<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1998
REGISTRATION NO. 333-33567
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
AMENDMENT NO. 1
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.
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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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 $7.20 $900,000 $273
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(5)....................... 486,293 Shares $3.75 $1,823,600 $552
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(6)....................... 243,147 Shares $6.00 $1,458,882 $442
- ------------------------------------------------------------------------------------------------------------
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 $1.68 $137,973 $42
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(10)...................... 106,667 Shares $6.00 $400,000 $121
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(11)...................... 120,000 Shares $5.00 $600,000 $182
- ------------------------------------------------------------------------------------------------------------
Totals........................... 3,018,126 $15,559,932 $4,715
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</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 $4,715 total fee, $4,441 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 $1,823,600 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 $1,823,600, 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 243,147
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 issuable to selling security holders
holding, in the aggregate, $700,000 of promissory notes, which entitle the
selling security holders to such number of shares determined by dividing
the principal amount of the note by the initial public offering price of
the Common Stock. 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.
(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 issuable 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. 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 1,225,090 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
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<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 JANUARY 8, 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" and listed
on the Pacific Stock Exchange 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 1,225,090 shares of Common
Stock comprised of: (i) an aggregate of 442,085 shares of Common Stock (the
"Conversion Shares"), issuable upon conversion of $1,823,600 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) 215,152 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)
127,273 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 1,225,090 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 120% 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 February , 1998.
AUERBACH, POLLAK & RICHARDSON, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 6
Set forth above are 4 pages comprised of 15 pictures of various skate
models and skaters with the skate models. The following text also appears with
the pictures.
ROLLERBALL(R) INLINE RADIAL(TM) SKATES
The RollerBall(R) patented Radial Skateball Technology(TM) brings to inline
skating a new order of stability and fun! Our extra wide DYNAMIC CONTROL ZONE
made possible by Radial Skateballs(R) gives beginners the confidence they need
to learn fast while allowing more experienced skaters to expand their
free-style operating and maneuvering range.
These skates offer an unparalleled capability to recreational, aerobic,
freestyle skaters and street hockey players for achieving and controlling ultra
high excursion angle skating maneuvers.
Notice how the Radial Skateball Technology(TM) system allows incredible
lean angles of up to 60 degrees from vertical before contact is made with any
part of the skate frame and the skating surface.
Even more amazing is that the vertical axis through the Skateball(TM) pivot
point is still centered within the DYNAMIC CONTROL ZONE defined by the frame to
bearing contact points, allowing the skater to maintain much greater control
during the execution of high angle maneuvers including full leg extension
during acceleration and braking.
RollerBall(R) - "Round for a Reason".
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 in-line
skates under the registered trademark Rollerball. The Rollerball skate differs
from traditional in-line 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 in-line 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 include 17
models of in-line skates that appeal to a wide range of price and performance
levels for use in recreational, fitness, hockey and aggressive skating.
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 in-line skates differ from traditional in-line skates in
appearance and in performance. The Company believes that its proprietary
Rollerball skating system is the next generation of in-line skates and the first
major product innovation in in-line skating since the introduction of the
original Rollerblade(R) skate in the 1970's. Rollerball offers in-line 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 in-line
skates. Furthermore, because of these characteristics, the Company believes that
its Rollerball skates enhance the experience of in-line 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 in-line 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.
3
<PAGE> 8
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.
THE OFFERING
Common Stock offered(1)(2).......... 1,250,000 shares
Common Stock Outstanding
Prior to offering(1)(2)........... 2,543,568 shares
Common Stock to be Outstanding
Immediately After offering(1)(3).... 4,568,987 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"
Proposed Pacific Stock Exchange
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) 215,152 1996 Warrant Shares; and (vii) 82,127 Agent
Warrant Shares.
(2) Does not include: (i) 127,273 Bridge Shares; (ii) 442,085 Conversion Shares;
and (iii) 206,061 1997 Loan Shares.
(3) Includes: (i) 127,273 Bridge Shares; (ii) 442,085 Conversion Shares; and
(iii) 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 Company also
intends to apply to have its Common Stock listed for trading on the Pacific
Stock Exchange. The Nasdaq SmallCap Market and Pacific Stock Exchange
quotations do 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
and/or Pacific Stock Exchange, continue to meet the maintenance criteria for
quotation on the Nasdaq SmallCap Market or the Pacific Stock Exchange.
4
<PAGE> 9
SUMMARY FINANCIAL INFORMATION
The summary financial information presented below for the fiscal years
ended December 31, 1995 and 1996 was derived from the audited financial
statements appearing elsewhere herein. The summary financial information as of
September 30, 1997 and for the nine-month periods ended September 30, 1996 and
1997 was derived from the unaudited financial statements of the Company. The
unaudited financial statements include all adjustments, consisting of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of the financial position and results of operations of the Company
for those periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1997. 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- --------------------------
1994(1) 1995 1996 1996 1997
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales..................... $ 469,703 $4,201,658 $4,850,416 $4,221,367 $ 1,762,400
Gross (Loss) Profit........... (104,349) 1,439,641 1,746,637 1,615,412 602,356
Operating Expenses............ 1,250,523 1,487,162 2,197,574 1,728,508 1,811,282
Loss before Income Taxes...... (1,356,066) (84,317) (547,503) (132,605) (2,231,589)
Net Loss...................... (1,356,866) (85,117) (548,303) (132,605) (2,231,589)
Pro Forma net loss per
share....................... $ (.17) $ (.70)
========== ==========
Pro Forma weighted average
number of shares
outstanding(2).............. 3,149,712 3,200,509
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 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) $(3,044,134) $ (837,122) $4,896,772
Total assets................... 583,804 1,915,177 2,059,177 3,042,589 6,919,624
Debt........................... -- 1,775,000 2,575,000 1,400,000 100,000
Notes payable to
stockholders................. 345,000 260,000 275,000 275,000 75,000
Stockholders' (deficit)
equity....................... (398,307) (911,610) (2,101,039) 105,973 5,718,116
</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 12% Debentures and Bridge
Shares.
(3) Gives effect to the receipt of the $1,000,000 principal amount 1997 Loan and
conversion of $1,823,600 principal amount of 12% Debentures, net of
unamortized debt issuance costs, into 442,085 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 issuance of the Bridge Shares (127,273
shares), 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.
ACCUMULATED DEFICIT; RECENT LOSSES; EXPLANATORY PARAGRAPH IN AUDITOR'S
REPORT. For the nine months ended September 30, 1997, the Company had a net
loss of $2,231,589 as compared to a net loss of $132,605 for the similar period
ended September 30, 1996. For the fiscal year ended December 31, 1996, the
Company experienced a net loss of $548,303. For the year ended December 31,
1995, the Company had a net loss of $85,117. At December 31, 1996 and September
30, 1997, the Company had an accumulated deficit of $1,990,286 and $4,221,875,
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. The Company anticipates continued losses in the near term as a result
of anticipated significant expenses, including marketing and advertising costs,
development costs, inventory 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
$1,823,600 (inclusive of $48,600 of accrued interest). Pursuant to the terms of
the 12% Debentures, payment of all principal and interest was automatically due
October 31, 1997, unless the Company had completed its public offering, in which
event the 12% Debentures would have 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 such payment default. 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
October 31, 1997. The Company has requested that the holders of the 12%
Debentures waive all defaults and extend the maturity date to February 28, 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. 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
6
<PAGE> 11
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. The Company has requested that the holders of the Bridge Notes
waive all defaults and extend the maturity date to February 28, 1998. There can
be no assurance that the holders of the Bridge Notes will agree to waive all
defaults and extend the maturity date. 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 September 30, 1997, the Company
has had approximately $11,284,000 in total sales, of which $7,008,000 were in
the international market and $4,276,000 were U.S. domestic sales. For the nine
month period ended September 30, 1997 the Company had total sales of $1,762,000,
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 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."
The Company currently has outstanding 244,826 options with exercise prices
ranging from $3.37 to $5.05 and 346,304 warrants (including 215,152 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 $2,386,000 in gross proceeds. Any proceeds from the
exercise of options and warrants will be used for working capital purposes.
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
two customers represented 80% of total sales for the nine months ended September
30, 1997. For the nine months ended September 30, 1997 these two customers
accounted for 64% and 16%, respectively, of total sales. These two customers
were HSN and Carrefour, a hypermarket located in France. 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."
7
<PAGE> 12
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. 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
8
<PAGE> 13
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. 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 $4.40 per Share from the public offering price of $5.50
per Share. This dilution calculation gives effect to the conversion 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."
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. 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
in-line 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
in-line 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
9
<PAGE> 14
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 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 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 in full effective January 1,
1997. During the fiscal year ended December 31, 1996 and the nine month period
ended September 30, 1997 the Company incurred expenses of $167,068 and $24,666
with respect to these royalty agreements. Mr. Franco Rosso, the originator of
the Radial Skateball Technology(TM), is paid a 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 Mr. Rosso nor have any
10
<PAGE> 15
accrued, as a result of these deductions which equaled approximately $555,000 as
of September 30, 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 Mr. Consarino's royalty
payment by a similar amount. These royalty reductions will be effective upon the
Effective Date. The Company does not intend to reduce the royalty payments to
Mr. Rosso because it does not believe any payments will be required in the near
future resulting from the Company's ability to make certain deductions. Although
the Company believes that it has the right to unilaterally reduce the amount of
Mr. Consarino's royalty fee, there can be no assurance that Mr. Consarino 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 December 31, 1997, there were 244,826
options outstanding. 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. 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
11
<PAGE> 16
affirmative vote of not less than 75% 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 shareholders. 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 and the Pacific Stock Exchange, 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.
12
<PAGE> 17
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."
SHARES ELIGIBLE FOR FUTURE SALE; UNDERWRITER'S WARRANTS. Upon completion
of this offering, there will be 4,568,987 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
442,085 Conversion Shares, 127,273 Bridge Shares, 206,061 1997 Loan Shares,
152,392 1994 Shares, 82,127 Agent Warrant Shares and 215,152 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 4,568,987 shares of Common Stock
which will be outstanding, 3,143,568 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 1,225,090 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 1,179,318 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."
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 120%
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
13
<PAGE> 18
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 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 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 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. Following this offering, the
Company will have 50,000,000 shares of Common Stock authorized, of which
4,568,987 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 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. See "Description of Capital Stock."
14
<PAGE> 19
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 ($575,000),
and assuming an initial public offering price of $5.50 per share, are
approximately $5,613,000 (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)............................... 765,000 13.6%
Molds and tooling, and product hardware.................... 250,000 4.4%
Product designs, research and development.................. 200,000 3.6%
Repayment of outstanding debt(4)........................... 200,000 3.6%
Payment of accrued officer's salary(5)..................... 150,000 2.7%
Working Capital(6)......................................... 437,872 7.9%
---------- ----
Total............................................ $5,612,872 100.0%
========== ====
</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 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 $200,000 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.
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 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.
15
<PAGE> 20
The Company reserves the right to enter into short term borrowing in the future
as business conditions or the Company's needs may require.
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 $1,823,600 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 215,152 1996 Warrants are
exercised, the Company will receive $1,183,336 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.
DILUTION
At September 30, 1997 the Company had negative net tangible book value of
$(2,957,298) or $(1.16) per share of Common Stock. At September 30, 1997, the
Company had a pro forma negative net tangible book value of $(733,698) or $(.22)
per share of Common Stock after giving effect to the conversion of the 12%
Debentures, the issuance of the Bridge Shares and 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 September 30, 1997 would have been $1.10
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 $1.32 per share of Common Stock to the pre-offering
stockholders and an immediate dilution of $4.40 per share 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... $(.22)
Increase in pro forma net tangible book value per share
attributable
to the sale of the Shares offered hereby........................ $1.32
-----
Pro forma net tangible book value per share after this offering...... $1.10
-----
Dilution per share to new stockholders............................... $4.40
=====
</TABLE>
16
<PAGE> 21
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................... 3,318,987(2) 73% $ 4,327,848 39% $1.30
New stockholders....................... 1,250,000 27% 6,875,000 61% $5.50
--------- --- ---------- ---
Total........................ 4,568,987 100% $11,202,848 100%
========= === ========== ===
</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 Bridge
Shares; (iii) the 1997 Loan Shares and (iv) the surrender and cancellation
of 600,000 shares.
17
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
----------- ----------- --------------
<S> <C> <C> <C>
Short Term Debt:
Notes Payable to Stockholders................. $ 275,000 $ 275,000 $ 75,000
Bridge Notes.................................. 700,000 700,000 --
1997 Loan..................................... -- 600,000 --
12% Debentures................................ 1,775,000 -- --
----------- ----------- -----------
Total Short Term Debt(3).............. $ 2,750,000 $ 1,575,000 $ 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, 2,543,568
(actual) shares outstanding, 3,318,987 pro
forma outstanding and 4,568,987 outstanding
pro forma as adjusted(4)................... 2,544 3,319 4,569
Additional Paid-In Capital.................... 2,118,292 4,324,529 9,936,122
Retained Deficit.............................. (4,221,875) (4,221,875) (4,221,875)
----------- ----------- -----------
Total Stockholders' Equity (Deficit).......... (2,101,039) 105,973 5,718,816
----------- ----------- -----------
Total Capitalization.................. $ 748,961 $ 1,780,973 $ 5,893,816
=========== =========== ===========
</TABLE>
- ---------------
(1) Gives effect to the issuance of the Conversion Shares, the Bridge 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> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company designs, manufactures and distributes in-line 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. In-line 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 17 different skate models at
various price points covering the recreation, fitness, hockey and aggressive
segments of the in-line 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 period ended September 30, 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 in-line skating and related accessories.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net Sales: Net sales for the nine months ended September 30, 1997 were
$1,762,400, which represents a decrease of $2,458,967, or 58.3%, as compared to
the nine months ended September 30, 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 in-line 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 nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996 and
therefore was not affected by any such changes. Since September 30, 1997 the
Company has reduced prices on several models and prices in the future may be
subject to market conditions.
Gross Profit: Gross profit for the nine months ended September 30, 1997
was $602,356, which represents a decrease of $1,013,056, or 62.7%, compared to
the nine months ended September 30, 1996. The decrease in gross profit was
primarily due to decreased sales volume for the first nine months of 1997 as
compared to the same period in 1996. Gross margin for the nine months ended
September 30, 1997 was 34.2%, which represents a decrease of 4.1% as compared to
the nine months ended September 30, 1996. The decrease was related to air
freight bills for inventory shipments to meet several sales deadlines during the
nine months ended September 30, 1997.
Selling and Marketing Expenses: Selling and marketing expenses for the
nine months ended September 30, 1997 were $997,060, which represents a decrease
of $232,580, or 18.9%, as compared to the nine months ended September 30, 1996.
The decrease in selling and marketing expenses for the nine months ended
September 30, 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 same period ended September 30, 1996. The other significant
reason for
19
<PAGE> 24
the decrease in selling and marketing expenses was the reduction in sales
commissions paid given the decreased levels of sales for the nine months ended
September 30, 1997 as compared to the same period ended September 30, 1996.
Advertising costs, including costs related to tradeshows, for the nine months
ended September 30, 1997 were $279,111, which represents an increase of $70,001
or 33.5%, as compared to $209,110 for the nine months ended September 30, 1996.
These increased advertising costs offset the aforementioned decrease in selling
and marketing expenses.
General and Administrative Expenses: General and Administrative expenses
for the period ended September 30, 1997 were $814,222, which represents an
increase of $315,354, or 63.2%, compared to the nine months ended September 30,
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. 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 nine months ended
September 30, 1997 was $1,022,663 as compared to interest expense of $19,509 for
the nine months ended September 30, 1996. This increase was attributable to the
Company's increased interest payable on debt incurred including amortization of
debt issuance costs during the nine months ended September 30, 1997, pursuant to
the 1996 Private Offering and the Bridge Notes. Management expects a large
decrease in interest expense in the future as $2,475,000 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 nine months ended September 30, 1997 was
$2,231,589 which represents an increase of $2,098,984, compared to a $132,605
net loss for the nine months ended September 30, 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. 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 nine months ended
September 30, 1997 compared to the nine months ended September 30, 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
in-line 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 in-line 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
20
<PAGE> 25
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 fiscal quarter ended
September 30, 1997. The Company owed $2,850,000 principal amount of loans as of
September 30, 1997, of which $375,000 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 $1,823,600 (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
February 28, 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 has also requested a waiver of default until February 28,
1998 from the 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. 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 $2,101,039 as of September
30, 1997. The Company's current ratio as of September 30, 1997 was 0.25, 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 not had a significant reserve for bad debts. As the Company's sales
reflect more domestic sales and less letter
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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 $50,000 convertible
into 12,121 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
October 31, 1997. 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 February 28, 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. 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 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
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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.
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."
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 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.
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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 effect
of adopting this new standard is not expected to be material.
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.
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BUSINESS
INTRODUCTION
The Company develops, manufactures, distributes and markets an innovative,
patented design of in-line skates under the registered trademark Rollerball. The
Rollerball skate differs from traditional in-line 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
in-line 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 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 include 17 models of in-line skates that appeal to a wide range
of price and performance levels for use in recreational, fitness, hockey and
aggressive skating. 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 in-line skates differ from traditional in-line skates in
appearance and in performance. The Company believes that its proprietary
Rollerball skating system is the next generation of in-line skates and the first
major product innovation in in-line skating since the introduction of the
original Rollerblade(R) in-line skate in the 1970's. Rollerball offers in-line
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 in-line skates.
Furthermore, because of these characteristics, the Company believes that its
Rollerball skates enhance the experience of in-line 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 in-line skate manufacturers
both in the United States and worldwide.
STRATEGY
The Company's primary goal is to become a leading developer and marketer of
in-line 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.
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
inexperienced skaters, occasional recreational skaters, and skaters who would
ordinarily not attempt in-line skating.
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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 in-line 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 in-line 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 in-line skate market was created in the 1970's with the introduction of
Rollerblade(R), the current dominant manufacturer of in-line skates. In-line
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 in-line skates
grew to more than $400 million in 1996. SGMA has reported that the sport now
claims more than 20 million participants, and with respect to the number of
participants, in-line skating has surpassed other sports such as baseball,
tennis, bowling and downhill skiing in market size.
The development and success of in-line 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 in-line 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 in-line 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 in-line 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.
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The Company does not yet design or manufacture the skate boots, which it
purchases from third party vendors 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
in-line 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 in-line 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.
[graphic]
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.
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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.
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 17 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(4)(R)/CARBON -- five models of 4-60mm ball skates with
high-glass-content, carbon enhanced nylon chassis and ABEC-3 bearings and
priced to retail from $129 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
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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.
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 two customers, HSN and Carrefour,
accounted for 64% and 16%, respectively, of total sales for the nine months
ended September 30, 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. 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.
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 in-line 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 in-line 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 in-line 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.
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<PAGE> 34
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 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 year ended
December 31, 1996 and the nine month period ended September 30, 1997, the
Company incurred expenses of $167,068 and $24,666 with respect to these royalty
agreements. Mr. Franco Rosso, the originator of the Radial Skateball, is paid a
royalty of 2.5% of the cost of goods sold, after certain deductions including
expenses for patent and trademarks. To date, no royalty payments have been paid
to Mr. Rosso, nor have any accrued, as a result of these deductions which
equalled approximately $555,000 as of September 30, 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 Mr.
Consarino's royalty payment by a similar amount. The Company does not intend to
reduce the royalty payments with Mr. Rosso because it does not believe any
payments will be required in the near term future resulting from the Company's
ability to make the aforementioned deductions. Although the Company believes
that it has the right to unilaterally reduce the amount of Mr. Consarino's
royalty fee, there can be no assurance that Mr. Consarino will not instigate
litigation against the Company.
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<PAGE> 35
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 in-line 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 in-line 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 in-line 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 warehouse
and assembly space at a separate location in Los Angeles, California. 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.
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.
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<PAGE> 36
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
Kenneth Teasdale..................... 27 Chief Financial Officer
Elizabeth Forcelledo................. 53 Director
Lawrence Stumbaugh................... 57 Director
John T. Botti........................ 33 Director (designee)
Michael Katz......................... 54 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 involved in various private investments and several entrepreneurial
ventures. 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 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 a graduate of
California State University, Northridge where he received a Bachelor of Science
degree in Accounting.
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<PAGE> 37
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 1989 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 Norall 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 June 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, 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
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<PAGE> 38
75% 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.
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, 1996, 1995 and 1994 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
ANNUAL SECURITIES
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,..... 1996 $100,000(1) $ 0 $ 88,448(2) 0 0
President and Chief 1995 $100,000(1) $ 0 $ 73,041(2) 0 0
Executive Officer 1994 $ -- $ 0 $ -- 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 September 30,
1997, Mr. Forcelledo was owed approximately $239,000 in accrued salary. The
remainder of accrued salary ($89,000) 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.
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<PAGE> 39
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, 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AS OF AT DECEMBER 31,
ACQUIRED ON VALUE DECEMBER 31, 1996 1996(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.
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.
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<PAGE> 40
Mr. Forcelledo will also receive five year incentive stock options to
purchase 300,000 shares vesting in increments of 75,000 shares per year
commencing on the date of this Prospectus. 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 $239,400
of accrued salary through September 30, 1997. Mr. Forcelledo will receive the
remainder of the accrued salary ($89,400) 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
36
<PAGE> 41
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 September 30, 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, 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. 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 November 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 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
37
<PAGE> 42
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 November 2007.
38
<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of December 31, 1997 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 December 31, 1997 there were 2,543,568 shares of
Common Stock issued and outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE PERCENTAGE
POSITION WITH BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER 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 Redmont 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.
39
<PAGE> 44
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 September 30, 1997 the amount due to Mr. Wenger for principal
and interest was approximately $140,000. 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 September 30, 1997 the total
amount of principal and interest due Mr. Anthony Forcelledo was approximately
$64,000. The Company intends to use a portion of the proceeds from this offering
to repay these loans. See "Use of Proceeds."
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" and "Management."
Except as provided herein, the Company has not entered into any material
transactions or series of similar transactions with any director, executive
officer or any security holder owning 5% or more of the Company's Common Stock.
It is the Company's policy that all transactions in which an officer or director
has a personal interest must be on terms no less favorable to the Company that
could be obtained in arms-length negotiation with non-affiliated parties. All
future transactions between the Company and any officer or director will be
approved by the majority of independent and disinterested directors. Independent
counsel will be made available to such independent directors at the Company's
expense.
For information concerning employment agreements with, and compensation of,
the Company's executive officers and directors, see "Management -- Employment
Agreements."
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. All of the Selling Stockholder Shares are being registered
40
<PAGE> 45
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.
However, the Selling Stockholders have agreed, 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.
A. CONVERSION SHARES
<TABLE>
<CAPTION>
PERCENTAGE
COMMON STOCK OF
OWNED PRIOR COMMON STOCK
TO COMMON STOCK TO BE OWNED AFTER
NAME 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............................ 132,993 132,993 2.9%
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................................. 442,085 442,085
</TABLE>
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 *
</TABLE>
41
<PAGE> 46
<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>
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............................ 60,608 60,608 1.3%
Sub-Total................................. 215,152 215,152
</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>
42
<PAGE> 47
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 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>
43
<PAGE> 48
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........................................ 1,225,090 1,225,090 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 4,568,987 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.
44
<PAGE> 49
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 2,543,568 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.
WARRANTS
The Company has issued and outstanding Common Stock purchase warrants to
purchase an aggregate of 396,304 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 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.
45
<PAGE> 50
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 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 75% 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 75% 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: (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
46
<PAGE> 51
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.
47
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 4,568,987 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,
1,935,663 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
and his affiliate, Sercap Holdings LLC) 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".
48
<PAGE> 53
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 120% of the initial public offering price per
share of the Shares offered hereby. The Underwriter's Warrants may not be
transferred for one year from the date of the Prospectus, except to officers or
partners 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
49
<PAGE> 54
the extent that the 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 the issuance by the Company of shares of
Common Stock for a price below the exercise price of the Underwriter's Warrants,
and corresponding potentially significant increases in the number of shares
purchasable upon exercise of the Underwriter's Warrants. The Underwriter's
Warrants also provide for adjustment of the type of securities issuable upon
exercise of the Underwriter's Warrants to reflect changes in the Common Stock.
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.
50
<PAGE> 55
EXPERTS
The financial statements of Rollerball International Inc. at December 31,
1996 and 1995, and for each of the two-years in the period ending December 31,
1996, 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.
51
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-1
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997................ F-2
Statements of Operations for the years ended December 31, 1995 and 1996 and for the
nine months ended September 30, 1996 and 1997....................................... F-3
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995 and
1996 and for the nine months ended September 30, 1996 and 1997...................... F-4
Statements of Cash Flows for the years ended December 31, 1995 and 1996 and for the
nine months ended September 30, 1996 and 1997....................................... F-5
Notes to Financial Statements......................................................... F-6
</TABLE>
<PAGE> 57
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, 1995 and 1996, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the two years ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rollerball International,
Inc. at December 31, 1995 and 1996, 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
$1,990,000 in losses through December 31, 1996. At December 31, 1996, the
Company had a working capital deficit of $1,638,000. 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 28, 1997, except for the first
paragraph of Note 12 as to which the date
is January , 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
January 6, 1998
F-1
<PAGE> 58
ROLLERBALL INTERNATIONAL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER STOCKHOLDERS'
DECEMBER 31, 30, EQUITY (DEFICIT)
--------------------------- ----------- SEPTEMBER 30,
1995 1996 1997 1997
----------- ----------- ----------- ----------------
(UNAUDITED)
(UNAUDITED) (NOTE 10)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 25,551 $ 394,667 $ 13,220
Accounts receivable................. 153,415 27,009 124,552
Inventory........................... -- 467,637 546,416
Debt issuance costs (Note 5)........ -- 165,880 228,779
Prepaid expenses.................... 89,725 133,807 103,115
----------- ----------- -----------
Total current assets.................. 268,691 1,189,000 1,016,082
Deferred stock offering costs......... -- 75,493 121,051
Property and equipment, net (Note
2).................................. 161,576 287,982 415,615
Intangible assets, net of accumulated
amortization of $9,647 (1995),
$33,570 (1996) and $51,684 (1997)... 153,537 362,702 506,429
----------- ----------- -----------
Total assets.......................... $ 583,804 $ 1,915,177 $ 2,059,177
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................... $ 88,243 $ 159,007 $ 76,984
Accrued expenses (Note 3)........... 463,933 603,907 1,210,843
Notes payable to stockholders (Note
4)............................... 345,000 260,000 275,000
Advances from stockholders (Note
7)............................... 84,935 28,873 22,389
Debt (Note 5)....................... -- 1,775,000 2,475,000
----------- ----------- -----------
Total current liabilities............. 982,111 2,826,787 4,060,216
Note Payable (Note 12)................ -- -- 100,000
Commitments (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;
2,384,242 shares issued and
outstanding (1995), 2,391,176
(1996), 2,543,568 (1997) and
3,318,987 (pro forma)............ 2,384 2,391 2,544 $ 3,319
Additional paid-in capital.......... 1,041,292 1,076,285 2,118,292 4,324,529
Accumulated deficit................. (1,441,983) (1,990,286) (4,221,875) (4,221,875)
----------- ----------- ----------- -----------
Total stockholders' equity
(deficit)........................... (398,307) (911,610) (2,101,039) $ 105,973
===========
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit).................... $ 583,804 $ 1,915,177 $ 2,059,177
=========== =========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 59
ROLLERBALL INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- --------------------------
1995 1996 1996 1997
---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................ $4,201,658 $4,850,416 $4,221,367 $ 1,762,400
Cost of sales............................ 2,762,017 3,103,779 2,605,955 1,160,044
---------- ---------- ---------- -----------
Gross profit............................. 1,439,641 1,746,637 1,615,412 602,356
Operating expenses:
Selling and marketing.................. 943,507 1,461,004 1,229,640 997,060
General and administrative............. 543,655 736,570 498,868 814,222
---------- ---------- ---------- -----------
Total operating expenses................. 1,487,162 2,197,574 1,728,508 1,811,282
---------- ---------- ---------- -----------
Loss from operations..................... (47,521) (450,937) (113,096) (1,208,926)
Interest expense......................... 36,796 96,566 19,509 1,022,663
---------- ---------- ---------- -----------
Loss before provision for income taxes... (84,317) (547,503) (132,605) (2,231,589)
Provision for income taxes (Note 6)...... 800 800 -- --
---------- ---------- ---------- -----------
Net loss................................. $ (85,117) $ (548,303) $ (132,605) $(2,231,589)
========== ========== ========== ===========
Pro forma net loss per common share...... $ (.17) $ (.70)
========== ===========
Pro forma weighted average common shares
outstanding............................ 3,149,712 3,200,509
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 60
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 January 1, 1995.... 2,384,242 $2,384 $1,041,292 $(1,356,866) $ (313,190)
Net loss for the year ended
December 31, 1995........ -- -- -- (85,117) (85,117)
--------- ------ ---------- ----------- ----------
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 grant with debt....... -- -- 800,000 -- 800,000
Net loss for the nine months
ended September 30, 1997
(unaudited).............. -- -- -- (2,231,589) (2,231,589)
--------- ------ ---------- ----------- ----------
Balance at September 30, 1997
(unaudited)................. 2,543,568 $2,544 $2,118,292 $(4,221,875) $ (2,101,039)
========= ====== ========== =========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 61
ROLLERBALL INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
----------------------- --------------------------
1995 1996 1996 1997
-------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(85,117) $ (548,303) $ (132,605) $(2,231,589)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization........ 54,978 97,528 57,331 99,361
Amortization of debt issuance
costs.............................. -- 33,176 -- 834,101
Changes in assets and liabilities:
Accounts receivable................ (259,788) 126,406 135,937 (97,543)
Inventory.......................... -- (467,637) -- (78,779)
Prepaid expenses................... (73,725) (44,082) 5,154 30,692
Deferred stock offering costs...... -- (75,493) -- (45,558)
Accounts payable................... 13,401 70,764 (7,009) (82,023)
Accrued expenses................... 244,096 139,974 (125,335) 606,936
-------- ---------- --------- -----------
Net cash (used in) provided by operating
activities.............................. (106,155) (667,667) (66,527) (964,402)
INVESTING ACTIVITIES
Purchases of property and equipment....... (25,869) (198,650) (143,569) (204,044)
Increase in intangible assets............. (63,828) (234,449) (212,300) (166,677)
-------- ---------- --------- -----------
Net cash used in investment activities.... (89,697) (433,099) (355,869) (370,721)
FINANCING ACTIVITIES
Proceeds from debt........................ -- 1,775,000 1,775,000 800,000
Proceeds from notes and loans payable to
stockholders............................ 245,000 35,000 -- 15,000
Payments on loans to stockholders......... (51,574) (141,062) (51,756) (6,484)
Debt issuance costs....................... -- (199,056) (199,056) (97,000)
Exercise of warrants...................... -- -- -- 242,160
-------- ---------- --------- -----------
Net cash provided by (used in) financing
activities.............................. 193,426 1,469,882 1,524,188 953,676
-------- ---------- --------- -----------
Increase (decrease) in cash............... (2,426) 369,116 1,101,792 (381,447)
Cash at beginning of period............... 27,977 25,551 25,551 394,667
-------- ---------- --------- -----------
Cash at end of period..................... $ 25,551 $ 394,667 $1,127,343 $ 13,220
======== ========== ========= ===========
Cash paid during the period for:
Interest................................ $ -- $ 67,310 $ 7,417 $ 139,100
Income taxes............................ 800 800 -- --
</TABLE>
See accompanying notes.
F-5
<PAGE> 62
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(UNAUDITED WITH RESPECT TO THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FORMATION AND BUSINESS ACTIVITY
Rollerball International Inc. (the "Company") develops, manufactures,
distributes and markets in-line 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
$2.0 million through December 31, 1996, and anticipates continued losses for
fiscal 1997. On December 31, 1996, the Company had a working capital deficit of
$1,638,000. Included in the current liabilities are 12% Convertible Debentures
in the principal amount of $1,775,000 at December 31, 1996 that automatically
convert into common stock in connection with an initial public offering. 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.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The interim financial statements as of September 30, 1997 and for the nine
months ended September 30, 1996 and 1997, have been prepared on the same basis
as the audited financial statements. In the opinion of management, all
adjustments (consisting of normal accruals) considered necessary for a fair
presentation have been included in the unaudited financial statements. The
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year and for any other
interim period.
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.
F-6
<PAGE> 63
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 year ended December 31, 1995, approximately 46% of the Company's
sales were made to three customers, and during the year ended December 31, 1996,
approximately 67% 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 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. During
1995, the Company bought its product from one Hong Kong supplier on a finished
basis. The finished product was shipped directly to the Company's customers by
the supplier. As the Company had title and risk of loss for only a brief period
during the shipping process, the Company maintained no inventory as of December
31, 1995.
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 $87,542, $140,080 and $201,851 at December 31,
1995, December 31, 1996, and September 30, 1997, respectively, in costs incurred
for trademark and $75,642, $251,356 and $352,811 at December 31, 1995, December
31, 1996, and September 30, 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.
F-7
<PAGE> 64
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share has been computed for all periods
presented and is based on the weighted average number of shares outstanding
during the period, including common stock equivalents resulting from dilutive
stock options (none), 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).
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Accounting for Earnings Per Share"
("SFAS No. 128") which will be effective for the Company in fiscal 1998. At that
time, the Company will be required to change the method currently used to
compute earnings per share and restate all prior periods. The impact of SFAS
No. 128 is not expected to be material.
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 $160,886, $258,308, $209,110 and
$279,111 for the years ended December 31, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997 (unaudited), respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and amounted to
$86,665, $60,178, $52,588 and $94,389 for the years ended December 31, 1995 and
1996 and the nine months ended September 30, 1996 and 1997 (unaudited),
respectively.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- SEPTEMBER 30
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Office and trade show equipment.......... $ 33,949 $ 94,825 $ 128,390
Molds and tooling........................ 178,834 284,405 444,798
Machinery and equipment.................. 9,431 41,634 51,720
-------- -------- --------
222,214 420,864 624,908
Less accumulated depreciation............ 60,638 132,882 209,293
-------- -------- --------
$161,576 $287,982 $ 415,615
======== ======== ========
</TABLE>
F-8
<PAGE> 65
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- SEPTEMBER 30
1995 1996 1997
-------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued officer salary.................. $100,000 $ 200,000 $ 239,400
Accrued consulting fees................. 184,517 166,060 263,258
Accrued interest........................ 28,180 59,374 116,981
Other accruals.......................... 151,236 178,473 591,204
-------- -------- ----------
$463,933 $ 603,907 $1,210,843
======== ======== ==========
</TABLE>
4. NOTES PAYABLE TO STOCKHOLDERS
NOTES PAYABLE TO STOCKHOLDERS CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- SEPTEMBER 30
1995 1996 1997
--------- --------- ------------
UNAUDITED)
<S> <C> <C> <C>
Unsecured notes payable bearing interest
at 12% per annum, due on demand........ $ 228,000 $ 178,000 $ 193,000
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 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............... 110,000 75,000 75,000
-------- -------- --------
$ 345,000 $ 260,000 $ 275,000
======== ======== ========
</TABLE>
In connection with the $178,000 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 ($110,000 at December 31, 1995) 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, 1995 and 1996, holders of the $178,000 unsecured
notes payable had not exercised their warrants. As of December 31, 1996, 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
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 75% 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 442,085 shares of common
shares. The holders of the 12% Debentures also received a warrant to purchase
one
F-9
<PAGE> 66
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
share of common stock for every two shares received upon conversion of the 12%
Debentures, an aggregate of 215,152 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 are being amortized over the term of the note with $33,176 being
amortized for the year ended December 31, 1996 and $149,292 being amortized in
the nine months ended September 30, 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. The value of these shares, $700,000, is
being amortized as debt issue costs. Based upon an initial offering price of
$5.50 per share, holders of the Bridge Notes will receive 127,273 shares of
common stock. Debt issue 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 $683,143 being amortized in the nine months
ended September 30, 1997 (see Note 12).
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, 1996, the Company has approximately $3,086,072 and $1,543,206 in
federal and state operating loss carryovers expiring through 2010 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.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------------------- 1997
1995 1996 (UNAUDITED)
--------- --------- ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and amortization........ $ (36,963) $ (45,919) $ (42,326)
State income taxes................... (25,284) (38,135) (64,608)
--------- --------- ---------
Total deferred tax liabilities......... (62,247) (84,054) (106,934)
Deferred tax assets:
Accrued expenses..................... 44,300 89,000 409,013
Pre-incorporation expenses........... 134,185 97,146 63,041
Net operating losses................. 443,051 662,662 1,286,257
--------- --------- ---------
Total deferred assets.................. 621,536 848,808 1,758,311
Valuation allowance.................... (559,289) (764,754) (1,651,377)
--------- --------- ---------
Net deferred tax assets................ 62,247 84,054 106,934
--------- --------- ---------
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 10). Royalty expense pursuant to
F-10
<PAGE> 67
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
this agreement amounted to $73,041, $88,448, $75,984 and none for the years
ended December 31, 1995 and 1996, and the nine months ended September 30, 1996
and 1997 (unaudited) respectively.
8. COMMITMENTS
LEASE
The Company leases its office space and sales office on a month-to-month
basis, including utilities. The aggregate monthly rent is $5,750 at December 31,
1996. Rent expense for the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1996 and 1997 (unaudited) was $49,470, $45,430,
$28,180 and $47,439 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, 1995 and 1996 and the nine months ended September 30, 1996 and 1997
(unaudited) was $118,247, $167,068, $143,525 and $24,666 respectively. All
royalty agreements provide for payment of royalties in perpetuity.
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.
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, 1996, 234,519 warrants were outstanding in connection with this
private placement. As of December 31, 1996, no warrants had been exercised (see
Note 12).
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.
F-11
<PAGE> 68
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 183,501 $ 3.37 244,826 $ 4.21
Granted............................... 61,325 $ 5.05 -- --
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, 1996 ranged from
$3.37 to $5.05. The weighted average remaining contractual life of those options
is 5 years.
10. PRO FORMA ADJUSTMENT (UNAUDITED)
Pro forma disclosure has been provided showing the automatic conversion of
the 12% Debentures at their carrying amount ($1,758,412 at September 30, 1997),
net of unamortized debt issue costs, into 442,085 shares of common stock, the
issuance of 127,273 of shares with respect to the Bridge Notes and the issuance
of 206,061 shares associated with the 1997 Loan (See Note 12). 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>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Japan...................................... $ 427,115 $ 575,988 $ 575,988 $ --
Europe..................................... 1,843,229 1,281,530 820,996 525,541
Asia (excluding Japan)..................... 332,087 91,362 91,362 --
---------- ---------- ---------- --------
$2,602,431 $1,948,880 $1,488,346 $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 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-12
<PAGE> 69
ROLLERBALL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In May, June and July of 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 July 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.
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 waive all defaults and extend the maturity to February 28,
1998.
F-13
<PAGE> 70
======================================================
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....................... 15
Dividend Policy....................... 16
Dilution.............................. 16
Capitalization........................ 18
Management's Discussion and
Analysis............................ 19
Business.............................. 25
Management............................ 32
Principal Stockholders................ 39
Certain Relationships and Related
Transactions........................ 40
Concurrent Sales...................... 40
Description of Capital Stock.......... 45
Shares Eligible for Future Sale....... 48
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 51
Additional Information................ 51
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> 71
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 JANUARY 8, 1998
PROSPECTUS
1,225,090 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 1,225,090 shares of Common Stock par value $.001 per share
comprised of: (i) an aggregate of 442,085 shares of Common Stock (the
"Conversion Shares"), issuable upon conversion of $1,823,600 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) 215,152 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)
127,273 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 1,225,090 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.
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> 72
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
THE OFFERING
Common Stock Offered in Underwritten
Public Offering(2).................. 1,250,000 shares
Common Stock Offered by Selling
Stockholders........................ 1,225,090 shares
Common Stock Outstanding
Prior to offering(1)(2)........... 2,543,568 shares
Common Stock to be Outstanding
Immediately After offering(1)....... 4,568,987 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"
Proposed Pacific Stock Exchange
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) 215,152 1996 Warrant Shares and (vii) 82,127 Agent Warrant
Shares.
(2) Does not include: (i) 127,273 Bridge Shares; (ii) 442,085 Conversion Shares;
and (iii) 206,061 1997 Loan Shares.
(3) Includes: (i) 127,273 Bridge Shares; (ii) 442,085 Conversion Shares; and
(iii) 206,061 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 Company also
intends to apply to have its Common Stock listed for trading on the Pacific
Stock Exchange. The Nasdaq SmallCap Market and Pacific Stock Exchange
quotations do 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
and/or Pacific Stock Exchange, continue to meet the maintenance criteria for
quotation on the Nasdaq SmallCap Market or the Pacific Stock Exchange.
4
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[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
SUMMARY FINANCIAL INFORMATION
The summary financial information presented below for the fiscal years
ended December 31, 1995 and 1996 was derived from the audited financial
statements appearing elsewhere herein. The summary financial information as of
September 30, 1997 and for the nine-month periods ended September 30, 1996 and
1997 was derived from the unaudited financial statements of the Company. The
unaudited financial statements include all adjustments, consisting of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of the financial position and results of operations of the Company
for those periods. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1997. 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- --------------------------
1994(1) 1995 1996 1996 1997
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales..................... $ 469,703 $4,201,658 $4,850,416 $4,221,367 $ 1,762,400
Gross (Loss) Profit........... (104,349) 1,439,641 1,746,637 1,615,412 602,356
Operating Expenses............ 1,250,523 1,487,162 2,197,574 1,728,508 1,811,282
Loss before Income Taxes...... (1,356,066) (84,317) (547,503) (132,605) (2,231,589)
Net Loss...................... (1,356,866) (85,117) (548,303) (132,605) (2,231,589)
Pro Forma net loss per
share....................... $ (.17) $ (.70)
========== ==========
Pro Forma weighted average
number of shares
outstanding(2).............. 3,149,712 3,200,509
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 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) $(3,044,134) $ (837,122) $4,896,772
Total assets................... 583,804 1,915,177 2,059,177 3,042,589 6,919,624
Debt........................... -- 1,775,000 2,575,000 1,400,000 100,000
Notes payable to
stockholders................. 345,000 260,000 275,000 275,000 75,000
Stockholders' (deficit)
equity....................... (398,307) (911,610) (2,101,039) 105,973 5,718,116
</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 12% Debentures and Bridge
Shares.
(3) Gives effect to the conversion of $1,823,600 12% Debentures, net of
unamortized debt issuance costs, into 442,085 Conversion Shares and the
$1,000,000 principal amount 1997 Loan. 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 issuance of the Bridge Shares (127,273 shares), the 1994
Shares (152,392 shares), 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 in the
Underwritten Offering 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> 74
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
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."
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. 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
in-line 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
in-line 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 current and prospective 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
9
<PAGE> 75
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
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."
SHARES ELIGIBLE FOR FUTURE SALE; UNDERWRITER'S WARRANTS. Upon completion
of this offering, there will be 4,568,987 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 tradeable without restriction by
persons other than "affiliates" of the Company. The 442,085 Conversion Shares,
127,273 Bridge Shares, 206,061 1997 Loan Shares, 152,392 1994 Shares, 82,127
Agent Shares and 215,152 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 4,568,987 shares of Common Stock which will be outstanding,
3,143,568 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, 1,383,324 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 6 months
from the Effective Date with respect to the 1,225,090 Selling Stockholder
Shares. The lock-up period is 18 months from the Effective Date with respect to
the 1,383,324 shares of outstanding Common Stock owned by 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 as of a date which is 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."
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 120%
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 the
Shares in 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 without the prior written consent of the
Underwriter. Sales of the Selling Stockholder Shares, or even the potential of
such sales could adversely affect
13
<PAGE> 76
[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 ON THE MARKET. The shares of Common Stock offered
hereby are not being sold through 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 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. Following this offering, the
Company will have 50,000,000 shares of Common Stock authorized, of which
4,568,987 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 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. See "Description of Capital Stock."
14
<PAGE> 77
[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 $1,321,309 gross proceeds.
Any proceeds received by the Company will be used for working capital purposes.
15
<PAGE> 78
[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.
16
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[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
----------- ----------- --------------
<S> <C> <C> <C>
Short Term Debt:
Notes Payable to Stockholders................. $ 275,000 $ 275,000 $ 75,000
Bridge Notes.................................. 700,000 700,000
1997 Loan..................................... 600,000
12% Debentures................................ 1,775,000 --
----------- ----------- -----------
Total Short Term Debt(3).............. $ 2,750,000 $ 1,575,000 $ 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, 2,543,568
(actual) shares outstanding, 3,318,987 pro
forma outstanding and 4,568,987 outstanding
pro forma as adjusted(4)................... 2,544 3,319 4,569
Additional Paid-In Capital.................... 2,118,292 4,324,529 9,936,122
Retained Deficit.............................. (4,221,875) (4,221,875) (4,221,875)
----------- ----------- -----------
Total Stockholders' Equity (Deficit).......... (2,101,039) 105,973 5,718,816
----------- ----------- -----------
Total Capitalization.................. $ 748,961 $ 1,780,973 $ 5,893,816
=========== =========== ===========
</TABLE>
- ---------------
(1) Gives effect to the issuance of the Conversion Shares, the Bridge Shares and
the 1997 Loan Shares.
(2) Adjusted to reflect the application of the net proceeds of the Shares
offered in the Underwritten Offering 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 reserved for
issuance upon exercise of the Underwriter's Warrants; (ii) 750,000 shares of
Common Stock reserved for issuance under the 1994 Employee Plan of which
options to purchase 244,826 shares have been issued; (iii) 100,000 shares of
Common Stock reserved for issuance under the Director Plan none of which
options have been issued; (iv) 99,025 shares of Common Stock reserved for
issuance upon the exercise of outstanding Common Stock purchase warrants;
(v) 82,127 shares of Common Stock received for issuance upon exercise of the
Agent Warrants; and (vi) 215,152 shares of Common Stock reserved for
issuance upon exercise of the 1996 Warrants.
18
<PAGE> 80
[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
$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 the Underwritten 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 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 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 the
Underwritten Offering and this offering, for inventory purchases and for working
capital. The Registration Statement of which this Prospectus forms a part
includes the 1997 Loan Shares which have been registered for resale by the
lender who is a Selling Stockholder. Mr. Stumbaugh is a Selling Stockholder.
Upon completion of the Underwritten 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 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 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
23
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[ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS]
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.
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.
48
<PAGE> 82
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> 83
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............................... $ 4,715
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
Pacific Stock Exchange Fee........................................................ 20,000
Transfer Agent and Registrar Fees................................................. 5,000
Miscellaneous Fees and Expenses................................................... 3,000
Total................................................................... $574,718
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information does not give effect to the reverse split of
Common Stock effected in to be effected prior to the Effective Date:
A. In March 1994, in connection with the founding of the Company, the
Company issued 3,514,964 shares of Common Stock to Jack Forcelledo, the
Company's Chairman of the Board and Chief Executive Officer, and Elizabeth
Forcelledo, his wife; 206,100 shares of Common Stock were issued to Anthony
Forcelledo, a former director of the Company and the brother of Jack
Forcelledo, and 206,100 shares of Common Stock were issued to Victoria and
Walter Nelson. Victoria Nelson is the sister of Elizabeth Forcelledo, a
director of the Company. Mr. Anthony Forcelledo is the brother of Jack
Forcelledo. The foregoing shares were issued for nominal consideration.
These transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act of 1933, as amended, (the "Securities Act") pursuant to Section 4(2)
thereof.
B. During the period May 1994 to June 1994, the Company sold, in a
private offering, under Section 4(2) of the Act (the "1994 Private
Offering"), 1023.75 units of its securities, each unit consisting of 900
shares of Common Stock and 300 Common Stock purchase warrants. The units
had a purchase price of $900 per unit. The 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 $813,755 after
payment of commissions of $90,000 and offering expenses of approximately
$17,699. The Underwriter acted as placement agent in the 1994 Private
Offering. As of July 15, 1997, all of the warrants issued to investors had
been exercised. In connection with the offering, the Company issued a
warrant to purchase 136,181 shares of Common Stock at $1.00 per share to
the Underwriter. This offering was a private transaction not involving a
public offering and was exempt from the registration provisions of the
Securities Act, pursuant to Regulation 506 promulgated thereunder.
C. During the period August 1996 to September 1996 ("1996 Private
Offering"), the Company sold $1,775,000 principal amount of 12%
subordinated convertible debentures ("12% Debentures"). The Company
received net proceeds of approximately $1,576,000 after payment of
commissions and offering expenses of approximately $199,000. The
Underwriter served as placement agent in the 1996 Private Offering. The 12%
Debentures contain terms by which they are automatically convertible 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. Payment of the
principal amount on the 12% Debentures is due on October 31, 1997 and
II-2
<PAGE> 84
interest is payable on January 31, April 30 and July 31, 1997 and the
maturity date. Based upon an initial public offering price of $5.50 per
share, the holders of the 12% Debentures will receive 403,409 shares of
Common Stock at the closing of this offering. The purchasers in the 1996
Private Offering also received a warrant to purchase one share of Common
Stock for every two shares received upon conversion of the 12% Debentures
(the "1996 Private Offering Warrants"). The 1996 Private Offering Warrants
are exercisable for three years from the date of issuance at an exercise
price equal to 120% of the per share offering price of the Company's
initial public offering. This transaction was a private transaction not
involving a public offering and was exempt from the registration provisions
of the Securities Act, and pursuant to Regulation 506 promulgated
thereunder.
D. During the period from March 1997 through April 1997, the Company
sold, in a private offering under Section 4(2) of the Securities Act (the
"Bridge Offering"), $700,000 of the Company's 12% promissory notes ("Bridge
Notes"). The Bridge Notes are due and payable upon the earlier of (i)
October 31, 1997 or consummation of the offering. 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 ("Bridge
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
will receive an aggregate of 127,273 shares of Common Stock 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 realized
net proceeds of $603,000 from the sale of the Bridge Notes after payment of
sales commissions and offering expenses of approximately $97,000. The
Underwriter acted as placement agent with respect to the placement of the
Bridge Notes. This transaction was a private transaction not involving a
public offering and was exempt from the registration provisions of the
Securities Act, and pursuant to Regulation 506 promulgated thereunder.
In October 1997 received a loan from a company controlled by one of the
Company's stockholders in the principal amount of $1,000,000. The stockholder
also is entitled to receive such number of shares of Common Stock as equal the
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
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 to serve until the loan is repaid in full. The proceeds of the loan have
been utilized by the Company to pay expenses of this offering, for inventory
purchases and for working capital.
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* Form of Underwriting Agreement between the Company and Auerbach, Pollak &
Richardson, Inc.
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
4.4* Form of 12% Convertible Debenture
4.5* Form of 12% Bridge Note
</TABLE>
II-3
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<S> <C>
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.
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, as amended
10.4* Rosso Consulting Agreement and Royalty Agreement
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
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>
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.
II-4
<PAGE> 86
(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> 87
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. 1 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 7th day
of January, 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 January 7, 1998
- ------------------------------------- Executive Officer and Director
Jack Forcelledo
/s/ ELIZABETH FORCELLEDO Director January 7, 1998
- -------------------------------------
Elizabeth Forcelledo
/s/ KENNETH TEASDALE Chief Financial Officer January 7, 1998
- -------------------------------------
Kenneth Teasdale
Director January 7, 1998
- -------------------------------------
Lawrence Stumbaugh
</TABLE>
II-6
<PAGE> 88
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* Form of Underwriting Agreement between the Company and Auerbach,
Pollak & Richardson, Inc. .........................................
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...............................................
4.4* Form of 12% Convertible Debenture..................................
4.5* Form of 12% Bridge Note............................................
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.
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, as amended............................
10.4* Rosso Consulting Agreement and Royalty Agreement...................
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
23.1* Consent of Ernst & Young LLP, independent auditors.................
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
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 279,665 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
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<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
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<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
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<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,
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<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.
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<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").
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<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.
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(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.
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(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
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<PAGE> 16
payment 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 120% 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
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<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.
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(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
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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
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<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, [the
Pacific Stock Exchange] 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,
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<PAGE> 21
the Company shall deliver instructions to the Transfer Agent 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 the Pacific Stock Exchange], 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.
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<PAGE> 22
(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 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
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<PAGE> 23
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 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
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<PAGE> 24
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum," 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
24
<PAGE> 25
Company made pursuant to the provisions hereof; and the performance by the
Company on and as of the Closing Date and each Option Closing Date, if any, of
its covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 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
25
<PAGE> 26
received from the Company such papers and information as they request to enable
them to pass upon such matters.
(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
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<PAGE> 27
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 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
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<PAGE> 28
conferences with officers and other representatives of the Company and the
Underwriter and representatives of the independent public accountants for the
Company, at which 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,
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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 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
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body (including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, 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;
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(xiii) to the best of such counsel's knowledge and based upon
a review of the outstanding securities and the 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
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Underwriter's Counsel confirming as of such Option Closing Date 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.
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<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 [and the Pacific Stock Exchange] 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
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<PAGE> 38
the Preliminary Prospectus, the Registration Statement or 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
38
<PAGE> 39
any local counsel) separate from their own counsel for all 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
39
<PAGE> 40
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
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.
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<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,
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<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
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<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 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 one 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 75%; 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 General Corporation Law of the State of Delaware.
B. The text of the Certificate of Incorporation, as amended, is
hereby restated 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;
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(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
.601139 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
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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 only
for cause by the affirmative vote of the holders of at least 75% of the combined
voting power of all outstanding voting stock. For the purpose of this Article
SIXTH, "cause" shall mean
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(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, (iii) the commission by a
director of an act of fraud in the performance of his duties, (iv) the
conviction of a director for a felony punishable by confinement for a period of
excess of one year, (v) 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 (vi) 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 75% 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
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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
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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 ____________ Secretary, this ___ day of _________, 1998.
/s/Jack Forcelledo
--------------------------------
Jack Forcelledo
Chairman
ATTEST:
By:
-----------------------------
James Hartnett, Secretary
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<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
ROLLERBALL 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
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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
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.
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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
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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
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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. 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
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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 Amended and Restated Certificate of
Incorporation may be acted upon by written consent of stockholders without a
meeting.
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
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<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 cause, by the holders of a majority of the shares entitled to vote
at an election of directors, and any director or the whole board of directors
may be removed without cause by the holders of a majority of the shares of the
Class then entitled to vote for the election of the director or directors sought
to be removed. 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
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<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.
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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 Bylaws; 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,
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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
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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 Bylaws, 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 Bylaws.
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 Senior
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
Bylaws or in a resolution of the Board of Directors which is not inconsistent
with these ByLaws. 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 ByLaws 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
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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
Bylaws; 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 Bylaws.
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 Bylaws, 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 Bylaws.
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 Bylaws 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,
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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 Bylaws or to adopt new bylaws; provided,
however, that such power shall not divest the stockholders of the power, nor
limit their power, to adopt, amend or repeal bylaws.
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
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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, Bylaw, insurance
policy, contract or otherwise.
Anything in these Bylaws to the contrary notwithstanding, no
elimination of this bylaw, and no amendment of this bylaw 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 Bylaw 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
bylaw 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 bylaw. The indemnification of any person provided by this bylaw 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.
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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 bylaw 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 bylaw, 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 this bylaw, 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.
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<PAGE> 1
EXHIBIT 4.1
ROLLERBALL INTERNATIONAL INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 775634 10 8
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
ROLLERBALL INTERNATIONAL INC.
(hereinafter called the Corporation), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed. This certificate is not valid
until countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
SECRETARY
PRESIDENT
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE> 2
The Corporation will furnish without charge to each stockholder who so requests
a statement of the designations, powers, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Corporation
or the Transfer Agent.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM ? as tenants in common
TEN ENT ? as tenants by the entireties
JT TEN ? as joint tenants with right of
TEN COM ? survivorship and not as tenants
TEN COM ? in common
UNIF GIFT MIN ACT ? Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received,the undersigned hereby sells, assigns and transfers unto
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE)
shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
<PAGE> 3
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
(Signature)
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
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").
WITNESSETH:
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. _________), 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 $___(120% of the public offering
price) (the "Exercise Price").
2. Underwriter's Warrant Certificates. The Underwriter's Warrant
certificates (the "Warrant Certificates") delivered and
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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
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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.
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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 partners of the Underwriters, or by 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
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE UNDERWRITER'S WARRANT AGREEMENT
REFERRED TO HEREIN.
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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 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
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"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 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
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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 Warrant at such Market Price less the Exercise Price
of such Underwriter's Warrant. The Holders of a Majority shall notify the
Company in writing of their election to 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.
(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.
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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 Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability(including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant 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
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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) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, 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,
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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 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
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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 Adjustment for 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 Underwriter's
Warrants) by recapitalization, reclassification, split-up, combination or
reverse split thereof, the Exercise Price per Warrant Share subject to the
Underwriter's Warrants 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 11.1
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.
Whenever the number of shares of Common Stock purchasable upon the
exercise of the Underwriter's Warrants is adjusted, as provided in this Section
11, 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.
11.2 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 the
Underwriter's Warrant) after the date of this Agreement 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 the
Underwriter's Warrant upon the exercise thereof 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 the Underwriter's Warrant prior to such
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consummation, the securities or property to which such Holder would have been
entitled upon such consummation if such Holder had so exercised immediately
prior thereto; in each such case, the terms of this Agreement shall be
applicable to the securities or property receivable upon the exercise of any
Underwriter's Warrant after such consummation.
11.3 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 for a consideration per share
less than 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) shall be adjusted ( to the nearest cent), with such adjusted
Exercise Price 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 Exercise Price in effect immediately prior to such Change of
Shares, by (2) the total number of shares of Common Stock outstanding
immediately after such Change of Shares.
For the purposes of any adjustment to be made in accordance with this
Section 11 the following provisions shall be applicable:
(a) 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 therefor 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
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amount of cash actually received by the Company for such securities, in any
other case.
(b) 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 therefor 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.
(c) 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.
(d) 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 to such shares of Common
Stock shall be determined as provided in this Section 11.
(e) 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.
(f) Upon each adjustment of the Exercise Price pursuant to this
Section 11, the number of shares of Common Stock purchasable upon the exercise
of each Underwriter's 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
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Exercise Price.
(g) 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 11.3(b)
and as provided below) less than 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 Underwriter's 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 this Section 11, provided that:
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 this Section 11.3(g)) 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
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<PAGE> 16
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 this Section 11.3(g) 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.
C. If any change shall occur in the exercise price per shares
provided for in any of the options, rights or warrants referred to in subsection
A. of this Section 11.3(g), or in the price per share or ratio at which the
securities referred to in subsection A. of this Section 11.3(g) 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 Underwriter's 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 of the Company 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 Underwriter's 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
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<PAGE> 17
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 Underwriter's Warrant then outstanding shall have the
right thereafter to receive on exercise of such Underwriter's 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
Underwriter's Warrants, the Underwriter's Warrant Certificates theretofore and
thereafter issued shall continue to express the Exercise Price per share and the
number of shares purchasable thereunder as the Exercise Price per share and the
number of shares purchasable thereunder were expressed in the Underwriter's
Warrant Certificates when the same were originally issued.
F. After each adjustment of the Exercise Price pursuant to this
Section 11, 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 Underwriter's 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 therein.
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<PAGE> 18
11.4 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Articles of Incorporation of the Company as amended as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
11.5 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Underwriter's Warrant or
the Warrant Shares;
(b) Upon the issuance or sale of Common Stock (or any other
security convertible, exercisable, or exchangeable into shares of Common Stock)
upon the direct or indirect conversion, exercise, or exchange of any options,
rights, warrants, or other securities or indebtedness of the Company outstanding
as of the date of this Agreement or granted pursuant to any stock option plan of
the Company in existence as of the date of this Agreement, pursuant to the terms
thereof; or
(c) If the amount of said adjustment shall be less than two
cents ($.02) per share, 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 which,
together with any adjustment so carried forward, shall amount to at least two
cents ($.02) per Underwriter's Warrant.
11.6 Exchange and Replacement of Underwriter's Warrant
Certificates. 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
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<PAGE> 19
Company will make and deliver a new Warrant Certificate of like tenor, in lieu
thereof.
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
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<PAGE> 20
and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, 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.
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<PAGE> 21
16. Supplements; Amendments; Entire Agreement. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties hereto
with respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought. 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
21
<PAGE> 22
Agreement and shall be given no substantive effect.
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.
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<PAGE> 23
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:
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<PAGE> 24
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 among 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.
No Warrant may be exercised after 5:30 p.m., New York time,
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<PAGE> 25
on the Expiration Date, at which time all Underwriter's Warrant evidenced
hereby, unless exercised prior thereto, shall thereafter be void. The
Underwriter's Warrant 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 Warrant; 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 Warrant
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.
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<PAGE> 26
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:
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<PAGE> 27
[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_________________________________________________________
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<PAGE> 28
[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.)
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<PAGE> 1
EXHIBIT 4.3
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES UNDERLYING THIS WARRANT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THIS WARRANT AND SUCH UNDERLYING SECURITIES MAY ONLY BE TRANSFERRED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF. IN ACCORDANCE WITH SECTION 3
HEREOF.
___________ 19
ROLLERBALL INTERNATIONAL INC.
COMMON STOCK PURCHASE WARRANT
__________________________________ or any assignee, transferee
or other holder of this Warrant (the "Holder"), is hereby granted the right to
purchase, at any time from __________ 19__ until 5:00 P.M., New York City time,
on __________, 19__, up to ________ fully paid and non-assessable shares of the
Common Stock, par value $.001 per share ("Common Stock"), of Rollerball
International Inc., a Delaware corporation (the "Company").
This Warrant is exercisable at a price of $____________ per
share of Common Stock issuable hereunder, payable in cash or by check, subject
to adjustment as provided in Section 5 hereof. Upon surrender of this Warrant
with the annexed Subscription Form duly executed, together with payment of the
Purchase Price (as hereinafter defined) for the shares of Common Stock
purchased, at the Company's principal executive offices (presently located at
9255 Doheny Road, Suite 2705, Los Angeles, California 90069), the Holder shall
be entitled to receive a certificate or certificates for the shares of Common
Stock so purchased.
1. EXERCISE OF WARRANT.
The purchase rights represented by this Warrant are exercisable at the
option of the Holder hereof, in whole or in part (but not as to
fractional shares of the Common Stock), during any period in which this
Warrant may be exercised as set forth above. In the case of the
purchase of less than all of the shares of Common Stock purchasable
under this Warrant, the Company shall cancel this Warrant upon the
surrender hereof and shall execute and deliver a new Warrant of like
tenor for the balance of the shares of Common Stock purchasable
hereunder.
2. ISSUANCE OF STOCK CERTIFICATES.
The issuance of certificates for shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder
hereof, including, without limitation, any tax which may be payable in
respect thereof, and such certificates shall
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<PAGE> 2
(subject to the provisions of Section 3 hereof) be issued in the name
of, or in such names as may be directed by, the Holder hereof;
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 certificate 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.
3. RESTRICTION ON TRANSFER OF WARRANT AND WARRANT SHARES.
(a) Neither this Warrant nor any of the shares of Common Stock issuable
upon exercise of this Warrant (the "Warrant Shares") may be sold,
transferred, assigned, pledged or disposed of by the holders thereof
(including, without limitation, transfers and dispositions by gift or
by a corporation or other entity as a distribution) without the prior
written consent of the Company. In addition, any such request by any
such holder to sell, transfer, assign, pledge or dispose of this
Warrant or any of the Warrant Shares must be accompanied by an opinion
of counsel satisfactory to the Company to the effect that such sale,
transfer, assignment, pledge or disposition is exempt from the
provisions of Section 5 of the Securities Act of 1933, as amended (the
"Act").
(b) Unless the Warrant Shares may, at the time of the exercise of this
Warrant, be lawfully resold in accordance with a then currently
effective registration statement or post-effective amendment to a
registration statement under the Act, the Company may require, as a
condition to the delivery of any Warrant Shares to be issued upon
exercise of this Warrant:
(i) that the Company receive an appropriate investment letter
evidencing that the holder is acquiring such Warrant Shares
for investment and not with a view to the distribution or
public offering of all or any portion thereof, or any interest
therein, and an agreement by such holder to the terms of the
transfer restrictions contained in Section 3(a) hereof; and
(ii) that the certificate or certificates issued to evidence such
Warrant Shares bear an appropriate legend indicating such
transfer restrictions.
3. PURCHASE PRICE.
(a) The initial purchase price shall be $___________ per share of Common
Stock. The adjusted purchase price shall be the price which shall
result from time to time from any and all adjustments of the initial
purchase price in accordance with the provisions of Section 5 hereof.
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<PAGE> 3
(b) The term "Purchase Price" herein shall mean the initial purchase price
or the adjusted purchase price, depending upon the context.
5. ADJUSTMENTS OF PURCHASE PRICE AND NUMBER OF WARRANT SHARES.
(a) Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the
Purchase Price shall forthwith be proportionately decreased in the case
of subdivision or increased in the case of combination.
(b) Adjustment in Number of Warrant Shares. Upon each adjustment of the
Purchase Price pursuant to the provisions of this Section 5, the number
of Warrant Shares issuable upon the exercise of this Warrant shall be
adjusted to the nearest full share by multiplying the Purchase Price in
effect immediately prior to such adjustment by the number of shares of
Common Stock issuable upon exercise of this Warrant immediately prior
to such adjustment and dividing the product so obtained by the adjusted
Purchase Price.
(c) Reclassification, Consolidation, Merger. etc. In case of any
reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), or in
the case of any consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger
in which the Company is the surviving corporation and which does not
result in any reclassification or change of the outstanding shares of
Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or
in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder of this Warrant
shall thereafter have the right to purchase the kind and number of
shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance, as
if such Holder had exercised this Warrant, at a price equal to the
product of (x) the number of Warrant Shares issuable upon exercise of
this Warrant and (y) the Purchase Price in effect immediately prior to
the record date for such reclassification, change, consolidation,
merger, sale or conveyance.
(d) No Adjustment of Purchase Price in Certain Cases. No adjustment of the
Purchase Price shall be made:
(i) Upon the issuance or sale of the Warrants or the Warrant
Shares; or
(ii) Upon the issuance or sale of shares of Common Stock or upon
the issuance or exercise of options, rights or warrants, or
upon the conversion or exchange of convertible or exchangeable
securities; or
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<PAGE> 4
(iii) If the amount of said adjustment shall be less than 10 cents
(10c) per share; 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 which, together
with any adjustment so carried forward, shall amount to at
least 10 cents (10c) per share.
(e) Notice of Adjustment. The Company shall notify the Holder in writing
of~any adjustment to the Purchase Price or the number of Warrant Shares
(or other securities) issuable upon exercise of this Warrant promptly
following the occurrence of any event requiring such adjustment.
6. REGISTRATION RIGHTS.
The Holder of this Warrant and any holder of the Warrant Shares shall
be entitled to the registration rights provided for in the Registration
Rights Agreement between the Company and the original holder of that
certain Debenture, upon the conversion of which this Warrant was
issued. A copy of such Registration Rights Agreement is on file at the
offices of the Company.
7. EXCHANGE AND REPLACEMENT OF WARRANT.
(a) This Warrant is exchangeable, without expense, upon the surrender
hereof by the registered holder at the principal executive office of
the Company, for a new Warrant of like tenor and date representing in
the aggregate the right to purchase the same number of shares as are
purchasable hereunder in such denominations as shall be designated by
the registered Holder hereof at the time of such surrender.
(b) If this Warrant is mutilated, lost, stolen or destroyed, the Company
may issue a new Warrant of like form to the Holder hereof upon
presentment and surrender of the mutilated Warrant, in case of
mutilation, and upon receipt of evidence of loss, theft or destruction
and of indemnity in all other cases, each in form satisfactory to the
Company.
8. ELIMINATION OF FRACTIONAL SHARES.
The Company shall not be required to issue stock certificates
representing a fraction of a share of Common Stock, 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.
9. RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized shares
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<PAGE> 5
of Common Stock, solely for the purpose of issuance upon the exercise
of this Warrant, such number of Warrant Shares as shall be issuable
upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Purchase Price therefor,
all Warrant Shares issuable upon such exercise shall be duly and
validly issued, fully paid and non-assessable.
10. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Warrant shall be construed as conferring upon
the holder hereof 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 this Warrant and prior to its exercise, any
of the following events shall occur:
(a) The Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) The Company shall offer to 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,
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
11. MISCELLANEOUS.
Any notice, demand, request and other communications to be sent
pursuant to this
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<PAGE> 6
Warrant shall be sent by registered or certified mail, postage prepaid,
or by a nationally recognized overnight courier (i) if to the Company,
at the address set forth in the preamble to this Warrant, and (ii) if
to the Holder, at the last address of the Holder as it shall appear on
the registry books of the Company. Such notice shall be deemed given
when so mailed, provided that notice of change of address shall be
effective only upon receipt.
(b) This Warrant and its validity, construction and performance shall be
governed in all respects by the laws of the State of Delaware, without
giving effect to the principles of conflict of laws thereof.
(c) This Warrant shall not be changed, modified or amended except by a
writing signed by the party to be charged and this Warrant may not be
discharged except by performance in accordance with its terms.
(d) If any provision of this Warrant shall be held to be invalid, illegal
or unenforceable, such invalidity, illegality or unenforceability shall
not affect any other provision of this Warrant, and this Warrant shall
be construed as if such invalid, illegal or unenforceable provision had
not been contained herein.
(e) The headings of this Warrant are for convenience only and shall not
control or affect the meaning or construction of any provision hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be hereunto affixed.
(Seal) ROLLERBALL INTERNATIONAL INC.
By:
---------------------------------
Jack Forcelledo
President
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<PAGE> 7
SUBSCRIPTION FORM
_______________ 19__
TO: ROLLERBALL INTERNATIONAL INC.
The undersigned hereby irrevocably elects to exercise the
attached Common Stock Purchase Warrant to the extent of ______ Shares of Common
Stock of ROLLERBALL INTERNATIONAL INC. and hereby makes payment of $_______ in
payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-----------------------------------------------
(Please typewrite or print in block letters)
Address:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
---------------------------------
Name of Warrant Holder
---------------------------------
Signature
---------------------------------
Date
7
<PAGE> 1
EXHIBIT 4.4
NEITHER THIS DEBENTURE NOR ANY OF THE SECURITIES UNDERLYING THIS DEBENTURE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS DEBENTURE AND SUCH UNDERLYING SECURITIES MAY ONLY BE
TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN ACCORDANCE
WITH SECTION 8 HEREOF AND IF THE HOLDER HEREOF SHALL HAVE DELIVERED TO THE
ISSUER AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH
DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SUCH ACT.
12% SUBORDINATED CONVERTIBLE DEBENTURE DUE OCTOBER 31, 1997
$__________ August 31, 1996
ROLLERBALL INTERNATIONAL INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ______________, or registered assigns
(the "Holder"), the principal sum of _____________________________ DOLLARS
($__________) on ____________, 19__ (the "Maturity Date"), in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, at the address of the
Holder of this Debenture as recorded on the books of the Company, and to pay
interest on the unpaid principal sum hereof from November 1, 1996, at an
interest rate equal to 12% per annum payable on January 31, April 30 and July
31, 1997 and at maturity. This Debenture is issued pursuant to a Subscription
Agreement, dated as of July 1996, between the Company and the initial Holder and
is one of a duly authorized issue of 12% Subordinated Convertible Debentures Due
October 31, 1997 of the Company (the "Debentures") offered pursuant to the
Company's Private Placement Memorandum, dated July 1996.
1. REDEMPTION AND OPTIONAL PREPAYMENT.
The Company may not redeem or prepay all or any portion of this Debenture
at any time prior to the Maturity Date without the prior consent of the
Holder.
2. EVENTS OF DEFAULT.
If any of the following conditions or events (collectively, "Events of
Default") shall occur and be continuing:
(a) the Company shall default in the payment of any principal amount of
this Debenture when the same shall become due and payable;
(b) the Company shall default in the payment of any interest on this
Debenture for more than five days after the same shall become due
and payable;
<PAGE> 2
(c) the Company shall fail to cure any other breach of the terms of this
Debenture within five (5) business days after receipt of written
notice from the Holder of the occurrence of such breach; or
(d) the Company (i) shall commence or be the debtor named in any case,
proceeding or other action relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking its winding-up,
liquidation or dissolution or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or
any substantial part of its assets, or (ii) shall make a general
assignment for the benefit of its creditors, or (iii) shall become
insolvent or be unable to, or shall admit in writing its inability
to, pay its debts as they become due (a "Bankruptcy Default");
then, the unpaid principal amount of this Debenture, together with all
unpaid interest accrued thereon, shall automatically and immediately
become due and payable.
3. REMEDIES UPON DEFAULT.
In case any Event of Default shall occur and be continuing, and subject to
the provisions of Section 5 hereof, the Holder shall be entitled to pursue
all such remedies as it may have at law, in equity or otherwise, whether
for the specific performance or collection of this Debenture, for an
injunction against a violation of any of the terms hereof, or in aid of
the exercise of any power granted hereby, by law or otherwise. The Company
promises to pay to the Holder, on demand, all reasonable costs and
expenses incurred by the Holder in connection with the collection and
enforcement of this Debenture following the occurrence of an Event of
Default, including, without limitation, all reasonable attorney's fees and
expenses and all court costs, whether or not proceedings are brought.
4. REGISTRY.
Books for the registry of this Debenture shall be kept at the principal
office of the Company located at 9255 Doheny Road, Suite 2705, Los
Angeles, California 90069. No transfer of this Debenture shall be valid
unless made on the Company's books at such office of the Company, by the
registered Holder hereof in person or by an attorney duly authorized in
writing.
5. SUBORDINATION.
By acceptance of this Debenture, the Holder hereby consents and agrees
that the payment of principal of and interest on this Debenture is
subordinated and made junior in right of payment to the prior payment in
full of all Senior indebtedness (as defined below) under the following
circumstances and limited to the extent hereinafter set forth:
(a) Upon the occurrence and continuance of any Bankruptcy Default, no
principal, interest or other sums payable on or in respect of this
Debenture or the indebtedness
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<PAGE> 3
evidenced hereby shall be paid and the Company will not at any time
make any payment of any kind to the Holder of or on account of all
or any part of the indebtedness, obligations or liabilities due
under this Debenture until all Senior Indebtedness has been paid in
full.
(b) Upon a default by the Company in the payment of any principal,
interest or any other sum or obligation payable by the Company to
any holder of Senior Indebtedness (a "Payment Default"), then,
unless and until such Payment Default shall have been cured or
waived or shall have ceased to exist, the Company will not at any
time make any payment of any kind to the Holder of or on account of
all or any part of the indebtedness, obligations or liabilities due
under this Debenture.
(c) If a default in respect of Senior Indebtedness, other than a
Bankruptcy Default or a Payment Default, shall occur and be
continuing and the Holder shall have received from a holder of
Senior Indebtedness or the trustee or representative thereof a
standstill notice (a "Standstill Notice") by which the holder of the
Senior Indebtedness or the trustee or representative thereof
declares a default (other than a Bankruptcy Default or a Payment
Default) under any of the Senior Indebtedness then, for a period of
180 days (the "Standstill Period") commencing on the date on which
such Standstill Notice shall be received by the Holder, unless and
until such default shall have been cured or waived or shall have
ceased to exist, the Company will not at any time during the
Standstill Period make any payment of any kind to the Holder of or
on account of all or any part of the indebtedness, obligations or
liabilities due under this Debenture.
(d) In case any direct or indirect payment or distribution shall be
received by the Holder in contravention of the provisions of
paragraphs (a) through (c) of this Section 5, then and in any such
event such payment or distribution shall be held in trust for and
shall be paid over or delivered to the holders of the Senior
Indebtedness, as their interests may appear, until all Senior
Indebtedness shall have been paid in full.
(e) For purposes of this Debenture, "Senior Indebtedness" shall mean all
indebtedness, obligations and liabilities howsoever created arising
or evidenced, whether direct or indirect, existing on the date of
this Debenture or arising from time to time hereafter of the Company
to any federal or state chartered banking institution or
association.
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
3
<PAGE> 4
principal amount of this Debenture by 80% 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 120% of the IPO Price, as such number of
Warrant Shares and exercise price may be adjusted in accordance with
the terms of the Warrants.
(b) Upon the effectiveness of the Registration Statement, the Company
shall promptly deliver notice thereof to the Holder. The Holder
shall thereafter promptly surrender this Debenture for conversion to
the Company at its principal office.
(c) As promptly as practicable after the surrender of this Debenture for
conversion, the Company shall deliver or cause to be delivered to
the Holder, or its designees, (i) certificates representing the
Conversion Shares and (ii) Warrants to purchase the Warrant Shares,
together with any accrued interest on this Debenture and a cash
adjustment in respect of any fraction of a share of Common Stock to
which the Holder would otherwise be entitled. Such conversion shall
be deemed to have been effected simultaneously with the
effectiveness of the Registration Statement (the "Conversion Date"),
so that the person or persons entitled to receive the Conversion
Shares and Warrants upon conversion of this Debenture shall be
treated for all purposes as having become the record holder or
holders of such Conversion Shares and Warrants at such time. So long
as this Debenture or the Warrants are outstanding, the Company shall
not close its stock transfer books. The issuance of certificates for
the Conversion Shares and the Warrants shall be made without charge
to the Holder of any tax in respect of the issuance of such
certificates and Warrants; provided, however, that the Company shall
not be required to pay any taxes which may be payable in respect of
any transfer involved in the issuance of any certificate or Warrant
in a name other than that of the Holder of this Debenture.
(d) The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of this Debenture and the
exercise of the Warrants, the full number of shares of Common Stock
then deliverable upon the conversion of the entire principal amount
of this Debenture and the exercise of all Warrants underlying this
Debenture. The Company shall take at all times such corporate action
as shall be necessary in order that the Company may validly and
legally issue fully paid and non-assessable shares of Common Stock
upon the conversion of this Debenture and the exercise of all
Warrants underlying this Debenture in accordance with the provisions
hereof and thereof.
7. REGISTRATION RIGHTS.
The holders of the Conversion Shares and the Warrant Shares shall be
entitled to the
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<PAGE> 5
registration rights provided for in the Registration Rights Agreement
between the Company and the original Holder of this Debenture. A copy of
such Registration Rights Agreement is on file at the offices of the
Company.
8. TRANSFERABILITY.
Neither this Debenture, nor any of the Conversion Shares, Warrants or
Warrant Shares, may be sold, transferred, assigned, pledged or disposed of
by the Holder (including, without limitation, transfers and dispositions
by gift or by a corporation or other entity as a distribution) without the
prior written consent of the Company. In addition, any such request by the
Holder to sell, transfer, assign, pledge or dispose of this Debenture, or
any of the Conversion Shares, Warrants or Warrant Shares, must be
accompanied by an opinion of counsel satisfactory to the Company to the
effect that such sale, transfer, assignment, pledge or disposition is
exempt from the provisions of Section 5 of the Securities Act pf 1933, as
amended.
9. MISCELLANEOUS.
(a) Any notice, demand, request and other communications to be sent
pursuant to this Debenture shall be sent by registered or certified
mail, postage prepaid, or by a nationally recognized overnight
courier (i) if to the Company, at the address set forth in Section 4
hereof, and (ii) if to the Holder, at the last address of the Holder
as it shall appear on the registry books of the Company. Such notice
shall be deemed given when so mailed, provided that notice of change
of address shall be effective only upon receipt.
(b) This Debenture and its validity, construction and performance shall
be governed in all respects by the laws of the State of Delaware,
without giving effect to the principles of conflict of laws thereof.
(c) In any case where the scheduled payment date of interest on or
principal of this Debenture shall not be a business day, then the
payment thereof shall be made on the next succeeding business day,
with the same force and effect as if made on the scheduled paymcnt
date.
(d) This Debenture shall not be changed, modified or amended except by a
writing signed by the party to be charged and this Debenture may not
be discharged except by performance in accordance with its terms.
(e) If any provision of this Debenture shall be held to be invalid,
illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other provision of this
Debenture, and this Debenture shall be construed as if such invalid,
illegal or unenforceable provision had not been contained herein.
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<PAGE> 6
(f) The parties hereto hereby waive demand, presentment, notice of
non-payment, protest and notice of protest, diligence, and all other
demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Debenture.
(g) The headings of this Debenture are for convenience only and shall
not control or affect the meaning or construction of any provision
hereof.
(h) If this Debenture is mutilated, lost, stolen or destroyed, the
Company may issue a new Debenture of like form and maturity to the
Holder hereof upon presentment and surrender of the mutilated
Debenture, in case of mutilation, and upon receipt of evidence of
loss, theft or destruction and of indemnity in all other cases, each
in form satisfactory to the Company.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as of the day and year first above written.
ROLLERBALL INTERNATIONAL INC.
By:_________________________________
Jack Forcelledo
President
6
<PAGE> 1
EXHIBIT 4.5
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. THIS PROMISSORY NOTE
IS SUBJECT TO RESTRICTIONS ON TRANSFER AS CONTAINED IN SECTION 2 HEREOF.
PROMISSORY NOTE
$ April 22, 1997
ROLLERBALL INTERNATIONAL, INC., a Delaware corporation (hereinafter
called the "Company"), for value received hereby promises to pay to
_________________________________________________ or registered assigns (the
"Payee"), on the earlier of (i) the 31 day of October, 1997 (the "Due Date") or
(ii) five (5) business days after the consummation of an initial public offering
of the Company's securities (the "Accelerated Due Date"), the principal amount
of ____________________________ Dollars ($______) together with interest
thereon, at the rate of 12% per annum from the date hereof to the date of
payment. Both the principal hereof and interest hereon are payable, at the
address hereinafter set forth for Payee (or such other place or places as the
holder hereof shall designate in writing), in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts. In addition to the principal and interest
due, the Company shall issue the shares (the "Shares") of the Company's Common
Stock, $.001 per share, as provided in paragraph 2 below are issuable upon the
Accelerated Due Date, or as otherwise provided in paragraph 2 below.
1. AUTHORIZED ISSUE. This Note is one of a duly authorized issue of
Promissory Notes (herein called the "Notes") made or to be made by the Company
in aggregate amount of $700,000, in original authorized principal amount,
similar in terms except for principal amounts and named payees.
2. ISSUANCE OF SHARES. Upon the completion of an initial public offering
of the Company's securities (the "IPO") such number of fully paid and
nonassessable shares of Common Stock (the "Note Shares") determined by dividing
the principal amount of this Note by the initial public offering price of the
Company's Common Stock in the IPO, or a price of $5.00 per share, in the event
there is no
<PAGE> 2
public offering within six months from the date hereof, or prior to a merger,
acquisition or similar transaction where the Company is not the surviving
entity. Such Shares shall be issued within five (5) business days of the earlier
of the consummation of the IPO, six months from the date hereof or immediately
prior to a merger, acquisition or similar transaction where the Company is not
the surviving entity.
3. RESTRICTIONS ON TRANSFER.
(a)(i) Unless a Registration Statement with respect thereto under
the Securities Act of 1933, as amended (the "Securities Act") is at the time in
effect, this Note and the Note Shares shall not be transferred (such term to
include any disposition which would constitute a sale within the meaning of the
Securities Act), except upon compliance with the conditions specified in this
subsection 2(a) and unless such Registration Statement is effective or such
conditions are complied with, the Company may issue or cause to be issued stop
orders preventing any such transfer.
(ii) The holder of this Note and/or the Note Shares by the
acceptance thereof agrees, prior to any transfer or attempted transfer of this
Note and/or the Note Shares, that it shall not transfer this Note and/or Note
Shares unless a Registration Statement under the Securities Act is in effect
with respect to such transfer or, prior to such transfer, it shall have
delivered to the Company an opinion of counsel experienced in Securities Act
matters reasonably acceptable to the Company and counsel to the Company in a
form reasonably acceptable to the Company, or a "no action" letter from the
Commission, to the effect that the proposed transfer may be effected without
registration under the Securities Act. The legend set forth at the top of the
first page of this Note shall likewise be affixed to the certificate for the
Note Shares and shall not be removed from any such Note and/or Note Shares to be
disposed of in accordance with this clause (ii) unless, in the opinion of
counsel for the Company, such legend is not required by the applicable
provisions of the Securities Act.
4. TRANSFER AND EXCHANGE. This Note is transferable on the Note Register
of the Company at the expense of the Company (except for any stamp tax or other
governmental charge with respect to any transfer) upon surrender of this Note
for transfer at the principal office of the Company, accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company duly
executed by the holder of this Note or his attorney duly authorized in writing,
and thereupon one or more new Notes, each in the denomination of $10,000 or an
integral multiple thereof and for the same aggregate principal amount as the
Note surrendered, and dated the date to which interest has been paid on the
Notes, will be issued to the designated transferee or transferees. This Note is
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<PAGE> 3
exchangeable for a like aggregate principal amount of Notes of different
denominations, as requested by the holder or his attorney surrendering the same.
The Company and its agents may treat the holder of this Note as the
owner for purposes of receiving payment as herein provided and for all other
purposes, whether or not this Note be overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.
Any new Note or Notes to be delivered to you or upon your order,
pursuant to this Section 4, in substitution for or in lieu of any Note held by
you, will be delivered to you at your address as shown on the records of the
Company, or at such other address within the United States of America as you may
request, without any expense to you in connection with such delivery and insured
to your satisfaction.
5. PREPAYMENT PROVISIONS. (a) This Note may be prepaid, at the option of
the Company, as a whole or in part, pro rata as to each Note holder, at any time
or from time to time, in each case on any date on or after the date of issuance
and prior to the Due Date or the Accelerated Due Date, at a redemption price of
100% of the principal amount of such Note, together with accrued interest
through the date of prepayment.
(b) If this Note is called for prepayment pursuant to subsection
4(a) of this Note, the Company shall give written notice to the holder of this
Note not less than 10 nor more than 60 days prior to the date fixed for the
prepayment thereof. Such notice and all other notices to be given to any holder
of a Note shall be mailed by registered mail to the holder thereof at the
address shown on the Note Register.
Upon notice of any prepayment being given as provided in this
subsection 4(b), the Company covenants and agrees that it will prepay on the
date therein fixed for prepayment the principal amount of this Note to be
prepaid as specified in such notice, together with interest accrued on the
entire principal amount outstanding to such date fixed for prepayment.
(c) If less than the entire principal amount of all the Notes
outstanding is to be prepaid at any time, the amount so to be prepaid shall be
applied (in units of $5,000) pro rata, as nearly as may be, to all the Notes
outstanding according to the respective unpaid principal amounts thereof;
provided, however, that if any holder shall hold more than one Note, such holder
may designate, by notice to the Company, the allocation (in units of $5,000) of
the amount of each redemption received by such holder among the Notes held by
it.
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<PAGE> 4
(d) Upon any partial redemption of the Notes, upon presentation
as herein provided, there shall be paid to the holder the principal amount of
the portion of the Notes so to be prepaid with the unpaid interest accrued in
respect thereof, and either (i) the Note to be partially prepaid shall be
surrendered by the holder, in which event the Company shall execute and deliver
to or on the order of such holder, at the expense of the Company, a new Note for
the principal amount of the Note remaining unpaid, dated as of the date to which
interest has been paid on the Note surrendered, and registered n the name of the
holder, or (ii) if the holder and the Company shall so determine, the Note to be
partially prepaid need not be so surrendered, but may be made available to the
Company, at the place of payment specified herein, for notation thereon of the
payment of the portion of the principal so paid, in which case the Company shall
make such notation and return the Note to or on the order of such holder.
(e) All Notes which are prepaid shall not be considered
outstanding for purposes of this Section 4.
6. SUBORDINATION PROVISIONS. The Note is a junior general obligation of
the Company and is fully subordinated to all "senior indebtedness" of the
Company outstanding on the Due Date. Senior indebtedness is all indebtedness,
liabilities and obligations of the Company for money borrowed from banks,
savings and loan associations, the Small Business Administration and other
financial institutions, and their affiliates, or one or more investment funds,
whether or not evidenced by notes or other instruments or evidences of
indebtedness, and any deferrals, renewals or extensions of any such senior
indebtedness and notes or other instruments or evidences of indebtedness issued
in respect of or in exchange for any such senior indebtedness or any funding to
pay or replace any such senior indebtedness or credit unless in the instrument
creating or evidencing the same, or pursuant to which it is outstanding, it is
provided that such indebtedness or such deferral, renewal or extension thereof
is not senior in right of payment to the Note. No payment or distribution of any
kind or character on account of principal, premium, if any, or interest on the
Note shall be permitted during the continuance of any default in the payment of
principal, premium, if any, or interest on any senior indebtedness.
7. DEFAULT. If one or more of the following events (herein called
"Events of Default") shall occur for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation or any administrative or
governmental body):
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<PAGE> 5
(i) default in the due and punctual payment of the principal of,
and interest on, any Note when and as the same shall become due and payable,
whether on the Due Date, the Accelerated Due Date or otherwise and continuance
of such default for a period of 10 days; or
(ii) the Company or any subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or
(iii) an order, judgment or decree is entered adjudicating the
Company or any subsidiary bankrupt or insolvent; or
(iv) the Company or any subsidiary petitions or applies to any
tribunal for the appointment of a trustee or receiver of the Company within the
meaning of the Securities Act, or of any substantial part of the assets of the
Company, or commences any proceedings relating to the Company or any subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction whether now or
hereafter in effect; or
(v) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any subsidiary, and the
Company or such subsidiary by any act indicates its approval thereof, consent or
acquiescence therein, or an order, judgment or decree is entered appointing any
such trustee or receiver, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than 60
days; or
(vi) the Company or any subsidiary shall take any corporate
action for the purpose of effecting any of the actions set forth in clauses (ii)
through (v) of this section 5; or
(vii) any order, judgment or decree is entered in any
proceedings against the Company or any subsidiary within the meaning of the
Securities Act decreeing the dissolution of the Company and such order, judgment
or decree remains unstayed and in effect for more than 60 days; or
(viii) any order, judgment or decree is entered in any
proceedings against the Company or any subsidiary decreeing a split-up of the
Company which requires the divestiture of a substantial part of the consolidated
assets of the Company and its subsidiaries, or the divestiture of the stock of a
subsidiary and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
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<PAGE> 6
(ix) a default has been declared by the holder of any
indebtedness of the Company or any subsidiary for borrowed money and such
default has not been cured within a period of time, if any, provided for cure;
(x) a default in the due observance or performance of any
covenant, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms and provisions of this Note (other than the
payment provisions) and such default shall continue for 30 days after written
notice thereof shall have been given to the Company by the holder hereof;
(xi) a final judgment, decree or order for the payment of money
in excess of $25,000 shall be rendered against the Company or any subsidiary,
and the same shall not be discharged or execution thereon stayed pending appeal
within 30 days after entry thereof;
(xii) an attachment or levy against the assets or properties of
the Company or any subsidiary involving an amount in excess of $25,000, which
attachment or levy is not dismissed, bonded or otherwise terminated within
thirty (30) days of the effectiveness of such attachment or levy; or
(xiii) the sale by the Company of all or substantially all of
its assets or the merger or consolidation by the Company with or into another
corporation, except for mergers or consolidations where the Company is the
surviving entity or where the surviving entity expressly accepts and assumes the
obligations under all the Notes.
then, and in each and every such case, so long as such Event of Default shall
not have been remedied, the holder of this Note, by notice in writing to the
Company, may declare the principal of this Note then outstanding and the
interest accrued thereon if not already due and payable, to be due and payable
immediately, and upon any such declaration the same (the "Aggregate
Indebtedness") shall become and shall be immediately due and payable with
interest on such Aggregate Indebtedness at a rate of 18% per annum (the "Default
Rate") from and after the date on which such Aggregate Indebtedness becomes due,
anything in this Note contained to the contrary notwithstanding; provided that,
upon the occurrence of an event described in (ii) through (viii) above, the
principal amount outstanding and accrued interest thereon shall become due and
payable whether the holder of this Note makes such declaration.
8. MISCELLANEOUS. (a) To the extent permitted by applicable law, the
Company hereby agrees to waive, and does hereby absolutely and irrevocably waive
and relinquish, the benefit and advantage of any valuation, stay, appraisement,
extension or redemption law now existing or which may hereafter exist, which,
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<PAGE> 7
but for this provisions, might be applicable to any sale made under the
judgment, order or decree of any court, or otherwise, based on the Notes or on
any claim for principal or interest on the Notes.
(b) Each Note is issued upon the express condition, to which each
successive holder expressly assents and by receiving the same agrees, that no
recourse under or upon any obligation, covenant or agreement of the Notes, or
for the payment of the principal of, or premium, if any, or the interest on, a
Note, or for any claim based on a Note, or otherwise in respect hereof, shall be
had against any incorporator or any past, present or future stockholder, officer
or director, as such, of the Company or of any successor corporation, whether by
virtue of the constitution, statute or rule of law or by any assessment or
penalty or otherwise howsoever, all such individual liability being hereby
expressly waived and released as a condition of and as a part of the
consideration for the execution and issue of the Notes; provided, however, that
nothing herein shall prevent enforcement of the liability, if any, of any
stockholder or subscriber to capital stock upon or in respect of capital stock
not fully paid.
(c) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of any Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
any such Note if mutilated, the Company will make and deliver a new Note or like
tenor in lieu of any such Note so lost, stolen, destroyed or mutilated. Any new
Note made and delivered n accordance with the provisions of this subsection 6(c)
shall be dated as of the date from which unpaid interest has then accrued on the
Note so lost, stolen, destroyed or mutilated.
(d) Any notice or demand which by an provision of the Notes is
required or provided to be given or served to or upon the Company shall be
deemed to have been sufficiently given or served for all purposes by being sent
as registered mail, postage prepaid, addressed to the Company at its principal
office.
(e) No course of dealing between the Company and the holder of
any Note or any delay on the part of the holder in exercising any rights under a
Note shall operate as a waiver of any rights of any holder of the Note.
(f) The obligations to make the payments provided for in this
Note are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.
(g) The Company agrees to pay, on demand, all costs and expenses
paid or incurred by the holder of this Note in seeking to
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<PAGE> 8
collect this Note, including, without limitation, reasonable attorneys' fees and
disbursements paid or incurred by the holder, with interest thereon at the
Default Rate until paid in full.
(h) No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
right or remedy preclude any other of further exercise thereof or the exercise
of any other right or remedy.
(i) The Company hereby expressly waives demand and presentment
for payment, notice of nonpayment, notice of dishonor, protest, notice of
protest, bringing of suit, and diligence in taking any action to collect amounts
called for hereunder, and shall be directly and primarily liable for the payment
of all sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder.
9. BINDING EFFECT. The Company agrees that the provisions of this Note
shall bind and shall inure to the benefit of the parties hereto and their heirs,
successors and assigns.
10. AMENDMENT AND WAIVER. This Note may be amended or supplemented, and
any existing Event of Default may be waived with the consent of the holders of
at least a majority in principal amount of the Notes then outstanding, except
that the consent of the holder of this Note must be obtained with respect to any
amendment to this Note which would reduce the principal amount of the Note,
reduce the interest rate, extend the Due Date or reduce the principal amount of
Notes whose holders must consent to an amendment, supplement or waiver.
11. INTEREST RATE.If any interest rate specified herein is held to be
impermissible, then the rate charged on the indebtedness represented hereby
shall be reduced to the highest rate then permitted by law.
12. COMMUNICATIONS. All notices and other communications provided for
hereunder or under the Notes shall be in writing, and, if to you, shall be
delivered or mailed by registered mail addressed to you at your address as shown
in the records of the Company in this Note hereto or to such other address as
you may designate to the Company in writing and, if to the Company, shall be
delivered or mailed by registered mail to the Company at 9255 Doheny Road, Suite
2705, Los Angeles, California 90069 Attention: Office of the President, or to
such other address as the Company may designate to you in writing.
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<PAGE> 9
13. DELAWARE. This Note shall be construed in accordance with and
governed by the internal laws of the State of Delaware without regard to
principles of conflicts of law, and cannot be changed, discharged or terminated
orally but only by an instrument in writing signed by the party against whom
enforcement of any change, discharge or termination is sought.
14. HEADINGS. The headings of the sections of this Note are inserted for
convenience only and do not affect the meaning of such section.
IN WITNESS WHEREOF, ROLLERBALL INTERNATIONAL, INC. has caused
this Note to be signed in its corporate name by a duly authorized
officer and to be dated the date and year first above written.
ROLLERBALL INTERNATIONAL, INC.
By________________________________
Jack Forcelledo
Chairman of the Board
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<PAGE> 1
EXHIBIT 4.6
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED. THIS PROMISSORY NOTE IS SUBJECT TO
RESTRICTIONS ON TRANSFER AS CONTAINED IN SECTION 2 HEREOF.
PROMISSORY NOTE
$400,000 October , 1997
ROLLERBALL INTERNATIONAL, INC., a Delaware corporation (hereinafter called
the "Company"), for value received hereby promises to pay to Sercap Holdings,
LLC or registered assigns (the "Payee"), on the 31 day of December, 1998 (the
"Due Date") the principal amount of FOUR HUNDRED THOUSAND Dollars ($400,000)
together with interest thereon, at the rate of 12% per annum payable monthly
from the date hereof to the date of payment unless, prior to the Due Date, this
Note is automatically converted into shares of the Company's Common Stock as
provided herein. Both the principal hereof and interest hereon are payable, at
the address hereinafter set forth for Payee (or such other place or places as
the holder hereof shall designate in writing), in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
1. AUTHORIZED ISSUE. This Note is a duly authorized issue of
the Company.
2. CONVERSION. (a) Upon the closing of the Company's initial public
offering of its securities, the unpaid principal amount of this Note shall be
automatically converted, without any further action of the holder, at the
conversion price per share of Common Stock equal to 75% of the initial public
offering price of the Company's Common Stock, $.001 par value per share (such
conversion price, being herein called the "Conversion Price"), into the number
of fully paid and nonassessable shares of Common Stock (the "Note Shares")
determined by dividing the principal amount to be so converted by the Conversion
Price in effect at the time of such conversion. Upon such conversion, this Note
shall be deemed fully paid and cancelled. The Note Shares are subject to a
registration rights agreement as set forth in a certain note purchase agreement
(the "Note Purchase Agreement") of even date between the Company and Sercap
Holdings LLC.
<PAGE> 2
(b) In the event the Company fails to pay the principal and
interest due hereunder prior to the Due Date, the holder of this Note shall have
the right, commencing on the first business day following the expiration of the
Company's right to cure such default in payment, and continuing for a period of
thirty days thereafter, to convert this Note and all sums due thereunder, into
6.675% of the outstanding shares of the Company's Common Stock including the
shares issuable to the Purchaser under this subparagraph 2(a). In such event,
this Note may be converted in full or in part by the holder thereof by surrender
of such Note with the notice of conversion thereon duly executed by such holder
(specifying the portion of the principal amount thereof to be converted in the
case of a partial conversion) to the Company at its principal office, or at the
office of the agency maintained for such purpose. The shares issuable upon a
partial conversion shall be proportional to the number of shares issuable upon a
conversion in full. Upon any partial conversion of a Note, the Company at its
expense shall forthwith issue and deliver to or upon the order of the holder
thereof a new Note or Notes in principal amount equal to the unpaid and
unconverted principal amount of such surrendered Note, such new Note or Notes to
be dated and to bear interest from the date to which interest has been paid on
such surrendered Note. Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which such Note shall
have been so surrendered to the Company or such agency; and at such time the
rights of the holder of such Note as such shall, to the extent of the principal
amount thereof converted, cease, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record thereof.
(c) As promptly as practicable after the conversion of any
Note in full or in part, and in any event within 15 calendar days thereafter,
the Company at its expense (including the payment by it or any applicable issue
taxes) will issue and deliver to the holder of such Note, or as such holder
(upon payment of such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, plus, in lieu of any fractional shares to which
such holder would otherwise be entitled, cash equal to such fraction multiplied
by the market value determined in good faith by the Board of Directors of the
Company of one full share as of the close of business on the date of such
conversion.
(d) The Company will at all time reserve and keep available,
solely for issuance and delivery upon the conversion of the Notes, all shares of
Common Stock (or Other Securities) from time to time issuable upon the
conversion of the Notes. All shares of Common Stock issuable upon conversion of
the Notes shall be duly authorized and, when issued, validly issued, fully paid
and nonassessable with no liability on the part of the holders thereof.
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<PAGE> 3
3. RESTRICTIONS ON TRANSFER.
(a)(i) This Note and the Note Shares shall not be transferred (such
term to include any disposition which would constitute a sale within the meaning
of the Securities Act), except upon compliance with the conditions specified in
this subsection 3(a). The Company may issue or cause to be issued stop orders
preventing any such transfer.
(ii) The holder of this Note and/or the Note Shares by the
acceptance thereof agrees, prior to any transfer or attempted transfer of this
Note and/or the Note Shares, that it shall not transfer this Note and/or Note
Shares unless a Registration Statement under the Securities Act is in effect
with respect to such transfer or, prior to such transfer, it shall have
delivered to the Company an opinion of counsel experienced in Securities Act
matters reasonably acceptable to the Company and counsel to the Company in a
form reasonably acceptable to the Company, or a "no action" letter from the
Commission, to the effect that the proposed transfer may be effected without
registration under the Securities Act. The legend set forth at the top of the
first page of this Note shall likewise be affixed to the certificate for the
Note Shares and shall not be removed from any such Note and/or Note Shares to be
disposed of in accordance with this clause (ii) unless, in the opinion of
counsel for the Company, such legend is not required by the applicable
provisions of the Securities Act.
4. TRANSFER AND EXCHANGE. This Note is transferable on the Note
Register of the Company at the expense of the Company (except for any stamp tax
or other governmental charge with respect to any transfer) upon surrender of
this Note for transfer at the principal office of the Company, accompanied by a
written instrument of transfer in form reasonably satisfactory to the Company
duly executed by the holder of this Note or his attorney duly authorized in
writing, and thereupon one or more new Notes, each in the denomination of
$10,000 or an integral multiple thereof and for the same aggregate principal
amount as the Note surrendered, and dated the date to which interest has been
paid on the Notes, will be issued to the designated transferee or transferees.
This Note is exchangeable for a like aggregate principal amount of Notes of
different denominations, as requested by the holder or his attorney surrendering
the same.
The Company and its agents may treat the holder of this Note as the owner
for purposes of receiving payment as herein provided and for all other purposes,
whether or not this Note be overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Any new Note or Notes to be delivered to Payee or upon Payee's order,
pursuant to this Section 4, in substitution for or in lieu of any Note held by
Payee, will be delivered to Payee at Payee's
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<PAGE> 4
address as shown on the records of the Company, or at such other address within
the United States of America as Payee may request, without any expense to Payee
in connection with such delivery and insured to Payee's satisfaction.
5. PREPAYMENT PROVISIONS. (a) This Note may be prepaid, at the option of
the Company, as a whole or in part, at any time or from time to time, in each
case on any date on or after the date of issuance and prior to the Due Date or
the Accelerated Due Date, at a redemption price of 100% of the principal amount
of such Note, together with accrued interest through the date of prepayment.
(b) If this Note is called for prepayment pursuant to subsection
5(a) of this Note, the Company shall give written notice to the holder of this
Note not less than 10 nor more than 60 days prior to the date fixed for the
prepayment thereof. Such notice and all other notices to be given to any holder
of a Note shall be mailed by registered mail to the holder thereof at the
address shown on the Note Register. The holder shall have the right to convert
this Note in accordance with Section 2 from the date the notice of prepayment is
given to the prepayment date.
Upon notice of any prepayment being given as provided in this
subsection 5(b), the Company covenants and agrees that it will prepay on the
date therein fixed for prepayment the principal amount of this Note to be
prepaid as specified in such notice, together with interest accrued on the
entire principal amount outstanding to such date fixed for prepayment.
(c) Upon any partial payment of the Notes, upon presentation as
herein provided, there shall be paid to the holder the principal amount of the
portion of the Notes so to be prepaid with the unpaid interest accrued in
respect thereof, and either (i) the Note to be partially prepaid shall be
surrendered by the holder, in which event the Company shall execute and deliver
to or on the order of such holder, at the expense of the Company, a new Note for
the principal amount of the Note remaining unpaid, dated as of the date to which
interest has been paid on the Note surrendered, and registered in the name of
the holder, or (ii) if the holder and the Company shall so determine, the Note
to be partially prepaid need not be so surrendered, but may be made available to
the Company, at the place of payment specified herein, for notation thereon of
the payment of the portion of the principal so paid, in which case the Company
shall make such notation and return the Note to or on the order of such holder.
(d) All Notes which are prepaid shall not be considered outstanding
for purposes of this Section 5.
6. SUBORDINATION PROVISIONS. The Note is a junior general obligation of
the Company and is fully subordinated to all "senior indebtedness" of the
Company outstanding on the Due Date. Senior
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<PAGE> 5
indebtedness is all indebtedness, liabilities and obligations of the Company for
money borrowed from banks, savings and loan associations, the Small Business
Administration and other financial institutions, and their affiliates, or one or
more investment funds, whether or not evidenced by notes or other instruments or
evidences of indebtedness, and any deferrals, renewals or extensions of any such
senior indebtedness and notes or other instruments or evidences of indebtedness
issued in respect of or in exchange for any such senior indebtedness or any
funding to pay or replace any such senior indebtedness or credit unless in the
instrument creating or evidencing the same, or pursuant to which it is
outstanding, it is provided that such indebtedness or such deferral, renewal or
extension thereof is not senior in right of payment to the Note. No payment or
distribution of any kind or character on account of principal, premium, if any,
or interest on the Note shall be permitted during the continuance of any default
in the payment of principal, premium, if any, or interest on any senior
indebtedness for a period of one hundred eighty days (180) days. After one
hundred eighty days (180) days, Purchaser may proceed to execute its rights
under the Notes.
7. DEFAULT. If one or more of the following events (herein called "Events
of Default") shall occur for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation or any administrative or governmental
body):
(i) default in the due and punctual payment of the principal of, or
interest on, any Note when and as the same shall become due and payable, whether
on the Due Date, the Accelerated Due Date or otherwise and continuance of such
default for a period of 10 days; or
(ii) the Company or any subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or
(iii) an order, judgment or decree is entered adjudicating the
Company or any subsidiary bankrupt or insolvent; or
(iv) the Company or any subsidiary petitions or applies to any
tribunal for the appointment of a trustee or receiver of the Company within the
meaning of the Securities Act, or of any substantial part of the assets of the
Company, or commences any proceedings relating to the Company or any subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction whether now or
hereafter in effect; or
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<PAGE> 6
(v) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any subsidiary, and the
Company or such subsidiary by any act indicates its approval thereof, consent or
acquiescence therein, or an order, judgment or decree is entered appointing any
such trustee or receiver, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than 60
days; or
(vi) the Company or any subsidiary shall take any corporate action
for the purpose of effecting any of the actions set forth in clauses (ii)
through (v) of this section 7; or
(vii) any order, judgment or decree is entered in any proceedings
against the Company or any subsidiary within the meaning of the Securities Act
decreeing the dissolution of the Company and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(viii) any order, judgment or decree is entered in any proceedings
against the Company or any subsidiary decreeing a split-up of the Company which
requires the divestiture of a substantial part of the consolidated assets of the
Company and its subsidiaries, or the divestiture of the stock of a subsidiary
and such order, judgment or decree remains unstayed and in effect for more than
60 days; or
(ix) a default has been declared by the holder of any indebtedness
of the Company or any subsidiary for borrowed money and such default has not
been cured within a period of time, if any, provided for cure;
(x) a default in the due observance or performance of any covenant,
condition or agreement on the part of the Company to be observed or performed
pursuant to the terms and provisions of this Note (other than the payment
provisions) or any default, including payment default on the Note, the Note
Purchase Agreement, and a certain $600,000 term note of even date, and such
default shall continue for 30 days after written notice thereof shall have been
given to the Company by the holder hereof;
(xi) a final judgment, decree or order for the payment of money in
excess of $100,000 shall be rendered against the Company or any subsidiary, and
the same shall not be discharged or execution thereon stayed pending appeal
within 30 days after entry thereof;
(xii) an attachment or levy against the assets or properties of the
Company or any subsidiary involving an amount in excess of $100,000, which
attachment or levy is not dismissed, bonded or otherwise terminated within
thirty (30) days of the effectiveness of such attachment or levy; or
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<PAGE> 7
(xiii) the sale by the Company of all or substantially all of its
assets or the merger or consolidation by the Company with or into another
corporation, except for mergers or consolidations where the Company is the
surviving entity or where the surviving entity expressly accepts and assumes the
obligations under all the Notes;
then, and in each and every such case, so long as such Event of Default shall
not have been remedied within 10 days after written notice thereof by the Payee
to the Company specifying the default, the holder of this Note, by notice in
writing to the Company, may declare the principal of this Note then outstanding
and the interest accrued thereon if not already due and payable, to be due and
payable immediately, and upon any such declaration the same (the "Aggregate
Indebtedness") shall become and shall be immediately due and payable with
interest on such Aggregate Indebtedness at a rate of 18% per annum (the "Default
Rate") from and after the date on which such Aggregate Indebtedness becomes due,
anything in this Note contained to the contrary notwithstanding; provided that,
upon the occurrence of an event described in (ii) through (viii) above, the
principal amount outstanding and accrued interest thereon shall become due and
payable whether the holder of this Note makes such declaration. Notwithstanding
the foregoing, the holder of this Note shall be entitled to exercise its rights
under this paragraph 7 without 10 days written notice, where the Event of
Default is a default in payment.
8. MISCELLANEOUS. (a) To the extent permitted by applicable law, the
Company hereby agrees to waive, and does hereby absolutely and irrevocably waive
and relinquish, the benefit and advantage of any valuation, stay, appraisement,
extension or redemption law now existing or which may hereafter exist, which,
but for this provisions, might be applicable to any sale made under the
judgment, order or decree of any court, or otherwise, based on the Notes or on
any claim for principal or interest on the Notes.
(b) Each Note is issued upon the express condition, to which each
successive holder expressly assents and by receiving the same agrees, that no
recourse under or upon any obligation, covenant or agreement of the Notes, or
for the payment of the principal of, or premium, if any, or the interest on, a
Note, or for any claim based on a Note, or otherwise in respect hereof, shall be
had against any incorporator or any past, present or future stockholder, officer
or director, as such, of the Company or of any successor corporation, whether by
virtue of the constitution, statute or rule of law or by any assessment or
penalty or otherwise howsoever, all such individual liability being hereby
expressly waived and released as a condition of and as a part of the
consideration for the execution and issue of the Notes; provided, however, that
nothing herein shall prevent enforcement of
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<PAGE> 8
the liability, if any, of any stockholder or subscriber to capital stock upon or
in respect of capital stock not fully paid.
(c) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of any Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
any such Note if mutilated, the Company will make and deliver a new Note or like
tenor in lieu of any such Note so lost, stolen, destroyed or mutilated. Any new
Note made and delivered in accordance with the provisions of this subsection
8(c) shall be dated as of the date from which unpaid interest has then accrued
on the Note so lost, stolen, destroyed or mutilated.
(d) Any notice or demand which by any provision of the Notes is
required or provided to be given or served to or upon the Company shall be
deemed to have been sufficiently given or served for all purposes by being sent
as registered mail, postage prepaid, addressed to the Company at its principal
office.
(e) No course of dealing between the Company and the holder of any
Note or any delay on the part of the holder in exercising any rights under a
Note shall operate as a waiver of any rights of any holder of the Note.
(f) The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.
(g) The Company agrees to pay, on demand, all costs and expenses
paid or incurred by the holder of this Note in seeking to collect this Note,
including, without limitation, reasonable attorneys' fees and disbursements paid
or incurred by the holder, with interest thereon at the Default Rate until paid
in full.
(h) No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
right or remedy preclude any other of further exercise thereof or the exercise
of any other right or remedy.
(i) The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of protest,
bringing of suit, and diligence in taking any action to collect amounts called
for hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder.
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9. BINDING EFFECT. The Company agrees that the provisions of this Note
shall bind and shall inure to the benefit of the parties hereto and their heirs,
successors and assigns.
10. AMENDMENT AND WAIVER. This Note may be amended or supplemented, and
any existing Event of Default may be waived with the consent of the Payee.
11. INTEREST RATE. If any interest rate specified herein is held to be
impermissible, then the rate charged on the indebtedness represented hereby
shall be reduced to the highest rate then permitted by law.
12. COMMUNICATIONS. All notices and other communications provided for
hereunder or under the Notes shall be in writing, and, if to Payee, shall be
delivered or mailed by registered mail addressed to Payee at Payee's address as
shown in the records of the Company or to such other address as Payee may
designate to the Company in writing and, if to the Company, shall be delivered
or mailed by registered mail to the Company at 9255 Doheny Road, Suite 2705, Los
Angeles, California 90069 Attention: Office of the President, or to such other
address as the Company may designate to Payee in writing.
13. DELAWARE. This Note shall be construed in accordance with and governed
by the internal laws of the State of Delaware without regard to principles of
conflicts of law, and cannot be changed, discharged or terminated orally but
only by an instrument in writing signed by the party against whom enforcement of
any change, discharge or termination is sought.
14. HEADINGS. The headings of the sections of this Note are inserted for
convenience only and do not affect the meaning of such section.
IN WITNESS WHEREOF, ROLLERBALL INTERNATIONAL, INC. has caused this Note to
be signed in its corporate name by a duly authorized officer and to be dated the
date and year first above written.
ROLLERBALL INTERNATIONAL, INC.
By
---------------------------
Jack Forcelledo
Chairman of the Board
9
<PAGE> 10
CONVERSION FORM
To Be Executed by the Registered Holder to Convert Note
The undersigned Registered Holder hereby irrevocably elects to convert
$________________ principal amount represented by this Note, and to purchase the
shares of Common Stock issuable upon the conversion of such Note, and requests
that certificates for such shares shall be issued in the name of:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(please print or type name and address)
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- -----------------------------------------------------------------
and be delivered to
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(please print or type name and address)
and if the amount so converted shall not represent the entire unpaid principal
amount due and owing on this Note, the Company shall deliver a new Note for the
unpaid and unconverted principal amount of such surrendered Note registered in
the name of, and delivered, to, the Registered Holder at the address stated
below, such new Note or Notes to be dated and to bear interest from the date to
which interest has been paid on such surrendered Note.
Dated: X
------------------------- ------------------------------
Signature
------------------------- ------------------------------
Taxpayer Identification #
------------------------------
Address
10
<PAGE> 1
EXHIBIT 4.7
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED. THIS PROMISSORY NOTE IS SUBJECT TO
RESTRICTIONS ON TRANSFER AS CONTAINED IN SECTION 2 HEREOF.
PROMISSORY NOTE
$600,000 October , 1997
ROLLERBALL INTERNATIONAL, INC., a Delaware corporation (hereinafter called
the "Company"), for value received hereby promises to pay to Sercap Holdings,
LLC or registered assigns (the "Payee"), on the earlier of (i) the 31st day of
December, 1998 (the "Due Date") or (ii) five (5) business days after the
consummation of an initial public offering of the Company's securities (the
"Accelerated Due Date"), the principal amount of SIX HUNDRED THOUSAND Dollars
($600,000) together with interest thereon, at the rate of 12% per annum payable
monthly from the date hereof to the date of payment. Both the principal hereof
and interest hereon are payable, at the address hereinafter set forth for Payee
(or such other place or places as the holder hereof shall designate in writing),
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts. In
addition to payment of the principal and interest due, the Company shall issue
the shares (the "Shares") of the Company's Common Stock, $.001 per share, as
provided in paragraph 2 below as are issuable upon the Accelerated Due Date, or
as otherwise provided in paragraph 2 below.
1. AUTHORIZED ISSUE. This Note is a duly authorized issue
of the Company.
2. ISSUANCE OF SHARES. Upon the closing of an initial public offering
of the Company's securities (the "IPO"), the Company shall issue to the holder
of this Note such number of fully paid and nonassessable shares of Common Stock
(the "Note Shares") determined by dividing the principal amount of this Note by
(i) the initial public offering price of the Company's Common Stock in the IPO,
or (ii) in the event there is no public offering prior to the Due Date, or prior
to an IPO the Company consummates a merger, acquisition or similar transaction
where the Company is not the surviving entity, a price of $5.00 per share. Such
Shares shall be issued within five (5) business days of the earlier of the
<PAGE> 2
consummation of the IPO, the Due Date or immediately prior to a merger,
acquisition or similar transaction where the Company is not the surviving
entity. The Note Shares are subject to a registration rights agreement as set
forth in a certain note purchase agreement (the "Note Purchase Agreement") of
even date between the Company and Sercap Holdings LLC.
2. DEFAULT CONVERSION. (a) In the event the Company fails to pay the
principal and interest due hereunder prior to the Due Date, the holder of this
Note shall have the right, commencing on the first business day following the
expiration of the Company's right to cure such default in payment, and
continuing for a period of thirty days thereafter, to convert this Note and all
sums due thereunder, into 10% of the outstanding shares of the Company's Common
Stock including the shares issuable to the Purchaser under this subparagraph
2(a). In such event, this Note may be converted in full or in part by the holder
thereof by surrender of such Note with the notice of conversion thereon duly
executed by such holder (specifying the portion of the principal amount thereof
to be converted in the case of a partial conversion) to the Company at its
principal office, or at the office of the agency maintained for such purpose.
The shares issuable upon a partial conversion shall be proportional to the
number of shares issuable upon a conversion in full. Upon any partial conversion
of a Note, the Company at its expense shall forthwith issue and deliver to or
upon the order of the holder thereof a new Note or Notes in principal amount
equal to the unpaid and unconverted principal amount of such surrendered Note,
such new Note or Notes to be dated and to bear interest from the date to which
interest has been paid on such surrendered Note. Each conversion shall be deemed
to have been effected immediately prior to the close of business on the date on
which such Note shall have been so surrendered to the Company or such agency;
and at such time the rights of the holder of such Note as such shall, to the
extent of the principal amount thereof converted, cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record thereof.
(c) As promptly as practicable after the conversion of any
Note in full or in part, and in any event within 15 calendar days thereafter,
the Company at its expense (including the payment by it or any applicable issue
taxes) will issue and deliver to the holder of such Note, or as such holder
(upon payment of such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, plus, in lieu of any fractional shares to which
such holder would otherwise be entitled, cash equal to such fraction multiplied
by the market value determined in good faith by the Board of Directors of the
Company of one full share as of the close of business on the date of such
conversion.
2
<PAGE> 3
(d) The Company will at all time reserve and keep available,
solely for issuance and delivery upon the conversion of the Notes, all shares of
Common Stock (or Other Securities) from time to time issuable upon the
conversion of the Notes. All shares of Common Stock issuable upon conversion of
the Notes shall be duly authorized and, when issued, validly issued, fully paid
and nonassessable with no liability on the part of the holders thereof.
3. RESTRICTIONS ON TRANSFER.
(a)(i) This Note and the Note Shares shall not be transferred (such
term to include any disposition which would constitute a sale within the meaning
of the Securities Act), except upon compliance with the conditions specified in
this subsection 3(a). The Company may issue or cause to be issued stop orders
preventing any such transfer.
(ii) The holder of this Note and/or the Note Shares by the
acceptance thereof agrees, prior to any transfer or attempted transfer of this
Note and/or the Note Shares, that it shall not transfer this Note and/or Note
Shares unless a Registration Statement under the Securities Act is in effect
with respect to such transfer or, prior to such transfer, it shall have
delivered to the Company an opinion of counsel experienced in Securities Act
matters reasonably acceptable to the Company and counsel to the Company in a
form reasonably acceptable to the Company, or a "no action" letter from the
Commission, to the effect that the proposed transfer may be effected without
registration under the Securities Act. The legend set forth at the top of the
first page of this Note shall likewise be affixed to the certificate for the
Note Shares and shall not be removed from any such Note and/or Note Shares to be
disposed of in accordance with this clause (ii) unless, in the opinion of
counsel for the Company, such legend is not required by the applicable
provisions of the Securities Act.
4. TRANSFER AND EXCHANGE. This Note is transferable on the Note Register
of the Company at the expense of the Company (except for any stamp tax or other
governmental charge with respect to any transfer) upon surrender of this Note
for transfer at the principal office of the Company, accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company duly
executed by the holder of this Note or his attorney duly authorized in writing,
and thereupon one or more new Notes, each in the denomination of $10,000 or an
integral multiple thereof and for the same aggregate principal amount as the
Note surrendered, and dated the date to which interest has been paid on the
Notes, will be issued to the designated transferee or transferees. This Note is
exchangeable for a like aggregate principal amount of Notes of different
denominations, as requested by the holder or his attorney surrendering the same.
3
<PAGE> 4
The Company and its agents may treat the holder of this Note as the owner
for purposes of receiving payment as herein provided and for all other purposes,
whether or not this Note be overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Any new Note or Notes to be delivered to Payee or upon Payee's order,
pursuant to this Section 4, in substitution for or in lieu of any Note held by
Payee, will be delivered to Payee at Payee's address as shown on the records of
the Company, or at such other address within the United States of America as
Payee may request, without any expense to Payee in connection with such delivery
and insured to Payee's satisfaction.
5. PREPAYMENT PROVISIONS. (a) This Note may be prepaid, at the option of
the Company, as a whole or in part, at any time or from time to time, in each
case on any date on or after the date of issuance and prior to the Due Date or
the Accelerated Due Date, at a redemption price of 100% of the principal amount
of such Note, together with accrued interest through the date of prepayment.
(b) If this Note is called for prepayment pursuant to subsection
5(a) of this Note, the Company shall give written notice to the holder of this
Note not less than 10 nor more than 60 days prior to the date fixed for the
prepayment thereof. Such notice and all other notices to be given to any holder
of a Note shall be mailed by registered mail to the holder thereof at the
address shown on the Note Register.
Upon notice of any prepayment being given as provided in this
subsection 5(b), the Company covenants and agrees that it will prepay on the
date therein fixed for prepayment the principal amount of this Note to be
prepaid as specified in such notice, together with interest accrued on the
entire principal amount outstanding to such date fixed for prepayment.
(c) Upon any partial payment of the Notes, upon presentation as
herein provided, there shall be paid to the holder the principal amount of the
portion of the Notes so to be prepaid with the unpaid interest accrued in
respect thereof, and either (i) the Note to be partially prepaid shall be
surrendered by the holder, in which event the Company shall execute and deliver
to or on the order of such holder, at the expense of the Company, a new Note for
the principal amount of the Note remaining unpaid, dated as of the date to which
interest has been paid on the Note surrendered, and registered n the name of the
holder, or (ii) if the holder and the Company shall so determine, the Note to be
partially prepaid need not be so surrendered, but may be made available to the
Company, at the place of payment specified herein, for notation thereon of the
payment of the portion of the principal so paid, in which case the Company shall
make such notation and return the Note to or on the order of such holder.
Notwithstanding
4
<PAGE> 5
the foregoing, no prepayment shall affect the obligations of the company to
issue the Note Shares to the Payee and include such Note Shares in the Company's
IPO registration statement.
(d) All Notes which are prepaid shall not be considered outstanding
for purposes of this Section 5.
6. SUBORDINATION PROVISIONS. The Note is a junior general obligation of
the Company and is fully subordinated to all "senior indebtedness" of the
Company outstanding on the Due Date. Senior indebtedness is all indebtedness,
liabilities and obligations of the Company for money borrowed from banks,
savings and loan associations, the Small Business Administration and other
financial institutions, and their affiliates, or one or more investment funds,
whether or not evidenced by notes or other instruments or evidences of
indebtedness, and any deferrals, renewals or extensions of any such senior
indebtedness and notes or other instruments or evidences of indebtedness issued
in respect of or in exchange for any such senior indebtedness or any funding to
pay or replace any such senior indebtedness or credit unless in the instrument
creating or evidencing the same, or pursuant to which it is outstanding, it is
provided that such indebtedness or such deferral, renewal or extension thereof
is not senior in right of payment to the Note. No payment or distribution of any
kind or character on account of principal, premium, if any, or interest on the
Note shall be permitted during the continuance of any default in the payment of
principal, premium, if any, or interest on any senior indebtedness for a period
of one hundred eighty days (180) days. After one hundred eighty days (180) days,
Purchaser may proceed to execute its rights under the Notes.
7. DEFAULT. If one or more of the following events (herein called "Events
of Default") shall occur for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation or any administrative or governmental
body):
(i) default in the due and punctual payment of the principal of, or
interest on, any Note when and as the same shall become due and payable, whether
on the Due Date, the Accelerated Due Date or otherwise and continuance of such
default for a period of 10 days; or
(ii) the Company or any subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or
(iii) an order, judgment or decree is entered adjudicating the
Company or any subsidiary bankrupt or insolvent; or
5
<PAGE> 6
(iv) the Company or any subsidiary petitions or applies to any
tribunal for the appointment of a trustee or receiver of the Company within the
meaning of the Securities Act, or of any substantial part of the assets of the
Company, or commences any proceedings relating to the Company or any subsidiary
under any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction whether now or
hereafter in effect; or
(v) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any subsidiary, and the
Company or such subsidiary by any act indicates its approval thereof, consent or
acquiescence therein, or an order, judgment or decree is entered appointing any
such trustee or receiver, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than 60
days; or
(vi) the Company or any subsidiary shall take any corporate action
for the purpose of effecting any of the actions set forth in clauses (ii)
through (v) of this section 6; or
(vii) any order, judgment or decree is entered in any proceedings
against the Company or any subsidiary within the meaning of the Securities Act
decreeing the dissolution of the Company and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(viii) any order, judgment or decree is entered in any proceedings
against the Company or any subsidiary decreeing a split-up of the Company which
requires the divestiture of a substantial part of the consolidated assets of the
Company and its subsidiaries, or the divestiture of the stock of a subsidiary
and such order, judgment or decree remains unstayed and in effect for more than
60 days; or
(ix) a default has been declared by the holder of any indebtedness
of the Company or any subsidiary for borrowed money and such default has not
been cured within a period of time, if any, provided for cure;
(x) a default in the due observance or performance of any covenant,
condition or agreement on the part of the Company to be observed or performed
pursuant to the terms and provisions of this Note (other than the payment
provisions) or any default, including payment default on the Note, the Note
Purchase Agreement, and a certain $400,000 convertible note of even date, and
such default shall continue for 30 days after written notice thereof shall have
been given to the Company by the holder hereof;
(xi) a final judgment, decree or order for the payment of money in
excess of $100,000 shall be rendered against the
6
<PAGE> 7
Company or any subsidiary, and the same shall not be discharged or execution
thereon stayed pending appeal within 30 days after entry thereof;
(xii) an attachment or levy against the assets or properties of the
Company or any subsidiary involving an amount in excess of $25,000, which
attachment or levy is not dismissed, bonded or otherwise terminated within
thirty (30) days of the effectiveness of such attachment or levy; or
(xiii) the sale by the Company of all or substantially all of its
assets or the merger or consolidation by the Company with or into another
corporation, except for mergers or consolidations where the Company is the
surviving entity or where the surviving entity expressly accepts and assumes the
obligations under all the Notes;
then, and in each and every such case, so long as such Event of Default shall
not have been remedied within 10 days after written notice thereof by the Payee
to the Company specifying the default, the holder of this Note, by notice in
writing to the Company, may declare the principal of this Note then outstanding
and the interest accrued thereon if not already due and payable, to be due and
payable immediately, and upon any such declaration the same (the "Aggregate
Indebtedness") shall become and shall be immediately due and payable with
interest on such Aggregate Indebtedness at a rate of 18% per annum (the "Default
Rate") from and after the date on which such Aggregate Indebtedness becomes due,
anything in this Note contained to the contrary notwithstanding; provided that,
upon the occurrence of an event described in (ii) through (viii) above, the
principal amount outstanding and accrued interest thereon shall become due and
payable whether the holder of this Note makes such declaration. Notwithstanding
the foregoing, the holder of this Note shall be entitled to exercise its rights
under this paragraph 7 without 10 days written notice, where the Event of
Default is a default in payment.
8. MISCELLANEOUS. (a) To the extent permitted by applicable law, the
Company hereby agrees to waive, and does hereby absolutely and irrevocably waive
and relinquish, the benefit and advantage of any valuation, stay, appraisement,
extension or redemption law now existing or which may hereafter exist, which,
but for this provisions, might be applicable to any sale made under the
judgment, order or decree of any court, or otherwise, based on the Notes or on
any claim for principal or interest on the Notes.
(b) Each Note is issued upon the express condition, to which each
successive holder expressly assents and by receiving the same agrees, that no
recourse under or upon any obligation, covenant or agreement of the Notes, or
for the payment of the principal of, or premium, if any, or the interest on, a
Note, or
7
<PAGE> 8
for any claim based on a Note, or otherwise in respect hereof, shall be
had against any incorporator or any past, present or future stockholder, officer
or director, as such, of the Company or of any successor corporation, whether by
virtue of the constitution, statute or rule of law or by any assessment or
penalty or otherwise howsoever, all such individual liability being hereby
expressly waived and released as a condition of and as a part of the
consideration for the execution and issue of the Notes; provided, however, that
nothing herein shall prevent enforcement of the liability, if any, of any
stockholder or subscriber to capital stock upon or in respect of capital stock
not fully paid.
(c) Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of any Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
any such Note if mutilated, the Company will make and deliver a new Note or like
tenor in lieu of any such Note so lost, stolen, destroyed or mutilated. Any new
Note made and delivered in accordance with the provisions of this subsection
8(c) shall be dated as of the date from which unpaid interest has then accrued
on the Note so lost, stolen, destroyed or mutilated.
(d) Any notice or demand which by any provision of the Notes is
required or provided to be given or served to or upon the Company shall be
deemed to have been sufficiently given or served for all purposes by being sent
as registered mail, postage prepaid, addressed to the Company at its principal
office.
(e) No course of dealing between the Company and the holder of any
Note or any delay on the part of the holder in exercising any rights under a
Note shall operate as a waiver of any rights of any holder of the Note.
(f) The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.
(g) The Company agrees to pay, on demand, all costs and expenses
paid or incurred by the holder of this Note in seeking to collect this Note,
including, without limitation, reasonable attorneys' fees and disbursements paid
or incurred by the holder, with interest thereon at the Default Rate until paid
in full.
(h) No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
right or remedy preclude any other of further exercise thereof or the exercise
of any other right or remedy.
8
<PAGE> 9
(i) The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of protest,
bringing of suit, and diligence in taking any action to collect amounts called
for hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder.
9. BINDING EFFECT. The Company agrees that the provisions of this Note
shall bind and shall inure to the benefit of the parties hereto and their heirs,
successors and assigns.
10. AMENDMENT AND WAIVER. This Note may be amended or supplemented, and
any existing Event of Default may be waived only with the written consent of the
Payee.
11. INTEREST RATE. If any interest rate specified herein is held to be
impermissible, then the rate charged on the indebtedness represented hereby
shall be reduced to the highest rate then permitted by law.
12. COMMUNICATIONS. All notices and other communications provided for
hereunder or under the Notes shall be in writing, and, if to Payee, shall be
delivered or mailed by registered mail addressed to Payee at Payee's address as
shown in the records of the Company or to such other address as Payee may
designate to the Company in writing and, if to the Company, shall be delivered
or mailed by registered mail to the Company at 9255 Doheny Road, Suite 2705, Los
Angeles, California 90069 Attention: Office of the President, or to such other
address as the Company may designate to Payee in writing.
13. DELAWARE. This Note shall be construed in accordance with and governed
by the internal laws of the State of Delaware without regard to principles of
conflicts of law, and cannot be changed, discharged or terminated orally but
only by an instrument in writing signed by the party against whom enforcement of
any change, discharge or termination is sought.
14. HEADINGS. The headings of the sections of this Note are inserted for
convenience only and do not affect the meaning of such section.
IN WITNESS WHEREOF, ROLLERBALL INTERNATIONAL, INC. has caused
this Note to be signed in its corporate name by a duly authorized
officer and to be dated the date and year first above written.
ROLLERBALL INTERNATIONAL, INC.
By
-----------------------------
Jack Forcelledo
Chairman of the Board
9
<PAGE> 10
DEFAULT CONVERSION FORM
To Be Executed by the Registered Holder to Convert Note
The undersigned Registered Holder hereby irrevocably elects to convert
$________________ principal amount represented by this Note, and to purchase the
shares of Common Stock issuable upon the conversion of such Note, and requests
that certificates for such shares shall be issued in the name of:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(please print or type name and address)
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- -----------------------------------------------------------------
and be delivered to
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(please print or type name and address)
and if the amount so converted shall not represent the entire unpaid principal
amount due and owing on this Note, the Company shall deliver a new Note for the
unpaid and unconverted principal amount of such surrendered Note registered in
the name of, and delivered, to, the Registered Holder at the address stated
below, such new Note or Notes to be dated and to bear interest from the date to
which interest has been paid on such surrendered Note.
Dated: X
------------------------- ------------------------------
Signature
------------------------- ------------------------------
Taxpayer Identification #
------------------------------
Address
10
<PAGE> 1
Exhibit 10.1
LEASE AMENDMENT
FOR THE PREMISES KNOWN AS
9255 DOHENY ROAD, UNIT 2705, LOS ANGELES, CALIFORNIA
This Amendment hereby modifies the Lease, dated October 24, 1991, subsequent
amendments and extensions between Rodman Properties (successor "Landlord") and
Rollerball International, Inc.
(successor "Tenant").
Term. Two (2) years, commencing December 1, 1997 and ending November
30, 1999.
Rent. $3,750.00 fixed for entire term.
Rent Due. Rent shall be due no later than the fifth (5th) day of each
month; hereafter the late charge applies.
Suite
Improvements. Landlord will properly clean the carpet no less than every six
(6) months, or at Landlord's option if the carpet cannot be
cleaned on the first attempt, he may replace the carpet with a
color acceptable to both parties. Landlord will pay to have
the walls of the suite touched up with paint of the same
color, some walls of which should be repainted. Landlord will
repair the dishwasher so that the heating element works.
Landlord will pay up to $75.00 to have the exterior balcony
sealed. Landlord will pay to have the exterior balcony lights
made to work, and the screen doors made operable. Tenant shall
properly maintain the suite and fixtures thereafter.
Tenant's
Termination
Clause. Tenant may terminate the Lease Extension at anytime during the
extended Lease Term by giving sixty (60) days written notice
to Landlord along with funds equaling four (4) months rent
("termination fee"). Tenant shall be required to pay rent
during the sixty-day notification period. In lieu of this
termination fee, Tenant, with the reasonable cooperation of
Landlord, may elect to find a new tenant to lease the premises
at market rent (however, no less than Tenant's rent and
remaining term). The new tenant shall be acceptable to
Landlord in Landlord's sole and absolute discretion.
Landlord's
Termination
Clause. Landlord may terminate the Lease Extension at anytime during
the extended Lease Term by giving sixty (60) days written
notice to Tenant. Within fifteen (15) days after Tenant
vacates the premises, Landlord shall issue a check to Tenant
for $5,000.000 representing reimbursement of Tenant's moving
expenses. Landlord agrees not to tour the premises for sales
purposes prior to December 1, 1998.
Personal
Guarantors. Jack Forcelledo & Beth Forcelledo, jointly and severally,
personally guarantee the payment and performance required
under the Lease, amendments and extensions. Guarantors
understand that they and their personal assets are at
immediate risk should the Lease be in default.
<PAGE> 2
Unless herein amended, all other terms, conditions and provisions of the Lease
and subsequent amendments remain in full force and effect.
AGREED TO AND ACCEPTED THIS 2nd DAY OF DECEMBER, 1997.
- ------------------------------ -----------------------------------
Matthew S. Rodman Rollerball International, Inc.
Rodman Properties, Ltd.
-----------------------------------
Jack Forcelledo, Personally
-----------------------------------
Beth Forcelledo, Personally
<PAGE> 3
ASSIGNMENT OF LEASE
The undersigned Lessees in that certain Lease covering the Premises known as
9255 Doheny Road, Unit 2705, in the City of West Hollywood, do hereby assign and
transfer all of our right, title and interest in and to the said Lease,
amendments and extensions to Rollerball International, Inc. The undersigned
Lessees acknowledge that they are not in any way relieved of the obligations
contained in said Lease, amendments and extensions whatsoever.
Dated: December 2, 1997 /s/ JACK FORCELLEDO
--------------------------- -----------------------------------
Jack Forcelledo
/s/ BETH FORCELLEDO
Dated: -----------------------------------
--------------------------- Beth Forcelledo
ASSUMPTION OF LEASE
In consideration of the above Assignment and written consent of the Lessor
thereto, we hereby assume and agree to be bound by all the terms and conditions
of the said Lease, amendments and extensions therein agreed to be made and
performed and to pay the rental therein provided.
Dated: December 2, 1997 /s/ ROLLERBALL INTERNATIONAL, INC.
-------------------------- -----------------------------------
Rollerball International, Inc.
CONSENT TO ASSIGNMENT
The undersigned Lessor hereby consents to the above Assignment of Lease. Lessee
has deposited $2,500.00 with the Lessor as security deposit. Lessor has been
induced by Assignee and Assignor to consent to this Assignment of Lease, and
does not relieve Assigning Lessee of any obligations agreed to under the Lease,
amendment and extensions.
Dated: December 5, 1997 /s/ MATTHEW S. RODMAN
--------------------------- -----------------------------------
Matthew S. Rodman
Rodman Properties
<PAGE> 1
EXHIBIT 10.3
ROYALTY AGREEMENT
This ROYALTY AGREEMENT (the "AGREEMENT") is entered into as of this
____ day of March, 1995, subject to satisfaction of the condition set forth in
Section 6.9 hereof, by and between GIUSSEPPE CONSARINO, an individual
("CONSARINO"), and ROLLERBALL INTERNATIONAL INC., a corporation organized under
the laws of the State of Delaware ("ROLLERBALL").
RECITALS
A. Rollerball is engaged in the business of developing,
manufacturing and distributing inline skates and accessories
principally in the United States of America.
B. Consarino has performed services to Rollerball to the
development and introduction of Rollerball skate products to the
market.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and on the
basis of the representations, warranties, covenants and agreements set forth
below, Consarino and Rollerball agree as follows:
1. COMPENSATION FOR SERVICES
1.1 As the total compensation due to Consarino for services performed
by Consarino for Rollerball, Rollerball shall pay to Consarino a royalty (the
"Royalty") which is equal to one percent (1%) of worldwide Net Sales, with the
exception of letter of credit sales, of the Rollerball skate products which are
listed on Schedule A 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, Consarino shall be paid a Royalty of .6% of worldwide Net Sales of
the Rollerball Skate Products. Notwithstanding the foregoing, the total amount
of the Royalty paid by Rollerball to Consarino on all types of sales in any
given fiscal year shall not exceed $350,000. The Royalty shall be paid in
perpetuity, unless adjusted pursuant to Section 1.3 below.
1.2 Consarino shall not be paid a royalty in connection with any
products, other than the Rollerball Skate Products as listed on Schedule A,
developed, manufactured or distributed by Rollerball.
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<PAGE> 2
1.3 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, as amended, the
amount of the Royalty described in Section Agreement shall not apply. All
royalties due to Consarino in connection with the manufacture C, 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.
1.4 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, with the first such payment to be made on or
before August 8, 1995.
1.5 Consarino 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 Consarino shall be
reported to the Internal Revenue Service and appropriate state taxing
authorities by Rollerball in accordance with U.S. tax laws and regulations.
2. REPRESENTATIONS AND WARRANTIES
Rollerball hereby represents and warrants to Consarino that:
2.1 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.
2.2 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 agreement of Rollerball, except as such enforcement may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally or by the scope of equitable remedies which may be available.
2.3 The execution and 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 statute, rule, regulation,
order, judgement, award or decree.
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<PAGE> 3
2.4 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 that could impair the validity of this Agreement or any action to
be taken pursuant to this Agreement.
3. AUDIT RIGHTS
3.1 Upon ten (10) days written notice by Consarino to Rollerball,
Consarino 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 manufacture of
the Rollerball Skate Products.
3.2 In the event that Consarino's audit as provided for by Section 3.1
above demonstrates, in the good faith judgment of Rollerball and its advisors,
that Consarino is owed an additional Royalty payment, upon written notice of the
deficiency by Consarino to Rollerball, Rollerball shall have forty-five (45)
days to pay the balance owing to Consarino without penalty.
3.3 In the event that an audit conducted by Consarino pursuant to
Section 3.1 above results in a good faith dispute between Rollerball and
Consarino as to whether Consarino 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 Consarino
(the "Independent Audit"). Prior to the commencement of an Independent Audit,
Consarino 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 Consarino to be owed by
Rollerball. In the event that the Independent Audit demonstrates that Consarino
is not owed an additional Royalty payment, Consarino will pay the costs and
professional fees associated with the Independent Audit. In the event that the
Independent Audit demonstrates that Consarino is owed an additional Royalty
payment, in addition to Consarino's other remedies provided by California law
and by this Agreement, Rollerball shall pay Consarino 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 1.4 to the date that the Royalty is paid in full. In the event that the
Independent Audit demonstrates that Consarino 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
Consarino in the
3
<PAGE> 4
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, Consarino 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.
3.4 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.
3.5 Except as otherwise provided by this Agr~eni~nt, Consarino shall be
solely responsible for paying the cost of any audit conducted by Consarino
pursuant to Section 3.1, except that Rollerball shall produce relevant
accounting records at its own cost.
4. ARBITRATION
4.1 In the event of a default in the terms and provisions of this
Agreement, the parties hereto agree that they shall submit their dispute to
arbitration pursuant to the rules of the American Arbitration Association.
Furthermore, during the arbitration process, Consarino 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.
5. ATTORNEYS' 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.
6. MISCELLANEOUS PROVISIONS
6.1 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable.
6.2 Successors and Assigns. All of the terms, provisions and
obligations of this Agreement shall inure to the benefit of
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<PAGE> 5
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 Consarino without the prior written consent of
Rollerball in each instance.
6.3 Governing Law. The validity, construction and interpretation of
this Agreement shall be governed in all respects by the laws of the State of
California.
6.4 Consent to Jurisdiction. Each party hereto, to the fullest extent
it may effectively do so under applicable law irrevocably (i) submits to the
exclusive jurisdiction of any court of the State of California or the United
States of America sitting in the City of Los Angeles over any suit, action, or
proceeding arising out of or relating to this Agreement, (ii) waives and agrees
not to assert, by way of motion, as a defense or otherwise, any claim that it is
not subject to the jurisdiction of any such court, any objection that it may now
or hereafter have to the establishment of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum,
(iii) agrees that a judgment in any such suit, action or proceeding brought in
any such court shall be conclusive and binding upon such party and may be
enforced in the courts of the United States of America or the State of
California (or any other courts to the jurisdiction of which such party is or
may be subject) by a suit upon such judgment and (iv) consents to process being
served in any such suit, action or proceeding by mailing a copy thereof by
registered or certified air mail, postage prepaid, return receipt requested, to
the address of such party specified in or designated pursuant to Section 6.7.
Each party agrees that such service (i) shall be deemed in every respect
effective service of process upon such party in any such suit, action or
proceeding and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to such party.
6.5 Headings. Section and subsection headings are not to be considered
part of this Agreement and are included solely for convenience and reference and
in no way define, limit or describe the scope of this Agreement or the intent of
any provisions hereof.
6.6 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement
5
<PAGE> 6
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.
6.7 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 States 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 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: 5
If to Rollerball:
Rollerball International Inc.
9255 Doheny Road, Suite 2705
Los Angeles, California 90069
Attention: Jack Forcelledo, President
Telecopier Number: (310) 275-3081
With a copy to:
Manatt, Phelps & Phillips
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: Paul H. Irving, Esq.
Telex Number: 215653 MPRT UR
Telecopier Number: (213) 312-4224
If to Consarino:
Giusseppe Consarino
11828 Gorham Avenue
Apartment 6
Los Angeles, California 90049
With a copy to:
Cohen & Cohen
9454 Wilshire Boulevard, Suite 605
Beverly Hills, California 90212
Attention: Barry E. Cohen, Esq.
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<PAGE> 7
Telecopier Number: (310) 247-8710
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.
6.8 Third Parties. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person other than Rollerball or Consarino any rights
or remedies under or by reason of this Agreement.
6.9 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 thereto) of the Restatement of Assignment of Rights and Royalty
Agreement, 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 first set forth above.
______________________________
GIUSSEPPE CONSARINO
______________________________
ROLLERBALL INTERNATIONAL INC.
By: __________________________
Jack Forcelledo,
President
7
<PAGE> 8
SCHEDULE A
ROLLERBALL SKATE PRODUCTS
1. All products currently manufactured by Rollerball using the Roll Ball
Technology and all products to be developed and manufactured by
Rollerball using the Roll Ball Technology.
2. Accessory equipment including replacement balls knee pads, elbow pads
and helmets which bear the Rollerball trademark; provided, however,
that this category 2 shall not include clothing.
8
<PAGE> 1
EXHIBIT 10.4
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "AGREEMENT") is entered into as of this
25th day of March, 1995, subject to satisfaction of the condition set forth in
Section 5.10 hereof, by and between ROLLERBALL INTERNATIONAL INC., a corporation
organized under the laws of Delaware ("ROLLERBALL"), and FRANCO ROSSO, an
individual ("ROSSO").
RECITALS
A. Rollerball is engaged in the business of developing, manufacturing
and distributing inline skates and accessories principally in the United States
of America.
B. Rosso is the inventor of the inline skates manufactured and
distributed by Rollerball.
C. Rollerball all desires to be assured of the continued association
and services of Rosso. in order to take advantage of his experience, abilities
and knowledge of Rollerball's business, and is willing to engage Rosso, and
Rosso desires to be so engaged on the terms and conditions set forth in this
Agreement.
D. Rosso from time to time in the course of his relationship with
Rollerball may learn trade secrets and other confidential information concerning
Rollerball, and Rollerball desires to safeguard such trade secrets and
confidential information against unauthorized use and disclosure.
E. This Agreement memorializes terms and conditions agreed to by and
between Rollerball and Rosso in an agreement dated August 6, 1992, as modified
on December 21,1992.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises,
and on the basis f the representations, warranties, covenants and agreements set
forth below, Rollerball and Rosso agree as follows:
1. CONSULTING SERVICES
1.1 Retention. Rollerball hereby retains Rosso as a
consultant, and Rosso hereby accepts such appointment, on the terms and
conditions set forth below, to perform during the term of this Agreement such
services as are required hereunder.
1.2 Duties.
(a) Rosso shall render such services to
Rollerball, and shall perform such duties and acts, as reasonably may be
required by Rollerball in connection with of Rollerball's
<PAGE> 2
business.
(b) The services to be rendered by Rosso
hereunder, shall, at the request of Rollerball, include, but not
be limited to, the following:
(i) The development of design
improvements in Rollerball skate products;
(ii) The design of new skate
products to be manufactured and distributed by Rollerball;
(iii) Production and other technical
assistance related to the manufacture of Rollerball skate products; and
(iv) Any other services reasonably
required by Rollerball in the development of Rollerball skate products and their
introduction to the market.
1.3 Performance of Duties. Rosso shall devote
such time, ability and attention to Rollerball's business as Rollerball may
reasonably deem to be necessary or advisable to the discharge of Rosso's duties
hereunder in a professional and businesslike manner.
1.4 Relationship. Rosso shall be an independent
contractor of Rollerball. Nothing in this Agreement shall be construed to give
Rosso any rights as an employee, agent, partner or joint venturer of Rollerball
or to entitle Rosso to control in any manner the business of Rollerball or to
incur any debt, liability or obligation on behalf of Rollerball.
1.5 Products. Rosso hereby acknowledges and
agrees that the results, proceeds and products of the consulting services
rendered by Rosso hereunder are, and will be created by Rosso as, a "work for
hire" specifically ordered or commissioned by Rollerball and, accordingly, are
the exclusive and valuable property of Rollerball. Rollerball shall have the
exclusive right to use, refrain from using, change, modify, add to, subtract
from, exploit or otherwise turn to account any such results, proceeds or
products in such manner and in any and all media, whether now known or hereafter
devised, throughout the world, in perpetuity, as Rollerball in its sole
discretion shall determine.
2. COMPENSATION
As the total consideration for the services which
Rosso shall render hereunder, Rosso shall be entitled to a monthly consulting
fee of $4,000.00, commencing on January 1, 1995. Rosso hereby acknowledges
receipt of two (2) post-dated checks, each in the amount of $4,000.00, in
payment of the
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<PAGE> 3
amounts due to Rosso hereunder on January 1 and February 1, 1995.
3. TERM AND TERMINATION
3.1 Term. Unless sooner terminated pursuant to
Section 3.2 hereof, the term of Rosso's relationship with Rollerball under
Section 1.1 shall be for a seven-year period commencing on the date hereof and
ending on March 24th 2002 (the "Term").
3.2 Termination for Cause. Rosso's relationship
with Rollerball shall terminate prior to the expiration of the Term of this
Agreement at the Company's option in the event of a material breach of the
Agreement by reason of Rosso's continued and willful failure or refusal to
substantially perform his duties in accordance with the Agreement; provided,
however, that no termination shall occur under this Section 3.2 unless Rosso
first shall have received written notice specifying the acts or omissions
alleged to constitute such breach and, if such breach can be corrected, it
continues after Rosso shall have had reasonable opportunity to correct it.
3.3 Duties Upon Termination. In the event that
Rosso's relationship with Rollerball under this Agreement is terminated, whether
at the expiration of the Term or at any earlier time pursuant to Section 3.2
above, neither Rollerball nor Rosso shall have any remaining duties or
obligations hereunder, except that (i) Rollerball shall promptly pay to Rosso,
or his estate, such compensation as is due pursuant to Section 2, prorated
through the date of termination and (ii) Rosso shall continue to be bound by
Section 4 hereof.
4. INTELLECTUAL PROPERTY
4.1 Noncompetition.
(a) As used in this Agreement, the term
"Competitive Activity" shall mean any participation in, assistance of,
employment by, ownership of any interest in, acceptance of business from or
assistance, promotion or organization of any person, partnership, corporation,
firm, association or other business organization, entity or enterprise which,
directly or indirectly, is engaged in, or hereinafter engages in, research on,
or development, production, marketing, leasing or selling of, any product,
process or service which is the same as, similar to or in competition with any
line of business or research in which Rollerball is now engaged or hereinafter
engages, whether as an agent, consultant, employee, officer, director, investor,
partner, shareholder, proprietor or in any other individual or representative
capacity, but excluding the holding for investment of less than five percent
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<PAGE> 4
(5%) of the outstanding securities of any corporation which are regularly traded
on a recognized stock exchange.
(b) During the term of his relationship with
Rollerball and for one (1) year thereafter (such period not to include any
period of violation hereof or period required for litigation to enforce this
paragraph), Rosso shall refrain, without the prior written consent of Rollerball
in each instance, from engaging in any Competitive Activity which would be
reasonably likely, as determined by Rollerball in its sole discretion, to result
in the disclosure or use of any Trade Secret (as defined below) in any of the
following geographic areas
(i) the State of California;
(ii) the United States;
(iii) the United States, Japan and the
European Economic Community; and
(iv) anywhere in the world.
4.2 Trade Secrets. Rosso shall not, without the
prior written consent of Rollerball in each instance, disclose or use in any
way, either during the term of his relationship with Rollerball or thereafter,
except as required in the course of such relationship, any confidential business
or technical information or trade secret of Rollerball acquired in the course of
such relationship, whether or not patentable, copyrightable or otherwise
protected by law, and whether or not conceived of or prepared by him
(collectively, the "Trade Secrets"), including, without limitation, any
information concerning customer lists, products, formulas, procedures,
operations, investments, financing, costs, employees, purchasing, accounting,
marketing, merchandising, sales, salaries, pricing, profits and plans for future
development, the identity, requirements, preferences, practices and methods of
doing business of specific parties with whom Rollerball transacts business, and
all other information which is related to any product, service or business of
Rollerball, other than information which is generally known in the industry in
which Rollerball transacts business or is acquired from public sources; all of
which Trade Secrets are the exclusive and valuable property of Rollerball.
4.3 Tangible Items. All files, accounts, records,
documents, books, forms, notes, reports, memoranda, studies, compilations of
information, correspondence and all copies, abstracts and summaries of the
foregoing, and all other physical items related to Rollerball, other than a
merely personal item, whether of a public nature or not, and whether 4 prepared
by Rosso or not, are and shall remain the exclusive property of
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<PAGE> 5
Rollerball and shall not be removed from the premises of Rollerball, except as
required in the course of rendering consulting services to Rollerball, without
the prior written consent of Rollerball's Board of Directors in each instance,
and the same shall be promptly returned to Rollerball by Rosso on the expiration
or termination of his relationship with Rollerball or at any time prior thereto
upon the request of Rollerball.
4.4 Solicitation of Employees. During the term of his
relationship with Rollerball and for one (1) year thereafter (such period not to
include any period of violation hereof or period which is required for
litigation to enforce this paragraph), Rosso shall not, directly or indirectly,
either for his own benefit or purposes or the benefit or purposes of any other
person employ or offer to employ, call on, solicit, interfere with or attempt to
divert or entice away any employee or independent contractor of Rollerball (or
any person whose employment or status as an independent contractor has
terminated within the twelve (12) months preceding the date of such
solicitation) in any capacity if that person possesses or has knowledge of any
Trade Secrets of Rollerball.
4.5 Injunctive Relief. Rosso hereby acknowledges
and agrees that it would be difficult to fully compensate Rollerball for damages
resulting from the breach or threatened breach of the foregoing provisions and,
accordingly, that Rollerball shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, to enforce such provisions without the necessity of
proving actual damages and without the necessity of posting any bond or other
undertaking in connection therewith. This provision with respect to injunctive
relief shall not, however, diminish Rollerball's right to claim and recover
damages.
4.6 Representations and Warranties. Rosso hereby
represents and warrants that (i) to the best of his knowledge, the results,
proceeds and products of the consulting services rendered by Rosso hereunder
(including, but not limited to, the design of the inline skates manufactured and
distributed by Rollerball) shall be original with Rosso or in the public domain
and shall not infringe any patent, copyright or other proprietary right of any
third party, (ii) he has the right to execute and deliver this Agreement and to
consummate the transactions hereunder without the approval or consent of any
other person, (iii) this Agreement is a legal, valid and binding agreement of
Rosso and enforceable against him in accordance with
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<PAGE> 6
its terms and (iv) the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will
not infringe any agreement to which Rosso is a party.
5. MISCELLANEOUS
5.1 Severable Provisions. The provisions of this
Agreement are severable, and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in whole or in part, the remaining
provisions, and any partially unenforceable provisions to the extent
enforceable, shall nevertheless be binding and enforceable. For the purpose of
determining the scope of the covenant set forth in Section 4.1(b), each of
subparagraphs (i), (ii), (iii) and (iv) shall be considered a separate covenant
such that if the geographic scope of any such subparagraph shall be determined
by a court of competent jurisdiction to be excessive and invalid, such
subparagraph shall be severed and the remaining subparagraphs shall be deemed
enforceable and remain in full force and effect.
5.2 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 Rosso without the prior written consent of
Rollerball in each instance.
5.3 Governing Law. The validity, construction and
interpretation of this Agreement shall be governed in all respects by the laws
of the State of California.
5.4 Consent to Jurisdiction. Each party hereto, to
the fullest extent it may effectively do so under applicable law, irrevocably
(i) submits to the exclusive jurisdiction of any court of the State of
California or the United States of America sitting in the City of Los Angeles
over any suit, action or proceeding arising out of or relating to this
Agreement, (ii) waives and agrees not to assert, by way of motion, as a defense
or otherwise, any claim that it is not subject to the jurisdiction of any such
court, any objection that it may now or hereafter have to the establishment of
the venue of any such suit, action or proceeding brought in any such court and
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum, (iii) agrees that a judgment in any such
suit, action or proceeding brought in any such court shall be conclusive and
binding upon such party and may be enforced in the courts of the United States
of America or the State of California (or any other courts to the jurisdiction
of which such party is or may be subject) by a suit upon such judgment and (iv)
consents to process being served
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<PAGE> 7
in any such suit, action or proceeding by mailing a copy thereof by registered
or certified air mail, postage prepaid, return receipt requested, to the address
of such party specified in or designated pursuant to Section 5.7. Each party
agrees that such service (i) shall be deemed in every respect effective service
of process upon such party in any such suit, action or proceeding and (ii)
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon and personal delivery to such party.
5.5 Headings. Section and subsection headings are not
to be considered part of this Agreement and are included solely for convenience
and reference and in no way define, limit or describe the scope of this
Agreement or the intent of any provisions hereof.
5.6 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto pertaining to the subject matter
hereof, and supersedes all prior agreements) understandings, 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.
5.7 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 alter having been placed in the United States 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 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
7
<PAGE> 8
Los Angeles, California 90069
Attention: Jack Forcelledo, President
Telecopier Number: (310) 275-3081
With a copy to:
Manatt, Phelps & Phillips
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: Paul H. Irving, Esq.
Telex Number: 215653 MPRT UR
Telecopier Number: (213) 312-4224
If to Rosso:
Franco Rosso
Via Monti 19/2
Orbassano 1043
Torino, Italy
With a copy to:
Cohen & Cohen
9454 Wilshire Boulevard, Suite 605
Beverly Hills, California 90212
Attention: Barry E. Cohen, Esq.
Telecopier Number: (310) 247-8710
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.
5.8 Attorneys' 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.
5.9 Third Parties. Nothing in this Agreement,
expressed or implied, is intended to confer upon any person other than
Rollerball or Rosso any rights or remedies under or by reason of this Agreement.
5.10 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 thereto) of the Restatement of Assignment of
Rights and Royalty Agreement, dated as of the date of this Agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date and year first set forth above.
ROLLERBALL INTERNATIONAL INC.
By: __________________________
Jack Forcelledo, President
______________________________
FRANCO ROSSO
WITNESSED BY:
______________________________
JAMES TO HARTNETT
9
<PAGE> 10
RESTATEMENT OF
ASSIGNMENT OF RIGHTS
AND ROYALTY AGREEMENT
This RESTATEMENT OF ASSIGNMENT OF RIGHTS AND ROYALTY AGREEMENT (the
"AGREEMENT") is entered into as of this 25th day of March, 1995 by and between
GIUSSEPPE ROSSO, an individual, FRANCO ROSSO, an individual and ETTORE CARENINI,
an individual (sometimes hereinafter collectively referred to as "ROSSO"), 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 inline skates and accessories principally in the United States.
B. Rosso is the inventor of an ulline skate distinguished by two
spherical balls (the "Roll Ball Skate").
C. Rollerball desires to confirm that it has obtained and Rosso desires
to confirm that it has transferred to Rollerball all rights to and interests in
the concept of the Roll Ball Skate (the "Roll Ball Technology").
D. This Agreement memorializes terms and conditions agreed to by and
between Rollerball (as assignee of Forcelledo Marketing Group) and Rosso in an
agreement dated August 6, 1992, as modified on December 21,1992 (the "1992
Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and on the
basis of the representations, warranties, covenants and agreements set forth
below Rosso and Rollerball agree as follows:
1. TRANSFER OF RIGHTS
1.1 Rosso hereby forever and irrevocably 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 Roll Ball Technology (the "Rights").
1.2 The Rights are hereby transferred and assigned by Rosso to
Rollerball free of any liens, claims or other encumbrances.
1.3 With the transfer of the Rights, Rollerball hereby obtains sole and
exclusive authority and discretion to determine
1
<PAGE> 11
the method of marketing products developed from the Roll Ball 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.
2. COMPENSATION
2.1 As the total compensation to Rosso as consideration for the
transfer of the Rights, the undersigned acknowledge and agree that Rollerball
shall pay to Rosso a royalty (the "Royalty") on the Rollerball skate products
which are listed on Schedule A to this Agreement (the "Rollerball Skate
Products"). Such Royalty shall be equal to two and one-half percent (2.5%) of
the Rollerball cost of goods, after the deduction of shipping, taxes, freight in
and out, duties, customs taxes, agent fees, storage charges prior to shipping,
special handling costs, in-warehousing and out-warehousing charges and all other
costs and charges not directly related to the production of finished goods. The
Royalty shall be paid in perpetuity, unless adjusted pursuant to Section 2.3
below.
2.2 Rosso shall not be paid a royalty in connection with any products,
other than the Rollerball Skate Products as listed on Schedule A, developed,
manufactured or distributed 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, as amended, the
amount of the Royalty described in Section 2.1 of this Agreement shall not
apply. All royalties due to Rosso in connection with the manufacture 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, after certain deductions are made, as
provided in Section 2.6 below, in three (3) equal payments (each payment
constituting one-third of any Royalty payment due Rosso) to Giusseppe Rosso,
Franco Rosso and Ettore Carenini 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, with the first such payment to be made on or before
August 8, 1995.
2.5 Rosso shall be responsible for payment of any and all state and
federal taxes owed on a Royalty payment from
2
<PAGE> 12
Rollerball. The parties acknowledge and agree that any compensation paid by
Rollerball to Rosso shall be reported to the Internal Revenue Service and
appropriate state taxing authorities by Rollerball in accordance with U.S. tax
laws and regulations.
2.6 In accordance with the 1992 Agreement, Rollerball will deduct from
any Royalty amounts otherwise due to Rosso under Section 2.1 of this Agreement
(i) any and all advances, including without limitation all cash advances and
travel expenses, previously paid by Rollerball to Rosso or on Rosso's behalf in
consideration for the 1992 Agreement (the "Advances"), the receipt and
sufficiency of which Rosso hereby acknowledges and (ii) all expenses associated
with the registration of the Rights on a worldwide basis (the "Registration
Expenses"). The entire amount of the Advances shall be deducted from Royalty
amounts otherwise due pursuant to this Agreement before any such Royalty payment
is made. The Registration Expenses shall be deducted from any Royalty amounts
otherwise due pursuant to this Agreement in accordance with the formula set out
in Section 6 of the 1992 Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1 Rosso hereby represents to Rollerball that Rosso is the owner of
the Rights free and clear of any liens, claims and encumbrances, and that there
are no legal or business infringements, restrictions, or conditions that could
affect the status or integrity of the Rights or Rollerball's use of the Rights.
3.2 Rollerball hereby represents and warrants to Rosso that:
(a) 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.
(b) 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 agreement of Rollerball, except as such
enforcement may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally or by the scope of equitable remedies which may be
available. (c) The execution and 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,
3
<PAGE> 13
contract or other instrument to which Rollerball is a party, or any statute,
rule, regulation, order, judgement, award or decree.
(d) 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 that 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 Rosso to Rollerball, Rosso
shall be given the right to audit Rollerball's accounting books and financial
records as they pertain to the royalties to be paid Rosso pursuant to Section
2.1 of this Agreement, together with appropriate backup documentation related to
the production and manufacture of the Rollerball Skate Products.
4.2 In the event that an audit conducted by Rosso pursuant to Section
4.1 above demonstrates, in the good faith judgment of Rollerball and its
advisors, that Rosso is owed an additional Royalty payment, upon written notice
of the deficiency by Rosso to Rollerball, Rollerball shall have forty-five (45)
days to pay the balance owing to Rosso without penalty.
4.3 In the event that an audit conducted by Rosso pursuant to Section
4.1 above results in a good faith dispute between Rollerball and Rosso as to
whether Rosso 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 Rosso (the "Independent Audit").
Prior to the commencement of an Independent Audit, Rosso 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 Rosso to be owed by Rollerball. In the event that
the Independent Audit demonstrates that Rosso is not owed an additional Royalty
payment, Rosso will pay the costs and professional fees associated with the
Independent Audit. In the event that the Independent Audit demonstrates that
Rosso is owed an additional Royalty payment in addition to Rosso's other
remedies provided by California law and by this Agreement, Rollerball shall pay
Rosso 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
4
<PAGE> 14
Section 2.4 to the date that the Royalty is paid in full. In the event that the
Independent Audit demonstrates that Rosso 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 Rosso 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, Rosso 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 from 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, Rosso shall be
solely responsible for paying the cost of any audit conducted by Rosso pursuant
to Section 4.1, except that Rollerball shall produce relevant accounting records
at its own cost.
5. ARBITRATION
5.1 In the event of a default in the terms and provisions of this
Agreement, the parties hereto agree that they shall submit their dispute to
arbitration pursuant to the rules of the American Arbitration Association.
Furthermore, during the arbitration process, Rosso 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. ATTORNEYS' 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.
5
<PAGE> 15
7. DEFENSE OF RIGHTS
7.1 In the event of any litigation involving the Rights,
including, without limitation, any infringement on a Rollerball patent,
Rollerball shall defend or prosecute the. litigation and the undesigned shall
use their best efforts to agree at a later date as to the allocation, if any, of
the costs of litigation.
8. MISCELLANEOUS PROVISIONS
8.1 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable.
8.2 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 Rosso without the prior written consent of Rollerball in each
instance.
8.3 Governing Law. The validity, construction and interpretation
of this Agreement shall be governed in all respects by the laws of the State of
California.
8.4 Consent to Jurisdiction. Each party hereto, to the fullest
extent it may effectively do so under applicable law, irrevocably (i) submits to
the exclusive jurisdiction of any court of the State of California or the United
States of America sitting in the City of Los Angeles over any suit, action or
proceeding arising out of or relating to this Agreement, (ii) waives and agrees
not to assert, by way of motion, as a defense or otherwise, any claim that it is
not subject to the jurisdiction of any such court, any objection that it may now
or hereafter have to the establishment of the venue of any such suit, action or
proceeding brought in any such 5 court and any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum, (iii) agrees that a judgment in any such suit, action or proceeding
brought in any such court shall be conclusive and binding upon such party and
may be enforced in the courts of the United States of America or the State of
California (or any other courts to the jurisdiction of which such party is or
may be subject) by a suit upon such judgment and (iv) consents to process being
served in any such suit, action or proceeding by mailing a copy thereof by
registered or certified air mail, postage prepaid, return
6
<PAGE> 16
receipt requested, to the address of such party specified in or designated
pursuant to Section 8.7. Each party agrees that such service (i) shall be deemed
in every respect effective service of process upon such party in any such suit,
action or proceeding and (ii) shall, to the fullest extent permitted by law, be
taken and held to be valid personal service upon and personal delivery to such
party.
8.5 Headings. Section and subsection headings are not to be
considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.
8.6 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof,
and supersedes all prior agreements, understandings, 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.
8.7 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 States 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 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.
7
<PAGE> 17
9255 Doheny Road, Suite 2705
Los Angeles, California 90069
Attention: Jack Forcelledo, President
Telecopier Number: (310) 275-3081
With a copy to:
Manatt, Phelps & Phillips
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention: Paul H. Irving, Esq.
Telex Number: 215653 MPRT UR
Telecopier Number: (213) 3124224
If to Rosso:
Franco Rosso Via Monti 19/2
Orbassano 1043
Torino, Italy
With a copy to:
Cohen & Cohen
9454 Wilshire Boulevard, Suite 605
Beverly Hills, California 90212
Attention: Barry E. Cohen, Esq.
Telecopier Number: (310) 247-8710
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.
8.8 Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than Rollerball or Rosso
any rights or remedies under or by reason of this Agreement.
8
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date and year first set forth above.
_____________________________
GIUSSEPPE ROSSO
_____________________________
FRANCO ROSSO
ROLLERBALL INTERNATIONAL INC.
By: _________________________
Jack Forcelledo, President
WITNESSED BY: _____________________________
JAMES T. HARTNETT
9
<PAGE> 19
SCHEDULE A
ROLLERBALL SKATE PRODUCTS
1. All products currently manufactured by Rollerball using the Roll Ball
Technology and all products to be developed and manufactured by
Rollerball using the Roll Ball Technology.
2. Accessory equipment including replacement, knee pads, elbow pads and
helmets which bear the Rollerball trademark; provided, however, that
this category 2 shall not include clothing.
10
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, l997, by and between Jack
Forcelledo, residing at 9255 Doheny Road, Suite 2705, Los Angeles, CA 90069
(hereinafter referred to as the "Employee") and Rollerball International Inc., a
Delaware corporation with principal offices located at 9255 Doheny Road, Suite
2705, Los Angeles, CA 90069 (hereinafter referred to as the "Company").
W I T N E S S E T H :
WHEREAS, the Company is engaged in the manufacture and distribution of
inline skates and accessories and related business enterprises; and
WHEREAS, the Company employs and desires to continue the employment of
the Employee for the purpose of securing to the Company the experience, ability
and services of the Employee; and
WHEREAS, the Employee desires to continue his present employment with
the Company, pursuant to the terms and conditions herein set forth, superseding
all prior agreements between the Company, its subsidiaries and/or predecessors
and Employee;
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the
Company hereby employs and agrees to continue the employment of the Employee,
and the Employee hereby accepts such continued employment in his capacity as
President and Chief Executive Officer. In this capacity, Employee will report to
the Board of Directors.
ARTICLE II
DUTIES
(A) The Employee shall, during the term of his employment with the
Company, perform such services and duties of an executive nature in connection
with the business, affairs and operations of the Company, and its subsidiaries,
as may be reasonably and in good faith assigned or delegated to him from time to
time by or under the authority of the Board of Directors of the
<PAGE> 2
Company and consistent with the position of President and Chief Executive
Officer.
(B) The Employee agrees to use his best efforts in the promotion and
advancement of the Company and its welfare and business. Employee agrees to
devote his primary professional time to the business of the Company as Employee
deems reasonably necessary; provided, however, that the Company acknowledges
that Employee shall be entitled to pursue unrelated personal business ventures
that do not materially conflict with the performance of Employee's duties to the
Company.
(C) Employee shall be based in the West Hollywood, California area, and
shall undertake such occasional travel, within or without the United States as
is or may be reasonably necessary in the interests of the Company.
ARTICLE III
COMPENSATION
(A) Commencing with the commencement date hereof, the Company shall pay
to Employee a salary at the rate of $160,000 per annum for the first l2 months
that this Agreement shall be in effect, $185,000 per annum for the second l2
month period, $210,000 per annum for the third 12 month period, and $235,000 per
annum for the fourth l2 month period (payable in equal weekly installments or
pursuant to such regular pay periods adopted by the Company) (the "Base
Salary").
(B) Employee shall be entitled to receive a bonus (the "Bonus") during
each year of this Agreement, determined as follows:
The amount to be paid as a Bonus shall be determined as of
each December 31 based upon the fiscal year end and shall be equal to 7% percent
of the net profit of the Company as determined by the Company's independent
auditors no later than 90 days following the end of the Company's fiscal year
without giving effect to loss carryforwards or non-cash items and giving effect
to and including revenues received by the Company during the fiscal year and
which revenues may have otherwise been excluded in computing net profit by
reason of any revenue recognition rules otherwise utilized in the application of
generally accepted accounting principles (the "Net Profit") plus 10% of the Net
Profits over the minimum profit amount (the "Minimum Profit Amount"); the
Company achieves the following Minimum Profit Amount. The Minimum Profit amount
is:
<TABLE>
<CAPTION>
Fiscal Year Amount
<S> <C>
1997 0
1998 750,000
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Fiscal Year Amount
<S> <C>
1999 1,650,000
2000 2,400,000
</TABLE>
In the event the Net Profit of the Company, as determined for fiscal years 1998,
1999 and 2000 is less than the Minimum Profit Amount for such years, no bonus
shall be paid by the Company to the Employee pursuant to this subparagraph (B).
Such determination, for Bonus purposes only, shall be made in accordance with
generally accepted accounting principles, as modified by these resolutions.
(C) Employee may receive such other additional compensation as may be
determined from time to time by the Board of Directors. Nothing herein shall be
deemed or construed to require the Board to award any bonus or additional
compensation.
(D) The Company shall deduct from Employee's compensation all federal,
state and local taxes which it may now or may hereafter be required to deduct.
ARTICLE IV
BENEFITS
(A) During the term hereof, (i) the Company shall provide Employee with
Blue Cross/Blue Shield or equivalent health insurance benefits and major medical
insurance; (ii) Employee shall be reimbursed by the Company upon presentation of
appropriate vouchers for all business expenses incurred by the Employee on
behalf of the Company; (iii) the Company shall provide the Employee with an
automobile suitable for his position and reimburse reasonable automobile
expenses including repairs, maintenance, gasoline charges, mobile phone etc.
(B) In the event the Company wishes to obtain Key Man life insurance on
the life of Employee, Employee agrees to cooperate with the Company in
completing any applications necessary to obtain such insurance and promptly
submit to such physical examinations and furnish such information as any
proposed insurance carrier may request.
(C) The Company will obtain and maintain during the full term hereof
and at its sole cost and expense a policy of life insurance on the life of
Employee in the face amount of $500,000 payable to a beneficiary named and
designated by Employee. Upon the conclusion of this Agreement, all right, title
and interest in the policy shall be transferred to the Employee, and the
Employee shall be responsible for any premiums due after such transfer.
(D) For each year of the term hereof, Employee shall be entitled to
four weeks paid vacation.
3
<PAGE> 4
ARTICLE V
NON-DISCLOSURE
The Employee shall not, at any time during or after the termination of
his employment hereunder except when acting on behalf of and with the
authorization of the Company, make use of or disclose to any person,
corporation, or other entity, for any purpose whatsoever, any trade secret or
other confidential information concerning the Company's business, finances,
methods, operations, marketing information, research and development, customers,
pricing and information relating to proposed expansion of the Company or the
Company's business plans (collectively referred to as the "Proprietary
Information"). For the purposes of this Agreement, trade secrets and
confidential information shall mean information disclosed to the Employee or
known by him as a consequence of his employment by the Company, whether or not
pursuant to this Agreement, and not generally known in the industry, concerning
the business, finances, methods, operations, marketing information, research and
development, customers, pricing and information relating to proposed expansion
of the Company or the Company's business plans. The Employee acknowledges that
trade secrets and other items of confidential information, as they may exist
from time to time, are valuable and unique assets of the Company, and that
disclosure of any such information would cause substantial injury to the
Company.
ARTICLE VI
RESTRICTIVE COVENANT
(A) In the event of the voluntary termination of employment with the
Company or Employee's discharge in accordance with Article IX paragraph (C),
Employee agrees that he will not, for a period of one year following such
termination, directly or indirectly enter into or become associated with or
engage in any other business (whether as a partner, officer, director,
shareholder, employee, consultant, or otherwise), which business is primarily
involved in the manufacture, development and/or distribution of inline skates
and related accessories in the same geographical areas of operation of the
Company; or solicit any employee of the Company to leave the employ of the
Company or accept employment with another person or entity.
(B) If any court or tribunal shall hold that the duration of
non-competition or any other restriction contained in this paragraph is
unenforceable, it is our intention that same shall not thereby be terminated but
shall be deemed amended to delete therefrom such provision or portion
adjudicated to be invalid or unenforceable or in the alternative such judicially
substituted term may be substituted therefor.
4
<PAGE> 5
ARTICLE VII
TERM
This Agreement shall be for a term commencing on the date first set
forth above and terminating December 31, 2000, unless sooner terminated pursuant
to the terms hereof, and renewable as provided for herein, for one additional
period of one year. The Company agrees to notify Employee in writing of its
intent to negotiate an extension of this Agreement six months prior to the
expiration of the original term hereof. If the Company fails to so notify
Employee, or after having timely notified Employee of its intention to extend,
fails to reach agreement with Employee on the terms of such extension, this
Agreement shall be renewable, at the option of the Employee, for one additional
period of one year from the date on which this Agreement would have expired
without such renewal (the "Renewal Term"), except (i) Employee's base salary
shall be increased l0% above the prior year, and (ii) Employee shall be entitled
to stock options equivalent to one-fourth of the options granted pursuant to
Article X hereof, on comparable terms and conditions. If the Company elects not
to seek to negotiate an extension and has so timely notified Employee, then the
Company shall pay Employee, upon the expiration of the original term of this
Agreement, or the Renewal Term, whichever is applicable, a severance benefit
equal to Employee's annual Base Salary and Bonus for the year immediately
preceding the termination of this Agreement, payable in twelve equal monthly
installments commencing on the termination date of this Agreement.
ARTICLE VIII
DISABILITY DURING TERM
In the event that the Employee becomes totally disabled so that he is
unable or prevented from performing substantially all of his usual duties
hereunder for a period of four (4) consecutive months, and the Company elects to
terminate Employee under Article IX(B) then, and in that event, the Company
shall continue to compensate Employee and Employee shall receive his Base Salary
as provided under Article III of this Agreement for a period of twelve (l2)
months commencing from the date of such termination. The obligation of the
Company to make the aforesaid payments shall be modified and reduced and the
Company shall receive a credit for all disability insurance payments which
Employee may receive or to which he may become entitled.
ARTICLE IX
TERMINATION
The Company may terminate this Agreement:
5
<PAGE> 6
(A) Upon the death of Employee during the term hereof, except that the
Employee's legal representatives, successors, assigns and heirs shall have those
rights and interests as otherwise provided in this Agreement, including the
right to receive accrued but unpaid Bonus compensation, if any.
(B) Subject to the terms of Article VIII herein, upon written notice
from the Company to the Employee, if Employee becomes totally disabled and as a
result of such total disability, has been prevented from and unable to perform
all of his duties hereunder for a consecutive period of four (4) months.
(C) Upon written notice from the Company to Employee, if Employee is
convicted of a felony, or has directly derived personal monetary gain from
actual fraud committed by Employee against the Company. Upon termination under
this subparagraph C, Employee shall not be entitled to any bonus, in whole or in
part, which may have accrued for the fiscal year in which the termination is
effective.
ARTICLE X
STOCK OPTIONS
As an inducement to Employee to enter into this Agreement the Company
hereby grants to Employee options to purchase shares of the Company's Common
Stock, $.00l par value, upon and subject to the following conditions:
(a) Subject to the terms and conditions of the Company's l994 Employee
Stock Option Plan (the "Plan"), a copy of which Employee acknowledges having
been received, and the terms and conditions set forth in the Stock Option
Certificate which are incorporated herein by reference, the Employee is hereby
granted options to purchase 300,000 shares of the Company's Common Stock of
which options to purchase 75,000 shares shall be vested as of the date hereof,
and the remaining options to purchase 225,000 shares shall be vested on the 1st,
2nd and 3rd anniversaries hereof in equal increments of 75,000 options. The
option shall contain such other terms and conditions as set forth in the stock
option agreement. The exercise price of the options shall be equal to the
initial public offering price of the Company's Common Stock. The foregoing
options are not qualified as incentive stock options.
(B) The Options provided for herein are not transferable by Employee,
except to members of Employee's immediate family or a trust for the benefit of
Employee's estate or beneficiaries thereof, and shall be exercised only by
Employee, or by his legal representative or executor, as provided in the Plan.
6
<PAGE> 7
ARTICLE XI
EXTRAORDINARY TRANSACTIONS
The Company's Board of Directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Employee, to their assigned duties
without distraction in potentially disturbing circumstances arising from the
possibility of a change in control of the Company. A "Change in Control" of the
Company shall be deemed to have occurred if there shall be consummated (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 l3(d)(2) of the Securities Exchange Act of
l934, as amended (the "Exchange Act"), who is not a beneficial owner (within the
meaning of Rule l3d-3 under the Exchange Act) of 20% or more of the Company's
outstanding Common Stock on the date hereof, shall become the beneficial owner
(within the meaning of Rule l3d-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 the
Company's initial public offering, the conversion of outstanding convertible
securities and the exercise of any right to designate a director arising under
the underwriting agreement executed in connection with the Company's initial
public offering or the expansion of the Board of Directors with the consent of
employee.
The Company agrees that, if during the term hereof, or during such time
as the Employee is otherwise employed by the Company, a Change in Control shall
occur, all options to purchase Common Stock of the Company held by Employee,
either pursuant to this Agreement or otherwise, shall immediately vest and
become exercisable on the first day following a Change in Control. Further, the
options shall be deemed amended to provide that in the event of termination of
Employee after an event enumerated in this Article XI, the options shall remain
exercisable for the duration of their term; and
7
<PAGE> 8
further, at the Employee's option, an amount equal to three times the aggregate
annual compensation paid to the Employee during the calendar year preceding the
Change in Control shall be credited against the exercise price of any options
held by Employee at the time Employee elects to exercise such options, with the
balance paid directly to the Employee; provided, however, that if the lump sum
severance payment under this Article XI, either alone or together with other
payments which the Employee has the right to receive from the Company, would
constitute a "parachute payment" (as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code")), such credit shall be reduced to
the largest amount as will result in no portion of the credit under this Article
XI being subject to the excise tax imposed by Section 4999 of the Code.
ARTICLE XII
TERMINATION OF PRIOR AGREEMENTS
This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement; and upon the consummation of the Company's
initial public offering, the royalty agreement between the Company and the
Employee shall be deemed terminated.
ARTICLE XIII
ARBITRATION
Any dispute arising out of the interpretation, application and/or
performance of this Agreement with the sole exception of any claim, breach or
violation arising under Articles V or VI hereof shall be settled through final
and binding arbitration before a single arbitrator in the city of West
Hollywood, the State of New York in accordance with the rules of the American
Arbitration Association. The arbitrator shall be selected by the Association and
shall be an attorney at law experienced in the field of corporate law. Any
judgment upon any arbitration award may be entered in any court, federal or
state, having competent jurisdiction of the parties.
ARTICLE XIV
SEVERABILITY
If any provision of this Agreement shall be held invalid and
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or
8
<PAGE> 9
unenforceable with respect to particular circumstances, it shall remain in full
force and effect in all other circumstances.
ARTICLE XV
NOTICE
All notices required to be given under the terms of this Agreement
shall be in writing and shall be deemed to have been duly given only if
delivered to the addressee in person or mailed by certified mail, return receipt
requested, as follows:
IF TO THE COMPANY: Rollerball International Inc.
9255 Doheny Road, Suite 2705
Los Angeles, CA 90069
IF TO THE EMPLOYEE: Mr. Jack Forcelledo
Rollerball International Inc.
9255 Doheny Road, Suite 2705
Los Angeles, CA 90069
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with this paragraph. Any such written notice
shall be effective upon receipt, but not later than four (4) days after the
deposit with the U.S. Postal Service.
ARTICLE XVI
BENEFIT
This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of the Employee.
ARTICLE XVII
WAIVER
The waiver by either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of construction and validity.
ARTICLE XVIII
GOVERNING LAW
This Agreement has been negotiated and executed in the State of
California, and California law shall govern its construction and validity.
9
<PAGE> 10
ARTICLE XIX
JURISDICTION
Any or all actions or proceedings which may be brought by the Company
or Employee under this Agreement shall be brought in courts having a situs
within the State of California and Employee hereby consents to the jurisdiction
of any local, state or federal court located within the State of California.
ARTICLE XX
ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties
hereto. No change, addition or amendment shall be made hereto, except by written
agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
(Corporate Seal) Rollerball International Inc.
By_________________________
Chairman - Compensation
Committee
_______________________________
(Employee)
10
<PAGE> 1
Exhibit 10.7
ROLLERBALL INTERNATIONAL, INC.
1994 Employee Incentive Stock Option Plan
1. PURPOSE
This Employee Incentive Stock Option Plan (the "Plan") is intended as a
performance incentive for officers, employees, consultants and other key persons
of ROLLERBALL INTERNATIONAL, INC. (the "Company") or its Subsidiaries (as
hereinafter defined) to enable the persons to whom options are granted (the
"Optionees") to acquire or increase a proprietary interest in the success of the
Company. The Company intends that this purpose will be effected by the granting
of "incentive stock options" ("Incentive Options") as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options ("Nonqualified Options"). The term "Subsidiaries" includes any
corporations in which stock possessing fifty percent or more of the total
combined voting power of all classes of stock is owned directly or indirectly by
the Company.
2. OPTIONS TO BE GRANTED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options or
Nonqualified Options, and shall be designated as such at the time of grant. To
the extent that any option intended to be an Incentive Option shall fail to
qualify as an "incentive stock option" under the Code, such option shall be
deemed to be a Nonqualified Option.
(b) The Plan shall be administered by the Board of Directors or by a
committee (the "Option Committee") of not less than two directors of the Company
appointed by the Board of Directors of the Company (the "Board of Directors")
for such term as the Board of Directors may determine. The Board of Directors
may, from time to time, remove members from, or add members to, the Option
Committee. The administrator of the Plan shall hereinafter be referred to as the
"Plan Administrator". In the event that the Plan Administrator is an Option
Committee of the Board of Directors, none of the members of such Option
Committee shall be an officer or other full-time employee of the Company. It is
the intention of the Company that each member of the Option Committee shall be a
"disinterested person" as that term is defined and interpreted pursuant to Rule
16b-3(c)(2) or any successor rule thereto promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Action by the Option
Committee shall require the affirmative vote of a majority of all its members.
In the event that the Plan Administrator is the Board of Directors, and a member
of the Board of Directors may be eligible, subject to the restrictions in
Section 4, to participate in or receive or hold options under the Plan, no
member of the Board of Directors or the Option Committee shall vote with respect
to the granting of options hereunder to himself or herself, as the case may be,
and, if state corporate law does
<PAGE> 2
not permit a committee to grant options to directors, then any option granted
under the Plan to a director for his or her services as such shall be approved
by the full Board of Directors.
With respect to grants made under the Plan to officers and directors of
the Company who are subject to Section 16 of the Exchange Act, the Plan
Administrator shall be constituted at all times so as to meet the requirements
of Rule 16b-3 so long as any of the Company's equity securities are registered
pursuant to Section 12(b) or 12(g) of the Exchange Act.
(c) Subject to the terms and conditions of the Plan, the Plan
Administrator shall have the power:
(i) To determine from time to time the options to be granted to
eligible persons under the Plan and to prescribe the terms and provisions
(which need not be identical) of options granted under the Plan to such
persons;
(ii) To construe and interpret the Plan and grants thereunder and in
its discretion have the authority: (A) to determine, upon review of
relevant information, the fair market value of the Common Stock; (B) to
determine the exercise price per share of stock options to be granted; (C)
to determine the eligible participants to whom, and time or times at
which, options shall be granted and the number of shares to be issuable
upon exercise of each stock option; (D) to construe and interpret the
Plan; (E) to prescribe, amend and rescind rules and regulations relating
to the Plan; (F) to determine the terms and provisions of each grant
(which need not be identical); and (G) to make all other determinations
necessary to or advisable for the administration of the Plan.
Notwithstanding the foregoing, in the event any employee of the Company or
any of its Subsidiaries granted an option under the Plan is, at the time
of such grant, a member of the Board of Directors of the Company, the
grant of such grant shall, in the event the Board of Directors at the time
such option is granted is not deemed to satisfy the requirement of Rule
16b-3(b)(2)(i) or (ii) promulgated under the Act, be subject to the
approval of an auxiliary committee consisting of not less than two persons
who qualify as "disinterested persons" within the meaning of Rule
16b-3(d)(3) promulgated under the Act. All decisions and determinations by
the Option Committee in the exercise of this power shall be final and
binding upon the Company and the Optionees; and
(iii) Generally, to exercise such powers and to perform such acts as
are deemed necessary or expedient to promote the best interests of the
Company with respect to the Plan.
3. STOCK
(a) The stock granted under the Plan, or subject to the options granted
under
<PAGE> 3
the Plan, shall be shares of the Company's authorized but unissued common stock,
par value $.01 per share (the "Common Stock"). The total number of shares that
may be issued under the Plan shall not exceed an aggregate of 750,000 shares of
Common Stock. Such number shall be subject to adjustment as provided in Section
7 hereof.
(b) Whenever any outstanding option under the Plan expires, is canceled or
is otherwise terminated (other than by exercise), the shares of Common Stock
allocable to the unexercised portion of such option may again be the subject of
options under the Plan.
4. ELIGIBILITY
(a) Incentive Options may be granted only to officers or other full-time
employees of the Company or its Subsidiaries, including members of the Board of
Directors who are also full-time employees of the Company or its Subsidiaries.
Nonqualified Options may be granted to officers or other employees of the
Company or its Subsidiaries, to members of the Board of Directors of the Company
or its Subsidiaries (other than Directors serving on the Option Committee), and
to consultants and other key persons who provide services to the Company or its
Subsidiaries, and members of any scientific or other advisory boards of the
Company or otherwise (regardless of whether they are also employees).
(b) No person shall be eligible to receive any Incentive Option under the
Plan if, at the date of grant, such person beneficially owns stock representing
in excess of ten percent of the voting power of all outstanding capital stock of
the Company, unless notwithstanding anything in this Plan to the contrary (i)
the purchase price for stock subject to such option is at least 110% of the fair
market value of such stock at the time of the grant and (ii) the option by its
terms is not exercisable more than 5 years from the date of grant thereof.
(c) Notwithstanding any other provision of the Plan, the aggregate fair
market value (determined as of the time the option is granted) of the stock with
respect to which incentive stock options are exercisable for the first time by
any individual during any calendar year (under all plans of the Company and its
parent and subsidiary corporations) shall not exceed $100,000.
(d) The granting of an option shall take place when the Plan Administrator
by resolution, written consent or other appropriate action determines to grant
such an option to a particular Participant at a particular price. Each option
shall be evidenced by a written instrument delivered by or on behalf of the
Company containing provisions not inconsistent with the Plan.
5. TERMS OF THE OPTION AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement
shall
<PAGE> 4
contain such provisions as the Plan Administrator shall from time to time deem
appropriate. Option agreements need not be identical, but each option agreement
by appropriate language shall include the substance of all of the following
provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
provision of the Plan or of any option agreement, each option shall expire on
the date specified in the option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the option was granted. Except as otherwise determined by the Plan
Administrator, if whether at the time an Option is granted or subsequent
thereto, the following provisions shall govern the effect of an option holder's
termination of employment. In the event that an option holder ceases to be an
officer, employee, consultant, advisory board member, or director of the Company
or of any of its Subsidiaries for any reason other than permanent disability (as
determined by the Board of Directors) and death, any option, including any
exercised portion thereof, which was otherwise exercisable on the date of
termination, shall expire unless exercised within a period of three months from
the date on which the option holder ceased to be so employed, but in no event
after the expiration of the exercise period; provided, however, that, if the
Board of Directors shall determine that an option holder shall have been
discharged for cause, options granted and not yet exercised shall terminate
immediately and be null and void as of the date of discharge. In the event of
the death of an option holder during this three month period, the option shall
be exercisable by his or her personal representatives, heirs or legatees to the
same extent that the option holder could have exercised the option if he or she
had not died, for the three months from the date of death, but in no event after
the expiration of the exercise period. In the event of the permanent disability
of an option holder while an officer, employee, consultant, advisory board
member or director of the Company or of any Subsidiary, any option granted to
such person shall be exercisable for twelve (12) months after the date of
permanent disability; but in no event after the expiration of the exercise
period; provided that such option shall have previously vested (in whole or in
part) prior to the date of such permanent disability and the exercise of such
option is in no event made after the expiration of the option exercise period
otherwise provided for. In the event of the death of an option holder while an
officer, employee, consultant, advisory board member or director of the Company
or any of its Subsidiaries, or during the twelve (12) month period after the
date of permanent disability of the option holder, that portion of the option
which had become exercisable on the date of death shall be exercisable by his or
her personal representatives, heirs or legatees at any time prior to the
expiration of one (1) year from the date of the death of the option holder, but
in no event after the expiration of the exercise period. Except as the Option
Committee shall provide otherwise, in the event an option holder ceases to be an
officer, employee, consultant, advisory board member or director of the Company
or of any Subsidiary for any reason, including death, prior to the lapse of the
waiting period, his or her option shall terminate and be null and void.
(b) Minimum Shares Exercisable. The minimum number of shares with respect
to which an option may be exercised at any one time shall be one hundred
<PAGE> 5
(100) shares, or such lesser number as is subject to exercise under the option
at the time.
(c) Exercise. Each option shall be exercisable in such installments (which
need not be equal) and at such times as may be designated by the Option
Committee. Except as provided in Section 8 hereof, no option shall first be
exercisable, either in whole or in part, until the expiration of six months from
the date of grant. To the extent not exercised, installments shall accumulate
and be exercisable, in whole or in part, at any time after becoming exercisable,
but not later than the date the option expires.
(d) Purchase Price. The purchase price per share of Common Stock subject
to each option shall be determined by the Plan Administrator; provided, however,
that the purchase price per share of Common Stock subject to each Incentive
Option shall be not less than the fair market value of the Common Stock on the
date such Incentive Option is granted. In the case of a Non-Incentive Option,
the purchase price per share of Common Stock subject to such Non-Incentive
Option shall be such price as determined in good faith by the Plan Administrator
but in no case less than 85% of the fair market value on the date of grant. For
the purposes of the Plan, the fair market value of the Common stock shall be
determined in good faith by the Plan Administrator; provided (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 traded in the over-the-counter market and
quotations are published on the NASDAQ quotation system (but not on NMS), the
per share closing bid price of the Common Stock on the date of grant as reported
by NASDAQ (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 quotes are available, the fair market value as
determined by the Board of Directors.
(e) Rights of Optionees. No Optionee shall be deemed for any purpose to be
the owner of any shares of Common Stock subject to any option unless and until
(i) the option shall have been exercised pursuant to the terms thereof, (ii) all
requirements under applicable law and regulations shall have been complied with
to the satisfaction of the Company, (iii) the Company shall have issued and
delivered the shares to the Optionee, and (iv) the Optionee's name shall have
been entered as a stockholder of record on the books of the Company. Thereupon,
the Optionee shall have full voting, dividend and other ownership rights with
respect to such shares of Common Stock.
(f) Nontransferability of Options. During a Participant's lifetime, an
option may be exercisable only by the Participant and options granted under the
Plan and the
<PAGE> 6
rights and privileges conferred thereby shall not be subject to execution,
attachment or similar process and may not be transferred, assigned, pledged or
hypothecated in any manner (whether by operation of law or otherwise) other than
by will or by the applicable laws of descent and distribution. Notwithstanding
the foregoing, to the extent permitted by applicable law and Rule 16b-3, the
Plan Administrator may permit a recipient of a Nonqualified Option to (i)
designate in writing during the Participant's lifetime a Beneficiary to receive
and exercise the Participant's Nonqualified Options in the event of such
Participant's death or (ii) transfer a Nonqualified Option. Any other attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any option under
the Plan or of any right or privilege conferred thereby, contrary to the
provisions of the Plan, or the sale or levy of any attachment or similar process
upon the rights and privileges conferred hereby, shall be null and void.
(g) Purchase for Investment. The Plan Administrator shall have the right
to require that each Participant or other person who shall exercise an option
under the Plan, and each person into whose name shares of Common Stock shall be
issued pursuant to the exercise of an option, represent and agree that any and
all shares of Common Stock purchased pursuant to such option are being purchased
for investment only and not with a view to the distribution or resale thereof
and that such shares will not be sold except in accordance with such
restrictions or limitations as may be set forth in the option. This Section 5(g)
shall be inoperative during any period of time when the Company has obtained all
necessary or advisable approvals from governmental agencies and has completed
all necessary or advisable registrations or other qualifications of shares of
Common Stock as to which options may from time to time be granted.
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any option granted under the Plan may be exercised by the Optionee in
whole or, subject to Section 5(b) hereof, in part by delivering to the Company
on any business day a written notice specifying the number of shares of Common
Stock the Optionee then desires to purchase (the "Notice").
(b) Payment for the shares of Common Stock purchased pursuant to the
exercise of an option shall be made either: (i) in cash, or by certified or bank
check or other payment acceptable to the Company, equal to the option exercise
price for the number of shares specified in the Notice (the "Total Option
Price"); (ii) if authorized by the applicable option agreement and if permitted
by law, by delivery of shares of Common Stock that the optionee may freely
transfer having a fair market value, determined by reference to the provisions
of Section 5(d) hereof, equal to or less than the Total Option Price, plus cash
in an amount equal to the excess, if any, of the Total Option Price over the
fair market value of such shares of Common Stock; or (iii) by the Optionee
delivering the Notice to the Company together with irrevocable instructions to a
broker to promptly deliver the Total Option Price to the Company in cash or by
other method of payment acceptable to the Company; provided, however, that the
Optionee
<PAGE> 7
and the broker shall comply with such procedures and enter into such agreements
of indemnity or other agreements as the Company shall prescribe as a condition
of payment under this clause (iii).
(c) The delivery of certificates representing shares of Common Stock to be
purchased pursuant to the exercise of any option will be contingent upon the
Company's receipt of the Total Option Price and of any written representations
from the Optionee required by the Option Committee, and the fulfillment of any
other requirements contained in the option agreement or applicable provisions of
law.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the shares of the Company's Common Stock as a whole are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company, whether through merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, change in corporate structure or the
like, an appropriate and proportionate adjustment shall be made in the number
and kind of shares subject to the Plan, and in the number, kind and per share
exercise price of shares subject to unexercised options or portions thereof
granted prior to any such change. In the event of any such adjustment in an
outstanding option, the Optionee thereafter shall have the right to purchase the
number of shares under such option at the per share price, as so adjusted, which
the Optionee could purchase at the total purchase price applicable to the option
immediately prior to such adjustment.
(b) Adjustments under this Section 7 shall be determined by the Plan
Administrator and such determinations shall be conclusive. The Plan
Administrator shall have the discretion and power in any such event to determine
and to make effective provision for acceleration of the time or times at which
any option or portion thereof shall become exercisable. No fractional shares of
Common Stock shall be issued under the Plan on account of any adjustment
specified above.
8. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
reorganization, merger, consolidation or other business combination in which the
Company is acquired by another entity (other than a holding company formed by
the Company) or in which the Company is not the surviving entity or (iii) the
sale of all or substantially all of the assets of the Company to another entity,
the Plan and the options issued hereunder shall terminate, unless provision is
made in connection with such transaction for the assumption of options
theretofore granted, or the substitution for such options of new options of the
successor entity or parent thereof, with appropriate adjustment as to the number
and kind of shares and the per share exercise prices, as provided in Section 7.
In the event of such termination, all outstanding options shall be exercisable
in full for at least fifteen days prior to the date of such
<PAGE> 8
termination whether or not otherwise exercisable during such period.
9. TAX WITHHOLDING
(a) Payment by Participant. Each Optionee shall, no later than the date as
of which the value of any option granted hereunder or of any Common Stock issued
upon the exercise of such option first becomes includable in the gross income of
the participant for federal income tax purposes (the "Tax Date"), pay to the
Company, or make arrangements satisfactory to the Company regarding payment of
any federal, state, or local taxes of any kind required by law to be withheld
with respect to such income.
(b) Payment in Shares. An Optionee may elect to have such tax withholding
obligation satisfied, in whole or in part, by (i) authorizing the Company to
withhold from shares of Common Stock to be issued pursuant to an option exercise
a number of shares with an aggregate fair market value that would satisfy the
withholding amount due, or (ii) transferring to the Company shares of Common
Stock owned by the participant with an aggregate fair market value that would
satisfy the withholding amount due. With respect to any Optionee who is subject
to Section 16(b) of the Act, the following additional restrictions shall apply:
(A) the election to satisfy tax withholding obligations in the
manner permitted by this Section 11(b) shall be made either (1) during the
period beginning on the third business day following the date of release
of quarterly or annual summary statements of sales and earnings of the
Company and ending on the twelfth business day following such date, or (2)
at least six months prior to the Tax Date;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or disapproval of
the Option Committee; and
(D) such election shall not be made within six months of the date of
grant of the option.
10. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and the
limitation that, except as provided in Sections 5, 7 and 8 hereof, no amendment
shall be effective unless approved by the stockholders of the Company in
accordance with applicable law and regulations at an annual or special meeting
held within twelve months before or after the date of adoption of such
amendment, where such amendment will:
(a) increase the number of shares of Common Stock as to which options may
<PAGE> 9
be granted under the Plan;
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan;
(c) change the minimum option exercise price;
(d) increase the maximum term of options provided herein; or
(e) otherwise materially increase the benefits accruing to participants
under the Plan.
Except as provided in Sections 5, 7 and 8 hereof, rights and obligations
under any option granted before any amendment of the Plan shall not be altered
or impaired by such amendment, except with the consent of the Optionee.
11. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock or stock options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases. Neither the Plan or any option granted hereunder shall be deemed
to confer upon any employee any right to continued employment with the Company
or its Subsidiaries.
12. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
(a) The obligation of the Company to sell and deliver shares of Common
Stock with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Option Committee.
(b) The Plan shall be governed by Delaware law, except to the extent that
such law is preempted by federal law.
(c) Transactions under the Plan are intended to comply with Rule 16b-3 or
any successor rule thereto promulgated under the Act. Any provision of the Plan
or of any option agreement inconsistent with such compliance shall be
inoperative and shall not affect the validity of the Plan or the availability of
any exemption from Section 16(b) of the Act.
<PAGE> 10
13. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL
The Plan shall become effective upon the date that it is approved by the
Company's Board of Directors, provided that the Plan is subject to the approval
of the Plan by the Company's stockholders on or before the first anniversary of
the date that the Plan is approved by the Company's Board of Directors. Options
may be granted prior to such stockholder approvals, provided that no option
granted under the Plan may be exercised until such stockholder approvals are
obtained, and if such approvals are not obtained within such 12 month period,
the Plan and all outstanding options shall terminate and be null and void.
<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 200,000 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 10.10
ROLLERBALL INTERNATIONAL INC.
9255 DOHENY ROAD, SUITE 2705
LOS ANGELES, CALIFORNIA 90069
As of August 18, 1997
Mr. Ken Teasdale
9255 Doheny Road, Suite 2705
Los Angeles, California 90069
Re: Employment Agreement
Dear Mr. Teasdale:
When executed by you ("Officer") and by a duly authorized representative of
Rollerball International Inc., a California corporation ("Company"), this will
constitute the agreement between us in connection with your employment and set
forth the terms and conditions thereof.
1. Services.
1.1 Employment.
Company employs Officer during the Term (as hereinafter defined) to serve as
Chief Financial Officer of Company, and to render such other services
("Services") as Company may from time to time reasonably request which are
consistent with the duties Officer is to perform and Officer's stature and
experience. The Services shall be generally performed in Los Angeles,
California. In addition, the Services may be performed by Officer from time to
time on a temporary basis at such other locations as Company shall reasonably
request consistent with its reasonable business needs.
1.2 Term.
The Term of this Agreement shall commence and become effective as of August 18,
1997, and shall continue for a period of One (1) year through and including
August 18, 1998 unless extended in accordance with the provisions hereof (the
"Term").
1.3 Confidentiality.
Officer acknowledges that the Services will, throughout the Term, bring Officer
into close contact with many confidential affairs of the Company, including
information about costs, profits, markets, sales, products, key personnel,
pricing policies, operational methods, technical processes and other business
affairs and methods and other information not readily available to the public,
and plans for future development. Officer further acknowledges that the
business of Company is international in scope, that its products are marketed
throughout the world, that Company competes with other organizations and
individuals which are or could be located in any part of the world and that the
<PAGE> 2
Ken Teasdale
Employment Agreement
As of August 18, 1997
Page Two
nature of Officer's Services, position and expertise are such that he is
capable of competing with Company from any location in the world. In
recognition of the foregoing, Officer covenants and agrees to keep secret all
material confidential matters of the Company which are not otherwise in the
public domain and will not intentionally disclose them to anyone outside of
Company, either during or after the Term, except with Company's express prior
written consent and except for such minimum disclosure as is necessary in the
performance of the Services and Officer's other duties during the Term.
2. Compensation.
As compensation and consideration for all Services provided by Officer during
the Term pursuant to this Agreement, Company agrees to pay to Officer the
compensation set forth below:
2.1 Fixed Annual Compensation.
Officer shall initially receive Fixed Annual Compensation in the amount of
Seventy Five Thousand Dollars ($75,000). Any proposed modifications or
adjustments (prospective and/or retroactive) to Fixed Annual Compensation shall
be negotiated in good faith between Officer and Company. In the event that
Company is financially unable to provide Fixed Annual Compensation through
Term, Chief Executive Officer agrees to personally guarantee that Officer
continue to receive Fixed Annual Compensation through Term via alternative
funding or personal funding. In addition to Fixed Annual Compensation, Officer
may also from time to time receive performance bonuses, the frequency, criteria
and amounts therefore to be determined at the discretion of Company.
2.2 Stock Options.
Officer shall initially receive Twenty Thousand (20,000) options to acquire
shares of Company's common stock exercisable at the initial public offering
price which vest immediately. As an inducement to Officer, Company may from
time to time offer and grant to Officer additional options to acquire shares of
Company's common stock in terms and conditions to be determined by Company.
2.3 Auto Allowance.
Officer shall receive upon execution of Agreement monthly Auto Allowance of
Two Hundred Fifty Dollars ($250) per month which shall be paid in addition to
the Fixed Annual Compensation or Company shall provide car for Officer at no
additional expense to Auto Allowance discussed above.
2.4 Vacation.
<PAGE> 3
Ken Teasdale
Employment Agreement
As of August 18, 1997
Page Three
Officer shall receive Three (3) weeks vacation upon execution of Agreement to be
used during the Term with reasonable notice and acceptance by the Chief
Executive Officer.
2.5 Insurance Benefits.
Officer shall receive full medical and dental insurance coverage for Officer and
Officer's family provided by Company with premiums of such insurance coverage
to be paid in full by Company. In the event that insurance coverage is not
available at beginning of Term, Company will reimburse Officer for any out of
pocket expense incurred to obtain the necessary insurance coverage until
Company's insurance coverage is available to Officer.
3. Termination.
Company or Officer shall have the right to terminate the Term at any time by
written notice to the other to that effect. Should the Term be terminated by
Company, Officer shall have the right to the greater of continued Fixed Annual
Compensation and Insurance Benefits through the remainder of the Term or Six (6)
months of Fixed Annual Compensation including Insurance Benefits. Should the
Term be terminated by Officer, Officer shall have no right to any further Fixed
Annual Compensation from and after termination or to any Insurance Benefits for
the first fiscal year of termination or thereafter.
4. General.
4.1 Governing Law
This Agreement shall be governed by, construed and enforced and the legality and
validity of each term and condition shall be determined in accordance with the
internal, substantive laws of the State of California applicable to agreements
fully executed and performed entirely in California.
4.2 Captions.
The section headings contained herein are for reference purposes only and shall
not in any way affect the meaning or interpretation of this Agreement.
4.3 Modification/Entire Agreement
This Agreement may not be altered, modified or amended except by any instrument
in writing signed by all of the parties hereto. No person, whether or not an
officer, agent, employee or representative or any party, has made or has any
authority to make for or on behalf of that party any
<PAGE> 4
Ken Teasdale
Employment Agreement
As of August 18, 1997
Page Four
agreement, representation, warranty, statement, promise, arrangement or
understanding not expressly set forth in this Agreement. This Agreement
constitutes the entire agreement between the parties and supersedes all express
or implied, prior or concurrent, parol agreements and prior written agreements
with respect to the subject matter hereof. The parties acknowledge that in
entering into this agreement, they have not relied and will not in any way rely
upon any parol agreements.
Please confirm your agreement to the foregoing by signing below where indicated.
Very truly yours,
Rollerball International, Inc.
- ------------------------------
Jack Forcelledo
Chief Executive Officer
DATED: August 18, 1997
Agreed to and Accepted:
- ------------------------------
Ken Teasdale
DATED: August 18, 1997
<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 28, 1997 except for the first paragraph of
Note 12 as to which the date is January , 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
January 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996 FINANCIALS INCLUDED IN FORM SB-2 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TU SUCH SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 394,667
<SECURITIES> 0
<RECEIVABLES> 27,009
<ALLOWANCES> 0
<INVENTORY> 467,637
<CURRENT-ASSETS> 1,189,000
<PP&E> 420,864
<DEPRECIATION> 132,882
<TOTAL-ASSETS> 1,915,177
<CURRENT-LIABILITIES> 2,826,787
<BONDS> 0
0
0
<COMMON> 3,026
<OTHER-SE> 1,075,650
<TOTAL-LIABILITY-AND-EQUITY> 1,915,177
<SALES> 4,850,416
<TOTAL-REVENUES> 4,850,416
<CGS> 3,103,779
<TOTAL-COSTS> 3,103,779
<OTHER-EXPENSES> 2,197,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,566
<INCOME-PRETAX> (547,503)
<INCOME-TAX> 800
<INCOME-CONTINUING> (548,303)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (548,303)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> 0
</TABLE>
