price to the public. In addition, the Company has agreed to
indemnify the Underwriter for certain liabilities under the Securities Act
of 1933, as amended ("Securities Act"). See "Underwriting" and "Use of
Proceeds."
(2) Before deducting expenses payable by the Company, estimated at $ or
$ per Share ($ or $ per Share if the Underwriter
exercises its over-allotment option in full), including the Underwriter's
nonaccountable expense allowance and expenses associated with the Selling
Stockholder Shares. See "Underwriting."
(3) The Company has granted an option to the Underwriter exercisable within 45
days after the date of this Prospectus, to purchase up to 187,500 additional
shares to cover over-allotments, if any, at the public offering price less
underwriting discounts and commissions. If the over-allotment option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Company would be $ , $ , and
$ , respectively. See "Underwriting."
The Shares are being offered by the Underwriter subject to prior sale, when,
as and delivered to and accepted by the Underwriter, and subject to approval of
certain legal matters by counsel for the Underwriter. The Underwriter reserves
the right to withdraw, cancel or modify such offer and to reject any order
either in whole or in part. It is expected that delivery of certificates
evidencing the Shares offered hereby will be made against payment therefor at
the offices of counsel to the Underwriter on or about March , 1998.
AUERBACH, POLLAK & RICHARDSON, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 6
[Appearing in this space and on the back cover are 7 pictures
of the Company's skate products and persons
using the products.]
The Company is not currently a reporting company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and therefore has not
filed any reports with the Securities and Exchange Commission (the
"Commission"). Upon completion of this offering, the Company intends to register
under the Exchange Act and furnish its stockholders with annual reports
containing audited financial statements reported on by independent auditors and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET
PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN
THE COMMON STOCK MAINTAINED BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with the more detailed information and financial statements, and the
notes relating thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, all references in this Prospectus to numbers of shares of Common
Stock and to related per share data and information give retroactive effect to
the (i) reverse split of the outstanding shares of Common Stock on an
approximate 0.6:1 basis and (ii) the surrender for cancellation of 600,000
shares of Common Stock owned by Mr. Jack Forcelledo, the Company's Chief
Executive Officer, both to be effected prior to the effective date of the
Registration Statement ("Effective Date") of which this Prospectus forms a part.
Unless otherwise specified, all information in this Prospectus assumes an
initial public offering price of $5.50 per Share, the mid-point of the price
range stated on the cover of this Prospectus, and no exercise of the over-
allotment option granted to the Underwriter.
THE COMPANY
ROLLERBALL INTERNATIONAL INC. ("Rollerball" or the "Company") develops,
manufactures, distributes and markets an innovative, patented design of inline
skates under the registered trademark Rollerball. The Rollerball skate differs
from traditional inline skates (e.g. Rollerblade(R), Bauer(R), Ultra-Wheels(R),
etc.) by offering the consumer a skate that has spherical-shaped wheels instead
of the flat, disk-shaped wheels of traditional inline skates, resulting in
enhanced performance. Since its incorporation in 1994, the Company's efforts
have been focused on designing, engineering and developing the Rollerball line
of in-line skates. The Company has been granted several United States and
foreign patents which protect its innovative skateball designs and technology.
Since its formation, the Company has expanded its product line to presently
include 18 models of inline skates that appeal to a wide range of price and
performance levels for use in recreational, fitness, hockey and aggressive
skating. During the year ended December 31, 1997 the Company had sales for 9 of
its models resulting in sales of approximately $2,023,000. The Company intends
to commercially introduce the other 9 models during the first half of fiscal
1998. Rollerball also offers related accessories including helmets, safety pads
and replacement parts. The Company's sales have been limited to date and have
been primarily in the international market. With the proceeds of this offering,
the Company intends to aggressively market and sell its products in the United
States.
Rollerball's inline skates differ from traditional inline skates in
appearance and in performance. The Company believes that its proprietary
Rollerball skating system is the next generation of inline skates and the first
major product innovation in inline skating since the introduction of the
original Rollerblade(R) skate in the 1970's. Rollerball offers inline skates
with unique patented spherical wheels that are slightly smaller than a tennis
ball (70mm or 60mm in size) and are engineered to create support and balance
when in contact with the skating surface. The spherical cross section of the
Radial Skateball Technology(TM) provides a uniform, unchanging shape and a
greater area of contact with respect to the skating surface. Rollerball's design
allows a skater to achieve levels of acceleration, balance and maneuverability
greater than that which can be achieved by comparably priced traditional inline
skates. Furthermore, because of these characteristics, the Company believes that
its Rollerball skates enhance the experience of inline skating while providing a
more stable, body-friendly platform which appeals to all skaters from beginner
to advanced. The Company believes these product features provide Rollerball with
a skate superior to any other product commercially available and will enable
Rollerball to compete with the major inline skate manufacturers both in the
United States and worldwide.
Rollerball intends to use the proceeds of this offering to expand its
business through widespread introduction of the Rollerball product lines into
the United States retail market, the continued expansion and penetration of the
Company's product lines in international markets, investment in the development
of the next generation of Rollerball products, the building of tooling, molds
and inventory, the establishment of a third party licensing program for the
Rollerball trademarks in clothing, entertainment and toys and the increase of
marketing and sales through direct response television and other at-home
shopping services throughout the world.
The Company was incorporated in the State of Delaware on March 7, 1994. The
principal executive offices of the Company are located at 9255 Doheny Road,
Suite 2705, Los Angeles, California 90069 and its telephone number is (310)
275-5313.
3
<PAGE> 8
THE OFFERING
Common Stock offered................ 1,250,000 shares
Common Stock Outstanding
Prior to offering(1)(2)........... 2,683,568 shares
Common Stock to be Outstanding
Immediately After offering(1)(3).... 4,590,423 shares
Use of Proceeds..................... The net proceeds of this offering will
be used for: increasing inventory;
marketing, advertising and promotional
support; purchase of equipment such as
tools and molds; product design and
research; repay certain debt; and
working capital. See "Use of Proceeds."
Risk Factors........................ An investment in the Shares offered
hereby is speculative and involves a
high degree of risk, including risks
associated with the Company's ability
to continue as a going concern as set
forth in the auditor's report to the
financial statements appearing
elsewhere in this Prospectus; default
on certain debt; limited operating
history; accumulated deficit and recent
losses; dependence on third-party
manufacturing and suppliers; and other
risks. See "Risk Factors."
Proposed Nasdaq SmallCap Market
Symbol(4)........................... "ROLL"
- ---------------
(1) Does not include: (i) 125,000 shares of Common Stock reserved for issuance
upon exercise of the Underwriter's Warrants to be issued to the Underwriter;
(ii) 99,025 shares of Common Stock reserved for issuance upon the exercise
of outstanding warrants; (iii) 750,000 shares of Common Stock reserved for
issuance under the Company's 1994 employee stock option plan ("1994 Employee
Plan") of which options to purchase 244,826 shares of Common Stock have been
issued to date; (iv) 100,000 shares of Common Stock reserved for issuance
under the Company's 1997 Non-Employee Director Plan ("Director Plan"), none
of which options have been issued to date; (v) 16,936 shares reserved for
issuance upon conversion of outstanding convertible notes (other than the
12% Debentures); (vi) 225,397 1996 Warrant Shares; and (vii) 82,127 Agent
Warrant Shares. Includes 140,000 Bridge Shares deemed issued and outstanding
as of November 1, 1997.
(2) Does not include: (i) 450,794 Conversion Shares; and (ii) 206,061 1997 Loan
Shares.
(3) Includes: (i) 450,794 Conversion Shares; and (ii) 206,061 1997 Loan Shares.
(4) It is a condition precedent to the offering that the Company's Common Stock
be accepted for listing on the Nasdaq SmallCap Market. The Nasdaq SmallCap
Market quotation does not imply that a liquid and active market will
develop, or be sustained, for the Shares upon completion of the offering.
There can be no assurance that the Company will, if accepted by the Nasdaq
SmallCap Market, continue to meet the maintenance criteria for quotation on
the Nasdaq SmallCap Market.
4
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The summary financial information was derived from the financial statements
of the Company. The summary should be read in conjunction with Management's
Discussion and Analysis, the financial statements of the Company and the related
notes, each appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994(1) 1995 1996 1997
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.................................. $ 469,703 $4,201,658 $4,850,416 $2,022,692
Gross (Loss) Profit........................ (104,349) 1,439,641 1,746,637 679,418
Operating Expenses......................... 1,250,523 1,487,162 2,197,574 2,406,016
Loss before Income Taxes................... (1,356,066) (84,317) (547,503) (3,144,439)
Net Loss................................... (1,356,866) (85,117) (548,303) (3,145,239)
Pro Forma net loss per share............... $ (.17) $ (.97)
========== ===========
Pro Forma weighted average number of shares
outstanding(2)........................... 3,149,712 3,238,635
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------
DECEMBER 31, PRO FORMA
----------------------- PRO AS
1995 1996 ACTUAL FORMA(3) ADJUSTED(4)
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)... $(713,420) $(1,637,787) $(3,495,039) $(1,264,039) $4,553,055
Total assets................... 583,804 1,915,177 2,797,856 2,797,856 6,584,324
Debt........................... -- 1,775,000 3,575,000 1,400,000 100,000
Notes payable to
stockholders................. 345,000 260,000 250,000 250,000 75,000
Stockholders' (deficit)
equity....................... (398,307) (911,610) (2,414,689) (183,689) 5,398,811
</TABLE>
- ---------------
(1) Fiscal 1994 reflects operations from inception in March 1994 through
December 1994.
(2) Pro forma net loss per share of Common Stock has been computed for all
periods presented and is based on the weighted average number of shares
outstanding during the period, including the Conversion Shares and Bridge
Shares.
(3) Gives effect to the conversion of $1,859,525 principal amount of 12%
Debentures into 450,794 Conversion Shares. The 12% Debentures automatically
convert on the Effective Date into Common Stock at a per share conversion
rate of 75% of the initial public offering price of the Shares. Also gives
effect to the conversion of $400,000 principal amount of the 1997 Loan into
96,970 1997 Loan Shares and the issuance of 109,091 1997 Loan Shares. See
"Risk Factors -- Default on Certain Debt" for additional information
regarding the Company's default as to the 12% Debentures and Bridge Notes.
(4) Adjusted to give effect to the sale of the 1,250,000 Shares offered hereby
at $5.50 per share and the anticipated use of the estimated proceeds
therefrom, including repayment of principal and interest on the Company's
$700,000 principal amount 12% subordinated debentures ("Bridge Notes")
issued in the 1997 Bridge Offering. As of November 1, 1997 the Bridge Notes
commenced bearing interest at 18% per annum. See "Risk Factors -- Default on
Certain Debt" and "Use of Proceeds."
5
<PAGE> 10
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk
and should be considered only by those investors who can afford the risk of loss
of their entire investment. In addition to the other information in this
Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the Shares offered by this Prospectus. Prospective
investors should note that this Prospectus contains certain "forward-looking
statements," including, without limitation, statements containing the words
"believes," "anticipates," "expects," "intends," "should," "seeks to," and
similar words. Prospective investors are cautioned that all such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual results may differ materially from those in the
forward-looking statements as a result of various factors, including but not
limited to, the risk factors set forth in this Prospectus. The accompanying
information contained in this Prospectus identifies all material risk factors
that could cause such difference.
DECLINE IN SALES IN FISCAL YEAR 1997. The Company has had limited sales to
date and has primarily directed its efforts to refining the Radial Skateball
Technology(TM) concept and testing new product prototypes and component parts.
During the fiscal year ended December 31, 1997, the Company experienced a
significant decrease in sales compared to the fiscal year ended December 31,
1996. For the year ended December 31, 1997, the Company had sales of
approximately $2,023,000 compared to sales of $4,850,000 for the previous year.
The decrease in sales was primarily the result of several factors, including the
lack of adequate funds for inventory purchases and marketing and advertising,
the Company's decision to switch production and marketing efforts to its four
ball skates from two ball skates, and a decrease in demand for two ball skates
from retailers. The Company intends to focus its marketing upon its four ball
skates and newer models, and increase its marketing efforts with the proceeds of
this offering. See "Management Discussion and Analysis" and "Business -- Sales
and Marketing."
ACCUMULATED DEFICIT; RECENT LOSSES; EXPLANATORY PARAGRAPH IN AUDITOR'S
REPORT. The Company has been operating with negative working capital since its
inception. For the fiscal year ended December 31, 1997, the Company had a net
loss of $3,145,239 as compared to a net loss of $548,303 for the fiscal year
ended December 31, 1996. For the year ended December 31, 1995, the Company had a
net loss of $85,117 and a working capital deficit of 713,420. At December 31,
1996 and December 31, 1997, the Company had an accumulated deficit of $1,990,286
and $5,135,525, respectively. The Company's independent auditors have stated in
their report that there is substantial doubt about the Company's ability to
continue as a going concern. The continuation of the Company's operations is
materially dependent on the receipt of additional capital from this offering or
other sources. Although the Company currently anticipates a minimal net profit
for the fiscal year 1998, these earnings are dependent upon increased sales of
the Company's product. If sales do not increase as anticipated the Company may
have losses as a result of anticipated significant expenses, including marketing
and advertising costs, development costs, and general and administrative
expenses. Because the Company anticipates incurring significant expenses in
connection with the continued development and marketing of its products, there
can be no assurance that the Company will achieve sufficient additional revenues
to offset anticipated operating costs. Inasmuch as the Company will continue to
have high levels of operating expenses and will be required to make significant
expenditures to market its products in a highly competitive industry, the
Company may experience significant operating losses that could continue until
such time, if ever, that the Company is able to generate sufficient additional
revenues to support its operations. See "Management's Discussion and Analysis."
DEFAULT ON CERTAIN DEBT. As of October 31, 1997 the Company was in payment
default with respect to the 12% Debentures, the principal amount of which was
$1,859,525 (inclusive of $84,525 of accrued interest). Pursuant to the terms of
the 12% Debentures, payment of all principal and interest was automatically due
October 31, 1997. The 12% Debentures contain terms which provide that upon the
effectiveness of the Company's registration statement in an initial public
offering, the principal amount of the 12% Debentures shall be automatically
converted into the Conversion Shares at the per share conversion price of 80% of
the offering price. There are no conditions in the 12% Debentures requiring
holders to declare or notify the Company of any payment default. Although the
Company believes that under the terms of the 12%
6
<PAGE> 11
Debentures it may have the ability to require the holders of the 12% Debentures
to accept the Conversion Shares as payment therefore, the Company has determined
it to be in its best interests to avoid potential disagreements with the holders
and obtain an amicable resolution of the issue with the holders of the 12%
Debentures. Without the proceeds of this offering the Company is unable to repay
the debt represented by the 12% Debentures. The Company has made all interest
payments on the 12% Debentures up to and including January 31, 1998. The Company
has requested that the holders of the 12% Debentures waive all defaults and
extend the maturity date to April 30, 1998. In order to obtain such waiver, the
Company has proposed to the holders of the 12% Debentures that the conversion
price be reduced from 80% of the offering price to 75% of the offering price and
to pay an additional 6% interest from November 1, 1997 through the date of
payment. Additionally, the Company has proposed that the exercise price of the
1996 Warrants (which were received by the holders of the 12% Debentures) be
reduced from 120% of the offering price of the shares to equal the offering
price. There can be no assurance that all or any holders of the 12% Debentures
will waive any defaults and extend the maturity date. Further, there can be no
assurance that the holders of the 12% Debentures will not demand payment of
their 12% Debentures and decline to accept the Conversion Shares. In the event
that the holders demand cash payment, the Company's proposed use of proceeds for
this offering may be significantly altered to include payments to the holders.
In such event, the Company would have significantly less cash available to
implement its business plan. See "Use of Proceeds" and "Management Discussion
and Analysis."
In connection with the 1997 Bridge Offering, the Company issued $700,000
principal amount of Bridge Notes. Pursuant to the terms of the Bridge Notes,
payment of principal and interest was due and payable upon the earlier of
October 31, 1997 or consummation of the public offering. The Company does not
have the funds to repay the Bridge Notes without the proceeds of this offering.
Certain holders of the Bridge Notes have delivered notice of default to the
Company. The Bridge Notes provide for a default interest rate of 18% from the
date of default on October 31, 1997 to the date of payment. See "Use of
Proceeds" and "Management's Discussion and Analysis."
LIMITED OPERATING HISTORY; RAPID GROWTH. The Company was incorporated in
1994, has had limited sales to date and has not been in business long enough to
enable an investor to make a reasonable judgment as to its future performance.
Since its inception, the Company's efforts have been focused upon design and
development of its Radial Skateball Technology(TM) products and not on sales or
marketing. Since the commencement of operations, the Company's operating
expenses have grown rapidly and the Company intends to continue to expand
operations after the conclusion of this offering. The Company's limited sales to
date have been primarily in international markets and with the Home Shopping
Network(R) ("HSN") and the Company intends, with the proceeds of this offering,
to emphasize the marketing and sale of its products on a greatly expanded basis
in the United States. From its inception through December 31, 1997, the Company
has had approximately $11,544,000 in total sales, of which $7,008,000 were in
the international market and $4,536,000 were U.S. domestic sales. For the fiscal
year ended December 31, 1997 the Company had total sales of $2,023,000, of which
$526,000 were in international markets and the remainder were U.S. domestic
sales. The likelihood of the success of the Company must be considered in light
of the problems, expenses, difficulties, complications and delays frequently
encountered in connection with a developing business and the competitive
environment in which the Company will operate. There can be no assurance the
Company will be able to implement its business plans or manage the growth of its
operations. See "Business" and "Management's Discussion and Analysis."
NEED FOR ADDITIONAL FUNDS. Based on the Company's operating plan,
management believes that the proceeds from this offering and anticipated cash
flow from operations and other sources such as the exercise of outstanding
convertible securities, will be sufficient to meet the Company's anticipated
cash needs and finance its plans for expansion for at least the next 12 months
from the Effective Date of this offering. Thereafter, the Company may need
additional financing to meet its plans for expansion and to expand its product
lines. In addition, in the event the holders of the 12% Debentures do not waive
all defaults and accept the Conversion Shares instead of cash payments, the
Company will be required to use portions of the proceeds of this offering for
some repayments. As a result the Company would be required to reallocate the use
of proceeds and may not be able to fully implement its business plan. The
Company does not currently have any line of credit or any lending facility
available to it. The Company has been discussing obtaining a line of credit from
financial
7
<PAGE> 12
institutions and intends further discussions following this offering. No
assurance can be given that the Company will be successful in obtaining
additional financing on favorable terms, if at all. See "Use of Proceeds" and
"Management's Discussion and Analysis."
RELIANCE ON MAJOR CUSTOMERS. Three of the Company's largest customers
represented 67% of total sales for the fiscal year ended December 31, 1996, and
82% of total sales for the year ended December 31, 1997. For the year ended
December 31, 1997 these three customers accounted for 56%, 15% and 11%
respectively, of total sales. These three customers were the Home Shopping
Network, Inc. ("HSN"), Carrefour France, a hypermarket located in France and The
J.C. Penney Company. As is customary in the industry, the Company does not have
long-term contracts with any of its customers. While management expects the
Company's customer base to expand, a limited number of large orders may continue
to account for a significant portion of the Company's sales during any given
period for the foreseeable future. The loss of, or a reduction in business from,
any of its major customers could have a material adverse effect on the Company's
results of operations. See "Business -- Sales and Marketing."
BROAD DISCRETION IN REALLOCATION OF PROCEEDS. Approximately $396,000
(7.6%) of the proceeds of this offering have been allocated to working capital.
The Company may reallocate certain uses of the proceeds from this offering
within the disclosed uses in the event of changes in the Company's business plan
or financial position (due to unanticipated expenses, delays, problems or
otherwise). See "Use of Proceeds."
USE OF PROCEEDS TO REPAY DEBT. The Company has allocated approximately
$1,736,500 (31%) of the proceeds of this offering to repay outstanding debt.
These funds will not therefore be available to the Company for general purposes
such as purchasing inventory, advertising, hiring of personnel or the expansion
of its business. Of the total debt being repaid, $610,000 will be paid to Sercap
Holdings LLC, an entity of which Mr. Lawrence Stumbaugh is an officer and
director. Mr. Stumbaugh became a director of the Company in October 1997. An
additional $150,000 of the debt being repaid is being utilized to repay accrued
salary of an officer.
INTELLECTUAL PROPERTY. The Company was granted a United States Patent (No.
5,590,890) by the United States Patent and Trademark Office on January 7, 1997
on the basis of its original Radial Skateball Technology(TM). The Company has
filed additional patent applications and will continue to do so as it improves
its products and develops new products. In February 1997 the Company obtained a
United States Patent (No. 378,115) for its GFX(R) Skate design. The Company has
also been granted patents and/or has filed patent applications in several other
countries and has registered the trademark "Rollerball" in the United States and
several other countries. The Company has trademark applications pending in other
foreign countries. The Company has filed for a 3-D trademark protection in
Germany and filed for similar trademark protections in Europe. Rollerball cannot
be registered as a trademark in the People's Republic of China and certain other
foreign countries. Trademark applications have been allowed for the Rollerball
name in other market/business segments such as clothing, toys and entertainment
(CD-ROM, comic books, video and broadcast television). There can be no assurance
that any existing patents or patent applications, if granted, and related
trademark protection will be effective in protecting the Company's products from
duplication by other manufacturers. Although the Company believes that the
products sold by it do not and will not infringe upon the patents or violate the
proprietary rights of others, it is possible that such infringement or violation
has occurred or may occur.
The Company has recently received correspondence from Metro-Goldwyn-Mayer
("MGM"), a motion picture entity which alleged that the Company's use of the
name "Rollerball" infringed upon MGM's alleged trademark rights in the name
"Rollerball" which was the name of a 1975 film produced by MGM. The Company was
granted a United States trademark for the Rollerball name in 1995 with respect
to, among other things, in-line skates and related products. Based upon advice
of counsel, the Company does not believe that MGM has any such rights in the
name and intends to vigorously defend itself against MGM's allegations. Although
neither party has commenced litigation in this matter, there can be no assurance
that this dispute will not result in litigation. In the event that litigation
results, the Company can be expected to incur significant costs to defend
itself. Based upon advice of counsel, the Company believes that it has strong
and meritorious defenses to the claims of MGM.
8
<PAGE> 13
In the event that products sold by the Company are determined to infringe
upon the patents or proprietary rights of others, the Company could be required
to modify its products or obtain a license for the manufacture and/or sale of
such products, or could be prohibited from selling such products. There can be
no assurance that, in such an event, the Company would be able to do so in a
timely manner, upon acceptable terms and conditions, or at all, and the failure
to do any of the foregoing could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will be able to
afford the expense of any litigation which may be necessary to enforce its
rights under its currently issued patents or any patents issued in the future or
with respect to the enforcement or defense of trademark rights. Moreover, there
can be no assurance that the Company will have the financial or other resources
necessary to defend a patent infringement or proprietary rights violation
action. In addition, if the Company's products or proposed products are deemed
to infringe upon the patents or proprietary rights of others, the Company could,
under certain circumstances, become liable for damages, which could also have a
material adverse effect on the Company. The Company's products are also sold in
many other countries and even though the Company may obtain patents in such
countries, the Company's ability to obtain adequate protection may be limited in
such countries. See "Business -- Patents and Trademarks."
DEPENDENCE ON THIRD-PARTY AND FOREIGN MANUFACTURING AND SUPPLIERS. The
Company does not own or lease any manufacturing facilities and does not
manufacture any of the component parts for its products, and purchases all skate
components from unaffiliated suppliers. Other than the Radial Skateballs which
are produced in the United States, substantially all of the Company's components
are manufactured in foreign countries including the People's Republic of China.
The Company relies upon two independent agents to obtain manufacturing of
certain component parts in foreign countries. The Company does not have any
contracts with manufacturers or suppliers. Foreign manufacturing is subject to a
number of risks, including transportation delays and interruptions, political
and economic disruptions, the impositions of tariffs and import and export
controls and changes in governmental policies. While the Company has not
experienced any material adverse effects due to such risks, there can be no
assurance that such events will not occur in the future with the result of
possible increases in costs and delays of, or interferences with, product
deliveries resulting in losses of revenues and goodwill. The chassis and safety
brakes for the Company's RB(R) and GFX(R) skates are produced in foreign
countries which may subject the Company to a risk of loss of its molds and
tooling associated with such products in the event of a dispute with a foreign
manufacturer or other occurrence such as those noted above. Further, purchasing
products from manufacturers located in the People's Republic of China subjects
the Company to an additional risk of substantially higher duty rates in the
event that the United States government does not renew the most-favored nation
trade status extended to the People's Republic of China. No assurance can be
given that the United States will continue the People's Republic of China's
most-favored nation trade status. The Company believes that, at the present
time, it has sufficient sources of supply of component parts, and that in the
event any existing supplier ceases to furnish component parts to the Company,
alternative sources are available. There can be no assurance, however, that the
future production and assembly capacity of the Company's current suppliers and
manufacturers will be sufficient to satisfy the Company's requirements or that
alternate suppliers and manufacturers will be available on commercially
reasonable terms, or at all. See "Business -- Manufacturing and Assembly."
IMMEDIATE SUBSTANTIAL DILUTION; DILUTION RESULTING FROM EXERCISE OF OPTIONS
AND WARRANTS. The purchasers of the Shares will incur an immediate and
substantial dilution in the net tangible book value of the Shares after this
offering of $4.57 per Share (83% of the public offering price) from the public
offering price of $5.50 per Share. This dilution calculation gives effect to the
conversion of all of the principal amount of the 12% Debentures, repayment in
full of the Bridge Notes, repayment of $600,000 principal amount of the 1997
Loan, the surrender and cancellation of 600,000 Shares of Common Stock and
conversion of $400,000 principal amount of the 1997 Loan. See "Dilution."
Dilution Resulting from Exercise of Options and Warrants. At the Effective
Date, the Company will have outstanding at the consummation of this offering
604,826 options and 531,549 warrants, of which 425,978 options and warrants have
exercise prices of less than the offering price of the shares. As a result,
holders of these options and warrants will receive shares of Common Stock upon
exercise at a cost below that paid by investors in this offering. The exercise
in full of these options and warrants may dilute the net book value per share of
the Common Stock, resulting in further dilution to investors.
9
<PAGE> 14
FOREIGN CURRENCY AND FOREIGN EXCHANGE RATES. The Company's products are
primarily sourced through independent purchasing agents from suppliers located
in Taiwan, the People's Republic of China and Thailand. Approximately 26% of its
parts are sourced in Taiwan, 34% in the People's Republic of China and 27% in
Thailand. The Company negotiates the cost of its products directly with its
suppliers in United States Dollars and its purchases are primarily effected
through letters of credit in United States Dollars. As a result, exchange rate
fluctuations could have a minor effect upon the Company's ability to negotiate
favorable price terms with suppliers, which may adversely effect the cost of
goods sold and the resultant gross margins for the Company's products. In
addition, in the event the exchange rate between United States dollars and the
currency used by the Company's foreign suppliers fluctuates, it may become
uneconomical or impractical for either the suppliers or the Company to continue
their relationship. Many countries in the Far East have been experiencing
significant currency instability and devaluations in recent months, including
Thailand. To date the Company has not experienced any material effect from the
recent economic turmoil in Asia. This economic turmoil has not resulted in
difficulty for the Company in obtaining products from its suppliers since the
suppliers are paid in United States Dollars. In addition, since the Company has
not recently attempted to market its products in Asia in any material manner,
the Company's sales have not been materially affected. The Company believes that
its parts and supplies can be purchased from several different producers in
various countries and therefore its ability to obtain supplies and parts would
not be materially adversely affected by currency fluctuations for any
substantial period of time. A substantial portion of the Company's business is
conducted through Hong Kong which has recently been transferred to the People's
Republic of China. There can be no assurance that the new government will
continue to utilize Hong Kong's current currency system. In such event, the
Company would need to obtain alternative supply arrangements, and there can be
no assurance that alternative suppliers would be available, or if available, on
terms acceptable to the Company. See "Management's Discussion and Analysis."
DEPENDENCE ON ONE PRODUCT LINE. Substantially all of the Company's
revenues have been generated, and will continue to be generated, by sales of
inline skates and related athletic protective equipment. No assurance can be
given that consumer demand for these products in general or the Company's
products in particular will continue in the future. A reduction in the demand
for these products would have a material adverse effect on the Company's results
of operations. The Company's profitability and sales will also depend on the
strength of foreign and United States economies, which can dictate consumers'
spending habits on leisure-related goods, including the Company's products. No
prediction can be made about the future of the economy of the United States or
any foreign country in which the Company will offer its products for sale. As
the Company's products are leisure-related products, any prolonged downturn in
the economy, whether real or perceived, could adversely affect consumer demand
for the Company's products. See "Business."
COMPETITION. The market for the Company's products, internationally and in
the United States, is highly competitive and the Company anticipates competition
to continue to be intense in the foreseeable future. This competition is direct
(i.e., companies that make similar products) and indirect (i.e., companies that
participate in the sporting goods and accessories market, but are not direct
competitors of the Company). The Company's products compete with other sports
related products, such as those products used in golf, tennis, running and
bicycling as well as numerous other activities. The Company competes with major
inline skate manufacturers such as Rollerblade(R), First Team Sports(R),
Variflex(R), Roller Derby(R), California Pro(R), Bauer(R) and K2(R). Most of the
Company's competitors have significantly greater financial, technical,
manufacturing and marketing resources, and broader name recognition, than the
Company. See "Business -- Competition."
PRODUCT LIABILITY CLAIMS; INSURANCE. Although the Company has incurred no
product liability claims to date, the Company may become subject to product
liability claims, including claims for serious personal injury or death, due to
the nature of its products. The Company believes that it has adequate liability
insurance for risks arising in the normal course of business, including product
liability insurance with respect to all of its products. There can be no
assurance, however, that the Company will be able to maintain insurance at
reasonable cost, if at all, that insurance will be adequate to cover liabilities
resulting from product liability claims or that the Company will have funds
available to pay any claims over the limit of its insurance. As sales of the
Company's products increase, it will become potentially exposed to a larger
number of liability claims
10
<PAGE> 15
which could therefore exceed the amount of its insurance policies. Successful
assertion against the Company of one or a series of large uninsured claims, or
of one or a series of claims exceeding any insurance coverage, could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business."
GOVERNMENT REGULATION; PRODUCT RECALLS. Certain of the Company's products
may be subject to regulation by the Federal Consumer Products Safety Commission
(the "CPSC"), and may therefore be subject to recall if requested by the CPSC.
In addition, the Company may be required to change or modify its current or
future products in order to comply with CPSC's rules or other rules and
regulations related to the safety of its products or any future rules or
regulations. In the event the Company is required to modify or change its
products, it may incur substantial additional costs related to design and
manufacture, and may incur significant down-time in being able to produce
inventory for sale, all of which could have a material adverse effect upon the
Company. The Company is not aware of any current proceeding by the CPSC which
would result in the recall of the Company's products. A recall of the Company's
products could result in significant expense to the Company. There can be no
assurance that the Company will have the necessary funds available to it to
conduct any recall or that if conducted, it will have funds available for its
continued operation. See "Business -- Government Regulation."
DEPENDENCE UPON EXECUTIVE OFFICERS; LIMITED PERSONNEL. The success of the
Company is dependent upon the efforts and abilities of its founder, Chairman,
President and Chief Executive Officer, Jack Forcelledo. The loss of the services
of Mr. Forcelledo would have a material adverse affect on the Company's
operations. The Company has entered into a four-year employment agreement with
Mr. Forcelledo and has obtained "key man" life insurance in the amount of
$1,000,000 on the life of Mr. Forcelledo, of which the Company is a beneficiary.
It is unlikely that the proceeds of this insurance would be adequate to
compensate the Company for the loss of the services provided by Mr. Forcelledo.
See "Management."
To date, the Company has relied additionally on the services of independent
technical, production, sales and marketing personnel to develop and sell its
products. In addition, the Company has used two independent agents (Lucky Yeh
International Ltd. ("LYI") and PCL International, Inc. ("PCL")) to obtain
foreign suppliers and manufacturing facilities. The Company has only seven
full-time employees. After the conclusion of this offering, the Company intends
to increase its permanent staff to operate the Company and implement its
business plans. The Company has not determined the number of employees to be
hired following this offering, and hiring will be based significantly upon its
ability to increase sales. The Company anticipates that if it does increase its
staff, the additional employees will be hired for sales and marketing, product
design and administrative positions during the next 12 months. Although the
Company believes that necessary additional personnel to staff the Company are
available, there can be no assurance that the Company will be successful in
assembling an effective staff in a timely manner. See "Use of Proceeds" and
"Business -- Management."
ROYALTY ARRANGEMENTS. The Company has certain contractual commitments to
pay royalties to five individuals who had assisted the Company in obtaining its
Radial Skateball Technology(TM). Under the current agreements, the Company has
agreed to pay Messrs. Giuseppe Consarino and Steve Kimmel each a royalty of 1%
of net sales, except sales based on a letter of credit, and .6% of net sales
based on a letter of credit. Mr. Consarino's royalty payment cannot exceed a
maximum of $350,000 in any fiscal year. Mr. Forcelledo has had a royalty
agreement with the Company which provides for a 3% royalty on net sales which
royalty Mr. Forcelledo has agreed to terminate in full effective January 1,
1997. During the fiscal years ended December 31, 1996 and December 31, 1997 the
Company incurred expenses of $167,068 and $10,446, respectively with respect to
these royalty agreements. Messrs. Giusseppe Rosso, Franco Rosso and Ettore
Carenni, the originators of the Radial Skateball Technology(TM), are entitled to
be paid an aggregate royalty of 2.5% of the cost of goods sold, after certain
deductions including expenses for patents and trademarks. To date no royalty
payments have been paid to Messrs. Giusseppe Rosso, Franco Rosso and Ettore
Carenni nor have any accrued, as a result of these deductions which equaled
approximately $2,000,000 as of December 31, 1997. The agreements require the
royalties to be paid in perpetuity; however, the terms of all the royalty
agreements provide that their royalty payments may be reduced pro rata to any
reduction in royalty payments agreed to by the other party in connection with a
public offering by the Company. Mr. Kimmel has agreed to reduce his royalty
payment by 50%. The Company intends to reduce the other royalty payments by a
similar amount.
11
<PAGE> 16
These royalty reductions will be effective upon the Effective Date. Although the
Company believes that it has the right to unilaterally reduce the amount of
these royalty fees, there can be no assurance that the other parties will not
instigate litigation against the Company. Investors should consider the effects
of the royalty agreements on the Company's income in the future. See "Financial
Statements", "Management's Discussion and Analysis" "Management -- Employment
Agreements" and "Business -- Royalty Arrangements".
ABILITY TO MANAGE GROWTH. The Company anticipates a period of rapid growth
that is expected to place a strain on the Company's administrative, financial
and operational resources. The Company's ability to manage any staff and
facilities growth effectively will require it to improve its operational,
financial and management controls, to continue to improve its reporting systems
and procedures, to install new management information systems and to train,
motivate and manage its employees. There can be no assurance that the Company
will install such management information systems in an efficient and timely
manner or that the new systems will be adequate to support the Company's
operations. If the Company is unable to hire, train and retain qualified
personnel to implement the necessary services effectively, its ability to
attract repeat sales could be adversely affected, which could limit the
Company's growth opportunities. If the Company's management is unable to manage
growth effectively, such as if the Company's sales and marketing efforts exceed
its capacity to obtain inventory in a timely manner, the Company's business,
operating results and financial condition could be adversely affected. See
"Business" and "Management."
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS. Following the completion
of this offering, current management of the Company will own, in the aggregate,
approximately 30% of the outstanding Common Stock (excluding options held by
management). The election of directors is by plurality vote and there is no
cumulative voting. Accordingly, the existing management may be able to
significantly influence the election of the Board of Directors of the Company
and to direct the affairs of the Company. In addition, under the 1994 Employee
Plan and the Director Plan, the Company has reserved for issuance an aggregate
of 850,000 shares (13.2% of Common Stock outstanding assuming the issuance of
all 850,000 options) which may be issued pursuant to options granted under these
plans to employees and directors. As of March 1, 1998, there were 244,826
options outstanding. Of the 244,826 outstanding options, 159,731 are held by
members of the Company's management. In the event that the 159,731 options were
exercised, management would own an additional 3.4% of the outstanding Common
Stock. An additional 360,000 options will be granted to officers and directors
on the Effective Date, 300,000 of which vest over a four year period. In the
event that these additional 360,000 options were exercised, management would own
approximately an additional 7.3% of the Common Stock. See "Management" and
"Principal Stockholders."
FACTORS INHIBITING TAKEOVER. Certain provisions of the Company's Amended
and Restated Certificate of Incorporation and Bylaws may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that a
stockholder might consider in the Company's or the stockholder's best interest.
The Company's Amended and Restated Certificate of Incorporation authorizes the
Board of Directors to determine the rights, preferences, privileges and
restrictions of unissued series of preferred stock and the designation of any
such series, without any vote or action by the Company's stockholders. Thus, the
Board of Directors can authorize and issue shares of preferred stock with voting
or conversion rights that could adversely affect the voting or other rights of
holders of the Company's Common Stock. In addition, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change of
control of the Company, since the terms of any preferred stock which might be
issued could contain terms which could contain special voting rights or increase
the costs of acquiring the Company. Other provisions of the Company's
Certificate of Incorporation and Bylaws divide the Company's Board of Directors
into three classes, each of which classes will serve for different three-year
periods which may have the effect of delaying, deferring or preventing a change
in control of the Company. These provisions may not be amended without the
affirmative vote of not less than 66 2/3% of the issued and outstanding shares
entitled to vote thereon. See "Description of Capital Stock -- Preferred Stock"
and "--Certain Charter, ByLaw and Statutory Provisions."
The Company is subject to Section 203 of the Delaware General Corporation
Law ("DGCL") which prevents transactions between the Company and an "interested
stockholder" unless certain conditions are satisfied. The applicability of
Section 203 may have the effect of delaying, deferring or preventing "changes in
12
<PAGE> 17
control" of the Company, even if such event would be beneficial to the then
existing stockholders. See "Description of Capital Stock -- Certain Provisions
of Delaware Law."
LACK OF DIVIDENDS. The Company has not paid any dividends on its Common
Stock since its inception and does not anticipate paying any dividends on its
Common Stock in the foreseeable future. Earnings, if any, will be used to
finance the development and expansion of the Company's business. See "Dividend
Policy."
NO PRIOR MARKET FOR THE COMMON STOCK; DETERMINATION OF OFFERING
PRICE. Prior to this offering, there has been no public market for the Common
Stock of the Company. While the Company has applied for the listing of the
Common Stock on the Nasdaq SmallCap Market, there can be no assurance that an
active trading market for the Common Stock will be established, or if so
established, sustained. The initial offering price for the Shares has been
arbitrarily determined through negotiation between the Company and the
Underwriter based on such factors as the business potential and earnings
prospects of the Company and prevailing market conditions. Such price may not be
indicative of the market price of the Shares after this offering has been
consummated. See "Underwriting."
POSSIBLE DELISTING; PENNY STOCK REGULATION. It is a condition of this
offering that the Company's Common Stock be accepted for listing on the Nasdaq
SmallCap Market. Under Nasdaq rules, in order to maintain listing on the Nasdaq
SmallCap Market, a company must have, among other things, $2,000,000 of net
tangible assets or market capitalization of $35,000,000 or $500,000 of net
revenue in each of the two previous fiscal years and a minimum bid price of
$1.00 per share. The Company will, upon consummation of this offering, satisfy
the maintenance criteria for continued listing on the Nasdaq SmallCap Market. In
addition, Nasdaq reserves the right to withdraw or terminate the Company's
listing on the Nasdaq SmallCap Market at any time and for any reason in its
discretion. In the event that the Company is unable to maintain continued
quotation on the Nasdaq SmallCap Market, quotation, if any, of the Common Stock
would be in the over-the-counter market in what are commonly referred to as the
"pink sheets" of the National Quotation Bureau, Inc. or on the National
Association of Securities Dealers OTC Electronic Bulletin Board. As a result, an
investor may find it more difficult to dispose of or to obtain accurate
quotations as to the price of such securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. In addition, if the Company's
securities do not meet an exception to the penny stock regulations cited above,
trading in the Company's securities would be covered by Rule 15g-9 promulgated
under the Exchange Act for non-Nasdaq and non-national securities exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000 or $300,000 together with their spouses) must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if the market price is at least $5.00 per share.
If the Company's securities become subject to the regulations applicable to
penny stocks, the market liquidity for the Shares could be adversely affected
because the regulations on penny stocks could limit the ability of
broker/dealers to sell the Company's securities and thus the ability of
purchasers of the Company's securities to sell their securities in the secondary
market.
LIMITATIONS ON DIRECTOR LIABILITY. Delaware law provides that a director
of the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director. In addition, the Company's Amended and Restated Certificate of
Incorporation provides for mandatory indemnification of directors and officers
to the fullest
13
<PAGE> 18
extent permitted or not prohibited by Delaware law. See "Description of Capital
Stock -- Indemnification of Directors and Officers."
SHARES ELIGIBLE FOR FUTURE SALE; UNDERWRITER'S WARRANTS. Upon completion
of this offering, there will be 4,590,423 shares of Common Stock outstanding, of
which the 1,250,000 Shares sold pursuant to this offering will be tradeable
without restriction by persons other than "affiliates" of the Company. The
450,794 Conversion Shares, 140,000 Bridge Shares, 206,061 1997 Loan Shares,
152,392 1994 Shares, 82,127 Agent Warrant Shares and 225,397 Warrant Shares held
by the Selling Stockholders and registered under the registration statement of
which this Prospectus forms a part, will be freely tradeable as long as the
prospectus related thereto remains current and effective, subject to any lock-up
agreements obtained by the Underwriter. Of the 4,590,423 shares of Common Stock
which will be outstanding, 3,169,631 shares of Common Stock will be freely
tradeable pursuant to Rule 144 promulgated under the Securities Act commencing
90 days from the date of this Prospectus. Of such shares, 1,394,469 are owned by
officers or directors of the Company (inclusive of the 206,061 1997 Loan
Shares). No prediction can be made as to the effect, if any, that future sales
of shares of Common Stock will have on the market price of the shares of Common
Stock prevailing from time to time. Sales of substantial amounts of Common
Stock, or the perception that these sales could occur, could adversely affect
prevailing market prices for the Common Stock and could impair the ability of
the Company to raise additional capital through the sale of its equity
securities or through debt financing.
The Company and its officers, directors and certain stockholders, including
the Selling Stockholders, have agreed (the "Lock-Up Agreements") not to sell or
otherwise dispose of certain of their shares of Common Stock or other securities
of the Company (other than pursuant to private transfers in connection with
which the transferees agree to be bound by the same "lock-up" provision) without
the prior written consent of the Underwriter. The lock-up period is six months
from the Effective Date with respect to the 1,246,771 Selling Stockholder
Shares, including shares held by Mr. Stumbaugh, a director and his affiliate
Sercap Holdings LLC. The lock-up period is 18 months from the Effective Date
with respect to the 1,394,469 shares of outstanding Common Stock owned by all
other officers and directors of the Company. Notwithstanding the foregoing, in
the event that the closing price of the Company's Common Stock is at least 120%
of the initial offering price commencing 12 months from the Effective Date, the
officers and directors may sell the same number of shares as would be available
for sale by them under Rule 144 commencing after said 12th month. The
Underwriter has no current intention of waiving the Lock-Up Agreements prior to
their expiration. The waiver of any particular Lock-Up Agreement will not
constitute a waiver of all Lock-Up Agreements, and to the extent the Company is
made aware of any waiver, it does not intend to provide notice of same to any
other stockholders. See "Underwriting" and "Shares Eligible for Future Sale."
The Selling Stockholders include five persons who are either officers or
employees of the Underwriter and hold 56,782 Selling Stockholder Shares. These
persons have agreed not to sell any of their shares for six months following the
offering pursuant to the Lock-Up Agreements.
Following completion of this offering, the Underwriter will hold the
Underwriter's Warrants to purchase up to 125,000 shares of Common Stock. The
Underwriter's Warrants will entitle the Underwriter to purchase shares at 165%
of the offering price for a period of four years commencing one year from the
closing of this offering. The exercise of the Underwriter's Warrants may dilute
the book value per share of Common Stock. The holders of such warrants may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company and have the
opportunity to benefit from increases in the price of the Common Stock without
risk of an equity investment. The Company has agreed to register under federal
and state securities laws the Common Stock underlying the Underwriter's Warrants
for resale. Such registration rights could involve substantial expenses to the
Company and may adversely affect the terms upon which the Company may obtain
additional financing. See "Underwriting."
CONCURRENT REGISTRATION OF SELLING STOCKHOLDER SHARES. The holders of the
Selling Stockholder Shares have the right to require that such shares be
included in the registration statement of which this Prospectus forms a part.
The Selling Stockholder Shares are being registered simultaneously with this
offering. The Selling Stockholders have agreed not to offer, sell or transfer
their Selling Stockholder Shares for a period of six months from the Effective
Date without the prior written consent of the Underwriter. Sales of the Selling
14
<PAGE> 19
Stockholder Shares, or even the potential of such sales could adversely affect
the market price of the Common Stock. See "Shares Eligible for Future Sale",
"Concurrent Sales" and "Underwriting."
UNDERWRITER'S INFLUENCE UPON MANAGEMENT OF THE COMPANY. Pursuant to the
terms of the Company's agreement with the Underwriter, the Underwriter has the
right to nominate a person to serve on the Company's Board of Directors for a
period of three(3) years. The Company has agreed to use its best efforts to
obtain the election of such nominee. Although the Underwriter has not determined
to nominate any person to serve, in the event of election of such person to the
Company's Board of Directors the Underwriter may be deemed to have a degree of
influence on the Company. See "Underwriting".
UNDERWRITER'S INFLUENCE ON THE MARKET. A significant number of the shares
of Common Stock offered hereby may be sold to customers of the Underwriter. Such
customers subsequently may engage in transactions for the sale or purchase of
such securities through or with the Underwriter. Although it has no obligation
to do so, the Underwriter intends to make a market in the Common Stock and may
otherwise effect transactions in such securities. If it participates in such
market, the Underwriter may exert a dominating influence on the market, if one
develops, for the Common Stock. Such market-making activity may be discontinued
at any time. Moreover, if the Underwriter (or its affiliated persons) exercises
the Underwriter's Warrants or Agent Warrants, it may be required under
Regulation M promulgated under the Exchange Act to temporarily suspend its
market-making activities. The price and liquidity of the Common Stock may be
significantly affected by the degree, if any, of the Underwriter's participation
in such market. See "Underwriting."
FUTURE ISSUANCES OF STOCK BY THE COMPANY; AUTHORIZED PREFERRED
STOCK. Following this offering, the Company will have 50,000,000 shares of
Common Stock authorized, of which 4,590,423 shares will be issued and
outstanding, assuming that the over-allotment option has not been exercised, and
an additional 396,304 shares will have been reserved for issuance underlying
outstanding warrants and an aggregate of 850,000 shares for issuance under the
1994 Employee Plan and the Director Plan of which options to purchase 244,826
are issued and outstanding. An additional 360,000 options will be granted on the
Effective Date, 300,000 of which vest over a four year period. The Company will
also have 10,000,000 shares of preferred stock, $.10 par value per share (the
"Preferred Stock"), authorized, none of which have been issued as of the date
hereof.
The Company's Amended and Restated Certificate of Incorporation authorizes
the issuance of the Preferred Stock with such designations, rights and
preferences as may be determined from time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue Preferred Stock with dividend, liquidation, conversion voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. The balance of the Company's authorized
shares of Common Stock and all of the Preferred Stock are not reserved for any
purpose and may be issued without any action or approval by the Company's
stockholders. The Company will not offer or sell Preferred Stock to any officer,
director, 5% shareholder of the Company or affiliate or associate of such
persons without the approval by a majority of the Company's independent
directors who do not have an interest in the transaction and who have access, at
the Company's expense, to the Company's or independent counsel. The Company does
not have any present intention to issue any additional securities (other than in
connection with its option plans and the exercise of currently outstanding
options, warrants or other convertible securities) during the 12 months
following this offering. See "Description of Capital Stock."
15
<PAGE> 20
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,250,000 Shares offered hereby after deducting the Underwriter's discount and
commissions ($687,500) and the estimated expenses of this offering ($605,000),
and assuming an initial public offering price of $5.50 per share, are
approximately $5,583,000 (approximately $6,541,000 if the Underwriter's
over-allotment option is exercised in full). The application of these proceeds
is intended to be made over the next 12 months substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE OF
AMOUNT NET PROCEEDS
---------- -------------
<S> <C> <C>
Inventory(1)............................................... $2,000,000 35.6%
Marketing, advertising and promotional support............. 1,000,000 17.8%
Repayment of 1997 Loan(2).................................. 610,000 10.8%
Repayment of Bridge Notes(3)............................... 801,500 14.3%
Molds and tooling, and product hardware.................... 250,000 4.4%
Product designs, research and development.................. 200,000 3.6%
Repayment of outstanding debt(4)........................... 175,000 3.2%
Payment of accrued officer's salary(5)..................... 150,000 2.7%
Working Capital(6)......................................... 396,376 7.6%
---------- -----
Total............................................ $5,582,876 100.0%
========== =====
</TABLE>
- ---------------
(1) Includes the purchase of skate components, finished product assemblies and
short term warehousing for distribution to the United States.
(2) The terms of the 1997 Loan provide that $600,000 of such loan is to be
repaid upon consummation of this offering. The 1997 Loan bears interest at
12% per annum. The proceeds of the 1997 Loan were used for inventory
purchases, to pay costs of this offering and general corporate purposes.
(3) The terms of the Bridge Notes provide for repayment in full of all principal
and interest upon consummation of this offering. The Bridge Notes bore
interest at 12% per annum. As of October 31, 1997 the Bridge Notes were in
default and are entitled to an additional 6% of interest for a total
interest rate of 18% per annum. The amount noted includes interest owed
through March 31, 1998. The proceeds of the issuance of the Bridge Notes
were utilized for inventory purchases, costs of this offering and general
corporate purposes.
(4) The Company will repay $175,000 of loans from stockholders and former
officers and directors of the Company. The loans are due upon demand and
bear interest at 12% per annum. The proceeds of the loans were used for
working capital. See "Certain Relationships and Related Transactions."
(5) At the closing of this offering, $150,000 will be paid to Mr. Forcelledo for
partial payment of accrued salary to the date of this Prospectus. See
"Management -- Employment Agreements."
(6) Includes the development and completion of the Company's administrative and
operational infrastructure, selling, general and administrative expenses and
other general corporate purposes. Includes the payment of $69,000 to a
creditor of the Company. See "Legal Proceedings." These funds may also be
utilized to pay officer's salaries.
The above amounts and priorities for the use of proceeds represent
management's estimates based upon current operating plans and certain strategic
assumptions, including those relating to the Company's future revenue levels and
expenditures, and assumptions regarding industry and general economic and other
conditions. Although the Company does not contemplate any changes in the
proposed use of proceeds, to the extent the Company finds that adjustment is
required to the use of proceeds of this offering, the amounts shown may be
adjusted among the uses indicated above, or certain portions of the net proceeds
may be used for other purposes. Such shifts will be at the discretion of the
Company. Any material changes in the use of proceeds by the Company will be
reported by the Company in its Exchange Act reports. In the event the
16
<PAGE> 21
Company is able to obtain a credit line for inventory purchases, the Company may
utilize all or some of the proceeds allocated above for inventory purchases for
additional marketing, advertising and working capital. The Company reserves the
right to enter into short term borrowing in the future as business conditions or
the Company's needs may require.
There can be no assurance that all or any holders of the 12% Debentures
will waive any defaults, or will not demand payment in cash and decline to
accept the Conversion Shares. In the event that any holders of the 12%
Debentures refuse to accept the Conversion Shares in payment of the 12%
Debentures, the Company will be required to use proceeds of this offering up to
a maximum of $1,859,525 to repay the 12% Debentures, plus additional sums for
interest. The use of proceeds set forth above would require reallocation as a
result thereof.
The Company anticipates that it will commence the application of the
proceeds upon completion of this offering and that such proceeds will be applied
over the next twelve months. The Company believes that the net proceeds of this
offering will be sufficient to satisfy its requirements to implement its
business plans over such period.
To the extent the over-allotment option is exercised, any proceeds from
such exercise will be used for working capital.
The Company will not derive any proceeds from the sale of the Selling
Stockholder Shares by the Selling Stockholders, although it will receive the
exercise price of the 1996 Warrants in the event a 1996 Warrant is exercised by
a Selling Stockholder. In the event that all of the 225,397 1996 Warrants are
exercised, the Company will receive $1,239,684 of proceeds. Any proceeds
received from the exercise of 1996 Warrants will be used for working capital
purposes. Additionally, in the event that all of the Agent Warrants are
exercised, the Company will receive $137,973, which proceeds will be used for
working capital purposes.
Pending the use of the offering proceeds, the net proceeds of this offering
will be invested in short-term interest-bearing deposits or United States
government securities.
DIVIDEND POLICY
The Company has not paid dividends since inception and the Company does not
expect to pay dividends in the foreseeable future. The Company intends to retain
all of its available funds for the operation and expansion of its business.
17
<PAGE> 22
DILUTION
At December 31, 1997 the Company had negative net tangible book value of
$(3,783,632) or $(1.41) per share of Common Stock. At December 31, 1997, the
Company had a pro forma negative net tangible book value of $(1,552,632) or
$(.46) per share of Common Stock after giving effect to the conversion of the
12% Debentures and the issuance of the 1997 Loan Shares. After giving effect to
the sales by the Company of 1,250,000 Shares at an offering price of $5.50 per
Share, and the application of the estimated proceeds therefrom, the pro forma
net tangible book value of December 31, 1997 would have been $.93 per share. Net
tangible book value per share is the Company's total tangible assets less its
total liabilities, divided by the number of shares of Common Stock outstanding.
This represents an immediate increase in pro forma net tangible book value of
$1.39 per share of Common Stock to the pre-offering stockholders and an
immediate dilution of $4.57 per share (83% of the offering price) to purchasers
of the Shares. Dilution represents the difference between the initial public
offering price paid by purchasers in this offering and the net tangible book
value per share immediately after completion of this offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $5.50
Pro Forma Net tangible book value per share before this
offering............................................... $(.46)
Increase in pro forma net tangible book value per share
attributable
to the sale of the Shares offered hereby............... $1.39
-----
Pro forma net tangible book value per share after this
offering.................................................. $ .93
-----
Dilution per share to new stockholders...................... $4.57
=====
</TABLE>
The following table sets forth, on a pro forma basis as of the date of this
Prospectus, a comparison of (i) the number of shares of Common Stock acquired
from the Company by investors pursuant to this offering and acquired from the
Company by the pre-offering stockholders of the Company, (ii) the total
consideration paid to the Company and (iii) the respective average purchase
price per share paid by the investors and the pre-offering stockholders.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Current stockholders................... 3,340,423(2) 73% $ 3,551,836 34% $1.06
New stockholders....................... 1,250,000 27% 6,875,000 66% $5.50
--------- --- ----------- ---
Total........................ 4,590,423 100% $10,426,836 100%
========= === =========== ===
</TABLE>
- ---------------
(1) Does not give effect to: (i) 125,000 shares of Common Stock issuable upon
exercise of the Underwriter's Warrants; (ii) 850,000 shares of Common Stock
reserved for issuance under the Company's option plans of which options to
purchase 244,826 shares have been issued; and (iii) 396,304 shares of Common
Stock reserved for issuance upon the exercise of outstanding Common Stock
purchase warrants.
(2) Gives effect to the issuance of: (i) the Conversion Shares; (ii) the 1997
Loan Shares and (iii) the surrender and cancellation of 600,000 shares.
At the Effective Date, the Company will have outstanding 604,826 options
and 531,549 warrants with exercise prices ranging from $1.68 per share to $9.90
per share. In the event that all of the outstanding options and warrants were
exercised, at an aggregate exercise price of $5,926,524, new investors would own
approximately 20% of the outstanding Common Stock and would have paid 36% of the
total consideration paid for all outstanding Common Stock of the Company. See
"Capitalization", "Management" and Note 9 to the Financial Statements.
18
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
----------- ----------- --------------
<S> <C> <C> <C>
Short Term Debt:
Notes Payable to Stockholders................. $ 250,000 $ 250,000 $ 75,000
Bridge Notes.................................. 700,000 700,000 --
1997 Loan..................................... 1,000,000 600,000 --
12% Debentures................................ 1,775,000 -- --
----------- ----------- -----------
Total Short Term Debt(3).............. $ 3,725,000 $ 1,550,000 $ 75,000
Long Term Note Payable.......................... 100,000 100,000 100,000
Stockholders' Equity:
Preferred Stock, par value $.10 per share,
10,000,000 shares authorized, no shares
outstanding................................ -- -- --
Common Stock, par value $.001 per share,
50,000,000 shares authorized, 2,683,568
(actual) shares outstanding, 3,340,423 pro
forma outstanding and 4,590,423 outstanding
pro forma as adjusted(4)................... 2,684 3,340 4,590
Additional Paid-In Capital.................... 2,718,152 4,948,496 10,529,746
Retained Deficit.............................. (5,135,525) (5,135,525) (5,135,525)
----------- ----------- -----------
Total Stockholders' Equity (Deficit).......... (2,414,689) (183,689) 5,398,811
----------- ----------- -----------
Total Capitalization.................. $ 1,410,311 $ 1,466,311 $ 5,573,811
=========== =========== ===========
</TABLE>
- ---------------
(1) Gives effect to the issuance of the Conversion Shares and the 1997 Loan
Shares.
(2) Adjusted to reflect the application of the net proceeds of the Shares
offered hereby assuming a $5.50 per share offering price. See "Use of
Proceeds" and "Management's Discussion and Analysis."
(3) See Notes 4 and 5 to the Financial Statements for further information as to
short term debt and obligations, interest rates and maturity dates of such
indebtedness.
(4) Does not give effect to: (i) 125,000 shares of Common Stock issuable upon
exercise of the Underwriter's Warrants; (ii) 850,000 shares of Common Stock
reserved for issuance under the Company's option plans of which options to
purchase 244,826 shares have been issued; and (iii) 396,304 shares of Common
Stock reserved for issuance upon the exercise of outstanding Common Stock
purchase warrants.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company designs, manufactures and distributes inline skates using its
patented Radial Skateball Technology(TM), which utilizes a ball instead of the
traditional wheel to provide skaters with better balance, maneuverability and
control. inline skating has been one of the fastest-growing segments of the
sporting goods industry, and the Company's products target the entire spectrum
of skaters, ranging from beginner to advanced, including models for recreation,
fitness, hockey and aggressive skating.
Rollerball was founded by Chairman, President and Chief Executive Officer
Jack Forcelledo in 1994. The Company has primarily devoted its efforts to
refining the Radial Skateball Technology(TM) concept, testing new product
prototypes, designing new component parts and introducing new products since its
inception. Additionally, management has expanded significant efforts obtaining
patent and trademark protection and developing manufacturing and supplier
relationships. By the second quarter of 1997, the Company had completed the
design, testing and manufacturing processes for 18 different skate models at
various price points covering the recreation, fitness, hockey and aggressive
segments of the inline skate market and had established a nationwide network of
sales representatives to launch the distribution of the product through various
channels.
Test marketing of the Company's products to date has primarily occurred in
international markets and, to a limited extent, through HSN in the United
States. Prior to this offering, the Company has operated on limited funds, with
virtually no funds allocated for sales and marketing. From inception in March
1994 through the year ended December 31, 1997, the Company has generated more
than $11 million in revenue from this limited sales and marketing program. Upon
completion of this offering, the Company plans a full-scale introduction of its
products into the United States retail marketplace, additional development and
licensing of the Rollerball trademark and ongoing introductions of new products
and innovative technologies for inline skating and related accessories.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net Sales. Net sales for the year ended December 31, 1997 were $2,022,692,
which represents a decrease of $2,827,724, or 58.3%, as compared to the year
ended December 31, 1996. This decrease was primarily attributable to the lack of
funds necessary to purchase the inventory needed to fulfill sales orders, which
included funds to switch to four ball skate production. In addition, there was a
general decrease in orders from retailers throughout the inline skate industry
due to major retailers taking heavy inventory positions in 1996 which were not
offset by increased retail sales. The Company did not decrease its prices
significantly during the year ended December 31, 1997 as compared to the year
ended December 31, 1996 and therefore was not materially affected by any such
changes.
Gross Profit. Gross profit for the year ended December 31, 1997 was
$679,418, which represents a decrease of $1,067,219, or 61.1%, compared to the
year ended December 31, 1996. The decrease in gross profit was primarily due to
decreased sales volume for the year ended December 31, 1997 as compared to the
year ended December 31, 1996. Gross margin for the year ended December 31, 1997
was 33.6%, which represents a decrease of 2.4% as compared to the year ended
December 31, 1996. The decrease was related to air freight bills for inventory
shipments to meet several sales deadlines during the year ended December 31,
1997.
Selling and Marketing Expenses. Selling and marketing expenses for the
year ended December 31, 1997 were $1,229,943, which represents a decrease of
$231,061, or 15.8%, as compared to the year ended December 31, 1996. The
decrease in selling and marketing expenses for the year ended December 31, 1997
was primarily due to a reduction in expenses under several royalty agreements,
including the elimination of the royalty agreement of Jack Forcelledo effective
January 1, 1997 and decreased royalties due to lower sales compared to the year
ended December 31, 1996. The other significant reason for the decrease in
selling and marketing expenses was the reduction in sales commissions paid given
the decreased levels of sales for the year ended
20
<PAGE> 25
December 31, 1997 as compared to the year ended December 31, 1996. Advertising
costs, including costs related to tradeshows, for the year ended December 31,
1997 were $283,115, which represents an increase of $24,807 or 9.6%, as compared
to $258,308 for the year ended December 31, 1996. These increased advertising
costs offset the aforementioned decrease in selling and marketing expenses.
General and Administrative Expenses. General and administrative expenses
for the year ended December 31, 1997 were $1,176,073, which represents an
increase of $439,503, or 59.7%, compared to the year ended December 31, 1996.
The dollar increase was primarily due to the salary of Jack Forcelledo,
increased insurance expenses and other general costs associated with the
operations of the business. Salary payments to Mr. Forcelledo during fiscal year
1997 increased to $160,000 from $100,000 in fiscal year 1996. The increase in
general and administrative costs also includes additional rent expenses; the
addition of medical insurance for employees and consultant costs; increased
depreciation from fixed asset additions and increases in professional fees for
third party consulting services. Management anticipates a significant decrease
in general and administrative expenses as a percentage of sales in the near
future; however, dollar amounts would likely increase should revenues grow.
Interest. The Company's interest expense for the year ended December 31,
1997 was $1,417,841 as compared to interest expense of $96,566 for the year
ended December 31, 1996. This increase was attributable to the Company's
increased interest payable on debt incurred including amortization of debt
issuance costs during the year ended December 31, 1997, pursuant to the 1996
Private Offering and the Bridge Notes. Management expects a large decrease in
interest expense in the future as $3,475,000 of debt on which the Company is
making interest payments and amortizing debt issuance costs will either be
converted into equity or paid from the proceeds upon the initial public
offering. This assumption that interest costs will decrease assumes that the
holders of the 12% Debentures accept the Conversion Shares and do not demand
cash payments therefore.
Net Loss. Net loss for the year ended December 31, 1997 was $3,145,239
which represents an increase of $2,596,936, compared to a $548,303 net loss for
the year ended December 31, 1996. The increase in net loss resulted primarily
from additional interest expense as a result of the 1996 Private Offering and
the 1997 Bridge Offering and the related amortization of debt issuance costs. In
addition, large losses occurred due to the decrease in the Company's sales
coupled with increased expenditures for general and administrative expenses for
the year ended December 31, 1997 compared to the year ended December 31, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales for the year ended December 31, 1996 were $4,850,416,
which represents an increase of $648,758, or 15.4%, compared to the fiscal year
ended December 31, 1995. This increase was primarily attributable to the
increased sales in the international market and sales to HSN.
Gross Profit. Gross profit for the fiscal year ended December 31, 1996 was
$1,746,637, which represents an increase of $306,996, or 21.3%, compared to
gross profit of $1,439,641 in the fiscal year ended December 31, 1995. The
increase in gross profit was primarily due to increased sales for the Company's
inline skates and accessories for 1996. Gross margin for the fiscal year ended
December 31, 1996 was 36%, which represents an increase of 1.7% as compared to
the fiscal year ended December 31, 1995. The increase in gross margin was
primarily related to the Company's efforts in obtaining cost reductions from
various suppliers related to certain inline skate models.
Selling and Marketing Expenses. Selling and marketing expenses for the
fiscal year ended December 31, 1996 were $1,461,004, which represents an
increase of $517,497, or 54.8%, compared to the fiscal year ended December 31,
1995. Selling and marketing expenses represented 30.1% of net sales for the
fiscal year ending December 31, 1996. The increase was due to increased sales
volume resulting in increased commissions and royalties during fiscal year 1996
as well as increased design costs for development of new skate lines.
General and Administrative Expenses. General and administrative expenses
for the fiscal year ended December 31, 1996 were $736,570, which represents an
increase of $192,915, or 35.5%, compared to the fiscal
21
<PAGE> 26
year ended December 31, 1995. General and administrative expenses for the fiscal
year 1996 represented 15.2% of 1996 net sales. The dollar increase for 1996 over
1995 was primarily a function of increased sales for the Company in fiscal year
1996 over 1995, as well as increases in employees' compensation and depreciation
and amortization of significant expenditures for molding, tooling, patents and
trademarks.
Interest. The Company's interest expense for the fiscal year ended
December 31, 1996 was $96,566, an increase of $59,770, or 162.4%, compared to
the fiscal year ended December 31, 1995. This increase was primarily
attributable to the Company's increased interest payable on the loans from
stockholders for this period over the fiscal year ending December 31, 1995 and
interest costs associated with the 12% Debentures issued in the 1996 Private
Offering.
Net Loss. Net loss for the fiscal year ended December 31, 1996 was
$548,303, an increase of $463,186 compared to a $85,117 net loss for the fiscal
year ended December 31, 1995. The increase in net loss resulted primarily from
the increase in the Company's sales and profit margins offset by increased
expenditures for selling and marketing expenses, general and administrative
expenses, and interest expense for the years ended December 31, 1996 compared to
the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its activities principally from
operating cash flow, loans from stockholders and private offerings of debt and
equity securities. The Company does not have any lending arrangement with a
financial institution and therefore there were no balances outstanding with
commercial banks and lending institutions as of the year ended December 31,
1997. The Company owed $3,825,000 principal amount of loans as of December 31,
1997, of which $350,000 principal amount was owed to certain stockholders of the
Company. Approximately $1,600,000 of such debt will be repaid out of the
proceeds of this offering and an additional $1,859,525 (12% Debentures) will be
converted into the Conversion Shares. See "Use of Proceeds."
As of October 31, 1997 the Company was in payment default of the 12%
Debentures which default continues to the date of this Prospectus. The Company
has requested that the holders of the 12% Debentures waive all defaults and
extend the payment date until the earlier of consummation of this offering or
April 30, 1998. Payment of the Bridge Notes was due on October 31, 1997 and the
Company has received several default notices from holders of the Bridge Notes.
The Company does not have the funds to pay the principal and interest of the 12%
Debentures and Bridge Notes without the proceeds of this offering. In the event
that the holders of the 12% Debentures do not accept the Conversion Shares in
payment of the 12% Debentures, the Company will be required to utilize cash
proceeds of this offering to repay such holders. Unless the holders of
substantially all of the 12% Debentures waive all defaults and accept the
Conversion Shares, it is doubtful that the offering will be consummated. See
"Use of Proceeds".
As of December 31, 1996, the Company had a stockholders' deficit of
$911,610, as compared to a stockholders' deficit of $2,414,689 as of December
31, 1997. The Company's current ratio as of December 31, 1997 was 0.32, as
compared to 0.42 as of December 31, 1996.
Substantially all of the Company's overseas sales are conducted through
letters of credit in U.S. Dollars. As a result, the Company has minimal exposure
to currency fluctuations and does not believe that it is subject to any material
risk with respect thereto. The Company does, however, conduct a significant
portion of its manufacturing and sales activities through Hong Kong which was
returned to the People's Republic of China in July 1997. There can be no
assurance that the Chinese government may not change the Hong Kong currency
which, in turn, may have an effect upon the Company's utilization of U.S.
Dollars based on letters of credit.
To date, more than 98% of the Company's customers have paid for purchases
through irrevocable letters of credit in order to facilitate direct shipments
from overseas through the Company's Hong Kong-based manufacturing and sales
agent, LYI. Because of this high percentage of letter of credit sales, the
Company has
22
<PAGE> 27
not had a significant reserve for bad debts. As the Company's sales reflect more
domestic sales and less letter of credit sales, the Company will be required to
closely monitor any potential credit risks and perhaps increase the amount of
its reserve.
Payments to suppliers are obtained through LYI which receive payment terms
from suppliers and issues payment to them upon collection of the letters of
credit. The Company's short-term debt consists of accrued expenses (primarily
consisting of accruals for consultant services and royalties payable) and loans
from officers and directors, investors in the 1996 Private Offering and the 1997
Bridge Offering and the 1997 Loan. The Company currently has long-term debt of
$100,000 principal amount bearing interest at 12% per annum which is due and
payable in January 1999.
During the period May 1994 to June 1994, the Company sold, in the 1994
Private Offering, 1,023.75 units of its securities, each unit consisting of 618
shares of Common Stock and 206 1994 Warrants. Each unit had a purchase price of
$900. The offering was conducted under Section 4(2) and/or Regulation D of the
Securities Act. The 1994 Warrants entitled the holders to purchase one share of
Common Stock for an exercise price of $1.00 per share. The Company received net
proceeds of approximately $813,756 from the 1994 Private Offering after payment
of commissions of $90,000 and offering expenses of approximately $17,619. The
Underwriter also received the Agent Warrants. The Agent Warrants have an
exercise price of $1.68 per share and expire in May 1998. As of July 15, 1997,
152,392 of the 1994 Warrants had been exercised and the remainder had expired.
In June 1997 the Company received net proceeds of approximately $242,000 from
the exercise of the 1994 Warrants after payment of $10,258 in commissions to the
Underwriter. The registration statement of which this Prospectus forms a part
includes the 152,392 1994 Shares which have been registered for resale by
certain of the Selling Stockholders and the 82,127 Agent Warrant Shares.
During the period August 1996 to September 1996, the Company sold in a
private offering under Section 4(2) and/or Regulation D of the Securities Act,
$1,775,000 principal amount of 12% Debentures. The Company received net proceeds
of approximately $1,576,000 after payment of commissions and offering expenses
of approximately $199,000. A single investor has requested, and the Company has
agreed, that all interest payments due to such investor be added to the
principal amount of such investor's note. As of December 31, 1997 the total
amount of interest due to such investor was approximately $56,000 convertible
into 13,576 Conversion Shares. The Underwriter served as placement agent in the
1996 Private Offering. The 12% Debentures contain terms by which they were to be
automatically converted into shares of Common Stock at a conversion price equal
to 80% of the per share offering price of the Company's initial public offering
provided the offering occurred prior to October 31, 1997. Payment of the
principal amount of the 12% Debentures was due on October 31, 1997. The Company
has made interest payments to the 12% Debenture holders for the period ending
January 31, 1998. As of November 1, 1997 the Company was in default. The Company
has requested that the holders of the 12% Debentures waive all defaults and
extend the maturity date to April 30, 1998. In order to obtain such waiver, the
Company has proposed to the holders that the conversion price of the 12%
Debentures be reduced to 75% of the offering price of the Shares and to pay an
additional 6% interest from November 1, 1997 through the date of payment. The
Company has also proposed reducing the exercise price of the 1996 Warrants to
equal the offering price of the Shares. Based upon an initial public offering
price of $5.50 per share, and assuming the Company's proposal is accepted, the
holders of the 12% Debentures will receive 450,794 Conversion Shares at the
closing of this offering. The purchasers in the 1996 Private Offering also
received one 1996 Warrant to purchase one share of Common Stock for every two
shares received upon conversion of the 12% Debentures, an aggregate of 225,397
warrants. The 1996 Warrants are exercisable for three years from the date of
issuance. The registration statement of which this Prospectus forms a part
includes the Conversion Shares and 1996 Warrant Shares which have been
registered for resale by certain of the Selling Stockholders.
During the period from March 1997 through April 1997, the Company sold, in
a private offering under Section 4(2) and/or Regulation D of the Securities Act,
$700,000 principal amount of the Company's 12% Bridge Notes. The Bridge Notes
were due and payable upon the earlier of (i) October 31, 1997 or (ii) five days
after the consummation of this offering. The Company has received notice default
from several holders of the Bridge Notes. The terms of the Bridge Notes provide
for a default rate of interest at 18% per annum. The Bridge Notes are junior
unsecured obligations of the Company. Investors in the Bridge Notes also
received, as
23
<PAGE> 28
of November 1, 1997, the Bridge Shares. The Company intends to use proceeds of
this offering to repay all interest and principal on the Bridge Notes. The
Company realized net proceeds of $623,000 from the sale of the Bridge Notes
after payment of sales commissions and offering expenses of approximately
$77,000. The Underwriter acted as placement agent with respect to the placement
of the Bridge Notes. The registration statement of which this Prospectus forms a
part includes the 140,000 Bridge Shares which have been registered for resale by
certain of the Selling Stockholders.
In September 1997 the Company obtained a loan of $100,000 bearing interest
at 12% per annum. The loan is payable in full in January 1999. Interest payments
are payable semi-annually. The lender also has the right to receive from Jack
Forcelledo, the Company's Chief Executive Officer, such number of shares equal
to the principal amount of the loan divided by the initial public offering price
of the Shares.
In October 1997 the Company received a loan from Sercap Holdings LLC., a
company controlled by a holder of 12% Debentures, in the principal amount of
$1,000,000. The lender also is entitled to receive such number of shares of
Common Stock equal to $600,000 principal amount of the loan divided by the
initial public offering price of the Shares in this offering. Based upon an
initial offering price of $5.50 per Share, the lender will receive an aggregate
of 206,061 1997 Loan Shares at the closing of this offering. The loan is divided
into two separate notes, one of which, in the principal amount of $600,000, is a
term note bearing interest at 12% per annum and payable upon the earlier of the
closing of this offering or December 31, 1998. The second portion of the loan is
represented by a convertible note in the principal amount of $400,000 which
shall automatically be converted into Common Stock upon closing of this offering
at a per share price equal to 75% of the initial offering price of the Shares.
The lender also received the right to nominate one person to the Board of
Directors of the Company. Mr. Lawrence Stumbaugh, a controlling person (as
defined under the Securities Act) of Sercap Holdings LLC, was appointed to the
Board of Directors of the Company as the designee of Sercap Holdings LLC. See
"Management." The proceeds of the loan have been utilized by the Company to pay
expenses of this offering, for inventory purchases and for working capital. The
Registration Statement of which this Prospectus forms a part includes the
206,061 1997 Loan Shares which have been registered for resale by the lender who
is a Selling Stockholder. Mr. Stumbaugh is also a Selling Stockholder whose
shares are subject to a Lock-Up Agreement.
Upon completion of this offering, the Company will receive net proceeds of
approximately $5,613,000, and intends to use the net proceeds to continue to
focus upon significantly expanding the marketing and sales of its products in
the United States. A significant portion of the net proceeds will be utilized to
purchase inventory. In addition, the Company plans to expand its international
distribution. The Company intends to develop additional distribution
arrangements in order to more aggressively take advantage of growth
opportunities which the Company believes exist for its products both within and
outside the United States. The Company also intends to evaluate the development
of additional products that offer mass market appeal and represent a strategic
fit with the Company's products and sourcing and distribution methods.
Management anticipates that the balance of the net proceeds from this
public offering, together with internally generated funds from projected sales
and potential borrowings, will be sufficient to meet the Company's presently
projected cash and working capital requirements for the Company's next 12
months. Pending the use of the proceeds, the Company intends to invest the net
proceeds in investment grade, interest bearing securities. See "Use of
Proceeds."
The Company currently has outstanding 244,826 options with exercise prices
ranging from $3.37 to $5.05 and 356,549 warrants (including 225,397 1996
Warrants) with exercise prices ranging from $1.68 to $5.50. In the event that
all of such options and warrants were exercised in full, the Company would
receive approximately $2,442,000 in gross proceeds. Any proceeds from the
exercise of options and warrants will be used for working capital purposes.
In the event that less than all of the holders of the 12% Debentures
decline to accept the Conversion Shares and demand payment in cash, the Company
will be required to utilize cash proceeds of this offering for such payments.
The Company would therefore be required to reallocate the net proceeds. See "Use
of Proceeds."
The Company is currently in discussions with several banking institutions
with respect to obtaining a credit line facility for working capital and letter
of credit purposes. These discussions are in the early stages
24
<PAGE> 29
and there can be no assurance that a line of credit will be obtained by the
Company. The Company intends to continue these discussions following this
offering.
EFFECTS OF INFLATION/SEASONALITY
The Company's sales have not been adversely affected by inflation and does
not believe inflation will be a material factor in its sales in the foreseeable
future. The Company's purchase of component parts is likewise not effected by
inflation at the present time.
Due to the Company's limited sales history, it is difficult to conclude as
to the effects of seasonality on the Company's sales. In addition, most of the
Company's sales have historically been in international markets where seasons
change at different times around the globe. The Company anticipates its domestic
sales being somewhat affected by climate changes in the United States, such as
higher sales during warmer months of the year and lower sales during the colder
months, with the exception of the holiday season. But as discussed above, the
Company's international presence will provide somewhat of a buffer to the
effects of seasonality on its total sales.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995 the Financial Accounting Standards Board (the "FASB")
issued its Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). The provisions of SFAS 123 were adopted
by the Company for the fiscal year ended December 31, 1996. Disclosures required
by the Company's election may be found in Note 1 of Notes to Financial
Statements.
On March 3, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." This pronouncement provides for the
calculation of Basic and Diluted earnings per share which is different from the
current calculation of Primary and Fully Diluted earnings per share. The
pronouncement was adopted by the Company in fiscal 1997.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the FASB issued two new disclosure standards. The Company's
results of operations and financial position will be unaffected by
implementation of these new standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") establishes standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise," establishes standards for the
way that public enterprises report information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
25
<PAGE> 30
BUSINESS
INTRODUCTION
The Company develops, manufactures, distributes and markets an innovative,
patented design of inline skates under the registered trademark Rollerball. The
Rollerball skate differs from traditional inline skates (e.g. Rollerblades(R),
Bauer(R), Ultra-Wheels(R), etc.) by offering the consumer a skate that has
spherical-shaped wheels instead of the flat, disk-shaped wheels of traditional
inline skates, resulting in enhanced performance. Since its incorporation in
1994, the Company's efforts have been focused upon designing, engineering and
developing the Rollerball line of inline skates. The Company has been granted
several United States and foreign patents which protect its innovative skateball
designs and technology. Since its formation, the Company has expanded its
product line to presently include 18 models of inline skates that appeal to a
wide range of price and performance levels for use in recreational, fitness,
hockey and aggressive skating. During the year ended December 31, 1997 the
Company had sales for 9 of its models resulting in sales of approximately
$2,023,000. The Company intends to commercially introduce the other 9 models
during the first half of fiscal 1998. Rollerball also offers related accessories
including helmets, safety pads and replacement parts. To date the Company has
had limited sales which have been primarily to the international market. With
the proceeds of this offering, the Company intends to aggressively market and
sell its products in the United States.
Rollerball's inline skates differ from traditional inline skates in
appearance and in performance. The Company believes that its proprietary
Rollerball skating system is the next generation of inline skates and the first
major product innovation in inline skating since the introduction of the
original Rollerblade(R) inline skate in the 1970's. Rollerball offers inline
skates with unique patented spherical wheels that are slightly smaller than a
tennis ball (70mm or 60mm in size) and are engineered to create support and
balance when in contact with the skating surface. The spherical cross section of
the Radial Skateball Technology(TM) provides a uniform, unchanging shape and a
greater area of contact with the skating surface. Rollerball's design allows a
skater to achieve levels of acceleration, balance and maneuverability greater
than that which can be achieved by comparably priced traditional inline skates.
Furthermore, because of these characteristics, the Company believes that its
Rollerball skates enhance the experience of inline skating while providing a
more stable, body-friendly platform which will appeal to all skaters from
beginner to advanced. The Company believes these product features provide
Rollerball with a skate superior to any other product commercially available and
will enable Rollerball to compete with the major inline skate manufacturers both
in the United States and worldwide.
STRATEGY
The Company's primary goal is to become a leading developer and marketer of
inline skates and accessories to the recreational/fitness segment through retail
channels of distribution (specialty sporting goods stores, sporting goods
stores, mass merchandisers and direct mail catalogues), as well as through
direct response television (television home shopping channels/services and
infomercials) throughout the world. The Company's secondary objective is to
expand the distribution and sales of accessories and replacement parts and to
aggressively seek out and establish licensing arrangements with third parties
for the licensing of the Rollerball trademarks for use in clothing, toys and
entertainment categories. The attainment of this secondary goal will, in
management's opinion, support the Company's primary goal both by contributing
licensing revenue to the Company, and by building consumer awareness of the
Rollerball brand name. While the Company has had discussions with potential
licensees, no agreements have been consummated and there can be no assurance
that the Company's licensing efforts will be successful.
The Company believes that a key factor in the Company's development is the
continual design improvement and refinement of its products. Management expends
significant time, effort and resources on the refinement of the Company's
existing product line based upon its observations and research of market trends
and competing products. The Company intends to continue to emphasize the unique
design of its skateballs and the enhanced performance characteristics of its
skates. The balance enhancement characteristics of the Radial Skateball
Technology(TM) will also be emphasized by the Company to promote its products to
26
<PAGE> 31
inexperienced skaters, occasional recreational skaters, and skaters who would
ordinarily not attempt inline skating.
The Company's strategic business plan is to:
1) Successfully penetrate the United States retail market through
increased marketing and sales efforts aimed at generating distribution with
the key sporting goods and mass merchandising distributors;
2) Continue to expand upon its current international market base by
engaging additional distributors and strategically expanding into the
Canada, South America and Eastern European countries;
3) Successfully complete the development, engineering and tooling of
Rollerball's next generation of skates; and
4) Provide marketing support to the expanding distribution and sales
base of Rollerball inline skates and accessories by licensing the
Rollerball trademarks in clothing and entertainment categories.
The Company may also consider establishing licensing arrangements with
third party specialty inline skate manufacturers and marketers whereby the
Company may sublicense the marketing and distribution of certain of its
products.
INDUSTRY BACKGROUND
Roller skating first became popular in the United States in the 1930's, and
the most common skate in use at that time was the traditional four wheel roller
skate. Skating as an outdoor activity dramatically increased in popularity with
the development of urethane wheels in the 1960's, which made skates more
enjoyable for outdoor use.
The inline skate market was created in the 1970's with the introduction of
Rollerblade(R), the current dominant manufacturer of inline skates. Inline
skates were originally sold primarily through specialty sporting goods
retailers, at prices ranging from $100 up to $400, to cross-training athletes
and as a summer training product for serious ice hockey players. According to
the Sporting Goods Manufacturing Association ("SGMA"), sales of inline skates
grew to more than $625 million in 1996. SGMA has reported that the sport now
claims more than 30 million participants, and with respect to the number of
participants, inline skating has surpassed other sports such as golf, baseball,
tennis, bowling and downhill skiing in market size.
The development and success of inline skates has dramatically changed the
demographics of roller skating. Boys and girls, as well as men and women, now
skate in nearly equal numbers. The inline skate has substantially replaced the
four wheel skate throughout the marketplace. Management of the Company believes
that roller skating, dominated now by inline skates, will continue to be a
popular form of entertainment and exercise for many years to come.
The inline skate market is composed of four distinct and key segments with
manufacturers strategically positioning their products to meet the requirements
of each segment. The market segments are: (1) recreational/fitness; (2) roller
hockey; (3) aggressive (stunt and extreme skating); and to a lesser extent (4)
speed skating. Based upon industry sales figures, the recreational/fitness
segment accounts for 75% of sales; the roller hockey segment accounts for 8% of
sales; the aggressive segment accounts for 16% of sales; and the speed skating
segment accounts for 1% of sales. According to industry sales of inline skates,
the recreational/fitness segment has the most participants and also offers the
widest selection of skates. Roller hockey has demonstrated strong growth in
recent years primarily as a function of the increase of participants in "street"
hockey and the proliferation of roller hockey leagues and teams.
PRODUCT DESIGN, DEVELOPMENT AND ENGINEERING
All the design, development and engineering of the Company's skate models
is performed by the Company in Southern California. The production engineering
of the skates is facilitated via a combination of in-house efforts and also in
association with unaffiliated third parties in both the United States and in
Asia. The Company does not yet design or manufacture the skate boots, which it
purchases from third party vendors
27
<PAGE> 32
in Thailand, Taiwan and the People's Republic of China. The selection of the
style, materials and quality of the boots and liners for each model is, however,
under the strict supervision of the Company's management.
The Company believes that the major performance advantages of the patented
Rollerball skates over the competition's standard three, four or five wheel
inline skates are enhanced stability, balance and control, combined with special
acceleration and maneuverability features. The enhanced features result from the
unique physical design of the Rollerball wheels, trade-named Radial Skateballs.
The standard inline skate is able to achieve high speed in straight line
skating, but requires a substantial adjustment in speed on curves to avoid
accidents caused by the loss of wheel traction at extreme excursion angles,
resulting in skidding and falling. Rollerball skates are not only able to
accelerate quickly and achieve high speed in a straight line; but, because of
the extended range of contact area available, Rollerball Radial Skateballs allow
the skater to maintain greater velocity on curves with a reduced risk of losing
control. Providing up to 300% more usable riding surface area than a typical
inline skate wheel, the spherical-shaped wheels are specifically designed to
provide high levels of balance and stability when contacting the skating
surface, even at combined lean angles 20 degrees greater than the typical inline
wheel. This greater lean angle capability provides the skater with maximum
maneuverability since the skater can approach curves with a high degree of
excursion -- almost a 45 degree angle -- which enables the skater to maintain
velocity and execute difficult acrobatic stunts. The Rollerball skate products
allow the skater to perform aggressive turning maneuvers more easily than that
of any other type of inline skate. During high angle maneuvering and extreme
bank angles, the Rollerball skate, due to the physics of its spherical wheel
design, maintains uniform traction and limits slipping and skidding which
enables a skater to make sharper turns under maximum control. Because of the
Rollerball skates' enhancements in acceleration, balance and maneuverability,
the Company believes it will appeal to all skaters.
[Appearing in this space is a graphic picture
illustrating a comparison of lean angle dynamics
the Company's Radial Skateballs
versus the typical inline wheel]
Safety testing of the Company's products is performed by the Company, by
independent testing laboratories and by the Company's third party manufacturers.
All of the Company's products meet United States, Canadian and European safety
regulations. The Company's third-party manufacturers are chosen for their
ability to produce quality products based on the company's standards, and these
manufacturers are required to monitor quality assurance.
Although there have been only limited product sales to date, the Company
has not experienced any significant product returns or complaints based upon the
design, performance or quality of its products.
PRODUCTS
The Rollerball product line is comprised of four groups which will
facilitate a tiered marketing approach. The product lines are differentiated by
price points, performance levels and target markets, retailer and consumer
markets.
28
<PAGE> 33
The skates are produced with either two or four Radial Skateballs. The
Radial Skateballs currently are manufactured in 2 size ranges and types: type
1-70MM diameter injection molded B.A.S.F. Elastollan(TM) TPU
(thermopolyurethane) over a nylon core, and type 2-60MM diameter cold-cast
urethane over polyurethane cores. The Company's 18 different models are
differentiated by the number of Radial Skateballs (2 or 4), appearance and
style, quality of bearings, and materials for the chassis and boots.
The four Rollerball skate product groups are:
RB(R) -- six models of 2-70mm ball skates priced to retail from $59 to $89;
GFX(3) and GFX(4)(R)/CARBON -- six models of 4-60mm ball skates with
high-glass-content, carbon enhanced nylon chassis and ABEC-3 bearings and
priced to retail from $90 to $149;
G-FORCE(R) ALLOY -- four models of 4-60mm ball skates with 6000 series
aircraft quality aluminum chassis and ABEC-3 bearings and priced to retail
from $159 to $179; and
AGGRESSIVE -- two models of 4-60mm ball skates aimed at the aggressive
skate market with either high-glass content, carbon enhanced nylon chassis
and ABEC-3 bearings or the 6000 series aircraft-quality aluminum chassis
and ABEC-5 bearings, and priced to retail from $199 to $249.
MANUFACTURING AND ASSEMBLY
The Company's current product lines and component parts are manufactured
for the Company by unaffiliated third party vendors located in the United
States, Taiwan, the People's Republic of China and Thailand. The skates are
composed of three subassemblies: (i) the boot assembly (boot shell, liner and
laces or buckles); (ii) the chassis (which is attached to the bottom of the
boot); and (iii) the wheel assembly (the skateball, bearings and required axles
and hardware for mounting the wheels to the chassis). The assembly of all two
ball skate models occurs in the People's Republic of China and Thailand.
Accessories are assembled in the People's Republic of China, Taiwan and/or
Thailand. All final assembly for four ball skates is conducted in either
Thailand or Southern California. The graphic design of all packaging is
controlled by the Company in California and the printing of the packaging is
performed in Hong Kong, the People's Republic of China, Taiwan or in the United
States. The Company owns all the molds, dies and other tooling associated with
manufacturing the chassis (skate trucks), the skateballs (wheels), safety brakes
and wheel hardware components. The Company currently utilizes 8-10 different
manufacturers for component parts and assembly.
With the proceeds of this offering, the Company intends to design, engineer
and tool several proprietary boot designs for its four ball skate product lines.
The Company believes that this will result in less dependence upon third party
manufacturers. Additionally, the Company will explore relocating the manufacture
of more component parts to Mexico, Canada or the United States and may use
proceeds of this offering to develop relationships with manufacturers in such
locations.
After assembly, the products are shipped to various FOB ("free on board")
points: Hong Kong, Bangkok and/or the Company's Los Angeles warehouse. If the
products are sold on an FOB Hong Kong, letter of credit basis, the merchandise
for the specific customer is delivered to the customer's consolidator in Hong
Kong. If the goods are to be shipped to the United States, the Company's Hong
Kong agent assumes responsibility for all freight forwarding and traffic to the
United States.
The Company has entered into an agency agreement with LYI pursuant to which
LYI acts as the Company's agent for purchasing from their known suppliers
located in the People's Republic of China and Taiwan. LYI also has been
retained, on a non-exclusive basis, as a sales representative for sales outside
of America and Japan. For its services, the Company pays LYI a fee of 12% of the
factory cost of the products and a sales commission ranging from 3% to 8% of net
sales. The agreement with LYI is terminable by either party on 90 days prior
written notice. During the fiscal years ended December 31, 1996 and 1997 the
Company paid approximately $394,000 and $108,000, respectively to LYI. Of such
payments, agency fees constituted $315,000 and $108,000 during these periods and
the remaining fees were sales commissions. All agency fees are accounted for as
costs of sales.
29
<PAGE> 34
The Company has entered into an oral sourcing agreement with PCL pursuant
to which PCL will serve as the Company's agent for purchasing from skate
component manufacturers in Taiwan and Thailand. PCL will act as an additional
sourcing agent to the Company. For its services, the Company has agreed to PCL a
fee of 3% to 6% (based upon the annual purchasing amounts) of the factory cost
of the products for any services provided. The Company is negotiating a
definitive agreement with PCL. There can be no assurance that the Company will
be successful in these efforts.
The Company believes that there are alternative third parties available to
assist it in its sourcing in Asia and elsewhere in the world in the event that
the PCL and/or LYI arrangements are terminated.
SALES AND MARKETING
The Company's primary focus to date has been on designing and developing
its product line with only limited efforts on marketing and sales. Primarily all
of the Company's sales to date of two-ball skates have been in the international
market. The Company has had only test sales of its four-ball skates. The Company
currently sells its products through an international network of independent
distributors and agents, and in certain cases, directly by senior management to
the buyers and buying groups of certain retail accounts in 22 foreign countries.
Three of the Company's largest customers represented 67% of total sales for the
fiscal year ended December 31, 1996, and three customers, The Home Shopping
Network ("HSN"), J.C. Penney and Carrefour France, accounted for 56%, 11% and
15%, respectively, of total sales for the year ended December 31, 1997. To date
the Company has had approximately $3,600,000 of sales of its two ball skates to
HSN which sales efforts are made directly with HSN by the Company's senior
management without the use of any independent distributors or agents. Other
sales to the United States market, which to date have been limited, are made
through a national network of independent sales representative groups who sell
through direct contact with buyers and retail accounts, and work under the
management of the Company. These sales representative groups are paid on a
standard, commission-only basis. During fiscal 1996 and 1997 the Company,
accrued approximately $10,000 for sales commissions to Mr. James Hartnett, the
Company's Secretary and Vice President.
The Company intends to market its products to retail sporting goods chains,
specialty sporting goods shops, mass and hypermarket merchandisers and through
HSN in the United States. The Company's four-ball skate models will be
distributed almost exclusively through retail sporting good chains and
speciality sporting goods shops. Sales of the two-ball lines have been made to
catalog houses in France, Germany and the United Kingdom and the product
appeared in the J.C. Penney 1997 holiday catalog. The Company's marketing
strategy emphasizes the unique design of the Rollerball skate, as well as its
superior performance features which enable the skater to have increased control,
balance, maneuverability with a strong price to value relationship. The Company
also believes its product line affords retailers competitive profit margins
which the Company uses to promote its products to retail merchandisers.
Rollerball intends to offer retailers an integrated point of sale package
comprised of product displays, in-store identification, sales information and a
complete range of accessories and replacement parts, from helmets, pads and
guards to wheels, bearings, hardware sets and full replacement chassis
assemblies. The Company will also provide to the trade educational and technical
support as well as teaching clinics on how to sell the Rollerball product line.
For consumers, the Company intends to offer promotional programs providing
skating instruction on techniques while reinforcing the advantages offered by
Rollerball products.
The Company advertises and promotes its inline skates through various
marketing methods customary to the trade. Rollerball participates in all major
national and international trade shows and exhibitions, and provides in-store
merchandising videos, trade and consumer advertising, and inline skating
promotions. The Company has formed its own "Team Rollerball", a group of skaters
who demonstrate the product advantages of Rollerball skates as well as promote
the sport of inline skating. Team Rollerball has held exhibitions throughout the
world and several members of the team are seen regularly on HSN in its
advertising and sales activities. With the proceeds of this offering, the
Company's sales and marketing efforts will be significantly expanded.
30
<PAGE> 35
The Company's sales and marketing materials, including product positioning
and demonstration videos, have been translated from English into several
languages to facilitate the presentation of the Company's product lines to
international buyers, buying groups, and to enhance public relations and
in-store presentations.
PATENTS AND TRADEMARKS
The Company has devoted considerable effort to protecting its Rollerball
technology and trademarks throughout key world markets. The Company received
United States utility Patent (No. 5,590,890) on January 7, 1997 covering the
core technology for its Radial Skateball. The Company also has a United States
design patent (D378115) on February 18, 1997 covering its GFX(R) design. The
Company has also filed numerous other utility and design patent applications in
the United States and certain other foreign countries. The "Rollerball" brand
name is a registered trademark in the United States, Canada and several other
countries with trademark applications under review in other markets and the new
European Union registrations for countries not already covered by the current
registrations. The Rollerball trademark cannot be registered in the People's
Republic of China, Sweden and Argentina due to conflicting marks and has also
been opposed in Chile. Trademark applications have been allowed for the
Rollerball name in other market/business segments such as clothing, toys and
entertainment (CD-ROM, comic books, video & broadcast television). The Company
has filed for a 3-D trademark in Germany to cover the German market and has
applied to extend this coverage to include all of the European Union countries.
This type of trademark protection extends to the overall "shape" and "look" of
the product(s) covered by the application.
The Company has recently received correspondence from MGM, a motion picture
entity which alleged that the Company's use of the name "Rollerball" infringed
upon MGM's alleged rights in the name "Rollerball" which was the name of a 1975
film produced by MGM. The Company was granted a United States trademark for the
Rollerball name in 1995 with respect to, among other things, in-line skates and
related products. Based upon advice of counsel, the Company does not believe
that MGM has any such rights in the name and intends to vigorously defend itself
against MGM's allegations. Although neither party has commenced litigation in
this matter, there can be no assurance that the dispute will not result in
litigation. In the event that litigation results, the Company can be expected to
incur significant costs to defend itself. Based upon advice of counsel, the
Company believes that it has strong and meritorious defenses to the claims of
MGM.
The Company believes that by initiating this legal protection in product
categories other than skates and accessories, it is building a strong marketing
tool that can be exploited through licensing arrangements or internal
developments. There can be no assurance that any application by the Company to
register any additional trade names and trademarks used by the Company will be
approved and/or that the right to the use of any such trademarks outside of
their respective current areas of usage will not be claimed by others. There can
be no assurance as to the extent of the protection that the Company will obtain
as a result of having such trademarks registered or that the Company will be
able to afford the expenses of any complex litigation which may be necessary to
enforce its trademark or license rights. Failure of the Company to successfully
enforce license and trademark rights may have a material adverse impact on the
Company's business.
ROYALTY AGREEMENTS
The Company has certain contractual commitments to pay royalties to four
individuals who had assisted the Company in obtaining its Radial Skateball
Technology(TM). Under the current agreements, the Company has agreed to pay
Messrs. Giuseppe Consarino and Steve Kimmel each a royalty of 1% of net sales,
except sales based on a letter of credit, and .6% of net sales based on a letter
of credit. Mr. Consarino's royalty payment can not exceed a maximum of $350,000
in any fiscal year. Mr. Forcelledo has had a royalty agreement with the Company
which provides for a 3% royalty on net sales which royalty Mr. Forcelledo has
agreed to terminate effective January 1, 1997. During the fiscal years ended
December 31, 1996 and December 31, 1997, the Company incurred expenses of
$167,068 and $10,446 with respect to these royalty agreements. Messrs. Giusseppe
Russo, Franco Rosso and Ettore Carenni, the originators of the Radial Skateball,
are entitled to an aggregate royalty of 2.5% of the cost of goods sold, after
certain deductions including expenses for patent and
31
<PAGE> 36
trademarks. Mr. Franco Rosso also receives a consulting fee of $4,000 per month.
To date, no royalty payments have been paid to Messrs. Giusseppe Rosso, Franco
Rosso and Ettore Carenni, nor have any accrued, as a result of these deductions
which equalled approximately $2,000,000 as of December 31, 1997. The agreements
require the royalties to be paid in perpetuity; however, the terms of the
agreements with Mr. Consarino, Mr. Rosso and Mr. Kimmel provide that their
royalty payments may be reduced pro rata to any reduction in royalty payments
agreed to by the other party in connection with a public offering by the
Company. Mr. Kimmel has agreed to reduce his royalty payment by 50%. The Company
intends to reduce the royalty payments to Messrs. Giusseppe Rosso, Franco Rosso,
Ettore Carenni and Consarino by a similar amount. Although the Company believes
that it has the right to unilaterally reduce the amount of the royalties based
upon the terms of the agreements, there can be no assurance that the parties to
these agreements will not instigate litigation against the Company.
COMPETITION
The market for the Company's products is highly competitive and the Company
anticipates competition to continue to be intense in the foreseeable future.
This competition is direct (i.e., companies that make similar products) and
indirect (i.e., companies that participate in the sporting goods and accessories
market, but are not direct competitors of the Company). The Company competes
with major inline skate manufacturers such as Rollerblade(R), Bauer(R) First
Team Sports(R), Roller Derby(R), Variflex(R), California Pro(R) and K2(R). Most
of the Company's competitors have significantly greater financial, technical,
manufacturing and marketing resources, and broader name recognition than the
Company.
The Company intends to compete in the inline skate market by offering a
unique skate design that provides superior performance. The Company believes
that the Rollerball skates' enhanced capacity for acceleration, balance and
maneuverability will increase the fun of inline skating while providing a more
stable, body-friendly platform appealing to all skaters from the beginner to
advanced.
GOVERNMENT REGULATION
Certain of the Company's products are subject to regulation by the CPSC,
and may therefore be subject to recall requested by the CPSC. In addition, the
Company may be required to change or modify its current or future products in
order to comply with the CPSC's rules or other rules and regulations related to
the safety of its products or any future rules or regulations. In the event the
Company is required to modify or change its products, it may incur substantial
additional costs related to design and manufacture, and may incur significant
down-time in being able to produce inventory for sale, all of which could have a
material adverse effect upon the Company. The Company is not aware of any
current proceeding by the CPSC which would result in the recall of the Company's
products. A recall of the Company's products could result in significant
expenses to the Company. There can be no assurance that the Company will have
the necessary funds available to it to conduct any recall or that if conducted,
it will have funds available for its continued operation.
FACILITIES
The Company leases approximately 1,600 square feet for the Company's
principal office in Los Angeles, California pursuant to a two year lease
agreement at an aggregate monthly rent of $3,750 per month. The Company also
leases from time to time an additional 1,300 square feet at a cost of $3,000 per
month at the same location as its principal offices. This additional space is
leased only as the Company's needs require. The Company also leases, on an as
needed basis, warehouse and assembly space at a separate location in Los
Angeles, California on a month-to-month basis pursuant to an oral agreement. The
warehouse and assembly space constitutes approximately 8,000 square feet and has
a rental expense of approximately $3,900 per month. The Company will consider,
as its requirements dictate, moving to new executive and administrative offices
after the conclusion of this offering and also intends to secure additional
warehouse space. Although these new facilities have not been identified as of
the date hereof, the Company believes that suitable facilities at reasonable
rental costs will be available.
32
<PAGE> 37
EMPLOYEES
To date, the Company has operated with a limited full time staff and has
outsourced its manufacturing, assembly and distribution requirements. This
business strategy enabled the Company to maintain a low overhead and conserve
capital. After the conclusion of this offering, the Company intends to establish
a larger full time staff of administrative and technical personnel. At the
present time, the Company has seven full-time employees.
LEGAL PROCEEDINGS
The Company is not presently a party to any material litigation, nor does
it have knowledge of any threatened or pending material litigation except as
disclosed below.
See "-- Patents and Trademarks" above for information regarding a possible
dispute between the Company and MGM regarding the Company's use of the name
Rollerball.
In January 1998 Toys "R" Us-Delaware, Inc., a toy merchandiser, instituted
a suit to collect the sum of $69,000 from the Company. The plaintiff alleges
that the Company owes the money as a result of the settlement of certain
disputes and that the Company has failed to timely make previously agreed upon
payments. The suit is entitled Toys "R" Us-Delaware, Inc. v. Rollerball
International, Inc. (Case No. BC184762) and has been brought in the Los Angeles
Superior Court, Los Angeles, CA. The Company has agreed to pay the $69,000
within 60 days of the close of the offering and intends to use a portion of the
proceeds of this offering to pay the amount owed.
33
<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is information concerning the current officers and three
directors and two prospective directors of the Company. The Company expects that
the two additional directors, both of whom are identified in the table below,
and neither of whom are or will be employees of the Company, will be elected to
the Board of Directors upon consummation of this offering.
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Jack Forcelledo...................... 56 Chairman of the Board, Chief
Executive Officer and President
Arthur Dale Baker.................... 45 Vice President, Design and
Development
James T. Hartnett.................... 38 Vice President, Administration and
Secretary
Kenneth Teasdale..................... 27 Chief Financial Officer
Elizabeth Forcelledo................. 53 Director
Lawrence Stumbaugh................... 57 Director
John T. Botti........................ 33 Director (designee)
Michael Katz......................... 55 Director (designee)
</TABLE>
Jack Forcelledo is the founder of Rollerball International Inc., and has
been Chairman, President and Chief Executive Officer of the Company since its
inception in 1994. Mr. Forcelledo has more than twenty-eight years of management
experience in both domestic and international consumer products with Fortune 500
companies and entrepreneurial ventures. From 1988 through 1994 Mr. Forcelledo
was a private investor and operated the Forcelledo Marketing Group, an
unincorporated entity, and conducted certain pre-incorporation activities of the
Company. From 1981 to 1988, he was President of Matchbox International and Vice
Chairman of the Board of Universal Matchbox (Toys) Group, Ltd., a New York Stock
Exchange traded company. From 1969 to 1981, Mr. Forcelledo served in various
marketing capacities with Mattel Toys, Ralston Purina and Keebler Foods and was
responsible for the management, development and marketing of several
internationally recognized products including breakfast cereals, pet foods,
snack/cracker and toy products. Mr. Forcelledo holds Bachelor of Arts, Bachelor
of Journalism and a Masters of Arts degrees from the University of Missouri.
Arthur Dale Baker has served as the Company's Vice President of Design and
Development since its inception. From June 1991 to March 1994 Mr. Baker was the
owner and President of Arthur Baker Design, a private design firm. Mr. Baker has
over twenty years of experience in industrial design and engineering,
specializing in transportation products, automotive products and sporting goods
such as skates, surfboards, boogie boards and skateboards. From May 1989 to June
1991, he was Director of Design and Engineering for Senter Engineering. Mr.
Baker holds a Bachelor of Fine Arts and Master of Arts degrees from the
University of Tulsa and is a graduate of the Art Center College of Design in
Pasadena, California.
James T. Hartnett has been employed by the Company as a planning and
financial consultant since its inception and he has served as the Company's Vice
President of Administration and Secretary since March 1997. From 1988 to March
1997, Mr. Hartnett was the owner and president of Norstar Consulting Services.
Prior to such time, from 1981 through 1985, Mr. Hartnett was employed as a
senior consultant at Price Waterhouse. From 1986 through 1988, Mr. Hartnett was
employed as the Director of Finance at The Coulter Group. Mr. Hartnett is a
graduate of the University of Notre Dame where he received Bachelor of Business
Administration and the University of Southern California with a Master of
Business Administration degree.
Kenneth Teasdale joined the management team as the Company's Chief
Financial Officer in September 1997. From January 1994 to September 1997 Mr.
Teasdale was employed at Grobstein, Horwath & Company LLP during which time Mr.
Teasdale was employed in various capacities culminating in the position of
Senior Accountant. From September 1991 through January 1994 Mr. Teasdale was
employed as an accounting assistant at For Windows Only, a privately held
Company. Mr. Teasdale is a Certified Public Accountant and
34
<PAGE> 39
a graduate of California State University, Northridge where he received a
Bachelor of Science degree in Accounting.
Elizabeth Forcelledo has been a director of the Company since its inception
in 1994. From 1988 to 1994 Ms. Forcelledo was a private consultant to the
television industry and involved in several entrepreneurial ventures. From 1986
to 1988 Mrs. Forcelledo was a creative consultant to the ABC Television Network
and the Lifetime Network. From 1981 to 1985, she served as Vice President of
Program Development for the ABC Television Network owned and operated television
stations. She has more than twenty-six years of experience in producing,
creating, writing, and consulting for various TV talk/information programs
including Live with Regis and Kathy Lee, AM Los Angeles, the Entertainment
Tonight Pilot, AM New York, and The Vidal Sassoon Show. Ms. Forcelledo attended
Notre Dame College and St. Louis University.
Lawrence Stumbaugh has been a director of the Company since October 24,
1997. Mr. Stumbaugh is the President and Chief Executive Officer of Sercap
Holdings LLC, a privately held company, a position he has held since June 1997.
Mr. Stumbaugh serves as the designee of Sercap Holdings LLC. From January 1996
to June 1997 Mr. Stumbaugh was President and Chief Executive Officer of Eliassen
Group, Inc., a privately held corporation. From June 1991 to January 1996 Mr.
Stambaugh served as President and Chief Executive Officer of Lawmark
International Corporation, a privately held holding corporation. Prior to such
time, from October 1980 to June 1991, Mr. Stumbaugh was President and Chief
Executive Officer of Team Services, Inc., a temporary employment and facilities
staffing company. From 1968 to 1980 Mr. Stumbaugh served in various capacities
at Norell Corporation and Anthony Kane Associates, Inc., respectively. Mr.
Stumbaugh is the Chairman of the Board of Trustees of Faulkner University, a
position he has held since October 1992. From January 1975 to January 1991 Mr.
Stumbaugh served as a Senator in the Georgia State Senate. Mr. Stumbaugh holds a
Bachelor of Science degree from David Lipscomb University.
John T. Botti, director designee, has served as President, Chief Executive
Officer and Director of Bitwise Designs, Inc., a Nasdaq SmallCap listed company,
since its formation in August 1985. Mr. Botti graduated from Rensselaer
Polytechnic Institute with a B.S. degree in electrical engineering with a
concentration in computer systems design and a Master of Business Administration
degree.
Michael Katz, director designee, is an executive consultant to the
interactive software and multi-media industry. Since 1994 Mr. Katz has been
President of Michael Katz and Associates, a private consulting firm to the
interactive software and multimedia industry. Mr. Katz has been on the Board of
Directors of TimeSink Inc. since 1996. From 1996 to 1997 Mr. Katz was also the
Non-Executive Chairman of the Board of Directors of Entertainment On-line US,
the privately held United States division of a United Kingdom on-line game
network company. From 1990 to 1994 Mr. Katz was a private consultant to and
investor in the video game industry and the President of the consumer division
of Triox Technologies, Inc. From 1989 to 1990 Mr. Katz was President of Sega of
America. From 1985 through 1989 Mr. Katz was President of the video game
division of Atari, Inc. From 1979 through 1983 Mr. Katz was a vice president of
marketing at Coleco Industries. Mr. Katz was marketing director of new product
categories at Mattel Toys from 1975 to 1979. Mr. Katz holds a Bachelor of Arts
from Cornell University and a Masters of Business Administration from Columbia
Business School.
The director designees will be appointed to the Board of Directors on or
shortly following the Effective Date. Mr. Stumbaugh was appointed to the Board
of Directors in October 1997 as the designee of Sercap Holdings LLC. Pursuant to
the terms of the agreements governing the 1997 Loan received by the Company in
October 1997, Sercap Holdings has the right to have a designee on the Company's
Board of Directors. Mr. Stumbaugh will serve on the Board of Directors as a
Class 3 director whose term will expire at the 1998 Annual Meeting of
Stockholders.
The number of directors comprising the entire Board of Directors is such
number as determined in accordance with the By-Laws of the Company. The
Company's By-Laws provide that the number of directors shall be not less than
three nor more than eleven. Prior to the Effective Date, the Company's Amended
and Restated Certificate of Incorporation will provide the Company with a
classified or "staggered" Board of Directors. The classified or "staggered"
Board of Directors will be comprised of three classes of directors elected for
initial terms expiring at the year 1998, 1999 and 2000 annual meetings of
stockholders. Thereafter,
35
<PAGE> 40
each class will be elected for a term of three years. By reason of the
classified Board of Directors, one class of the Board comes up for re-election
each year. Any further amendment to the Company's Certificate of Incorporation
affecting the classified Board may only be adopted upon the affirmative vote of
not less than 66 2/3% of the issued and outstanding shares entitled to vote
thereon. Officers serve at the discretion of the Board of Directors of the
Company. There are no family relationships among any of the officers or
directors except that Elizabeth Forcelledo is the wife of Jack Forcelledo.
Upon the Effective Date, the Board of Directors will be comprised of five
persons. Mr. Forcelledo will serve as the Class 1 Director to serve for a term
of three years until the 2000 annual meeting of stockholders; Mr. Botti and Mrs.
Forcelledo will serve as Class 2 Directors to serve for a term of two years
until the 1999 annual meeting of stockholders; and Mr. Katz and Mr. Stumbaugh
will serve as the Class 3 Directors to serve for a term of one year until the
Company's 1998 annual meeting of stockholders. Thereafter, each class of
directors standing for re-election shall be elected for a term of three years.
Pursuant to the listings maintenance policies of the Nasdaq SmallCap Market, the
Company's present Board of Directors must include at least two (2) independent
directors. Upon the Effective Date, the Company's independent directors will be
Messrs. Katz, Botti and Stumbaugh.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all plan and non-plan
compensation awarded to, or paid by the Company during the years ended December
31, 1997, 1996 and 1995 for Mr. Jack Forcelledo, the sole executive officer
during such periods. No other officer or director received compensation equal to
or in excess of $100,000 during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
------------------------
NO. OF
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING
FISCAL ------------------- OTHER ANNUAL STOCK OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) GRANTED
--------------------------- ------ --------- ------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack Forcelledo Chairman,..... 1997 $160,000 $0 $ 0 0 0
President and Chief 1996 $100,000(1) $0 $88,448(2) 0 0
Executive Officer 1995 $100,000(1) $0 $73,041(2) 0 0
</TABLE>
- ---------------
(1) Represents accrued and unpaid salary. Upon closing of this offering, Mr.
Forcelledo will be paid $150,000 of the accrued salary. At December 31,
1997, Mr. Forcelledo was owed approximately $231,800 in accrued salary. The
remainder of accrued salary ($81,800) will be paid during the term of his
employment agreement as the Company's business and income allow and subject
to the consent of the Board of Directors; provided, however, the accrued
salary shall not be paid within 18 months of the date of this Prospectus
without the consent of the Board of Directors and the Underwriter.
(2) Reflects royalty payments under Mr. Forcelledo's royalty agreement which has
been terminated as of January 1, 1997.
Stock Options
No stock options were granted during the last fiscal year to Mr.
Forcelledo, the named executive officer of the Company.
36
<PAGE> 41
Aggregated Option/SAR Exercises
The following table contains information with respect to the named
executive officer concerning options held as of the fiscal year ended December
31, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AS OF AT DECEMBER 31,
ACQUIRED ON VALUE DECEMBER 31, 1997 1997(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jack Forcelledo............ 0 0 64,653/0 (2) 137,711/0
</TABLE>
- ---------------
(1) Assuming a market value of $5.50 per share.
(2) The options were granted in April 1994. The five year options have an
exercise price of $3.37 per share. See "Employment Agreements." Does not
include options to purchase 300,000 shares to be granted on the Effective
Date pursuant to Mr. Forcelledo's employment agreement which will be entered
into on or about the Effective Date of this offering and be deemed effective
January 1, 1997. The options will have an exercise price equal to the
initial offering price of the Shares. The options include both incentive and
non-incentive stock options. See "Stock Option Plans."
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any fee in
addition to their regular salary for serving on the Board of Directors.
Non-employee directors will not receive cash renumeration but will be eligible
to participate in the Director Plan. Non-employee directors upon consummation of
this offering will receive options to purchase 10,000 shares exercisable at the
initial offering price of the Shares. Additionally, on the anniversary date of
their service, each non-employee director will receive an additional 10,000
options with an exercise price at the then current market price of the Common
Stock. Directors will be reimbursed for travel expenses for attendance at any
meeting of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
As of the closing of this offering, the Board of Directors will establish
an audit committee ("Audit Committee"), comprised of the three independent
directors Messrs. Botti, Stumbaugh and Katz. It is anticipated that the Audit
Committee will be responsible for reviewing the Company's internal accounting
policies and procedures as well as the scope of the work performed by the
Company's independent auditors, including implementation of any recommendations
made by the Company's independent auditors.
The Board of Directors shall also establish a compensation committee
("Compensation Committee") consisting of Messrs. Stumbaugh and Katz. The
Compensation Committee will be responsible for the negotiation, review and
approval of the compensation of senior executives of the Company. The
Compensation Committee will also be responsible for administration of the 1994
Employee Plan and the Director Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into a four-year employment agreement with Jack
Forcelledo commencing January 1, 1997, which will expire in December 31, 2000
pursuant to which Mr. Forcelledo shall serve as Chairman, President and Chief
Executive Officer. Pursuant to the terms of the agreement, Mr. Forcelledo will
receive a base salary of $160,000 for fiscal year 1997 with annual increases up
to a base salary of $235,000 in year 2000. Mr. Forcelledo is entitled to bonus
payments commencing in fiscal year 1998. In the event the Company has net income
after taxes of $750,000 during fiscal 1998, Mr. Forcelledo will be entitled to a
bonus of 7% of net income plus 10% of any amount above $750,000. In the event
the Company has net income after taxes of $1,650,000 during fiscal 1999, Mr.
Forcelledo will be entitled to a bonus of 7% of net income plus 10% of any
amount above $1,650,000. In the event the Company has net income after taxes of
$2,400,000 during fiscal 2000, Mr. Forcelledo will be entitled to a bonus of 7%
of the net income plus 10% of any amount above $2,400,000.
37
<PAGE> 42
Mr. Forcelledo will also receive five year stock options to purchase
300,000 shares vesting in increments of 75,000 shares per year commencing on the
date of this Prospectus. Only a portion of these options will qualify as
incentive stock options In the event of Mr. Forcelledo's death or disability
which prevents him from performing his duties, all unvested options shall
immediately vest. The options will have an exercise price equal to the offering
price of the Shares and be granted under the Company's 1994 Employee Plan.
Pursuant to the terms of his employment agreement, Mr. Forcelledo
terminated certain royalty rights which he was granted in connection with the
transfer of the Radial Skateball Technology(TM) to the Company. The technology
which was transferred resulted in the Company's now patented technology. Under
the terminated royalty agreement, Mr. Forcelledo was entitled to payments equal
to 3% of net sales.
In addition, Mr. Forcelledo is provided with the Company's standard health
and other benefits and a policy of life insurance in the amount of $500,000
payable to a beneficiary to be named by Mr. Forcelledo. He also receives an
automobile allowance of $500 per month and reimbursement for expenses incurred
on behalf of the Corporation and in connection with the performance of his
duties. Additionally, Mr. Forcelledo will receive a one-time payment of $150,000
out of the proceeds of the offering which represents partial payment of $231,800
of accrued salary through December 31, 1997. Mr. Forcelledo will receive the
remainder of the accrued salary ($81,800) during the term of the employment
agreement as the Company's business and income allow and subject to the consent
of the Board of Directors; provided, however, the accrued salary shall not be
paid within 18 months of the date of this Prospectus without the consent of the
Board of Directors and the Underwriter.
The agreement also contains certain provisions regarding severance payments
to Mr. Forcelledo in the event of the termination of his employment prior to the
expiration of the term for (i) a "Change in Control" or (ii) termination without
"cause" or (iii) in the event that the Company declines to offer Mr. Forcelledo
a new employment agreement upon terms at least equal to the expired agreement at
the end of his employment term. A "Change of Control" is defined to mean any of
the following events: (i)(x) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's Common Stock would be converted into cash, securities or
other property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the stockholders of the Company approved
any plan or proposal for the liquidation or dissolution of the Company, or (iii)
any person (as such term is used in Sections 13(d) and 13(d)(2) of the Exchange
Act, who is not a beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of 20% or more of the Company's outstanding Common Stock on the
date of the Agreement, shall become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of 20% or more of the Company's outstanding
Common Stock, or (iv) during any period of two consecutive years, individuals
who at the beginning of such period constituted the entire Board of Directors
shall cease for any reason to constitute a majority thereof unless the election,
or the nomination for election by the Company's stockholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period. A Change of
Control shall not include any sale of securities in this offering, the
conversion of convertible securities outstanding at the Effective Date, the
exercise of any right to designate a director arising under the underwriting
agreement executed in connection with this offering, or the expansion of the
Board of Directors with the consent of Mr. Forcelledo. Upon the occurrence of a
"Change of Control", Mr. Forcelledo will be entitled to receive a lump sum
severance payment equal to three times the annual salary for the previous year.
Mr. Forcelledo may be terminated "for cause" which includes theft or fraud and
certain other acts and in such event, in which event he will not be entitled to
any severance payment.
Effective August 18, 1997, the Company entered into a one-year employment
agreement with Mr. Teasdale, its Chief Financial Officer. Pursuant to the terms
of the agreement, Mr. Teasdale receives an annual salary of $75,000. Mr.
Teasdale will also receive, on the Effective Date, five-year options to purchase
20,000 shares of Common Stock at an exercise price equal to the offering price
of the Shares. The agreement also provides for Mr. Teasdale to receive a car
allowance and medical and insurance benefits as are provided to
38
<PAGE> 43
the Company's employees. In the event Mr. Teasdale's employment is terminated by
the Company prior to the expiration of the term, Mr. Teasdale is entitled to
receive severance equal to the greater of (i) the compensation due him for the
remainder of the term or (ii) six month's compensation.
STOCK OPTION PLANS
1994 Employee Plan
In September 1994, the Company adopted the 1994 Employee Plan. The 1994
Employee Plan provides for the grant of options to purchase up to 750,000 shares
of the Company's Common Stock. Under the terms of the 1994 Employee Plan,
options granted thereunder may be designated as options which qualify for
incentive stock option treatment ("ISOs") under Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"), or options which do not so
qualify ("NSOs"). As of December 31, 1997, the Company had reserved 244,826
shares for outstanding options under the 1994 Employee Plan.
The 1994 Employee Plan will be administered by the Compensation Committee
which will have the discretion to determine the eligible employees to whom
options will be granted, the exercise period, exercise price and vesting
schedule of each option, the number of shares subject to each option, and
whether an option will be an ISOs or NSOs. The Compensation Committee shall have
full authority to interpret the Plan and to establish and amend rules and
regulations relating thereto. The Compensation Committee or the full Board of
Directors may also grant bonuses or authorize loans to or guarantee loans
obtained by an optionee to enable such optionee to pay any taxes that may arise
in connection with the exercise or cancellation of an option.
Under the 1994 Employee Plan, and in order to qualify as an ISO under the
Code the exercise price of an option designated as an ISO shall not be less than
the fair market value of the Common Stock on the date the option is granted.
However, in the event an option designated as an ISO is granted to a ten percent
stockholder (as defined in the 1994 Employee Plan) such exercise price shall be
at least 110% of such fair market value. Exercise prices of NSOs options may be
less than such fair market value but in no event shall the exercise price of
NSOs be less than 85% of the fair market price on the date of grant. The
aggregate fair market value of shares subject to options granted to a
participant which are designated as ISOs which become exercisable in any
calendar year shall not exceed $100,000. The "fair market value" of a share of
Common Stock will be (i) the closing price if the Common Stock is traded on a
national securities exchange, or (ii) the closing Nasdaq SmallCap Market bid
price, or (iii) if the Company's Common Stock is not quoted on the Nasdaq
SmallCap Market, as reported by the National Quotation Bureau, Inc., or a market
maker of the Company's Common Stock, or (iv) if the Common Stock is not quoted
by any of the above, by the Board of Directors acting in good faith.
Unless sooner terminated, the Plan will expire in September 2004.
Director Plan
In December 1997, the Board of Directors adopted the Director Plan which
will be approved by a majority of the Company's stockholders prior to the
Effective Date. The Director Plan provides for issuance of a maximum of 100,000
shares of Common Stock upon the exercise of stock options granted under the
Director Plan. Options may be granted under the Director Plan until July 2007 to
(i) non-executive directors as defined (ii) members of any advisory board
established by the Company who are not full-time employees of the Company or any
of its subsidiaries and (iii) consultants. The Director Plan provides that each
non-executive director will automatically be granted an option to purchase
10,000 shares of Common Stock, upon joining the Board of Directors, and on each
October 1st thereafter, provided such person has served as a director for the 12
months immediately prior to such October 1st. Similarly, each eligible member of
an advisory board will receive, upon joining the advisory board, and on each
October 1st thereafter, an option to purchase 1,000 shares of the Company's
Common Stock, providing such person has served as a member of the advisory board
for the previous 12 month period. The Company has not established any advisory
board and has no present plans to create any advisory board. The Company has no
plans to issue options under the Director Plan to consultants at this time.
39
<PAGE> 44
The exercise price for options granted under the Director Plan shall be
100% of the fair market value of the Common Stock on the date of grant. The
"fair market value" will be the (i) the closing price of a share of Common Stock
if the Common Stock is traded on a national securities exchange or (ii) the
closing bid price as reported by the Nasdaq SmallCap Market, or (iii) if the
Company's Common Stock is not quoted on the Nasdaq SmallCap Market, as reported
by the National Quotation Bureau, Inc., or a market maker of the Company's
Common Stock, or (iv) if the Common Stock is not listed on or quoted by any of
the above by the Board of Directors acting in good faith. Until otherwise
provided in the Director Plan the exercise price of options granted under the
Director Plan must be paid at the time of exercise, either in cash, by delivery
of shares of Common Stock of the Company or by a combination of each. The term
of each option commences on the date it is granted and unless terminated sooner
as provided in the Director Plan, expires five years from the date of grant. The
Director Plan will be administered by the Compensation Committee. The Committee
has no discretion to determine which non-executive director or advisory board
member will receive options or the number of shares subject to the option, the
term of the option or the exercisability of the option. However, the Committee
will make all determinations of the interpretation of the Director Plan. Options
granted under the Director Plan are not qualified for incentive stock option
treatment.
No options have been granted under the Director Plan. The Director Plan
will expire in December 2007.
40
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of March 5, 1998 with
respect to the Company's Common Stock owned by each person known to the Company
to be the beneficial owner of more than five percent (5%) of the Company's
Common Stock, each director and designees, the named executive officer, and all
other executive officers and directors as a group. The information herein gives
effect to the surrender and cancellation of 600,000 shares of Common Stock by
Mr. Jack Forcelledo. As of March 5, 1998 there were 2,683,568 shares of Common
Stock issued and outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE PERCENTAGE
BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER POSITION WITH COMPANY(1) OWNERSHIP(2) OFFERING OFFERING(3)
- ------------------------------------ ------------------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Jack Forcelledo(4)..................... Chairman of the Board, 1,159,318 46% 25.4%
President, Chief
Executive Officer
Kenneth Teasdale(5).................... Chief Financial Officer 20,000 0% 0%
Elizabeth Forcelledo(4)................ Director 1,159,318 46% 25.4%
Lawrence Stumbaugh(6).................. Director 215,151 7.8% 4.5%
c/o 3535 Redmont Road N.E.
Suite 440
Atlanta, GA 30305
John T. Botti.......................... Director (designee) 0 0 0
c/o Bitwise Designs, Inc.
Technology Center
Schenectady, NY 12306
Michael Katz........................... Director (designee) 0 0 0
One San Rafael Avenue
Tiburon, CA 94920
Sercap Holdings LLC(6)................. 215,151 7.8% 4.5%
c/o 3535 Piedmont Road N.E.
Suite 440
Atlanta, GA 30305
All Officers, Directors and Designees % %
as a Group (6 persons)(3)(4)(5)(6)... 1,394,469 50.2 30
</TABLE>
- ---------------
(1) Unless indicated, all addresses are c/o the Company at 9255 Doheny Road,
Suite 2705, Los Angeles CA 90069.
(2) Each person listed has sole voting and investment power over the shares
listed as beneficially owned unless otherwise indicated.
(3) Includes issuance of the Conversion Shares, Bridge Shares and 1997 Loan
Shares.
(4) Includes 1,159,318 shares of Common Stock owned jointly by Mr. Forcelledo
and Mrs. Forcelledo. Does not include five year options to purchase 64,653
shares with an exercise price of $3.37 per share which were granted in April
1994 and five year options to purchase 300,000 shares with an exercise price
equal to the public offering price of the shares which will be granted on
the Effective Date.
(5) Mr. Teasdale will receive on the effective date five year options to
purchase 20,000 shares of Common Stock at an exercise price equal to the
public offering price of the Shares.
(6) Mr. Stumbaugh is a Selling Stockholder and as such has the right to receive
6,060 Conversion Shares. Mr. Stumbaugh is a controlling person (as defined
under the Securities Act) of Sercap Holdings LLC which has the right to
acquire 206,061 shares of Common Stock under the terms of the 1997 Loan. Mr.
Stumbaugh also owns 3,030 1996 Warrants which have an exercise price equal
to the initial public offering price of the Shares.
41
<PAGE> 46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1994, in connection with the founding of the Company, the Company
issued 2,351,158 shares of Common Stock to Jack Forcelledo, the Company's
Chairman of the Board and Chief Executive Officer, and Elizabeth Forcelledo, his
wife. During 1994, Mr. Forcelledo sold or gifted an aggregate of 591,840 shares
to certain individuals including 178,271 shares of Common Stock transferred to
Anthony Forcelledo, a former director of the Company and the brother of Jack
Forcelledo, and 178,271 shares of Common Stock transferred to Victoria and
Walter Nelson. Victoria Nelson is the sister of Elizabeth Forcelledo, a director
of the Company. The foregoing shares were issued to Mr. Jack Forcelledo for
nominal consideration.
Mr. Jack Forcelledo has agreed to surrender for cancellation 600,000 shares
of Common Stock on the Effective Date assuming the offering is consummated.
In March 1995, April 1995 and March 1996 the Company received an aggregate
of $148,000 principal amount loans from Jack Forcelledo and his spouse,
Elizabeth Forcelledo. The loans bore interest at 12% per annum. Prior to June
30, 1997, the loans had been repaid in full.
The Company and Jack Forcelledo had previously entered into a royalty
agreement whereby Mr. Forcelledo received a royalty equal to 3% of net sales of
the Company's products; provided, however, with respect to sales generated by
letter of credit, the royalty fee was 1.8%. Mr. Forcelledo has agreed to
terminate his royalty agreement effective January 1, 1997 and waive any amounts
due.
From December 1994 through May 1995 the Company received loans in the total
principal amount of $125,000 from Mr. Virgil Wenger, a former officer and
director of the Company. The loans bear interest at 12% per annum and are due
upon demand. As of December 31, 1997 the amount due to Mr. Wenger for principal
and interest was approximately $115,000. The Company intends to use a portion of
the proceeds from this offering to repay the loans in full. See "Use of
Proceeds." In connection with the making of these loans to the Company, Mr.
Wenger received an aggregate of 18,570 five year options at an exercise price of
$3.37 per share. The options were granted as of the date of the loans.
The Company has received loans from Mr. Anthony Forcelledo in the aggregate
principal amount of $60,000 in the last three years. The loans bear interest at
12% per annum and are payable upon demand. At December 31, 1997 the total amount
of principal and interest due Mr. Anthony Forcelledo was approximately $65,000.
The Company intends to use a portion of the proceeds from this offering to repay
these loans. See "Use of Proceeds." In the making of these loans to the Company,
Mr. Forcelledo received an aggregate of 7,874 five year options at an exercise
price of $3.37 per share. The options were granted as of the date of the loans.
In October 1997 the Company received the 1997 Loan in the principal amount
of $1,000,000 from Sercap Holdings LLC of which Mr. Lawrence Stumbaugh is a
principal and officer. Mr. Stumbaugh is a director of the Company. The terms of
the agreements governing the 1997 Loan provide that Sercap Holdings LLC has the
right to have a designee on the Board of Directors of the Company. Mr. Stumbaugh
was appointed to the Board of Directors in October 1997 and will serve as a
Class 3 director until the 1998 Annual Meeting of Stockholders. The 1997 Loan is
represented by two notes of $400,000 principal amount and of $600,000 principal
amount, respectively. The 1997 Loan bears interest at 12% per annum. See
"Management's Discussion and Analysis", "Management" and "Concurrent Sales."
During 1994 the Company utilized the services of Anthony Forcelledo for
which it had accrued an expense of $31,000. The accrued expense was paid in
fiscal 1997. Additionally, since 1994 the Company has utilized the services of
Mrs. Nelson as a consultant. These individuals provided sales and marketing
services to the Company. Mrs. Nelson was paid $30,000 and $31,000 for her
services during fiscal 1996 and 1997, respectively.
Except as provided herein, the Company has not entered into any material
transactions or series of similar transactions with any director, executive
officer, any shareholder owning 5% or more of the Company's Common Stock or any
affiliates of any of the foregoing. It is the Company's policy that all
transactions in which an officer, director, a 5% shareholder or affiliate has a
personal interest (i) will be approved by the majority of independent and
disinterested directors and (ii) must be on terms no less favorable to the
42
<PAGE> 47
Company that could be obtained in arms-length negotiation with non-affiliated
parties. With respect to any such proposed transactions the Company will provide
its counsel or independent counsel to its independent directors at the Company's
expense. The Company will maintain at least two such independent directors on
its Board of Directors. At the time the above transactions were initiated, the
Company lacked sufficient disinterested independent directors to approve or
ratify the transactions.
For information concerning employment agreements with, and compensation of,
the Company's executive officers and directors, see "Management -- Employment
Agreements."
43
<PAGE> 48
CONCURRENT SALES
The holders of the Selling Stockholder Shares have the right to require
that these shares be included in any registration statements filed by the
Company. The rights were granted to the Selling Stockholders in privately
negotiated arms length transactions evidenced by written agreements. All of the
Selling Stockholder Shares are being registered under the Securities Act as part
of the registration statement of which this Prospectus forms a part. All of
these shares will be freely tradeable (assuming exercise of any applicable
convertible security) on the date of this Prospectus. The Selling Stockholders
have agreed, however, pursuant to the Lockup Agreements, not to offer, sell or
transfer any Selling Stockholder Shares for a period of six months from the date
hereof without the prior written consent of the Underwriter. The Underwriter may
consent to the sale of any or all of such shares at any time at its discretion.
No predictions can be made as to the effect, if any, that sales of Selling
Stockholder Shares or the availability of such shares for sale will have on the
market price of the Common Stock prevailing from time to time. Sales of the
Selling Stockholder Shares or even the potential of such sales may have an
adverse effect on the market price of the Common Stock. The Company will not
receive any proceeds from the sale of the Selling Stockholder Shares by the
Selling Stockholders although the Company will receive the exercise price of any
warrant exercised.
All figures below have been rounded down to the nearest whole share. The
Company will deliver cash to any Selling Stockholder entitled to a fractional
share.
A. CONVERSION SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK COMMON STOCK
OWNED PRIOR COMMON STOCK TO BE OWNED AFTER
NAME TO OFFERING(1) OFFERED HEREBY(1) OFFERING(2)
---- -------------- ------------------ -------------
<S> <C> <C> <C>
Robert E. Powers.......................... 6,060 6,060 *
William Arthur Hamilton................... 6,060 6,060 *
J. Susan Wilkinson Trust.................. 6,060 6,060 *
J. Susan Wilkinson Revocable Trust........ 12,121 12,121 *
Stephen L. Gehring........................ 6,060 6,060 *
Charles Roeske............................ 24,242 24,242 *
Orthopedic Clinic, P.A. .................. 4,848 4,848 *
Robert B. Reuther......................... 6,060 6,060 *
Paul E. and Dorothy L. Bushnell........... 6,060 6,060 *
Jerry Daniel.............................. 9,696 9,696 *
Aperdev Investments....................... 12,121 12,121 *
Ting Liu.................................. 24,242 24,242 *
Barry Weisler............................. 12,121 12,121 *
East West Management...................... 12,121 12,121 *
Faisal Finance............................ 141,702 141,702 3.1%
Cary Toner................................ 6,060 6,060 *
Larry A. Berman Prof. Sharing............. 6,060 6,060 *
Kadflx, Inc. ............................. 12,121 12,121 *
Robert W. Roten........................... 6,060 6,060 *
Gary Schwartz............................. 12,121 12,121 *
William F. Broderson...................... 12,121 12,121 *
Richard A. Westphal....................... 6,060 6,060 *
Penelope K. Riggio........................ 6,060 6,060 *
Lawrence Stumbaugh(3)..................... 6,060 6,060 *
Stepwen, Inc.............................. 6,060 6,060 *
Terry K. Collier.......................... 6,060 6,060 *
Charles Roeske............................ 24,242 24,242 *
Alan Talesnick............................ 6,060 6,060 *
Euro Pharmaceutical Distributors.......... 12,121 12,121 *
Eng-Chye Low.............................. 9,696 9,696 *
Joseph Doria.............................. 6,060 6,060 *
Xanadu Associates, LLC.................... 12,121 12,121 *
Steven M. Sternberg....................... 6,060 6,060 *
Sub-Total................................. 450,794 450,794
</TABLE>
44
<PAGE> 49
B. 1996 WARRANT SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK COMMON STOCK
OWNED PRIOR COMMON STOCK TO BE OWNED AFTER
NAME TO OFFERING OFFERED HEREBY OFFERING(2)
- ---- ------------ ------------------ -------------
<S> <C> <C> <C>
Robert E. Powers.......................... 3,030 3,030 *
William Arthur Hamilton................... 3,030 3,030 *
J. Susan Wilkinson Trust.................. 3,030 3,030 *
J. Susan Wilkinson Revocable Trust........ 6,060 6,060 *
Stephen L. Gehring........................ 3,030 3,030 *
Charles Roeske............................ 12,121 12,121 *
Orthopedic Clinic, P.A. .................. 2,424 2,424 *
Robert B. Reuther......................... 3,030 3,030 *
Paul E. and Dorothy L. Bushnell........... 3,030 3,030 *
Jerry Daniel.............................. 4,848 4,848 *
Aperdev Investments....................... 6,060 6,060 *
Ting Liu.................................. 12,121 12,121 *
Cary Toner................................ 3,030 3,030 *
Larry A. Berman Prof. Sharing............. 3,030 3,030 *
Kadflx, Inc............................... 6,060 6,060 *
Robert W. Roten........................... 3,030 3,030 *
Gary Schwartz............................. 6,060 6,060 *
William F. Broderson...................... 6,060 6,060 *
Richard A. Westphal....................... 3,030 3,030 *
Penelope K. Riggio........................ 3,030 3,030 *
Stepwen, Inc.............................. 3,030 3,030 *
Terry K. Collier.......................... 3,030 3,030 *
Charles Roeske............................ 12,121 12,121 *
Alan Talesnick............................ 3,030 3,030 *
Euro Pharmaceutical Distributors.......... 6,060 6,060 *
Eng-Chye Low.............................. 4,848 4,848 *
Joseph Doria.............................. 3,030 3,030 *
Xanadu Associates, LLC.................... 6,060 6,060 *
Steven M. Sternberg....................... 3,030 3,030 *
Lawrence Stumbaugh(3)..................... 3,030 3,030 *
Barry Weisler............................. 6,060 6,060 *
East West Management...................... 6,060 6,060 *
Faisal Finance............................ 70,851 70,851 3.1%
Sub-Total................................. 225,397 225,397
</TABLE>
C. BRIDGE SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK COMMON STOCK
OWNED PRIOR COMMON STOCK TO BE OWNED AFTER
NAME TO OFFERING OFFERED HEREBY OFFERING(2)
- ---- ------------ ------------------ -------------
<S> <C> <C> <C>
Sagax Fund II Ltd. ....................... 18,182 18,182 *
James M. Freitag.......................... 9,091 9,091 *
Frank Woodward............................ 9,091 9,091 *
BG Bank................................... 18,182 18,182 *
AIC Diversified Services, Inc. ........... 9,091 9,091 *
Fred Meyers............................... 9,091 9,091 *
Lawrence S. Sheets........................ 9,091 9,091 *
Highbridge Fund Ltd. ..................... 18,182 18,182 *
Russell J. Azzarello...................... 9,091 9,091 *
Ignazio Posadio........................... 9,091 9,091 *
Melvin Yablon............................. 4,545 4,545 *
George Casella............................ 4,545 4,545 *
Sub-Total................................. 127,273 127,273
</TABLE>
45
<PAGE> 50
D. 1994 SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK COMMON STOCK
OWNED PRIOR COMMON STOCK TO BE OWNED AFTER
NAME TO OFFERING OFFERED HEREBY OFFERING(2)
- ---- ------------ ------------------ -------------
<S> <C> <C> <C>
Charles D. Mayer.......................... 10,696 10,696 *
Bruce L. Gordon........................... 10,696 10,696 *
Steven Harter............................. 2,674 2,674 *
Harry B. Bressler......................... 8,022 8,022 *
Guido Iacovelli........................... 2,674 2,674 *
Scott Winjum, O.D......................... 10,696 10,696 *
Dr. Donald Spector........................ 1,337 1,337 *
B&C Partners.............................. 10,696 10,696 *
Sand Castle Trading L.P. ................. 1,337 1,337 *
Maverick Investment Profit Sharing Plan &
Trust................................... 8,022 8,022 *
Florine Atkins............................ 1,337 1,337 *
Susanne Robbins........................... 2,674 2,674 *
Richard Rex Harris........................ 10,696 10,696 *
Pete J. Nickolopoulos..................... 2,674 2,674 *
GMM Defined Benefit Plan.................. 1,337 1,337 *
Joan Dziekanski........................... 1,337 1,337 *
Ralph Z. Levene, M.D...................... 10,696 10,696 *
Joseph A. Sullivan........................ 2,674 2,674 *
James A. Tagle
Sharon L. Go-Tagle Family Trust......... 5,348 5,348 *
Niels Lauersen............................ 21,393 21,393 *
Andrew Ege................................ 741 741 *
Thomas & Karen Finn....................... 1,337 1,337 *
Peter F. Szabo............................ 5,348 5,348 *
BeDour Construction, Inc.................. 2,674 2,674 *
Kelly Dorris.............................. 1,337 1,337 *
Rayna Ragonetti........................... 1,308 1,308 *
Dr. Randy A. Spector...................... 1,337 1,337 *
Jerry Daniels............................. 3,863 3,863 *
Eric L. Goldstein......................... 1,486 1,486 *
Aperdev Investments Inc................... 5,942 5,942 *
Sub-Total................................. 152,392 152,392
------- ------- ------
</TABLE>
E. AGENT WARRANT SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK COMMON STOCK
OWNED PRIOR COMMON STOCK TO BE OWNED AFTER
NAME TO OFFERING OFFERED HEREBY OFFERING(2)
---- ------------ ------------------ -------------
<S> <C> <C> <C>
Hugh Regan................................ 29,712 29,712 *
Jane Collins.............................. 14,856 14,856 *
Michelle Szatkowski....................... 5,942 5,942 *
David Wenger.............................. 13,906 13,906 *
Virgil Wenger............................. 3,803 3,803 *
Robert Haag............................... 3,342 3,342 *
Andrew Haag............................... 3,342 3,342 *
Lisa Deloache............................. 743 743 *
Michael P. Considine...................... 6,480 6,480 *
Sub-Total................................. 82,127 82,127
</TABLE>
46
<PAGE> 51
F. 1997 LOAN SHARES
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK COMMON STOCK
OWNED PRIOR COMMON STOCK TO BE OWNED AFTER
NAME TO OFFERING OFFERED HEREBY OFFERING(2)
---- ------------ ------------------ -------------
<S> <C> <C> <C>
Sercap Holdings LLC(3)................... 206,061 206,061 4.5%
Totals........................................ -- -- 26.8%
</TABLE>
- ---------------
* denotes less than 1%
(1) Does not include convertible securities held by the named Selling
Stockholder which are included elsewhere in this table.
(2) Percentage is based upon 4,590,423 shares of Common Stock outstanding after
this offering.
(3) Mr. Lawrence Stumbaugh is a principal of Sercap Holdings LLC. Mr. Stumbaugh
disclaims beneficial ownership of the shares owned by Sercap Holdings LLC.
47
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is subject to
the DGCL and to provisions contained in the Company's Amended and Restated
Certificate of Incorporation and Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
Reference is made to such exhibits for a detailed description of the provision
thereof summarized below.
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.001 per share, and 10,000,000 shares of Preferred Stock, par value $.10
per share. As of the date of this Prospectus, there were 2,683,568 shares of
Common Stock and no shares of Preferred Stock issued and outstanding. Prior to
the Effective Date, the Company will effect approximately a 0.6:1 reverse stock
split of its Common Stock. All discussions in this Prospectus give effect to the
reverse stock split unless otherwise stated.
COMMON STOCK
Subject to the rights of the holders of any shares of Preferred Stock which
may be issued in the future, holders of shares of Common Stock of the Company
are entitled to cast one vote for each share held at all stockholders' meetings
for all purposes, including the election of the Board of Directors. See
"-- Preferred Stock."
Holders of Common Stock have the right to share ratably in such dividends
on shares of Common Stock as may be declared by the Board of Directors out of
funds legally available therefore. See "Dividend Policy." Upon liquidation or
dissolution, each outstanding share of Common Stock will be entitled to share
equally in the assets of the Company legally available for distribution to
stockholders after the payment of all debts and other liabilities, subject to
any superior rights of the holders of Preferred Stock.
Holders of Common Stock have no pre-emptive rights. There are no conversion
or redemption privileges or sinking fund provisions with respect to the Common
Stock. All of the outstanding shares of Common Stock are, and all of the shares
of Common Stock offered hereby will be, validly issued, fully paid and
nonassessable. The Common Stock does not have cumulative voting rights so
holders of more than 50% of the outstanding Common Stock can elect 100% of the
Directors of the Company if they choose to do so, subject to the rights of
holders of Preferred Stock, if any.
PREFERRED STOCK
The Board of Directors is empowered to issue Preferred Stock from time to
time in one or more series, without stockholder approval, and with respect to
each series to determine (subject to limitations prescribed by law) (1) the
number of shares constituting such series, (2) the dividend rate on the shares
of each series, whether such dividends shall be cumulative and the relation of
such dividends to the dividends payable on any other class of stock, (3) whether
the shares of each series shall be redeemable and the terms of any redemption
thereof, (4) whether the shares shall be convertible into Common Stock or other
securities and the terms of any conversion privileges, (5) the amount per share
payable on each series or other rights of holders of such shares on liquidation
or dissolution of the Company, (6) the voting rights, if any, for shares of each
series, (7) the provision of a sinking fund, if any, for each series, and (8)
generally any other rights and privileges not in conflict with the Certificate
of Incorporation for each series and any qualifications, limitations or
restrictions thereof. The Company currently has no plans to issue any Preferred
Stock.
The Company will not offer or sell Preferred Stock to any officer,
director, 5% shareholder of the Company or any affiliate or associate of such
persons without the approval by a majority of the Company's independent
directors who do not have an interest in the transaction and who have access, at
the Company's expense, to the Company's or independent legal counsel.
WARRANTS
The Company has issued and outstanding Common Stock purchase warrants to
purchase an aggregate of 406,549 shares of Common Stock, inclusive of the Agent
Warrants and 1996 Warrants. The 1996 Warrants have a three year term which
expires three years from the date of this offering. The exercise price of the
1996
48
<PAGE> 53
Warrants will equal the initial public offering price of the Shares in this
offering, subject to adjustment in certain circumstances. The Agent Warrants
expire in May 1998 and have an exercise price of $1.68 per share, subject to
adjustment in certain circumstances.
The remaining 99,025 outstanding warrants have exercise prices ranging from
$3.37 per share to the initial public offering price of the Shares in this
offering. These warrants have five year terms from the date of grant and expire
in June 2000, October 2000, June 2002 and October 2002, respectively.
Shares issuable upon exercise of the warrants, following payment therefor,
will be validly issued, fully paid and non-assessable. The warrants do not
confer upon the holders any voting or other rights as stockholders.
None of the warrants are redeemable by the Company. Holders of 297,279
warrants are entitled to have the Company register the shares of Common Stock
for resale under the Securities Act concurrent with the Registration Statement
of which this Prospectus forms a part or in a future registration statement. The
Company is simultaneously registering for resale 297,279 shares issuable upon
exercise of such warrants. See "Concurrent Sales".
The exercise prices of the warrants was negotiated between the Company and
the holders and should not be construed to be predictive of or to imply that any
price increases or decreases in the Company's Common Stock will occur in the
future. For the life of the warrants, the holders thereof have the opportunity
to profit from a rise in the market value of the Common Stock, with a resulting
dilution in the interest of all other stockholders. So long as the warrants are
outstanding, the terms on which the Company could obtain additional capital may
be adversely affected. The holders of the warrants might be expected to exercise
them at a time when the Company would, in all likelihood, be able to obtain any
needed capital by a new offering of securities on terms more favorable than
those provided for by the warrants.
CERTAIN CHARTER, BYLAW AND STATUTORY PROVISIONS
The Company's Amended and Restated Certificate of Incorporation contains
certain provisions that could discourage potential takeover attempts and make
more difficult attempts by stockholders to change management. The Amended and
Restated Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes (Class 1, Class 2 and Class 3) as nearly
equal in size as practicable. Each class will hold office until the third annual
meeting for election of directors following the election of such class;
provided, however, that the initial terms of the directors in the first, second
and third classes of the Board of Directors will expire in 2000, 1999 and 1998,
respectively. The Company's Amended and Restated Certificate of Incorporation
provides that no director may be removed except for cause and by the vote of not
less than 66 2/3% of the total outstanding voting power of the securities of the
Company which are then entitled to vote in the election of directors. The
Amended and Restated Certificate of Incorporation permits the Board of Directors
to create new directorships and the Company's Bylaws permit the Board of
Directors to elect new directors to serve the full terms of the class of
directors in which the new directorship was created. The Bylaws also provide
that the Board of Directors (or its remaining members, even if less than a
quorum) is empowered to fill vacancies on the Board of Directors occurring for
any reason for the remainder of the term of the class of directors in which the
vacancy occurred. A vote of not less than 66 2/3% of the total outstanding
voting power of the securities of the Company which are then entitled to vote in
the election of directors is required to amend the foregoing provisions of the
Amended and Restated Certificate of Incorporation.
CERTAIN PROVISIONS OF DELAWARE LAW
Certain provisions in the Amended and Restated Certificate of
Incorporation, the Bylaws and the DGCL could have the effect of delaying,
deferring or preventing changes in control of the Company.
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of the Company's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with the Company for three years following the date that person became an
interested stockholder unless:
49
<PAGE> 54
(i) before that person became an interested stockholder, the Board of Directors
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (ii) upon
completion of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the Company outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
Company and by employee stock plans that do not provide employees with the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (iii) on or following the date on
which that person became an interested stockholder, the business combination is
approved by the Company's Board and authorized at a meeting of stockholders by
the affirmative vote of the holders of at least 66 2/3% of the outstanding
voting stock of the Company not owned by the interested stockholder.
Under Section 203 of the DGCL, these restrictions also do not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the Company and a person who was not an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the Company's directors, if that extraordinary
transaction is approved or not opposed by a majority of the directors (but not
less than one) who were directors before any person became an interested
stockholder in the previous three years or who were recommended for election or
elected to succeed such directors by a majority of such directors then in
office.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eighth of the Company's Amended and Restated Certificate of
Incorporation provides that, to the full extent permitted by the DGCL, directors
shall not be personally liable to the Company or its stockholders for damages
for breach of any duty owed to the Company or its stockholders.
The Amended and Restated Certificate of Incorporation and Bylaws of the
Company provide that the Company shall, to the fullest extent permitted by
applicable law, as amended from time to time, indemnify all directors of the
Company, as well as any officers or employees of the Company to whom the Company
has agreed to grant indemnification.
The Company will apply for directors' and officers' liability insurance
which is intended to provide the Company's Directors and officers protection
from personal liability in addition to the protection provided by the Company's
Amended and Restated Certificate of Incorporation and Bylaws as described above.
There can be no assurance that the Company will be able to retain such
insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is Continental Stock
Transfer and Trust Company, 2 Broadway, New York, New York 10004.
STOCKHOLDER REPORTS
The Company will distribute annual reports to its stockholders, which will
include financial statements audited and reported on by independent accountants,
and will provide such other reports as management may deem necessary or
appropriate to keep stockholders informed of the Company's operations.
50
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 4,590,423 shares of Common
Stock outstanding, of which the 1,250,000 Shares sold pursuant to this offering,
assuming the over-allotment option is not exercised, will be tradable without
restriction by persons other than "affiliates" of the Company. In addition,
1,958,635 shares of Common Stock previously issued are owned by non-affiliates
of the Company, have been held more than two years and will be freely tradable,
subject to the Lock-Up Agreements referred to below. Officers and directors will
own upon completion of this Offering 1,394,469 shares of Common Stock inclusive
of shares owned by Sercap Holdings LLC. All of the Selling Stockholder Shares
held by the Selling Stockholders and registered hereby, will be freely tradable
as long as the prospectus covering such sales remains current and effective,
subject to the Lock-up Agreements. The remaining shares of issued and
outstanding Common Stock will be "restricted" securities within the meaning of
the Securities Act, and may not be sold in the absence of registration under the
Securities Act or an exemption therefrom, including the exemptions contained in
Rule 144 under the Securities Act. Without regard to the Lock-up Agreements with
the Underwriter, referred to below, such shares will become available for sale
under Rule 144 at various times commencing 90 days from the date of the
Prospectus. No prediction can be made as to the effect, if any, that future
sales of shares of Common Stock will have on the market price of the shares of
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that these sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
ability of the Company to raise additional capital through the sale of its
equity securities or through debt financing. The Lock-Up Agreements will remain
in effect for six months for the Selling Stockholders under which they will
agree not to sell or otherwise dispose of any of their shares of Common Stock or
other securities of the Company (other than pursuant to private transfers in
connection with which the transferees agree to be bound by the same "lock-up"
provision). The officers and directors of the Company (other than Mr. Stumbaugh)
have agreed to a lock-up period of 18 months with respect to all securities of
the Company held by them; provided, however, commencing one year after the
Effective Date, the officers and directors will be allowed to sell such number
of shares of Common Stock as they would be able to sell under Commission Rule
144 if the Company's Common Stock has a market price of at least 120% of the
public offering price. See "Underwriting".
51
<PAGE> 56
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company, and the Company has agreed
to sell to such Underwriter, an aggregate of 1,250,000 Shares. Set forth below
is a summary of all of the material terms of the Underwriting Agreement. A
complete copy of the Underwriting Agreement is included in the Registration
Statement of which this Prospectus form is a part.
The Underwriter is committed on a "firm commitment" basis to purchase and
pay for all of the Shares offered hereby (other than shares offered pursuant to
the over-allotment option) if any Shares are purchased. The Shares are being
offered by the Underwriter subject to prior sale, when, as and if delivered to
and accepted by the Underwriter and subject to approval of certain legal matters
by counsel and to certain other conditions.
The Underwriter has advised the Company that the Underwriter proposes to
offer the Shares to the public at the public offering price set forth on the
cover page of this Prospectus and the Underwriter may allow to certain dealers
who are members of the NASD concessions, not in excess of $. per share, of
which not in excess of $ per share may be reallowed to other dealers who are
members of the NASD. After the initial distribution of the Shares in this
offering is completed, the public offering price, the concessions, and
reallowance may be changed by the Underwriter. The Underwriter has informed the
Company that it does not expect any sales of the Shares offered hereby to be
made to discretionary accounts of the Underwriter.
The Company has granted an option to the Underwriter, exercisable during
the 45 day period commencing on the date of this Prospectus, to purchase up to
an aggregate of 187,500 additional Shares at the public offering price, less the
underwriting discounts and commissions. The Underwriter may exercise this option
in whole or, from time to time, in part solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the Shares offered
hereby. To the extent that the Underwriter exercises such option, the
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the additional Shares underlying the portion of the option exercised.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and therefore is unenforceable.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the aggregate offering price of the Shares offered hereby
(including any Shares purchased pursuant to the Underwriter's over-allotment
option), of which $40,000 has been paid to date. The Company has also agreed to
pay all expenses in connection with qualifying the Shares offered hereby for
sale under the laws of such states as the Underwriter may designate, including
the expenses of counsel retained for such purposes by the Underwriter.
The Company has also agreed pursuant to the Underwriting Agreement to allow
the Underwriter to designate a nominee of the Board of Directors for a period of
three years. The Company has agreed to use its best efforts to obtain the
election of the Underwriter's nominee. In the event the Underwriter declines to
nominate an individual to the Board of Directors, the Company has agreed to
allow an individual selected by the Underwriter to attend all the Board of
Directors' meetings.
The Company has agreed to sell to the Underwriter and its designees,
Underwriter's Warrants to purchase up to 125,000 shares of Common Stock at an
exercise price per share equal to 165% of the initial public offering price per
share of the Shares offered hereby. The Underwriter's Warrants may not be
transferred, except to officers or employees who are stockholders of the
Underwriter, and are exercisable during the four-year period commencing one year
from the date of the Prospectus (the "Warrant Exercise Term"). During the
Warrant Exercise Term, the holders of the Underwriter's Warrants are given, at
nominal cost, the opportunity to profit from a rise in the market price of the
Common Stock. To the extent that the
52
<PAGE> 57
Underwriter's Warrants are exercised or exchanged, dilution to the interests of
the Company's stockholders will occur. Further, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected since
the holders of the Underwriter's Warrants can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
Underwriter's Warrants. Any profit realized by the Underwriter on the sale of
the Underwriter's Warrants or the underlying shares of Common Stock may be
deemed additional underwriting compensation. The Underwriter's Warrants provide
for reductions, which in certain circumstances could be material, in the
exercise price of the Underwriter's Warrants upon the occurrence of certain
events, including adjustment of the type of securities issuable upon exercise of
the Underwriter's Warrants to reflect changes in the Common Stock and to reflect
stock dividends, stock splits and mergers, recapitalizations or sales of assets.
The Company has agreed to register the Underwriter's Warrants and the underlying
shares of Common Stock under the Securities Act on one occasion during the
Warrant Exercise Term and to include such Underwriter's Warrants and shares in
any appropriate registration statement that is filed by the Company during the
Warrant Exercise Term.
Certain persons, including current employees and officers of the
Underwriter, hold Agent Warrants to purchase 82,127 shares of Common Stock of
the Company. The Agent Warrants were originally issued to the Underwriter in
1994 as consideration for its services as placement agent in the 1994 Private
Offering. The Agent Warrants have an exercise price of $1.68 per share. The
Agent Warrants expire in May 1998. The Agent Warrant Shares are being registered
in the Registration Statement of which this Prospectus forms a part. See
"Concurrent Sales".
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price has been arbitrarily determined by
negotiation between the Company and the Underwriter. In determining the offering
price, the Underwriter and the Company considered, among other things, market
prices of similar securities of comparable publicly traded companies, the
financial condition and operating information of companies engaged in activities
similar to those of the Company, the financial condition and prospects of the
Company and the general condition of the securities market.
In connection with the offering, the Underwriter and selling group members
(if any) and its affiliates may engage in transactions that stabilize, maintain
or otherwise affect the market price of the Common Stock. Such transactions may
include stabilization transactions effected in accordance with Rule 104 of
Regulation M, pursuant to which such persons may bid for or purchase Common
Stock for the purpose of stabilizing its market price. The Underwriter also may
create a short position for the account of the Underwriter by selling more
Common Stock in connection with this offering then it is committed to purchase
from the Company, and in such case may purchase Common Stock in the open market
following completion of this offering to cover all or a portion of such short
position. In addition, the Underwriter may impose "penalty bids" under
contractual arrangements whereby it may reclaim from an a dealer participating
in this offering for its account, the selling concession with respect to the
Common Stock that is distributed in this offering but subsequently purchased for
its account in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if any is undertaken,
may be discontinued at any time.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Goldstein & DiGioia, LLP, 369 Lexington Avenue, New York, New York
10017. Goldstein & DiGioia, LLP holds five year warrants to purchase 50,000
shares of Common Stock at an exercise price equal to the public offering price
of the Shares. Certain legal matters in connection with the sale of the Shares
offered hereby will be passed upon for the Underwriter by Coleman & Rhine LLP.
53
<PAGE> 58
EXPERTS
The financial statements of Rollerball International Inc. at December 31,
1997 and 1996, and for each of the two-years in the period ending December 31,
1997, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a registration statement on Form
SB-2, together with exhibits thereto, under the Securities Act containing
information concerning the securities offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to the Company and the securities offered hereby, reference is made to
the registration statement and the exhibits filed as part thereof. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete. 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.
The registration statement and exhibits can be inspected without charge and
copied, upon payment of the fees prescribed by the Commission, at the public
reference section of the Commission's principal office, 450 5th Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the Commission's regional
offices located at the Northwestern Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New
York, New York 10048. The Commission also maintains a World Wide Web site at
http://www.sec.gov.
54
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-1
Balance Sheets as of December 31, 1996 and 1997............. F-2
Statements of Operations for the years ended December 31,
1996 and 1997............................................. F-3
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996 and 1997.......................... F-4
Statements of Cash Flows for the years ended December 31,
1996 and 1997............................................. F-5
Notes to Financial Statements............................... F-6
</TABLE>
<PAGE> 60
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Rollerball International Inc.
We have audited the accompanying balance sheets of Rollerball International
Inc. as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the two years ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rollerball International,
Inc. at December 31, 1996 and 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
Rollerball International, Inc. will continue as a going concern. As more fully
discussed in Note 1 to the financial statements, the Company has incurred a loss
of $3,145,000 for the year ended December 31, 1997. At December 31, 1997, the
Company had a working capital deficit of $3,495,000 and was in payment default
on certain debt. These conditions raise substantial doubt about the Company's
ability to continue as a going concern unless it is able to raise sufficient
additional capital to continue to fund operations. Management's plans as to
these matters are also described in Note 1. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of Rollerball
International Inc. to continue as a going concern.
Ernst & Young LLP
Los Angeles, California
February 21, 1998, except
Note 12 as to which the date
is March , 1998
The foregoing report is in the form that will be signed upon the completion
of the restatement of capital accounts described in Note 12 to the financial
statements.
/s/ Ernst & Young LLP
Los Angeles, California
March , 1998
F-1
<PAGE> 61
ROLLERBALL INTERNATIONAL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY (DEFICIT)
-------------------------- DECEMBER 31,
1996 1997 1997
----------- ----------- ----------------
(UNAUDITED)
(NOTE 10)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 394,667 $ 344,208
Accounts receivable............................... 27,009 43,508
Inventory......................................... 467,637 479,518
Debt issuance costs (Note 5)...................... 165,880 623,885
Prepaid expenses.................................. 133,807 126,387
----------- -----------
Total current assets................................ 1,189,000 1,617,506
Deferred stock offering costs....................... 75,493 234,594
Property and equipment, net (Note 2)................ 287,982 435,292
Intangible assets, net of accumulated amortization
of $33,570 (1996) and $61,035 (1997).............. 362,702 510,464
----------- -----------
Total assets........................................ $ 1,915,177 $ 2,797,856
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 159,007 $ 393,655
Accrued expenses (Note 3)......................... 603,907 973,231
Notes payable to stockholders (Note 4)............ 260,000 250,000
Advances from stockholders (Note 7)............... 28,873 20,659
Debt (Note 5)..................................... 1,775,000 3,475,000
----------- -----------
Total current liabilities........................... 2,826,787 5,112,545
Note Payable (Note 5)............................... -- 100,000
Commitments and contingencies (Note 8)
Stockholders' equity (deficit) (Notes 9 and 10):
Preferred stock -- $.10 par value, 5,000,000
shares authorized; no shares issued or
outstanding
Common stock -- $.001 par value, 50,000,000 shares
authorized; 2,391,176 shares issued and
outstanding (1996), 2,683,568 (1997) and
3,340,423 (pro forma).......................... 2,391 2,684 $ 3,340
Additional paid-in capital........................ 1,076,285 2,718,152 4,948,496
Accumulated deficit............................... (1,990,286) (5,135,525) (5,135,525)
----------- ----------- -----------
Total stockholders' equity (deficit)................ (911,610) (2,414,689) $ (183,689)
----------- ----------- ===========
Total liabilities and stockholders' equity
(deficit)......................................... $ 1,915,177 $ 2,797,856
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 62
ROLLERBALL INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1996 1997
---------- -----------
<S> <C> <C>
Net sales................................................... $4,850,416 $ 2,022,692
Cost of sales............................................... 3,103,779 1,343,274
---------- -----------
Gross profit................................................ 1,746,637 679,418
Operating expenses:
Selling and marketing..................................... 1,461,004 1,229,943
General and administrative................................ 736,570 1,176,073
---------- -----------
Total operating expenses.................................... 2,197,574 2,406,016
---------- -----------
Loss from operations........................................ (450,937) (1,726,598)
Interest expense............................................ 96,566 1,417,841
---------- -----------
Loss before provision for income taxes...................... (547,503) (3,144,439)
Provision for income taxes (Note 6)......................... 800 800
---------- -----------
Net loss.................................................... $ (548,303) $(3,145,239)
========== ===========
Pro forma net loss per common share:
Basic..................................................... $ (.17) $ (.97)
===== =====
Diluted................................................... $ (.17) $ (.97)
===== =====
Pro forma weighted average common shares outstanding........ 3,149,712 3,238,635
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
ROLLERBALL INTERNATIONAL INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ 2,384,242 $2,384 $1,041,292 $(1,441,983) $ (398,307)
Conversion of notes in
1996..................... 6,934 7 34,993 -- 35,000
Net loss for the year ended
December 31, 1996........ -- -- -- (548,303) (548,303)
--------- ------ ---------- ----------- -----------
Balance at December 31,
1996........................ 2,391,176 2,391 1,076,285 (1,990,286) (911,610)
Exercise of warrants........ 152,392 153 242,007 -- 242,160
Stock to be granted with
debt..................... -- -- 700,000 -- 700,000
Stock issued with Bridge
Notes (Note 5)........... 140,000 140 699,860 -- 700,000
Net loss for the year ended
December 31, 1997........ -- -- -- (3,145,239) (3,145,239)
--------- ------ ---------- ----------- -----------
Balance at December 31,
1997........................ 2,683,568 $2,684 $2,718,152 $(5,135,525) $(2,414,689)
========= ====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
ROLLERBALL INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------------------
1996 1997
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (548,303) $(3,145,239)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 97,528 143,392
Amortization of debt issuance costs.................... 33,176 1,088,995
Changes in assets and liabilities:
Accounts receivable.................................. 126,406 (16,499)
Inventory............................................ (467,637) (11,881)
Prepaid expenses..................................... (44,082) 7,420
Deferred stock offering costs........................ (75,493) (159,101)
Accounts payable..................................... 70,764 234,648
Accrued expenses..................................... 139,974 369,324
---------- -----------
Net cash used in operating activities....................... (667,667) (1,488,941)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (198,650) (258,401)
Increase in intangible assets............................... (234,449) (180,063)
---------- -----------
Net cash used in investment activities...................... (433,099) (438,464)
FINANCING ACTIVITIES
Proceeds from debt.......................................... 1,775,000 1,700,000
Proceeds from notes and loans payable to stockholders....... 35,000 90,000
Payments on loans to stockholders........................... (141,062) (8,214)
Debt issuance costs......................................... (199,056) (147,000)
Exercise of warrants........................................ -- 242,160
---------- -----------
Net cash provided by financing activities................... 1,469,882 1,876,946
---------- -----------
Increase (decrease) in cash................................. 369,116 (50,459)
Cash at beginning of period................................. 25,551 394,667
---------- -----------
Cash at end of period....................................... $ 394,667 $ 344,208
========== ===========
Cash paid during the period for:
Interest.................................................. $ 67,310 $ 181,538
Income taxes.............................................. 800 800
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FORMATION AND BUSINESS ACTIVITY
Rollerball International Inc. (the "Company") develops, manufactures,
distributes and markets inline skates, and related accessories under the
Rollerball trademark throughout Europe, Asia and North America through
independent sales representatives and distributors. The Company was incorporated
in Delaware on March 7, 1994.
BASIS OF PRESENTATION
The Company was organized in 1994 and a majority of its efforts have been
in the development of the in-line skate with limited international distribution.
Since inception, the Company has incurred cumulative net losses of approximately
$5.1 million through December 31, 1997, and anticipates continued losses for
fiscal 1998. On December 31, 1997, the Company had a working capital deficit of
approximately $3,495,000. In addition the Company is in payment default on
several debt agreements (see Note 5). The Company plans to finance its
operations primarily through proceeds from equity offerings, including the
Company's proposed initial public offering (the "Offering"). The Company will
require substantial additional funds in order to advertise and distribute its
products as currently contemplated. The Company anticipates that its existing
capital resources, including the net proceeds of the Offering if completed on
the terms presently anticipated, will be adequate to fund its capital needs for
at least 12 months.
Without such additional funding, the Company may be required to delay or
reduce its scope of distribution of its products. As there can be no assurance
that the Company will be able to raise additional funds on acceptable terms, if
at all, these conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
might result from the possible inability of the Company to continue as a going
concern.
REVENUE RECOGNITION
The Company recognizes revenue from product sales to customers upon
shipment. The Company provides a warranty of its products against defects for a
specified period and has policies permitting customers to return products under
certain circumstances. In addition, certain of the Company's distributors and
agents are entitled to rebates upon attaining specified sales levels. Provision
is made on the sale date for the estimated amount of product returns and rebates
that may occur under these programs. Amounts related to warranty, returns and
rebates have not been significant.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company makes periodic evaluation of the credit worthiness of its
customers and generally does not require collateral. Credit losses relating to
the Company's customers, mainly mass merchant retailers, have consistently been
within management's expectations and are provided for in the financial
statements.
The Company operates predominantly within one industry segment where
certain customers represent a significant portion of the Company's business.
During the years ended December 31, 1996 and 1997, approximately 67% and 82% of
the Company's sales were made to three customers.
The Company's products are primarily sourced through independent purchasing
agents from suppliers located in Taiwan, the People's Republic of China and
Thailand. The Company negotiates the cost of its products directly with its
suppliers in United States Dollars and its purchases are primarily effected
through letters of credit in United States Dollars. As a result, exchange rate
fluctuations could have an effect upon the
F-6
<PAGE> 66
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's ability to negotiate favorable price terms with suppliers, which may
adversely effect the cost of goods sold and the resultant gross margins for the
Company's products.
INVENTORY
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist principally of finished goods.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the related assets which
range between five and seven years.
DEBT ISSUANCE COSTS
Fees associated with the issuance of the debt are being amortized by the
interest method over the term of the debt.
INTANGIBLE ASSETS
Intangible assets include $140,080 and $209,615 at December 31, 1996 and
1997, respectively, in costs incurred for trademarks and $251,356 and $358,434
at December 31, 1996 and 1997, respectively, related to patents, which are both
being amortized using the straight-line method over 15 years.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Under SFAS 123, stock based compensation is measured
using either the intrinsic value method as prescribed by Accounting Principal
Board Opinion No. 25 or the fair value method described in SFAS No. 123. The
Company will use APB 25 and provide the pro forma disclosure required by SFAS
123 if material. The pro forma impact on net loss and pro forma loss per common
share were not material.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Under SFAS No. 109, deferred income taxes are recognized using the asset and
liability method by applying income tax rates to cumulative temporary
differences based on when and how they are expected to affect the tax return.
Deferred tax assets and liabilities are adjusted for income tax rate changes.
PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share has been computed (Basic and diluted)
for all periods presented and is based on the weighted average number of shares
outstanding during the period including the 12% Subordinated Convertible
Debentures ("12% Debentures") that will automatically convert upon the closing
of the Company's initial public offering (using the as if converted method from
the date of issuance), the shares issued to holders of the Bridge Notes and 1997
Loan Shares, all that will be issued upon closing of the Company's initial
public offering. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins, common stock equivalents issued during the 12-month period prior to
the initial public offering are included in the calculation as if they were
outstanding for all periods (using the treasury stock method at the assumed
public offering price). There are no common stock equivalents resulting from
dilutive stock options.
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Accounting for Earnings Per Share"
("SFAS No. 128") is effective for the Company in fiscal 1997. The adoption of
SFAS No. 128 did not have an impact on amounts presented.
F-7
<PAGE> 67
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense, including
costs related to trade shows, amounted to $258,308 and $283,115 for the years
ended December 31, 1996 and 1997, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and amounted to
$60,178 and $159,235 for the years ended December 31, 1996 and 1997,
respectively.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1997
-------- --------
<S> <C> <C>
Office and trade show equipment........................ $ 94,825 $134,043
Molds and tooling...................................... 284,405 485,474
Machinery and equipment................................ 41,634 59,748
-------- --------
420,864 679,265
Less accumulated depreciation.......................... 132,882 243,973
-------- --------
$287,982 $435,292
======== ========
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1997
---------- ----------
<S> <C> <C>
Accrued officer salary............................ $ 200,000 $ 231,800
Accrued consulting fees........................... 166,060 345,606
Accrued interest.................................. 59,374 189,078
Other accruals.................................... 178,473 206,747
---------- ----------
$ 603,907 $ 973,231
========== ==========
</TABLE>
F-8
<PAGE> 68
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1997
---------- ----------
<S> <C> <C>
Unsecured notes payable bearing interest at 12%
per annum, due on demand........................ $ 178,000 $ 168,000
Unsecured convertible note payable bearing
interest at 12% per annum, due on demand and
convertible into common stock at $3.37 per
share........................................... 7,000 7,000
Unsecured convertible notes payable bearing
interest at 12% per annum, due on demand and
convertible into common stock at $5.05 per
share........................................... 75,000 75,000
---------- ----------
$ 260,000 $ 250,000
========== ==========
</TABLE>
In connection with the $168,000 in unsecured notes payable to stockholders,
the Company provided the stockholders with warrants to purchase an additional
26,444 shares of common stock at $3.37 per share. The warrants do not expire
during the period of indebtedness.
The $7,000 and $75,000 unsecured convertible notes payable to stockholder
are convertible into shares of common stock at $3.37 per share and $5.05 per
share, respectively, at the stockholder's discretion. As of December 31, 1997
holders of the $168,000 unsecured notes payable had not exercised their
warrants. As of December 31, 1997, one of the holders of the convertible notes
payable converted $35,000 of the notes into common shares.
The fair market values of the Company's unsecured notes payable to
stockholders are estimated to be the same as the amounts reported for such notes
in the Company's balance sheet.
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
SHORT TERM DEBT 1996 1997
--------------- ---------- ----------
<S> <C> <C>
12% Subordinated Convertible Debentures......... $1,775,000 $1,775,000
12% Bridge Notes................................ -- 700,000
Sercap Holdings LLC 12% Notes................... -- 1,000,000
---------- ----------
$1,775,000 $3,475,000
========== ==========
LONG TERM DEBT
12% unsecured note payable...................... $ -- $ 100,000
========== ==========
</TABLE>
During the period August 1996 to September 1996 ("1996 Private Offering"),
the Company sold 12% Debentures in the principal amount of $1,775,000. The 12%
Debentures automatically convert into common stock in connection with an initial
public offering at a per share conversion price equal to 80% of the initial
public offering price. The 12% Debentures bear interest at 12% payable quarterly
and are due on October 31, 1997. Based upon an initial offering price of $5.50
per share, the 12% Debentures will be convertible into 450,794 shares of Common
shares. The holders of the 12% Debentures also received a warrant to purchase
one share of common stock for every two shares received upon conversion of the
12% Debentures, an aggregate of 225,397 warrants. The warrants are exercisable
for three years from issuance at an exercise price equal to 100% of the per
share offering price. Debt issue costs associated with the 12% Debentures were
$199,000 and
F-9
<PAGE> 69
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
have been amortized over the term of the note with $33,176 being amortized for
the year ended December 31, 1996 and $165,824 being amortized for the year ended
December 31, 1997.
From March 1997 through April 1997, the Company sold $700,000 of the
Company's 12% Bridge Notes ("Bridge Notes"). The Bridge Notes are due and
payable upon the earlier of October 31, 1997 or five days after the consummation
of an initial public offering. The Bridge Notes are junior unsecured obligations
of the Company. Holders are also entitled to receive at the closing of an
initial public offering such number of shares of the Company's Common Stock as
shall equal the principal amount of the Bridge Notes divided by the initial
public offering price of the shares or at a price of $5.00 per share in event
there is no initial public offering by October 31, 1997. The value of these
shares, $700,000, is being amortized as debt issuance costs. Holders of the
Bridge Notes were deemed to have received 140,000 shares of Common Stock
effective November 1, 1997. Debt issuance costs associated with the Bridge Notes
were $777,000, including the shares of common stock to be received, and are
being amortized over the term of the notes with the entire amount being
amortized in the year ended December 31, 1997.
In September 1997 the Company obtained an unsecured $100,000 loan from an
individual. The loan bears interest at 12%, and is due January 31, 1999. In
addition the principal officer/stockholder granted the individual the right to
receive shares of common stock equal to the principal amount of the note divided
by the initial public offering price. Such shares will come from the principal
officer/stockholder.
In October 1997 the Company received a loan from Sercap Holdings LLC
("Sercap"), a company controlled by a holder of 12% Debentures, in the principal
amount of $1,000,000. Sercap also is entitled to receive such number of shares
of Common Stock as equal $600,000 principal amount of the loan divided by the
initial public offering price of the Shares in this offering. The loan is
divided into two separate notes, one of which, in the principal amount of
$600,000 is a term note bearing interest at 12% per annum and payable upon the
earlier of the closing of this offering or December 31, 1998. The second portion
of the loan is represented by a convertible note in the principal amount of
$400,000 which shall automatically be converted into shares of Common Stock upon
closing of this offering at a price per share equal to 75% of the initial
offering price. Sercap also received the right to nominate one person to the
Board of Directors of the Company. The proceeds of the loan have been utilized
by the Company to pay expenses of this offering, inventory purchases and working
capital. Assuming an initial offering price of $5.50 per share, 206,061 shares
of Common Stock would be issued in accordance with the October 1997 Loan.
As of October 31, 1997, the Company was in default with respect to the 12%
Debentures and the Bridge Notes regarding repayment. The Company has requested
that the holders of the 12% Debentures waive all defaults and extend the
maturity to April 30, 1998.
6. INCOME TAXES
The provision for income taxes reflected in the statements of operations
for all periods represents the minimum state taxes due as there is no federal or
state taxable income as a result of operating losses incurred by the Company. At
December 31, 1997, the Company has approximately $3,679,000 and $2,326,000 in
federal and state operating loss carryovers expiring through 2011 available to
offset future taxable income. Certain ownership changes in the Company could
result in an annual limitation on the utilization of these operating loss
carryforwards. No benefit for these operating loss carryforwards has been
recorded in the accompanying financial statements as their realizability is not
assured.
F-10
<PAGE> 70
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1996 1997
--------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization........ $ (45,919) $ (41,711)
State income taxes................... (38,135) (125,008)
--------- -----------
Total deferred tax liabilities......... (84,054) (166,719)
Deferred tax assets:
Accrued expenses..................... 89,000 587,754
Pre-incorporation expenses........... 97,146 77,889
Net operating losses................. 662,662 1,511,051
--------- -----------
Total deferred assets.................. 848,808 2,178,694
Valuation allowance.................... (764,754) (2,011,975)
--------- -----------
Net deferred tax assets................ 84,054 166,719
--------- -----------
Total deferred taxes................... $ -- $ --
========= ===========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company has advances from stockholders that are noninterest bearing and
are due on demand.
The principal stockholder and officer of the Company has a royalty
agreement which provides for payment by the Company of a royalty fee of 3% of
the net sales which are not based on a letter of credit and 1.8% of the net
sales which are based on letters of credit. The royalty agreement will be
terminated (effective January 1, 1997) upon the entering into of an employment
agreement (Note 8). Royalty expense pursuant to this agreement amounted to
$88,448 and none for the years ended December 31, 1996 and 1997, respectively.
During 1994 the Company utilized the services of the brother of the
principal stockholder/chief executive officer for which it accrued expenses of
$31,000. The accrued expense was paid in fiscal 1997. Additionally since 1994
the Company has utilized the services of the sister-in-law of the principal
stockholder/chief executive officer. This person is the sister of a director of
the Company. The sister-in-law was paid $30,000 and $31,000 for her services
during fiscal 1996 and 1997, respectively. These persons provided sales and
marketing services to the Company.
8. COMMITMENTS AND CONTINGENCIES
LEASE
The Company leases its office space and sales office on a month-to-month
basis, including utilities. The aggregate monthly rent was $5,750 at December
31, 1996 and $6,750 at December 31, 1997. Rent expense for the years ended
December 31, 1996 and 1997 was $49,470 and $56,989 respectively.
ROYALTY AGREEMENTS
In addition to the royalty agreement with the principal stockholder and
officer, the Company has entered into royalty agreements with two individuals
which require the Company to pay royalties based on a certain percentage of net
sales less certain deductions as defined. The royalties to each individual are
based on 1% of net sales, except for sales based on a letter of credit, for
which the royalty percentage is .6% of net sales. One of the agreements limits
the royalty payment to $350,000 for any fiscal year. In addition, the Company
has an agreement with the originator of the Radial Skateball Technology(TM)
which provides for a monthly consulting fee of $4,000 per month through March
24, 2002 and a royalty based on 2.5% of cost of goods sold after certain
deductions including expenses for patents and trademarks. Royalty expense,
including amounts to the principal stockholder (Note 7), for the years ended
December 31, 1996 and 1997, was $167,068 and $10,446 respectively. All royalty
agreements provide for payment of royalties in perpetuity.
F-11
<PAGE> 71
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OFFICER COMPENSATION
The Company will enter into a four-year employment agreement with the
principal stockholder/officer providing for a base compensation of $160,000 for
fiscal 1997 with annual increases up to a base salary of $235,000 in the year
2000. In addition, the principal stockholder/officer will be entitled to bonus
payments commencing in 1998 of 7% of net income plus 10% of any amount above
$750,000. For 1999 and 2000 the bonus will be calculated based on net income of
$1,650,000 and $2,000,000, respectively, with the principal stockholder/officer
entitled to 7% of the base net income and 10% of any amount above the base. The
royalty agreement with the principal stockholder officer will be terminated upon
entering into the employment agreement effective as of January 1, 1997.
The Company has recently received correspondence from Metro-Goldwyn-Mayer
("MGM"), a motion picture entity which alleged that the Company's use of the
name "Rollerball" infringed upon MGM's alleged trademark rights in the name
"Rollerball" which was the name of a 1975 film produced by MGM. The Company was
granted a United States trademark for the Rollerball name in 1995 with respect
to, among other things, in-line skates and related products. Based upon advice
of counsel, the Company does not believe that MGM has any such rights in the
name and intends to vigorously defend itself against MGM's allegations. Although
neither party has commenced litigation in this matter, there can be no assurance
that this dispute will not result in litigation. In the event that litigation
results, the Company can be expected to incur significant costs to defend
itself. Based upon advice of counsel, the Company believes that it has strong
and meritorious defenses to the claims of MGM.
9. STOCKHOLDERS' EQUITY
In a private offering during the period May 1994 to June 1994 ("1994
Private Offering"), the Company sold 1023.75 units of its securities, each unit
consisting of 618 shares of common stock and 206 common stock purchase warrants.
Cash proceeds were $813,756, net of the related costs of $107,619. The warrants
entitled the holders to purchase one share of common stock for an exercise price
of $1.68 per share. As part of the private placement, the underwriter received
82,127 warrants to purchase common stock at $1.68 per share as part of its fee.
At December 31, 1997, 82,127 warrants were outstanding in connection with this
private placement. In 1997 warrants issued in connection with the 1994 Private
Offering were exercised and 152,392 shares were issued and the remaining
warrants expired. The Company received net proceeds of approximately $242,000
from the exercise of these warrants.
In September 1994, the Company adopted the 1994 Employee Plan which
provides for the grant of options to purchase 750,000 shares of the Company's
common stock at not less than fair value for incentive stock options ("ISOs").
During 1994, 181,298 options were granted at an exercise price of $3.37 per
share and during 1995, 62,758 were granted at an exercise price of $5.05 per
share. All of the options vested immediately on the date of grant. No options
have been exercised as of December 31, 1996. A total of 505,944 shares remain
available for grant pursuant to the 1994 Employee Plan.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: weighted-average risk-free interest rates of 6%;
dividend yields of 0%; weighted-average volatility factors of the expected
market price of the Company's common stock of .01; and a weighted average
expected life of the option of 5 years. The impact on net loss and earnings per
share was not material.
F-12
<PAGE> 72
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 244,826 $4.21 244,826 $4.21
Granted............................... -- -- -- --
Exercised............................. -- -- -- --
Canceled.............................. -- -- -- --
------- ----- ------- -----
Outstanding at end of year.............. 244,826 $4.21 244,826 $4.21
======= ===== ======= =====
Exercisable at end of year.............. 244,826 $4.21 244,826 $4.21
Weighted average fair value of options
granted during the year............... -- --
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$3.37 to $5.05. The weighted average remaining contractual life of those options
is 5 years.
In December 1997, the Board of Directors adopted the Non-Executive Director
Stock Option Plan (the "Director Plan") which was approved by the Company's
stockholders at the same time. The Director Plan provides for issuance of a
maximum of 100,000 shares of common stock upon the exercise of stock options
granted under the Director Plan. Options may be granted under the Director Plan
until July 2007 to (i) non-executive directors as defined, (ii) members of any
advisory board established by the Company who are not full-time employees of the
Company or any of its subsidiaries, and (iii) consultants. The exercise price
for options granted pursuant to the plan shall be at 100% of fair value. No
options have been granted under the Director Plan.
10. PRO FORMA ADJUSTMENT (UNAUDITED)
Pro forma disclosure has been provided showing the automatic conversion of
the 12% Debentures at their carrying amount into 450,794 shares of common stock
and the issuance of 206,061 shares associated with the 1997 Loan. All share
issuances are based on an assumed initial public offering price of $5.50 per
share.
11. GEOGRAPHIC DATA
Export sales by geographic location are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
---------- ----------
<S> <C> <C>
Japan................................... $ 575,988
Europe.................................. 1,281,530 $ 525,541
Asia (excluding Japan).................. 91,362
---------- ----------
$1,948,880 $ 525,541
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
In July 1997, the Company's Board of Directors approved the filing of a
Registration Statement with the Securities and Exchange Commission relating to
an initial public offering of 1,250,000 shares of common stock and in December
1997 a reverse stock split of approximately .6 to 1 to be effected prior to the
effective date of the Registration Statement. In addition the principal
stockholder/officer has agreed to surrender for cancellation 600,000 shares of
common stock of the Company on the effective date of the Registration Statement.
All references to share and per share amounts of common stock have been
retroactively restated to reflect the stock split and the cancellation.
F-13
<PAGE> 73
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO, OR A
SOLICITATION OF, ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 16
Dividend Policy....................... 17
Dilution.............................. 18
Capitalization........................ 19
Management's Discussion and
Analysis............................ 20
Business.............................. 26
Management............................ 34
Principal Stockholders................ 41
Certain Relationships and Related
Transactions........................ 42
Concurrent Sales...................... 44
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 51
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 54
Additional Information................ 54
Report of Independent Auditors........ F-1
Financial Statements.................. F-2
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS)
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
1,250,000 SHARES
[ROLLERBALL LOGO]
ROLLERBALL
INTERNATIONAL INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
AUERBACH, POLLAK &
RICHARDSON, INC.
, 1998
======================================================
<PAGE> 74
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE PAGE FOR SELLING STOCKHOLDER PROSPECTUS]
SUBJECT TO COMPLETION, DATED MARCH 9, 1998
PROSPECTUS
1,246,771 SHARES
ROLLERBALL INTERNATIONAL INC.
[ROLLERBALL LOGO]
COMMON STOCK
This Prospectus relates to the offer and sale by certain security holders
(the "Selling Stockholders") of Rollerball International, Inc. (the "Company"),
of a total of 1,246,771 shares of Common Stock par value $.001 per share
comprised of: (i) an aggregate of 450,794 shares of Common Stock (the
"Conversion Shares"), issuable upon conversion of $1,859,525 principal amount of
outstanding 12% convertible debentures ("12% Debentures") at a conversion price
equal to 75% of the offering price of the Shares, which 12% Debentures were
issued by the Company in a private offering completed in September 1996 (the
"1996 Private Offering"); (ii) 225,397 shares of Common Stock (the "1996 Warrant
Shares") issuable upon exercise of outstanding warrants ("1996 Warrants") issued
by the Company in the 1996 Private Offering; (iii) 152,392 shares of issued and
outstanding Common Stock ("1994 Shares") issued by the Company in connection
with the exercise of Common Stock purchase warrants ("1994 Warrants") issued in
a private offering completed in June 1994 ("1994 Private Offering"); (iv)
140,000 shares ("Bridge Shares") of Common Stock issued by the Company in a
private offering ("1997 Bridge Offering") completed in April 1997; (v) 82,127
shares of Common Stock ("Agent Warrant Shares") issuable upon exercise of
outstanding warrants ("Agent Warrants") issued by the Company to the Underwriter
for services rendered to the Company in connection with the 1994 Private
Offering; and (vi) 206,061 shares of Common Stock ("1997 Loan Shares") issuable
by the Company at the closing of this offering to one of the Selling
Stockholders in consideration of a loan in the principal amount of $1,000,000
made by such Selling Stockholder to the Company in October 1997 ("1997 Loan").
The Conversion Shares, 1996 Warrant Shares, 1994 Shares, Bridge Shares, Agent
Warrant Shares and 1997 Loan Shares are sometimes referred to herein as the
"Selling Stockholder Shares." The Selling Stockholders have agreed not to offer,
sell or otherwise dispose of an aggregate of all 1,246,771 Selling Stockholder
Shares for a period of six months from the date hereof without the prior written
consent of Auerbach, Pollak & Richardson, Inc. (the "Underwriter"). The Company
will not receive any proceeds from the sale of the Selling Stockholder Shares.
See "Risk Factors," "Use of Proceeds" and "Concurrent Sales."
Simultaneously with this offering by Selling Stockholders, the Company is
registering for sale 1,250,000 shares of Common Stock (plus 187,500 shares of
Common Stock to cover overallotments) in a public offering (the "Underwritten
Offering") underwritten by the Underwriter. The Selling Stockholder Shares are
not being sold in an Underwritten Offering.
Expenses of this Offering, estimated at $ , are payable by the
Company.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT
SHOULD INVEST IN THE SHARES. FOR A DESCRIPTION OF CERTAIN RISKS AND IMMEDIATE
SUBSTANTIAL DILUTION, SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 75
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
THE OFFERING
Common Stock Offered by Selling
Stockholders........................ 1,246,771 shares
Common Stock Offered in Underwritten
Public Offering(2).................. 1,250,000 shares
Common Stock Outstanding
Prior to offering(1)(2)........... 2,683,568 shares
Common Stock to be Outstanding
Immediately After offering(1)....... 4,590,423 shares
Use of Proceeds..................... The Company will not receive any
proceeds from the sale of the Selling
Stockholders Shares. Any proceeds
received from the exercise of warrants
held by Selling Stockholders will be
used for working capital purposes. See
"Use of Proceeds."
Risk Factors........................ An investment in the Shares offered
hereby is speculative and involves a
high degree of risk, including risks
associated with the Company's ability
to continue as a growing concern as set
forth in the auditor's report to the
financial statements appearing
elsewhere in this Prospectus; default
on certain debt; limited operating
history; accumulated deficit and recent
losses; dependence on third-party
manufacturing and suppliers; and other
risks. See "Risk Factors."
Proposed Nasdaq SmallCap Market
Symbol(3)........................... "ROLL"
- ---------------
(1) Does not include: (i) 125,000 shares of Common Stock reserved for issuance
upon exercise of the Underwriter's Warrants to be issued to the Underwriter;
(ii) 99,025 shares of Common Stock reserved for issuance upon the exercise
of outstanding warrants; (iii) 750,000 shares of Common Stock reserved for
issuance under the Company's 1994 employee stock option plan ("1994 Employee
Plan") of which options to purchase 244,826 shares of Common Stock have been
issued to date; (iv) 100,000 shares of Common Stock reserved for issuance
under the Company's 1997 Non-Employee Director Plan ("Director Plan"), none
of which options have been issued to date; (v) 16,936 shares reserved for
issuance upon conversion of outstanding convertible notes other than the 12%
Debentures; (vi) 225,397 1996 Warrant Shares and (vii) 82,127 Agent Warrant
Shares. Includes 140,000 Bridge Shares deemed issued and outstanding as of
November 1, 1997.
(2) Does not include: (i) 127,273 Bridge Shares; (ii) 450,794 Conversion Shares;
and (iii) 206,061 1997 Loan Shares.
(3) Includes: (i) 450,794 Conversion Shares; and (iii) 206,061 Loan Shares.
(4) It is a condition precedent to the Underwritten Offering that the Company's
Common Stock be accepted for listing on the Nasdaq SmallCap Market. The
Nasdaq SmallCap Market quotation does not imply that a liquid and active
market will develop, or be sustained, for the Selling Stockholders Shares
upon completion of the offering. There can be no assurance that the Company
will, if accepted by the Nasdaq SmallCap Market, continue to meet the
maintenance criteria for quotation on the Nasdaq SmallCap Market.
4
<PAGE> 76
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
SUMMARY FINANCIAL INFORMATION
The summary financial information was derived from the financial statements
of the Company. The summary should be read in conjunction with Management's
Discussion and Analysis, the financial statements of the Company and the related
notes, each appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994(1) 1995 1996 1997
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales.................................. $ 469,703 $4,201,658 $4,850,416 $2,022,692
Gross (Loss) Profit........................ (104,349) 1,439,641 1,746,637 679,418
Operating Expenses......................... 1,250,523 1,487,162 2,197,574 2,406,016
Loss before Income Taxes................... (1,356,066) (84,317) (547,503) (3,144,439)
Net Loss................................... (1,356,866) (85,117) (548,303) (3,145,239)
Pro Forma net loss per share............... $ (.17) $ (.97)
========== ===========
Pro Forma weighted average number of shares
outstanding(2)........................... 3,149,712 3,238,635
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------
DECEMBER 31, PRO FORMA
----------------------- PRO AS
1995 1996 ACTUAL FORMA(3) ADJUSTED(4)
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)... $(713,420) $(1,637,787) $(3,495,039) $(1,264,039) $4,583,398
Total assets................... 583,804 1,915,177 2,797,856 2,797,856 6,611,167
Debt........................... -- 1,775,000 3,575,000 1,400,000 100,000
Notes payable to
stockholders................. 345,000 260,000 250,000 250,000 50,000
Stockholders' (deficit)
equity....................... (398,307) (911,610) (2,414,689) (183,689) 5,429,154
</TABLE>
- ---------------
(1) Fiscal 1994 reflects operations from inception in March 1994 through
December 1994.
(2) Pro forma net loss per share of Common Stock has been computed for all
periods presented and is based on the weighted average number of shares
outstanding during the period, including the Conversion Shares and Bridge
Shares.
(3) Gives effect to the conversion of $1,859,525 principal amount of 12%
Debentures into 450,794 Conversion Shares. The 12% Debentures automatically
convert on the Effective Date into Common Stock at a per share conversion
rate of 75% of the initial public offering price of the Shares. Also gives
effect to the conversion of $400,000 principal amount of the 1997 Loan into
96,970 1997 Loan Shares and the issuance of 109,091 1997 Loan Shares. See
"Risk Factors -- Default on Certain Debt" for additional information
regarding the Company's default as to the 12% Debentures and Bridge Notes.
(4) Adjusted to give effect to the sale of the 1,250,000 Shares in the
Underwritten Offering offered at $5.50 per share and the anticipated use of
the estimated proceeds therefrom, including repayment of principal and
interest on the Company's $700,000 principal amount 12% subordinated
debentures ("Bridge Notes") issued in the 1997 Bridge Offering. As of
November 1, 1997 the Bridge Notes commenced bearing interest at 18% per
annum. See "Risk Factors -- Default on Certain Debt" and "Use of Proceeds."
5
<PAGE> 77
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
institutions and intends further discussions following this offering. No
assurance can be given that the Company will be successful in obtaining
additional financing on favorable terms, if at all. See "Use of Proceeds" and
"Management's Discussion and Analysis."
RELIANCE ON MAJOR CUSTOMERS. Three of the Company's largest customers
represented 67% of total sales for the fiscal year ended December 31, 1996, and
82% of total sales for the year ended December 31, 1997. For the year ended
December 31, 1997 these three customers accounted for 56%, 15% and 11%
respectively, of total sales. These three customers were the Home Shopping
Network, Inc. ("HSN"), Carrefour France, a hypermarket located in France and The
J.C. Penney Company. As is customary in the industry, the Company does not have
long-term contracts with any of its customers. While management expects the
Company's customer base to expand, a limited number of large orders may continue
to account for a significant portion of the Company's sales during any given
period for the foreseeable future. The loss of, or a reduction in business from,
any of its major customers could have a material adverse effect on the Company's
results of operations. See "Business -- Sales and Marketing."
USE OF PROCEEDS TO REPAY DEBT. The Company has allocated approximately
$1,736,500 (31%) of the proceeds of the Underwritten Offering to repay
outstanding debt. These funds will not therefore be available to the Company for
general purposes such as purchasing inventory, advertising, hiring of personnel
or the expansion of its business. Of the total debt being repaid, $610,000 will
be paid to Sercap Holdings LLC, an entity of which Mr. Lawrence Stumbaugh is an
officer and director. Mr. Stumbaugh became a director of the Company in October
1997. An additional $150,000 of the debt being repaid is being utilized to repay
accrued salary of an officer.
The Company will not receive any proceeds from the sale of the Selling
Stockholder shares, but will receive proceeds from the exercise of any of the
1996 Warrants and Agent Warrants.
INTELLECTUAL PROPERTY. The Company was granted a United States Patent (No.
5,590,890) by the United States Patent and Trademark Office on January 7, 1997
on the basis of its original Radial Skateball Technology(TM). The Company has
filed additional patent applications and will continue to do so as it improves
its products and develops new products. In February 1997 the Company obtained a
United States Patent (No. 378,115) for its GFX(R) Skate design. The Company has
also been granted patents and/or has filed patent applications in several other
countries and has registered the trademark "Rollerball" in the United States and
several other countries. The Company has trademark applications pending in other
foreign countries. The Company has filed for a 3-D trademark protection in
Germany and filed for similar trademark protections in Europe. Rollerball cannot
be registered as a trademark in the People's Republic of China and certain other
foreign countries. Trademark applications have been allowed for the Rollerball
name in other market/business segments such as clothing, toys and entertainment
(CD-ROM, comic books, video and broadcast television). There can be no assurance
that any existing patents or patent applications, if granted, and related
trademark protection will be effective in protecting the Company's products from
duplication by other manufacturers. Although the Company believes that the
products sold by it do not and will not infringe upon the patents or violate the
proprietary rights of others, it is possible that such infringement or violation
has occurred or may occur.
The Company has recently received correspondence from Metro-Goldwyn-Mayer
("MGM"), a motion picture entity which alleged that the Company's use of the
name "Rollerball" infringed upon MGM's alleged trademark rights in the name
"Rollerball" which was the name of a 1975 film produced by MGM. The Company was
granted a United States trademark for the Rollerball name in 1995 with respect
to, among other things, in-line skates and related products. Based upon advice
of counsel, the Company does not believe that MGM has any such rights in the
name and intends to vigorously defend itself against MGM's allegations. Although
neither party has commenced litigation in this matter, there can be no assurance
that this dispute will not result in litigation. In the event that litigation
results, the Company can be expected to incur significant costs to defend
itself. Based upon advice of counsel, the Company believes that it has strong
and meritorious defenses to the claims of MGM.
8
<PAGE> 78
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
In the event that products sold by the Company are determined to infringe
upon the patents or proprietary rights of others, the Company could be required
to modify its products or obtain a license for the manufacture and/or sale of
such products, or could be prohibited from selling such products. There can be
no assurance that, in such an event, the Company would be able to do so in a
timely manner, upon acceptable terms and conditions, or at all, and the failure
to do any of the foregoing could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will be able to
afford the expense of any litigation which may be necessary to enforce its
rights under its currently issued patents or any patents issued in the future or
with respect to the enforcement or defense of trademark rights. Moreover, there
can be no assurance that the Company will have the financial or other resources
necessary to defend a patent infringement or proprietary rights violation
action. In addition, if the Company's products or proposed products are deemed
to infringe upon the patents or proprietary rights of others, the Company could,
under certain circumstances, become liable for damages, which could also have a
material adverse effect on the Company. The Company's products are also sold in
many other countries and even though the Company may obtain patents in such
countries, the Company's ability to obtain adequate protection may be limited in
such countries. See "Business -- Patents and Trademarks."
DEPENDENCE ON THIRD-PARTY AND FOREIGN MANUFACTURING AND SUPPLIERS. The
Company does not own or lease any manufacturing facilities and does not
manufacture any of the component parts for its products, and purchases all skate
components from unaffiliated suppliers. Other than the Radial Skateballs which
are produced in the United States, substantially all of the Company's components
are manufactured in foreign countries including the People's Republic of China.
The Company relies upon two independent agents to obtain manufacturing of
certain component parts in foreign countries. The Company does not have any
contracts with manufacturers or suppliers. Foreign manufacturing is subject to a
number of risks, including transportation delays and interruptions, political
and economic disruptions, the impositions of tariffs and import and export
controls and changes in governmental policies. While the Company has not
experienced any material adverse effects due to such risks, there can be no
assurance that such events will not occur in the future with the result of
possible increases in costs and delays of, or interferences with, product
deliveries resulting in losses of revenues and goodwill. The chassis and safety
brakes for the Company's RB(R) and GFX(R) skates are produced in foreign
countries which may subject the Company to a risk of loss of its molds and
tooling associated with such products in the event of a dispute with a foreign
manufacturer or other occurrence such as those noted above. Further, purchasing
products from manufacturers located in the People's Republic of China subjects
the Company to an additional risk of substantially higher duty rates in the
event that the United States government does not renew the most-favored nation
trade status extended to the People's Republic of China. No assurance can be
given that the United States will continue the People's Republic of China's
most-favored nation trade status. The Company believes that, at the present
time, it has sufficient sources of supply of component parts, and that in the
event any existing supplier ceases to furnish component parts to the Company,
alternative sources are available. There can be no assurance, however, that the
future production and assembly capacity of the Company's current suppliers and
manufacturers will be sufficient to satisfy the Company's requirements or that
alternate suppliers and manufacturers will be available on commercially
reasonable terms, or at all. See "Business -- Manufacturing and Assembly."
DILUTION RESULTING FROM EXERCISE OF OPTIONS AND WARRANTS. At the Effective
Date of the Underwritten Offering, the Company will have outstanding at the
consummation of this offering 604,826 options and 531,549 warrants, of which
425,978 options and warrants have exercise prices of less than the offering
price of the shares in the Underwritten Offering. As a result, holders of these
options and warrants will receive shares of Common Stock upon exercise at a cost
below that paid by investors in the Underwritten Offering. The exercise in full
of these options and warrants may dilute the net book value per share of the
Common Stock, resulting in further dilution to investors.
9
<PAGE> 79
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
which could therefore exceed the amount of its insurance policies. Successful
assertion against the Company of one or a series of large uninsured claims, or
of one or a series of claims exceeding any insurance coverage, could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business."
GOVERNMENT REGULATION; PRODUCT RECALLS. Certain of the Company's products
may be subject to regulation by the Federal Consumer Products Safety Commission
(the "CPSC"), and may therefore be subject to recall if requested by the CPSC.
In addition, the Company may be required to change or modify its current or
future products in order to comply with CPSC's rules or other rules and
regulations related to the safety of its products or any future rules or
regulations. In the event the Company is required to modify or change its
products, it may incur substantial additional costs related to design and
manufacture, and may incur significant down-time in being able to produce
inventory for sale, all of which could have a material adverse effect upon the
Company. The Company is not aware of any current proceeding by the CPSC which
would result in the recall of the Company's products. A recall of the Company's
products could result in significant expense to the Company. There can be no
assurance that the Company will have the necessary funds available to it to
conduct any recall or that if conducted, it will have funds available for its
continued operation. See "Business -- Government Regulation."
DEPENDENCE UPON EXECUTIVE OFFICERS; LIMITED PERSONNEL. The success of the
Company is dependent upon the efforts and abilities of its founder, Chairman,
President and Chief Executive Officer, Jack Forcelledo. The loss of the services
of Mr. Forcelledo would have a material adverse affect on the Company's
operations. The Company has entered into a four-year employment agreement with
Mr. Forcelledo and has obtained "key man" life insurance in the amount of
$1,000,000 on the life of Mr. Forcelledo, of which the Company is a beneficiary.
It is unlikely that the proceeds of this insurance would be adequate to
compensate the Company for the loss of the services provided by Mr. Forcelledo.
See "Management."
To date, the Company has relied additionally on the services of independent
technical, production, sales and marketing personnel to develop and sell its
products. In addition, the Company has used two independent agents (Lucky Yeh
International Ltd. ("LYI") and PCL International, Inc. ("PCL")) to obtain
foreign suppliers and manufacturing facilities. The Company has only seven
full-time employees. After the conclusion of this offering, the Company intends
to increase its permanent staff to operate the Company and implement its
business plans. The Company has not determined the number of employees to be
hired following the Underwritten Offering, and hiring will be based
significantly upon its ability to increase sales. The Company anticipates that
if it does increase its staff, the additional employees will be hired for sales
and marketing, product design and administrative positions during the next 12
months. Although the Company believes that necessary additional personnel to
staff the Company are available, there can be no assurance that the Company will
be successful in assembling an effective staff in a timely manner. See "Use of
Proceeds" and "Business -- Management."
ROYALTY ARRANGEMENTS. The Company has certain contractual commitments to
pay royalties to five individuals who had assisted the Company in obtaining its
Radial Skateball Technology(TM). Under the current agreements, the Company has
agreed to pay Messrs. Giuseppe Consarino and Steve Kimmel each a royalty of 1%
of net sales, except sales based on a letter of credit, and .6% of net sales
based on a letter of credit. Mr. Consarino's royalty payment cannot exceed a
maximum of $350,000 in any fiscal year. Mr. Forcelledo has had a royalty
agreement with the Company which provides for a 3% royalty on net sales which
royalty Mr. Forcelledo has agreed to terminate in full effective January 1,
1997. During the fiscal years ended December 31, 1996 and December 31, 1997 the
Company incurred expenses of $167,068 and $10,446, respectively with respect to
these royalty agreements. Messrs. Giusseppe Rosso, Franco Rosso and Ettore
Carenni, the originators of the Radial Skateball Technology(TM), are entitled to
be paid an aggregate royalty of 2.5% of the cost of goods sold, after certain
deductions including expenses for patents and trademarks. To date no royalty
payments have been paid to Messrs. Giusseppe Rosso, Franco Rosso and Ettore
Carenni nor have any accrued, as a result of these deductions which equaled
approximately $2,000,000 as of December 31, 1997. The agreements require the
royalties to be paid in perpetuity; however, the terms of all the royalty
agreements provide that their royalty payments may be reduced pro rata to any
reduction in royalty payments agreed to by the other party in connection with a
public offering by the Company. Mr. Kimmel has agreed to reduce his royalty
payment by 50%. The Company intends to reduce the other royalty payments by a
similar amount.
11
<PAGE> 80
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
These royalty reductions will be effective upon the Effective Date. Although the
Company believes that it has the right to unilaterally reduce the amount of
these royalty fees, there can be no assurance that the other parties will not
instigate litigation against the Company. Investors should consider the effects
of the royalty agreements on the Company's income in the future. See "Financial
Statements", "Management's Discussion and Analysis" "Management -- Employment
Agreements" and "Business -- Royalty Arrangements".
ABILITY TO MANAGE GROWTH. The Company anticipates a period of rapid growth
that is expected to place a strain on the Company's administrative, financial
and operational resources. The Company's ability to manage any staff and
facilities growth effectively will require it to improve its operational,
financial and management controls, to continue to improve its reporting systems
and procedures, to install new management information systems and to train,
motivate and manage its employees. There can be no assurance that the Company
will install such management information systems in an efficient and timely
manner or that the new systems will be adequate to support the Company's
operations. If the Company is unable to hire, train and retain qualified
personnel to implement the necessary services effectively, its ability to
attract repeat sales could be adversely affected, which could limit the
Company's growth opportunities. If the Company's management is unable to manage
growth effectively, such as if the Company's sales and marketing efforts exceed
its capacity to obtain inventory in a timely manner, the Company's business,
operating results and financial condition could be adversely affected. See
"Business" and "Management."
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS. Following the completion
of the Underwritten Offering, current management of the Company will own, in the
aggregate, approximately 30% of the outstanding Common Stock (excluding options
held by management). The election of directors is by plurality vote and there is
no cumulative voting. Accordingly, the existing management may be able to
significantly influence the election of the Board of Directors of the Company
and to direct the affairs of the Company. In addition, under the 1994 Employee
Plan and the Director Plan, the Company has reserved for issuance an aggregate
of 850,000 shares (13.2% of Common Stock outstanding assuming the issuance of
all 850,000 options) which may be issued pursuant to options granted under these
plans to employees and directors. As of March 1, 1998, there were 244,826
options outstanding. Of the 244,826 outstanding options, 159,731 are held by
members of the Company's management. In the event that the 159,731 options were
exercised, management would own an additional 3.4% of the outstanding Common
Stock. An additional 360,000 options will be granted to officers and directors
on the Effective Date, 300,000 of which vest over a four year period. In the
event that these additional 360,000 options were exercised, management would own
approximately an additional 7.3% of the Common Stock. See "Management" and
"Principal Stockholders."
FACTORS INHIBITING TAKEOVER. Certain provisions of the Company's Amended
and Restated Certificate of Incorporation and Bylaws may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that a
stockholder might consider in the Company's or the stockholder's best interest.
The Company's Amended and Restated Certificate of Incorporation authorizes the
Board of Directors to determine the rights, preferences, privileges and
restrictions of unissued series of preferred stock and the designation of any
such series, without any vote or action by the Company's stockholders. Thus, the
Board of Directors can authorize and issue shares of preferred stock with voting
or conversion rights that could adversely affect the voting or other rights of
holders of the Company's Common Stock. In addition, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change of
control of the Company, since the terms of any preferred stock which might be
issued could contain terms which could contain special voting rights or increase
the costs of acquiring the Company. Other provisions of the Company's
Certificate of Incorporation and Bylaws divide the Company's Board of Directors
into three classes, each of which classes will serve for different three-year
periods which may have the effect of delaying, deferring or preventing a change
in control of the Company. These provisions may not be amended without the
affirmative vote of not less than 66 2/3% of the issued and outstanding shares
entitled to vote thereon. See "Description of Capital Stock -- Preferred Stock"
and "--Certain Charter, ByLaw and Statutory Provisions."
The Company is subject to Section 203 of the Delaware General Corporation
Law ("DGCL") which prevents transactions between the Company and an "interested
stockholder" unless certain conditions are satisfied. The applicability of
Section 203 may have the effect of delaying, deferring or preventing "changes in
control" of the Company, even if such event would be beneficial to the then
existing stockholders. See "Description of Capital Stock -- Certain Provisions
of Delaware Law."
12
<PAGE> 81
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
LACK OF DIVIDENDS. The Company has not paid any dividends on its Common
Stock since its inception and does not anticipate paying any dividends on its
Common Stock in the foreseeable future. Earnings, if any, will be used to
finance the development and expansion of the Company's business. See "Dividend
Policy."
NO PRIOR MARKET FOR THE COMMON STOCK; DETERMINATION OF OFFERING
PRICE. Prior to the Underwritten Offering, there has been no public market for
the Common Stock of the Company. While the Company has applied for the listing
of the Common Stock on the Nasdaq SmallCap Market, there can be no assurance
that an active trading market for the Common Stock will be established, or if so
established, sustained. The initial offering price for the Shares has been
arbitrarily determined through negotiation between the Company and the
Underwriter based on such factors as the business potential and earnings
prospects of the Company and prevailing market conditions. Such price may not be
indicative of the market price of the Shares after this offering has been
consummated. See "Underwriting."
POSSIBLE DELISTING; PENNY STOCK REGULATION. It is a condition of this
offering that the Company's Common Stock be accepted for listing on the Nasdaq
SmallCap Market. Under Nasdaq rules, in order to maintain listing on the Nasdaq
SmallCap Market, a company must have, among other things, $2,000,000 of net
tangible assets or market capitalization of $35,000,000 or $500,000 of net
revenue in each of the two previous fiscal years and a minimum bid price of
$1.00 per share. The Company will, upon consummation of this offering, satisfy
the maintenance criteria for continued listing on the Nasdaq SmallCap Market. In
addition, Nasdaq reserves the right to withdraw or terminate the Company's
listing on the Nasdaq SmallCap Market at any time and for any reason in its
discretion. In the event that the Company is unable to maintain continued
quotation on the Nasdaq SmallCap Market, quotation, if any, of the Common Stock
would be in the over-the-counter market in what are commonly referred to as the
"pink sheets" of the National Quotation Bureau, Inc. or on the National
Association of Securities Dealers OTC Electronic Bulletin Board. As a result, an
investor may find it more difficult to dispose of or to obtain accurate
quotations as to the price of such securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. In addition, if the Company's
securities do not meet an exception to the penny stock regulations cited above,
trading in the Company's securities would be covered by Rule 15g-9 promulgated
under the Exchange Act for non-Nasdaq and non-national securities exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors (generally,
individuals with net worth in excess of $1,000,000 or annual incomes exceeding
$200,000 or $300,000 together with their spouses) must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if the market price is at least $5.00 per share.
If the Company's securities become subject to the regulations applicable to
penny stocks, the market liquidity for the Shares could be adversely affected
because the regulations on penny stocks could limit the ability of
broker/dealers to sell the Company's securities and thus the ability of
purchasers of the Company's securities to sell their securities in the secondary
market.
LIMITATIONS ON DIRECTOR LIABILITY. Delaware law provides that a director
of the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director. In addition, the Company's Amended and Restated Certificate of
Incorporation provides for mandatory indemnification of directors and officers
to the fullest extent permitted or not prohibited by Delaware law. See
"Description of Capital Stock -- Indemnification of Directors and Officers."
13
<PAGE> 82
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
SHARES ELIGIBLE FOR FUTURE SALE; UNDERWRITER'S WARRANTS. Upon completion
of the Underwritten Offering, there will be 4,590,423 shares of Common Stock
outstanding, of which the 1,250,000 Shares sold pursuant to this offering will
be tradeable without restriction by persons other than "affiliates" of the
Company. The 450,794 Conversion Shares, 140,000 Bridge Shares, 206,061 1997 Loan
Shares, 152,392 1994 Shares, 82,127 Agent Warrant Shares and 225,397 Warrant
Shares held by the Selling Stockholders and registered under the registration
statement of which this Prospectus forms a part, will be freely tradeable as
long as the prospectus related thereto remains current and effective, subject to
any lock-up agreements obtained by the Underwriter. Of the 4,590,423 shares of
Common Stock which will be outstanding, 3,169,631 shares of Common Stock will be
freely tradeable pursuant to Rule 144 promulgated under the Securities Act
commencing 90 days from the date of this Prospectus. Of such shares, 1,394,469
are owned by officers or directors of the Company (inclusive of the 206,061 1997
Loan Shares). No prediction can be made as to the effect, if any, that future
sales of shares of Common Stock will have on the market price of the shares of
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that these sales could occur, could adversely
affect prevailing market prices for the Common Stock and could impair the
ability of the Company to raise additional capital through the sale of its
equity securities or through debt financing.
The Company and its officers, directors and certain stockholders, including
the Selling Stockholders, have agreed (the "Lock-Up Agreements") not to sell or
otherwise dispose of certain of their shares of Common Stock or other securities
of the Company (other than pursuant to private transfers in connection with
which the transferees agree to be bound by the same "lock-up" provision) without
the prior written consent of the Underwriter. The lock-up period is six months
from the Effective Date with respect to the 1,246,771 Selling Stockholder
Shares, including shares held by Mr. Stumbaugh, a director and his affiliate
Sercap Holdings LLC. The lock-up period is 18 months from the Effective Date
with respect to the 1,394,469 shares of outstanding Common Stock owned by all
other officers and directors of the Company. Notwithstanding the foregoing, in
the event that the closing price of the Company's Common Stock is at least 120%
of the initial offering price commencing 12 months from the Effective Date, the
officers and directors may sell the same number of shares as would be available
for sale by them under Rule 144 commencing after said 12th month. The
Underwriter has no current intention of waiving the Lock-Up Agreements prior to
their expiration. The waiver of any particular Lock-Up Agreement will not
constitute a waiver of all Lock-Up Agreements, and to the extent the Company is
made aware of any waiver, it does not intend to provide notice of same to any
other stockholders. See "Underwriting" and "Shares Eligible for Future Sale."
The Selling Stockholders include five persons who are either officers or
employees of the Underwriter and hold 56,782 Selling Stockholder Shares. These
persons have agreed not to sell any of their shares for six months following the
offering pursuant to the Lock-Up Agreements.
Following completion of the Underwritten Offering, the Underwriter will
hold the Underwriter's Warrants to purchase up to 125,000 shares of Common
Stock. The Underwriter's Warrants will entitle the Underwriter to purchase
shares at 165% of the offering price for a period of four years commencing one
year from the closing of the Underwritten Offering. The exercise of the
Underwriter's Warrants may dilute the book value per share of Common Stock. The
holders of such warrants may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company and have the opportunity to benefit from increases in the price of
the Common Stock without risk of an equity investment. The Company has agreed to
register under federal and state securities laws the Common Stock underlying the
Underwriter's Warrants for resale. Such registration rights could involve
substantial expenses to the Company and may adversely affect the terms upon
which the Company may obtain additional financing. See "Underwriting."
CONCURRENT REGISTRATION OF SELLING STOCKHOLDER SHARES. The holders of the
Selling Stockholder Shares have the right to require that such shares be
included in the registration statement regarding the Underwritten Offering. The
Selling Stockholder Shares are being registered simultaneously with the
Underwritten Offering. The Selling Stockholders have agreed not to offer, sell
or transfer their Selling Stockholder Shares for a period of six months from the
Effective Date of the Underwritten Offering without the prior written consent of
the Underwriter. Sales of the Selling Stockholder Shares, or even the potential
of such sales could adversely affect
14
<PAGE> 83
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
the market price of the Common Stock. See "Shares Eligible for Future Sale",
"Concurrent Sales" and "Underwriting."
UNDERWRITER'S INFLUENCE UPON MANAGEMENT OF THE COMPANY. Pursuant to the
terms of the Company's agreement with the Underwriter for the Underwritten
Offering, the Underwriter has the right to nominate a person to serve on the
Company's Board of Directors for a period of three(3) years. The Company has
agreed to use its best efforts to obtain the election of such nominee. Although
the Underwriter has not determined to nominate any person to serve, in the event
of election of such person to the Company's Board of Directors the Underwriter
may be deemed to have a degree of influence on the Company. See "Underwriting".
UNDERWRITER'S INFLUENCE ON THE MARKET. A significant number of the shares
of Common Stock offered hereby may be sold to customers of the Underwriter. Such
customers subsequently may engage in transactions for the sale or purchase of
such securities through or with the Underwriter. Although it has no obligation
to do so, the Underwriter intends to make a market in the Common Stock and may
otherwise effect transactions in such securities. If it participates in such
market, the Underwriter may exert a dominating influence on the market, if one
develops, for the Common Stock. Such market-making activity may be discontinued
at any time. Moreover, if the Underwriter (or its affiliated persons) exercises
the Underwriter's Warrants or Agent Warrants, it may be required under
Regulation M promulgated under the Exchange Act to temporarily suspend its
market-making activities. The price and liquidity of the Common Stock may be
significantly affected by the degree, if any, of the Underwriter's participation
in such market. See "Underwriting."
FUTURE ISSUANCES OF STOCK BY THE COMPANY; AUTHORIZED PREFERRED
STOCK. Following the Underwritten Offering, the Company will have 50,000,000
shares of Common Stock authorized, of which 4,590,423 shares will be issued and
outstanding, assuming that the over-allotment option has not been exercised, and
an additional 396,304 shares will have been reserved for issuance underlying
outstanding warrants and an aggregate of 850,000 shares for issuance under the
1994 Employee Plan and the Director Plan of which options to purchase 244,826
are issued and outstanding. An additional 360,000 options will be granted on the
Effective Date, 300,000 of which vest over a four year period. The Company will
also have 10,000,000 shares of preferred stock, $.10 par value per share (the
"Preferred Stock"), authorized, none of which have been issued as of the date
hereof.
The Company's Amended and Restated Certificate of Incorporation authorizes
the issuance of the Preferred Stock with such designations, rights and
preferences as may be determined from time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue Preferred Stock with dividend, liquidation, conversion voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. The balance of the Company's authorized
shares of Common Stock and all of the Preferred Stock are not reserved for any
purpose and may be issued without any action or approval by the Company's
stockholders. The Company will not offer or sell Preferred Stock to any officer,
director, 5% shareholder of the Company or affiliate or associate of such
persons without the approval by a majority of the Company's independent
directors who do not have an interest in the transaction and who have access, at
the Company's expense, to the Company's or independent counsel. The Company does
not have any present intention to issue any additional securities (other than in
connection with its option plans and the exercise of currently outstanding
options, warrants or other convertible securities) during the 12 months
following this offering. See "Description of Capital Stock."
15
<PAGE> 84
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
USE OF PROCEEDS
The Company will not derive by any proceeds from the sale of the Selling
Stockholder Shares by the Selling Stockholders, although it will receive the
exercise price of any warrants in the event a warrant is exercised by a Selling
Stockholder. In the event that all of the Agent Warrants and 1996 Warrants are
exercised, the Company will receive an aggregate of $1,377,656 gross proceeds.
Any proceeds received by the Company will be used for working capital purposes.
16
<PAGE> 85
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
DIVIDEND POLICY
The Company has not paid dividends since inception and the Company does not
expect to pay dividends in the foreseeable future. The Company intends to retain
all of its available funds for the operation and expansion of its business.
17
<PAGE> 86
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
----------- ----------- --------------
<S> <C> <C> <C>
Short Term Debt:
Notes Payable to Stockholders................. $ 250,000 $ 250,000 $ 75,000
Bridge Notes.................................. 700,000 700,000 --
1997 Loan..................................... 1,000,000 600,000 --
12% Debentures................................ 1,775,000 -- --
----------- ----------- -----------
Total Short Term Debt(3).............. $ 3,725,000 $ 1,550,000 $ 75,000
Long Term Note Payable.......................... 100,000 100,000 100,000
Stockholders' Equity:
Preferred Stock, par value $.10 per share,
10,000,000 shares authorized, no shares
outstanding................................ -- -- --
Common Stock, par value $.001 per share,
50,000,000 shares authorized, 2,683,568
(actual) shares outstanding, 3,340,423 pro
forma outstanding and 4,590,423 outstanding
pro forma as adjusted(4)................... 2,684 3,340 4,590
Additional Paid-In Capital.................... 2,718,152 4,948,446 10,529,746
Retained Deficit.............................. (5,135,525) (5,135,525) (5,135,525)
----------- ----------- -----------
Total Stockholders' Equity (Deficit).......... (2,414,689) (183,689) 5,398,811
----------- ----------- -----------
Total Capitalization.................. $ 1,410,311 $ 1,466,311 $ 5,573,811
=========== =========== ===========
</TABLE>
- ---------------
(1) Gives effect to the issuance of the Conversion Shares and the 1997 Loan
Shares.
(2) Adjusted to reflect the application of the net proceeds of the Shares
offered hereby assuming a $5.50 per share offering price. See "Use of
Proceeds" and "Management's Discussion and Analysis."
(3) See Notes 4 and 5 to Financial Statements for further information as to
short term debt and obligations, interest rates and maturity dates of such
indebtedness.
(4) Does not give effect to: (i) 125,000 shares of Common Stock issuable upon
exercise of the Underwriter's Warrants; (ii) 850,000 shares of Common Stock
reserved for issuance under the Company's option plans of which options to
purchase 244,826 shares have been issued; and (iii) 396,304 shares of Common
Stock reserved for issuance upon the exercise of outstanding Common Stock
purchase warrants.
18
<PAGE> 87
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
year ended December 31, 1995. General and administrative expenses for the fiscal
year 1996 represented 15.2% of 1996 net sales. The dollar increase for 1996 over
1995 was primarily a function of increased sales for the Company in fiscal year
1996 over 1995, as well as increases in employees' compensation and depreciation
and amortization of significant expenditures for molding, tooling, patents and
trademarks.
Interest. The Company's interest expense for the fiscal year ended
December 31, 1996 was $96,566, an increase of $59,770, or 162.4%, compared to
the fiscal year ended December 31, 1995. This increase was primarily
attributable to the Company's increased interest payable on the loans from
stockholders for this period over the fiscal year ending December 31, 1995 and
interest costs associated with the 12% Debentures issued in the 1996 Private
Offering.
Net Loss. Net loss for the fiscal year ended December 31, 1996 was
$548,303, an increase of $463,186 compared to a $85,117 net loss for the fiscal
year ended December 31, 1995. The increase in net loss resulted primarily from
the increase in the Company's sales and profit margins offset by increased
expenditures for selling and marketing expenses, general and administrative
expenses, and interest expense for the years ended December 31, 1996 compared to
the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its activities principally from
operating cash flow, loans from stockholders and private offerings of debt and
equity securities. The Company does not have any lending arrangement with a
financial institution and therefore there were no balances outstanding with
commercial banks and lending institutions as of the year ended December 31,
1997. The Company owed $3,825,000 principal amount of loans as of December 31,
1997, of which $350,000 principal amount was owed to certain stockholders of the
Company. Approximately $1,600,000 of such debt will be repaid out of the
proceeds of the Underwritten Offering and an additional $1,859,525 (12%
Debentures) will be converted into the Conversion Shares. See "Use of Proceeds."
As of October 31, 1997 the Company was in payment default of the 12%
Debentures which default continues to the date of this Prospectus. The Company
has requested that the holders of the 12% Debentures waive all defaults and
extend the payment date until the earlier of consummation of the Underwritten
Offering or April 30, 1998. Payment of the Bridge Notes was due on October 31,
1997 and the Company has received several default notices from holders of the
Bridge Notes. The Company does not have the funds to pay the principal and
interest of the 12% Debentures and Bridge Notes without the proceeds of the
Underwritten Offering. In the event that the holders of the 12% Debentures do
not accept the Conversion Shares in payment of the 12% Debentures, the Company
will be required to utilize cash proceeds of this offering to repay such
holders. Unless the holders of substantially all of the 12% Debentures waive all
defaults and accept the Conversion Shares, it is doubtful that the Underwritten
Offering will be consummated. See "Use of Proceeds".
As of December 31, 1996, the Company had a stockholders' deficit of
$911,610, as compared to a stockholders' deficit of $2,414,689 as of December
31, 1997. The Company's current ratio as of December 31, 1997 was 0.32, as
compared to 0.42 as of December 31, 1996.
Substantially all of the Company's overseas sales are conducted through
letters of credit in U.S. Dollars. As a result, the Company has minimal exposure
to currency fluctuations and does not believe that it is subject to any material
risk with respect thereto. The Company does, however, conduct a significant
portion of its manufacturing and sales activities through Hong Kong which was
returned to the People's Republic of China in July 1997. There can be no
assurance that the Chinese government may not change the Hong Kong currency
which, in turn, may have an effect upon the Company's utilization of U.S.
Dollars based on letters of credit.
To date, more than 98% of the Company's customers have paid for purchases
through irrevocable letters of credit in order to facilitate direct shipments
from overseas through the Company's Hong Kong-based manufacturing and sales
agent, LYI. Because of this high percentage of letter of credit sales, the
Company has of November 1, 1997, the Bridge Shares. The Company intends to use
proceeds of this offering to repay all
22
<PAGE> 88
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
interest and principal on the Bridge Notes. The Company realized net proceeds of
$623,000 from the sale of the Bridge Notes after payment of sales commissions
and offering expenses of approximately $77,000. The Underwriter acted as
placement agent with respect to the placement of the Bridge Notes. The
registration statement of which this Prospectus forms a part includes the
140,000 Bridge Shares which have been registered for resale by certain of the
Selling Stockholders.
In September 1997 the Company obtained a loan of $100,000 bearing interest
at 12% per annum. The loan is payable in full in January 1999. Interest payments
are payable semi-annually. The lender also has the right to receive from Jack
Forcelledo, the Company's Chief Executive Officer, such number of shares equal
to the principal amount of the loan divided by the initial public offering price
of the shares.
In October 1997 the Company received a loan from Sercap Holdings LLC., a
company controlled by a holder of 12% Debentures, in the principal amount of
$1,000,000. The lender also is entitled to receive such number of shares of
Common Stock equal to $600,000 principal amount of the loan divided by the
initial public offering price of the Shares in this offering. Based upon an
initial offering price of $5.50 per Share, the lender will receive an aggregate
of 206,061 1997 Loan Shares at the closing of this offering. The loan is divided
into two separate notes, one of which, in the principal amount of $600,000, is a
term note bearing interest at 12% per annum and payable upon the earlier of the
closing of this offering or December 31, 1998. The second portion of the loan is
represented by a convertible note in the principal amount of $400,000 which
shall automatically be converted into Common Stock upon closing of this offering
at a per share price equal to 75% of the initial offering price of the Shares in
the Underwritten Offering. The lender also received the right to nominate one
person to the Board of Directors of the Company. Mr. Lawrence Stumbaugh, a
controlling person (as defined under the Securities Act) of Sercap Holdings LLC,
was appointed to the Board of Directors of the Company as the designee of Sercap
Holdings LLC. See "Management." The proceeds of the loan have been utilized by
the Company to pay expenses of this offering, for inventory purchases and for
working capital. The Registration Statement of which this Prospectus forms a
part includes the 206,061 1997 Loan Shares which have been registered for resale
by the lender who is a Selling Stockholder. Mr. Stumbaugh is also a Selling
Stockholder whose shares are subject to a Lock-Up Agreement.
Upon completion of this offering, the Company will receive net proceeds of
approximately $5,613,000, and intends to use the net proceeds to continue to
focus upon significantly expanding the marketing and sales of its products in
the United States. A significant portion of the net proceeds will be utilized to
purchase inventory. In addition, the Company plans to expand its international
distribution. The Company intends to develop additional distribution
arrangements in order to more aggressively take advantage of growth
opportunities which the Company believes exist for its products both within and
outside the United States. The Company also intends to evaluate the development
of additional products that offer mass market appeal and represent a strategic
fit with the Company's products and sourcing and distribution methods.
Management anticipates that the balance of the net proceeds from the
Underwritten Offering, together with internally generated funds from projected
sales and potential borrowings, will be sufficient to meet the Company's
presently projected cash and working capital requirements for the Company's next
12 months. Pending the use of the proceeds, the Company intends to invest the
net proceeds in investment grade, interest bearing securities. See "Use of
Proceeds."
The Company currently has outstanding 244,826 options with exercise prices
ranging from $3.37 to $5.05 and 356,549 warrants (including 225,397 1996
Warrants) with exercise prices ranging from $1.68 to $5.50. In the event that
all of such options and warrants were exercised in full, the Company would
receive approximately $2,442,000 in gross proceeds. Any proceeds from the
exercise of options and warrants will be used for working capital purposes.
In the event that less than all of the holders of the 12% Debentures
decline to accept the Conversion Shares and demand payment in cash, the Company
will be required to utilize cash proceeds of the Underwritten Offering for such
payments. The Company would therefore be required to reallocate the net
proceeds. See "Use of Proceeds."
The Company is currently in discussions with several banking institutions
with respect to obtaining a credit line facility for working capital and letter
of credit purposes. These discussions are in the early stages
24
<PAGE> 89
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
PLAN OF DISTRIBUTION
The Shares covered by this Prospectus may be sold from time to time by the
Selling Security Holders, or by their transferees. No underwriting agreement or
arrangements have been entered into by the Company or by the Selling Security
Holders. The distribution of the Shares by the Selling Security Holders may be
effected in one or more transactions that may take place on the Nasdaq SmallCap
Market, including ordinary broker transactions, in the over-the-counter market
through broker-dealers, privately negotiated transactions or through sales to
one or more dealers for resale of the Shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Security Holders in
connection with such sales. The Selling Security Holders and intermediaries
through whom the Shares may be sold may be deemed "underwriters" under the
Securities Act of 1933, as amended, with respect to the Shares sold. The
distribution by the selling Security Holders will be required to comply with the
provisions of Regulation M promulgated by the SEC. The sale of the Selling
Stockholder Share will be required to comply with the laws of the various
states.
53
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature
to procure a judgment in its favor, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, in a proceeding not by or in
the right of the corporation, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with such suit or
proceeding, if he acted in good faith and in a manner believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reason to believe his conduct was
unlawful. Delaware law further provides that a corporation will not indemnify
any person against expenses incurred in connection with an action by or in the
right of the corporation if such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for the expenses which such court shall deem proper.
The Bylaws of the Company provide for indemnification of officers and
directors of the Company to the greatest extent permitted by Delaware law for
any and all fees, costs and expenses incurred in connection with any action or
proceeding, civil or criminal, commenced or threatened, arising out of services
by or on behalf of the Company, providing such officer's or director's acts were
not committed in bad faith. The Bylaws also provide for advancing funds to pay
for anticipated costs and authorizes the Board of Directors to enter into an
indemnification agreement with each officer or director.
In accordance with Delaware law, the Company's Certificate of Incorporation
contains provisions eliminating the personal liability of directors, except for
breach of a director's fiduciary duty of loyalty to the Company or to its
stockholders, acts or omission not in good faith or which involve intentional
misconduct or a knowing violation of the law, and in respect of any transaction
in which a director receives an improper personal benefit. These provisions only
pertain to breaches of duty by directors as such, and not in any other corporate
capacity, e.g., as an officer. As a result of the inclusion of such provisions,
neither the Company nor stockholders may be able to recover monetary damages
against directors for actions taken by them which are ultimately found to have
constituted negligence or gross negligence, or which are ultimately found to
have been in violation of their fiduciary duties, although it may be possible to
obtain injunctive or equitable relief with respect to such actions. If equitable
remedies are found not to be available to stockholders in any particular case,
stockholders may not have an effective remedy against the challenged conduct.
The form of Underwriting Agreement included as Exhibit 1 provides for
indemnification of the Company and certain controlling persons under certain
circumstances, including liabilities under the Securities Act of 1933, as
amended (the "Act").
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and therefore is
unenforceable.
II-1
<PAGE> 91
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the issuance and distribution of the securities
being registered herein are estimated.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 4,976
NASD Registration Fee....................................... 2,056
Underwriter's Non-Accountable Expense....................... 206,250
Printing and Engraving Expenses............................. 90,000
Accounting Fees and Expenses................................ 100,000
Legal Fees and Expenses..................................... 150,000
Blue Sky Fees and Expenses.................................. 35,000
Nasdaq Fee.................................................. 9,000
Transfer Agent and Registrar Fees........................... 5,000
Miscellaneous Fees and Expenses............................. 3,000
Total............................................. $605,282
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information gives effect to the reverse split of Common Stock
(approximately .6 to 1) to be effected prior to the Effective Date:
During the period May 1994 to June 1994, the Company sold, in the 1994
Private Offering, 1,023.75 units of its securities, each unit consisting of 618
shares of Common Stock and 206 1994 Warrants. Each unit had a purchase price of
$900. The offering was conducted under Section 4(2) and/or Regulation D of the
Securities Act. The 1994 Warrants entitled the holders to purchase one share of
Common Stock for an exercise price of $1.00 per share. The Company received net
proceeds of approximately $813,756 from the 1994 Private Offering after payment
of commissions of $90,000 and offering expenses of approximately $17,619. The
Underwriter also received the Agent Warrants. The Agent Warrants have an
exercise price of $1.68 per share and expire in May 1998. As of July 15, 1997,
152,392 of the 1994 Warrants had been exercised and the remainder had expired.
In June 1997 the Company received net proceeds of approximately $242,000 from
the exercise of the 1994 Warrants after payment of $10,258 in commissions to the
Underwriter. The registration statement of which this Prospectus forms a part
includes the 152,392 1994 Shares which have been registered for resale by
certain of the Selling Stockholders and the 82,127 Agent Warrant Shares.
During the period August 1996 to September 1996, the Company sold in a
private offering under Section 4(2) and/or Regulation D of the Securities Act,
$1,775,000 principal amount of 12% Debentures. The Company received net proceeds
of approximately $1,576,000 after payment of commissions and offering expenses
of approximately $199,000. A single investor has requested, and the Company has
agreed, that all interest payments due to such investor be added to the
principal amount of such investor's note. As of December 31, 1997 the total
amount of interest due to such investor was approximately $56,000 convertible
into 13,576 Conversion Shares. The Underwriter served as placement agent in the
1996 Private Offering. The 12% Debentures contain terms by which they were to be
automatically converted into shares of Common Stock at a conversion price equal
to 80% of the per share offering price of the Company's initial public offering
provided the offering occurred prior to October 31, 1997. Payment of the
principal amount of the 12% Debentures was due on October 31, 1997. The Company
has made interest payments to the 12% Debenture holders for the period ending
January 31, 1998. As of November 1, 1997 the Company was in default. The Company
has requested that the holders of the 12% Debentures waive all defaults and
extend the maturity date to April 30, 1998. In order to obtain such waiver, the
Company has proposed to the holders that the conversion price of the 12%
Debentures be reduced to 75% of the offering price of the Shares and to pay an
additional 6% interest from November 1, 1997 through the date of payment. The
Company has also proposed reducing the exercise price of the 1996 Warrants to
equal the offering price of the Shares. Based upon an
II-2
<PAGE> 92
initial public offering price of $5.50 per share, and assuming the Company's
proposal is accepted, the holders of the 12% Debentures will receive 442,085
shares of Common Stock at the closing of this offering. The purchasers in the
1996 Private Offering also received one 1996 Warrant to purchase one share of
Common Stock for every two shares received upon conversion of the 12%
Debentures, an aggregate of 215,152 warrants. The 1996 Warrants are exercisable
for three years from the date of issuance. The registration statement of which
this Prospectus forms a part includes the Conversion Shares and 1996 Warrant
Shares which have been registered for resale by certain of the Selling
Stockholders.
During the period from March 1997 through April 1997, the Company sold, in
a private offering under Section 4(2) and/or Regulation D of the Securities Act,
$700,000 principal amount of the Company's 12% Bridge Notes. The Bridge Notes
were due and payable upon the earlier of (i) October 31, 1997 or (ii) five days
after the consummation of this offering. The Company has received notice default
from several holders of the Bridge Notes. The terms of the Bridge Notes provide
for a default rate of interest at 18% per annum. The Company has requested that
the holders of the Bridge Notes waive defaults until February 28, 1998. The
Bridge Notes are junior unsecured obligations of the Company. Investors are also
entitled to receive at the closing of this offering such number of shares of the
Company's Common Stock as shall equal the principal amount of the Bridge Notes
divided by the initial public offering price of the Shares. Based upon an
initial offering price of $5.50 per Share, investors in the Bridge Offering will
receive an aggregate of 127,273 Bridge Shares at the closing of this offering.
The Company intends to use proceeds of this offering to repay all interest and
principal on the Bridge Notes. The Company is in default under the Bridge Notes
and the Company has requested that the holders waive all defaults until February
28, 1998. The Company realized net proceeds of $623,000 from the sale of the
Bridge Notes after payment of sales commissions and offering expenses of
approximately $77,000. The Underwriter acted as placement agent with respect to
the placement of the Bridge Notes. The registration statement of which this
Prospectus forms a part includes the 127,273 Bridge Shares which have been
registered for resale by certain of the Selling Stockholders.
In September 1997 the Company obtained a loan of $100,000 bearing interest
at 12% per annum. The loan is payable in full in January 1999. Interest payments
are payable semi-annually. The lender also has the right to receive from Jack
Forcelledo, the Company's Chief Executive Officer, such number of shares equal
to the principal amount of the loan divided by the initial public offering price
of the Shares.
In October 1997 the Company received a loan from Sercap Holdings LLC., a
company controlled by a holder of 12% Debentures, in the principal amount of
$1,000,000. The lender also is entitled to receive such number of shares of
Common Stock equal to $600,000 principal amount of the loan divided by the
initial public offering price of the Shares in this offering. Based upon an
initial offering price of $5.50 per Share, the lender will receive an aggregate
of 206,061 1997 Loan Shares at the closing of this offering. The loan is divided
into two separate notes, one of which, in the principal amount of $600,000, is a
term note bearing interest at 12% per annum and payable upon the earlier of the
closing of this offering or December 31, 1998. The second portion of the loan is
represented by a convertible note in the principal amount of $400,000 which
shall automatically be converted into Common Stock upon closing of this offering
at a per share price equal to 75% of the initial offering price of the Shares.
The lender also received the right to nominate one person to the Board of
Directors of the Company. Mr. Lawrence Stumbaugh, a principal and officer of
Sercap Holdings LLC, was appointed to the Board of Directors of the Company as
the designee of Sercap Holdings LLC. See "Management." The proceeds of the loan
have been utilized by the Company to pay expenses of this offering, for
inventory purchases and for working capital. The Registration Statement of which
this Prospectus forms a part includes the 206,061 1997 Loan Shares which have
been registered for resale by the lender who is a Selling Stockholder. Mr.
Stumbaugh is also a Selling Stockholder whose shares are subject to a Lock-Up
Agreement.
II-3
<PAGE> 93
ITEM 27. EXHIBITS
The exhibits designated with an asterisk (*) are filed herewith and those
designated with two asterisks (**) will be filed by amendment. Those Exhibits
without any asterisk have previously been filed.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1* Form of Underwriting Agreement between the Company and
Auerbach, Pollak & Richardson, Inc.
1.2* Form of Selected Dealers Agreement
3.1 Certificate of Incorporation
3.2* Amended and Restated Certificate of Incorporation of the
Registrant
3.3 Bylaws
3.4* Amended and Restated Bylaws
4.1 Form of Common Stock Certificate
4.2* Form of Underwriter's Warrant to be issued to the
Underwriter
4.3 Form of 1996 Warrant issuable to holders of 12% Debentures
4.4 Form of 12% Convertible Debenture in the aggregate principal
amount of $1,775,000
4.5 Form of 12% Bridge Note in the aggregate principal amount of
$700,000
4.6 Form of $400,000 principal amount Note dated October 24,
1997 in favor of Sercap Holdings LLC.
4.7 Form of $600,000 principal amount Note dated October 24,
1997 in favor of Sercap Holdings LLC.
4.8* Form of $100,000 principal amount Loan Agreement dated
September 22, 1997 between Jack Forcelledo and David Field.
4.9* Form of Agent Warrants issued to Auerbach, Pollak &
Richardson Inc., in June 1994
4.10* Form of Waiver Letter to holders of 12% Debentures extending
maturity date to April 30, 1998
5.1** Opinion and Consent of Goldstein & DiGioia, LLP Esqs.
10.1 Lease agreement for principal offices located at 9255 Doheny
Road Suite 2705 Los Angeles California 90069.
10.2 Lucky Yeh Distribution Agreement
10.3 Consarino Royalty Agreement, entered into in March 1995.
10.4* Franco Rosso Consulting Agreement dated as of March 25, 1995
and Royalty Agreement among the Company, Franco Rosso,
Ettore Carenini and Guisseppe Rosso dated March 25, 1995
10.5 Kimmel Royalty Agreement
10.6* Form of Employment Agreement dated as of January 1, 1997
between the Company and Jack Forcelledo
10.7 1994 Employee Stock Option Plan
10.8 1997 Non-Executive Director Option Plan
10.9 Restated Royalty Agreement dated August 7, 1992 by and
between Jack Forcelledo, Elizabeth Forcelledo and the
Company
10.10 Form of Employment Agreement dated August 18, 1997 between
the Company and Kenneth Teasdale
10.11* Reinstatement of FMG Royalty Agreement dated March 20, 1995
between the Company and Jack and Beth Forcelledo
10.12* Form of Registration Rights Agreement among the Company and
the holders of 12% Debentures dated as of September 1996
10.13* Rollerball Skate Agreement between Forcelledo Marketing
Group and Rosso entered into in August 1992
23.1* Consent of Ernst & Young LLP, independent auditors (included
in Part II)
23.2** Consent of Goldstein & DiGioia, LLP is contained in their
opinion to be filed as Exhibit 5.1 to this Registration
Statement
23.3 Consent of John T. Botti, director designee
23.4 Consent of Michael Katz, director designee
24.1* Power of Attorney contained in signature page at Part II of
the Registration Statement
27* Financial Data Schedule
</TABLE>
II-4
<PAGE> 94
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
A. (1) 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 prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereto) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) 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.
(3) 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.
(4) (i) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) The Registrant will provide to the Underwriter at the closing of the
Offering Share certificates in such denominations and registered in such names
as required by the Underwriter to permit prompt delivery to each purchaser.
B. 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.
II-5
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 Amendment No. 2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on the 6th day
of March, 1998.
ROLLERBALL INTERNATIONAL INC.
By: /s/ JACK FORCELLEDO
------------------------------------
Jack Forcelledo, Chairman, President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below substitutes and appoints Jack Forcelledo, his true and lawful
attorney-in-fact and agents, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agent or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ JACK FORCELLEDO Chairman, President, Chief March 6, 1998
- ------------------------------------- Executive Officer and Director
Jack Forcelledo
/s/ ELIZABETH FORCELLEDO Director March 6, 1998
- -------------------------------------
Elizabeth Forcelledo
/s/ KENNETH TEASDALE Chief Financial Officer March 6, 1998
- -------------------------------------
Kenneth Teasdale
Director March , 1998
- -------------------------------------
Lawrence Stumbaugh
</TABLE>
II-6
<PAGE> 96
EXHIBIT INDEX
The Exhibits designated with an asterisk (*) are filed with this Amendment
No. 1 and those designated with two asterisks (**) will be filed by amendment.
Those Exhibits without any asterisk have been previously filed.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
1.1* Form of Underwriting Agreement between the Company and
Auerbach, Pollak & Richardson, Inc. ........................
1.2* Form of Selected Dealers Agreement..........................
3.1 Certificate of Incorporation................................
3.2* Amended and Restated Certificate of Incorporation of the
Registrant..................................................
3.3 Bylaws......................................................
3.4* Amended and Restated Bylaws.................................
4.1 Form of Common Stock Certificate............................
4.2* Form of Underwriter's Warrant to be issued to the
Underwriter.................................................
4.3 Form of 1996 Warrant issuable to holders of 12%
Debentures..................................................
4.4 Form of 12% Convertible Debenture in the aggregate principal
amount
of $1,775,000...............................................
4.5 Form of 12% Bridge Note in the aggregate principal amount of
$700,000....................................................
4.6 Form of $400,000 principal amount Note dated October 24,
1997 in favor of Sercap Holdings LLC........................
4.7 Form of $600,000 principal amount Note dated October 24,
1997 in favor of Sercap Holdings LLC........................
4.8* Form of $100,000 principal amount Loan Agreement dated
September 22, 1997 between Jack Forcelledo and David
Field.......................................................
4.9* Form of Agent's Warrant issued in June 1994.................
4.10* Form of Warrant Letter to holders of 12% Debentures
extending maturity date to April 30, 1998...................
5.1** Opinion and Consent of Goldstein & DiGioia, LLP Esqs. ......
10.1 Lease agreement for principal offices located at 9255 Doheny
Road Suite 2705
Los Angeles California 90069................................
10.2 Lucky Yeh Distribution Agreement............................
10.3 Consarino Royalty Agreement, entered into in March 1995.....
10.4 Franco Rosso Consulting Agreement dated as of March 25, 1995
and Royalty Agreement among the Company, Franco Rosso,
Ettore Carenini and Guisseppe Rosso dated March 25, 1995....
10.5 Kimmel Royalty Agreement....................................
10.6 Form of Employment Agreement dated as of January 1, 1997
between the Company and Jack Forcelledo.....................
10.7 1994 Employee Stock Option Plan.............................
10.8* 1997 Non-Executive Director Option Plan.....................
10.9 Restated Royalty Agreement dated August 7, 1992 by and
between Jack Forcelledo, Elizabeth Forcelledo and the
Company.....................................................
10.10 Form of Employment Agreement dated August 18, 1997 between
the Company and Kenneth Teasdale............................
10.11* Reinstatement of FMG Royalty Agreement dated March 20, 1995
between the Company and Jack and Beth Forcelledo............
10.12* Form of Registration Rights Agreement among the Company and
the holders of 12% Debentures dated as of September 1996....
10.13* Rollerball Skate Agreement between Forcelledo Marketing
Group and Rosso entered into in August 1992.................
23.1* Consent of Ernst & Young LLP, independent auditors (included
in Part II).................................................
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
23.2** Consent of Goldstein & DiGioia, LLP is contained in their
opinion to be filed as Exhibit 5.1 to this Registration
Statement...................................................
23.3 Consent of John T. Botti, director designee.................
23.4 Consent of Michael Katz, director designee..................
24.1* Power of Attorney contained in signature page at Part II of
the Registration Statement..................................
27* Financial Data Schedule.....................................
</TABLE>
<PAGE> 1
Exhibit 1.1
(draft dated
Feb. 26, 1998)
1,250,000 Shares of Common Stock
ROLLERBALL INTERNATIONAL INC.
UNDERWRITING AGREEMENT
__________, 1998
<PAGE> 2
Auerbach, Pollak & Richardson, Inc.
Harbor Park
333 Ludlow Street
Stamford, Connecticut 06902
Ladies and Gentlemen:
Rollerball International Inc., a Delaware corporation (the "Company"),
hereby agrees with Auerbach, Pollak & Richardson, Inc. (hereinafter "you" or the
"Underwriter") with respect to the sale by the Company and the purchase by the
Underwriter of an aggregate of 1,250,000 shares (the "Shares") of the Company's
common stock, par value $.001 per share (the "Common Stock"). Such 1,250,000
Shares are referred to hereinafter as the "Firm Shares." Upon your request, as
provided in Section 2(b) of this Agreement, the Company shall also issue and
sell to the Underwriter up to an additional aggregate of 187,500 shares of
Common Stock for the purpose of covering over-allotments, if any. Such shares of
Common Stock are hereinafter referred to as the "Option Shares." The Company
also proposes to issue and sell to you warrants (the "Underwriter's Warrants")
pursuant to the Underwriter's Warrant Agreement (the "Underwriter's Warrant
Agreement") for the purchase of an additional 125,000 shares of Common Stock.
The shares of Common Stock issuable upon exercise of the Underwriter's Warrants
are hereinafter referred to as the "Underwriter's Shares." The Firm Shares,
Option Shares, the Underwriter's Warrants, and the Underwriter's Shares are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriter as of the date hereof, and as
of the Closing Date and the Option Closing Date, if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-33567), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Shares, the Option Shares, the Underwriter's Warrants, and the
Underwriter's Shares (collectively, hereinafter referred to as the "Registered
Securities") under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the Regulations (as
defined below) of the Commission under the Act. The Company
2
<PAGE> 3
will not file any other amendment thereto to which the Underwriter shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration
Statement," and the form of prospectus in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations, is hereinafter called the
"Prospectus." For purposes hereof, "Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable. Also included in the
Registration Statement are 442,085 shares (the "Conversion Shares") of Common
Stock issuable upon conversion of outstanding convertible promissory notes
issued by the Company in September 1996, 215,152 shares (the "1996 Warrant
Shares") of Common Stock issuable upon exercise of outstanding common stock
purchase warrants issued by the Company in September 1996, 82,127 shares (the
"Agent Warrant Shares") of Common Stock issuable upon exercise of outstanding
common stock purchase warrants issued by the Company in 1994, 206,061 shares
(the "1997 Loan Shares") of Common Stock issuable by the Company in
consideration of a loan made to the Company in October 1997 and 279,655 shares
(the "Selling Stockholder Shares") of issued and outstanding Common Stock (the
Conversion Shares, 1996 Warrant Shares, Agent Warrant Shares, 1997 Loan Shares
and Selling Stockholder Shares are hereinafter sometimes referred to
collectively as the "Selling Stockholder Securities"), all of which are held by
certain stockholders (the "Selling Stockholders") of the Company.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus and no proceedings for a stop order
suspending the effectiveness of the Registration Statement have been instituted,
or, to the Company's knowledge, are threatened. Each of the Preliminary
Prospectus, the Registration Statement and the Prospectus at the time of filing
thereof conformed in all material respects with the requirements of the Act and
Regulations, and none of the Preliminary Prospectus, the Registration Statement
or the Prospectus at the time of filing thereof contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein
3
<PAGE> 4
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation and
warranty does not apply to statements made in reliance upon and in conformity
with written information furnished to the Company with respect to the
Underwriter by or on behalf of the Underwriter expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined in Section 2(c)
hereof) and each Option Closing Date (as defined in Section 2(b) hereof), if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus, as amended or supplemented as
required, will contain all statements which are required to be stated therein in
accordance with the Act and the Regulations, and will conform in all material
respects to the requirements of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of the Underwriter expressly for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries, if any, have been duly
organized and are validly existing as corporations in good standing under the
laws of the respective states of their incorporation. The Company does not own
or control, directly or indirectly, any corporation, partnership, trust, joint
venture or other business entity other than the subsidiaries listed in Exhibit
21 of the Registration Statement, if any. Each of the Company and its
subsidiaries is duly qualified and licensed and in good standing as a foreign
corporation (or other form of entity) in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
require such qualification or licensing. Each of the Company and its
subsidiaries has all requisite power and authority (corporate and other), and
has obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies
4
<PAGE> 5
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company and each of its subsidiaries have been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations, except where a failure to comply would not,
singly or in the aggregate, materially and adversely affect the condition,
financial or otherwise, or the business affairs, properties or results of
operations of the Company and its subsidiaries, taken as a whole; and neither
the Company nor any of its subsidiaries have received any notice of proceedings
relating to the revocation or modification of any such authorization, approval,
order, license, certificate, franchise, or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the condition, financial or otherwise, or the
business affairs, operations, properties, or results of operations of the
Company and its subsidiaries, taken as a whole. The disclosures in the
Registration Statement concerning the effects of federal, state, local, and
foreign laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact necessary to make the statements contained therein
not misleading in light of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Securities" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Registered Securities, the Selling Stockholder Securities and all other
securities issued or issuable by the Company conform or, when issued and paid
for, will conform, in all material respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. All issued
and outstanding shares of capital stock of each subsidiary of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company and the related notes thereto included in the
Prospectus, neither the Company nor any subsidiary has outstanding any options
to purchase, or any preemptive rights or
5
<PAGE> 6
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements and the options or other rights granted and
exercised thereunder as set forth in the Prospectus conforms in all material
respects with the requirements of the Act. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable, and the holders thereof have no rights of rescission with
respect thereto and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company.
(f) The Registered Securities are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable and will conform in all
material respects to the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Registered Securities has been duly and validly taken; and the certificates
representing the Registered Securities will be in due and proper form. Upon the
issuance and delivery pursuant to the terms hereof of the Registered Securities
to be sold by the Company hereunder, the Underwriter will acquire good and
marketable title to such Registered Securities free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect, or other
restriction or equity of any kind whatsoever. Except for the Selling
Stockholders, no stockholder of the Company has any right which has not been
waived in writing to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the issuance and sale of
the Shares, the Option Shares and the Underwriter's Warrants to be sold by the
Company as contemplated herein.
(g) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, changes in
6
<PAGE> 7
stockholders' equity and the results of operations of the Company at the
respective dates and for the respective periods to which they apply and such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Regulations, consistently applied throughout the
periods involved. There has been no material adverse change or development
involving a material prospective change in the condition, financial or
otherwise, or in the business, affairs, operations, properties, or results of
operation of the Company and its subsidiaries taken as a whole whether or not
arising in the ordinary course of business since the date of the financial
statements included in the Registration Statement and the Prospectus and the
outstanding debt, the property, both tangible and intangible, and the business
of the Company and its subsidiaries taken as a whole conform in all material
respects to the descriptions thereof contained in the Registration Statement and
the Prospectus. Financial information set forth in the Prospectus under the
headings "Prospectus Summary - Summary Financial Information," "Capitalization,"
and "Management's Discussion and Analysis," fairly present, on the basis stated
in the Prospectus, the information set forth therein and have been derived from
or compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(h) The Company (i) has paid all federal, state, local, franchise,
and foreign taxes for which it is liable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986, as amended (the "Code"), and has furnished all
information returns it is required to furnish pursuant to the Code, (ii) has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have any tax deficiency or claims outstanding, proposed or
assessed against it.
(i) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriter in connection with (i) the issuance by the
Company of the Registered Securities, (ii) the purchase by the Underwriter of
the Registered Securities from the Company and the purchase by the Underwriter
of the Underwriter's Warrants from the Company, (iii) the consummation by the
Company of any of its obligations under this Agreement, or (iv) resales of the
Registered Securities by the Underwriter in connection with the distribution
contemplated hereby.
(j) There is no action, suit, proceeding, inquiry, arbitration,
mediation, investigation, litigation or governmental proceeding (including,
without limitation, those having
7
<PAGE> 8
jurisdiction over environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give rise to the same),
or involving the properties or businesses of, the Company which (i) questions
the validity of the capital stock of the Company, this Agreement or the
Underwriter's Warrant Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement or the Underwriter's
Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) might materially and adversely affect the condition, financial or
otherwise, or the business, affairs, position, stockholders' equity, operation,
properties, or results of operations of the Company and its subsidiaries taken
as a whole.
(k) The Company has the corporate power and authority to authorize,
issue, deliver, and sell the Registered Securities and to enter into this
Agreement and the Underwriter's Warrant Agreement, and to consummate the
transactions provided for in such agreements; and this Agreement and the
Underwriter's Warrant Agreement have each been duly and properly authorized,
executed, and delivered by the Company. Each of this Agreement and the
Underwriter's Warrant Agreement constitutes a legal, valid and binding agreement
of the Company enforceable against the Company in accordance with its respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law), and none of the
Company's issue and sale of the Registered Securities, execution, delivery or
performance of this Agreement and the Underwriter's Warrant Agreement, its
consummation of the transactions contemplated herein and therein, or the conduct
of its businesses as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will conflict with
or results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of (i) the articles of incorporation or by-laws of the Company, as
amended and restated, (ii) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement,
8
<PAGE> 9
note, loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which it is or may be bound or to which its properties
or assets (tangible or intangible) is or may be subject, or any indebtedness, or
(iii) any statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company of any of their activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement, the Underwriter's Warrant Agreement, and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Registered Securities, except such as have
been or may be obtained under the Act or may be required under state securities
or Blue Sky laws in connection with the Underwriter's purchase and distribution
of the Registered Securities to be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). The descriptions in the
Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form SB-2, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as
9
<PAGE> 10
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(n) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus (i) the Company has not incurred any
material liabilities or obligations, indirect, direct or contingent, or entered
into any material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could result in a material reduction
in the future earnings of the Company; (ii) the Company has not sustained any
material loss or interference with its business or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other distributions
with respect to its capital stock, and the Company is not in default in the
payment of principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock (other than upon the sale of the
Firm Shares, the Option Shares and the Underwriter's Shares hereunder and upon
the exercise of options and warrants described in the Registration Statement)
of, or indebtedness material to, the Company (other than in the ordinary course
of business); (v) the Company has not issued any securities or incurred any
liability or obligation, primary or contingent, for borrowed money; and (vi)
there has not been any material adverse change in the condition (financial or
otherwise), business, properties, results of operations, or prospects of the
Company.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company has sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals and governmental authorizations to
conduct its business as now conducted; (ii) the expiration of any trademarks,
trade names, patent rights, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of the
Company; (iii) the Company has no knowledge of any infringement by it or its
subsidiaries of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and (iv) there is no
claim being made against the Company regarding trademark, trade name, patent,
copyright, license, trade secret or other infringement which could have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company.
10
<PAGE> 11
(p) No default exists in the due performance and observance of any
term, covenant or condition of any material license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
material agreement or instrument evidencing an obligation for borrowed money, or
any other material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the property or assets (tangible or
intangible) of the Company is subject or affected.
(q) To the Company's knowledge, there are no pending investigations
involving the Company by the U.S. Department of Labor, or any other governmental
agency responsible for the enforcement of such federal, state, local, or foreign
laws and regulations. There is no unfair labor practice charge or complaint
against the Company pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or to its
knowledge threatened against or involving the Company. No representation
question exists respecting the employees of the Company. No collective
bargaining agreement, or modification thereof is currently being negotiated by
the Company. No grievance or arbitration proceeding is pending under any expired
or existing collective bargaining agreements of the Company. No labor dispute
with the employees of the Company exists or to its knowledge is imminent.
(r) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plan"). The Company does not maintain or contribute to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected.
(s) None of the Company, nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Regulations) of any of
the foregoing has taken or will take directly or indirectly, any action designed
to or which has constituted or which might be expected to cause or result in
stabilization or manipulation of the price of any security of the
11
<PAGE> 12
Company to facilitate the sale or resale of the Registered Securities.
(t) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, or other
restrictions or equities of any kind whatsoever other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(u) Ernst & Young LLP ("Ernst & Young"), whose report is filed with
the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Regulations.
(v) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which all persons or entities that directly
or beneficially own Common Stock, as of the effective date of the Registration
Statement, have agreed not to, directly or indirectly, offer, offer to sell,
sell, grant any option for the sale of, transfer, assign, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into Common Stock, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Regulations or otherwise) or dispose of any interest therein
for a period from the date of the Prospectus until eighteen (18) months (six (6)
months with respect to the Selling Stockholders) following the date that the
Registration Statement becomes effective, without the prior written consent of
the Underwriter (the "Lock-up Agreements"). The Company will cause the Transfer
Agent (as defined herein) to place "stop transfer" orders on the Company's stock
ledgers in order to effect the Lock-up Agreements.
(w) There are no claims, payments, arrangements or understandings,
whether oral or written, for services in the nature of a finder's or origination
fee with respect to the sale of the Registered Securities hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company or any of its officers, directors, stockholders, employees,
affiliates or, to the Company's knowledge, stockholders or their affiliates that
may affect the Underwriter' compensation as determined by the Commission and the
National Association of Securities Dealers, Inc. (the "NASD").
12
<PAGE> 13
(x) The Registered Securities and the Selling Stockholder Securities
have been approved for quotation on the Nasdaq SmallCap Market ("Nasdaq"),
subject to official notice of issuance.
(y) Neither the Company nor any of its officers, employees, agents
or any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the business) to any customer, supplier,
employee or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company (or assist the Company in connection with any
actual or proposed transaction) which might subject the Company or any other
such person to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign). The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Regulations) of any of the
foregoing persons or entities has or has had, either directly or indirectly, (i)
an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficiary interest in any contract or agreement
to which the Company is a party or by which it may be bound or affected. Except
as set forth in the Prospectus there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, principal shareholder (as such term is used in the Prospectus) of the
Company, or any affiliate or associate of any of the foregoing persons or
entities.
(aa) The Company is not, and does not intend to conduct its business
in a manner in which it would become an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
13
<PAGE> 14
(ab) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to the Underwriter's Counsel (as defined in
Section 4(d) herein) shall be deemed a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
(ac) The minute books of the Company have been made available to the
Underwriter and contain a complete summary of all meetings and actions of the
directors and stockholders of the Company, since the time of its incorporation,
and reflect all transactions referred to in such minutes accurately in all
material respects.
(ad) The Company has not distributed and will not distribute prior
to the Closing Date any offering material in connection with the offering and
sale of the Shares and the Selling Stockholder Securities in this offering other
than the Prospectus, the Registration Statement and the other materials
permitted by the Act. Except as described in the Prospectus, no holders of any
securities of the Company or of any options, warrants or other convertible or
exchangeable securities of the Company have the right to include any securities
issued by the Company as part of the Registration Statement or to require the
Company to file a registration statement under the Act and no person or entity
holds any anti-dilution rights with respect to any securities of the Company.
(ae) Each of the Company and its subsidiaries maintains insurance by
insurers of recognized financial responsibility of the types and in the amounts
as are prudent, customary and adequate for the business in which it is engaged,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect. The Company has no reason to
believe that it will not be able to renew existing insurance coverage with
respect to the Company as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business, in
either case, at a cost that would not have a material adverse effect on the
financial condition, operations, business, assets or properties of the Company.
The Company has not failed to file any claims, has no material disputes with its
insurance company regarding any claims submitted under its insurance policies,
and has complied with all material provisions contained in its insurance
policies.
14
<PAGE> 15
(af) The Company has applied for, and will obtain, key man life
insurance in the amount of at least $1,000,000 for Jack Forcelledo, which
insurance will be (i) payable to the Company and (ii) in force for a period of
at least three (3) years from the date of this Agreement.
2. Purchase, Sale and Delivery of the Registered Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter, and the Underwriter agrees
to purchase from the Company, at a price equal to [$ ] per share, 1,250,000
Shares.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Shares at a price equal to
[$ ] per share. The option granted hereby will expire 45 days after (i) the date
the Registration Statement becomes effective, if the Company has elected not to
rely on Rule 430A under the Regulations, or (ii) the date of this Agreement if
the Company has elected to rely upon Rule 430A under the Regulations, and may be
exercised in whole or in part from time to time (but not on more than two (2)
occasions) only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Shares upon notice by the
Underwriter to the Company setting forth the number of Option Shares as to which
the Underwriter is then exercising the option and the time and date of payment
and delivery for any such Option Shares. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Underwriter, but shall not be
later than three full business days after the exercise of said option, nor in
any event prior to the Closing Date, as hereinafter defined, unless otherwise
agreed upon by the Underwriter and the Company. Nothing herein contained shall
obligate the Underwriter to exercise the over-allotment option described above.
No Option Shares shall be delivered unless the Shares shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the offices of the Underwriter, at Harbor Park,
333 Ludlow Street, Stamford, Connecticut 06902, or at such other place as shall
be agreed upon by the Underwriter and the Company. Such delivery and payment
15
<PAGE> 16
shall be made at [ ] _.m. (New York time) on _________, 1998, or at such other
time and date as shall be agreed upon by the Underwriter and the Company, but no
more than four (4) business days after the date hereof (such time and date of
payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Shares are purchased by the Underwriter,
payment of the purchase price for, and delivery of certificates for, such Option
Shares shall be made at the above mentioned office of the Underwriter or at such
other place as shall be agreed upon by the Underwriter and the Company on each
Option Closing Date as specified in the notice from the Underwriter to the
Company. Delivery of the certificates for the Shares and the Option Shares, if
any, shall be made to the Underwriter against payment by the Underwriter, of the
purchase price for the Shares and the Option Shares, if any, to the order of the
Company. Certificates for the Shares and the Option Shares, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriter may
request in writing at least three (3) business days prior to Closing Date or the
relevant Option Closing Date, as the case may be. The certificates for the
Shares and the Option Shares, if any, shall be made available to the Underwriter
at such office or such other place as the Underwriter may designate for
inspection, checking and packaging no later than 9:30 a.m. on the last business
day prior to Closing Date or the relevant Option Closing Date, as the case may
be.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter Underwriter's Warrants at a purchase price of $0.001 per warrant,
which warrants shall entitle the holders thereof to purchase an aggregate of
125,000 shares of Common Stock. The Underwriter's Warrants shall expire five (5)
years after the effective date of the Registration Statement and shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at a price equaling 165% of the
initial public offering price of the Shares. The Underwriter's Warrant Agreement
and form of Warrant Certificate shall be substantially in the form filed as
Exhibit 4.2 to the Registration Statement. Payment for the Underwriter's
Warrants shall be made on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration Statement
becomes effective as the Underwriter deems advisable, the Underwriter shall make
a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the
16
<PAGE> 17
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Shares has been completed to
such extent as the Underwriter, in its sole discretion deems advisable. The
Underwriter may enter into one or more agreements as the Underwriter, in its
sole discretion, deems advisable with one or more broker-dealers who shall act
as dealers in connection with such public offering.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares by the Underwriter of which
the Underwriter shall not previously have been advised and furnished with a
copy, or to which the Underwriter shall have objected or which is not in
compliance with the Act, the Exchange Act or the Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriter and confirm the notice in writing, (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Registered Securities for offering
or sale in any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
authority shall enter a stop order or suspend such qualification at any time,
the Company will use its best efforts to obtain promptly the lifting of such
order.
17
<PAGE> 18
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) in accordance with the requirements of the Act.
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the Registered Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Regulations),
and will furnish the Underwriter with copies of any such amendment or supplement
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement to which the
Underwriter or Coleman & Rhine LLP ("Underwriter's Counsel") shall reasonably
object.
(e) The Company shall endeavor in good faith, in cooperation with
the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Registered Securities for offering and sale under the
securities laws of such jurisdictions as the Underwriter may reasonably
designate to permit the continuance of sales and dealings therein for as long as
may be necessary to complete the distribution, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or become subject to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Underwriter agrees that such action is not at the
time necessary or advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, as now and hereafter amended, and by
the Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Registered Securities in
accordance with the provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to the Registered
Securities is required to
18
<PAGE> 19
be delivered under the Act, any event shall have occurred as a result of which,
in the opinion of counsel for the Company or Underwriter's Counsel, the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend or supplement the Prospectus to comply with the Act, the Company will
notify the Underwriter promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to Underwriter's Counsel,
and the Company will furnish to the Underwriter copies of such amendment or
supplement as soon as available and in such quantities as the Underwriter may
request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Regulations, and to the Underwriter, an earnings statement which
will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
will make available to its stockholders unaudited quarterly reports of earnings,
and will deliver to the Underwriter:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the form
furnished to the Company's stockholders;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the
19
<PAGE> 20
Company for such fiscal year, accompanied by a copy of the certificate thereon
of independent certified public accountants;
(iii) as soon as they are available, copies of
all reports (financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, Nasdaq or any
securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the Company or its
affairs which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning
the Company (and any future subsidiaries) or its businesses which the
Underwriter may reasonably request. During such five-year period, if the Company
has active subsidiaries, the foregoing financial statements will be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and will be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent (the "Transfer
Agent") and, if necessary under the jurisdiction of incorporation of the
Company, a registrar (which may be the same entity as the transfer agent) for
the Common Stock and the Underwriter's Warrants.
(j) The Company will furnish to the Underwriter or on the
Underwriter's order, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), each
Preliminary Prospectus, the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Underwriter may reasonably request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Underwriter with true copies of duly executed,
legally binding and enforceable Lock-up Agreements. On or before the Closing
Date, the Company shall deliver instructions to the Transfer Agent
20
<PAGE> 21
authorizing it to place appropriate stop transfer orders on the Company's
ledgers.
(l) The Company shall use its best efforts to cause its officers,
directors, stockholders or affiliates (within the meaning of the Regulations)
not to take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Registered Securities substantially in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the Prospectus.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Regulations, and all such reports, forms and documents
filed will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act, and the Regulations.
(o) The Company shall cause the Registered Securities to be quoted
on Nasdaq, and for a period of two (2) years from the date hereof shall use its
best efforts to maintain the quotation of the Registered Securities to the
extent outstanding.
(p) For a period of one (1) year from the Closing Date, the Company
shall furnish to the Underwriter, at the Company's sole expense, upon the
written request of the Underwriter, daily consolidated transfer sheets relating
to the Common Stock, up to four (4) times during such year.
(q) For a period of five (5) years after the effective date of the
Registration Statement the Company shall, at the Company's sole expense, take
all necessary and appropriate actions to further qualify the Company's
securities in all jurisdictions of the United States in order to permit
secondary sales of such securities pursuant to the Blue-Sky laws of those
jurisdictions which do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
(r) The Company (i) prior to the effective date of the Registration
Statement, has filed a Form 8-A with the Commission providing for the
registration of the Common Stock under the
21
<PAGE> 22
Exchange Act and (ii) as soon as practicable, will use its best efforts to take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and to continue such inclusion for a period of not less
than five (5) years.
(s) The Company agrees that for a period of thirteen (13) months
following the effective date of the Registration Statement it will not, without
the prior written consent of the Underwriter, offer, issue, sell, contract to
sell, grant any option for the sale of or otherwise dispose of any Common Stock,
or securities convertible into Common Stock, except for the issuance of the
Option Shares, the Underwriter's Warrants, the Conversion Shares, the 1996
Warrant Shares, the Agent Warrant Shares, the 1997 Loan Shares and shares of
Common Stock issued upon the exercise of currently outstanding warrants or
options issued under any stock option plan in effect on the Closing Date, shares
of Common Stock automatically granted pursuant to any stock option plan in
effect on the Closing Date, or shares of Common Stock issued pursuant to any
employee stock purchase plan in effect on the Closing Date.
(t) Until the completion of the distribution of the Registered
Securities, the Company shall not without the prior written consent of the
Underwriter or Underwriter's Counsel, issue, directly or indirectly any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than trade
releases issued in the Company's business consistent with past practices with
respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years from the
date hereof, and (ii) the sale to the public of the Underwriter's Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form SB-2 (or other appropriate form) for the registration
under the Act of the Underwriter's Shares.
(v) The Company agrees that it shall use its best efforts, which
shall include, but shall not be limited to, the solicitation of proxies, to
elect one (1) designee of the Underwriter to the Company's Board of Directors
for a period of three (3) years following the Closing, provided that such
designee is reasonably acceptable to the Company. The Company shall use its best
efforts to insure that such designee serve from the time of election until the
expiration of such three year period. If for any reason the Underwriter has not
so designated
22
<PAGE> 23
a nominee, the Company shall allow an individual selected by the Underwriter to
attend all meetings of the Company's Board of Directors.
(w) The Company agrees that within forty-five (45) days after the
Closing it shall retain a public relations firm which is acceptable to the
Underwriter. The Company shall keep such public relations firm, or any
replacement, for a period of three (3) years from the Closing. Any replacement
public relations firm shall be retained only with the consent of the
Underwriter.
(x) The Company shall prepare and deliver, at the Company's sole
expense, to the Underwriter within the one hundred and twenty (120) day period
after the later of the effective date of the Registration Statement or the
latest Option Closing Date, as the case may be, four bound volumes containing
all correspondence with regulatory officials, agreements, documents and all
other materials in connection with the offering as requested by the
Underwriter's Counsel.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing Date and
each Option Closing Date (to the extent not previously paid) all expenses and
fees (other than fees of Underwriter's Counsel, except as provided in (iv)
below) incident to the performance of the obligations of the Company under this
Agreement and the Underwriter's Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, filing, delivery and mailing (including the
payment of postage with respect thereto) of the Registration Statement and the
Prospectus and any amendments and supplements thereto and the duplication,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, [the Agreement Among Underwriter, the Selected Dealers
Agreements,] the Powers of Attorney, and related documents, including the cost
of all copies thereof and of the Preliminary Prospectuses and of the Prospectus
and any amendments thereof or supplements thereto supplied to the Underwriter
and such dealers as the Underwriter may request, in quantities as hereinabove
stated, (iii) the printing, engraving, issuance and delivery of the certificates
representing the Registered Securities, (iv) the qualification of the Registered
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the
23
<PAGE> 24
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum," the
"Final Blue Sky Memorandum" and "Legal Investments Survey," if any, and
reasonable disbursements and fees of counsel in connection therewith, (v)
expense of tombstone advertisements and other advertising costs and expenses
(not to exceed [$10,000] in the aggregate, (vi) costs and expenses in connection
with the "road show", (vii) fees and expenses of the transfer agent and
registrar, (viii) the fees payable to the Commission and the NASD and (ix) the
fees and expenses incurred in connection with the listing of the Registered
Securities on Nasdaq and any other market or exchange.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 6, Section 10(a) or Section 11, the Company shall
reimburse and indemnify the Underwriter for all of its actual out-of-pocket
expenses in an amount not to exceed $60,000, including the fees and
disbursements of Underwriter's Counsel, exclusive of any amounts already paid
pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Underwriter on the Closing Date by certified or bank cashier's check or wire
transfer or, at the election of the Underwriter, by deduction from the proceeds
of the offering contemplated herein a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds received by the Company from the sale
of the Shares, $40,000 of which has been paid to date. In the event the
Underwriter elect to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Underwriter on the Option
Closing Date (by certified or bank cashier's check or, at the Underwriter's
election, by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received by
the Company from the sale of the Option Shares.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each
24
<PAGE> 25
Option Closing Date, if any, of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York City time, on the date prior to the date of this
Agreement or such later date and time as shall be consented to in writing by the
Underwriter, and, at Closing Date and each Option Closing Date, if any, no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriter's Counsel. If the Company has elected to
rely upon Rule 430A of the Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Regulations within the
prescribed time period, and prior to Closing Date the Company shall have
provided evidence satisfactory to the Underwriter of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, is material, or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Underwriter's reasonable opinion, is material, or omits to
state a fact which, in the Underwriter's reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have
received from Underwriter's Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Registered Securities, the
Registration Statement, the Prospectus and other related matters as the
Underwriter may request and Underwriter's Counsel shall have received from the
Company such papers and information as they request to enable them to pass upon
such matters.
25
<PAGE> 26
(d) At the Closing Date, the Underwriter shall have received the
favorable opinion of Goldstein & DiGioia, LLP ("Goldstein & DiGioia"), counsel
to the Company, dated the Closing Date, addressed to the Underwriter and in form
and substance satisfactory to Underwriter's Counsel, to the effect that:
(i) the Company (A) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
any properties or the character of its operations requires such qualification or
licensing, and (C) to the best of such counsel's knowledge, has all requisite
corporate power and authority and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus.
(ii) except as described in the Prospectus, and to the best of
such counsel's knowledge after reasonable investigation, the Company does not
own an interest in any corporation, limited liability company, partnership,
joint venture, trust or other business entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of Securities," and
to the knowledge of such counsel, the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Underwriter's Warrant Agreement, and as described in the Prospectus. The
Registered Securities and all other securities issued or issuable by the Company
conform in all material respects to the statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof are not
subject to personal liability by reason of being such holders; and to such
counsel's knowledge after reasonable inquiry, none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company. The Registered Securities to be sold by the Company hereunder and
under the
26
<PAGE> 27
Underwriter's Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with their terms, will be
validly issued, fully paid and non-assessable and conform in all material
respects to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Registered Securities has been duly and validly taken; and the certificates
representing the Registered Securities are in due and proper form. The
Underwriter's Warrants constitute valid and binding obligations of the Company
to issue and sell, upon exercise thereof and payment therefor, the number and
type of securities of the Company called for thereby (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). Upon the issuance and
delivery pursuant to this Agreement of the Registered Securities to be sold by
the Company, the Company will convey, against payment therefor as provided
herein, to the Underwriter good and marketable title to the Registered
Securities free and clear of all liens and other encumbrances;
(iv) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely made in
the appropriate form under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or Prospectus or any part
of any thereof or suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or, to the best of such counsel's knowledge, threatened or contemplated
under the Act;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements thereto (other
than the financial statements and other financial and statistical data included
therein as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Regulations. Such
counsel shall state that such counsel has participated in conferences with
officers and other representatives of the Company and the Underwriter and
representatives of the independent public accountants for the Company, at which
27
<PAGE> 28
conferences the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and any amendments or supplements thereto were
discussed, and, although such counsel is not passing upon and does not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Preliminary Prospectus, the Registration Statement and
Prospectus, and any amendments or supplements thereto, on the basis of the
foregoing, no facts have come to the attention of such counsel which lead them
to believe that either the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus, and any amendments or
supplements thereto);
(vi) to the best of such counsel's knowledge after reasonable
investigation, (A) there are no agreements, contracts or other documents
required by the Act to be described in the Registration Statement and the
Prospectus and filed as exhibits to the Registration Statement other than those
described in the Registration Statement and the Prospectus and filed as exhibits
thereto; (B) the descriptions in the Registration Statement and the Prospectus
and any supplement or amendment thereto of contracts and other documents to
which the Company is a party or by which it is bound are accurate in all
material respects and fairly represent the information required to be shown by
Form SB-2; (C) there is not pending or threatened against the Company any
action, arbitration, suit, proceeding, litigation, governmental or other
proceeding (including, without limitation, those having jurisdiction over
environmental or similar matters),domestic or foreign, pending or threatened
against the company which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
(y) questions the validity of the capital stock of the Company or this
Agreement, or the Underwriter's Warrant Agreement, or of any action taken or to
be taken by the Company pursuant to or in connection with any of the foregoing;
and (D) there is no action, suit or proceeding pending or threatened against the
Company before any court or arbitrator or governmental body, agency or official
in which there is a reasonable possibility of an adverse
28
<PAGE> 29
decision which may result in a material adverse change in the financial
condition, business, affairs, stockholders' equity, operations, properties,
business or results of operations of the Company, which could adversely affect
the present or prospective ability of the Company to perform its obligations
under this Agreement or the Underwriter's Warrant Agreement or which in any
manner draws into question the validity or enforceability of this Agreement or
the Underwriter's Warrant Agreement;
(vii) the Company has the corporate power and authority to
enter into each of this Agreement and the Underwriter's Warrant Agreement and to
consummate the transactions provided for therein; and each of this Agreement and
the Underwriter's Warrant Agreement has been duly authorized, executed and
delivered by the company. Each of this Agreement and the Underwriter's Warrant
Agreement, assuming due authorization, execution and delivery by each other
party thereto, constitutes a legal, valid and binding agreement of the Company
enforceable against the company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution maybe limited by applicable law), and none of the company's
execution, delivery or performance of this Agreement and the Underwriter's
Warrant Agreement, its consummation of the transactions contemplated herein or
therein, or the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto conflicts
with or results in any breach or violation of any of the terms or provisions of,
or constitutes a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (A) the
articles of incorporation or by-laws of the Company, as amended, (B) any
license, contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or any other agreement
or instrument known to such counsel to which the Company is a party or by which
it is bound, or (C) any federal, state or local statute, rule or regulation
applicable to the Company or any judgment, decree or order known to such counsel
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
29
<PAGE> 30
having jurisdiction over the Company or any of its activities or properties;
(viii) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other body (other
than such as may be required under federal securities or Blue Sky laws, as to
which no opinion need be rendered) is required in connection with the issuance
of the Registered Securities pursuant to the Prospectus, and the Registration
Statement, the performance of this Agreement and the Underwriter's Warrant
Agreement, and the transactions contemplated hereby and thereby;
(ix) to the best of such counsel's knowledge after reasonable
investigation, the properties and business of the Company conform in all
material respects to the description thereof contained in the Registration
Statement and the Prospectus;
(x) to the best knowledge of such counsel, and except as
disclosed in Registration Statement and the Prospectus, the Company is not in
breach of, or in default under, any term or provision of any license, contract,
indenture, mortgage, installment sale agreement, deed of trust, lease, voting
trust agreement, stockholders' agreement, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which
the Company is bound or to which the property or assets (tangible or intangible)
of the Company is subject; and the Company is not in violation of any term or
provision of its articles of incorporation or by-laws, as amended, and to the
best of such counsel's knowledge after reasonable investigation, not in
violation of any franchise, license, permit, judgment, decree, order, statute,
rule or regulation;
(xi) the statements in the Prospectus under "Dividend Policy,"
"Description of Securities," and "Shares Eligible for Future Sale" have been
reviewed by such counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or legal conclusions,
are correct in all material respects;
(xii) the Common Stock has been accepted for quotation on
Nasdaq;
(xiii) to the best of such counsel's knowledge and based upon
a review of the outstanding securities and the
30
<PAGE> 31
contracts furnished to such counsel by the Company and except as described in
the Prospectus, no person, corporation, trust, partnership, association or other
entity, other than the Selling Stockholders, has the right to include and/or
register any securities of the Company in the Registration Statement, require
the Company to file any registration statement or, if filed, to include any
security in such registration statement;
(xiv) assuming due execution by the parties thereto other than
the Company, each Lock-up Agreement to be entered into by an officer of the
Company is a legal, valid and binding obligation of the party thereto,
enforceable against the party and any subsequent holder of the securities
subject thereto in accordance with its terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law);
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws, rules and regulations of
the United States and the laws, rules and regulations of the State of Delaware,
to the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriter's Counsel) of other counsel acceptable to
Underwriter's Counsel, familiar with the applicable laws; (B) as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to
Underwriter's Counsel if requested. The opinion of such counsel shall state that
knowledge shall not include the knowledge of a director or officer of the
Company who is affiliated with such firm in his or her capacity as an officer or
director of the Company. The opinion of such counsel for the Company shall state
that the opinion of any such other counsel is in form satisfactory to such
counsel. At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of Goldstein & DiGioia, counsel to the Company,
dated the Option Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's Counsel confirming as of such Option
Closing Date
31
<PAGE> 32
the statements made by Goldstein & DiGioia in their opinion delivered on the
Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriter's Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company or herein contained.
(f) Prior to each of the Closing Date and each Option Closing Date,
if any, (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
prospects, stockholders' equity or the business activities of the Company,
whether or not in the business, from the latest dates as of which such condition
is set forth in the Registration Statement and Prospectus; (ii) there shall have
been no transaction, not in the business, entered into by the Company, from the
latest date as of which the financial condition of the Company is set forth in
the Registration Statement and Prospectus which is adverse to the Company; (iii)
the Company shall not be in default under any provision of any instrument
relating to any outstanding indebtedness which default has not been waived; (iv)
the Company shall not have issued any securities (other than the Registered
Securities and the Selling Stockholder Securities) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
and there has not been any change in the capital stock, or any material increase
in the debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise); (v) no material amount of the assets of the Company
shall have been pledged or mortgaged, except as set forth in the Registration
Statement and Prospectus; (vi) no action, suit or proceeding, at law or in
equity, shall have been pending or threatened (or circumstances giving rise to
same) against the Company, or affecting any of its respective properties or
businesses before or by any court or federal, state or foreign commission, board
or other administrative agency wherein an unfavorable decision, ruling or
finding may materially adversely affect the business, operations, prospects or
financial condition or income of the Company, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall have been
issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
32
<PAGE> 33
(g) At each of the Closing Date and each Option Closing Date, if
any, the Underwriter shall have received a certificate of the Company signed on
behalf of the Company by the principal executive officer of the Company, dated
the Closing Date or Option Closing Date, as the case may be, to the effect that
such executive has carefully examined the Registration Statement, the Prospectus
and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, to the best of each of
such person's knowledge after due inquiry, are contemplated or threatened under
the Act;
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto, contain all statements and
information required by the Act to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and neither the Preliminary Prospectus or any supplement, as of
their respective dates, thereto included any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus: (a) the
Company has not incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the its business, any material
liabilities or obligations, direct or contingent; (b) the Company has not paid
or declared any dividends or other distributions on its capital stock; (c) the
Company has not entered into any transactions not in the ordinary course of
business; (d) there has not been any change in the capital stock or material
increase in long-term debt or any increase in the short-term borrowings (other
than any
33
<PAGE> 34
increase in the short-term borrowings in the ordinary course of business) of the
Company; (e) the Company has not sustained any loss or damage to its property or
assets, whether or not insured; (f) there is no litigation which is pending or
threatened (or circumstances giving rise to same) against the Company or any
affiliated party of any of the foregoing which is required to be set forth in an
amended or supplemented Prospectus which has not been set forth; and (g) there
has occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been set forth. References to the Registration
Statement and the Prospectus in this subsection (g) are to such documents as
amended and supplemented at the date of such certificate.
(h) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter.
(i) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter in form
and substance satisfactory in all respects (including the non-material nature of
the changes or decreases, if any, referred to in clause (iii) below) to the
Underwriter and Underwriter's Counsel, from Ernst & Young:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Regulations thereunder and that the
Underwriter may rely upon the opinion of Ernst & Young with respect to the
financial statements and supporting schedules included in the Registration
Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors of the Company, consultations with officers
and other employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (x) the unaudited financial
statements
34
<PAGE> 35
and supporting schedules of the Company included in the Registration Statement,
if any, do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Regulations or are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial statements
of the Company included in the Registration Statement, or (y) at a specified
date not more than five (5) days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or material increase
in long-term debt of the Company, or any material decrease in the stockholders'
equity or net current assets or net assets of the Company as compared with
amounts shown in the September 30, 1997, balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease;
(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and
(v) statements as to such other material matters incident to
the transaction contemplated hereby as the Underwriter may reasonably request.
(j) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received from Ernst & Young a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm that statements made in the letter furnished pursuant to
Subsection (i) of this Section 6, except that the specified date referred to
shall be a date not more than five (5) days prior to Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (iv) of Subsection (i) of this
Section 6 with respect to certain amounts, percentages and
35
<PAGE> 36
financial information as specified by the Underwriter and deemed to be a part of
the Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (iv).
(k) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Underwriter the appropriate number of
Registered Securities.
(l) No order suspending the sale of the Registered Securities in any
jurisdiction designated by the Underwriter pursuant to subsection (e) of Section
4 hereof shall have been issued on either the Closing Date or the Option Closing
Date, if any, and no proceedings for that purpose shall have been instituted or
shall be contemplated.
(m) On or before the Closing Date, the Company shall have executed
and delivered to the Underwriter, (i) the Underwriter's Warrant Agreement,
substantially in the form filed as Exhibit 4.2, to the Registration Statement,
in final form and substance satisfactory to the Underwriter, and (ii) the
Underwriter's Warrants in such denominations and to such designees as shall have
been provided to the Company.
(n) On or before Closing Date, the Common Stock shall have been duly
approved for quotation on Nasdaq.
(o) On or before Closing Date, there shall have been delivered to
the Underwriter all of the Lock-up Agreements in final form and substance
satisfactory to Underwriter's Counsel.
If any condition to the Underwriter' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Underwriter may terminate this Agreement or, if
the Underwriter so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
7. Indemnification. (a) The Company agrees to indemnify and hold harmless
the Underwriter (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and Underwriter's Counsel), and
each person, if any, who controls the Underwriter ("controlling person") within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all loss, liability, claim, damage, and expense whatsoever
(including, but not limited to, reasonable attorneys' fees and any and all
reasonable expense
36
<PAGE> 37
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Registered Securities under the securities
laws thereof or filed with the Commission, any state securities commission or
agency, Nasdaq or any securities exchange; or any omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of the Prospectus, in the light
of the circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, or in
any application, as the case may be; or (ii) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement. The
indemnity agreement in this subsection (a) shall be in addition to any liability
which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
Registration Statement, and each other person, if any, who controls the Company,
within the meaning of the Act, to the same extent as the foregoing indemnity
from the Company to the Underwriter but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter by the
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or
37
<PAGE> 38
Prospectus directly relating to the transactions effected by the Underwriter in
connection with this Offering. The Company acknowledges that the statements with
respect to the public offering of the Registered Securities set forth under the
heading "Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure to so notify an indemnifying party shall not relieve it from any
liability which it may have otherwise or which it may have under this Section 7,
except to the extent that it has been prejudiced in any material respect by such
failure). In case any such action is brought against any indemnified party, and
it notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
the reasonable fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all
38
<PAGE> 39
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Registered Securities or (B) if the allocation provided by clause (A) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of each of the contributing parties, on the one hand, and the
party to be indemnified on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. In any case
where the Company is a contributing party and the Underwriter is the indemnified
party, the relative benefits received by the Company on the one hand, and the
Underwriter, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Registered Securities (before
deducting expenses other than underwriting discounts and commissions) bear to
the total underwriting discounts received by the Underwriter hereunder, in each
case as set forth in the table on the Cover Page of the Prospectus. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or
39
<PAGE> 40
payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to above in
this subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subdivision (d), the Underwriter shall not be required to contribute any amount
in excess of the underwriting discount applicable to the Registered Securities
purchased by the Underwriter hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to this subparagraph (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be made
against another party or parties under this subparagraph (d), notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity and contribution agreements contained in Section 7 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Underwriter, the Company, any controlling person of either
the Underwriter or the Company, and shall survive termination of this Agreement
or the issuance and delivery of the Registered Securities to the Underwriter, as
the case may be.
40
<PAGE> 41
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the date hereof. For purposes of this Section 9, the
Registered Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Registered Securities.
10. Termination. (a) Subject to subsection (b) of this Section 10, the
Underwriter shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Underwriter's reasonable opinion will in the immediate future disrupt the
financial markets; or (ii) any material adverse change in the financial markets
shall have occurred; or (iii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iv) if the United States shall
have become involved in a war or major hostilities, or if there shall have been
an escalation in an existing war or major hostilities or a national emergency
shall have been declared in the United States; or (v) if a banking moratorium
has been declared by a state or federal authority; or (vi) if the Company shall
have sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Underwriter's opinion, make it inadvisable to proceed with the delivery of the
Registered Securities; or (viii) if there shall have been such a material
adverse change in the prospects or conditions of the Company, or such material
adverse change in the general market, political or economic conditions, in the
United States or elsewhere as in the Underwriter's judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the Registered
Securities.
(b) If this Agreement is terminated by the Underwriter in accordance
with any of the provisions of Section 6, Section 10(a) or Section 11, the
Company shall promptly reimburse and indemnify the Underwriter pursuant to
Section 5(b) hereof. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6,
41
<PAGE> 42
10 and 11 hereof), and whether or not this Agreement is otherwise carried out,
the provisions of Section 5 and Section 7 shall not be in any way affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
11. Default by the Company. If the Company shall fail at the Closing Date
or any Option Closing Date, as applicable, to sell and deliver the number of
Registered Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Shares to be purchased on an Option Closing Date, the Underwriter
may, by notice the Company, terminate the Underwriter' obligation to purchase
Option Shares from the Company on such date) without any liability on the part
of any non-defaulting party other than pursuant to Section 5, Section 7 and
Section 10 hereof. No action taken pursuant to this Section shall relieve the
Company from liability, if any, in respect of such default.
12. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to Auerbach,
Pollak & Richardson, Inc., Harbor Park, 333 Ludlow Street, Stamford, Connecticut
06902, Attention: Hugh Regan, with a copy, which shall not constitute notice, to
Coleman & Rhine LLP, 1120 Avenue of the Americas, New York, New York 10036,
Attention: Kenneth s. Goodwin, Esq. Notices to the Company shall be directed to
the Company at 9255 Doheny Road, Suite 2705, Los Angeles, California 90069,
Attention: Jack Forcelledo, with a copy, which shall not constitute notice, to
Goldstein & DiGioia, LLP, 369 Lexington Avenue, New York, New York 10017,
Attention: Victor DiGioia, Esq.
13. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon the Underwriter, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Registered Securities from the Underwriter shall be deemed to be a
successor by reason merely of such purchase.
14. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State
42
<PAGE> 43
of New York without giving effect to the choice of law or conflict of laws
principles.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement and the Underwriter's
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Underwriter and the Company.
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
ROLLERBALL INTERNATIONAL INC.
By:
-----------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
AUERBACH, POLLAK & RICHARDSON, INC.
By:
--------------------------------
Name:
Title:
43
<PAGE> 1
Exhibit 1.2
1,250,000 Shares
Common Stock
DEALER AGREEMENT
Auerbach, Pollak & Richardson, Inc.
Harbor Park
333 Ludlow Street
Stamford, Connecticut 06902
Ladies and Gentlemen:
We acknowledge receipt of the Prospectus dated March , 1998 (the
"Prospectus") relating to the offering of 1,250,000 shares (the "Shares") of
common stock, $.001 par value (the "Common Stock"), of Rollerball International
Inc., a Delaware corporation (the "Company").
We understand that you are offering a portion of the Shares for sale to
certain securities dealers who enter into an agreement with you in this form at
the public offering price of $[insert] per Share, less a selling concession of
$[insert] per Share.
We hereby agree with you as follows with respect to any purchase of the
Shares from you or from any dealer at a concession from the public offering
price.
In purchasing Shares, we will rely only on the Prospectus and on no
other statements whatsoever, written or oral.
1. Public Offering, Trading. The Shares purchased by us at a concession
from the public offering price shall be promptly offered to the public upon the
terms set forth in the Prospectus or for sale at a concession not in excess of
$[insert] per Share to (i) you or to any other member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") who enters into an
agreement with you in this form and (ii) foreign dealers not eligible for
membership in the NASD who enter into an agreement with you in this form.
We agree that except with your consent and except as provided herein we
will not, prior to the termination of this Agreement, bid for, purchase or sell,
directly or indirectly, for our own account, in the open market or otherwise, or
attempt to induce others to bid for, purchase or sell, either before or after
the sale of the Shares, and either for long or short
<PAGE> 2
account, any Shares or other shares of Common Stock of the Company, and prior to
the completion (as defined in Regulation M under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of our participation in the distribution,
we will otherwise comply with said Regulation M. Nothing contained in this
Section 1 shall prohibit us from acting as broker or agent in the execution of
unsolicited orders of customers for the purchase or sale of any securities of
the Company.
We agree to advise you from time to time upon request, prior to the
termination of this Agreement, of the number of Shares remaining unsold which
were purchased by us from you or from any other dealer at a concession from the
public offering price and, on your request, we will resell to you any such
Shares remaining unsold at the purchase price thereof if, in your opinion, such
Shares are needed to make delivery against sales made to others.
If, prior to the termination of this Agreement (or prior to such
earlier date as you may have determined), you purchase or contract to purchase
for your account in the open market or otherwise any Shares which were purchased
by us from you or from any other dealer at a concession from the public offering
price, or any Shares which may have been issued in exchange for such Shares, we
authorize you either to charge our account with an amount equal to the selling
concession with respect thereto, which amount shall be credited against the cost
of such Shares, or to require us to repurchase such Shares at a price equal to
the total cost of such purchase, including commissions, if any, and transfer
taxes on the redelivery thereof.
2. Delivery and Payment. If we purchase any Shares from you hereunder,
we agree that such purchases will be evidenced by your written confirmation and
will be subject to the terms and conditions set forth in the confirmation and in
the Prospectus.
We agree that delivery of any Shares purchased by us shall be made
through the facilities of The Depository Trust Company if we are a member
thereof, unless we are otherwise notified by you in your discretion. If we are
not a member of The Depository Trust Company, such delivery shall be made
through a correspondent who is such a member, if we shall have furnished
instructions to you (in connection with the purchase of Shares) naming such
correspondent, unless we are otherwise notified by you in your discretion.
Shares purchased by us from you hereunder shall be paid for in full at
the public offering price stated above, or, if you shall so advise us, at such
price less the applicable concession,
2
<PAGE> 3
at the office of Auerbach, Pollak & Richardson, Inc., Harbor Park, 333 Ludlow
Street, Stamford, Connecticut 06902, at such time and on such date as you may
advise us, by wire transfer payable in New York Clearing House (same day) funds
to the order of Auerbach, Pollak & Richardson, Inc. against delivery of the
Shares. If we are called upon to pay the public offering price for the Shares
purchased by us, the applicable concession will be paid to us, less any amounts
charged to our account pursuant to Section 1 above, after termination of this
Agreement.
3. Termination. You will advise us of the date and time of termination
of this Agreement or of any designated provisions hereof. Unless sooner
terminated by you, this Agreement shall, in any event, either terminate 45 days
from the date of the commencement of the public offering of the Shares or 30
days from the date on which any Shares are purchased pursuant to the
over-allotment option granted to you, whichever is later.
4. Representations and Agreements. We represent that we are actually
engaged in the investment banking or securities business and we are either a
member in good standing of the NASD or, if not such a member, a foreign dealer,
bank or institution not eligible for membership. If we are such a member, we
agree that in making sales of the Shares we will comply with all applicable
rules of the NASD, including, without limitation, the NASD's Interpretation With
Respect to Free-Riding and Withholding under NASD Conduct Rule IM-2110-1 and
Rule 2740 of the NASD Conduct Rules. If we are such a foreign dealer, bank or
institution, we agree not to offer or sell any Shares in the United States of
America, its territories or possessions or to persons who are citizens thereof
or residents therein, except through you and in making sales of Shares outside
the United States of America we agree to comply, as though we were a member,
with all applicable rules of the NASD, including, without limitation, such
Interpretation and Rules 2730, 2740 and 2750 of the NASD Conduct Rules and to
comply with Rule 2420 of such NASD Conduct Rules as it applies to non-NASD
member brokers or dealers in a foreign country.
We represent that neither we nor any of our directors, officers,
partners or "persons associated with" us (as defined in the By-Laws of the NASD)
nor, to our knowledge, any "related person" (as defined in the By-Laws of the
NASD, which definition includes counsel, financial consultants and advisors,
finders, members of the selling or distribution group, and any other persons
associated with or related to any of the foregoing) of any broker-dealer (i)
within the last eighteen months has purchased in private transactions, or
intends before, at or
3
<PAGE> 4
within six months after the commencement of the public offering of the Shares,
to purchase in private transactions, any securities (including warrants or
options) of the Company, its parent (if any), any guarantor or insurer of the
Shares or any subsidiary of any of the foregoing or (ii) within the last twelve
months had any dealings with the Company, any guarantor or insurer of the
Shares, any seller other than the foregoing or any subsidiary or controlling
person of any of the foregoing (other than in connection with the syndicate
agreements relating to this offering) as to which documents or information are
required to be filed with the NASD pursuant to its Interpretation with Respect
to Review of Corporate Financing.
5. Miscellaneous. We will not give any information or make any
representations not contained in the Prospectus, or act as agent for the Company
or you.
We agree that you have full authority to take such action as you may
deem to be advisable in respect to all matters pertaining to the offering of the
Shares. You shall not be under any liability to us except for lack of good faith
or for obligations expressly assumed by you in this Agreement.
You shall provide us with such number of copies of each preliminary
prospectus, the Prospectus and any supplement thereto as we may reasonably
request for the purposes contemplated by the Securities Act of 1933, as amended
(the "Securities Act") and the Exchange Act, and the applicable rules and
regulations of the Securities and Exchange Commission thereunder. We represent
that we are familiar with Securities Act Release No. 4968 and with Rule 15c2-8
under the Exchange Act relating to the distribution of preliminary and final
prospectuses and agree that we will comply therewith. We agree to keep an
accurate record of our distribution (including dates, number of copies and
persons to whom sent) of copies of the Prospectus or any preliminary prospectus
(or any amendment or supplement to the Prospectus or any preliminary
prospectus), and, promptly upon request by you, to bring all subsequent changes
to the attention of anyone to whom such material shall have been furnished. We
agree to furnish to persons who receive a confirmation of a sale a copy of the
Prospectus filed pursuant to Rule 424(b) or Rule 424(c) under the Securities
Act.
All communications to you relating to the subject matter of this
Agreement shall be addressed to Auerbach, Pollak & Richardson, Inc., Harbor
Park, 333 Ludlow Street, Stamford, Connecticut 06902, Attention: Hugh Regan, and
any notices to us shall be deemed to have been duly given if mailed, telexed or
4
<PAGE> 5
telegraphed to us at the address shown below.
Neither you nor any of the Underwriters shall have any responsibility
or obligation with respect to the right of any dealer to sell Shares in any
jurisdiction, notwithstanding any information you may furnish in that
connection.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to
choice of law or conflicts of law principles thereof, and we hereby submit to
the nonexclusive jurisdiction of the courts of the State of New York and the
United States District Court of the Southern District of New York.
Very truly yours,
_____________________________________
_____________________________________
_____________________________________
(Please type or print name and address)
By: ___________________________________
Name:
Title:
5
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROLLERBALL INTERNATIONAL INC.
The undersigned corporation, in order to amend and restate its
Certificate of Incorporation, hereby certifies as follows:
FIRST: The name of the Corporation is ROLLERBALL INTERNATIONAL INC.
SECOND: The Corporation was originally incorporated in Delaware on March 7,
1994, under its present name.
THIRD: The Certificate of Incorporation is hereby amended to effect the
following:
a) Article SECOND of the Certificate of Incorporation is
hereby amended to change the name of the registered agent to The
Corporation Trust Company and the address of said registered agent to
1209 Orange Street, County of New Castle, Wilmington, Delaware 19801.
b) Articles FOURTH of the Certificate of Incorporation, is
hereby amended and combined in one article FOURTH to (i) increase the
authorized Capital Stock from 50,000,000 shares to 60,000,000 shares,
of which 50,000,000 shares shall be Common Stock, par value $.001 per
share and 10,000,000 shares shall be Preferred Stock, par value $.10
per share; and (ii) to effect a .594237 reverse stock split of the
Corporation's Common Stock, par value $.001 per share, whereby each
outstanding .594237 share of Common Stock, $.001 par value per share,
will be exchanged for .594237 share of Common Stock effective on the
date of the filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of Delaware, and all
fractional shares resulting from the reverse stock split will be
settled by rounding any fractional shares to the nearest whole share
(.5 shares or more being rounded up to the next whole share).
c) Article SIXTH of the Certificate of Incorporation, is
hereby amended to (i) classify the Board of Directors into three
classes; (ii) increase the percentage of the combined voting power of
the Corporation's outstanding capital stock needed to amend paragraphs
2,3 or 6 of Article SIXTH to 66 2/3%; and (iii) set forth certain other
related matters concerning the Board of Directors of the Corporation.
d) Article SEVENTH of the Certificate of Incorporation is
hereby renumbered Article EIGHTH and amended to clarify the limitation
of liability of the directors of the Corporation and authorize the
indemnification of directors.
<PAGE> 2
e) Article NINTH of the Certificate of incorporation is hereby
added to set forth the Corporation's right to amend these articles in
accordance with the Delaware General Corporation Law of the State of
Delaware.
B. The text of the Certificate of Incorporation, as amended, is
hereby restated in its entirety as follows:
"FIRST: The name of the Corporation is ROLLERBALL INTERNATIONAL INC.
SECOND: The name of the registered agent in this state is The
Corporation Trust Company, and the address of said registered agent is
1209 Orange Street, County of New Castle, Wilmington, Delaware 19801.
THIRD: The nature of the business to be transacted, and the purpose to
be promoted or carried out by the Corporation, are to engage in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of the State of Delaware.
FOURTH: 1. Authorized Capital Stock. The total number of shares of all
classes of capital stock which the Corporation shall have the authority
to issue is 60,000,000 shares, of which fifty million (50,000,000)
shares shall be Common Stock with a par value of one-tenth of one cent
($.001) per share, and ten million (10,000,000) shares shall be
Preferred Stock with a par value of ten cents ($.10) per share. The
Board of Directors of the Corporation is expressly authorized to
provide for the issuance of the shares of Preferred Stock in one or
more classes or one or more series of stock within any class, and by
filing a certificate pursuant to applicable law of the State of
Delaware, to establish or change from time to time the number of shares
to be included in each such class or series, and to fix the
designation, powers, preferences and rights of the shares of each such
class or series and any qualifications, limitations and restrictions
thereof. The Board of Directors shall have the right to determine or
fix one or more of the following with respect to each class or series
of Preferred Stock:
(a) The distinctive class or serial designation and
the number of shares constituting such class or series;
(b) The dividend rates or the amount of dividends to
be paid on the shares of such class or series, whether
dividends shall be cumulative and, if so, from which date or
dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of
the shares of such class or series;
2
<PAGE> 3
(d) Whether the shares of such class or series shall
be redeemable and, if so, the price or prices at which, and
the terms and conditions on which, such shares may be
redeemable;
(e) The amount or amounts payable upon the shares of
such class or series and any preferences applicable thereto in
the event of voluntary or involuntary liquidation, dissolution
or winding up of the Corporation;
(f) Whether the shares of such class or series shall
be entitled to the benefit of a sinking or retirement fund to
be applied to the purchase or redemption of such shares, and
if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such
shares may be redeemed or purchased through the application of
such fund;
(g) Whether the shares of such class or series shall
be convertible into, or exchangeable for, shares of any other
class or classes or of any other series of the same or any
other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices,
or the rate or rates of exchange, and the adjustments thereof,
if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the
shares of such class or series shall be issued;
(i) Whether the shares or such class or series which
are redeemed or converted shall have the status of authorized
but unissued shares of preferred stock and whether such shares
may be reissued as shares of the same or any other class or
series of stock; and
(j) Such other powers, preferences, rights,
qualifications, limitations and restrictions thereof as the
Board of Directors of the Corporation may deem advisable.
2. Reverse Split of Common Stock. The 5,290,092 shares of
Common Stock, par value $.001 per share, issued and outstanding as of
the date of the filing of this Amended and Restated Certificate of
Incorporation, are hereby changed into an aggregate of 3,143,568 shares
of Common Stock, par value $.001 per share at the reverse stock split
rate of .594237 for one (.594237:1) whereby each share of the
Corporation's issued and outstanding Common Stock will be changed into
.594237 of a share of new Common Stock. There shall be no change in the
par value of the Common Stock. Any holder of a share of Common Stock
who by
3
<PAGE> 4
reason of such reverse split would have been entitled to receive a
fraction of a share of Common Stock, will receive only the nearest
whole share, with .5 share or more fractional shares being rounded up
to the next whole share.
FIFTH: The name and the mailing address of the incorporator is as follows:
Vanessa Foster
Three Christina Centre
201 N. Walnut Street
Wilmington, DE 19801
SIXTH 1. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts as are not by law or by
the Certificate of Incorporation of the Corporation directed or required to be
exercised or done by the stockholders.
2. The number of directors of the Corporation shall be as from time to
time provided by or pursuant to the ByLaws of the Corporation, but shall be not
less than three. The directors shall be divided into three classes, designated
Class 1, Class 2 and Class 3. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors, but in no event shall any class include less than one
director. Effective upon the filing date of this Amended and Restated
Certificate of Incorporation, Class 1 directors shall be elected for a
three-year term expiring in 2000, Class 2 directors for a two-year term expiring
in 1999 and Class 3 directors for a one-year term expiring in 1998. At each
succeeding annual meeting of stockholders beginning at the 1998 annual meeting,
successors to the class of directors whose term expires at the annual meeting
shall be elected for a three-year term. A director shall hold office until the
annual meeting for the year in which his term expires and until his successor
shall be elected and shall qualify. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible.
3. Newly created directorship resulting from any increase in the
authorized number of directors constituting the entire Board of Directors or
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or any other cause shall be
filled only by the affirmative vote of a majority of the remaining directors
then in office, even if less than a quorum, or by the sole remaining director.
Directors elected to fill vacancies shall hold office for the remainder of the
full term of the class of directors in which the vacancy occurred and until such
director's successor shall be elected and shall qualify. The directors of any
class of directors of the Corporation may be removed by the stockholders with
or without cause by the affirmative vote of the holders of at least 66 2/3% of
the combined voting power of all outstanding voting stock. For the purpose of
this Article SIXTH, "cause" shall mean
4
<PAGE> 5
(i) the willful failure of a director to perform in any substantial respect such
director's duties to the Corporation (other than any such failure resulting from
incapacity due to physical or mental illness), (ii) the willful malfeasance by a
director in the performance of his duties to the corporation which is materially
and demonstrably injurious to the Corporation, the commission by a director of
an act of fraud in the performance of his duties, (iii) the conviction of a
director for a felony punishable by confinement for a period of excess of one
year, (iv) the final determination by a court of competent jurisdiction or by a
Federal or State Governmental Agency that a director has committed fraud with
respect to Federal or State Securities laws or (v) the ineligibility of a
director for continuation in office under any applicable rules, regulations or
orders of any federal or state regulatory authority or any securities exchange
upon which the Company's securities may be listed or traded, including the
Nasdaq Stock Market, Inc.
4. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of preferred stock or preference shares issued by the
Corporation shall have the right to vote separately by class or series to elect
directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Article SIXTH unless expressly provided by such terms.
5. Where the term "Board of Directors" is used in this Certificate of
Incorporation, such term shall mean the Board of Directors of the Corporation;
provided, however, that to the extent any committee of directors of the
Corporation is lawfully entitled to exercise the powers of the Board of
Directors, such committee may exercise any right or authority of the Board of
Directors under this Certificate of Incorporation.
6. Notwithstanding any other provisions of this Certificate of
Incorporation or the ByLaws of this Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Certificate of Incorporation, the ByLaws of the Corporation or otherwise), the
affirmative vote of the holders of at least 66 2/3% of the combined voting power
of all outstanding voting stock shall be required to adopt any provisions
inconsistent with, or to amend or repeal, Paragraph 2, 3, or 6 of this Article
SIXTH.:
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in summary way
of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provision of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, agree to
5
<PAGE> 6
any compromise or arrangement and to any reorganization of this Corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
EIGHTH 1. The Corporation shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
2. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director in his capacity as a director; provided, however, that a director shall
be liable to the extent provided by applicable law (i) for the breach of the
director's duty of loyalty tot eh Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
3. Expenses incurred by an officer or director of the Corporation in
defending a civil or criminal action, suit or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such officer of
director to repay such amount if it shall be ultimately determined that such
officer or director is not entitled to be indemnified by the Corporation as
authorized by the Delaware General Corporation Law. Such expenses incurred by
other employees and agents of the Corporation may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
4. No amendment to or repeal of this Article EIGHTH shall apply to or
have any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal, nor shall any such amendment or
repeal apply to or have any effect on the obligation of the Corporation to pay
in advance expenses incurred by an officer or director of the corporation in
defending any action, suit or proceeding arising
6
<PAGE> 7
out of or with respect to any acts or omissions occurring prior to such
amendment or repeal.
NINTH: The Corporation reserves the right to amend and repeal
any provision contained in this Certificate of Incorporation in the
manner prescribed by the General Corporation Law of the State of
Delaware. All rights herein conferred are granted subject to this
express reservation.
FOURTH: The amendment effected herein was authorized by written consent of the
holders of a majority of all of the outstanding shares entitled to vote thereon
pursuant to Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, and prompt written notice was delivered to all shareholders
of the corporation who have not consented hereto, pursuant to Section 228 of the
Delaware General Corporation Law.
IN WITNESS WHEREOF, said ROLLERBALL INTERNATIONAL INC. has caused this
Certificate to be signed by Jack Forcelledo, Chairman of the Board, and attested
by James Hartnett, Secretary, this ___ day of _________, 1998.
/s/Jack Forcelledo
--------------------------------
Jack Forcelledo
Chairman
ATTEST:
By: /s/ James Hartnett
-----------------------------
James Hartnett, Secretary
7
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
ROLLERBALL INTERNATIONAL INC.
(A Delaware Corporation)
ARTICLE I
Offices and Agents
Section l.l. Registered Office. The corporation shall have and maintain
in the State of Delaware a registered office which may, but need not be, the
same as its place of business.
Section l.2. Other Offices. The corporation may also have offices and
places of business at such places within or without the State of Delaware as the
Board of Directors may from time to time determine or the business of the
corporation may require.
Section l.3. Registered Agent. The corporation shall have and maintain
in the State of Delaware a registered agent, which agent may be either an
individual resident in the State of Delaware whose business office is identical
with the corporation's registered office, or a Delaware corporation (which may
be itself) or a foreign corporation authorized to transact business in the State
of Delaware, having a business office identical with such registered office.
ARTICLE II
Stock and Stockholders
Section 2.l. Certificates Representing Stock. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of, the corporation by the Chairman or Vice-Chairman of the Board or by the
President or Executive Vice-President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by him in the corporation. The
certificates for shares of stock of the corporation shall be in such form as
shall be determined by the Board of Directors, shall have set forth thereon any
statements prescribed by statute, and shall be numbered and entered in the stock
ledger of the corporation as they are issued. Any and all signatures on any such
certificate may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may
<PAGE> 2
be issued by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 2.2. Lost Certificates. The Board of Directors may direct that
a new share certificate be issued in place of any certificate theretofore issued
by the corporation which has been mutilated or which is alleged to have been
lost, stolen or destroyed, upon presentation of each such mutilated certificate
or the making by the person claiming any such certificate to have been lost,
stolen or destroyed of an affidavit as to the fact and circumstances of the
loss, theft or destruction thereof, or complying with such other procedures as
may be established by the Board of Directors. The Board of Directors, in its
discretion and as a condition precedent to the issuance of any new certificate,
may require the owner of any certificate alleged to have been lost, stolen or
destroyed, or his legal representative, to furnish the corporation with a bond,
in such sum and with such surety or sureties as it may direct, as indemnity
against any claim that may be made against the corporation on account of the
alleged loss, theft or destruction of such certificate or the issuance of such
new certificate.
Section 2.3. Fractions of Shares. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (l) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the corporation in
the event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void if not exchanged
for certificates representing full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions with the Board of
Directors may impose.
Section 2.4. Stock Transfers. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
transfers or registration of transfers of shares of stock of the corporation
shall be made only on the stock ledger 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 of stock properly endorsed and the payment of all
taxes due thereon.
Section 2.5. Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
2
<PAGE> 3
in respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 2.6. Meetings of Stockholders.
2.6.l. Time and Place. All meetings of stockholders shall be held at
such time and such place, whether within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
2.6.2. Annual Meetings. An annual meeting of stockholders, commencing
with the year 1998, shall be held on the third Tuesday in July of each year, or
if such day is a legal holiday, on the next business day following; provided,
that if the Board of Directors shall determine that in any year it is not
advisable or convenient to hold the meeting on such day, then in such year the
annual meeting shall instead be held on such other day, not more than sixty (60)
days before or after the third Tuesday in July and not a legal holiday, as the
Board shall prescribe. At each annual meeting, the stockholders shall elect a
Board of Directors and transact such other business as may properly be brought
before the meeting.
2.6.3. Special Meetings. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the Amended
and Restated Certificate of Incorporation (as may be amended from time to time,
referred to as the "Certificate of Incorporation"), may be called by the
Chairman of the Board, the President or a majority of the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice of the meeting or in a duly executed waiver of
notice thereof. In addition, stockholders owning of record 10% of the issued and
outstanding shares of Common Stock may call a special meeting of the
stockholders; provided that the stockholders so demanding a meeting shall
deliver written notice to the Chairman of the Board which notice shall set forth
the reasons for a special meeting and such information as required in Section
2.6.5 and provided, further, the reasons for the special meeting so requested
have a valid corporate purpose and may be validly acted upon at the special
meeting of the stockholders.
3
<PAGE> 4
2.6.4. Notice of Meetings. Written notice of each meeting of
stockholders, stating the place, date and hour thereof, and, in the case of a
special meeting, specifying the purpose or purposes thereof, shall be given to
each stockholder entitled to vote thereat not less than ten (10) days nor more
than sixty (60) days prior to the meeting, except that where the matter to be
acted on is a merger or consolidation of the corporation or a sale, lease or
exchange of all or substantially all of its assets, such notice shall be given
not less than twenty (20) days nor more than sixty (60) days prior to such
meeting. If a meeting is adjourned to another time and place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.6.5. Business Before a Meeting. To be properly brought before the
meeting, business must be either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board, or (c) otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Corporation not later than
120 days prior to the meeting anniversary date of the immediately preceding
annual meeting or if no annual meeting was held for any reason in the preceding
year, 120 days prior to the third Tuesday in July. A stockholder's notice to the
Secretary of the Corporation shall set forth as to each matter the stockholder
proposes to bring before the meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.6.5 of Article 2, provided, however, that
nothing in this Section 2.6.5 of Article 2 shall be deemed to preclude
discussion by any stockholder of any business properly brought before the annual
meeting.
The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section
2.6.5 of Article 2 and if he should so determine, which determination shall be
conclusive, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
2.6.6. Stockholder List. The Secretary of the corporation shall prepare
and make, or cause to be prepared and made, at least ten (10) days before every
meeting of stockholders, a
4
<PAGE> 5
complete list of the stockholders, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city or other municipality or community where the meeting is to
be held, which place shall be specified in the notice of the meeting, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this subsection or the books of
the corporation, or to vote in person or by proxy at any meeting of
stockholders.
2.6.7. Quorum. Except as otherwise provided by statute or the
Certificate of Incorporation, the holders of one-third of the shares of stock of
the corporation issued and outstanding and entitled to vote thereat, present in
person or by proxy, shall be necessary to and shall constitute a quorum for the
transaction of business at each meeting of stockholders. If a quorum shall not
be present at the time fixed for any meeting, the stockholders present in person
or by proxy and entitled to vote thereat shall have power to adjourn the meeting
from time to time, without notice other than an announcement at the meeting of
the place, date and hour of the adjourned meeting, until a quorum shall be
present; and at any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted had a quorum
been present at the time originally fixed for the meeting.
2.6.8. Conduct of Meeting. Meetings of the stockholders 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, Vice-Chairman of the Board, the
President, the Executive Vice President, a Vice President, or, if none of the
foregoing is in office and present and acting, by a chairman to be chosen by the
stockholders. 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. The Board of Directors of the Company shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the Company and their duly authorized and
constituted proxies, and such other persons as the chairman shall permit,
restrictions on entry at the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless, and to the
extent, determined by the Board
5
<PAGE> 6
of Directors or the chairman of the meeting, meetings of stockholders shall not
be required to be held in accordance with rules or parliamentary procedures.
2.6.9. Voting. Except as otherwise provided by statute or by the
Certificate of Incorporation, at any meeting of stockholders each stockholder
shall be entitled to one vote for each outstanding share of stock of the
corporation standing in such holder's name on the books of the corporation as of
the record date for determining the stockholders entitled to notice of and to
vote at such meeting. At any meeting of stockholders at which a quorum is
present, all elections shall be determined by plurality vote and all other
matters shall be determined by the vote of the holders of a majority of the
shares present in person or by proxy and entitled to vote, unless the matter is
one with respect to which, by express provision of statute, the Certificate of
Incorporation or these Bylaws, a different vote is required, in which case such
express provision shall govern and control the determination of such matter.
2.6.10. Proxy Representation. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent to corporate action
in writing without a meeting. Every proxy must be signed by the stockholder or
by his attorney-in-fact. No proxy shall be voted or acted upon after one year
from its date unless such proxy provides for a longer period.
2.6.11. Inspectors of Election. The Board of Directors, in advance of
any meeting of stockholders, may, but need not, appoint one or more inspectors
of election to act at the meeting or any adjournment thereof. If an inspector or
inspectors are not appointed in advance of the meeting, the person presiding at
the meeting may, but need not, appoint one or more inspectors. In case any
person who may be appointed as an inspector fails to appear or act, the vacancy
may be filled by appointment made by the Board of Directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by him
or them and execute a certificate of any fact found by him or them.
Section 2.7. Action of Stockholders Without a Meeting. Subject to the
provisions of the Certificate of Incorporation, any action required or permitted
to be taken at an annual or special meeting of stockholders by statute, the
Certificate of Incorporation or these Bylaws, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be
6
<PAGE> 7
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Where any action is taken in
such manner by less than unanimous written consent, prompt written notice of the
taking of such action shall be given to all stockholders who have not consented
in writing thereto in accordance with the General Corporate Law of the State of
Delaware. Notwithstanding anything to the contrary herein, no action which
would amend or repeal ARTICLE SIXTH of the Certificate of Incorporation, as
amended may be acted upon by written consent of stockholders.
ARTICLE III
Directors
Section 3.l. Board of Directors. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors.
The Board of Directors may exercise all such powers of the Corporation and do
all such lawful acts and things on its behalf as are not by statute or by the
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders. Without limiting the generality of the
preceding sentence, the Board of Directors is expressly authorized to exercise
all of the power of the Corporation to borrow or raise moneys and to execute,
accept, endorse and deliver as evidence of such borrowing all kinds of
securities; and to secure the payment and performance of the obligations
thereunder by mortgage on, pledge of, or other security interest in, the whole
or any part of the property, assets and income of the Corporation.
Section 3.2. Qualifications. Directors need not be stockholders of the
Corporation, citizens of the United States or residents of the State of
Delaware.
Section 3.3. Number and Classes. The number of directors constituting
the whole Board of Directors shall be not less than three (3) nor more than
fifteen (15) as fixed from time to time by resolution of the Board or by the
stockholders or, if the number of directors constituting the whole Board is not
so fixed, the number shall be three (3); provided, that no decrease in the
number of directors shall shorten the term of any incumbent director.
Anything to the contrary notwithstanding in this Section 3.3 or this
Article III, to the extent that the Certificate of Incorporation, as amended,
makes provision for the division of directors into three classes, the initial
term of office of Class 3 shall expire at the 1998 annual meeting; of Class 2 at
the 1999 annual meeting; of Class 1 at the 2000 annual meeting; and at each
annual election held after such classification and election, directors shall be
chosen for a full term, as the case may be, to succeed those whose terms expire.
Section 3.4. Nominations. Nominations for the election of directors may
be made by the Board of Directors or a committee appointed by the Board of
Directors or by any stockholder entitled to vote in the election of directors
generally. However, any stockholder entitled to vote in the election of
directors generally may nominate one or more persons for election as directors
at a meeting only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an annual meeting of
stockholders, 120 days prior to the anniversary date of the
7
<PAGE> 8
immediately preceding annual meeting or if an annual meeting has not been held
in the preceding year, 120 days from the third Tuesday in July; and (ii) with
respect to an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the tenth day following the date
on which notice of such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the United States Securities and Exchange
Commission; and (e) the consent of each nominee to serve as a director of the
Company if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
Section 3.5. Election and Tenure. With the exception of the first Board
of Directors named in the Certificate of Incorporation, and except as otherwise
permitted in these Bylaws or the Certificate of Incorporation, directors shall
be elected at the annual meeting of stockholders in accordance with these
bylaws and the Corporation's Certificate of Incorporation, as amended. Each
director shall hold office for a term expiring at the annual meeting of
stockholders next succeeding his election and until his successor is elected and
has qualified or until his earlier displacement from office by resignation,
removal or otherwise. Any director shall be eligible for re-election.
Anything to the contrary notwithstanding in this Section 3.5 or this
Article III, to the extent that the Certificate of Incorporation, as amended,
makes provision for the division of directors into three classes, the initial
term of office of Class 3 shall expire at the 1998 annual meeting; of Class 2 at
the 1999 annual meeting; of Class 1 at the 2000 annual meeting; and at each
annual election held after such classification and election, directors shall be
chosen for a full term, as the case may be, to succeed those whose terms expire.
Section 3.6. Resignation and Removal. Any director may resign at any
time by written notice to the Corporation. Subject to the Certificate of
Incorporation, as amended, any director or the whole Board of Directors may be
removed, with or without cause, by the holders of 66 2/3% majority of the shares
entitled to vote at an election of directors. Any such removal shall be without
prejudice to the rights, if any, of the director so removed under any contract
of service or other agreement with the Corporation.
Section 3.7. Vacancies. Any vacancy in the Board of Directors occurring
by reason of the death, resignation or disqualification of any director, the
removal of any director from
8
<PAGE> 9
office for cause or without cause, an increase in the number of directors, or
otherwise, may be filled by a majority of the directors then in office elected
by the holders of the shares of the Class entitled to vote at an election of
directors for the vacancy sought to be filled, although such majority is less
than a quorum, or by the sole remaining director of such class, or by the
stockholders of such class. Each director elected to fill a vacancy shall hold
office for a term expiring at the next annual meeting of stockholders at which
the class for which such directors shall be chosen and until his successor is
elected and has qualified or until his earlier displacement from office by
resignation, removal or otherwise. If one or more directors shall resign from
the Board effective at a future date, a majority of the directors then in
office, including those who have so resigned, elected by the holders of the
shares of the Class entitled to vote at an election of directors for the vacancy
sought to be filled, may fill such vacancy or vacancies, the vote thereon to
take effect when such resignation or resignations become effective, and each
director so chosen shall hold office as provided in this section in the filling
of other vacancies.
Section 3.8. Meetings of the Board.
3.8.l. First Meeting. The directors elected by the incorporator of the
Corporation and at each subsequent annual meeting of stockholders shall hold
their first meeting as soon as practicable following the date of their election,
and in any event within thirty (30) days after each annual meeting of
stockholders, at such time and place as shall be fixed by resolution of the
Board of Directors prior to the annual meeting or by the consent in writing of
all the newly-elected directors, for the purpose of choosing the officers of the
Corporation and for the transaction of such other business as may properly be
brought before the meeting, and no notice of such meeting to the newly-elected
directors shall be necessary in order legally to constitute the meeting,
provided a quorum shall be present.
3.8.2. Regular Meetings. Regular meetings of the Board of Directors may
be held, without notice, at such times and places as shall from time to time be
fixed in advance by resolution of the Board.
3.8.3. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board or the President, and, at the written
request of a majority of the members of the whole Board, shall be called by the
Chairman of the Board, the President or the Secretary. Notice of each special
meeting of directors, stating the time and place of the meeting and the purpose
or purposes thereof, shall be given to each director at least twenty-four (24)
hours before such meeting. The time and place of any special meeting of
directors may also be fixed by a duly executed waiver of notice thereof.
3.8.4. Chairman of the Meeting. The Chairman of the Board, if present
and acting, shall preside at all meetings of the Board of Directors. Otherwise,
the Vice-Chairman, the President, if present and acting, or any other director
chosen by the Board, shall preside.
9
<PAGE> 10
Section 3.9. Committees of the Board.
3.9.l. Designation. The Board of Directors, by resolution adopted by a
majority of the whole Board, may designate one or more committees, each
committee to consist of two (2) or more directors. The Board of Directors may
from time to time remove members from, or add members to, any committee. Each
such committee, to the extent provided in the resolution designating it, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
However, no such committee shall have power or authority in reference to: (a)
amending the Certificate of Incorporation; (b) adopting an agreement of merger
or consolidation; (c) recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets;
(d) recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution; or (e) amending these By-laws; and, unless
expressly so provided by resolution of the Board, no such committee shall have
power or authority in reference to: (i) declaring a dividend; or (ii)
authorizing the issuance of shares of stock of the Corporation of any class.
3.9.2. Alternate Members. The Board of Directors may designate one or
more directors as alternate members of any committee who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
3.9.3. Tenure; Reports; Procedures. Each such committee shall serve at
the pleasure of the Board of Directors. It shall keep minutes of its meetings
and report the same to the Board of Directors as and when requested by the
Board, and it shall observe such other procedures with respect to its meetings
as are prescribed in these Bylaws or, to the extent not prescribed herein, as
may be prescribed by the Board of Directors.
Section 3.10. Quorum and Voting. At all meetings of the Board of
Directors or any committee of the Board, a majority of the whole Board or of the
entire membership of such committee shall be necessary and sufficient to
constitute a quorum for the transaction of business, except when a vacancy or
vacancies prevents such a majority, whereupon a majority of the directors in
office or appointed to such committee shall constitute a quorum, provided that
such majority shall constitute at least one-third of the whole Board or
membership of the committee, as the case may be. The vote of a majority of the
directors or members of the committee present at any meeting at which a quorum
is present shall be the act of the Board of Directors or of such committee,
except as may be otherwise specifically provided by statute or the Certificate
of Incorporation or these Bylaws. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee of the Board which authorizes a contract or transaction
between the Corporation and one or more of its directors, or between the
Corporation and any other Corporation, partnership,
10
<PAGE> 11
association or other organization in which one or more of the directors of the
Corporation are directors or officers, or have a financial interest. If a quorum
shall not be present at any meeting of the Board of Directors or any committee
of the Board, the members of the Board or such committee present thereat may
adjourn the meeting from time to time, without notice other than an announcement
at the meeting, until a quorum shall be present.
Section 3.11. Telephone Participation. Members of the Board of
Directors or of any committee of the Board may participate in a meeting of the
Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in a meeting in accordance with this section shall
constitute presence in person at such meeting.
Section 3.12. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee of the Board may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 3.13. Compensation. The Board of Directors is authorized to
make provision for reasonable compensation to its members for their services as
directors and to fix the basis and conditions upon which this compensation shall
be paid. Any director may also serve the Corporation in any other capacity and
receive compensation therefor in any form.
Section 3.14. Reliance on Books and Records. A member of the Board of
Directors or of any committee thereof designated by the Board as provided in
these Bylaws, shall, in the performance of his duties, be fully protected in
relying in good faith upon the books of account or reports made to the
Corporation by any of its officers, or by an independent certified public
accountant or by an appraiser selected with reasonable care by the Board of
Directors or by any such committee, or in relying in good faith upon other
records of the Corporation.
ARTICLE IV
Notices
Section 4.l. Delivery of Notices. Notices to directors and stockholders
may be delivered personally or by mail. A notice by mail shall be deemed to be
given at the time when it is deposited in the post office or a letter box,
enclosed in a post-paid sealed wrapper and addressed to the person entitled to
notice at his address appearing on the books of the Corporation, unless any such
person shall have filed with the Secretary of the Corporation a written request
that notices intended for him be mailed or delivered to some other address, in
which case the notice shall be mailed to or delivered at the address designated
in such request. Notice to any director may also be given by overnight courier
service, by telephone, by
11
<PAGE> 12
telegram, by facsimile or by leaving the notice at the residence or usual place
of business of the director.
Section 4.2. Waiver of Notice. Whenever notice is required to be given
by statute, the Certificate of Incorporation or these By-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or these By-laws.
ARTICLE V
Officers
Section 5.l. Executive Officers. The executive officers of the
Corporation shall be a Chairman of the Board, a President, a Chief Executive
Officer, a Treasurer, a Chief Financial Officer, a Chief Operating Officer, a
Secretary and, if deemed necessary, expedient or desirable by the Board of
Directors, one or more Executive Vice-Presidents and one or more other Vice
Presidents. The Chairman of the Board, President and Chief Executive Officer
shall be selected from among the directors, but no other executive officer need
be a member of the Board of Directors. Two or more offices may be held by the
same person, but no office shall execute, acknowledge or verify any instrument
in more than one capacity. The executive officers of the Corporation shall be
elected annually by the Board of Directors at its first meeting following the
meeting of stockholders at which the Board was elected.
Section 5.2. Other Officers and Agents. The Corporation may also have
such other officers which such titles and duties as shall be stated in these
By-laws or in a resolution of the Board of Directors which is not inconsistent
with these By-laws. The Board of Directors may elect, or may delegate to the
Chairman of the Board or President authority to appoint and remove, and to fix
the duties, compensation and terms of office of, one or more Assistant
Treasurers and Assistant Secretaries and such other officers and agents as the
Board may at any time or from time to time determine to be advisable.
Section 5.3. Tenure; Resignation; Removal. Each officer of the
Corporation shall hold office until his successor is elected or appointed or
until his earlier displacement from office by resignation, removal or otherwise;
provided, that if the term of office of any officer elected or appointed
pursuant to Section 5.2 of these By-laws shall have been fixed by the Board of
Directors or by the Chairman of the Board or President acting under authority
delegated to him by the Board, he shall cease to hold such office not later than
the date of expiration of such term, regardless of whether any other person
shall have been elected or appointed to succeed
12
<PAGE> 13
him. Any officer may resign at any time by giving written notice to the
Corporation and may be removed for cause or without cause by the Board of
Directors, or by the Chairman of the Board or President acting under authority
delegated to him by the Board of Directors pursuant to Section 5.2 of these
By-laws; provided, that any such removal shall be without prejudice to the
rights, if any, of the officer so removed under any contract of service or other
agreement with the Corporation.
Section 5.4. Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors, or by the Chairman of the
Board or President acting under authority delegated to him by the Board of
Directors pursuant to Section 5.2 of these By-laws.
Section 5.5. Authority and Duties. All officers as between themselves
and the Corporation, shall have such authority and perform such duties in the
management of the Corporation as maybe provided in these By-laws, or, to the
extent not so provided, as may be prescribed by the Board of Directors, or by
the Chairman of the Board or President acting under authority delegated to him
by the Board of Directors pursuant to Section 5.2 of these By-laws.
Section 5.6. The Secretary. The Secretary, or an Assistant Secretary,
shall attend all meetings of the stockholders and the Board of Directors and
shall record the minutes of all proceedings taken at such meetings, or maintain
all documents evidencing corporate actions taken by written consent of the
stockholders or of the Board of Directors, in a book to be kept for that
purpose; and he shall perform like duties for any committees of the Board of
Directors when required. He shall see to it that all notices of meetings of the
stockholders and of special meetings of the Board of Directors are duly given in
accordance with these By-laws or as required by statute; he shall be the
custodian of the seal of the Corporation, and, when authorized by the Board of
Directors, he shall cause the corporate seal to be affixed to any document
requiring it, and, when so affixed, attested by his signature as Secretary; and
he shall perform such other duties as may from time to time be prescribed by the
Board of Directors.
ARTICLE VI
General Provisions
Section 6.l. Dividends and Distributions; Reserves. Subject to all
applicable provisions of law, the Certificate of Incorporation and any indenture
or other agreement to which the Corporation is a party or by which it is bound,
the Board of Directors may declare to be payable, in cash, in other property or
in shares of the Corporation of any class or series, such dividends and
distributions upon or in respect of outstanding shares of the Corporation of any
class or series as the Board may at any time or from time to time deem to be
advisable. Before declaring any such dividend or distribution, the Board of
Directors may cause to be set aside, out of any funds or other property or
assets of the Corporation legally available for the payment of dividends or
distributions, such sum or sums as the Board, in their absolute discretion, may
consider to be proper as a reserve or reserves to meet contingencies, or for
equalizing dividends,
13
<PAGE> 14
or for repairing or maintaining any property of the Corporation, or for such
other purpose as the Board may deem conducive to the interest of the
Corporation, and the Board may modify or abolish any such reserve in the manner
in which it was created.
Section 6.2. Checks, Notes, Etc. All checks or other orders for the
payment of money, all notes or other instruments evidencing indebtedness of the
Corporation and all receipts for money paid to the Corporation shall be signed,
drawn, accepted, endorsed or otherwise executed on its behalf, as the case may
be, in such manner and by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate. The Board of
Directors may authorize the use of facsimile signatures of any officer or
employee in lieu of manual signatures.
Section 6.3. Fiscal Year. The fiscal year of the Corporation shall be
fixed, and may from time to time be changed, by resolution of the Board of
Directors.
Section 6.4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
Section 6.5. Voting of Securities of Other Corporations. In the event
that the Corporation shall at any time or from time to time own and have power
to vote any securities (including but not limited to shares of stock) of any
other issuer, they shall be voted by such person or persons, to such extent and
in such manner as may be determined by the Board of Directors.
ARTICLE VII
Amendment
A majority of the whole Board of Directors shall have the power, by
resolution, to amend or repeal these By-laws or to adopt new by-laws; provided,
however, that such power shall not divest the stockholders of the power, nor
limit their power, to adopt, amend or repeal by-laws.
ARTICLE VIII
Indemnification of Directors,
Officers and Employees
Except to the extent expressly prohibited by the Delaware Corporation
Law, the Corporation shall indemnify each person made or threatened to be made a
party to any action or proceeding, whether civil or criminal, by reason of the
fact that such person or such person's
14
<PAGE> 15
testator or intestate is or was a director, officer or employee of the
Corporation, or serves or served at the request of the Corporation, any other
Corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgment, fines, penalties, amounts paid in
settlement and reasonable expenses, including attorneys' fees, incurred in
connection with such action or proceeding, or any appeal therein, provided that
no such indemnification shall be made if a judgment or other final adjudication
adverse to such person establishes that his or her acts were committed in bad
faith or by fraud or were the result of active and deliberate dishonesty and
were material to the cause of action so adjudicated, or that he or she
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled, and provided further that no such indemnification
shall be required with respect to any settlement or other nonadjudicated
disposition of any threatened or pending action or proceeding unless the
Corporation has given its prior consent to such settlement or other disposition.
The Corporation may advance or promptly reimburse upon request any
person entitled to indemnification hereunder for all expenses, including
attorneys' fees, reasonably incurred in defending any action or proceeding in
advance of the final disposition thereof upon receipt of an undertaking by or on
behalf of such person to repay such amount if such person is ultimately found
not to be entitled to indemnification or, where indemnification is granted, to
the extent the expenses so advanced or reimbursed exceed the amount to which
such person is entitled, provided, however, that such person shall cooperate in
good faith with any request by the Corporation that common counsel be utilized
by the parties to an action or proceeding who are similarly situated unless to
do so would be inappropriate due to actual or potential differing interests
between or among such parties.
Nothing herein shall limit or affect any right of any person otherwise
than hereunder to indemnification or expenses, including attorneys' fees, under
any statute, rule, regulation, Certificate of Incorporation, By-law, insurance
policy, contract or otherwise.
Anything in these Bylaws to the contrary notwithstanding, no
elimination of this bylaw, and no amendment of this by-law adversely affecting
the right of any person to indemnification or advancement of expenses hereunder
shall be effective until the 60th day following notice to such person or such
action, and no elimination of or amendment to this By-law shall deprive any
person of his or her rights hereunder arising out of alleged or actual
occurrences, acts or failures to act prior to such 60th day.
The Corporation shall not, except by elimination or amendment of this
by-law in a manner consistent with the preceding paragraph, take any corporate
action or enter into any agreement which prohibits, or otherwise limits the
rights of any person to, indemnification in accordance with the provisions of
this by-law. The indemnification of any person provided by this by-law shall
continue after such person has ceased to be a director, officer or employee of
the Corporation and shall inure to the benefit of such person's heirs,
executors, administrators and legal representatives.
15
<PAGE> 16
The Corporation is authorized to enter into agreements with any of its
directors, officers or employees extending rights to indemnification and
advancement of expenses to such person to the fullest extent permitted by
applicable law, but the failure to enter into any such agreement shall not
affect or limit the rights of such person pursuant to this bylaw, it being
expressly recognized hereby that all directors, officers and employees of the
Corporation, by serving as such after the adoption hereof, are acting in
reliance hereon and that the Corporation is estopped to contend otherwise.
In case any provision in this by-law shall be determined at any time to
be unenforceable in any respect, the other provisions shall not in any way be
affected or impaired thereby, and the affected provision shall be given the
fullest possible enforcement in the circumstances, it being the intention of the
Corporation to afford indemnification and advancement of expenses to its
directors, officers and employees, acting in such capacities or in the other
capacities mentioned herein, to the fullest extent permitted by law.
For purposes of this by-law, the Corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his or her duties to the Corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan, and excise taxes assessed on a person with respect to
an employee benefit plan pursuant to applicable law shall be considered
indemnifiable expenses. For purposes of these by-laws, the term "Corporation"
shall include any legal successor to the Corporation, including any Corporation
which acquires all or substantially all of the assets of the Corporation in one
or more transactions.
16
<PAGE> 1
Exhibit 4.2
(draft dated
Feb. 26, 1998)
ROLLERBALL INTERNATIONAL, INC.
AND
AUERBACH, POLLAK & RICHARDSON, INC.
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of _____ __, 1998
<PAGE> 2
UNDERWRITER'S WARRANT AGREEMENT dated as of , 1998, between
ROLLERBALL INTERNATIONAL INC., a Delaware corporation (the "Company"), and
AUERBACH, POLLAK & RICHARDSON, INC. and its assignees or designees (each
hereinafter referred to variously as a "Holder" or "Auerbach").
W I T N E S S E T H :
WHEREAS, Auerbach has agreed pursuant to the underwriting agreement (the
"Underwriting Agreement") between the Company and Auerbach to act as underwriter
(the "Underwriter") in connection with the Company's proposed public offering of
1,250,000 shares of common stock of the Company, $.001 par value, (the "Common
Stock"), at a public offering price of $_____ per share (the "Public Offering").
WHEREAS, pursuant to the Underwriting Agreement, the Company proposes to
issue warrants to the Underwriter to purchase up to an aggregate of 125,000
shares of Common Stock (the "Underwriter's Warrants").
WHEREAS, the Underwriter's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Underwriter in consideration for,
and as part of the Underwriter's compensation in connection with, the
Underwriter acting as the underwriter pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representatives to the Company of an aggregate of Twelve and One-Half Dollars
($12.50), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Grant. Auerbach is hereby granted the right to purchase, at any time
from _____ __, 1998 until 5:30 p.m., New York time, on_____ __, 2003 (5 years
from the Effective Date of the registration statement and any supplement
thereto, on Form SB-2, No.333-33567), at which time the Underwriter's Warrants
expire, up to an aggregate _______ shares of Common stock (subject to adjustment
as provided in Section 8 hereof), at an initial exercise price (subject to
adjustment as provided in Section 11 hereof) of $___(165% of the public offering
price) (the "Exercise Price").
2. Underwriter's Warrant Certificates. The Underwriter's Warrant
certificates (the "Warrant Certificates") delivered and
2
<PAGE> 3
to be delivered pursuant to this Agreement shall be in the form set forth in
Exhibit A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions, and other variations as required or
permitted by this Agreement.
3. Registration of Warrant. The Underwriter's Warrants shall be numbered
and shall be registered on the books of the Company when issued.
4. Exercise of Underwriter's Warrant.
4.1 Method of Exercise. The Underwriter's Warrants initially are
exercisable at the Exercise Price (subject to adjustment as provided in Section
11 hereof) per Underwriter's Warrant set forth in Section 8 hereof payable by
certified or official bank check in New York Clearing House funds. Upon
surrender of a Underwriter's Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
for the shares of Common Stock purchased at the Company's principal offices in
California (currently located at 9255 Dohenny Road, Suite 2705, Los Angeles,
California 90069) the registered Holder of a Underwriter's Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Underwriter's Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of Common Stock underlying the Underwriter's Warrants). In the case of
the purchase of less than all of the shares of Common Stock purchasable under
any Underwriter's Warrant Certificate, the Company shall cancel said
Underwriter's Warrant Certificate upon the surrender thereof and shall execute
and deliver a new Underwriter's Warrant Certificate of like tenor for the
balance of the shares of Common stock purchasable thereunder.
4.2 Exercise by Surrender of Underwriter's Warrant. In addition to
the method of payment set forth in Section 4.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Underwriter's Warrants shall have the
right at any time and from time to time to exercise the Underwriter's Warrants
in full or in part by surrendering the Warrant Certificate in the manner
specified in Section 4.1 in exchange for the number of shares of Common Stock
equal to the product of (x) the number of shares of Common Stock as to which the
Underwriter's Warrants are being exercised, multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined in Section 9.3 (e) hereof) of
the shares of Common Stock minus the Exercise Price of the shares of Common
Stock and the denominator of which is the Market Price per
3
<PAGE> 4
share of Common Stock. Solely for the purposes of this Section 4.2, Market Price
shall be calculated either (i) on the date on which the form of election
attached hereto is deemed to have been sent to the Company pursuant to Section
15 hereof ("Notice Date") or (ii) as the average of the Market Price for each of
the five trading days immediately preceding the Notice Date, whichever of (i) or
(ii) results in a greater Market Price.
5. Issuance of Certificates. Upon the exercise of the Underwriter's
Warrant, the issuance of certificates for shares of Common Stock, properties or
rights underlying such Underwriter's Warrant shall be made forthwith (and in any
event within five (5) business days thereafter)without charge to the Holder
thereof including, without limitation, any tax, other than income taxes, which
may be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Sections 7 and 9 hereof) be issued in the name of,
or in such names as may be directed by, the Holder thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Underwriter's Warrant Certificates and the certificates representing
the shares of Common Stock or other securities, property or rights issued upon
exercise of the Underwriter's Warrant shall be executed on behalf of the Company
by the manual or facsimile signature of the then present President or any Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or any
Assistant Secretary of the Company. Underwriter's Warrant Certificates shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
6. Transfer of Underwriter's Warrant. The Underwriter's Warrant shall be
transferable only on the books of the Company maintained at its principal
office, where its principal office may then be located, upon delivery thereof
duly endorsed by the Holder or by its duly authorized attorney or representative
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration transfer, the Company shall execute and deliver
the new Underwriter's Warrant to the person entitled thereto.
4
<PAGE> 5
7. Restriction On Transfer of Underwriter's Warrant. The Holder of a
Underwriter's Warrant Certificate, by its acceptance thereof, covenants and
agrees that the Underwriter's Warrant is being acquired as an investment and not
with a view to the distribution thereof, and that the Underwriter's Warrant may
not be sold, transferred, assigned, hypothecated or otherwise disposed of, in
whole or in part, for the term of the Underwriter's Warrant, except to officers
or employees of the Underwriter who are also stockholders of the Underwriter, or
by will, pursuant to the laws of descent and distribution, or by the operation
of law.
8. Exercise Price and Number of Securities. Except as otherwise provided
in Section 10 hereof, each Underwriter's Warrant is exercisable to purchase one
share of Common Stock at an initial exercise price equal to the Exercise Price.
The Exercise Price and the number of shares of Common Stock for which the
Underwriter's Warrant may be exercised shall be the price and the number of
shares of Common Stock which shall result from time to time from any and all
adjustments in accordance with the provisions of Section 11 hereof.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933. Each
Underwriter's Warrant Certificate and each certificate representing shares of
Common Stock and any of the other securities issuable upon exercise of the
Underwriter's Warrant (collectively, the "Warrant Shares") shall bear the
following legend unless (i) such Underwriter's Warrant or Warrant Shares are
distributed to the public or sold to the underwriters for distribution to the
public pursuant to Section 9 hereof or otherwise pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Act"), or(ii)
the Company has received an opinion of counsel, in form and substance reasonably
satisfactory to counsel for the Company, that such legend is unnecessary for any
such certificate:
THE UNDERWRITER'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE UNDERWRITER'S WARRANT REPRESENTED BY THE
5
<PAGE> 6
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE UNDERWRITER'S WARRANT AGREEMENT
REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time commencing after the
effective date of the Registration Statement and expiring five (5) years
thereafter, the Company proposes to register any of its securities under the Act
(other than in connection with a merger or pursuant to Form S-4 or Form S-8 or
successor form thereto) it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement, to the
Holders of the Warrant Shares of its intention to do so. If any of the Holders
of the Warrant Shares notify the Company within twenty (20) days after mailing
of any such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford such Holders of the
Warrant Shares the opportunity to have any such Warrant Shares registered under
such registration statement. In the event that the managing underwriter for said
offering advises the Company in writing that in its opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without causing a diminution in the offering
price or otherwise adversely affecting the offering, the Company will include in
such registration (a) first, the securities the Company proposes to sell, (b)
second, the securities held by the entities that made the demand for
registration, (c) third, the Warrant Shares requested to be included in such
registration which in the opinion of such underwriter can be sold, pro rata
among the Holders of Warrant Shares on the basis of the number of Underwriter's
Warrant Shares requested to be registered by such Holders, and (d) fourth, other
securities requested to be included in such registration.
Notwithstanding the provisions of this Section 9.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 9.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof.
9.3 Demand Registration. (a) At any time commencing one (1) year
after the effective date of the Registration Statement and expiring five (5)
years from the effective date of the Registration Statement, the Holders of the
Underwriter's Warrants and/or Warrant Shares representing a "Majority" (as
hereinafter defined) of the Underwriter's Warrants and/or Warrant Shares shall
have the right (which right is in addition to the
6
<PAGE> 7
registration rights under Section 9.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as maybe necessary
in the opinion of both counsel for the Company and counsel for the Holders, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale by such Holders and any other Holders of the Underwriter's
Warrant and/or Warrant Shares who notify the Company within fifteen (15) days
after the Company mails notice of such request pursuant to Section 9.3(b) hereof
(collectively, the "Requesting Holders") of their respective Warrant Shares for
the earlier of (i) six (6) consecutive months or (ii) until the sale of all of
the Warrant Shares requested to be registered by the Requesting Holders.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 9.3 by any Holder or Holders
representing a Majority of the Underwriter's Warrants and/or Warrant Shares to
all other registered Holders of the Underwriter's Warrants and the Warrant
Shares within ten (10) days from the date of the receipt of any such
registration request.
(c) In addition to the registration rights under Section 9.2
and subsection (a) of this Section 9.3, at any time commencing one(1) year after
the effective date of the Registration Statement and expiring five (5) years
from the effective date of the Registration Statement, the Holders of a Majority
of the Underwriter's Warrants and/or Warrant Shares shall have the right on one
occasion, exercisable by written request to the Company, to have the Company
prepare and file with the Commission a registration statement so as to permit a
public offering and sale by such Holders of their respective Warrant Shares for
the earlier of (i) six (6) consecutive months or (ii) until the sale of all of
the Warrant Shares requested to be registered by such Holders; provided,
however, that the provisions of Section 9.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request. If the Holders
have exercised their rights under Section 9.3(a) then the Holders may not
exercise their rights under Section 9.3(c) for a period of six (6) months
following the effective date of any registration statement filed pursuant to
Section 9.3(a).
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a
7
<PAGE> 8
registration statement for the Warrant Shares within the time period specified
in Section 9.4(a) hereof pursuant to the written notice specified in Section
9.3(a) of the Holders of a Majority of the Underwriter's Warrants and/or Warrant
Shares, the Company, at the option of the Holders of a Majority, will be
required to repurchase (i) any and all Warrant Shares at the higher of the
Market Price (as defined in Section 9.3(e)) per share of Common Stock on (x) the
date of the notice sent pursuant to Section 9.3(a) or (y) the expiration of the
period specified in Section 9.4(a) and (ii) any and all Underwriter's Warrants
at such Market Price per share of Common Stock less the Exercise Price of such
Underwriter's Warrants. The Holders of a Majority shall notify the Company in
writing of their election to require such repurchase. Such repurchase shall be
in immediately available funds and shall close within two (2) days after the
later of (i) the expiration of the period specified in Section 9.4(a) or (ii)
the delivery of the written notice of election specified in this Section 9.3(d).
(e) Definition of Market Price. As used herein, the phrase
"Market Price" at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average closing
sale price as furnished by the Nasdaq SmallCap Market ("Nasdaq"), or if the
Common Stock is not quoted on Nasdaq, as determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it.
9.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Sections 9.2 or 9.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Shares such number of prospectuses as shall reasonably be requested.
Notwithstanding the foregoing sentance, the Company shall be entitled one time
only to postpone the filing of any registration statement otherwise required to
be prepared and filed by it pursuant to this Section 9.4(a) if the Company is
(i) publicly committed to a self-tender or exchange offer and the filing of a
8
<PAGE> 9
registration statement would cause a violation of Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or (ii)
involved in negotiating or consummating an acquisition or merger which would
make such registration impracticable, in either of which cases the filing of the
registration statement may be delayed for a period of up to 60 days. The Company
shall promptly deliver to the Holders a written notice of postponement, which
notice shall specificaaly set forth the reason for such postponement. Following
the delivery of such notice, the Company shall be required to file the postponed
registration statement upon the earlier of (i) the consummation or termination,
as applicable, of the event requiring such postponement (ii) 60 days after
delivery of the aforementioned notice.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions, and
excluding roadshow expenses if the only shares to be registered in such
Registration Statement are Warrant Shares), fees and expenses in connection with
all registration statements filed pursuant to Sections 9.2 and 9.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses (including those of the Company)in connection with the registration
statement filed pursuant to Section 9.3(c).
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s)of the Warrant
Shares to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against all loss, claim, damage, expense or
liability(including all expenses reasonably incurred in investigating, preparing
or defending against any claim whatsoever) to which any of them may become
subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has
9
<PAGE> 10
agreed to indemnify each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be sold pursuant to
a registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such Holders, or their successors or
assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify
the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Underwriter's Warrant prior to the
initial filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Shares to be included in any registration
statement filed pursuant to Section 9.3 hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 9.3 hereof (other than registration
statements filed prior to an exercise of registration rights by a Holder of
Underwriter's Warrants and/or Warrant Shares pursuant to Section 9.2 hereof),
without the prior written consent of Auerbach or as otherwise required by the
terms of any existing registration rights granted prior to the date of this
Agreement by the Company to the holders of any of the Company's securities.
(h) In the event of an underwritten offering, the Company
shall furnish to each Holder participating in the offering and to each
underwriter a signed counterpart, addressed to such Holder or underwriter, of
(i) an opinion of counsel to the Company, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
10
<PAGE> 11
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall enter into an underwriting agreement
with the managing underwriters (in the case of registration rights exercised
pursuant to Section 9.3 hereof, selected for such underwriting by Holders
holding a Majority of the Warrant Shares requested to be included in such
underwriting, which may be the Representative). Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their Warrant
Shares and may, at their option, require that any or all the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Holders. Such
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term "Majority" in
reference to the Underwriter's Warrants or Warrant Shares shall mean in excess
of fifty percent (50%) of the then outstanding Underwriter's Warrants or Warrant
Shares that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
their family, persons acting as nominees or in
11
<PAGE> 12
conjunction therewith or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
10. Obligations of Holders. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 9 hereof that
each of the selling Holders shall:
(a) Furnish to the Company such information regarding
themselves, the Warrant Shares held by them, the intended method of sale or
other disposition of such securities, the identity of and compensation to be
paid to any underwriters proposed to be employed in connection with such sale or
other disposition, and such other information as may reasonably be required to
effect the registration of their Warrant Shares.
(b) Notify the Company, at any time when a prospectus relating
to the Warrant Shares covered by a registration statement is required to be
delivered under the Act, of the happening of any event with respect to such
selling Holder as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
11. Adjustments to Exercise Price and Number of Securities. The Exercise
Price in effect at any time and the number and kind of securities purchased upon
the exercise of the Underwriter's Warrant shall be subject to adjustment from
time to time only upon the happening of the following events:
11.1 In case the Company shall (i) declare a dividend on its Common
Stock in Common Stock or make a distribution of Common Stock, (ii) subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares of Common Stock or (iv) issue by reclassification of
its Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the number of Warrant Shares purchasable
upon exercise of each Underwriter's Warrant immediately prior thereto shall be
adjusted so that the Holder of each Underwriter's Warrant shall be entitled to
receive the kind and number of shares of Common Stock or other securities of the
Company which he would have owned or have been entitled to receive after the
happening of any of the events described above, had such
12
<PAGE> 13
Underwriter's Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant to
this paragraph 11.1 shall become effective immediately after the effective date
of such event retroactive to immediately after the record date, if any, for such
event.
11.2 In case the Company shall issue rights, options or warrants to
all holders of its Common Stock, without any charge to such holders, entitling
them (for a period expiring within 45 days after the record date mentioned below
in this paragraph 11.2) to subscribe for or to purchase Common Stock at a price
per share that is lower at the record date mentioned below than the then current
market price per share of Common Stock (as defined in paragraph 11.4 below), the
number of Warrant Shares thereafter purchasable upon exercise of each
Underwriter's Warrant shall be determined by multiplying the number of Warrant
Shares theretofore purchasable upon exercise of each Underwriter's Warrant by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered for subscription or purchase, and of which the denominator shall
be the number of shares of Common Stock outstanding on such record date plus the
number of shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the then current market
price per shares of Common Stock. Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective retroactively
to immediately after the record date for the determination of stockholders
entitled to receive such rights, options or warrants.
11.3 In case the Company shall distribute to all holders of its
shares of Common Stock securities other than Common Stock or evidences of its
indebtedness or assets (excluding cash dividends payable out of consolidated
earnings or retained earnings and dividends or distributions referred to in
paragraph 11.1 above) or rights, options or warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (excluding those referred to in paragraph 11.2 above), then in
each case the number of Warrant Shares thereafter issuable upon the exercise of
each Underwriter's Warrant shall be determined by multiplying the number of
Warrant Shares theretofore issuable upon the exercise of each Underwriter's
Warrant, by a fraction, of which the numerator shall be the current market price
per shares of Common Stock (as defined in paragraph 11.4 below) on the record
date mentioned below in this paragraph 11.3, and of which the
13
<PAGE> 14
denominator shall be the current market price per shares of Common Stock on such
record date, less the then fair value (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) of the portion of the
shares of stock other than Common Stock or assets or evidences of indebtedness
so distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to immediately after
the record date for the determination of stockholders entitled to receive such
distribution.
11.4 For the purpose of any computation under paragraphs 11.2 and
11.3 of this Section 11, the current market price per share of Common Stock at
any date shall be the average of the daily closing prices for fifteen (15)
consecutive trading days commencing twenty (20) trading days before the date of
such computation. The closing price for each day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in either
case on the principal national securities exchange on which the shares are
listed or admitted to trading, or if they are not listed or admitted to trading
on any national securities exchange, but are traded in the over-the-counter
market, the closing sale price of the Common Stock or, in case no sale is
publicly reported, the average of the representative closing bid and asked
quotations for the Common Stock on the Nasdaq Small Cap Market or any comparable
system, or if the shares of Common Stock are not listed on the Nasdaq Small Cap
Market or a comparable system, the closing sale price of the Common Stock or, in
case no sale is publicly reported, the average of the closing bid and asked
prices as furnished by two members of the NASD selected from time to time by the
Company for that purpose.
11.5 No adjustment in the number of Warrant Shares purchasable
hereunder or the Exercise price thereof shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the number
of Warrant Shares purchasable upon the exercise of each Underwriter's Warrant;
provided, however, that any adjustments which by reason of this paragraph 11.5
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment, but not later than three years after the happening of
the specified event or events. All calculations shall be made to the nearest one
thousandth of a share. Anything in this Section
14
<PAGE> 15
11 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the number of Warrant Shares purchasable
upon the exercise of each Underwriter's Warrant, in addition to those required
by this Section 11, as it in its discretion shall determine to be advisable in
order that any dividend or distribution in shares of Common Stock, subdivision,
reclassification or combination of shares of Common Stock, issuance of rights,
warrants or options to purchase Common Stock, or distribution of shares of stock
other than Common Stock, evidences of indebtedness or assets (other than
distributions of cash out of consolidated earnings or retained earnings) or
convertible or exchangeable securities hereafter made by the Company to the
holders of its shares of Common Stock shall not result in any tax to the holders
of its Common Stock or securities convertible into Common Stock.
11.6 Whenever the number of Warrant Shares purchasable upon the
exercise of each Underwriter's Warrant is adjusted, as herein provided, the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of Warrant Shares purchasable upon the exercise of each
Underwriter's Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable immediately
thereafter.
11.7 For the purpose of this Section 11, the term "Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement or (ii) any other class of stock resulting from
successive changes or reclassifications of such shares consisting solely of
changes in par value, or from no par value to par value, or from par value to no
par value. In the event that at any time, as a result of an adjustment made
pursuant to paragraph 11.1 above, the Holders shall become entitled to purchase
any shares of capital stock of the Company other than Common Stock, thereafter
the number of such other shares so purchasable upon exercise of each
Underwriter's Warrant and the Exercise Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
paragraphs 11.1 through 11.6, inclusive, and paragraphs 11.8 through 11.13,
inclusive, of this Section 11, and the provisions of Sections 4, 5, 9 and 13,
with respect to the Warrant Shares, shall apply on like terms to any such other
shares.
11.8 Upon the expiration of any rights, options, warrants or
conversion rights or exchange privileges granted
15
<PAGE> 16
pursuant to paragraphs 11.2 and 11.3 above, if any thereof shall not have been
exercised, the Exercise Price and the number of shares of Common Stock
purchasable upon the exercise of each Underwriter's Warrant shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been had
it originally been adjusted (or had the original adjustment not been required,
as the case may be) as if (i) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion rights or exchange privileges and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all of such rights, options, warrants or conversion
rights or exchange privileges whether or not exercised; provided, however, that
no such readjustment shall have the effect of increasing the Exercise Price by
an amount in excess of the amount of the adjustment initially made in respect to
the issuance, sale or grant of such rights, options, warrants or conversion
rights or exchange privileges.
11.9 The Company may, at its option, at any time during the term of
the Underwriter's Warrants, reduce the then current Exercise Price to any amount
deemed appropriate by the Board of Directors of the Company.
11.10 Whenever the number of Warrant Shares issuable upon the
exercise of each Underwriter's Warrant or the Exercise Price of such Warrant
Shares is adjusted, as herein provided, the Company shall promptly mail by first
class mail postage prepaid, to each Holder notice of such adjustment or
adjustments. The Company shall retain a firm of independent public accountants
(who may be the regular accountants employed by the Company) to make any
computation required by this Section 11 and shall cause such accountants to
prepare a certificate setting forth the number of Warrant Shares issuable upon
the exercise of each Underwriter's Warrant and the Exercise Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made. Such certificate shall be conclusive on the correctness of
such adjustment and each Holder shall have the right to inspect such certificate
during reasonable business hours.
11.11 Except as provided in this Section 8, no adjustment in respect
of any dividends shall be made during the
16
<PAGE> 17
term of the Underwriter's Warrants or upon the exercise of the Underwriter's
Warrants.
11.12 In case of any consolidation of the Company with, or merger
of, the Company with or into another 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, the Company or such successor or purchasing
corporation (or an affiliate of such successor or purchasing corporation), as
the case may be, agrees that each 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 Underwriter's Warrant 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
consolidation, merger, sale or conveyance had such Underwriter's Warrant been
exercised immediately prior to such action. The provisions of this paragraph
11.12 shall similarly apply to successive consolidations, mergers, sales or
conveyances.
11.13 Notwithstanding any adjustment in the Exercise Price or the
number or kind of shares purchasable upon the exercise of the Underwriter's
Warrants pursuant to this Agreement, certificates for Underwriter's Warrants
issued prior or subsequent to such adjustment may continue to express the same
price and number and kind of Warrant Shares as are initially issuable pursuant
to this Agreement.
11.14 Each Underwriter's Warrant Certificate is exchangeable,
without expense, upon the surrender thereof by the registered Holder at the
principal executive office of the Company for a new Underwriter's Warrant
Certificate of like tenor and date representing in the aggregate the right to
purchase the same number of Warrant Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of any Underwriter's Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Underwriter's Warrant, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor, in lieu thereof.
17
<PAGE> 18
12. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common stock upon the
exercise of the Underwriter's Warrant, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
13. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common stock, solely
for the purpose of issuance upon the exercise of the Underwriter's Warrant, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. Every transfer agent ("Transfer
Agent") for the Common Stock and other securities of the Company issuable upon
the exercise of the Underwriter's Warrant will be irrevocably authorized and
directed at all times to reserve such number of authorized shares of Common
Stock and other securities as shall be requisite for such purpose. The Company
will keep a copy of this Agreement on file with every Transfer Agent for the
Common Stock and other securities of the Company issuable upon the exercise of
the Underwriter's Warrant. The Company will supply every such Transfer Agent
with duly executed stock and other certificates, as appropriate, for such
purpose. The Company covenants and agrees that, upon exercise of the
Underwriter's Warrant and payment of the Exercise Price therefor, all shares of
Common Stock and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Underwriter's Warrant shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Underwriter's Warrant to be
listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock issued to the public in connection herewith may then be
listed and/or quoted on Nasdaq.
14. Notices to Underwriter's Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Underwriter's Warrants and their exercise, any of
the following events shall occur:
18
<PAGE> 19
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then in any one or more of said events, the Company shall give written
notice of such event at least fifteen (15) days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have be unduly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) if to the registered Holder of the Underwriter's Warrant,
to the address of such Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in Section 4
hereof or to such other address as the Company may designate by notice to the
Holders.
16. Supplements; Amendments; Entire Agreement. This Agreement (including
the Underwriting Agreement to the extent
19
<PAGE> 20
portions thereof are referred to herein) contains the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought. The Company and the
Underwriter may from time to time supplement or amend this Agreement without the
approval of any holders of Underwriter's Warrant Certificates (other than the
Underwriter) in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem shall not
adversely affect the interests of the Holders of Underwriter's Warrant
Certificates.
17. Successors. All of the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the holders and
their respective successors and assigns hereunder.
18. Survival of Representations and Warranties. All statements in any
schedule, exhibit or certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or on behalf of the parties to this
Agreement, all representations, warranties and agreements made by the parties to
this Agreement or pursuant hereto shall survive.
19. Governing Law. This Agreement and each Underwriter's Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
20. Severability. If any provision of this Agreement shall beheld to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
20
<PAGE> 21
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Underwriter's Warrant
Certificates or Warrant Shares any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Underwriter and any other Holder(s) of the
Underwriter's Warrant Certificates or Warrant Shares.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
21
<PAGE> 22
IN WITNESS OF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
ATTEST: ROLLERBALL INTERNATIONAL INC.
- --------------------- By:
-------------------------------
Name:
Title:
AUERBACH, POLLAK & RICHARDSON, INC.
By:
-------------------------------
Name:
Title:
22
<PAGE> 23
EXHIBIT A
[FORM OF UNDERWRITER'S WARRANT CERTIFICATE]
THE UNDERWRITER'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE UNDERWRITER'S WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK TIME, ____ ___, 2003.
Underwriter's Warrant No.
_______ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______, or registered assigns, is the
registered holder of Warrants to purchase initially, at any time from ______
_____, 1998 until 5:30 p.m., New York time on ____ ___, 2003 ("Expiration
Date"), up to ____ shares of fully-paid and non-assessable common stock, $.001
par value ("Common Stock") of Rollerball International Inc., a Delaware
corporation (the "Company") at the initial exercise price, subject to adjustment
in certain events, of $_____ per share (the "Exercise Price") upon surrender of
this Underwriter's Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Underwriter's Warrant Agreement dated as of _____ ___, 1998 between
the Company and Auerbach, Pollak & Richardson, Inc. (the "Warrant Agreement").
Payment of the Exercise Price shall be made either (i) by certified or official
bank check in New York Clearing House funds payable to the order of the Company
or (ii) by surrender of this Warrant Certificate in accordance with the
provisions of Section 4.2 of the Warrant Agreement.
1
<PAGE> 24
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Underwriter's Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void. The Underwriter's
Warrants evidenced by this Warrant Certificate are part of a duly authorized
issue of Underwriter's Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Underwriter's Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable upon the exercise of the Underwriter's Warrants may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of the
holder, issue a new Warrant Certificate evidencing the adjustment in the
Exercise Price and the number and/or type of securities issuable upon the
exercise of the Underwriter's Warrants; provided, however, that the failure of
the Company to issue such new Warrant Certificates shall not in any way change,
alter, or otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Underwriter's Warrant shall be issued to the transferee(s) in exchange for
this Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Underwriter's Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such numbered unexercised Underwriter's
Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
2
<PAGE> 25
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
This Warrant Certificate does not entitle any holder thereof to any of the
rights of a shareholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ____ ___, 1998.
ATTEST: ROLLERBALL INTERNATIONAL INC.
- ------------------------- By:
--------------------------
Name:
Title:
3
<PAGE> 26
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase _____ shares of Common Stock of ROLLERBALL INTERNATIONAL INC.
and hereby makes payment of $_________ (at the rate of $[ ] per share) in
payment of the Exercise Price pursuant thereto. Please issue the Common Stock as
to which this Warrant is exercised in accordance with the instructions given
below.
or
The undersigned hereby elects irrevocably to exercise the within
Warrant and to purchase ___________ shares of Common Stock of ROLLERBALL
INTERNATIONAL INC. by surrender of the unexercised portion of the within Warrant
Certificate (with a "Value" of $______________ based on a "Market Price" of
$___________). Please issue the Common Stock in accordance with the instructions
given below.
Dated:_________________
Signature:
-----------------------------
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Address: _______________________________________
_______________________________________
_______________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature Guaranteed:
--------------------------------------
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name__________________________________________________
(Print in Block Letters)
Address____________________________________________
4
<PAGE> 27
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________ here sells, assigns and transfers unto
[NAME OF TRANSFEREE] this Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and appoint
_________________ Attorney, to transfer the within Warrant Certificate on the
books of the within-named Company, with full power of substitution.
Dated: ____________________
Signature:
----------------------------------
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Address: ___________________________________
___________________________________
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Signature
Guaranteed:
-----------------------------------
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
5
<PAGE> 1
Exhibit 4.8
22 September, 1997
TO: DAVID FIELD
FROM: JACK FORCELLEDO
SUBJECT: $100,000 PROMISSORY NOTE TERMS
Dear David,
This will confirm your agreement to loan Rollerball International
Inc. ("RBI")$100,000 on the following terms:
Principle Amount: $100,000
Interest Rate: 12% paid semi-annually
Due Date: Repayment of $100,000 by January
31,1999. RBI has the sole option to
repay the note at an earlier date.
Common stock: The number of shares of common stock,
par value $.001 per share equal to the
principle amount of the note divided by
the initial public offering price of the
Rollerball common stock. All shares will
come out of Jack Forcelledo's personal
shares.
Resale-Lock up Period: Either 6 or 12 months depending on the
decision of the underwriter handling
RBI's IPO and RBI's SEC attorneys.
Redemption Price: Principle amount plus accrued interest.
<PAGE> 2
Page 2-David Field Agreement
David, all of us at Rollerball, and especially me, thank you for this investment
and welcome you to the Rollerball International family.
Sincerely,
Jack Forcelledo
Agreed to by: Jack Forcelledo _____________________________
Founder & CEO
Date: _______________
Agreed to by: David E. Field _____________________________
Date: _______________
Witnessed By: James T. Hartnett_____________________________
Vice President, Administration
Date: _______________
<PAGE> 1
EXHIBIT 4.9
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND MAY NOT BE
SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS
REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT AND APPLICABLE STATE
LAWS OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
Expires at 5:00 P.M. Eastern Time on May 31, 1998.
ROLLERBALL INTERNATIONAL INC.
REDEEMABLE WARRANT FOR THE PURCHASE
OF SHARES OF COMMON STOCK
No. W-- ------- Warrants
FOR VALUE RECEIVED, ROLLERBALL INTERNATIONAL INC., a Delaware
corporation (the "Company"), hereby certifies that
, or his/her assigns (the "Holder"), is entitled, subject to the
provisions of this Warrant, to purchase from the Company, up to ------ fully
paid and non-assessable shares of Common Stock at a price of $1.00 per share
(the "Exercise Price").
The term "Common Stock" means the Common Stock, par value $.01 per
share, of the Company as constituted as of June 1, 1994 (the "Issue Date"). The
number of shares of Common Stock to be received upon the exercise of this
Warrant may be adjusted from time to time as hereinafter set forth. The shares
of Common Stock deliverable upon such exercise and as adjusted from time to
time, are hereinafter referred to as "Warrant Stock". The term "Other
Securities" means any other equity or debt securities that may be issued by the
Company in addition thereto or in substitution for the Warrant Stock. The term
"Company" means and includes the corporation named above as well as (1) any
immediate or more remote successor corporation resulting from the merger or
consolidation of such corporation (or any immediate or more remote successor
corporation of such corporation (or any immediate or more remote successor
corporation of such corporation) has transferred its property or assets as an
entirety or substantially as an entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
<PAGE> 2
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not his Warrant so lost, stolen, destroyed
or mutilated shall be at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held, subject to all of the conditions,
limitations and provisions set forth herein.
1. Exercise of Warrant. (A) This Warrant may be exercised in whole or
in part at any time, or from time to time, during the period commencing on the
date hereof and expiring at 5:00 p.m. Eastern Time on the third anniversary of
the Issue Date (the "Expiration Date") or, if such day is a day on which banking
institutions in New York are authorized by law to close, then on the next
succeeding day that shall not be such a day, by presentation and surrender of
this Warrant to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Warrant Exercise Form attached hereto
duly executed and accompanied by payments (either in cash or by certified or
official bank check, payable to order of the Company) of the Exercise Price for
the number of shares specified in such form and instruments of transfer, if
appropriate, duly executed by the Holder or his or her duly authorized attorney.
If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
shares purchasable hereunder. Upon receipt by the Company of this Warrant,
together with the Exercise Price, at its office, or by the stock transfer agent
of the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the transfer books of the Company shall then
be closed or that certificates representing such shares of Common Stock shall
not then be actually delivered to the Holder. The Company shall pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of this Warrant.
(B) The Holder hereby acknowledges that neither this Warrant nor any of
the securities that may be acquired upon exercise of this Warrant, including the
Warrant Stock and the Other Securities, have been registered under the
Securities Act or under the State Securities Laws. The Holder acknowledges that,
upon exercise of this Warrant, the securities to be issued upon such exercise
may be subject to applicable federal and state securities (or other) laws
requiring registration, qualification or approval of governmental authorities
before such securities nay be validly issued or delivered upon notice of such
exercise.
2
<PAGE> 3
The Company's sole obligation to any Holder upon exercise hereof shall be to use
its best efforts to obtain exceptions from registration or qualification for the
issuance of such securities under applicable state and federal securities laws,
and the Holder further agrees that the issuance of such securities shall be
deferred until such exemption shall have been obtained: and it is further agreed
that the Company shall have no other obligation to the Holder for the
non-issuance of such securities except to return the Warrant so rendered and to
refund the Holder any consideration tendered in respect to the Exercise Price.
With respect to any such securities; this Warrant may not be exercised by, and
securities shall not be issued, to any Holder in any state in which such
exercise would be unlawful. Any restrictions imposed by this section upon the
exercise of this Warrant shall cease and terminate as to any particular shares
of Common Stock (a) when such securities shall have been registered under the
Securities Act and all applicable State Securities Laws, or (b) when, in the
opinion of Counsel to the Company, such restrictions are no longer required in
order to ensure compliance with the Securities Act or any applicable State
Securities Laws.
2. Reservation of Shares. The Company shall at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and Other Securities) from time
to time receivable upon exercise of this Warrant. All such shares (and Other
Securities) shall be duly authorized and, when issued upon such exercise, shall
be validly issued, fully paid and non-assessable and free of all pre-emptive
rights.
3. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant, but the
Company shall pay the Holder an amount equal to the fair market value of such
fractional share of Common Stock in lieu of each fraction of a share otherwise
called for upon any exercise of this Warrant. For purposes of this Warrant, the
fair market value of a share of Common Stock shall be determined as follows:
(a) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the current market value shall be the last
reported sale price of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant, or if no such sale
is made on such day, the average of the closing bid and asked prices for such
day on such exchange or system; or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day
3
<PAGE> 4
prior to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value thereof as at
the end of the most recent fiscal year of the Company ending prior to the date
of the exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
4. Exchange, Transfer Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations, entitling the
Holder or Holders thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with the
Assignment form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Anti-Dilution Provisions.
6.1 Adjustment of Recapitalization. If the Company shall at
any time combine or subdivide its outstanding shares of Common Stock (or other
securities at the time receivable upon the exercise of the Warrant) by
recapitalization, reclassification, split-up, combination or reverse split
thereof, the Exercise Price per share of Warrant Stock subject to this Warrant
immediately prior to such combination or subdivision shall be proportionately
increased or decreased, as the case may be. Any such adjustment and adjustment
to the Exercise Price pursuant to this Section 6.1 shall be effective at the
close of business on the effective date of such subdivision or combination or if
any adjustment is the result of a stock dividend or distribution, then the
effective date for such adjustment based thereon shall be the record date
therefor.
4
<PAGE> 5
Whenever the number of shares of Common Stock purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section 6, the
Exercise Price shall be adjusted to the nearest cent by multiplying such
Exercise Price immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the number of shares of Common Stock purchasable
upon the exercise immediately prior to such adjustment, and (y) the denominator
of which shall be the number of shares of Common Stock so purchasable
immediately thereafter.
6.2 Adjustment for Reorganization. Consolidation, Merger, Etc.
In case of any reorganization of the Company (or any other corporation, the
securities of which are at the time receivable on the exercise of this Warrant)
after the date of this Warrant or in case after such date the Company (or any
such other corporation) shall consolidate with or merge into another corporation
or convey all or substantially all of its assets to another corporation, then,
and in each such case, the Holder of this Warrant upon the exercise thereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the securities and property receivable upon the exercise of this Warrant prior
to such consummation, the securities or property to which such Holder would have
been entitled upon such consummation if such Holder had exercise this Warrant
immediately prior thereto; in each such case, the terms of this Warrant shall be
applicable to the securities or property receivable upon the exercise of this
Warrant after such consummation.
6.3 Adjustment for Dilutive Events. Except as hereinafter
provided, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock or a consideration per share
less than the lesser of (A) the Market Price (as defined in Section 6.3.6) or
(B) the Exercise Price then in effect, or issue any shares of Common Stock as a
stock dividend to the holders of Common Stock, (any such sale or issuance being
herein called a "change of Shares"), then, and thereafter immediately before the
date of such sale or the record date for each Change of Shares, the Exercise
Price for the Warrants (whether or not the same shall be issued and outstanding)
in effect any applicable fraction of a cent to the nearest cent) determined by
dividing (1) the product of (a) the Exercise Price in effect immediately before
such Change of Shares and (b) the sum of (i) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, and (ii)
the number of shares determined by dividing (A) the aggregate consideration, if
any, received by the Company upon such sale or issuance by (B) the greater of
(x) the Market Price and (y) the Exercise Price in effect immediately prior to
such Change of Shares, by (2) the total number of shares
5
<PAGE> 6
of Common Stock outstanding immediately after such Change of Shares.
For the purposes of any adjustment to be made in accordance with this
Section 6 the following provisions shall be applicable:
6.3.1 In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or sale
of shares of Common Stock) for a consideration part or all of which shall be
cash, the amount of cash portion of the consideration thereof or deemed to have
been received by the Company shall be (i) the subscription price (before
deducting any commissions or any expenses incurred in connection therewith), if
shares of Common Stock are offered by the Company for subscription, or (ii) the
public offering price (before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services, or any expenses incurred in
connection therewith), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other case.
6.3.2 In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of consideration thereof or other than cash deemed to have been received
by the Company shall be the value of such consideration as determined in good
faith by the Board of Directors of the Company on the basis of a record of
values of similar property or services.
6.3.3 Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of stockholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
6.3.4 The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable
6
<PAGE> 7
to such shares of Common Stock shall be determined as provided in Section 6.
7
<PAGE> 8
6.3.5 The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
6.3.6 As used herein the phrase "Market Price" at any date
shall be deemed to be the last reported sale price, or, in the case no such
reported sale takes place on such day, the average of the last reported sales
price for the last three (3) trading days in either case as officially reported
by the principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported on the NASDAQ National Market System, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the NASDAQ National Market System, the closing bid price
as furnished by the NASD through the NASD Automated Quotation System ("NASDAQ")
or similar organization if NASDAQ is no longer reporting such information, or if
the Common Stock is not quoted on NASDAQ, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it for the day immediately preceding such issuance or
sale, the day of such issuance or sale and the day immediately after such
issuance or sale.
6.3.7 Upon each adjustment of the Exercise Price pursuant to
this Section 6, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable immediately prior to such adjustment by
the Exercise Price in effect prior to such adjustment and dividing the product
so obtained by the applicable adjusted Exercise Price.
6.3.8 In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Section
6.3.2 and as provided below) less than the lesser of (i) the Market Price (as
defined in Section 6.3.6) and (ii) the Exercise Price in effect immediately
prior to the issuance of such options, rights or warrants, or such convertible
or exchangeable securities, or without consideration (including the issuance of
any such securities by way of dividend or other distribution), the Exercise
Price for the Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 6, provided that:
8
<PAGE> 9
a. The aggregate maximum number of shares of
Common Stock, as the case may be, issuable or that may become issuable under
such options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (a) (and for the purposes of subsection (e) of
Section 6.3.8 hereof) shall be reduced by the number of shares as to which such
options, warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding for purposes of any
subsequent adjustment in the Exercise Price, which adjustment shall be made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or warrants as to
which the exercise rights shall not have expired or terminated unexercised.
b. The aggregate maximum number of shares of
Common Stock issuable or that may become issuable upon conversion or exchange of
any convertible or exchangeable securities (assuming conversion or exchange in
full even if not then currently convertible or exchangeable in full) shall be
deemed to be issued and outstanding at the time of issuance of such securities,
for a consideration equal to the consideration received by the Company for such
securities plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
expiration or other termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (b) (and for the purposes of subsection
(e) of Section 6.3.8 hereof) shall be reduced by the number of shares as to
which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding for purposes of any subsequent adjustment in the Exercise Price,
which adjustment shall be made on the basis of the issuance only of the shares
actually issued plus the shares remaining issuable upon conversion or exchange
of those convertible or exchangeable securities as to which the conversion or
exchange rights shall not have expired or terminated unexercised.
9
<PAGE> 10
c. If any change shall occur in the exercise
price per share provided for in any of the options, rights or warrants referred
to in subsection (a) of this Section 6.3.8, or in the price per share or ratio
at which the securities referred to in subsection (a) of this Section 6.3.8 are
convertible or exchangeable, such options, rights or warrants or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
d. In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of subdivision or combination), or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with a Subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants other than a change in par value, or from
par value to no par value, or form no par value to par value or as a result of
subdivision or combination) 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, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the stock transfer agent, if any, a
statement signed by its President or a Vice President and by its Treasurer or an
Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such
provision.
e. Irrespective of any adjustments or changes
in the Exercise Price or the number of shares of Common Stock purchasable upon
exercise of the Warrant, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 4 hereof, continue to express the Exercise
Price per share and the number of shares purchasable
10
<PAGE> 11
thereunder as the Exercise Price per share and the number of shares purchasable
thereunder were expressed in the Warrant Certificates when the same were
originally issued.
f. After each adjustment of the Exercise
Price pursuant to this Section 6, the Company will promptly prepare a
certificate signed by the Chairman or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth:
(i) the Exercise Price as so adjusted,
(ii) the number of shares of Common Stock purchasable upon exercise of each
Warrant, after such adjustment, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly cause a brief summary
thereof to be sent by ordinary first class mail to each Holder at his last
address as it shall appear on the registry books of the Company. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity thereof except as to the Holder to whom the Company failed to mail
such notice, or except as to the Holder whose notice was defective. The
affidavit of the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated herein.
g. No adjustment of the Exercise Price shall be
made as a result of or in connection with (A) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof, (B) the issuance or sale of shares of Common Stock upon the exercise of
any "incentive stock options" (as such term is defined in the Internal Revenue
Code of 1986, as amended), whether or not such options were outstanding on the
date hereof, (C) the issuance of, or grants of options or warrants t purchase,
up to a total of 1,000,000 shares of Common Stock to officers, brokerage
officers or directors of the Company or otherwise pursuant to the Company's
stock option plans, (D) the issuance of any warrants issued to the Holders as a
result of the failure of the Company to file a registration statement covering
the shares of Common Stock included in the Units purchased and those shares
issuable upon exercise of the Warrants if such registration statements is not
declared effective by the Securities and Exchange commission within 90 days of
the filing (the "Additional Warrants) and shares underlying such Additional
Warrants, or (E) the issuance or sale of shares of Common Stock if the amount of
said adjustment shall be less than $.05, provided, however, that in such case,
any adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried forward,
to at least $.05. In addition, Registered Holders shall not be
11
<PAGE> 12
entitled to cash dividends paid by the Company prior to the exercise of any
Warrant or Warrants held by them.
h. If the Company or an affiliate of the
Company shall at any time after the date hereof and prior to the exercise of all
the Placement Agent's Warrants issue any rights to subscribe for shares of
Common Stock or any other securities of the Company or of such affiliate to all
the stockholders of the Company, the Holders of the unexercised Placement
Agent's Warrants shall be entitled, in addition to the shares of Warrant Stock
or Other Securities receivable upon the exercise of the Placement Agent's
Warrants, to receive such rights at the time such rights are distributed to the
other stockholders of the Company.
6.4 Notices of Record Date, Etc. In case:
(a) the Company shall take a record of the Holders of its
Common Stock (or Other Securities at the time receivable upon the exercise of
the Warrant) for the purpose of entitling them to receive any dividend (other
than a cash dividend at the same rate as the rate of the last cash dividend
theretofore paid) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or
(c) of any voluntary or involuntary dissolution, liquidation
or winding up of the Company.
Then, and in each such case, the Company shall mail or cause to be
mailed to each Holder of the Warrant at the time outstanding a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up it to take place, and the time, if any is
to be fixed, as to which the Holders of record of Common Stock (or such other
securities at the time receivable upon the exercise of the Warrant) shall be
entitled to exchange their shares of Common Stock (or other such securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up. Such notice shall be mailed at least 20 days prior to the date
therein specified, and the Warrant may be exercised
12
<PAGE> 13
prior to said date during the term of the Warrant.
7. Redemption. The Company shall have the right, upon the giving of at
least 30 days' prior notice to the Holders of all the Warrants, to redeem all of
the Warrants at a price of $.05 per Warrant (the "Redemption Price") commencing
one year from the Issue Date, provided that the average closing bid price per
share of the Common Stock in the over-the-counter market as reported on the
American Stock Exchange Emerging Company Marketplace (or the average closing
sales price on the primary exchange or NASDAQ on which the Common Stock is
traded, if the Common Stock is traded on a national securities exchange or
NASDAQ) for 20 consecutive trading days, ending not more than 15 calendar days
prior to the date of the redemption notice, equals- or exceeds at least 200% of
the then effective exercise price (currently $1.00, subject to adjustment) of
the Warrants. All Warrants must be redeemed if any are redeemed.
Such notices of redemption shall (a) designate the date of redemption
which date shall not be less than 30 or more than 60 days from the date of such
notice, (b) state the Redemption Price and that payment thereof or will be made
upon surrender of the Warrant at the offices of the Company and (c) indicate
that the right to exercise the Warrant will terminate at the close of business
on the business day prior to the redemption date. If the giving of notice of
redemption shall be given as aforesaid, the right to exercise the Warrant will
terminate at the close of business on the business day prior to the redemption
data, and the Holder of this Warrant shall thereafter be entitled upon surrender
of this Warrant only to receive the Redemption Price without interest.
8. Transfers to Comply with the Securities Act. The Company shall be
under no obligation to transfer this Warrant, or any of the Common Stock issued
upon exercise of this Warrant, unless and until the company shall have received
an opinion of counsel, reasonably acceptable to the Company, that such transfer
does not require registration of any such securities under the Securities Act or
any applicable state securities laws. This Warrant and any Warrant Stock or
Other Securities may not be sold, transferred, pledged, hypothecated or
otherwise disposed of except as follows: (a) to a person who, in the opinion of
counsel to the Company, is a person to whom this Warrant or the Warrant Stock or
Other Securities may legally be transferred without the delivery of a current
prospectus under the Securities Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of this
Section 8 with respect to any resale or other disposition of such securities; or
(b) to any person upon delivery of a prospectus then meeting the requirements of
the Securities Act relating to such securities and the offering thereof for such
sale or disposition, and thereafter to all successive assignees.
13
<PAGE> 14
9. Legend. Unless the shares of Warrant Stock or Other Securities have
been registered under the Securities Act, upon exercise of any of the Warrants
and the issuance of any of the shares of Warrant Stock, all certificates
representing shares shall bear on the face thereof substantially the following
legend:
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF l933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS ("STATE LAWS"), AND
MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL IS
OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION
10. Supplements and Amendments. The Company, with the consent of
Auerbach, Pollak & Richardson, Inc. ("APR"), may from time to time supplement or
amend this Warrant Certificate without the approval of any Holder of Warrant
Certificate in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and APR may deem necessary or
desirable and which the Company and APR shall not adversely affect the interests
of the Holders of Warrant Certificates.
11. Notices. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when by certified or registered mail, return receipt requested, to
the Company or the Holder, as the case may be, for whom such notice is intended,
at the address of such party as set forth on the first page, or at such other
address of which the Company or the Holder has been advised by notice hereunder.
12. Applicable Law. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Delaware.
l3. Captions. The caption headings of the Sections of this Warrant
Certificate are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Warrant Certificate and shall be
given no substantive effect.
14
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of the
day and year first above written.
ROLLERBALL INTERNATIONAL, INC.
By: _______________________________
Jack Forcelledo
President
ATTEST:
By: _______________________________
15
<PAGE> 16
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ________ shares of Common Stock of
Rollerball International, Inc., a Delaware corporation, and hereby makes payment
of $________________ in
payment therefor.
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered holder of the within Warrant)
Name___________________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________________
_______________________________________________________________________________
Social Security or
Taxpayer Identification Number_________________________________________________
and if such number of Warrants shall not be all Warrants evidenced by this
Warrant Certificate, that a new Warrant certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Holder at the
address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING
16
<PAGE> 17
1. The exercise of this Warrant was solicited by Auerbach,
Pollak & Richardson, Inc. unless the following box is checked. / /
2. The exercise of this Warrant was solicited by
3. If the exercise of this Warrant was not solicited, please
check the following box: / /
Dated: ___________________, 1994
_____________________________ _______________________________
Signature, if jointly held Signature
_____________________________ _______________________________
Print Name Print Name
_____________________________ _______________________________
Address Address
_____________________________ _______________________________
Social Security Number or Social Security Number or
Taxpayer Identification Number Taxpayer Identification Number
_____________________________ _______________________________
Signature Guaranteed Signature Guaranteed
_____________________________ _______________________________
17
<PAGE> 18
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________________________
hereby sells, assigns and transfers unto
Name __________________________________________________________________________
(Please typewrite or print in block letters)
the right to purchase Common Stock of Rollerball International, Inc., a Delaware
corporation, represented by this Warrant to the extent of shares as to which
such right is exercisable and does hereby irrevocably constitute and appoint
____________ __________________________ Attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Dated: __________________, 1994
________________________________
Signature
________________________________
Signature, if jointly held
________________________________
Print Name
________________________________
Print Name
18
<PAGE> 1
EXHIBIT 4.10
February 16, 1998
TO: ALL HOLDERS OF $1,775,000 PRINCIPAL AMOUNT OF 12% SUBORDINATED
CONVERTIBLE DEBENTURES OF ROLLERBALL INTERNATIONAL INC.
Dear Debentureholder:
This letter has been forwarded to all investors who purchased the
Company's 12% Subordinated Convertible Debentures in August 1996 to September
1996. We again would like to thank you for your patience over the last few
months as we work towards bringing the Company to its initial public offering
through Auerbach, Pollak & Richardson, Inc. as underwriter.
A few weeks ago, the Company forwarded to you your most recent interest
payment. At that time we advised you that we would be requesting that you waive
all defaults and further extend the payment date of the Debentures beyond
February 28, 1998. Many of the Debentures holders had previously delivered
waiver letters extending the period to February 28, 1998.
AS PREVIOUSLY ADVISED, THE COMPANY DOES NOT HAVE THE ABILITY AT THIS
TIME TO REPAY THE DEBENTURES IN CASH. UNLESS THE PUBLIC OFFERING IS
CONSUMMATED, IT IS EXTREMELY DOUBTFUL THAT THE COMPANY WILL BE ABLE TO REPAY THE
DEBENTURES.
FURTHERMORE, IT IS DOUBTFUL THAT THE PUBLIC OFFERING CAN BE CONSUMMATED
UNLESS THE HOLDERS OF THE DEBENTURES AGREE TO ACCEPT PAYMENT, AS ORIGINALLY
CONTEMPLATED UNDER THE DEBENTURES, IN THE FORM OF COMMON STOCK AND WAIVE ALL
DEFAULTS.
WE HAVE BEEN PRELIMINARY ADVISED BY THE NASDAQ STOCK MARKET THAT UNLESS
THE DEBENTURE HOLDERS WAIVE ALL DEFAULTS AND ACCEPT PAYMENT OF THE DEBENTURES IN
COMMON STOCK INSTEAD OF CASH, THE COMPANY'S LISTING APPLICATION WILL BE DENIED.
IT IS A CONDITION OF THE UNDERWRITING AGREEMENT THAT THE OFFERING WILL NOT BE
CONSUMMATED UNLESS THE COMPANY'S COMMON STOCK IS ACCEPTED FOR LISTING UPON THE
NASDAQ STOCK MARKET.
Although there can be no assurance, we fully anticipate completing the
Offering by March 31, 1998. We propose, however, that you agree to a waiver
until April 30, 1998. This will avoid the practical difficulties of obtaining
your signature of an additional waiver letter if for some reason an additional
delay is encountered.
As you are probably aware, under the terms of the Debentures, payment
of the Debentures was due on or before October 31, 1997. The Debentures also
provided that in the event the
<PAGE> 2
Company's public offering was consummated before October 31, 1997, the holders
of the Debentures were to receive, in lieu of cash payment, a number of shares
of common stock. The number of shares to be received was to be determined by
dividing the principal amount of the Debenture held by you by 80% of the public
offering price of the common stock. For example, if you held a Debenture in the
principal amount of $10,000 and the public offering price was $6.00 per share,
then you would have received 2,083 shares of common stock.
You may also recall that with your initial investment you received a
warrant ("Warrant") to purchase one share of common stock for every two shares
received upon conversion of the Debentures. Under the original terms of your
investment, the exercise price of the Warrant was to be 120% of the public
offering price of the common stock. By way of example, and using the same
figures in the paragraph above, a holder of a $10,000 Debenture would have
received a Warrant for 1,041 shares with an exercise price of $7.20 per share.
As stated in our earlier letters, the Company has decided to offer all
holders of the Debentures an incentive to obtaining a waiver of all defaults,
including the payment default, until April 30, 1998.
Briefly summarized, the Company proposes:
1. to reduce the conversion rate of the Debenture from 80% to 75%
of the price of the common stock in the public offering;
2. to reduce the exercise price of the Warrant from 120% to 100%
of the offering price of the common stock;
3. to extend the maturity date to April 30, 1998; and
4. to increase the interest rate to 18% from 12% for the period
from November 1, 1997 through the date of payment.
As a result of the Company's proposal, a holder of a Debenture in the
principal amount of $10,000 would receive, based upon an offering price of $6.00
per share, 2,222 shares, an increase of 139 shares over the previous terms of
the Debentures. The Warrants would then have an exercise price of $6.00 per
share instead of $7.20 per share.
THE SPECIFIC LANGUAGE CHANGES TO THE DEBENTURES ARE ANNEXED HERETO AS EXHIBIT A.
PLEASE REFER TO EXHIBIT A FOR THE FULL TEXT OF THE CHANGES.
PLEASE EXECUTE THIS LETTER BELOW TO INDICATE YOUR WAIVER OF ALL
DEFAULTS, AGREEMENT TO EXTEND THE REPAYMENT PERIOD, ACCEPTANCE OF COMMON STOCK
AS PAYMENT OF ALL PRINCIPAL OF THE DEBENTURE AND AMENDED TERMS OF THE DEBENTURE
AND WARRANT. THE LETTER SHOULD BE FAXED TO OUR OFFICE (310) 275-3081) AS SOON AS
POSSIBLE.
<PAGE> 3
We have included in the registration statement the shares of common stock which
are to be issued to you in accordance with the terms of your investment. THIS
INCLUDES YOUR SHARES FOR CONVERSION OF THE DEBENTURE AND EXERCISE OF THE
WARRANT.
A self addressed stamped envelope is enclosed for your convenience. You
may contact Ken Teasdale at the Company, or our counsel, Mr. Brian Daughney at
(212) 599-3322 with any questions.
Again, we thank you for your patience and we apologize for any
inconvenience this situation may have caused to you. Our primary priority is to
complete the public offering. Your immediate attention to this matter will help
expedite the process as possible. Your financial and other support has been
invaluable during this period.
Very Truly Yours,
ROLLERBALL INTERNATIONAL INC.
THE UNDERSIGNED HEREBY AGREES TO A WAIVER OF ALL DEFAULTS AND AGREES TO AN
EXTENSION OF THE MATURITY DATE UNTIL THE EARLIER OF (A) CONSUMMATION OF THE
PUBLIC OFFERING OR (B) APRIL 30, 1998. THE UNDERSIGNED ALSO AGREES TO ACCEPT
PAYMENT OF THE PRINCIPAL AMOUNT OF DEBENTURES IN COMMON STOCK OF THE COMPANY AS
CONTEMPLATED BY THE TERMS OF THE DEBENTURES.
PLEASE SIGN BELOW IN THE NAME OF THE HOLDERS OF THE DEBENTURE AS EITHER AN
INDIVIDUAL OR ENTITY.
A. INDIVIDUALS
DATED:____________________. 1998 ______________________________
Signature
______________________________
Print Name
B. CORPORATIONS/TRUSTS/PARTNERSHIPS
DATE:_______________, 1998 ______________________________
Name of Entity
By:____________________________
Name:
Title:
<PAGE> 4
EXHIBIT A
AMENDED SECTIONS OF THE DEBENTURES
The terms of the Debentures will be amended as follows:
A. The definition of "Maturity Date" shall be amended to be the earlier of (i)
closing of the initial public offering by the Company or (ii) April 30, 1998.
The Company shall pay interest on the unpaid principal sum hereof from November
1, 1997, at an interest rate equal to 18% per annum, to the Maturity Date.
B. Section 6(a) of the Debenture is amended to read as follows:
6. CONVERSION.
(a) Subject to the terms and provisions of this Section 6, the
outstanding principal amount of this Debenture shall be
automatically converted, upon the effectiveness of the
Company's registration statement (the "Registration
Statement") for its initial public offering of shares of its
common stock, par value $.001 per share ("Common Stock"), into
(i) that number of fully paid and non-assessable whole shares
of Common Stock (the "Conversion Shares") as is obtained by
dividing the outstanding principal amount of this Debenture by
75% of the per share initial public offering price (the "IPO
Price") of the Common Stock, and (ii) three year warrants,
substantially in the form of Exhibit A to this Debenture (the
"Warrants"), to purchase an additional number of shares of
Common Stock (the "Warrant Shares"), initially equal to
one-half (1/2) of the number of Conversion Shares at an
exercise price initially equal to 100% of the IPO Price, as
such number of Warrant Shares and exercise price may be
adjusted in accordance with the terms of the Warrants.
<PAGE> 1
Exhibit 10.8
NON-EXECUTIVE DIRECTOR
STOCK OPTION PLAN OF
ROLLERBALL INTERNATIONAL, INC.
l. PURPOSE
The purpose of the Non-Executive Director Stock Option Plan (the "Director
Plan") is to provide a means by which (i) each director of Rollerball
International, Inc. (the "Company") who is not otherwise a full time employee of
the Company or any subsidiary of the Company (each such person being hereafter
referred to as a "Non-Executive Director") and (ii) each person appointed as a
member of an Advisory Board established or maintained by the Company who is not
otherwise an employee of the Company or any subsidiary of the Company or an
Outside Director (each such person being hereinafter referred to as an
"Advisor") and (iii) consultants to the Company will be given an opportunity to
purchase Common Stock, $.00l par value per share, of the Company ("Common
Stock"). The Company, by means of the Director Plan, seeks to attract and retain
the services of qualified independent persons to serve as Non-Executive
Directors of the Company and as Advisors on the Company's various Advisory
Boards, if any, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
2. ADMINISTRATION
(a) The Director Plan shall be administered by a committee of the Board of
Directors of the Company (the "Committee") which shall at all times consist of
not less than two (2) officers or directors of the Company or other individuals
who are not entitled to participate in the Director Plan, to be appointed by the
Board of Directors and to serve at the pleasure of the Board of Directors.
(b) Grant of options under the Director Plan and the amount and nature of
the awards to be granted shall be automatic as described in Section 5 hereof.
However, all questions of interpretation of the Director Plan or of any options
issued under it shall be determined by the Committee and such determination
shall be final and binding upon all persons having an interest in the Director
Plan. A majority of the Committee's members shall constitute a quorum, and all
determinations shall be made by a majority of such quorum. Any determination
reduced to writing and signed by all of the members of the Committee shall be
fully effective as if it had been made by a majority vote at a meeting duly
called and held.
3. SHARES SUBJECT TO THE PLAN
Subject to the provisions of Section l0 hereof, the shares that may be
acquired
<PAGE> 2
pursuant to options granted under the Director Plan ("Options") shall not
exceed in the aggregate 100,000 shares of the Company's Common Stock.
The Common Stock subject to the Director Plan may be in whole or in part
authorized and unissued shares of Common Stock or issued shares of Common Stock
which shall have been reacquired by the Company. If any Option shall expire or
terminate for any reason without having been exercised in full, the unissued
shares subject thereto shall again be available for purposes of the Director
Plan.
4. ELIGIBILITY
Options shall be granted only to (a) Non-Executive Directors serving on the
Board of Directors of the Company and (b) Advisors serving on the Advisory
Boards of the Company and (iii) consultants who perform services for the
Company. Non-Executive Directors shall not be entitled to receive Options for
serving as Advisors on Advisory Boards of the Company.
5. NON-DISCRETIONARY GRANTS
(a) Grants to Outside Directors
(i) Commencing on October 1, 1997, an Option to purchase 10,000
shares of Common Stock on the terms and conditions set forth herein shall be
granted to each Non-Executive Director upon joining the Board of Directors and
on October 1 of each year provided such individual has continually served as a
Non-Executive Director for the twelve month period immediately preceding the
date of grant.
(ii) Notwithstanding the foregoing, in no event will the grant
amount, that is, the amount determined by multiplying the number of shares with
respect to which Options have been granted by the Fair Market Value (as defined
in Subsection 6(b) below) of the Company's Common Stock on the date of grant,
exceed $100,000 with respect to an annual grant to a Non-Executive Director. To
the extent the grant amount exceeds the foregoing limitations, the number of
shares subject to the Option to be granted to the Non-Executive Director will be
reduced accordingly.
(b) Grants to Advisors
(i) Each person who is appointed as an Advisor on an Advisory Board
established or maintained by the Company shall, upon such appointment and on
each anniversary of the effective date of his appointment, be granted options to
purchase 1,000 shares for Advisors on the terms and conditions set forth herein.
(ii) Notwithstanding the foregoing, no Advisor who may serve on an
Advisory
<PAGE> 3
Board of the Company shall be entitled to receive any options under the Director
Plan for serving as such Advisor, and in no event will the grant amount, as
defined above in Section 5(a)(ii), exceed $25,000 on an annual basis to an
Advisor. To the extent the grant amount exceeds the foregoing limitations, the
number of shares subject to the Option to be granted to the Advisor will be
reduced accordingly.
6. OPTION PROVISIONS
Each Option shall be evidenced by a written agreement ("Stock Option
Agreement") and shall contain the following terms and conditions:
(a) The term of each Option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") five years from the date of grant. The term of each Option may terminate
sooner than such Expiration Date if the optionee's service as a Non-Executive
Director or Advisor of the Company terminates for any reason or for no reason.
In the event of such termination of service, the Option shall terminate (i) for
Non-Executive Directors, on the earlier of the Expiration Date or the date three
(3) months following the date of termination of service as a director and (ii)
for Advisors, on the earlier of the Expiration Date or the date three (3) months
following the date of termination of service is due to the optionee's death, the
option shall terminate on the earlier of the Expiration Date or twelve (l2)
months following the date of the optionee's death. In any and all circumstances,
an option may be exercised following termination of the optionee's service as a
Non-Executive Director or Advisor only as to that number of shares as to which
it was exercisable on the date of termination of such service, in accordance
with the provisions of Subsection 6(e) of the Director Plan.
(b) The exercise price of each option shall be one hundred percent
(100%) of the Fair Market Value of the shares subject to such option on the date
such option is granted. "Fair Market Value" of a share of Common Stock shall
mean (i) if the Common Stock is traded on a national securities exchange or on
the Nasdaq National Market System ("NMS"), the per share closing price of the
Common Stock on the principal securities exchange on which they are listed or on
NMS, as the case may be, on the date of grant (or if there is no closing price
for such date of grant, then the last preceding business day on which there was
a closing price); or (ii) if the Common Stock is on the Nasdaq SmallCap Market,
the per share closing bid price of the Common Stock on the date of grant as
reported by Nasdaq SmallCap (or if there is no closing bid price for such date
of grant, then the last preceding business day on which there was a closing bid
price); or (iii) if the Common Stock is traded in the over-the-counter market
but bid quotations are not published on Nasdaq, the closing bid price per share
for the Common Stock as furnished by a broker-dealer which regularly furnishes
price quotations for the Common Stock or (iv) if no such quote is available, the
per share price as determined by the Board of Directors.
<PAGE> 4
(c) The optionee may elect to make payment of the exercise price
under one of the following alternatives:
(i) Payment of the exercise price per share in cash at the
time of exercise; or
(ii) Payment by delivery of shares of Common Stock of the
Company already owned by the optionee, which Common Stock shall be valued at
Fair Market Value on the date of exercise; or
(iii) Payment by a combination of the methods of payment
specified in Subsections 6(c)(i) and 6(c)(ii) above.
(d) An option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the person to whom the option is granted only by such person or by his guardian
or legal representative.
(e) All options granted under the Director Plan shall be
non-qualified stock options, which do not qualify as incentive stock options
within the meaning of Section 422A(b), or any successor section, of the Internal
Revenue Code of l986, as amended.
7. RIGHT OF COMPANY TO TERMINATE SERVICES
AS A NON-EXECUTIVE DIRECTOR OR ADVISOR
Nothing contained in the Director Plan or in any instrument executed
pursuant hereto shall confer upon any Non-Executive Director or Advisor or any
right to continue in the service of the Company or any of its subsidiaries or
interfere in any way with the right of the Company or a subsidiary to terminate
the service of any Non-Executive Director or Advisor at any time, with or
without cause.
8. NONALIENATION OF BENEFITS
No right or benefit under the Director Plan shall be subject to alienation,
sale, assignment, hypothecation, pledge, exchange, transfer, encumbrance or
charge, and any attempt to alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void. No right or
benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefit.
<PAGE> 5
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The Stock Option Agreements evidencing options may contain such provisions
as the Committee shall determine to be appropriate for the adjustment of the
number and class of shares subject to all outstanding options and the option
prices thereof in the event of changes in the outstanding Common Stock of the
Company by reason of any stock dividend, distribution, split-up,
recapitalization, combination or exchange of shares, merger, consolidation or
liquidation and the like, and, in the event of any such change in the
outstanding Common Stock, the aggregate number and class of shares available
under the Director Plan and the number of shares subject to non-discretionary
grants pursuant to Section 5 hereof shall be appropriately adjusted by the
Committee, whose determination shall be conclusive.
l0. TERMINATION AND AMENDMENT
Unless the Director Plan shall theretofore have been terminated as
hereinafter provided, no grant of Options may be made under the Director Plan
after July 31, 2007. The Board may at any time, but not more than once every six
months except to comply with changes in the Internal Revenue Code, amend, alter,
suspend or terminate the Director Plan; provided, however, that the Board may
not, without the requisite vote of the stockholders of the Company approving
such action (i) materially increase (except as provided in Section 9 hereof) the
maximum number of shares which may be issued under the Director Plan; (ii)
extend the term of the Director Plan; (iii) materially increase the requirements
as to eligibility for participation in the Director Plan; or (iv) materially
increase the benefits accruing to participants under the Director Plan. No
termination, modification or amendment of the Director Plan or any outstanding
Stock Option Agreement may, without the consent of the Non-Executive Director or
Advisor to whom any option shall theretofore have been granted, adversely affect
the rights of such Director with respect to such option.
l1. EFFECTIVENESS OF THE PLAN
The Director Plan shall become effective upon the requisite vote of the
stockholders of the Company approving such action, and upon the approvals, if
required, of any other public authorities. Any grant of options under the
Director Plan prior to such approval shall be expressly subject to the condition
that the Director Plan shall have been so approved. Unless the Director Plan
shall be so approved, the Director Plan and all options theretofore made
thereunder shall be and become null and void.
l2. GOVERNMENT AND OTHER REGULATIONS
<PAGE> 6
The obligation of the Company with respect to options shall be subject to
(i) all applicable laws, rules and regulations and such approvals by any
governmental agencies as may be required, including, without limitation, the
effectiveness of a registration statement under the Securities Act of l933, and
(ii) the rules and regulations of any securities exchange on which the Common
Stock may be listed.
l3. GOVERNING LAW
The Director Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware.
<PAGE> 1
Exhibit 10.11
RESTATEMENT OF FMG ROYALTY
AGREEMENT OF 7 AUGUST, 1992
This RESTATEMENT OF THE FMG (Forcelledo Marketing Group, Inc.)
AGREEMENT of August 7, 1992 is entered into as of this 20th day of March, 1995
by and between Jack and Beth Forcelledo, two individuals (sometimes hereinafter
collectively referred to as "FORCELLEDO"), on the one hand, and ROLLERBALL
INTERNATIONAL INC., a corporation organized under the laws of the State of
Delaware ("ROLLERBALL"), on the other hand.
RECITALS
A. Rollerball is engaged in the business of developing, manufacturing
and distributing In-line skates and accessories principally, but not
exclusively, in the United states.
B. Forcelledo is the founder of FMG and Rollerball International Inc.,
and also owner and holder of all rights to the Rollerball skate concept (an
In-line skate distinguished by two or more spherical balls as wheels, also known
as Roll Ball technology) and the Rollerball brand name (Schedule A).
C. This Agreement memorializes a modification of the terms and
conditions agreed to in the August 6, 1996 Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and on the
basis of the representations, warranties, covenants and agreements set forth
below Forcelledo and Rollerball agree as follows:
1. TRANSFER OF RIGHTS
1.1 Forcelledo hereby transfers and assigns to Rollerball all rights,
title and interest in and to all patents, trademarks, copyrights and other
intellectual property rights, ideas and know-how associated with the Rollerball
two or more spherical balls tandem skate ("Rights").
1.2 With the transfer of the Rights, Rollerball hereby obtains sole and
exclusive authority and discretion to determine the method of marketing products
developed from the Rollerball two or more spherical balls tandem skate
technology. This may involve, without limitation, the establishment of a new
company to market such products, third-party licensing agreements for the
Rights, distribution agreements with retailers or direct response marketing.
<PAGE> 2
page 2
2. COMPENSATION TO FORCELLEDO
2.1 As total compensation to Forcelledo as consideration for the
transfer of the Rights, Rollerball shall pay to Forcelledo a royalty (the
"Royalty") which is equal to three percent (3%) of worldwide Net Sales, with the
exception of letter of credit sales, of all Rollerball Skate products which are
listed on Schedule B to this Agreement (the "Rollerball Skate Products"). For
purposes of this Agreement, "Net Sales" shall mean gross sales minus all
returns, trade discounts and allowances. On Net Sales generated by letter of
credit sales, Forcelledo shall be paid a Royalty of 1.8% of worldwide Net Sales
of the Rollerball Skate Products. The Royalty shall be paid in perpetuity,
unless adjusted pursuant to Section 2.3 below.
2.2 Forcelledo shall not be paid a royalty in connection with any
products, other than the Rollerball Skate Products as listed in Schedule B,
developed, manufactured, distributed and marketed by Rollerball.
2.3 In the event that Rollerball shall file a Registration Statement
with the Securities and Exchange Commission for purposes of registering the
common stock of Rollerball under the Securities Act of 1933, all royalties due
to Forcelledo in connection with the manufacturer and distribution of the
Rollerball Skate Products shall be reduced proportionately with all other
Rollerball royalty recipients if deemed necessary, in the good faith
determination of Rollerball and its advisors, to facilitate an initial public
offering of Rollerball's common stock, and such reductions, if any, will be
negotiated by the parties in good faith.
2.4 The Royalty shall be paid in U.S. currency once every six (6)
months, not later than forty (40) days following the last day of Rollerball's
second and fourth fiscal quarters. The royalty payments are retroactive to the
first shipments by Rollerball in 1994.
2.5 Forcelledo shall be responsible for payment of any and all state
and federal taxes owed on a Royalty payment from Rollerball. The parties
acknowledge and agree that any compensation paid by Rollerball to Forcelledo
shall be reported to the Internal Revenue Service and appropriate state taxing
authorities by Rollerball in accordance with U.S. tax laws and regulations.
3. REPRESENTATIONS AND WARRANTIES
<PAGE> 3
page 3
Rollerball hereby represents and warrants to Forcelledo that:
3.1 Rollerball is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has full corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder.
3.2 Rollerball has taken all requisite corporate action to authorize
and approve the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, and this Agreement constitutes a legal,
valid and binding agreements of Rollerball, except as such enforcement may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the scope of equitable remedies which may be available.
3.3 The execution an delivery of this Agreement and the consummation of
the transactions contemplated hereby will not violate the Articles of
Incorporation or the bylaws of Rollerball or any agreement, contract or other
instrument to which Rollerball is a party, or any statue, rule, regulation,
order, judgment, award or decree.
3.4 There is no litigation, proceeding or investigation pending or, to
the knowledge of Rollerball, threatened against Rollerball affecting any of its
assets or properties that could result, either in any case or in the aggregate,
in any material adverse change in the assets, properties or business of
Rollerball, or than could impair the validity of this Agreement or any action to
be taken pursuant to this Agreement.
4. AUDIT RIGHTS
4.1 Upon ten (10) days written notice by Forcelledo to Rollerball,
Forcelledo shall be given the right to audit Rollerball's accounting books and
financial records as they pertain to payment of the Royalty, together with
appropriate backup documentation related to the production and manufacturer of
the Rollerball Skate Products.
4.2 In the event that Forcelledo's audit as provided for by Section 4.1
above demonstrates, in the good faith judgment of Rollerball and its advisors,
that Forcelledo is owed an additional Royalty payment, upon written notice of
the deficiency by Forcelledo to Rollerball, Rollerball shall have forty-five
(45) days to pay the balance owing to Forcelledo without penalty.
<PAGE> 4
page 4
4.3 In the event that an audit conducted by Forcelledo pursuant to
Section 4.1 above results in a good faith dispute between Rollerball and
Forcelledo as to whether Forcelledo is owed an additional Royalty payment, the
parties hereto agree to abide by the results of a second audit to be conducted
by an independent auditor to be mutually agreed upon by Rollerball and
Forcelledo (the "Independent Audit"). Prior to the commencement of an
Independent Audit, Forcelledo will provide a written notice (the "Audit Notice")
to Rollerball which will request that the Independent Audit be conducted and
will state the amount of additional Royalty payment which is alleged by
Forcelledo to be owed by Rollerball. In the event that the Independent Audit
demonstrated that Forcelledo is not owed an additional Royalty payment,
Forcelledo will pay the costs and professional fees associated with the
Independent Audit. In the event that the Independent Audit demonstrates that
Forcelledo is owed an additional Royalty payment, in addition to Forcelledo's
other remedies provided by California Law and by this agreement, Rollerball
shall pay Forcelledo the additional Royalty payment and interest at the rate of
ten percent (10%) per annum on the principal balance due and owing from the date
for payment of the Royalty set forth in Section 2.4 to the date that the Royalty
is paid in full. In the event that the Independent Audit demonstrates that
Forcelledo is owed an additional Royalty payment, the costs of the Independent
Audit shall be borne by the parties in proportion to the amount determined by
the Independent Audit to be owed by Rollerball as compared to the amount of
additional Royalty payment demanded by Forcelledo in the Audit Notice. For
example only, if the Audit Notice states that an additional Royalty payment of
$50,000 is owed by Rollerball and the Independent Audit determines that, in
fact, Forcelledo is owed $25,000, and the Independent Audit costs $20,000 to
conduct, the parties will each pay $10,000 of Independent Audit expense. If the
parties are required by the firm conducting the Independent Audit to pay an
advance retainer or fee, the parties will share that obligation equally, and an
adjustment and/or reimbursement will be made at the conclusion of the
Independent Audit to reflect the proportional obligation of the parties as
determined above.
4.4 Any audit of Rollerball's accounting books and financial records
conducted in connection with the payment of the Royalty shall occur at
Rollerball's corporate headquarters in Los Angeles, California.
4.5 Except as otherwise provided by this Agreement, Forcelledo shall be
solely responsible for paying the cost of any audit conducted by Forcelledo
pursuant to Section 4.1, except that Rollerball shall produce relevant
accounting records as its own costs.
5. ARBITRATION
5.1 In the event of a default in terms and provisions of this
Agreement, the parties hereto agree that they shall submit their dispute to
arbitration pursuant to the
<PAGE> 5
page 5
rules of the American Arbitration Association. Furthermore, during the
arbitration process, Forcelledo shall have the right to conduct discovery,
including but not limited to obtaining copies of all pertinent accounting
documents and deposing any and all witnesses regarding relevant accounting
issues.
6. ATTORNEY'S FEES
In the event any party takes legal action to enforce any of the terms
of this Agreement, the unsuccessful party to such action shall pay the
successful party's expenses, including attorneys' fees, incurred in such action.
7. MISCELLANEOUS PROVISIONS
7.1 Successors and Assigns. All of the terms, provisions and
obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, successors
and assigns. Notwithstanding the foregoing, neither this Agreement nor any
rights hereunder shall be assigned, pledged, hypothecated or otherwise
transferred by Forcelledo without the prior written consent of Rollerball in
each instance.
7.2 Governing Law. The validity, construction and interpretation of
this Agreement shall be governed in all respects by the laws of the State of
California.
7.3 Headings. Sections and subsections headings are not to be
considered part of this Agreement and are include solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provision hereof.
7.4 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes all prior agreements, understanding, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be valid
unless executed by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
7.5 Notice. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (i) if
personally delivered, when so delivered, (ii) if mailed, one (1) week after
having been placed in the United ~ate~ mail, registered or certified, postage
prepaid, addressed to the party to whom it is directed at the address set forth
below or (iii) if given by telex or
<PAGE> 6
Page 6
telecopier, when such notice or other communication is transmitted to the telex
or telecopier number specified below and the appropriate answer back or
telephonic confirmation is received:
If to Rollerball:
Rollerball International Inc.
9255 Doheny Road, Suite 2705
Los Angeles, California 90069
Attention: Jack Forcelledo, President & CEO
Telecopier Number: 310-275-3081
If to Forcelledo
Beth and Jack Forcelledo
9255 Doheny Road Suite 2504
Los Angeles, California 90069
Either party may change the address to which such notices are to be addressed by
giving the other party notice in the manner herein set forth.
7.6 Third Parties. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person other than Rollerball or Forcelledo any
rights or remedies under or by reason of this Agreement.
7.7 Execution and Delivery of Restatement of Assignment of Rights and
Royalty Agreement. This Agreement shall become binding upon and enforceable by
the parties hereto only upon the full execution and delivery (by all named
parties hereto) of the Restatement of FMG Royalty Agreement dated August 7,
1992, dated as of the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year set forth above;
-------------------------------
JACK FORCELLEDO
-------------------------------
BETH FORCELLEDO
<PAGE> 7
-----------------------------------
ROLLERBALL INTERNATIONAL INC.
Jack Forcelledo, President & CEO
<PAGE> 1
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 1996 by and
between Rollerball International, Inc., a Delaware corporation (the "Company"),
and the person whose name appears on the signature page attached hereto
(individually a "Holder" and collectively, with the holders of other debentures
issued in the Offering, the "Holders").
WHEREAS, pursuant to a Confidential Private Placement Memorandum dated
July 1996 (the "Memorandum"), the Company has offered (the "Offering") up to
$1,500,000 of 12% Subordinated Convertible Debentures (the "Debentures"), where
each Debenture is convertible into shares of common stock (the "Shares") priced
at 30% of the initial public offering price of the Company's Common Stock and
one half (1/2) warrant for each Share (the "Warrant Shares") to purchase one
share of Common Stock at 120% of the initial public offering price of Common
Stock.
WHEREAS, pursuant to the terms of and in order to induce the Holders to
enter into that certain subscription agreement dated the date hereof between the
Company and the Holder (the "Subscription Agreement") to purchase Debentures,
the Company and the Holder have agreed to enter into this Agreement;
WHEREAS, it is intended by the Company and the Holder that this
Agreement shall become effective immediately upon the acquisition by the Holder
of the Debentures;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company hereby agrees as follows:
1. Registration Rights
(a) Mandatory Registration. The Company shall file a
registration statement (the "Registration Statement") covering the Shares and
the Warrant Shares (the Shares and the Warrant Shares collectively referred to
as the "Registrable Securities") as soon as practicable, but not later than the
date it files its registration statement with respect to a registered public
offering of its Common Stock (the "IPO Registration Statement") when the Common
Stock is registered to be sold at an initial public offering, and shall use its
best efforts to have such registration statement declared effective by the
Securities and Exchange Commission (the "Commission"). The Company shall use its
best efforts to maintain the effectiveness of the registration statement until
(i) all the securities registered thereunder have been sold, or (ii) three (3)
years after the effective date thereof, whichever first occurs.
(b) Additional Warrants. In the event the registration
statement is not filed when required by Section 1(a) or is not declared
effective within 30 days of the effective date of the IPO Registration
Statement, the Company will issue to the Holder, for each Share held
1
<PAGE> 2
by the Holder, one (1) non-redeemable warrant, exercisable for five years at an
exercise price equal to the initial public offering price to purchase one (1)
share of Common Stock (the "Additional Warrants"). The Registration Statement
shall be amended to include the shares of Common Stock issuable upon the
exercise of such Additional Warrants, and the Registrable Securities will be
deemed to include such shares. The Additional Warrants will be issued within ten
(10) days of the date as of which the obligation to issue such warrants arises.
The issuance of the Additional Warrants shall not relieve the Company of its
obligations under Section 1(a); provided, however, that in the event the
Additional Warrants are issued, the Company shall be obligated to use its best
efforts to keep the Registration Statement effective until (i) all securities
registered thereunder have been sold, or (ii) six (6) years after the issuance
of the Additional Warrants, whichever occurs first.
(c) Cooperation with Company. The Holder will cooperate with
the Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registerable Securities.
2. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to use its best efforts to
effect the registration of any of the Registerable Securities under the 1933
Act, the Company shall (except as otherwise provided in this Agreement), and
expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the 1933 Act with respect to the sale or other
disposition of all securities covered by such Registration Statement whenever
the Holder or Holders of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of Shares from time to time pursuant to Rule 415 of the Commission);
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Securities Act of 1933, as amended (the "1933 Act"), and such other
documents, as such Holder may reasonably request in order to facilitate the
public sale or other disposition of the Shares owned by such Holder;
(c) use its best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions as each Holder shall request, and do any and
all other acts and things which may be necessary or advisable to enable such
Holder to consummate the public sale or other disposition in such jurisdictions
of the securities owned by such Holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
2
<PAGE> 3
(d) use its best efforts to list such securities on any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by
the Registration Statement, at any time when a prospectus relating thereto
covered by such Registration Statement is required to be delivered under the
1933 Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; and
(g) furnish, at the request of any Holder on the date such
Registerable Securities are delivered to the underwriters for sale pursuant to
such Registration Statement or, if such Registerable Securities are not being
sold through underwriters, on the date the Registration Statement with respect
to such Registerable Securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purpose of such
registration, addressed to the underwriters, if any, and to the Holder making
such request, covering such legal matters with respect to the registration in
respect of which such opinion is being given as the Holder of such Registerable
Securities may reasonably request and are customarily included in such an
opinion and (ii) letters, dated, respectively, (1) the effective date of the
Registration Statement and (2) the date such Registerable Securities are
delivered to the underwriters, if any, for sale pursuant to such Registration
Statement, from a firm of independent certified public accountants of recognized
standing selected by the Company, addressed to the underwriters, if any, and to
the Holder making such request, covering such financial, statistical and
accounting matters with respect to the registration in respect of which such
letters are being given as the Holder of such Registerable Securities may
reasonably request and are customarily included in such letters; and
(h) take such other actions as shall be reasonably requested
by any Holder to facilitate the registration and sale of such Holder's
Registerable Securities; provided, however, that the Company shall not be
obligated to take any actions not specifically required elsewhere herein which
in the aggregate would cost in excess of $5,000.
3. Expenses. All expenses incurred in any registration of the
Holders' Registerable Securities under this Agreement shall be paid by the
Company, including, without limitation, printing expenses, fees and
disbursements of counsel for the Company, expenses of any audits to which the
Company shall agree or which shall be necessary to comply with governmental
requirements in connection with any such registration, all registration and
filing fees for the Holders' Registerable Securities under federal and state
securities laws, and expenses of
3
<PAGE> 4
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 2(d); provided, however, that the Company shall not be liable for (a)
any discounts or commissions to any underwriter; (b) any stock transfer taxes
incurred with respect to Registerable Securities sold in the Offering; or (c)
the fees and expenses of counsel for any Holder, provided that the Company will
pay the costs and expenses of Company counsel when the Company's counsel is
representing any or all selling security holders.
4. Indemnification. In the event any Registerable Securities are
included in a Registration Statement pursuant to this Agreement:
(a) Company Indemnity. Without limitation of any other
indemnity provided to any Holder, either in connection with the Offering or
otherwise, to the extent permitted by law, the Company shall indemnify and, hold
harmless each Holder, the affiliates, counsel, officers, directors and partners
of each Holder, any underwriter (as defined in the 1933 Act) for such Holder,
and each person, if any, who controls such Holder or underwriter (within the
meaning of the 1933 Act or the Securities Exchange Act of 1934 (the "Exchange
Act") (collectively, the "Indemnified Holders"), against any losses, claims,
damages or liabilities (joint or several) to which they may become subject
under the 1933 Act, the Exchange Act or other federal or state law
(collectively, the "Claims"), insofar as such Claims (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statements including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the Exchange Act or any state
securities law or any rule or regulation promulgated under the 1933 Act, the
Exchange Act or any state securities law, and the Company shall reimburse each
such Indemnified Holder for any legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
any Indemnified Holder in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information finished expressly for use in connection with such registration by
any such Indemnified Holder.
The foregoing notwithstanding, the Company shall not be liable
to the extent that any such Claim arises out of or is based upon a Violation or
alleged Violation made in any preliminary prospectus if (i) such Indemnified
Holder failed to send or deliver a copy of the Prospectus with or prior to the
delivery of written confirmation of the sale of Registrable Securities giving
rise to such Claim and (ii) the Prospectus would have corrected such untrue
statement or omission.
In addition, the Company shall not be liable to the extent
that any such Claim arises out of or is based upon a Violation or alleged
Violation in a Prospectus, (x) if such
4
<PAGE> 5
Violation or alleged Violation is corrected in an amendment or supplement to
such Prospectus and (y) having previously been furnished by or on behalf of the
Company with copies of the Prospectus as so amended or supplemented, such
Indemnified Holder thereafter fails to deliver such Prospectus as so amended or
supplemented prior to or concurrently with the sale to the person who purchased
a Registrable Security from such Indemnified Holder and who is asserting such
Claim.
(b) Holder Indemnity. Each Holder shall indemnify and hold
harmless the Company, its affiliates, its counsel, officers, directors,
stockholders, representatives and partners, any underwriter (as defined in the
1933 Act) and each person, if any, who controls the Company or the underwriter
(within the meaning of the 1933 Act or the Exchange Act), against any Claims
joint or several) to which they may become subject under the 1933 Act, the
Exchange Act or any state securities law, and each such Holder shall reimburse
the Company and each such affiliate, counsel, officer, director, stockholder,
representative or partner, underwriter or controlling person for any legal or
other expenses incurred by them in connection with investigating or defending
any such Claims insofar as such Claims (or actions and respect thereof) arise
out of or are based upon written information provided by such Holder to the
Company expressly for inclusion in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto.
(c) Notice: Right to Defend. Promptly after receipt by an
indemnified party under this Section 4 of notice of the commencement of any
action (including any governmental action), such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 4, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in and if the indemnifying party agrees in writing that it will be
responsible for any costs, expenses, judgments, damages and losses incurred by
the indemnified party with respect to such claim, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if the indemnified party reasonably
believes that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall relieve such indemnifying party of any liability to the
indemnified party under this Agreement only if and to the extent that such
failure is prejudicial to its ability to defend such action, and the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Agreement.
If an indemnified party notifies an indemnifying party in
writing that such indemnified party elects to employ separate counsel at the
expense of the indemnifying party as permitted by the provisions of the
preceding paragraph, the indemnifying party shall not have the right to assume
the defense of such action or proceeding on behalf of such indemnified party.
5
<PAGE> 6
The foregoing notwithstanding, the indemnifying party shall not be liable for
the reasonable fees and expenses of more than one separate firm of attorneys at
any time for such indemnified party and any other indemnified parties (which
firm shall be designated in writing by such indemnified parties) in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances.
Any indemnifying party shall not be liable for any settlement
of any such action or proceeding effected without its written consent, which
consent shall not be unreasonably withheld, but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such action or
proceeding, the indemnifying party agrees to indemnify and hold harmless such
indemnified parties from and against any loss or liability by reason of such
settlement or judgment.
(d) Contribution. If the indemnification provided for in this
Agreement is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any Claim referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other hand in connection with the
statements or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The relevant
fault of the indemnifying party and the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. Notwithstanding the foregoing,
the amount any Holder shall be obligated to contribute pursuant to the Agreement
shall be limited to an amount equal to the proceeds to such Holder of the
Registerable Securities sold pursuant to the registration statement which gives
rise to such obligation to contribute (less the aggregate amount of any damages
which the Holder has otherwise been required to pay in respect of such Claim or
any substantially similar Claim arising from the sale of such Registerable
Securities).
(e) Survival of Indemnity. The indemnification provided by
this Agreement shall be a continuing right to indemnification and shall survive
the registration and sale of any Registerable Securities by any person entitled
to indemnification hereunder and the expiration or termination of this
Agreement.
5. Assignment of Registration Rights. The rights of the Holders
under this Agreement, including the rights to cause the Company to register
Registerable Securities may not be assigned without the written prior consent of
the Company.
6. Limitations on Other Registration Rights. Except as otherwise
set forth in this
6
<PAGE> 7
Agreement, the Company shall not, without the prior written consent of the
Holders of Registerable Securities representing a majority thereof held by all
the Holders, file any registration statement filed on behalf of any person
(including the Company) other than a Holder to become effective during any
period when the Company is not in compliance with this Agreement. The Company
shall not include any securities other than the Registrable Securities in the
registration statement required hereunder except with the consent of the
majority of such Holders.
7. Remedies.
(a) Time is of the Essence. The Company agrees that time is of
the essence of each of the covenants contained herein and that, in the event of
a dispute hereunder, this Agreement is to be interpreted and construed in a
manner that will enable the Holders to have the ability to sell their
Registerable Securities as quickly as possible after the Registration Statement
covering the Registerable Securities is to be filed in accordance with the terms
of this Agreement. Any delay on the part of the Company not expressly permitted
under this Agreement which exceeds five (5) days, whether otherwise material or
not, shall be deemed a material breach of this Agreement.
(b) Remedies Upon Default or Delay. The Company acknowledges
the breach of any part of this Agreement may cause irreparable harm to a Holder
and that monetary damages alone may be inadequate. The Company therefore agrees
that the Holder shall be entitled to injunctive relief or such other applicable
remedy as a court of competent jurisdiction may provide. Nothing contained
herein will be construed to limit a Holder's right to any remedies at law,
including recovery of damages for breach of any part of this Agreement.
8. Notices.
(a) All communications under this Agreement shall be in
writing and shall be mailed by first class mail, postage prepaid, or telegraphed
or telexed with confirmation of receipt or delivered by hand or by overnight
delivery service, (i) if to the Company at Rollerball International Inc., 9255
Doheny Road, Suite 2705, Los Angeles, California 90069, Attention: President,
(310) 275-5313, or at such other address as it may have furnished in writing to
the Holders of Registerable Securities at the time outstanding, or (ii) if to
any Holder of any Registerable Securities, to the address of such Holder as it
appears in the stock or warrant ledger of the Company.
(b) Any notice so addressed, when mailed by registered or
certified mail shall be deemed to be given three days after so mailed, when
telegraphed or telexed shall be deemed to be given when transmitted, or when
delivered by hand or overnight shall be deemed to be given when delivered.
9. Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns
7
<PAGE> 8
of the Company and each of the Holders.
10. Amendment and Waiver. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, but only with the
written consent of the Company and the holders of securities representing a
majority of the Registerable Securities; provided, however, that no such
amendment or waiver shall take away any registration right of any Holder of
Registerable Securities or reduce the amount of reimbursable costs to any Holder
of Registerable Securities in connection with any registration hereunder without
the consent of such Holder; further provided, however, that without the consent
of any other Holder of Registerable Securities, the Holder may from time to time
enter into one or more agreements amending, modifying or waiving the provisions
of this Agreement if such action does not adversely affect the rights or
interest of any other Holder of Registerable Securities. No delay on the part of
any party in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by any party of any
right, power or remedy preclude any other or further exercise thereof, or the
exercise of ally other right, power or remedy.
11. Counterparts. One or more counterparts of this Agreement may
be signed by the parties, each of which shall be an original but all of which
together shall constitute one and the same instrument.
12. Governing Law. This Agreement shall be construed in accordance
with and governed by the internal laws of the State of New York, without giving
effect to the conflicts of law principles thereof.
13. Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
14. Pronouns: Headings. Unless the context otherwise requires, all
personal pronouns used in this Agreement, whether in the masculine, feminine or
neuter gender, shall include all other genders, and if in the singular shall
include the plural, and in the plural, the singular. The headings in this
Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provisions hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the _______ day of ______________________, 1996.
Rollerball International, Inc. ________________________________________
Signature of Holder
By: _________________________ Lawrence Stumbaugh
Jack Forcelledo, President Name of Holder
1071 Yemassee Trail
Stone Mountain, GA 30083
Address of Holder
8
<PAGE> 1
EXHIBIT 10.13
Forcelledo Marketing Group
ROLLERBALL SKATE AGREEMENT
between
FORCELLEDO MARKETING GROUP and "ROSSO"
1. The FORCELLEDO MARKETING GROUP ("FMG") shall have the exclusive worldwide
rights to all patents, trademarks, copyrights and other intellectual property
RIGHTS ("RIGHTS") associated with the design, manufacturing, marketing,
distribution, selling, third party licensing and assignment of the ROLLERBALL
SKATE PRODUCT. The RIGHTS shall be transferred by FRANCO ROSSO, GIUSEPPE ROSSO,
ETTORB CARENINI,("ROSSO") to FMG, free of any liens, claims and encumbrances
pursuant to the execution of a Definitive Agreement.
2. In the Definitive Agreement, ROSSO shall provide warranties and
representations satisfactory to FMG and its counsel that ROSSO owns the RIGHTS
free and clear, and that there are no legal or business infringements,
restrictions, or conditions that could affect the status or integrity of the
RIGHTS or FMG's use of the RIGHTS.
3. FM shall determine the most efficient and profitable method of marketing the
ROLLERBALL SKATE PRODUCT. This could involve, without limitation, the
establishment of a new company to market the product; third party licensing
arrangements, agreements, and assignments; exclusive distribution agreements
with a major retailer or direct response marketing (Infomercials, etc.).
4. In consideration of the transfer of the RIGHTS to FMG as discussed in
paragraph one above ROSSO shall be paid a royalty of 2.5% on the EX-FACTORY
PRICE of the ROLLERBALL SKATE PRODUCT. This royalty shall be paid 40 days after
the close of each six month period following the commencement of production. The
royalty will be paid in U.S. dollars.
5. FMG shall have the RIGHTS to the ROLLERBALL SKATE PRODUCT in perpetuity (or
the maximum life of such RIGHTS including all extensions thereof).
6. Consistent with its Business Plan, FMG shall register the RIGHTS on a
worldwide basis. FMG shall pay all the legal and business expenses incurred to
register the RIGHTS. These expenses shall be deducted from future royalties paid
to ROSSO in accordance with the following procedure:
A. 100% of all legal and business expense associated with
the registration of the RIGHTS will be deducted from
royalties paid to ROSSO. However, the deductions will be
made over a period of time and will be based on the
total royalties paid to ROSSO.
<PAGE> 2
B. An example of this procedure is the following: If in YEAR I,
the Company incurs 50,000 in legal and business expense to
register the RIGHTS, 50% of the $150,000 or $75,000 will be
deducted from ROSSO'S royalties unless the royalties paid to
ROSSO are less than $150,000. If the royalties are less than
$150,000, no more than $50,000 will be deducted from the
royalties paid ROSSO;
C. The difference between what has been incurred by the company
in legal and business expense to register the RIGHTS and what
has been deducted from ROSSO'S royalties will be rolled over
into YEAR II for deduction within the guidelines of POINT B.
All deductions from royalties will continue to be rolled-over
until 100% of the legal and business expenses have been
deducted.
7. FMG will form a new company in which ROSSO shall have an initial equity
position in this company not to exceed two and one-half percent (2.5%) of the
total initial equity in the company and the details associated with the ROSSO
equity position will be defined in the Definitive Agreement.
8. FMG will form a new company, as described in paragraph 7. Franco Rosso will
be engaged and reasonably compensated for his services to such company. Franco
Rosso will be required to provide design, engineering and production assistance
to such company in the introductory states of the development of the product
line for market introduction. No compensation has been agreed to for these
services, but some general parameters on compensation were discussed by Jack
Forcelledo, Franco Rosso and Giuseppe Consarino in Torino, Italy, late February,
1992. At that time, Forcelledo agreed that Franco Rosso would be given similar
compensation (salary) to what he is currently receiving (approximately $48,000'
U.S. dollars). The amount of salary compensation, commencement date of such
payments and the circumstances governing said compensation will be discussed and
defined at the time of the signing of the Definitive Agreement.
9. From and after the signing and execution of this agreement by ROSSO and until
the signing of the definitive agreement, ROSSO, and any associates of ROSSO will
not discuss this agreement, nor any other transaction contemplating the transfer
of the RIGHTS, with any third parties.
10. Upon execution by ROSSO of the Agreement, FMG shall commence preparation of
its detailed Business Plan and begin its expenditure of funds associated with
furtherance of that Business Plan. As a result of that activity, FMG and ROSSO
acknowledge and understand that they will be obligated to perform as provided in
this agreement and that this agreement shall be binding unless IRMG and ROSSO
fail to execute a Definitive Agreement.
11. Upon execution by ROSSO of the Agreement, FMG shall pay ROSSO
$1,500. Furthermore, if and when FMG is satisfied in its sole
<PAGE> 3
discretion with the examination of the documents provided to it by ROSSO,
evidencing the nature and ownership of the RIGHTS, then FMG shall pay ROSSO an
additional $3,500 in U.S. dollars in additional consideration for this
agreement. In addition, if and when FMG and ROSSO execute the Definitive
Agreement as described in Paragraph Two, then FMG shall pay an additional $5,000
in U.S. dollars for that agreement. Also, in the event FMG and ROSSO should
execute the Definitive Agreement, FMG shall provide reasonable transportation
and accommodations to Los Angeles for Franco ROSSO.
12. This Agreement is being entered into and shall be construed in
accordance with the laws of the State of California.
- -------------------------------- ------------------
Jack Forcelledo, President & CEO Franco Rosso*
FORCELLEDO MARKETING GROUP
*Note: By signing this agreement Franco Rosso warrants, represents and
guarantees that he has the power of attorney from his two partners and is
authorized to sign for and represent his two partners, Giuseppe Rosso and Ettore
Carenini, in all matters related to the signing of this Agreement and the
Definitive Agreement.
<PAGE> 4
FMG
FORCELLEDO MARKETING GROUP
ROLLBALL SKATE AGREEMENT
BETWEEN
FORCELLEDO MARKETING GROUP AND "ROSSO"
1. The FORCELLEDO MARKETING GROUP ("FMG") shall have the exclusive worldwide
rights to all patents, trademarks, copyrights and other intellectual property
RIGHTS ("RIGHTS") associated with the design, manufacturing, marketing,
distribution, selling, third party licensing and assignment of the ROLLBALL
SKATE PRODUCT. The RIGHTS shall be transferred by FRANCO ROSSO, GIUSEPPE ROSSO,
ETTORE CARENINI, ("ROSSO") to FMG, free of any liens, claims and encumbrances
pursuant to the execution of a Definitive Agreement.
2. In the Definitive Agreement, ROSSO shall provide warranties and
representations satisfactory to FMG and its counsel that ROSSO owns the RIGHTS
free and clear, and that there are no legal or business infringements,
restrictions, or conditions that could affect the status or integrity of the
RIGHTS or FMG's use of the RIGHTS.
3. FMG shall determine the most efficient and profitable method of marketing
the ROLLBALL SKATE PRODUCT. This could involve, without limitation, the
establishment of a new company to market the product; third party licensing
arrangements, agreements, and assignments; exclusive distribution agreements
with a major retailer or direct response marketing (Infomercials, etc.).
4. In consideration of the transfer of the RIGHTS to FMG as discussed in
paragraph one above, ROSSO, shall be paid a royalty of 2.5% on the EX-FACTORY
PRICE of the ROLLBALL SKATE PRODUCT. This royalty shall be paid 40 days after
the close of each six month period following the commencement of production.
The royalty will be paid in U.S. dollars.
5. FMG shall have the RIGHTS to the ROLLBALL SKATE PRODUCT in perpetuity (or
the maximum life of such RIGHTS including all extensions thereof).
6. Consistent with its Business Plan, FMG shall register the RIGHTS on a
worldwide basis. FMG shall pay all the legal and business expenses incurred to
register the RIGHTS. These expenses shall be deducted from future royalties
paid to ROSSO in accordance with the following procedure:
A. 100% of all legal and business expense associated with the
registration of the RIGHTS will be deducted from royalties paid to
ROSSO. However, the deductions will be made over a period of time and
will be based on the total royalties paid to ROSSO.
<PAGE> 5
B. An example of this procedure is the following: If in YEAR I, the
Company incurs $150,000 in legal and business expense to register the
RIGHTS, 50% of the $150,000 or $75,000 will be deducted from ROSSO'S
royalties, unless the royalties paid to ROSSO are less than $15,000.
If the royalties are less than $150,000, no more than $50,000 will be
deducted from the royalties paid ROSSO;
C. The difference between what has been incurred by the company in legal
and business expense to register the RIGHTS and what has been deducted
from ROSSO'S royalties will be rolled over into YEAR II for deduction
within the guidelines of POINT B. All deductions from royalties will
continue to be rolled-over until 100% of the legal and business
expenses have been deducted.
7. FMG will form a new company in which ROSSO shall have an initial equity
position in this company not to exceed two and one-half percent (2.5%) of the
total initial equity in the company and the details associated with the ROSSO
equity position will be defined in the Definitive Agreement.
8. FMG will form a new company, as described in paragraph 7. Franco Rosso will
be engaged and reasonably compensated for his services to such company. Franco
Rosso will be required to provide design, engineering and production assistance
to such company in the introductory states of the development of the product
line for market introduction. No compensation has been agreed to for these
services, but some general parameters on compensation were discussed by Jack
Forcelledo, Franco Rosso and Giuseppe Consarino in Torino, Italy, late
February, 1992. At that time, Forcelledo agreed that Franco Rosso would be
given similar compensation (salary) to what he is currently receiving
(approximately $48,000 U.S. dollars). The amount of salary compensation,
commencement date of such payments and the circumstances governing said
compensation will be discussed and defined at the time of the signing of the
Definitive Agreement.
9. From and after the signing and execution of this agreement by ROSSO and
until the signing of the definitive agreement, ROSSO, and any associates of
ROSSO will not discuss this agreement, nor any other transaction contemplating
the transfer of the RIGHTS, with any third parties.
10. Upon execution by ROSSO of the Agreement, FMG shall commence preparation of
its detailed Business Plan and begin its expenditure of funds associated with
furtherance of that Business Plan. As a result of that activity, FMG and ROSSO
acknowledge and understand that they will be obligated to perform as provided
in this agreement and that this agreement shall be binding unless FMG and ROSSO
fail to execute a Definitive Agreement.
11. Upon execution by ROSSO of the Agreement, FMG shall pay ROSSO $1,500.
Furthermore, if and when FMG is satisfied in its sole discretion with the
examination of the documents provided to it by ROSSO, evidencing the nature and
ownership of the RIGHTS, then FMG shall pay ROSSO an additional $3,500 in U.S.
dollars in additional consideration for this agreement.
<PAGE> 6
In addition, if and when FMG and ROSSO execute the Definitive Agreement as
described in Paragraph Two, then FMG shall pay an additional $5,000 in U.S.
dollars for that agreement. Also, in the event FMG and ROSSO should execute the
Definitive Agreement, FMG shall provide reasonable transportation and
accommodations to Los Angeles for Franco ROSSO.
12. This Agreement is being entered into and shall be construed in accordance
with the laws of the State of California.
/s/ Jack Forcelledo, President & CEO 8/6/92 /s/ Franco Rosso 8/6/92
- --------------------------------------------- -------------------------
Jack Forcelledo, President & CEO Franco Rosso*
FORCELLEDO MARKETING GROUP
*Note: By signing this agreement Franco Rosso warrants, represents and
guarantees that he has the power of attorney from his two partners and is
authorized to sign for and represent his two partners, Giuseppe Rosso and
Ettore Carenini, in all matters related to the signing of this Agreement and
the Definitive Agreement.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 21, 1998 except for Note 12 as to which the
date is March , 1998, in the Registration Statement (Form SB-2) and the
related Prospectus of Rollerball International, Inc. for the registration of
1,250,000 shares of its common stock.
ERNST & YOUNG LLP
Los Angeles, California
The foregoing consent is in the form that will be signed upon completion of
the restatement of capital accounts described in Note 12 to the financial
statements.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1997 FINANCIALS INCLUDED IN FORM SB-2 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 344,208
<SECURITIES> 0
<RECEIVABLES> 43,508
<ALLOWANCES> 0
<INVENTORY> 479,518
<CURRENT-ASSETS> 1,617,506
<PP&E> 679,265
<DEPRECIATION> 245,973
<TOTAL-ASSETS> 2,797,856
<CURRENT-LIABILITIES> 5,112,545
<BONDS> 0
0
0
<COMMON> 2,684
<OTHER-SE> 2,718,152
<TOTAL-LIABILITY-AND-EQUITY> 2,797,856
<SALES> 2,022,692
<TOTAL-REVENUES> 2,022,692
<CGS> 1,343,274
<TOTAL-COSTS> 1,343,275
<OTHER-EXPENSES> 2,406,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,417,841
<INCOME-PRETAX> (3,144,439)
<INCOME-TAX> 800
<INCOME-CONTINUING> (3,145,239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,145,239)
<EPS-PRIMARY> (.97)
<EPS-DILUTED> 0
</TABLE>
