-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A1JWLtOATK+HDMMuMVqWupxJhFOBCtn1R5mufSYYEi39GgewFdNwUDsO7azrwOlY IN3MXSpURJVKogXIP5Qneg== 0001047469-98-024692.txt : 19980622 0001047469-98-024692.hdr.sgml : 19980622 ACCESSION NUMBER: 0001047469-98-024692 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19980619 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTON MOTORS INTERNATIONAL INC CENTRAL INDEX KEY: 0001064228 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 411828797 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-57229 FILM NUMBER: 98650909 BUSINESS ADDRESS: STREET 1: 14252 23RD AVE NORTH CITY: PLYMOUTH STATE: MN ZIP: 55447-4910 BUSINESS PHONE: 6126949880 MAIL ADDRESS: STREET 1: 14252 23RD AVE NORTH CITY: PLYMOUTH STATE: MN ZIP: 55447-4910 SB-2 1 SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1998 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- NORTON MOTORS INTERNATIONAL INC. (Name of Small Business Issuer in Its Charter) ------------------------------ MINNESOTA 3751 41-1828797 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation or Classification Code Number) Identification No.) Organization)
-------------------------- 14252 23RD AVENUE NORTH PLYMOUTH, MINNESOTA 55447-4910 (612) 694-9880 (Address and Telephone Number of Principal Executive Offices) 14252 23RD AVENUE NORTH PLYMOUTH, MINNESOTA 55447-4910 (Address of Principal Place of Business or Intended Principal Place of Business) MYRON CALOF NORTON MOTORS INTERNATIONAL INC. 14252 23RD AVENUE NORTH PLYMOUTH, MINNESOTA 55447-4910 (612) 694-9880 (Name, Address and Telephone Number of Agent For Service) ------------------------------ COPIES TO: ROBERT H. FRIEDMAN, ESQ. LAWRENCE B. FISHER, ESQ. OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP ORRICK HERRINGTON & SUTCLIFFE LLP 505 PARK AVENUE 666 FIFTH AVENUE NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10103 (212) 753-7200 (212) 506-5000 (212) 755-1467 (TELECOPIER) (212) 506-5151 (TELECOPIER)
-------------------------- Approximate Date of Commencement of Proposed Sale to Public: As soon as practicable after this registration statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING REGISTRATION TO BE REGISTERED PRICE(1) FEE Common Stock, $.01 par value(2)......................................................... 22,425,000(3) $6,615.38
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) Includes 450,000 shares of Common Stock issuable upon exercise of the Underwriters' over-allotment option. (3) Based upon a proposed maximum offering price of $6.50 per share of Common Stock. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 JUNE 19, 1998 PROSPECTUS [LOGO] MOTORS INTERNATIONAL INC. 3,000,000 SHARES OF COMMON STOCK Norton Motors International Inc., a Minnesota corporation (the "Company"), hereby offers (the "Offering") 3,000,000 shares (the "Shares") of common stock, $.01 par value per share ("Common Stock"). See "Description of Securities." Prior to this Offering, there has been no public market for the Common Stock and there can be no assurance that such a market will develop after completion of this Offering, or if developed, that it will be sustained. It is currently anticipated that the initial public offering price of the Common Stock will between $5.50 and $6.50 per Share. For information regarding the factors considered in determining the initial public offering price of the Shares, see "Risk Factors" and "Underwriting." The Company intends to apply for listing of the Common Stock on the American Stock Exchange under the symbol "NRN". ------------------------ THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION." ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PUBLIC DISCOUNTS(1) PROCEEDS TO COMPANY(2) Per Share............................................ $ $ $ Total(3)............................................. $ $ $
(1) Does not include additional compensation to Dirks & Company, Inc., the representative (the "Representative") of the several Underwriters (the "Underwriters"), in the form of a non-accountable expense allowance. In addition, see "Underwriting" for information concerning indemnification and contribution arrangements with the Underwriters and other compensation payable to the Representative. (2) Before deducting estimated expenses of $500,000 payable by the Company, excluding the non-accountable expense allowance payable to the Representative. (3) The Company has granted to the Underwriters an option, exercisable within forty-five (45) days after the date of this Prospectus, to purchase up to 450,000 additional Shares, upon the same terms and conditions as set forth above, solely to cover over-allotments, if any (the "Over-Allotment Option"). If such Over-Allotment Option is exercised in full, the total Price to Public, Underwriting Discounts and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The Securities are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by their counsel and subject to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify this Offering and to reject any order in whole or in part. It is expected that delivery of the Shares will be made at the offices of Dirks & Company, Inc., New York, New York, on or about , 1998. DIRKS & COMPANY, INC. The date of this Prospectus is , 1998 [PICTURES OF COMPANY'S NEW MOTORCYCLES] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE THE MARKET PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." ------------------------ PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO (A) THE CONVERSION OF $2,516,000 IN AGGREGATE PRINCIPAL AMOUNT OF CERTAIN CONVERTIBLE DEBENTURES INTO AN AGGREGATE OF 1,258,000 SHARES OF COMMON STOCK ON THE DATE OF CONSUMMATION OF THIS OFFERING (ASSUMING AN INITIAL PUBLIC OFFERING PRICE OF $6.00 PER SHARE), (B) THE ISSUANCE TO MELLING CONSULTANCY DESIGN LIMITED OF 166,666 SHARES OF COMMON STOCK IN EXCHANGE FOR CANCELLATION OF CERTAIN ROYALTY PAYMENTS PAYABLE BY THE COMPANY, (C) THE REPURCHASE BY THE COMPANY OF 90,000 SHARES OF COMMON STOCK AND WARRANTS TO PURCHASE 90,000 SHARES OF COMMON STOCK FROM A FORMER DIRECTOR OF THE COMPANY AND (D) A 3-FOR-2 STOCK SPLIT OF THE COMMON STOCK EFFECTIVE SEPTEMBER 1, 1997 AND (II) DOES NOT GIVE EFFECT TO (X) ANY EXERCISE OF THE OVER-ALLOTMENT OPTION AND (Y) ANY EXERCISE BY THE REPRESENTATIVE OF WARRANTS TO PURCHASE 300,000 SHARES OF COMMON STOCK. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION," "BUSINESS--PRIME CONTRACTOR DEVELOPMENT AGREEMENT," "UNDERWRITING," AND "CERTAIN TRANSACTIONS." THE COMPANY Norton Motors International Inc. (the "Company"), a development stage company, is currently developing, and plans to manufacture, market and sell, high performance motorcycles, each intended for a distinct segment of the motorcycle market. The Company introduced a non-running motorcycle model, the 1500cc V8 powered Norton Nemesis (the "Nemesis") in April 1998. The Nemesis is anticipated to be the Company's flagship motorcycle, and is expected to produce 235 brake horsepower ("bhp") with a projected top speed exceeding 200 miles per hour ("mph"). The Company also intends to introduce the Norton Manx Superbike (the "Manx") in fall 1998, which will be powered by a 750cc in-line four cylinder engine expected to produce 160 bhp. Development of the Nemesis and the Manx has been substantially completed, and the Company expects to commence limited production and initial delivery of the Nemesis and the Manx by the end of 1998 or early 1999. In addition to the Nemesis and the Manx, the Company is currently developing three other models which it plans to introduce over the twenty-four months following the date of this Prospectus. The three additional models are: (i) the Norton Commando Cruiser, a 1500cc V8 powered motorcycle designed specifically for the American market (the "Commando"); (ii) the Norton International 600cc Sportbike (the "International"); and (iii) the 900cc Norton Atlas (the "Atlas," and together with the Nemesis, the Manx, the Commando and the International, the "Initial Product Line"). The motorcycles in the Initial Product Line will be offered in different segments of the motorcycle market and are anticipated to range in price from approximately $10,000 to $35,000. The Company believes that each of the motorcycles in the Initial Product Line will be positioned as a premier product in the market segment in which the respective motorcycle is sold. In addition to the Initial Product Line, the Company plans to offer various other motorcycle models, including a trailbike and a supermotard, both to be powered by versions of the Company's 600cc engine, and an advanced version of the Nemesis, for which the Company has commenced preliminary research and design. The Company believes that these and future models will enable the Company to achieve its desired market penetration for its motorcycles. The Company believes that the following factors will help to distinguish the Company's products from its competitors: - innovative technology which borrows from advanced engineering fields such as Formula 1 racing and the aerospace industry; - the 100 year history and tradition of Norton motorcycles; and - the continuing popularity of the Norton brand name among motorcycle enthusiasts worldwide. The Company believes that the technology used in the Initial Product Line is among the most advanced in the motorcycle industry, with materials such as lightweight but strong aluminum and 3 magnesium alloys and carbon-fiber composites (generally used in the aerospace industry), which the Company believes will enable the Company's motorcycles to be lighter and stronger than similar motorcycles made of steel. Motorcycles have been sold under the Norton brand name for nearly the past century. The Company believes that the Norton brand name is one of the premium names in the motorcycle industry. The Norton Manufacturing Co., Ltd. was established in 1898 in England to produce components for the bicycle and motorcycle industries and produced the first Norton motorcycle in 1902. In 1907, a Norton motorcycle won the Multi-Cylinder Race at the first Touring Trophy on the Isle of Man, and Norton motorcycles enjoyed racing success and set new speed records consistently before and after World War I and into the 1930's. As late as 1992, a Norton motorcycle won the Senior Touring Trophy on the Isle of Man. To this day, the Company believes the Norton name continues to be known throughout the world, as evidenced by the many Norton owners clubs throughout the United States, the United Kingdom, Europe, and elsewhere. Most of the design of the Initial Product Line has been completed, the development of the Manx and the Nemesis has been substantially completed, and the remaining development of the Initial Product Line is to be completed, by the firm of Melling Consultancy Design Limited of Rochdale, England ("MCD") under existing long-term contracts with the Company. The owner of MCD, Mr. Al Melling, is a director of the Company. Mr. Melling has designed numerous automobile engines, and designed enhancements for many others, working for such firms as General Motors, Porsche, Ferrari, Lamborghini, Alfa Romeo and various Japanese motorcycle manufacturers. Mr. Melling has recently achieved prominence in the engine design industry as the designer of a V8 engine for TVR, a British high performance engine and specialty vehicle manufacturer, and a Formula 1 V10 engine for Lola, a British designer of high performance motor sport vehicles. The Company anticipates assembling the Initial Product Line at its production facility in Shenstone, England, which was acquired as part of the Norton Asset Acquisition (as defined herein). The Company intends to upgrade and renovate this facility during the fourth quarter of 1998. The Company believes that the Shenstone facility currently has the capacity for high volume production of the Initial Product Line and has the capability to accommodate anticipated production levels. The Company intends to market and distribute its products internationally through a combination of dealers and country-wide and/or regional distributors. The Company is currently negotiating terms with potential distributors and dealers in both the United States and abroad. The Company has commenced offering apparel bearing the Norton brand name on its website and anticipates offering a wide variety of apparel and motorcycle accessories through its anticipated motorcycle distributors and dealers. The Company acquired all of the rights held by Norton Motorcycles Limited (U.K.) ("NML") to the "Norton" trademarks and tradenames among other assets, in early 1998 (the "Norton Asset Acquisition") from NML, a company in which Aquilini Investment Group ("Aquilini") of Vancouver, Canada, an investment and holding group with extensive business, property and financial interests throughout Canada, was a significant stockholder. The Company is presently being managed by a management team which includes several officers of the current majority shareholders of the Company and Aquilini. This management team is led by Myron Calof, the Chief Executive Officer of the Company and executive vice president of Aquilini and Joseph Novogratz, the President and a founder of the Company. The Company was initially incorporated in October 1995 as March Motors Limited, a United Kingdom corporation, and was reorganized as a Minnesota corporation in August 1996. The Company's executive offices are currently located at 14252 23rd Avenue North, Plymouth, Minnesota 55447-4910, and its telephone number is (612) 694-9880. The Company's website can be accessed at www.nortonmotorcycles.com. Information contained on the Company's website will not be deemed to be a part of this Prospectus. The following registered and unregistered trademarks of the Company are used in this Prospectus: "Norton," "Nemesis," "Manx," "Commando," "International" and "Atlas" 4 THE OFFERING Securities Offered........................... 3,000,000 shares of Common Stock. Common Stock Outstanding Prior to this Offering................................... 8,611,094 shares(1) Common Stock to be Outstanding After this Offering................................... 11,611,094 shares(1) Use of Proceeds.............................. The Company intends to use the net proceeds of this Offering (i) to repay certain indebtedness of the Company, (ii) for funding research and development costs, (iii) for sales and marketing costs, (iv) for capital expenditures, (v) for the purchase of motorcycle components and inventory, (vi) for intellectual property filing costs and expenses related thereto, and (vii) for working capital and general corporate purposes. See "Use of Proceeds." Risk Factors................................. An investment in the Shares offered hereby involves a high degree of risk and immediate and substantial dilution and should be made only by investors who can afford the loss of their entire investment. See "Risk Factors" and "Dilution." Proposed American Stock Exchange Symbol: Common Stock............................... NRN
- ------------------------ (1) Excludes (i) 2,193,597 shares of Common Stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $2.65 per share, all of which are currently exercisable and (ii) 687,500 shares of Common Stock issuable upon the exercise of stock options outstanding under the Company's 1997 Incentive and Stock Option Plan with a weighted average exercise price of $5.45 per share, of which options to purchase 487,500 shares are currently exercisable and options to purchase 62,500 shares are available for future grants. See "Management--1997 Incentive and Stock Option Plan" and Note 6 of the Notes to Financial Statements 5 SUMMARY FINANCIAL DATA
OCTOBER 12, FROM 1995 SIX MONTHS INCEPTION (INCEPTION) ENDED THREE MONTHS ENDED OCTOBER 12, TO YEAR ENDED DECEMBER MARCH 31 1995 TO JUNE 30, JUNE 30, 31, -------------------------- MARCH 31, 1996 1997 1997(1) 1997 1998 1998 ----------- ------------- ------------- ----------- ------------- ------------- STATEMENT OF OPERATIONS DATA: Costs and expenses: Research and development expense......................... $529,996 $903,901 $1,557,219 $264,343 $314,127 $3,305,243 General and administrative expense......................... 153,564 354,962 443,944 37,692 342,612 1,295,082 Other expenses(2)................. -- -- 254,595 -- 1,799,349 2,053,944 ----------- ------------- ------------- ----------- ------------- ------------- 683,560 1,258,863 2,255,758 302,035 2,456,088 6,654,269 Interest expense.................. 136,600 11,217 33,826 11,217 38,327 219,970 ----------- ------------- ------------- ----------- ------------- ------------- Net (loss)...................... $ (820,160) $ (1,270,080) $ (2,289,584) $ (313,352) $ (2,494,415) $ (6,874,239) ----------- ------------- ------------- ----------- ------------- ------------- ----------- ------------- ------------- ----------- ------------- ------------- Pro forma net (loss) per common share(3).......................... $(0.16) $(0.26) $(0.27) ------------- ------------- ------------- ------------- ------------- ------------- Shares of Common Stock used for purpose of computing pro forma net (loss) per share(3)............... 8,006,692 8,972,275 9,210,037
MARCH 31, 1998 ------------------------------------------- PRO FORMA AS ACTUAL PRO FORMA(4) ADJUSTED(4)(5) ------------- ------------- ------------- BALANCE SHEET DATA: Working capital (deficiency)........................................ $ (4,268,742) $ (1,953,736) $13,206,264 Total assets........................................................ 1,802,377 2,790,371 14,894,971 Total liabilities................................................... 4,366,222 2,958,216 -- Stockholders' equity (deficit)...................................... (2,563,845) (167,845) 14,894,971
- ------------------------ (1) In the fourth quarter of 1997 the Company changed its reporting year from June 30 to December 31. (2) Other expenses include the write-off of deposits related to a proposed acquisition during the six months ended December 31, 1997, expenses related to the settlement of a royalty and product distribution agreement, and certain expenses associated with the Norton Asset Acquisition during the three months ended March 31, 1998. See "Management's Discussion and Analysis of Financial Condition and Plan of Operation", "Certain Transactions" and Financial Statements and Notes thereto. (3) Computed on the basis described in Note 1 to the Financial Statements of the Company (4) Gives pro forma effect to (i) the conversion of $2,516,000 aggregate principal amount of certain debentures into 1,258,000 shares of Common Stock, (ii) the issuance of 166,666 shares of Common Stock in connection with a royalty settlement with MCD, (iii) the repurchase for $120,000 of 90,000 shares of Common Stock and warrants to purchase 90,000 shares of Common Stock from a former director of the Company, (iv) the repurchase for $180,000 of certain product distribution rights from a former director of the Company, (v) the issuance of an additional $1,207,000 of principal amount of Series A 1998 10% Notes (the "Series A Notes") subsequent to March 31, 1998 (the "1998 Financing") and (vi) a purchase price adjustment in connection with the Norton Asset Acquisition as evidenced by the issuance of an additional $80,994 of principal amount of Series A Notes. See "Management's Discussion and Analysis of Financial Condition and Plan of Operation" and "Certain Transactions." (5) Gives effect on a pro forma as adjusted basis to the sale of 3,000,000 shares of Common Stock offered hereby at the assumed initial public offering price of $6.00 per Share and the initial application of the net proceeds therefrom. See "Use of Proceeds." 6 RISK FACTORS AN INVESTMENT IN THE SHARES OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE OF RISK. IN ADDITION, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE SAFE HARBOR PROVISIONS OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT") THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE SHARES OFFERED HEREBY. LIMITED OPERATING HISTORY; WORKING CAPITAL DEFICIT; ACCUMULATED DEFICIT AND ANTICIPATED FUTURE LOSSES The Company is a development stage company and has only a limited operating history upon which evaluation of its prospects can be made. The Company has not had any sales to date and does not anticipate motorcycle sales until late 1998, at the earliest. As of March 31, 1998, the Company had a working capital deficiency of $4,268,742 and an accumulated deficit of $6,874,239. As a development stage company, the success of the Company will be affected by expenses, operational difficulties and other factors frequently encountered in the development of a new business enterprise in a competitive environment, many of which may be beyond the Company's control. The Company expects operating losses and negative operating cash flow to increase as its product development, marketing and sales, manufacturing and administrative functions expand prior to and during the initial stage of motorcycle sales. There can be no assurance that the Company will ever generate motorcycle sales or become profitable. See "Management's Discussion and Analysis of Financial Condition and Plan of Operation" and Financial Statements and Notes thereto. MOTORCYCLE MANUFACTURING RISK; NO MANUFACTURING HISTORY Production of motorcycles by the Company is dependent upon establishing a motorcycle production line, engaging reliable suppliers to manufacture components for the Company's products, hiring additional engineering and manufacturing personnel and completing the development of the Nemesis, Manx, Commando, International and Atlas. Factors that may affect the successful completion of such items include delays and problems in establishing the motorcycle production line, the inability of the Company to locate competent suppliers or obtain adequate quantities of components and supplies at reasonable costs, the inability of the Company to hire additional qualified personnel and the inability of the Company's engineering and manufacturing staff to design, engineer and produce the Company's motorcycles. In addition, in order for the Company to be successful, its products must be manufactured to meet high quality standards in commercial production. The Company has never attempted to manufacture motorcycles. The transition to commercial production will involve various risks and uncertainties that may not be apparent at this time and there can be no assurance that the Company will be able to successfully react to unanticipated difficulties. Any failure by the Company to successfully commercially produce motorcycles, or delays in the anticipated introduction date of the Company's motorcycles, could have a material adverse effect on the Company. See "Business--Manufacturing and Suppliers." MARKET ACCEPTANCE The Company's success will depend upon market acceptance of its motorcycles. Market acceptance depends upon the ability of the Company to maintain its intended brand image and reputation for high quality and to differentiate its products from its competitors. There can be no assurance that the Company's proposed or future products will be perceived as being of high quality and differentiated from such other products, or that the Company will be successful in maintaining its intended brand image. Any 7 failure relating to market acceptance of its motorcycles could have a material adverse effect on the Company. See "Business." COMPETITION The marketing and sale of motorcycles is competitive worldwide, and many of the established motorcycle manufacturers have substantially greater financial, personnel, marketing and other resources than those of the Company. The Company's competitors may be able to develop products comparable or superior to those to be offered by the Company or adapt more quickly than the Company to new technologies or evolving customer requirements. There can be no assurance the Company will be able to compete successfully against current and future competitors, or that the competitive pressures faced by the Company will not adversely affect its operations and business. The Company will operate in a competitive environment against established motorcycle manufacturers such as Harley-Davidson, Inc., ("Harley-Davidson"), BMW Group, Ducati Motor S.p.A., Honda Motor Co., Ltd., Kawasaki Motors Corp., U.S.A. and Moto Guzzi in addition to other manufacturers who have recently entered the industry, and a number of small companies who build motorcycles from non-proprietary parts. See "Business--Competition." TECHNOLOGICAL CHANGES; POSSIBLE OBSOLESCENCE The motorcycle industry and marketplace involves frequent technological and design changes and innovations, including changes in customer tastes, frequent new product introductions and evolving industry design and performance standards. The Company's future success will depend in part upon its ability to develop and introduce new products and features which meet changing customer requirements and emerging industry standards on a timely basis. There can be no assurance that the Company will successfully complete the development or introduction of new products on a timely basis. Failure by the Company to anticipate or respond to such technological or design changes and advances could have a material adverse effect on the Company. Moreover, there can be no assurance that the Company's technological innovations and intended product design and performance will not be made obsolete by competitors employing alternative or more advanced technologies than those used by the Company. There also can be no assurance that competitors of the Company will not copy and incorporate any successful features developed by the Company, or that they will not develop features and components technologically superior to those of the Company, and there can be no assurance that such developments by others will not render the Company's proposed motorcycles utilizing carbon fiber or other component technologies noncompetitive or obsolete. RISKS ASSOCIATED WITH RAPID EXPANSION The Company's proposed expansion is expected to place a strain on its management, administrative, operational, financial and other resources. The Company's successful expansion will be largely dependent upon its ability to maintain its operating margins, successfully market new products, hire and retain skilled management, marketing and other personnel and successfully manage growth (including monitoring operations, controlling costs and maintaining effective management and credit controls). The Company has no experience in effectuating rapid expansion or in managing a broader and more dispersed range of services and operations. There can be no assurance that the Company will be able to successfully expand its operations or manage growth. The Company expects that the expenses related to the planned expansion generally will precede the Company's realization of the benefits, if any, of such expansion. Accordingly, the Company expects that the incurrence of these expenses will adversely affect the Company's financial condition and results of operations prior to the Company's realization of the benefits, if any, of any expansion. There can be no assurance that the Company's systems, procedures or controls will be adequate to support its current or future operations or that the Company's management will be able to manage the expansion and still achieve the rapid execution necessary to exploit fully the market for the Company's 8 motorcycles. If the Company were to not manage its expansion effectively, it could have a material adverse effect upon the Company. As the Company moves closer to commercial production of motorcycles, there will be increasing demands on the Company's management, operational and financial resources. Successful management of growth will require the Company to constantly improve its management abilities and production processes. In addition, commercial production of motorcycles will depend on the ability of the Company to hire additional qualified personnel and the ability of the Company's management to integrate such persons into the Company. Competition is intense for highly skilled workers, and there can be no assurance that the Company will be successful in attracting, training and retaining such personnel. DEPENDENCE ON ONE PRODUCTION FACILITY It is anticipated that all of the Company's products will be assembled at the Company's Shenstone, England facility acquired in connection with the Norton Asset Acquisition. The Company intends to upgrade and renovate this facility during the fourth quarter of 1998. The Company could be adversely affected in the event the renovation is delayed, if there is material damage to the Company's production facility or if the facility were unable to assemble motorcycles, for any reason. See "Business--Facilities." POSSIBLE NEED FOR ADDITIONAL FINANCING The Company's capital requirements have been and will continue to be significant. The Company requires the net proceeds of this Offering to complete the design, development and production of its Initial Product Line and to continue research and development of additional motorcycle models. The Company anticipates that the net proceeds of this Offering will be adequate to enable it to meet its capital and operational requirements for at least the 12 months following the date of this Prospectus. However, (i) if the Company's estimates of the amount of financing needed to commence production of such motorcycles are incorrect due to unanticipated additional costs of upgrading, renovating and equipping the Company's production facility, (ii) if unanticipated problems in the development or production of the Company's motorcycles occur, (iii) if labor costs, costs of motorcycle parts and raw materials, marketing and dealer network development expenses or rates of consumption of available cash resources are higher than anticipated or (iv) if other unanticipated events occur, then the Company may need additional equity or debt financing in excess of the net proceeds of this Offering prior to or shortly after commencement of production of its Initial Product Line. In addition, the lack of an operating history on which to base forecasts creates a substantial possibility that the Company's forecasts of operating revenue will prove to be inaccurate. For this and a variety of other reasons, the Company may require additional capital. The Company has no commitment from others to provide additional capital and there can be no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to the Company. Significant additional dilution may be incurred by investors in this Offering as a result of additional equity financing. New investors may seek and obtain significantly better terms than those granted to present investors. Should the Company be unable to obtain additional capital, when and if needed, it could be forced to either curtail operations or cease business activities altogether. DEPENDENCE ON SUPPLIERS The Company will rely on outside vendors to supply substantially all of the proprietary and non-proprietary components used to manufacture its motorcycles. For certain of the components, the Company may from time to time rely on single sources of supply. Such reliance involves a number of significant risks, including the unavailability of or interruptions in delivery of such components, manufacturing delays caused by such unavailability or interruptions and fluctuations in the quality and price of such components. Any significant adverse variation in the quantity, quality or cost of such components manufactured by outside vendors, especially single-source vendors, could materially adversely affect the Company. The Company anticipates that it will purchase a number of its components from foreign vendors. In addition to 9 the risks of dependence on suppliers described above, the risks of dependence on foreign suppliers include currency fluctuations affecting the value of goods purchased, trade restrictions, changes in tariffs and difficulties of enforcing supply arrangements. See "Business--Manufacturing and Suppliers." DISTRIBUTION NETWORK; ABILITY TO SUPPORT DEALERS The Company does not currently have a dealer network for its motorcycles. Prior to production, the Company will need to attract dealers to sell its motorcycles. There can be no assurance that the Company will be able to attract the number of dealers the Company may need or that such dealers will be successful in selling its motorcycles. In addition, the Company will be required to support its dealers through, among other things, making floor plan financing available through third parties, continuing education about the Company's motorcycles, supplying parts and accessories and training repair personnel. The Company does not have any experience in such dealer support and there can be no assurance that the Company will be able to successfully support its dealer network. If the Company is unable to provide such support, the Company may lose dealers and, consequently, distribution of its motorcycles would be adversely affected, which would have a material adverse effect on the Company. See "Business--Sales and Marketing." DISCRETIONARY PRODUCT Purchases of motorcycles, such as the motorcycles that the Company plans to produce, are discretionary for consumers. The success of the Company will be influenced by a number of economic factors affecting discretionary consumer income, such as employment levels, business conditions, interest rates and taxation rates, which are beyond the Company's control. Adverse economic changes affecting these factors may restrict consumer spending and thereby adversely affect the Company's growth and profitability. RISK OF DEFECTS The Company's motorcycles may encounter unanticipated defects. Such defects could give rise to recalls of the Company's motorcycles and adversely affect their market appeal. Such recalls or other defects would be costly to the Company and could have a material adverse effect on the Company. Although the Company has substantially completed the design and development for two of the motorcycles in the Initial Product Line, commercial production has not commenced. Accordingly, there can be no assurance that any motorcycle model offered by the Company will operate as designed. PRODUCT LIABILITY RISK Given the nature of the Company's products, the Company expects that it will be subject to potential product liability claims that could, in the absence of sufficient insurance coverage, have a material adverse effect on the Company. Although the Company intends to obtain adequate insurance coverage prior to commencing commercial production, there can be no assurance that the Company will be able to secure or maintain adequate liability insurance to cover all product liability claims at a reasonable cost. The Company may therefore be required to self insure a portion of its product liability risk. Particularly, as a new market entrant, any large product liability suits occurring early in the Company's operations may significantly adversely affect the Company's ability to market its motorcycles and could have a material adverse effect upon the Company. DEPENDENCE UPON KEY PERSONNEL The Company has assembled the key members of its management team and intends to hire additional members as needed. The success of the Company will be materially dependent upon the services and efforts of these and other members of its executive management team. The Company has entered into employment agreements with certain of its key officers, including Joseph Novogratz and Myron Calof. In 10 addition, the Company has entered into certain agreements with Al Melling, the owner of MCD and a director of the Company. There can be no assurance that such persons will continue to perform services for the Company. In addition, as a development stage company, the Company has had in the past, and expects in the future to have, management turnover as the Company develops its management team. The unavailability or loss of the services of Joseph Novogratz, Myron Calof, Al Melling or any other members of the Company's management could have a material adverse effect on the Company. Each of Messrs. Novogratz and Calof currently have other business interests, and intend to continue apportioning their time between the Company and such other interests, as required. The Company is currently conducting a search for a new chief executive officer and president. See "Management--Employment Agreements" and "Business--Prime Contractor Development Agreements." UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS The Company will rely upon a combination of patent, trade secret, trademark and copyright law to protect its intellectual and proprietary property rights from unauthorized use and copying by others. Although the Company intends to apply for design and utility patents, no such patents have been applied for, nor have patentability searches been conducted as of the date of this Prospectus. Several of the Company's trademarks are registered in the United States and in other countries, and registration of other marks is being sought. However, there can be no assurance that the means utilized by the Company to protect its intellectual property rights will be adequate, or that any protection of proprietary rights ultimately obtained by the Company will afford any meaningful protection for its motorcycles or its competitive position in the industry. In general, failure by the Company to obtain adequate protection for its proprietary rights and technology could have a material adverse effect on the Company. Patent applications in the United States are currently maintained in secrecy until a patent issues, and in many other countries, are not published until eighteen months after the home-country filing date. Therefore, even after completing patentability searches, the Company cannot be certain that others have not already filed patent applications for technology corresponding to the Company's technology, or that such pending applications will not prevent the Company from securing patents on its technology. Moreover, patents issuing to competitors on such pending patent applications may dominate the Company's patent rights. Under such circumstances, the Company may have to pay royalties to use its own technology, or may even be precluded from using such technology, if the owner of a dominating patent refuses to grant a license. In addition, there can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or commercial advantage to the Company. The Company also relies on trade secrets and proprietary know-how which it plans to protect, in part, through confidentiality agreements with employees, consultants, collaborative partners and others. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any such breach or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. The Company acquired all of the rights to the Norton tradenames and trademarks in the Norton Asset Acquisition from NML. To the extent NML did not have exclusive rights to the Norton trademarks and tradenames, the Company does not have any additional rights. There can be no assurance that the Company acquired exclusive rights to the Norton tradenames and trademarks in the Norton Asset Acquisition. The Company believes that it has the right to use the trademark "Norton" in the United States, the United Kingdom, Canada, Australia, India, and portions of Europe, Asia, Africa and South America in connection with the sale of motorcycles and ancillary products. The ability of the Company to use the trademark "Norton" in certain European countries is less certain. In 1988, the predecessor to NML formed a joint venture in Germany wherein the predecessor acquired a 50% interest in the German joint 11 venture Norton Motors Deutschland GMBH ("GMBH") and a German partner acquired the remaining 50%. In due course, GMBH registered trademarks on the word "Norton" in certain European countries, including Italy, Germany, Switzerland, France, Belgium, Luxembourg and the Netherlands. Upon NML acquiring the assets of its predecessor, certain formalities required for the transfer of the German joint venture interest may not have been followed, and subsequently disputes arose between the German partner and NML. The Company is currently in negotiations which it believes will enable it to utilize the trademark "Norton" in those countries. There can be no assurance that the Company will be able to successfully negotiate an agreement by which it will be able to utilize the trademark "Norton" in such countries. The Company is currently developing alternative trademark strategies to enable the Company to sell its products in these countries. If the Company is unsuccessful in negotiating an acceptable agreement, the Company may not be permitted to sell products in such countries under the trademark "Norton," which may have a material adverse effect on the Company. The Company also believes that it has the exclusive right to use certain other word and design trademarks (the "Model Marks") to identify all models of the motorcycles it intends to sell and in connection with ancillary products. GMBH has not claimed any rights to the Model Marks, and the Company does not believe that there is any basis for such a claim or that GMBH would make such a claim. Given the Company's actual use of trademarks to enhance the Company's brand names and marketing appeal of its motorcycles, a successful challenge to its use of the trademark "Norton" and/or any of the Model Marks in connection with motorcycles and ancillary products would adversely affect the Company's business. Although the Company intends to vigorously defend its intellectual property rights, if necessary, litigation could be costly and consume resources of the Company, thereby adversely affecting operating results. See "Business--Patents and Proprietary Rights." The Company attempts to avoid infringing known proprietary rights of third parties in its product development efforts. However, the Company has not conducted and does not conduct comprehensive patent or trademark searches to determine whether it infringes patents or other proprietary rights held by third parties. If the Company were to discover that its products violate third-party proprietary rights, there can be no assurance that it would be able to obtain licenses to continue offering such products without substantial reengineering or that any effort to undertake such reengineering would be successful, that any such licenses would be available on commercially reasonable terms, if at all, or that litigation regarding alleged infringement could be avoided or settled without substantial expense and damage awards. Any claims against the Company relating to the infringement of third-party proprietary rights, even if not meritorious, could result in the expenditure of significant financial and managerial resources and in injunctions preventing the Company from distributing certain products. Such claims could materially adversely affect the Company. GOVERNMENT REGULATION The Company must comply with numerous federal, state and foreign regulations governing environmental and safety factors with respect to its motorcycles, which generally relate to air, water and noise pollution, as well as various safety matters. Any failure by the Company to obtain the necessary certifications or authorizations required by such governmental standards, or to maintain them, would have a material adverse effect on the Company. In the United States, motorcycles are subject to rigorous regulation by the Environmental Protection Agency ("EPA"). If the Company fails to comply with applicable requirements, it may be subject to administrative or judicially imposed sanctions such as civil penalties, criminal prosecution of the Company or its officers and employees, injunctions, product seizure or detention, product recalls and total or partial suspension of production. Motorcycles are also subject to the provisions of the National Traffic and Motor Vehicle Safety Act and the rules promulgated thereunder by the National Highway Traffic Safety Administration ("NHTSA"). The Company could be forced to recall its motorcycles if they fail to satisfy all applicable safety standards administered by the NHTSA. 12 Even if required EPA and NHTSA compliance has been obtained with respect to a product, foreign regulatory approval of a product must be obtained prior to marketing the product internationally. Foreign approval varies from country to country and the time required for approval may delay or prevent marketing. In certain instances the Company may seek approval to market and sell certain of its products outside of the United States before submitting an application for United States approval to the EPA or NHTSA. The regulatory procedures for approval of new motorcycles vary significantly among foreign countries. The testing requirements and the time required to obtain foreign regulatory approvals may differ from that required for EPA or NHTSA approval. Although there is now a centralized European Union ("EU") approval mechanism in place, each EU country may nonetheless impose its own procedures and requirements, some of which are stricter than in the United States and many of which are time consuming and expensive, and some EU countries require price approval as part of the regulatory process. Thus, there can be substantial delays in obtaining the required approvals of the Company's proposed products from both the EPA and NHTSA and foreign regulatory authorities after the relevant applications are filed, and approval in any single country may not be a meaningful indication that the product will thereafter be approved in another country. The Company is also subject to regulation under various federal, state and foreign regulations regarding, among other things, occupational safety, environmental protection, hazardous substance control and product advertising and promotion. The Company believes that its proposed designs currently meet all known applicable regulations. See "Business--Government Regulation." RISKS OF INTERNATIONAL SALES The Company believes a significant portion of its sales will be made in foreign markets. As a result, the Company will be subject to various inherent risks from overseas operations including unexpected changes in regulatory requirements, fluctuations in currency exchange ratios, longer payment cycles, difficulties or delays in collecting accounts receivable, import and export restrictions and tariffs, compliance with various foreign laws and tax consequences, difficulties with protection of proprietary rights and exposure to increased political and economic instability. Such limitations and interruptions could have a material adverse effect on the Company. See "Business--Motorcycle Industry and Market" and "Business--Sales and Marketing." SUBSTANTIAL CONTROL BY OFFICERS, DIRECTORS AND THEIR AFFILIATES Following this Offering, the Company's officers and directors and their affiliates will beneficially own or control approximately 18.6% of the outstanding shares of Common Stock. Accordingly, such officers, directors and their affiliates may be able to influence the outcome of stockholder votes, including votes concerning election of directors, adoption of amendments to the Company's Articles of Incorporation and Bylaws and approval of mergers and other significant corporate transactions. See "Principal Stockholders." CONFLICTS OF INTEREST Several transactions have occurred between the Company and its directors or MCD which present a potential conflict of interest. Al Melling, a director of the Company, is also the owner of MCD, the Company's prime development contractor. MCD does not work exclusively for the Company, and therefore may have the opportunity to supply designs and other services to the Company's competitors. There can be no assurance that such conflicts of interest will not have a material adverse effect on the Company. See "Certain Transactions." POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE Future sales of Common Stock by shareholders and option holders could have an adverse effect on the market price of the Shares. Upon completion of this Offering, the Company will have 11,611,094 shares 13 of Common Stock outstanding, of which the 3,000,000 Shares offered hereby will be transferable without restriction under the Securities Act. The Company, its officers and directors and all holders of outstanding shares of Common Stock or securities exercisable for or convertible into shares of Common Stock, including the Company's 10% Convertible Subordinated Debentures, Series 1997 due September 30, 2000 (the "Series 1997 Debentures"), have entered into contractual arrangements (the "Lock-Up Agreements") and have agreed not to, directly or indirectly, issue, offer to sell, transfer, pledge, assign, hypothecate or otherwise encumber or dispose of any such shares or securities or any beneficial interest therein for a period of 13 months following the date of this Prospectus (and with respect to 125,000 of such shares for a period of 24 months following the date of this Prospectus)(the "Lock-Up Period") without the prior written consent of the Representative. As a result, notwithstanding the possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701 under the Securities Act, shares of Common Stock subject to the Lock-Up Agreements will not be saleable until the Lock-Up Period expires or the terms of the Lock-Up Agreements are waived by the Representative. Assuming that the Representative does not release the shareholders from the Lock-Up Agreements, after the Lock-Up Period, all of the shares of Common Stock subject to this restriction will be eligible for sale in the public market. Of such shares of Common Stock, 4,707,928 shares of Common Stock will be eligible for sale under Rule 144 (subject to volume limitations imposed by such rule), 3,903,166 shares of Common Stock will be eligible for sale under Rule 144(k) of the Securities Act, and 687,500 shares of Common Stock will be eligible for sale under Rule 701 of the Securities Act. In addition, 550,000 shares of Common Stock and an additional 550,000 shares issuable upon exercise of outstanding warrants are subject to registration rights. Furthermore, the Company intends to register on Form S-8 under the Securities Act, as soon as possible after the date of this Prospectus, shares of Common Stock issuable under options granted under the 1997 Incentive and Stock Option Plan. Such registration becomes effective immediately upon its filing with the Securities and Exchange Commission (the "Commission"). As of the date of this Prospectus, options to purchase a total of 687,500 shares of Common Stock were outstanding and options to purchase an additional 62,500 shares of Common Stock were reserved for future issuance under the 1997 Incentive and Stock Option Plan. See "Management--1997 Incentive and Stock Option Plan," and "Description of Securities--Registration Rights." No prediction can be made as to the effect that future sales of Common Stock, or the availability of shares of Common Stock for future sale, will have on the market price of the Common Stock prevailing from time to time. The sale or issuance, or the potential for sale or issuance, of Common Stock after the Lock-Up Period could have an adverse impact on the market price of the Common Stock. See "Underwriting" and "Shares Eligible for Future Sale." LIMITED EXPERIENCE OF REPRESENTATIVE The Representative commenced operations in July 1997 and has co-managed two public offerings of securities as managing underwriter and participated in an additional two public offerings of securities as an underwriter. Accordingly, the Representative has limited experience as an underwriter of public offerings of securities. MANAGEMENT'S DISCRETION IN USE OF PROCEEDS Approximately $4.16 million or approximately 28% of the estimated net proceeds of this Offering has been allocated to working capital and general corporate purposes. Accordingly, the Company's Board of Directors will have discretion with respect to the allocation of such net proceeds. IMMEDIATE AND SUBSTANTIAL DILUTION Based upon the pro forma net tangible book value of the Company at March 31, 1998, and based upon an assumed initial public offering price of $6.00 per Share, investors in this Offering will suffer an immediate and substantial dilution of their investment of $4.76 per Share. See "Dilution." 14 NO DIVIDENDS The Company has never declared or paid cash dividends on the Common Stock and does not anticipate paying any cash dividends in the foreseeable future. Accordingly, investors should not purchase the Shares with a view towards the receipt of dividends. See "Dividend Policy." ANTI-TAKEOVER CONSIDERATIONS As a Minnesota corporation, the Company is subject to certain anti-takeover provisions of the Minnesota Business Corporation Act (the "MBCA"). Certain provisions of the MBCA could have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the then prevailing market price of the Common Stock, and may adversely affect the market price of, and the voting and other rights of the holders of, the Common Stock. Among other things, the Articles of Incorporation will be amended prior to the effective date of the Offering to allow the Board of Directors to issue up to five million shares of Preferred Stock and fix the rights, privileges and preferences of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. See "Description of Securities." LIMITATION OF LIABILITY OF DIRECTORS TO STOCKHOLDERS The Company has included in its By-laws a provision to indemnify its directors and officers and advance litigation expenses to the fullest extent permitted or required by Minnesota law, including circumstances in which indemnification is otherwise discretionary. Such indemnification may be available for liabilities arising in connection with this Offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to such indemnification provisions, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. The Company has adopted in its Articles of Incorporation a provision that limits the personal liability of a director for breach of the director's fiduciary duty, except under certain circumstances involving any breach of the director's duty of loyalty to the Company or its shareholders, acts or omissions not made in good faith or that involve intentional misconduct or a knowing violation of law, any unlawful acts under Sections 302A.559 or 80A.23 of the MBCA, or any transaction from which a director derives an improper personal benefit. ABSENCE OF PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE; POSSIBLE VOLATILITY OF STOCK PRICE There is currently no public market for the Shares and there can be no assurance that an active trading market will develop in the Shares or, if developed, be sustained after this Offering. The initial public offering price of the Shares will be determined by negotiation between the Company and the Representative and will not necessarily relate to or reflect the Company's assets, book value, results of operations or any other established criteria of value. For factors that may be considered in determining the initial public offering price, see "Underwriting." After completion of this Offering, the market price of the Shares could be subject to significant fluctuations in response to various factors and events, including the liquidity of the market for the Shares, variations in the Company's operating results, new statutes or regulations or changes in the interpretation of existing statutes or regulations affecting the motorcycle or automobile industries. In addition, the stock market in recent years has experienced broad price and volume fluctuations that often have been unrelated to the operating performance of particular companies. These market fluctuations also may adversely affect the market price of the Shares. 15 POTENTIAL LITIGATION LIABILITY The Company was previously party to an agreement (the "Agreement") with Tom's GB Limited, a United Kingdom corporation ("Tom's"), pursuant to which the Company was to acquire 100% of the outstanding common stock of Tom's. The Company terminated the Agreement on February 27, 1998 pursuant to the terms of the Agreement, and has made a claim against Tom's for a return of the refundable portion of its deposit in the amount of $100,000. Although the Company believes that the Agreement was terminated pursuant to its terms, there can be no assurance that Tom's will not dispute such termination of the Agreement by the Company and commence an action for damages against the Company. In the event Tom's were to prevail in an action against the Company, there can be no assurance the amount of judgment, if any, would not be material. PORTION OF OFFERING PROCEEDS BENEFITTING MANAGEMENT AND CERTAIN STOCKHOLDERS A portion of the net proceeds to the Company from the sale of the Shares offered hereby will be used to (i) pay certain deferred compensation to Joseph Novogratz, President of the Company, pursuant to his employment agreement, (ii) repay certain notes payable held by Mr. Novogratz, (iii) pay certain fees owed to Global Coin Corporation ("GCC"), pursuant to its consulting agreement with the Company and (iv) repay certain notes payable held by GCC. See "Use of Proceeds," "Management--Employment Agreements" and "Certain Transactions." RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. This Prospectus contains certain forward-looking statements, including, without limitation, the plans and objectives of management for future products and future operations. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based on a successful execution of the Company's strategy, the assumption that the motorcycle industry will not change materially or adversely, and that there will be no unanticipated material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of the Company's early stage of operations, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. 16 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the 3,000,000 Shares offered hereby, assuming an initial public offering price of $6.00 per Share, are estimated to be approximately $15.16 million (approximately $17.5 million if the Over-Allotment Option is exercised in full) after deducting underwriting discounts and commissions and the estimated offering expenses payable by the Company. The Company intends to use the net proceeds as follows:
NET PROCEEDS PERCENT OF TOTAL ------------- ----------------- Repayment of certain indebtedness................................................. $ 2,900,000 19% Research and development expenditures............................................. 900,000 6% Sales and marketing expenditures.................................................. 500,000 3% Capital expenditures.............................................................. 1,100,000 7% Motorcycle components and inventory............................................... 5,000,000 33% Intellectual property expenditures................................................ 300,000 2% Regulatory approval............................................................... 300,000 2% Working capital and general corporate purposes.................................... 4,160,000 28% ------------- --- $ 15,160,000 100% ------------- --- ------------- ---
REPAYMENT OF CERTAIN INDEBTEDNESS. The Company plans to apply approximately $2,900,000 to repay certain indebtedness, including (i) $1,510,247 to repay principal of Series A 1998 Notes issued from March 1998 to June 12, 1998, (ii) $1,150,000 to repay principal of the Norton Note (as defined herein) issued in March 1998 and (iii) $228,153 to repay principal of the Series C 1998 Note issued in March 1998, each bearing interest at a rate of 10% per annum, and due on the closing of this Offering. See "Description of Securities", "Certain Transactions", and "Management's Discussion and Analysis and Plan of Operation." RESEARCH AND DEVELOPMENT EXPENDITURES. The Company expects to apply approximately $900,000 to complete development of all five models of the Company's Initial Product Line. See "Business--The Company's Motorcycles." SALES AND MARKETING EXPENDITURES. The Company plans to use approximately $500,000 for product marketing and sales efforts, including establishing a sales force of experienced marketing personnel, performing market research, product advertising and promotion, attending trade shows, implementing a Norton racing program, selecting domestic and international dealers and distributors and other general marketing and sales support activities. See "Business--Sales and Marketing." CAPITAL EXPENDITURES. The Company intends to apply approximately $1,100,000 for capital expenditures including (i) approximately $500,000 to renovate and upgrade the Company's production facility; (ii) approximately $400,000 to acquire manufacturing tooling for the various motorcycle models targeted for commercial production in 1998 and 1999; and (iii) approximately $200,000 for purchasing and installing equipment and fixtures in the Company's production facility. MOTORCYCLE COMPONENTS AND INVENTORY. The Company plans to apply approximately $5,000,000 to purchase inventories of components and subassemblies from vendors and subcontractors necessary to begin commercial production of the Company's motorcycles. INTELLECTUAL PROPERTY EXPENDITURES. The Company expects to apply approximately $300,000 to acquire and preserve proprietary intellectual property, including protection and enhancement of current brand names, logos and trademarks, obtaining additional trademarks and related logos, and filing applications for patents on certain technology incorporated into the Company's motorcycles. 17 REGULATORY APPROVALS. The Company intends to apply approximately $300,000 to obtain approvals and certifications required by governmental regulations with regard to noise, emissions and safety characteristics of its motorcycles. See "Business--Governmental Regulation." WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. The remaining proceeds designated for working capital and general corporate purposes will be available for payment of salaries of management and marketing and production personnel, deferred compensation, consulting fees, financing of accounts receivable, product distribution and administrative support and utilities and general overhead expenses. Pending utilization as described above, the net proceeds of this Offering will be invested primarily in United States government securities, short term certificates of deposit, money market funds or other short term interest-bearing investments. The foregoing represents the Company's best estimate of its allocation of the net proceeds of the Offering, based on the current state of its operations, its current plans and current economic conditions. Proceeds may be reapportioned among the categories listed above. The amount and timing of expenditures will vary depending upon a number of factors, including progress of the Company's operations, technical advances and changes in competitive conditions. The Company currently anticipates that the net proceeds of this Offering will enable it to meet its operational and capital requirements for at least the 12 months following the date of this Prospectus. However, there can be no assurance that the net proceeds of this Offering will satisfy the Company's requirements for any particular period of time. To the extent capital resources are insufficient to meet future capital requirements, the Company will have to raise additional funds to satisfy the Company's requirements. There can be no assurance that such funds will be available on favorable terms, or at all. See "Risk Factors--Possible Need for Additional Financing." 18 CAPITALIZATION The following table sets forth, as of March 31, 1998, the capitalization of the Company (i) on an actual basis, (ii) on a pro forma basis giving effect to (a) to the conversion of $2,516,000 in aggregate principal amount of certain convertible debentures into an aggregate of 1,258,000 shares of Common Stock on the date of consummation of this Offering, (b) the issuance to MCD of 166,666 shares of Common Stock in exchange for cancellation of certain royalty payments payable by the Company, (c) the repurchase for $120,000 by the Company of 90,000 shares of Common Stock and warrants to purchase 90,000 shares of Common Stock from a former director of the Company, (d) the 1998 Financing and (e) a purchase price adjustment in connection with the Norton Asset Acquisition as evidenced by the issuance of an additional $80,994 of principal amount of Series A Notes and (iii) on a pro forma as adjusted basis giving effect to the sale of 3,000,000 Shares offered hereby at an assumed initial public offering price of $6.00 per share, less underwriting discounts and commissions and estimated offering expenses, and the initial application of the net proceeds therefrom. This table should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere herein.
AS OF MARCH 31, 1998 ------------------------------------------ PRO FORMA AS ACTUAL PRO FORMA ADJUSTED ------------ ------------- ------------- Convertible subordinated debentures................................... $ 2,516,000 $ -- $ -- ------------ ------------- ------------- Notes payable......................................................... 1,600,405 2,888,399 -- ------------ ------------- ------------- Stockholders' equity (deficit): Preferred Stock, $.10 par value per share, 5,000,000 shares authorized, none issued and outstanding (1)....................... -- -- -- Common Stock, $.01 par value per share, 50,000,000 shares authorized; issued and outstanding 7,276,428 actual, 8,611,094 pro forma, and 11,611,094 shares pro forma as adjusted (2)............ 72,764 86,111 116,111 Additional paid-in capital.......................................... 4,246,030 6,628,683 21,661,499 Subscription receivable............................................. (8,400) (8,400) (8,400) (Deficit) accumulated during the development stage.................. (6,874,239) (6,874,239) (6,874,239) ------------ ------------- ------------- Total stockholders' equity (deficit).................................. (2,563,845) (167,845) 14,894,971 ------------ ------------- ------------- Total capitalization.................................................. $ 1,552,560 $ 2,720,554 $ 14,894,971 ------------ ------------- ------------- ------------ ------------- -------------
- ------------------------ (1) Prior to the effective date of this Prospectus, the Company will amend its Articles of Incorporation to provide for the Preferred Stock. (2) Excludes (i) 2,193,557 shares of Common Stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $2.65 per share, all of which are currently exercisable and (ii) 687,500 shares of Common Stock issuable upon the exercise of stock options outstanding under the Company's 1997 Incentive and Stock Option Plan with a weighted average exercise price of $5.45 per share, of which options to purchase 487,500 shares are currently exercisable and options to purchase 62,500 shares are available for future grants. See "Management--1997 Incentive and Stock Option Plan" and Note 6 of the Notes to Financial Statements. 19 DILUTION The pro forma negative net tangible book value of the Company as of March 31, 1998 was $(707,629), or $(0.08) per share of Common Stock. Pro forma negative net tangible book value per share represents the Company's net tangible assets less total liabilities divided by the number of shares of Common Stock outstanding after giving effect to (i) the conversion of $2,516,000 in aggregate principal amount of certain convertible debentures into an aggregate 1,258,000 shares of Common Stock, (ii) the issuance to MCD of 166,666 shares of Common Stock in exchange for cancellation of certain royalty payments payable by the Company, and (iii) the repurchase for $120,000 by the Company of 90,000 shares of Common Stock and warrants to purchase 90,000 shares of Common Stock from a former director of the Company. After giving effect to the sale of the 3,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $6.00 per Share and the initial application of the net proceeds therefrom, the Company's pro forma net tangible book value as of March 31, 1998 would have been $14,452,371 or $1.24 per share. This represents an immediate increase in net tangible book value of $1.32 per share to existing stockholders and an immediate dilution of $4.76 per share to investors purchasing the Shares in this Offering. The following table illustrates this pro forma dilution: Assumed initial public offering price per Share.............................. $ 6.00 Pro forma net negative tangible book value per Share before Offering......... $ (0.08) Increase in net tangible book value per Share attributable to Offering....... 1.32 --------- Pro forma net tangible book value per Share after Offering................... 1.24 --------- Dilution per Share to new investors.......................................... $ 4.76 --------- ---------
The computations in this table set forth above assume that the Over-Allotment Option is not exercised. If the Over-Allotment Option in exercised in full, the pro forma net tangible book value as of March 31, 1998 would have been $16,792,371 or $1.39 per share of Common Stock, resulting in dilution to new investors of $4.61 per share of Common Stock. The following table sets forth, on a pro forma basis as of March 31, 1998, the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by existing stockholders and the new investors purchasing Shares from the Company in this Offering (before deducting estimated underwriting discounts and offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION ------------------------- -------------------------- AVERAGE PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ------------ ----------- ------------- ----------- ----------------- Existing Stockholders.......................... 8,611,094 74.2% $ 5,756,889 24.2% $ 0.67 Investors in this Offering..................... 3,000,000 25.8 18,000,000 75.8% $ 6.00 ------------ ----- ------------- ----- Total.................................... 11,611,094 100.0% $ 23,756,889 100.0% ------------ ----- ------------- ----- ------------ ----- ------------- -----
DIVIDEND POLICY The Company has never paid any cash dividends on its Common Stock and it is currently the intention of the Company not to pay cash dividends on its Common Stock for the foreseeable future. Management intends to reinvest earnings, if any, in the development and expansion of the Company's business. Any future declaration of cash dividends will be at the discretion of the Board of Directors and will depend upon the earnings, capital requirements and financial position of the Company, general economic conditions, contractual provisions and other pertinent factors. 20 SELECTED FINANCIAL DATA The following table presents selected statement of operations and balance sheet data for the periods presented. The selected statement of operations data for the period from October 12, 1995 (inception) to June 30, 1996 have been derived from the Company's financial statements, which have been audited by Stirtz Bernards Boyden Surdel & Larter, independent auditors, and are included elsewhere in this Prospectus. The selected statement of operations data for the year ended June 30, 1997 and for the six months ended December 31, 1997, and the selected balance sheet data as of June 30, 1997 and December 31, 1997 have been derived from the Company's Financial Statements, which have been audited by Pannell Kerr Forster PC, independent auditors, and are included elsewhere in this Prospectus. The selected balance sheet data as of March 31, 1998 and the selected statement of operations data for the three months ended March 31, 1998 and 1997 and for the period from October 12, 1995 (inception) to March 31, 1998 have been derived from the Company's unaudited financial statements, which are included elsewhere in this Prospectus. In the opinion of management, such data for such interim periods presented below includes all adjustments (consisting only of normal, recurring accruals) necessary to present fairly the financial position and results of operations of the Company as of the dates and for the periods indicated on a basis consistent with the audited Financial Statements. The results for any interim period are not necessarily indicative of results for a full year. The selected financial data set forth below is qualified in its entirety by and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Plan of Operation," the audited Financial Statements and Notes thereto and other financial information of the Company appearing elsewhere in this Prospectus.
OCTOBER 12, FROM 1995 INCEPTION (INCEPTION) SIX MONTHS THREE MONTHS ENDED OCTOBER 12, TO YEAR ENDED ENDED MARCH 31 1995 TO JUNE 30, JUNE 30, DECEMBER 31, -------------------------- MARCH 31, 1996 1997 1997(1) 1997 1998 1998 ----------- ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA: Cost and expenses; Research and development $529,996 $903,901 $1,557,219 $264,343 $314,127 $3,305,243 expense......................... General and administrative 153,564 354,962 443,944 37,692 342,612 1,295,082 expense......................... Other expenses(2)................. -- -- 254,595 -- 1,799,349 2,053,944 ----------- ------------ ------------ ------------ ------------ ------------ 683,560 1,258,863 2,255,758 302,035 2,456,088 6,654,269 Interest expense.................. 136,600 11,217 33,826 11,217 38,327 219,970 ----------- ------------ ------------ ------------ ------------ ------------ Net (loss)...................... $ (820,160 ) $ (1,270,080) $(2,289,584 ) $(313,352) $(2,494,415) $(6,874,239) ----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ Pro forma net (loss) per common $(0.16) $(0.26 ) $(0.27) share(3).......................... ------------ ------------ ------------ ------------ ------------ ------------ Shares of Common Stock used for 8,006,692 8,972,275 9,210,037 purpose of computing pro forma net (loss) per share(3)............... JUNE 30, DECEMBER 31, MARCH 31, 1997 1997 1998 ------------ ------------ ------------ BALANCE SHEET DATA: Working capital (deficiency)........ $(249,674) $(1,229,902 ) $ (4,268,742) Total assets........................ 135,575 244,437 1,802,377 Total liabilities................... (274,810) 1,400,716 4,366,222 Stockholders' equity (deficit)...... (139,235) (1,156,279 ) (2,563,845)
- ------------------------ (1) In the fourth quarter of 1997 the Company changed its reporting year from June 30 to December 31. (2) Other expenses include the write-off of deposits related to a proposed acquisition during the six months ended December 31, 1997, expenses related to the settlement of a royalty and product distribution agreement, and certain expenses associated with the Norton Asset Acquisition during the three months ended March 31, 1998. See "Management's Discussion and Analysis of Financial Condition and Plan of Operation--Liquidity and Capital Resources," "Certain Transactions" and Financial Statements and Notes thereto. (3) Computed on the basis described in Note 1 to the Financial Statements of the Company 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, WHICH ARE APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN. OVERVIEW The Company was initially incorporated in October 1995 as March Motors Limited, a United Kingdom corporation. March Motors Limited was founded by John R. Silseth, Sr., Donald F. Shiff and Joseph Novogratz. In connection with the organization of March Motors Limited, the founders and certain consultants associated with them received an aggregate of 840,000 shares of Common Stock of March Motors Limited for nominal consideration, of which Mr. Silseth received 525,000 shares of Common Stock, Mr. Shiff received 90,000 shares of Common Stock and Mr. Novogratz received 75,000 shares of Common Stock. All motorcycle development of the Company was conducted through March Motors Limited until the Company was reorganized as a Minnesota corporation in August 1996. Pursuant to the reorganization, all shareholders and holders of stock options and warrants of March Motors Limited exchanged all of their shares of Common Stock, stock options and warrants for an identical number of shares of Common Stock, stock options and warrants of the Company. Accordingly, March Motors Limited then became a wholly-owned subsidiary of the Company. All transactions described with respect to shares of Common Stock, stock options and warrants in this Prospectus prior to August 1996 relate to transactions which occurred with the United Kingdom corporation. The Company is currently developing and plans to manufacture, market and sell various high performance motorcycles, each intended for a distinct segment of the motorcycle market. The Company is in the development stage and its operations are subject to all of the risks inherent in the establishment of a new business enterprise, including the risk that full-scale operations may not occur. The Company does not anticipate having motorcycle sales until late 1998 or early 1999, at the earliest. The Company's deficit accumulated during the development stage was $6,874,239 at March 31, 1998. Since October 12, 1995, the inception of the Company, through March 31, 1998, the Company had no revenues, with research and development costs of $3,305,243 equal to approximately 48% of the Company's aggregate expenses. The remaining expenses of the Company were for general and administrative expense, interest and other expenses. Historic spending levels are not indicative of future spending levels because the Company is entering a period in which it will increase spending on product research and development, marketing and dealer network development and staffing and other general operating expenses. For these reasons, the Company believes its expenses, losses, and deficit accumulated during the development stage will increase significantly before any material product sales are generated. In the fourth quarter of 1997, the Company effected a change of its fiscal year-end date from June 30 to December 31. NORTON ASSET ACQUISITION On March 31, 1998, the Company consummated the Norton Asset Acquisition pursuant to which the Company acquired all of the rights held by NML to the trademarks and pending applications for trademarks of the name and/or word "Norton", certain intellectual technology (including design and technical data related to various motorcycle models) and a factory located in Shenstone, England, including all supplies and raw materials, parts and stock in trade as well as all plant, machinery, office fixtures and furnishings held by NML. 22 The Norton Asset Acquisition was effectuated by the Company for strategic purposes to unite the Norton brand name with the Company's motorcycle technology. The Company believes that the combination of its existing motorcycle technology with the Norton brand name will allow the Company greater ease of acceptance and higher potential sales than were previously available for its proposed motorcycles. The Norton Asset Acquisition included the following terms: - The Company issued a total of 3,684,948 shares of Common Stock to NML (which amount was equal to the total of (i) all then issued and outstanding shares of Common Stock of the Company plus (ii) any and all pending issuances plus (iii) the amount of shares of Common Stock that could otherwise be obtained or issued through conversion of certain indebtedness, subscriptions, rights, plans, instruments, warrants options or otherwise) such that NML became a 50% owner of the Company. - The Company issued 10% Subordinated Convertible Debentures Series 1997 (the "Series 1997 Debenture") to NML in the principal amount of approximately $1,272,500 (the "Norton Debenture"), an amount equal to the entire outstanding principal and accrued interest on all of the then currently outstanding Series 1997 Debentures of the Company. The Norton Debenture will automatically convert into 636,250 shares of Common Stock upon closing of the Offering. - The Company issued warrants to NML to purchase an additional 550,000 shares of Common Stock of the Company, exercisable at $3.00 per share, expiring four years from the closing of the Norton Asset Acquisition. - The Company issued $1,150,000 principal amount of Series A Notes (the "Norton Note") to NML to be repaid at the closing of the Offering. See "Use of Proceeds." The Norton Note is collateralized by a mortgage on the Shenstone production facility and its contents. In addition, warrants to purchase 383,333 shares of Common Stock at an exercise price of $3.00 per share expiring four years from the closing of the Norton Asset Acquisition were issued to NML in connection with the Norton Note. - In June 1998 the Company made a purchase price adjustment in connection with the Norton Asset Acquisition and issued $80,994 principal amount of Series A Notes to certain stockholders of NML. The consideration received by NML from the Company in connection with the Norton Asset Acquisition was assigned to certain stockholders of NML in exchange for the cancellation of certain indebtedness owing to such stockholders by NML. PLAN OF OPERATION The Company's plan of operation for the twelve to twenty-four months following the date of this Prospectus is to complete development of all five models of motorcycles in the Initial Product Line and to commence commercial production and marketing of these motorcycles. All production of the Company's motorcycles will take place in England, and marketing will be conducted throughout the United States, the United Kingdom, Europe, and in major international markets in South America, Asia, Australia and Africa. The Company intends to accomplish this operational business strategy through the following activities: - Completing final development and performance testing of the Nemesis and the Manx and obtaining compliance with and certifications under regulations in initial selected markets governing environmental and safety factors to ensure that the Company's motorcycles satisfy applicable standards to permit their sale in the markets targeted by the Company, which the Company anticipates completing by late 1998 or early 1999. - Identifying alternate suppliers for production of raw materials, components and subassemblies to be added to the Company's current British suppliers and subcontractors. 23 - Materially increasing marketing activities by hiring 2-3 additional marketing personnel including a technical sales support person; promoting products through advertising, attendance at major industry tradeshows, expanded use of the Company's Internet website, and creation of professional product brochures; and establishing a broad network of dealers throughout North America and the United Kingdom and distributors in major foreign markets including Europe, South America, Asia, Australia and Africa. The Company anticipates substantially completing these marketing program enhancements by the end of 1998, although many of these activities will be ongoing as the Company expands its market presence. - Completing the upgrading and renovation of the Company's production facility in Shenstone, England by the fourth quarter of 1998. - Commencing limited production of the Nemesis and the Manx in late 1998 or early 1999 in the United Kingdom to fill anticipated orders and establishing a quality control department to ensure that high quality standards are employed in assembly procedures and performance testing, including extensive operational testing of initial production units and any related continuation engineering needed to correct any defects or problems encountered during testing. - Implementing an active racing program for the Manx in order to enter certain superbike racing events in 2000, as well as conducting extensive track testing at selected United Kingdom racetracks. The Company anticipates obtaining at least one major sponsor to finance its planned superbike racing program. Through an existing agreement with MCD, the Company also will institute its planned Norton Racing Series program which will consist of a European racing series featuring races limited to drivers of Norton Internationals, and current plans include conducting at least four Norton Racing Series events within the two years following the date of this Prospectus. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has funded its operations largely through the sale of warrants, loans from shareholders, private sales of common stock, and proceeds from issuances of notes payable and convertible subordinated debentures. Cash used by operating activities from October 12, 1995 (inception) to March 31, 1998 approximated $3.1 million and was largely affected by operating losses of the Company net of add backs for non-cash transactions. Cash flows provided by financing activities approximated $3.2 million for the period October 12, 1995 (inception) to March 31, 1998. Cash from financing activities includes proceeds from (i) advances payable of approximately $500,000, (ii) the issuance of convertible subordinated debentures approximating $1.2 million, (iii) the issuance of approximately $200,000 of notes payable and (iv) net proceeds from the issuance of shares of Common Stock of approximately $1.3 million. From October 1995 (inception) through June 1996 the Company offered shares of Common Stock for sale in a private placement at a price of $.67 per share and sold 9,000 shares of Common Stock in a private placement to one investor at a price of $1.67 per share of Common Stock. A total of 684,000 shares of Common Stock were sold with net proceeds to the Company of approximately $456,000. See "Certain Transactions." In December 1996 the Company completed a private placement of 303,200 units (the "Units") at a purchase price of $2.50 per Unit, with each Unit consisting of (i) 1.5 shares of Common Stock and (ii) a warrant to purchase 1.5 shares of Common Stock at an exercise price of $2.67 per share. Net proceeds to the Company from such private placement were $758,000. The agent for the private placement was given an agent's warrant to purchase 45,480 shares at $1.67 for five years which upon expiration is converted into a three year warrant thereafter to purchase 45,480 shares at $2.67 per share. 24 In 1997 and early 1998 the Company issued Series 1997 Debentures in a private placement to investors in the aggregate principal amount of $1,243,500. The Series 1997 Debentures are due September 30, 2000 and automatically convert upon the Offering into shares of Common Stock at the lesser of $2.00 per share or one-half of the price of the Shares offered in this Offering. From March 1998 to June 12, 1998, the Company issued Series A Notes in a private placement to investors, in an aggregate principal amount of $1,377,000. The Series A Notes are due on the earlier of nine months after the issuance date of each Series A Note or five days after the consummation of the Offering, and were issued together with a warrant to purchase Common Stock of the Company at an exercise price of $3.00 per share. See "Use of Proceeds." Proceeds from the sale of the Series A Notes were used for working capital. In March 1998, the Company issued a Series A Note in the principal amount of $52,252 to Donald Shiff, a founder of the Company, and a Series C 1998 10% Note ("Series C Note") in the principal amount of $228,153 to Joseph Novogratz. The Series A and Series C Notes were issued to Mr. Shiff and Mr. Novogratz for the conversion of certain operating advances made by Mr. Shiff and Mr. Novogratz to the Company, plus accrued interest. The Series C Note is due on the earlier of March 31, 2000 or within five days after the consummation of the Offering, and was issued in connection with a warrant to purchase Common Stock of the Company at an exercise price of $3.00 per share. See "Use of Proceeds." NET OPERATING LOSS CARRYFORWARDS At December 31, 1997, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $2,500,000. The net operating loss carryforwards expire through 2012 and are subject to review and possible adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 contains provisions that may limit the net operating loss carryforward available to be used in any given year in the event of significant change in ownership interest. YEAR 2000 IMPACT Based on an internal analysis, the Company does not believe that its information technology systems will be materially affected by the Year 2000 issue. The Company intends to solicit Year 2000 status information from its current and prospective suppliers for confirmation that the Year 2000 issue will not affect the Company's supply chain. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes the standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) as part of a full set of financial statements. This statement requires that all elements of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The statement is effective for fiscal years beginning after December 15, 1997. Since this standard applies only to the presentation of comprehensive income, it will not have any impact on the Company's results of operations, financial position or cash flows. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997, and therefore the Company will adopt the new requirements retroactively in 1999. Management has not completed its review of SFAS No. 131, but does not anticipate that the adoption of this statement will have a significant effect on the Company's reported segments. 25 BUSINESS GENERAL The Company is currently developing, and plans to manufacture, market and sell, high performance motorcycles, each intended for a distinct segment of the motorcycle market. The Company introduced a non-running motorcycle model, the Nemesis, in April 1998 which will be powered by a 1500cc V8 engine. The Nemesis is anticipated to be the Company's flagship motorcycle, and is expected to produce 235 bhp with a projected top speed exceeding 200 mph. The Company also intends to introduce the Manx in fall 1998, which will be powered by a 750cc in-line four cylinder engine expected to produce 160 bhp. Development of the Nemesis and the Manx has been substantially completed, and the Company expects to commence limited production and initial delivery of the Nemesis and the Manx by the end of 1998 or early 1999. In addition to the Nemesis and the Manx, the Company is currently developing three other models which it plans to introduce over the twenty-four months following the date of this Prospectus. The three additional models are: (i) the Commando; (ii) the International; and (iii) the Atlas. The motorcycles in the Initial Product Line will be offered in different segments of the motorcycle market and are anticipated to range in price from approximately $10,000 to $35,000. The Company believes that each of the motorcycles in the Initial Product Line will be positioned as a premier product in the market segment in which the respective motorcycle is sold. In addition to the Initial Product Line, the Company plans to offer various other motorcycle models, including a trailbike and a supermotard, both to be powered by versions of the Company's 600cc engine, and an advanced version of the Nemesis, for which the Company has commenced preliminary research and design. The Company believes that these and future models will enable the Company to achieve its desired market penetration for its motorcycles. The Company believes that the following factors will help to distinguish the Company's products from its competitors: - innovative technology which borrows from advanced engineering fields such as Formula 1 racing and the aerospace industry; - the 100 year history and tradition of Norton motorcycles; and - the continuing popularity of the Norton brand name among motorcycle enthusiasts worldwide. The Company believes that the technology used in the Initial Product Line will be some of the most advanced in the motorcycle industry, with material such as lightweight but strong aluminum and magnesium alloys and carbon-fiber composites (generally used in the aerospace industry), which the Company believes will enable the Initial Product Line motorcycles to be lighter and stronger than similar motorcycles made of steel. Most of the design of the Initial Product Line has been completed, the development of the Manx and the Nemesis has been substantially completed, and the remaining development of the Initial Product Line is to be completed, by MCD under existing long-term contracts with the Company. The owner of MCD, Mr. Al Melling, is a director of the Company. Mr. Melling has designed numerous automobile engines, and designed enhancements for many others, working for such firms as General Motors, Porsche, Ferrari, Lamborghini, Alfa Romeo and various Japanese motorcycle manufacturers. Mr. Melling has recently achieved prominence in the engine design industry as the designer of a V8 engine for TVR, a British high performance engine and specialty vehicle manufacturer, and a Formula 1 V10 engine for Lola, a British designer of high performance motor sport vehicles. The Company anticipates assembling the Initial Product Line at its production facility in Shenstone, England, which was acquired as part of the Norton Asset Acquisition. The Company intends to upgrade and renovate this facility during the fourth quarter of 1998. The Company believes that the Shenstone 26 facility currently has the capacity for high volume production of the Initial Product Line and has the capability to accommodate anticipated production levels. The Company intends to market and distribute its products internationally through a combination of dealers and distributors. The Company is currently negotiating terms with potential distributors and dealers in both the United States and abroad. The Company has commenced offering apparel bearing the Norton brand name on its website and anticipates offering a wide variety of apparel and motorcycle accessories through its anticipated motorcycle distributers and dealers. THE NORTON HERITAGE Motorcycles sold under the Norton brand name have a long and illustrious history. The Norton Manufacturing Co., Ltd. was established in England in 1898, and the first Norton motorcycle was produced in 1902. In 1907 a Norton motorcycle won the Multi-Cylinder Race at the first Touring Trophy on the Isle of Man. In the early part of the century, Norton motorcycles established themselves as a force in the industry by winning numerous races and awards. In their time, Norton motorcycles were considered some of the fastest and most well-built models in the world. In addition to setting new speed records, in the 1950's Norton was the first company to introduce the "Featherbed" frame, a lightweight but strong frame which became the standard for years to come. Until the late 1980's, Norton motorcycles were still being produced and sold as premium motorcycles. In the early 1990's, motorcycles ceased being produced under the Norton brand name. In 1993, NML acquired substantially all of the assets of the Norton motorcycle business. In March 1998, the Company, through the Norton Asset Acquisition, purchased all of the rights held by NML to the Norton trademarks and tradenames, as well as certain equipment and properties. It is the Company's belief that combining its motorcycle designs and development with the Norton brand name will create a new era of Norton motorcycles, with a view towards rekindling the aura of the Norton motorcycle. The Company anticipates that its motorcycle products, some of which, like the Manx and Commando, bear the same name as previous Norton motorcycles, will continue to accentuate cutting-edge technology and high performance. In order to link the past with the present, the Company intends to devote substantial efforts toward cultivating long-term relationships with buyers of its motorcycles, as well as current Norton motorcycle owners and the numerous Norton Owners Clubs and associations which are active worldwide. The Company intends to work with and support and encourage the growth and vitality of these clubs to build loyalty among existing and future Norton owners. The Company intends to promote sales in part by assisting new buyers to become members of their local Norton Owners Club. The Company strongly believes that the continual fostering and support of such a Norton "family" of related owners will assist significantly in the future sale and promotion of its motorcycles. MOTORCYCLE INDUSTRY AND MARKET Within the motorcycle industry, motorcycles are often characterized as either heavyweight or lightweight models, and although market analyses and publications differ, a displacement of 600-650cc appears to mark the lower end of the heavyweight range. Motorcycles are further subdivided into four main styles, namely: (i) STANDARD, which emphasize simplicity and cost; (ii) PERFORMANCE, which emphasize handling and speed; (iii) TOURING, which emphasize comfort and amenities for long-distance travel; and (iv) CRUISER, which feature the distinctive styling of classic American motorcycles built during the early years of the motorcycling industry and are designed to facilitate customization by individual owners. The Company's Initial Product Line will include a model in each of the performance and cruiser styles. Historically, cruiser motorcycles are more popular in the United States and performance motorcycles are more popular in Europe, and have been traditionally sold in approximately equal numbers throughout the rest of the world. 27 All of the Company's motorcycles will be characterized by the Company as being within the heavyweight category. Although the engine displacement of the International is 600cc, the Company believes that the design, handling and power of the International allows it to be considered a heavyweight motorcycle. Heavyweight motorcycle sales have increased worldwide in each of 1995, 1996 and 1997 by 4.5%, 7.5% and 17%, respectively. Based on industry data, the Company believes that its customer base will come primarily from experienced male motorcycle riders of 35 years of age or older, with relatively high incomes, who are looking to purchase a motorcycle for recreational purposes. Moreover, the Company believes that this customer base will expand considerably over the coming years due in part to the population bulge caused by the post-World War II baby boom. The age group 45 to 54 is projected to increase 15% from 1997 to 2002. Many males from that generation are entering the peak earning years of their lives and are prime prospects for purchasing luxury recreational motorsport products. THE COMPANY'S MOTORCYCLES The Company is developing five models of high performance motorcycles, with each model intended for a distinct segment of the motorcycle marketplace. All models will include innovative high performance design and engineering features for their engines, power delivery systems, framework, suspension systems and brakes. Projected retail prices for the Company's motorcycles will range from approximately $10,000 to $35,000. THE NORTON NEMESIS -- The Nemesis, of which a non-running prototype was introduced in April 1998, will be the Company's most powerful and most expensive premium motorcycle, powered by a 1500cc fuel-injected V8 engine which the Company anticipates will give the Nemesis a top speed exceeding 200 m.p.h. The V8 engine is controlled by what the Company believes to be a state-of-the-art electronic engine management system designed to produce full power of 235 bhp for maximum torque and high-speed performance. The framework of the Nemesis will be manufactured from an aluminum alloy and the body work will utilize extensive carbon-fiber composite materials for maximum chassis strength with a relatively light weight, and the Nemesis will feature a custom designed proprietary suspension system. Other specially designed features of the Nemesis include customized Champion spark plugs and ignition coils, two camshafts per cylinder bank, a 6-speed gearbox and 4 valves per cylinder. Limited production of the Nemesis is anticipated to commence in late 1998 or early 1999. THE NORTON MANX (SUPERBIKE) -- The Manx has been under development since 1995, and it incorporates innovative design features in both engine and chassis technology. The Company has focused significant efforts toward the design and development of versions of the Manx for both superbike racing and street use. Its 750cc engine will have four inline cylinders which will produce an anticipated power of 160 bhp controlled by a computerized electronic management system to promote optimal fuel injection conditions, provide maximum power delivery, and insure clean emissions to satisfy various worldwide environmental standards. The bodywork for the Manx will be manufactured from a carbon-fiber composite, which is both light weight and strong, similar to that used in the aerospace industry. The Company believes this composite is relatively new to the motorcycle industry. Front and rear wheel systems will feature specially designed high-quality braking and suspension systems. The Manx is currently undergoing certain final re-engineering development, and the Company expects to commence limited production in late 1998 or early 1999. THE NORTON COMMANDO (CRUISER) -- The Commando will be powered by a V8 engine similar to that of the Nemesis. The Commando's 1500cc V8 engine, with its electronically managed fuel-injection system, will be modified to provide peak power of 110 bhp. The Commando will also feature high quality proprietary braking and suspension systems and seating designed for maximum rider comfort. The Commando will employ a tubular-steel frame and swing-arm, aluminum alloy forks and wheels and a combination of carbon-fiber materials for bodywork and other components resulting in it being stronger 28 and lighter in weight than traditional premium-priced cruiser motorcycles. The entire development of the Commando is being handled by MCD, the Company's prime motorcycle contractor, and MCD has designed and engineered this cruiser to produce a rumbling engine sound typical of American cruisers, as well as a low-slung, naked component chassis design with leather accents which conveys a traditional powerful macho image. All technical and styling work has been completed for the Commando, and prototype development of both its engine and bodywork is currently underway. The Company expects to commence commercial production of the Commando in 1999. THE NORTON INTERNATIONAL (SPORTBIKE) -- The International will feature a high-performance 600cc single-cylinder engine featuring desmodromic valves and other advanced engine technology. The 75 bhp engine will provide a lightweight power delivery system emphasizing simplicity and ease of maintenance. The framework for this sportbike will be made from a high quality aluminum alloy, and it will also include an electronic engine management system and proprietary components for braking and suspension systems. Although most of the development for the prototype of the International has been completed, the Company will not proceed with the final development and testing of the International until all development and prototype testing has been completed on the Nemesis, the Manx and the Commando. Accordingly, the Company does not expect to begin to commercially produce the International until 1999. Based on engineering calculations, the Company believes the International will be more powerful and lighter than other sportbikes in its class offered by competitors. Accordingly, the Company believes the International will become a particularly appealing racing bike for the many independent sportbike racers who enter racing events for this class of motorcycles. The Company plans to promote the International strongly for use in 600cc racing events. See "--Racing Program." THE NORTON ATLAS -- This second generation superbike will be powered by a 900cc version of the inline 4-cylinder engine of the Manx. The framework will feature the design principles developed in connection with the other motorcycles in the Initial Product Line and will be manufactured from some of the new materials used by the Company in other parts of the Initial Product Line, including extensive use of carbon-fiber composites for many of the motorcycle's chassis and suspension components, as well as its bodywork. Considerable Formula 1 auto technology will be incorporated in the development of the Atlas, including proprietary wheels made from a special magnesium alloy. This luxury motorcycle will be designed for highway touring in comfort, yet it will be engineered to readily compete in speed and performance with competing superbike motorcycles in its class. The Company plans to begin commercial production of the Atlas in 2000. PLANNED FUTURE MODELS Upon completion of development of the Initial Product Line, the Company anticipates developing at least two additional models to be powered by its single-cylinder 600cc engine, and an advanced Nemesis, each to be marketed under the Norton brand name. The Company anticipates commercial production of these additional motorcycle models to commence in 2000. NORTON SUPERMOTARD -- The first of these planned 600cc bikes will be a Supermotard ("Superbiker" in French), a versatile and increasingly popular type of motorcycle designed for effortless handling and overall performance. Supermotards arose out of a racing class originated in the United States in the 1980s and were used at hybrid racetracks with both asphalt and dirt surface sections. Supermotards have become popular in France and there are now a number of supermotard racing series throughout Europe, with street-legal production models of these bikes becoming increasingly available in Europe and Japan. Supermotards feature a hybrid design incorporating principles of street sportbikes, dirtbikes, and motocross bikes. They feature easy, overall handling on all surface types and conditions, are lightweight with a relatively high center of gravity and short wheelbase and motocross-type suspension, and are particularly easy to handle in heavy urban traffic conditions. In short, they are designed to be "fun" to ride. 29 NORTON TRAIL BIKE -- Another 600cc bike to be developed by the Company is a trail bike for offroad use, which is a fast-growing leisure sport in the United States and many other countries. To round out its motorcycle model line, the Company intends to apply substantial design and development efforts toward positioning the Company with a high quality premium bike in this offroad recreational segment of the motorcycle market. The Company believes that its 600cc single-cylinder engine will provide the instant torque demanded by both its Supermotard and Trail Bike models. ADVANCED NEMESIS -- This advanced Nemesis will be built substantially upon the design of the Nemesis but will produce 280 bhp, incorporate 3 spark plugs per cylinder, giving the motorcycle greater fuel efficiency and power, and have push button shifting and an active suspension. SALES AND MARKETING The Company intends to market its motorcycles outside the United States, Canada and the United Kingdom primarily through distributors with specified market territories. These distributors will be responsible for establishing effective networks of experienced dealers in their respective territories. In certain areas not effectively served by a distributor, or where the Company is unable to retain a satisfactory distributor, the Company will establish dealers supported directly by the Company. Current plans for the United Kingdom, the United States and Canada will not involve distributors, but rather the Company will support dealers in those countries directly from its production facility and its United States headquarters. The Company has completed a preliminary marketing plan for penetration of the premium priced motorcycle market in late 1998 and the first half of 1999. The Company intends to have dealers (either supported by the Company directly, or by distributors) in major population centers and in the major motorcycling markets. Within the industry, a significant percentage of dealers handle more than one line of motorcycle, and the Company expects that its dealers will also sell other motorcycle product lines. The Company intends to select dealers who meet certain stringent criteria, namely those distributors who have a strong commitment to the Company's brand of products and its success, an established reputation for excellence, profitable operations, a sales floor sufficient to display the Company's motorcycles and related products, the ability to maintain adequate inventories of motorcycles, parts supplies and other merchandise, a knowledgeable sales staff, the ability to provide full-service maintenance and who demonstrate the ability to add value by promoting lifestyle motorcycle products and events. The Company plans to provide support for its dealers and customers by maintaining adequate quantities of repair parts and accessories, training for service technicians, warranty coverage and assistance with respect to sales promotions. The Company's initial sales and marketing efforts will be conducted from its Minnesota headquarters in suburban Minneapolis, and be guided by its Director of Sales and his support staff. Since the Company believes a significant portion of its future sales will come from international markets, the Company intends to establish one or more distinct sales divisions for overseas markets headed by a marketing director or directors experienced in international marketing. Substantial marketing efforts and expenses will be directed toward promoting sales of the Company's products in targeted international markets, and the Company anticipates that its international sales will come primarily from the United Kingdom, Europe, Canada, Australia, Africa, South America and Asia. The Company believes its superbikes and cruisers will be entering the international market at a particularly good time, since the overseas market for such heavyweight motorcycles has been growing in recent years. The Company will conduct ongoing marketing activities to support its distributors and dealers and promote its motorcycles to the general public, including advertising in trade publications and leading popular motorcycle magazines, participation in major industry trade shows, production of quality technical product manuals and product sales brochures, creation of quality video tapes to describe and visually illustrate the high performance features of motorcycles, direct mail promotions toward specific potential customers, and an active public relations effort directed to the motorcycle industry media. The Company 30 also believes that its planned involvement in motorcycle racing will provide certain indirect support to its dealers and distributors. See "--Racing Program." The Company also intends to devote a substantial effort toward cultivating long-term relationships with buyers of its motorcycles, as well as the many current Norton motorcycle owners and numerous Norton owners clubs and associations which are active worldwide. There are numerous owners clubs in the United States, in addition to the Norton owners clubs of the United Kingdom and many other countries. The Company intends to work with and support and encourage the growth and vitality of these clubs to build loyalty among existing and future Norton owners. The Company intends to promote sales in part by assisting new buyers to become member of their local Norton owners club. The Company's activities in this regard will be much like the Harley Owners Group. The Company strongly believes that the continual fostering and support of such a Norton "family" of related owners will assist significantly in the future sale and promotion of its high performance products. The Company also plans to establish a motorcycle newsletter which will be circulated periodically to Norton owners club members and other targeted motorcycle enthusiasts. The Company has begun offering a small line of apparel to the motorcycle community and the general public. The Company intends to expand its apparel range to coincide with initial motorcycle distribution by the end of 1998, and this range will eventually include denim and leather motorcycle clothing, including jackets and pants, T-shirts and other shirts, gloves and boots, watches and other jewelry, sunglasses and goggles, and numerous customized bike components and add-ons, all of which will feature not only the "Norton" logo but other marks as well, such as the Company's Model Marks. In addition to apparel and memorabilia, the Company in the future plans to begin offering motorcycle accessories bearing the Company's trademarks, Model Marks, and slogans. These will include saddlebags and other carriers, helmets, oils and lubricants, cleaning and polishing compounds, and tire and leather treatments. The Company believes there is and will be a market for apparel and accessories bearing the Norton logo. The Company intends to market its apparel and accessories through Norton dealers and distributors and to a limited extent through its website. The Company believes this strategy will appeal to dealers and distributors with whom the Company wishes to engender strong relations, as well as Norton owners and enthusiasts who may find value in the limited availability of the apparel and accessories. In exchange for this exclusivity, the Company will require dealers to purchase minimum quantities of accessories and apparel with motorcycle orders. In view of the recent increase in worldwide use of the Internet for disseminating general corporate information and promoting product sales, the Company has established a website to promote its products, communicate with current Norton owners and potential Norton buyers, and inform the general public about its products and the Company. The Company's Internet address is www.nortonmotorcycles.com. RACING PROGRAM The Company believes that the ability of its motorcycles to perform well in major racing events will help promote its future motorcycle sales and overall business success. Since its inception, the Company has focused a significant effort toward the design and development of a racing Manx as a basis for the sale of the Company's Manx 750cc Superbike to the consumer market. The Company's founders believed from the outset that they would need to retain experienced and high quality prime contractors who would provide the innovative design and engineering required for the high performance engine and bodywork development that is critical to success in superbike racing. Accordingly, the Company has contracted its motorcycle design and development to a prime contractor in England which has broad experience and success in the development and production of high performance engines and bodywork for motorsport racing. See "--Prime Contractor Development Agreements." Motorcycle racing of all kinds has experienced rapid worldwide growth over recent years, both in racetrack attendance and in TV racing audiences. In particular, the World Superbike series of races has 31 become increasingly popular with motorcycle enthusiasts. This annual racing circuit is held at various key international venues and requires participating motorcycles to be based on genuine commercial production models made for the consumer market, much like NASCAR stock car races. The Company plans to enter the Manx in World Superbike or similar racing competitions. The Company believes that the success of its motorcycle entrants in such racing competitions will promote future sales of its motorcycles. In 1997 the Company entered into a written contract with Al Melling and MCD for the purpose of establishing a proprietary racing series to promote sales of the International (the "Racing Series"). Under this contract, MCD and Mr. Melling have agreed to use their best efforts to establish, oversee and promote a Racing Series featuring the International, with each racing event to consist of five or more races and at least one of the races being limited to drivers riding only the Company's International. MCD and Mr. Melling are responsible for race planning and scheduling, organizing appropriate sponsorship, choosing the racetracks for these events, safety and insurance concerns, maintenance of the Internationals, and overall promotion of these racing events. MCD and Mr. Melling are being paid L5,000 (approximately $8,000) monthly under this contract, which monthly payments will continue at this rate until the expiration of the contract in September 1999. The Company has also agreed to reimburse Mr. Melling for any out-of-pocket expenses incurred by him in connection with this Racing Series. The contract provides for automatic one-year renewals unless either party exercises its right of termination prior to the original term. Certain leading motorcycle manufacturers, including Harley-Davidson, American Suzuki Motor Corporation and Triumph Motorcycles already hold similar racing events which are limited to their brand of motorcycles. Planning for the Company's Racing Series has been commenced by Mr. Melling and MCD, with the first races anticipated to be held in England in early 2000, followed by similar races in other European countries. If this Racing Series proves effective in promoting sales of the International, the Company intends to expand its Racing Series beyond Europe and establish similar racing events in the United States. MANUFACTURING AND SUPPLIERS Engine components, electronic engine management systems, gearboxes, frames, engines, body work, wheels, carbon-fiber and composite materials components, and some brake and suspension components will be manufactured for the Company by various English subcontractors in accordance with specifications furnished to them by MCD, the Company's prime development contractor. Certain off-the-shelf components and parts will be supplied by various third-party vendors selected by MCD. Direct production operations of the Company at its production facility in Shenstone, England will consist mostly of assembly and quality control operations. Finished motorcycles will be subjected to rigorous performance and quality testing before being released for delivery to the marketplace. The Company and MCD have selected most of the manufacturing subcontractors and third-party suppliers to be used for commercial production of the Company's motorcycles and are currently involved in the process of negotiating pricing and delivery schedules with them. MCD is responsible for the assembly and testing of all prototypes, and in this process will check all prototype components to ensure that they meet technical and qualitative specifications. Furthermore, MCD is responsible for supplying the necessary personnel to assist the Company in all phases of the manufacture and assembly of the Company's motorcycles. One or more MCD technical personnel will be on the factory premises, assisting with quality control and production, until both the Company and MCD agree that this assistance is no longer required. The Shenstone, England factory, which was acquired in connection with the Norton Asset Acquisition, where the Company currently anticipates assembling the Initial Product Line, would be divided into three areas. The Engine Assembly Area will house a team of technicians with the responsibility of assembling the various engine models and transmissions from the engine and transmission components which have arrived from various subcontractors. Company personnel, with the assistance of MCD technicians, will inspect the quality of all components and assembled engines and transmissions. Assembled engines and transmissions 32 will then be transferred to the main Motorcycle Assembly Area. The Motorcycle Assembly Area will contain all of the motorcycle parts and components, and be adjacent to various assembly lines, each either wholly dedicated, or for various periods of time dependent on inventory levels, order, etc., to specific models. Periodic quality control testing will be employed at different stages along each assembly line. Each assembly line will have its own team of assemblymen and a supervisor responsible for ensuring that standards of quality and workmanship are maintained. Finally, at the end of each assembly line completed motorcycles will be rolled onto a stationary rolling test track where they will be fueled, started and operated for a final running inspection by a dedicated test foreman before being approved for containerization and shipping. Overall factory operations will be supervised by a plant manager. There are alternative sources for obtaining components and supplies needed for production of the Company's motorcycles, and the Company does not expect that the loss of any supplier or subcontractor will cause any significant adverse effect or material delay in its production operations, although there is no assurance adverse consequences will not occur from such an event. In addition, since the Company owns all of the dies, molds and tooling required to manufacture its motorcycle components, the Company believes it can change subcontractors with little difficulty. The Company will attempt to schedule timely delivery of components and supplies from its subcontractors and vendors so as to maximize efficiency and minimize holding excess inventories. PRIME CONTRACTOR DEVELOPMENT AGREEMENTS The motorcycles and engines previously described, with the exception of the Atlas (which was designed by March Group Plc) have all been designed, and production prototypes thereof assembled (or will be assembled), by MCD. Currently, MCD is the only design/development contractor working for the Company. Al Melling, a director of the Company, is the principal owner and Chief Executive Officer of MCD. MCD continually conducts multiple engine and bodywork design and development projects from its Rochdale, England facility, with two-thirds of its business consisting of new engine and bodywork design and one-third of its business consisting of diagnostic work to improve existing engines of clients. Al Melling has designed numerous engines, and improved upon many others, working for such firms as General Motors, Porsche, Ferrari, Lamborghini, Alfa Romeo and various Japanese motorcycle manufacturers. Modern innovative engines which have been designed by MCD include a Formula 1 V10 engine for Lola, and both a V8 engine and an inline-6 engine for TVR. 33 MCD has conducted its development work under various written contracts with the Company and a royalty agreement (the "MCD Contracts"). Motorcycle development to be performed by MCD under the contracts include (i) completion of the Nemesis motorcycle, to be integrated with the Nemesis 1500cc V8 engine, (ii) the design and development of the Manx and its 750cc in-line 4 cylinder engine, (iii) completion of the design and development of the Commando and its 1500cc engine, (iv) design and development of a Supermotard motorcycle and an off-road Trail Bike motorcycle and (v) completion of the design and development of the International and its 600cc single cylinder engine including a racing model to be used in racing events. The MCD Contracts provide for MCD to provide motorcycle development services. In September 1997, in exchange for the cancellation of royalties provided for under the MCD Contracts, the Company agreed to issue to MCD 166,666 shares of Common Stock (determined by dividing $1,000,000 by the initial public offering price per share which is assumed for purposes hereof to be $6.00). Additionally, during 1997 the Company issued 59,680 shares of Common Stock valued at $3.00 per share in satisfaction of certain development fees due MCD. The MCD Contracts currently require the Company to pay MCD total monthly consideration of L31,000 (approximately $51,000) including L21,000 (approximately $35,000) for ongoing design and development work and L10,000 (approximately $16,000) for ongoing consulting services. Design and development work payments will continue as long as MCD is involved in development of the Company's Initial Product Line, which the Company believes will extend at least to 2000. Monthly consulting payments to MCD will continue at their current rate until January 1, 2000 at which time they will increase to L25,000 (approximately $40,000) monthly for an additional three-year term. These dollar approximations are based on current currency exchange rates, and are subject to changes in prevailing rates from time to time. The MCD Contracts provide for the Company to retain all rights and title to design technology and development performed by MCD for the Company, including any trade secrets and patents. MCD is to pay all costs of prototype development and provide knowledgeable and competent engineering and other technical personnel as necessary to conduct all development required by the MCD Contracts and to assist the Company in commercial production and assembly. In addition, MCD has agreed to indemnify the Company for damages in the event any MCD product development or technology infringes on the proprietary rights of others. MCD also has warranted that its product development will conform to contract specifications and will be free from any material defects. The MCD Contracts include standard non-compete and non-disclosure terms to protect the proprietary rights of the Company, and provide that MCD and the Company will use their best efforts to cooperate in the commercial production and marketing of the Company's motorcycles. MCD and the Company also have certain contract termination rights in the event of material breaches or insolvency of either party. In addition to design and development work, MCD is also required to provide the Company with various consulting services including training and advisory consulting incident to commercial production and marketing of the Company's proposed motorcycles, as well as consulting services relating to the design and development of future products of the Company. Any designs or inventions conceived by MCD incident to these consulting services are the sole and exclusive property of the Company. The Company's Atlas was developed by March Group Plc and its development contract requires the Company to pay monthly royalties of 2.5% of the net selling price of any future sales of the Atlas if sold under the "March" name and royalties of 1% each of the net selling price of future sales of spare parts, merchandise and piston engines, if sold under the "March" name. The Company does not anticipate selling the Atlas or such products under the "March" name. March Group Plc was a leading British motorsport development and racing company, and was responsible for the development of several championship Indy 500 and Formula 1 racing cars. From the Company's inception through March 1998, the Company expended approximately $3,300,000 for motorcycle design and development, including payments to MCD and to English subcontract vendors for machining and casting engine and bodywork parts and components for prototype 34 motorcycles. The Company intends to continue conducting a design and development program over the coming years, both for the development of new motorcycle products and for engineering to improve and enhance existing products. For the foreseeable future, the Company will continue utilizing outsourced contractors for future design and development, paying for such services on a project-by-project basis. The Company believes that its use of experienced and reputable outside contractors has provided it with significant technological advantages regarding both engine and bodywork development, especially since MCD has significant experience both with motorsport racing products and with the "street versions" of such products. COMPETITION The marketing and sale of motorcycles is competitive worldwide, and many of the established motorcycle manufacturers have substantially greater financial, personnel, marketing and other resources than those of the Company. There can be no assurance the Company will be able to compete successfully against current and future competitors, or that the competitive pressures faced by the Company will not adversely affect its operations and business. The Company will operate in a competitive environment and compete against established motorcycle manufacturers such as Harley-Davidson, BMW Group, Ducati Motor S.p.A, Honda Motor Co., Ltd, Kawasaki Motors Corp., U.S.A. and Moto Guzzi, in addition to new manufacturers who may attempt to enter the industry and also a number of small companies who currently build motorcycles from non-proprietary parts. The Company believes that the principal competitive factors in its industry include styling and performance of motorcycles, product reliability and durability, overall product quality, marketing and distribution networks, pricing and the availability of support services. The Company believes it will be able to compete effectively in all of these areas. See "--Motorcycle Industry and Market." Prices of the many motorcycle models available to the consumer vary considerably from the low-priced entry models to the premium high-performance superbikes. The Company believes it can compete successfully at the high-priced end of the market because of the considerable innovative and high quality features of its products including appealing modern styling, racing design principles, maximum use of light-weight but strong aluminum and magnesium alloys and carbon-fiber composites and state-of-the-art electronics such as electronic fuel injection and engine management systems. PATENTS AND PROPRIETARY RIGHTS Norton motorcycles have historically been sold under a variety of names in addition to "Norton", including Commando, Manx, International, Atlas and others. The Company intends to publicize, promote and market its motorcycles, merchandise, clothing and other products under the Norton brand name, the Model Marks and other new logos and symbols, alone or in combination through advertising, news releases, interviews and articles in motorcycle publications, promotions, brochures, manuals, memorabilia and merchandise, and all of such publicity, promotion and marketing will be designed to solidify the link among Norton, the Model Marks, any new additional logos and symbols of the Company and the Company's products. The Company has commenced a trademark expansion program by registering the Norton name, along with the Model Marks, in countries throughout South America, Asia, Australia, Europe, the United Kingdom, Scandinavia, portions of the former Eastern bloc of countries, Mexico, the United States and Canada (including countries in which the Company already owns the trademark to the Norton name, in which cases the Model Marks have been registered and the classes of goods covered by the Norton name have been expanded). In addition, the Company intends to apply for additional trademarks with respect to the aforementioned additional symbols and logos. The Company acquired all of the rights to the Norton tradenames and trademarks in the Norton Asset Acquisition from NML. To the extent NML did not have exclusive rights to the Norton trademarks and tradenames, the Company does not have any additional rights. There can be no assurance that the Company acquired exclusive rights to the Norton tradenames and trademarks in the Norton Asset Acquisition. The Company believes that it has the right to use the trademark "Norton" in the United States, the United Kingdom, Canada, Australia, India, and portions of Europe, Asia, Africa and South 35 America in connection with the sale of motorcycles and ancillary products. The ability of the Company to use the trademark "Norton" in certain European countries is less certain. In 1988, the predecessor to NML formed a joint venture in Germany wherein the predecessor acquired a 50% interest in the German joint venture GMBH and a German partner acquired the remaining 50%. In due course, GMBH registered trademarks on the word "Norton" in certain European countries, including Italy, Germany, Switzerland, France, Belgium, Luxembourg and the Netherlands. Upon NML acquiring the assets of its predecessor, certain formalities required for the transfer of the German joint venture interest may not have been followed, and subsequently disputes arose between the German partner and NML. The Company is currently in negotiations which it believes will enable it to utilize the trademark "Norton" in those countries. There can be no assurance that the Company will be able to successfully negotiate an agreement by which it will be able to utilize the trademark "Norton" in such countries. The Company is currently developing alternative trademark strategies to enable the Company to sell its products in these countries. If the Company is unsuccessful in negotiating an acceptable agreement, the Company may not be permitted to sell products in such countries under the trademark "Norton," which may have a material adverse effect on the Company. The Company also believes that it has the exclusive right to use the Model Marks to identify all models of the motorcycles it intends to sell, and in connection with ancillary products. GMBH has not claimed any rights to the Model Marks, and the Company does not believe that there is any basis for such a claim or that GMBH would make such a claim. Given the Company's actual use of trademarks to enhance the Company's brand names and marketing appeal of its motorcycles, a successful challenge to its use of the trademark "Norton" and/or any of the Model Marks in connection with motorcycles and ancillary products would adversely affect the Company's business. Although the Company intends to vigorously defend its intellectual property rights, if necessary, litigation could be costly and consume resources of the Company, thereby adversely affecting operating results. The Company has created and obtained technology rights incident to its motorcycle development over the past few years, and the Company regards these rights as proprietary and valuable. The Company will rely primarily upon patents, trade secret law and confidentiality agreements to protect its proprietary technology, and on established trademark law for its trademarks (including the Norton mark and the Model Marks). Key employees of the Company will be required to enter into standard non-compete and non-disclosure terms, and will be obligated to assign inventions or other intellectual property developed incident to their employment with the Company, as will certain consultants and third-party contractors. There can be no assurance that any measures taken by the Company to protect its proprietary intellectual property will be sufficient or that such property will provide the Company with any competitive advantage. Although the Company intends to apply for certain patents and to seek registration of new trademarks for its products from time to time, there is no assurance that the Company will ever obtain any significant patent or new trademark protection. The Company believes, however, that its Norton trademarks and its proprietary trade secrets and technology "know-how" rights will be substantially more important to its business and operations than any future patent or new trademark protection it may acquire. The Company attempts to avoid infringing known proprietary rights of third parties in its product development efforts. However, the Company has not conducted and does not conduct comprehensive patent or trademark searches to determine whether it infringes patents or proprietary rights held by third parties. If the Company were to discover that its products violate third-party proprietary rights, there can be no assurance that it would be able to obtain licenses to continue offering such products without substantial reengineering or that any effort to undertake such reengineering would be successful, that any such licenses would be available on commercially reasonable terms, if at all, or that litigation regarding alleged infringement could be avoided or settled without substantial expense and damage awards. Any claims against the Company relating to the infringement of third-party proprietary rights, even if not meritorious, could result in the expenditure of significant financial and managerial resources and in injunctions preventing the Company from distributing certain products. Such claims could materially adversely affect the Company. 36 GOVERNMENT REGULATION The Company will be required to obtain approvals and make certifications regarding compliance with federal, state and local regulations regarding the noise, emissions and safety characteristics of its motorcycles. In addition, the Company's manufacturing facility will be required to comply with environmental and safety standards. The potential delays and costs that could result from obtaining such regulatory approvals and complying with, or failing to comply with, such regulations could result in a delay in motorcycle production and adversely affect operating results. The Company believes all of its motorcycle and engine designs currently meet all known applicable government regulations. The Company must comply with numerous federal, state and foreign regulations governing environmental and safety factors in respect to its motorcycles, which generally relate to air, water and noise pollution as well as various safety matters. Any failure by the Company to obtain necessary certifications or authorizations required by such governmental standards, or to maintain them, would have a material adverse effect on the Company. In the United States, motorcycles are subject to rigorous regulation by the EPA. If the Company fails to comply with applicable requirements, it may be subject to administrative or judicially imposed sanctions such as civil penalties, criminal prosecution of the Company or its officers and employees, injunctions, product seizure or detention, product recalls, total or partial suspension of production. Motorcycles are also subject to the provisions of the National Traffic and Motor Vehicle Safety Act and the rules promulgated thereunder by the NHTSA. The Company could be forced to recall its motorcycles if it fails to satisfy all applicable safety standards administered by the NHTSA. Even if required EPA and NHTSA compliance has been obtained with respect to a product, foreign regulatory approval of a product must be obtained prior to marketing the product internationally. Foreign approval varies from country to country and the time required for approval may delay or prevent marketing. In certain instances the Company may seek approval to market and sell certain of its products outside of the United States before submitting an application for United States approval to the EPA or NHTSA. The regulatory procedures for approval of new motorcycles vary significantly among foreign countries. The testing requirement and the time required to obtain foreign regulatory approvals may differ from that required for EPA or NHTSA approval. Although there is now an EU approval mechanism in place, each EU country may nonetheless impose its own procedures and requirements, some of which are stricter than in the United States and many of which are time consuming and expensive, and some EU countries require price approval as part of the regulatory process. Thus, there can be substantial delays in obtaining required approvals of the Company's proposed products from both the EPA and NHTSA and foreign regulatory authorities after the relevant applications are filed, and approval in any single country may not be a meaningful indication that the product will thereafter be approved in another country. The Company is also subject to regulation under various federal, state and foreign regulations regarding. among other things, occupational safety, environmental protection, hazardous substance control and product advertising and promotion. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings or litigation, nor is the Company aware of any such legal proceedings or litigation threatened against it. EMPLOYEES The Company has ten employees, including the Chief Executive Officer, President, Chief Financial Officer, Director of Sales, a factory manager, and five technicians. The Company believes it has good relations with all its employees. Upon consummation of this Offering, the Company intends to hire additional personnel for planned production and marketing activities related to producing and selling its motorcycles and achieving commercial viability for its products under its plan of operation. None of the Company's employees is represented by a labor union. 37 When renovations to the Company's manufacturing facility get underway, and the Company prepares for production start-up, additional staff will be added in such areas as production, quality control supervision, inventory and shipping, marketing, dealer and distributor relations, financial control and technical support. FACILITIES For its corporate headquarters, the Company leases, pursuant to an oral lease, administrative and management offices in Plymouth, Minnesota, a suburb of Minneapolis. The Company believes this facility is adequate to satisfy its office needs for the present time, and additional premises are available for expansion. There is also adjoining warehouse space available to the Company in close proximity to its offices for future rental when needed to store inventories of its motorcycles for distribution in North America. The Company leases 5,000 square feet of production space in Rochdale, England for engine and motorcycle development and prototype assembly facilities pursuant to a five-year lease expiring in August 2001. These facilities are being leased from Al Melling, the prime development contractor of the Company, and rental under this lease is at an annual rate of L9,000 (approximately $15,000) until August 1998, at which time the rental for the remaining three years of the lease term either will be mutually agreed upon by the parties to the lease or determined by an independent arbitrator, if such mutual agreement cannot be reached. See "Certain Transactions." The Company's production facility is located in Shenstone, England, about 13 miles north of Birmingham. The facility consists of a steel-framed brick building of approximately 33,500 square feet including production spaces on one story of approximately 21,500 square feet divided into separate workshop/assembly areas, adjoining two-story office spaces of about 5,000 square feet, and an ancillary workshop area of approximately 7,000 square feet presently leased to an unrelated company manufacturing aircraft products. The Company may terminate the lease relating to the 7,000 square foot area on eight month's prior written notice. 38 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION - ----------------------------------------------------- --- ----------------------------------------------------- Joseph Novogratz(1) 50 Co-Chairman of the Board, President, Secretary, Treasurer and Director Luigi Aquilini (1) 65 Co-Chairman of the Board and Director Myron Calof(2) 51 Chief Executive Officer and Director Al Melling(2) 54 Director Anthony Vaughan(3) 49 Director Robert Cieslukowski(3)(4) 61 Director Stephen R. Cieslukowski(4) 34 Chief Financial Officer Steven Swenson 33 Director of Sales
- ------------------------ (1) Messrs. Novogratz and Aquilini are currently serving terms under the Company's staggered election procedure until the regular meeting of shareholders in 2001. (2) Messrs. Melling and Calof are currently serving terms under the Company's staggered election procedure until the regular meeting of shareholders in 2000. (3) Messrs. Vaughan and Cieslukowski are currently serving terms under the Company's staggered election procedure until the regular meeting of shareholders in 1999. (4) Robert Cieslukowski, a director, is the father of Stephen Cieslukowski, the Company's Chief Financial Officer. JOSEPH NOVOGRATZ, one of the Company's founders, has served as President of the Company since October 1997. Mr. Novogratz also served as President of the Company from its inception in October 1995 until December 1996 and Chairman of the Board of Directors from October 1995 to March 1998, when he became Co-Chairman of the Board. Mr. Novogratz founded Insulation Distributors, Inc., which distributes insulation products in 20 states, in 1979 and has served as its President since then. Mr. Novogratz is also President of B.G. Automotive, an aftermarket petroleum products company. LUIGI AQUILINI has been a Director and Co-Chairman of the Board of the Company since March 31, 1998. Mr. Aquilini is the chairman and principal owner of the Aquilini Investment Group, a large Canadian holding company, which he founded in 1956. The Aquilini Investment Group owns extensive holdings of both real estate properties, financial interests and business operations throughout Canada. MYRON CALOF has been the Chief Executive Officer of the Company since June 1, 1998. He has been the Executive Vice President of Aquilini Investment Group since 1994. Prior to that he was Senior Vice President of the Triple 5 Group of companies in Edmonton, Alberta since 1985. AL MELLING has been a Director of the Company since March 31, 1998 and is the owner and Chief Executive Officer of MCD, which he founded in 1964. Mr. Melling has been an independent design and development consultant for over 30 years. Through MCD, Mr. Melling is the principal party responsible for the design and development of the Initial Product Line for the Company. ANTHONY VAUGHAN has been a Director of the Company since May 1998. He is a senior partner with Fladgate Fielder, a leading firm of solicitors based in the West End of London, and has practiced corporate and commercial law since 1980. ROBERT CIESLUKOWSKI has been a Director of the Company since May 1998. Before retiring in 1996, he was Chairman of the Board, President and Chief Executive Officer of Minnesota Valley Engineering, Inc., 39 the world's largest manufacturer of cryogenic equipment, since 1977. Mr. Cieslukowski is currently serving on the board of directors of Kerngas, Ltd., a French chemical company, and Churchill Gunmakers, a United Kingdom company. STEPHEN R. CIESLUKOWSKI has been the Chief Financial Officer of the Company since June 1998. He was the Manager of International Sales/Business Development of the Biological Products Division of MVE, Inc., a manufacturer of vacuum insulated products based in Minnesota since 1997. Prior thereto, for a six year period Mr. Cieslukowski held various other positions with MVE, Inc. STEVEN SWENSON has been the Director of Sales of the Company since April 1998. He was the Sales and Marketing Representative of Premier Pontoons, a Minnesota-based large manufacturer and marketer of recreational pontoon boats, from 1995 to 1998. Prior thereto, for a six year period Mr. Swenson was employed in various positions by Polaris Industries and Yamaha. In March 1998, the shareholders of the Company adopted a procedure of electing directors on a staggered basis whereby one-third of the six directors of the Company will stand for election each year at the regular meeting of shareholders of the Company and until their successors are elected and qualified. Officers serve at the discretion of the Board of Directors. There are three committees of the Board of Directors: an Audit Committee, a Compensation Committee and a Stock Option Committee. The members of the Audit Committee are Anthony Vaughan, Robert Cieslukowski and Myron Calof. The Audit Committee will be charged with reviewing the Company's annual audit and meeting with the Company's independent accountants to review the Company's internal controls and financial management practices. The members of the Compensation Committee are Luigi Aquilini, Joseph Novogratz and Robert Cieslukowski. The Compensation Committee recommends to the Board of Directors compensation for the Company's key employees. The members of the Stock Option Committee are Anthony Vaughan, Robert Cieslukowski and Luigi Aquilini. The Stock Option Committee administers the Company's 1997 Incentive and Stock Option Plan. See "-1997 Incentive and Stock Option Plan." EXECUTIVE COMPENSATION The following table sets forth the total compensation for the Company's Chief Executive Officer during the fiscal year ended June 30, 1997 and six months ended December 31, 1997. No other executive officer's salary and bonus exceeded $100,000 for services rendered to the Company during such periods. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION AWARDS COMPENSATION(1) ---------------------------- FISCAL YEAR --------------- RESTRICTED NAME AND PRINCIPAL POSITION ENDED SALARY STOCK AWARDS(#) OPTIONS(#) - ------------------------------ ----------------- --------------- --------------- ---------- Joseph Novogratz, President... June 30, 1997 -- 75,000 75,000 December 31, 1997(1) -- -- --
- ------------------------ (1) Represents a six-month period. Effective December 31, 1997, the Company changed its fiscal year end to December 31. The following table sets forth information regarding stock option grants made to the Company's Chief Executive Officer during the fiscal year ended June 30, 1997 and six months ended December 31, 1997. 40 OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------------------------- % OF TOTAL OPTIONS GRANTED TO EXERCISE EMPLOYEES OR OPTIONS IN FISCAL BASE PRICE EXPIRATION NAME PERIOD GRANTED# YEAR ($/SH) DATE - ---------------------------------------------------------- ------------- ----------- ------------- ----------- ----------- Joseph Novogratz.......................................... Year ended 75,000 28.6% $ 4.00 12/31/06 June 30, 1997 Six months -- -- -- -- ended December 31, 1997
The following table sets forth certain information regarding unexercised stock options held by the Company's Chief Executive Officer as of December 31, 1997. AGGREGATED FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED DECEMBER 31, IN-THE-MONEY OPTIONS AT 1997(#) DECEMBER 31, 1997($)(1) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - --------------------------------------------------------------- ----------------------- ----------------------- Joseph Novogratz............................................... 75,000/0 $ 150,000/0
- ------------------------ (1) The value of the options is based upon the difference between the exercise price and the assumed initial public offering price of $6.00 per Share. EMPLOYMENT AGREEMENTS Joseph Novogratz has been retained as President of the Company under a three-year employment agreement dated January 1, 1998, subject to early voluntary termination by Mr. Novogratz or the Company. Compensation under this agreement consists of (i) salary of $60,000 per year, (ii) a one time restricted stock grant of 100,000 shares of Common Stock and (iii) a stock option for 300,000 shares of Common Stock exercisable at $6.00 per share, 100,000 shares of which are immediately exercisable, 100,000 of which are exercisable on the first anniversary of the grant date and 100,000 of which are exercisable on the second anniversary of the grant date. The agreement also provides that Mr. Novogratz will not compete with the Company during the term of his employment, and contains non-disclosure provisions requiring him to keep confidential any documents or information concerning the Company and its business. Under an amendment to Mr. Novogratz' employment agreement, Mr. Novogratz agreed to defer all such compensation until the Company completes the Offering, at which time Mr. Novogratz will receive all deferred compensation from a portion of the net proceeds of the Offering which as of May 31, 1998 was approximately $25,000. See "Risk Factors--Portion of Offering Proceeds Benefitting Management and Certain Stockholders" and "Use of Proceeds." Myron Calof has been retained as Chief Executive Officer of the Company under a one-year employment agreement dated as of June 1, 1998, subject to early voluntary termination by Mr. Calof or the Company. Compensation under this agreement consists of (i) a salary of $1.00 per year and (ii) a stock option for 100,000 shares of Common Stock exercisable at $6.00 per share. The agreement also provides 41 Mr. Calof will not compete with the Company during the term of his employment, and contains non-disclosure provisions requiring him to keep confidential any documents or information concerning the Company and its business. 1997 INCENTIVE AND STOCK OPTION PLAN The 1997 Incentive and Stock Option Plan (the "Stock Plan") was adopted by the Board and approved by the stockholders in March 1997. As of June 1, 1998, a total of 750,000 shares of Common Stock were reserved for issuance under the Stock Plan. As of March 31, 1998, no options to purchase shares of Common Stock had been exercised, options to purchase a total of 687,500 shares of Common Stock at a weighted average exercise price of approximately $5.45 per share were outstanding and 62,500 shares remained available for future option grants. The purpose of the Stock Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining employees and non-employee directors capable of contributing to the growth and success of, and providing strategic direction to, the Company. By offering such employees and directors an opportunity to acquire a proprietary interest in the Company, the Stock Plan thereby provides incentives to put forth maximum efforts for the success of the Company. The Stock Plan provides for the granting to full- or part-time employees (including officers and directors who are employees) of the Company of "incentive stock options" within the meaning of Section 422 of the Code and for the grant of nonstatutory stock options to employees, consultants, independent contractors and directors of the Company. To the extent an optionee would have the right in any calendar year to exercise for the first time incentive stock options for shares of Common Stock having an aggregate fair market value (under all plans of the Company and determined for each share of Common Stock as of the grant date) in excess of $100,000, any excess options are automatically converted to a nonstatutory stock option. The Stock Plan is administered by the Board of Directors or the Stock Option Committee (the "Administrator"). The Administrator determines the type and terms of options and purchase rights granted under the Stock Plan, including the number of shares of Common Stock covered, exercise price, term and conditions for exercise of the option. The exercise price of all stock options granted under the Stock Plan must be at least 100% of the fair market value of the Common Stock on the grant date. The term of an incentive stock option may not exceed ten years from the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of stock of the Company, the exercise price of any incentive stock option granted shall be at least 110% of the fair market value of the Common Stock on the grant date and the term of such option may not exceed five years. Payment of the exercise price may be, at the discretion of the Administrator, in cash or shares of Common Stock held by the optionee, or shares issuable upon exercise of the option, or a combination thereof. No option may be transferred by the optionee other than by will or the laws of descent and distribution. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Articles of Incorporation limit the liability of directors to the Company or its stockholders for monetary damages to the maximum extent permitted by Minnesota law. Such limitation of liability has no effect on the availability of equitable remedies, such as injunctive relief or rescission. The Company's Bylaws provide that the Company will indemnify its directors and officers as a contractual obligation and may indemnify its employees and agents against certain liabilities to the fullest extent permitted by Minnesota law. The Company intends to enter into indemnification agreements with each of its current directors and officers. 42 CERTAIN TRANSACTIONS The Company was initially incorporated in October 1995 as March Motors Limited, a United Kingdom corporation. March Motors Limited was founded by John R. Silseth, Sr., Donald F. Shiff and Joseph Novogratz. In connection with the organization of March Motors Limited, the founders and certain consultants associated with them received an aggregate of 840,000 shares of Common Stock of March Motors Limited for nominal consideration, of which Mr. Silseth received 525,000 shares of Common Stock, Mr. Shiff received 90,000 shares of Common Stocks and Mr. Novogratz received 75,000 shares of Common Stock. All motorcycle development of the Company was conducted through March Motors Limited until the Company was reorganized as a Minnesota corporation in August 1996. Pursuant to the reorganization, all shareholders and holders of stock options and warrants of March Motors Limited exchanged all of their shares of Common Stock, stock options and warrants for an identical number of shares of Common Stock, stock options and warrants in the Company. Accordingly, March Motors Limited then became a wholly-owned subsidiary of the Company. In March 1996, the three founders of the Company purchased an additional total of 225,000 shares of Common Stock at $.67 per share, including 75,000 shares of Common Stock by Mr. Novogratz, 75,000 shares of Common Stock by Mr. Shiff, and 75,000 shares of Common Stock by Mr. Silseth. In June 1996, the Company obtained $300,000 in working capital through the sale of 450,000 shares of Common Stock at $.67 per share in a private placement, of which John T. Kubinski, a former director of the Company, purchased 37,500 shares of Common Stock. In December 1996, the Company completed a private placement of 303,200 units (the "Units") at a purchase price of $2.50 per Unit, with each unit consisting of 1.5 shares of Common Stock and a warrant to purchase 1.5 shares of Common Stock at an exercise price of $2.67 per share of which Joseph Novogratz purchased 13,200 Units, Donald F. Shiff purchased 10,000 Units, John T. Kubinski purchased 5,000 Units and James D. Kramer purchased 4,000 Units through his 401(k) retirement plan. Alex G. Daneman, a former director of the Company, also purchased 60,000 Units of this private placement through his conversion of an outstanding loan owed to him by the Company in the amount of $150,000. During 1996 and 1997, the Company granted two five-year warrants and one five-year stock option to Joseph Novogratz, a founder and director and President of the Company, in consideration for his providing financing totaling $195,000 and management consulting services. Mr. Novogratz received (i) a warrant to purchase 225,000 shares of Common Stock at $.45 per share, all of which have been exercised by Mr. Novogratz through his conversion of a note in the principal amount of $100,000 owed to him by the Company, (ii) a warrant to purchase 27,000 shares of Common Stock at $1.67 per share, which was later reduced to $.67 per share and exercised by Mr. Novogratz, and (iii) a stock option to purchase 225,000 shares of Common Stock at $.67 per share, of which 129,000 shares of Common Stock have been issued to Mr. Novogratz and 96,000 shares of Common Stock have been issued to assignees of Mr. Novogratz, with one of these assignees being James D. Kramer who has been issued 60,000 of such shares of Common Stock. During 1996 and 1997, the Company also granted three five-year warrants to Donald F. Shiff, a founder of the Company, for consulting services and providing loan financing of $35,000. Mr. Shiff received (i) a warrant to purchase 45,000 shares of Common Stock at $.67 per share, all of which have been exercised by Mr. Shiff. (ii) a warrant to purchase 21,000 shares of Common Stock at $1.67 per share, which was later reduced to $.67 per share and exercised by Mr. Shiff, and (iii) a warrant to purchase 75,000 shares of Common Stock at $1.67 per share which was later reduced to $.67 per share and all exercised by assignees of Mr. Shiff, including Michael F. Bank, David L. Bank and Neil Sell. In March 1996 the Company granted a five-year warrant to Alex G. Daneman, a former director of the Company, in consideration for his providing $150,000 financing to the Company, to purchase 225,000 shares of Common Stock at $.67 per share. 43 In June 1996 the Company granted a five-year warrant to John T. Kubinski, a former director of the Company, for consulting services, to purchase 150,000 shares of Common Stock at $.67 per share, of which 60,000 shares of Common Stock have been issued to Mr. Kubinski and the balance of 90,000 shares of Common Stock have been issued to assignees of Mr. Kubinski. In June 1996 the Company granted a five-year option to Leslie C. MacTaggart, a former director and officer of the Company, for consulting services, to purchase 37,500 shares of Common Stock at $.67 per share, all of which have been assigned to and exercised by Mr. Novogratz. Incident to their long-term investment purchases of securities of the Company from a private placement of Units (with each Unit equal to 1.5 shares of Common Stock and one warrant to purchase 1.5 shares of Common Stock at an exercise price of $2.67 per share) which closed in December 1996, certain founders and directors of the Company were granted three-year warrants to purchase an aggregate of 138,300 shares of Common Stock at $2.67 per share, including (i) a warrant for 90,000 shares of Common Stock to Alex G. Daneman incident to his private placement investment of $150,000, (ii) a warrant for 19,800 shares of Common Stock to Joseph Novogratz incident to his private placement investment of $33,000, (iii) a warrant for 15,000 shares of Common Stock to Donald F. Shiff incident to his private placement investment of $25,000, (iv) a warrant for 7,500 shares of Common Stock to John T. Kubinski incident to his private placement investment of $12,500 and (v) a warrant for 6,000 shares of Common Stock to the 401(k) retirement plan of James D. Kramer incident to his private placement investment of $10,000. In June 1997, the Company entered into a Resignation and Agreement with James D. Kramer, a former director and officer of the Company. Under the terms of the Resignation and Agreement, Mr. Kramer resigned as an officer and director of the Company and agreed to terminate his employment agreement with the Company. In addition, Mr. Kramer retained options to purchase 75,000 shares of Common Stock of the Company granted to him under his employment agreement, with an exercise price equal to the price for which the Shares are offered in this Offering. Incident to the Company's relationship with MCD, as defined by the MCD Contracts, and as consideration for the settlement of certain royalty payments, the Company agreed to issue to MCD 166,666 shares of Common Stock (determined by dividing $1,000,000 by the initial public offering price per share which is assumed for purposes hereof to be $6.00). Additionally, in October 1997, the Company issued to MCD 59,680 shares of Common Stock valued at $3.00 per share in satisfaction of certain development fees due to MCD. Al Melling, the owner of MCD, is a director of the Company. In addition, the Company is currently renting certain production space from MCD. See "Business--Facilities", and "Business--Prime Contractor Development Agreements." In March 1998, the Company entered into a settlement of its finders agreement relating to the Norton Asset Acquisition. Under the terms of the settlement, the Company agreed to issue Minneapple Capital Ltd. 250,000 shares of Common Stock valued at $3.00 per share, as full consideration for all services rendered under the finders agreement, and the release of all present and future claims relating to such finders agreement. In March 1998, the Company issued a Series A Note in the principal amount of $52,252 to Donald Shiff, a founder of the Company, and a Series C Note in the principal amount of $228,153 to Joseph Novogratz. The Series A and Series C Notes were issued to Mr. Shiff and Mr. Novogratz for the conversion of certain operating advances made by Mr. Shiff and Mr. Novogratz to the Company, plus accrued interest. On March 31, 1998 the Company entered into a three-year consulting agreement (the "Consulting Agreement") with Global Coin Corporation, a British Columbia, Canada corporation ("GCC") whereby the Company engaged GCC to assist the Company in its development program, start-up and operations. Under the terms of the Consulting Agreement GCC is to receive compensation in the form of (i) an 44 annual sum of $60,000, payable in equal monthly installments of $5,000 and (ii) benefit plan provisions on the same terms as such benefits are available or granted to senior executives of the Company to one employee nominee of GCC. The Consulting Agreement also provides that GCC will not compete with the Company during the term of the Consulting Agreement, and contains non-disclosure provisions requiring GCC to keep confidential any documents or information concerning the Company and its business acquired during its engagement by the Company. The Consulting Agreement provides that GCC agrees to defer the $60,000 annual sum. GCC has expressed an intent to be paid all compensation due out of a portion of the net proceeds of the Offering which as of May 31, 1998 was approximately $10,000. See "Use of Proceeds." This agreement automatically renews for successive one-year terms unless either party gives a 60-day written notice of termination to the other party. Incident to two letters to the Company dated January 5, 1998, the Company entered into an agreement with North Pacific Lines ("NPL") and Alex Daneman, a director of NPL, whereby, among other things, Mr. Daneman agreed to the termination of his North American distribution rights in respect of the Company's products and relinquished all claims to stock, stock options, warrants and other rights in the Company, including the repurchase by the Company of 90,000 shares of Common Stock, warrants to purchase 90,000 shares of Common Stock and 225,000 warrants to purchase shares of Common Stock, in exchange for consideration in the form of (i) payment to NPL of $120,000 on or before the first to occur of consummation of the Offering or June 30, 1998 (with interest at 10% per year), (ii) the grant to NPL of a fully exercisable, five-year option to purchase 225,000 shares of Common Stock at an exercise price of $.67 per share, (iii) payment of $7,800 to Mr. Daneman for reimbursable expenses and (iv) payment to Mr. Daneman of $180,000 on or before the first to occur of consummation of the Offering or June 30, 1998 (with interest at 10% per year). In connection with this agreement, Mr. Daneman resigned as a director of the Company. From March 1998 to June 12, 1998, the Company issued Series A Notes in a private placement to investors, in an aggregate principal amount of $1,457,995 including, (i) $10,000 principal amount to Joseph Novogratz, (ii) $200,000 principal amount to Robert Cieslukowski, a director of the Company, (iii) $90,000 principal amount to Cataract, N.V., ("Cataract") a principal stockholder of the Company and (iv) $10,000 principal amount to GCC, a principal stockholder of the Company. Included therein, in June 1998, the Company issued an aggregate of $80,994 principal amount of Series A Notes to GCC and Cataract as a purchase price adjustment in connection with the Norton Asset Acquisition. PRINCIPAL STOCKHOLDERS As of June 1, 1998, the following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock by (i) each person who is known by the Company to be beneficial owner of more than 5% of the Company's Common Stock, (ii) each director, (iii) each executive officer named in the Summary Compensation Table and (iv) all directors and executive officers as a group. Except as otherwise noted, each person maintains a business address c/o Norton Motors International Inc., 14252 23rd Avenue North, Plymouth, Minnesota, 55447-4910, and has sole voting and vesting power over the shares of Common Stock shown as beneficially owned. 45
NUMBER OF SHARES PERCENTAGE PERCENTAGE OF COMMON STOCK OWNERSHIP PRIOR TO OWNERSHIP AFTER THIS NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED THIS OFFERING OFFERING - ------------------------------ ---------------------------- ------------------ -------------------- Joseph Novogratz.............. 1,312,484(1) 14.4% 10.9% Al Melling.................... 226,346(2) 2.6% 1.9% Minneapple Capital Ltd.(3).... 850,000 9.9% 7.3% Cataract N.V.(4).............. 4,783,404(5) 47.5% 36.6% Global Coin Corporation(6).... 531,489(7) 6.1% 4.5% Luigi Aquilini................ 531,489(8) 6.1% 4.5% Myron Calof................... 100,000(9) 1.1% .9% Robert Cieslukowski........... 191,666(10) 2.2% 1.6% Anthony Vaughan............... -- -- -- All directors and officers as a group (7 persons)......... 2,361,985(1)(2)(7)(9)(10) 24.3% 18.6%
- ------------------------ (1) Includes (i) 375,000 shares of Common Stock issuable upon exercise of options and (ii) 99,184 shares of Common Stock issuable upon the exercise of warrants. (2) Includes 166,666 shares of Common Stock to be issued to Mr. Melling, upon completion of the Offering, as consideration for the settlement of certain royalty payments, assuming an initial public offering price of $6.00 per share. See "Certain Transactions." (3) The address for this stockholder is Mineapple Capital, Ltd., 5507 Malibu Drive, Edina, MN 55436. (4) The address for this stockholder is De Ruyterkade 62, Curacao, Netherlands Antilles (5) Includes (i) 572,653 shares of Common Stock issuable upon conversion of $1,145,306 principal amount of Series 1997 Debentures, and (ii) 894,298 shares of Common Stock issuable upon the exercise of warrants at an exercise price of $3.00 per share. (6) The address for this stockholder is Global Coin Corporation, c/o Aquilini Investment Group, Main Level, Standard Building, 510 West Hastings Street, Vancouver, BCV6B IL8. (7) Includes (i) 63,628 shares of Common Stock issuable upon conversion of $127,256 principal amount of Series 1997 Debentures, and (ii) 99,366 shares of Common Stock issuable upon the exercise of warrants at an exercise price of $3.00 per share. (8) Represents shares owned by Global Coin Corporation, all of the stockholders of which are the wife and children of Mr. Aquilini. Mr. Aquilini disclaims beneficial ownership of all such shares. (9) Consists of 100,000 shares of Common Stock issuable upon the exercise of options held by Myron Calof. (10) Consists of (i) 125,000 shares of Common Stock issuable upon the conversion of $250,000 principal amount of Series 1997 Debentures and (ii) 66,666 shares of Common Stock issuable upon the exercise of warrants at an exercise price of $3.00 per share. 46 DESCRIPTION OF SECURITIES The following description of the securities of the Company and certain provisions of the Company's Amended and Restated Articles of Incorporation and Bylaws to be effective upon completion of the Offering is a summary and is qualified in its entirety by the provisions of the Articles of Incorporation and Bylaws, which have been filed as exhibits to the Company's Registration Statement, of which this Prospectus is a part. Upon completion of the Offering, the authorized capital stock of the Company will consist of 50,000,000 shares of Common Stock, $.01 par value and 5,000,000 shares of Preferred Stock, $.10 par value. COMMON STOCK Upon completion of this Offering, there will be 11,611,094 shares of Common Stock issued and outstanding. Holders of Common Stock are entitled to one vote per share for the election of directors and on all matters to be voted upon by the shareholders of the Company and there are no cumulative voting rights. The holders of Common Stock are entitled to receive dividends, if any, as may be declared by the Board of Directors in accordance with the MBCA. In the event of liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share in assets remaining after payment of liabilities in accordance with the MBCA. The holders of Common Stock have no preemptive rights. The outstanding shares of Common Stock are, and the Shares offered by the Company in the Offering will be, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of holders of shares of Common Stock of any series of preferred stock which the Company may designate and issue in the future. PREFERRED STOCK The Company's Amended and Restated Articles of Incorporation shall be amended prior to the effective date of the Offering to include a provision authorizing 5,000,000 shares of a class of undesignated Preferred Stock, which allows the Board of Directors of the Company, without further stockholder action, to issue Preferred Stock with, among other things, rights to vote for the election of directors of the Company and in amounts that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the Company. ANTI-TAKEOVER PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT; ARTICLES OF INCORPORATION Certain provisions of Minnesota law and the Company's Articles of Incorporation described below could have an antitakeover effect. These provisions are intended to provide management flexibility to enhance the likelihood of continuity and stability in the composition of the Company's Board of Directors and in the policies formulated by the Board and to discourage an unsolicited takeover of the Company, if the Board determines that such a takeover is not in the best interests of the Company and its shareholders. However, these provisions could have the effect of discouraging certain attempts to acquire the Company which could deprive the Company's shareholders of opportunities to sell their shares of Common Stock at prices higher than prevailing market prices. Section 302A.671 of the MBCA applies, with certain exceptions, to any acquisitions of voting stock of the Company (from a person other than the Company, and other than in connection with certain mergers and exchanges to which the Company is a party) resulting in the beneficial ownership of 20% or more of the voting stock then outstanding. Section 302A.671 requires approval of the granting of voting rights for the shares received pursuant to any such acquisition by a majority vote of the shareholders of the Company. In general, shares acquired without such approval are denied voting rights and are redeemable at their then fair market value by the Company within 30 days after the acquiring person has failed to 47 deliver a timely information statement to the Company or the date the shareholders voted not to grant voting rights to the acquiring person's shares. Section 302A.673 of the MBCA generally prohibits any business combination by the Company, or any subsidiary of the Company, with any shareholder which purchases 10% or more of the Company's voting shares (an "interested shareholder") within four years following such interested shareholder's share acquisition date, unless the business combination is approved by a committee of all of the disinterested members of the Board of Directors of the Company before the interested shareholder's share acquisition date. REGISTRATION RIGHTS Pursuant to an agreement between the Company and NML, following the Offering, 550,000 shares of Common Stock of the Company currently held by Cataract, and GCC in connection with the Norton Asset Acquisition, as well as an additional 550,000 shares of Common Stock of the Company issuable to Cataract and GCC upon the exercise of warrants held by them in connection with the Norton Asset Acquisition, are subject to registration rights upon the request of the holders of at least a majority of such shares. Upon such a request, the Company will be required to prepare and file a registration statement under the Securities Act of 1933, as amended, covering such shares. The Company is not required to prepare and file such registration statement until the Company becomes eligible to use Form S-3, or until 24 months following the effective date of this Offering, whichever occurs first. All of such shares are subject to Lock-Up Agreements for a period of thirteen months following the date of this Prospectus. See "Shares Eligible For Future Sale." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Continental Stock Transfer and Trust Company. 48 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have 11,611,094 shares of Common Stock outstanding, of which the 3,000,000 Shares offered hereby will be transferable without restriction under the Securities Act. The other 8,611,094 outstanding shares of Common Stock are "restricted securities" (as that term is defined in Rule 144 promulgated under the Securities Act) which may be publicly sold only if registered under the Securities Act or if sold in accordance with an applicable exemption from registration such as Rule 144. In general, under the holding period requirements of Rule 144, subject to the satisfaction of certain other conditions a person, including an affiliate of the Company, who has beneficially owned restricted securities for at least one year, is entitled to sell (together with any person with whom such individual is required to aggregate sales) within any three-month period, a number of shares of Common Stock that does not exceed the greater of 1% of the total number of outstanding shares of Common Stock of the same class, or, if the Common Stock is quoted on the American Stock Exchange or another national securities exchange, the average weekly trading volume during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements, and the availability of current public information regarding the Company. A person who has not been an affiliate of the Company for at least three months, and who has beneficially owned restricted securities for at least two years, is entitled to sell such restricted shares of Common Stock under Rule 144(k) without regard to any of the limitations described above. Subject to certain limitations on the aggregate offering price of a transaction and other conditions, Rule 701 generally may be relied upon with respect to the sale of shares of Common Stock purchased from the Company by its employees, directors, officers or consultants prior to the date of this Prospectus pursuant to written compensatory benefit plans such as the Stock Plan and written contracts such as option agreements. Rule 701 is also available for sales of shares of Common Stock acquired by persons pursuant to the exercise of options granted prior to the effective date of this Prospectus, regardless of whether the option exercise occurs before or after the effective date of this Prospectus. Securities issued in reliance on Rule 701 are "restricted securities" within the meaning of Rule 144 and, beginning 90 days after the date of this Prospectus. may be sold by persons other than affiliates of the Company subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its one-year minimum holding period requirement. As of June 1, 1998, options granted under the Stock Plan to purchase a total of 687,500 shares of Common Stock were outstanding and options to purchase an additional 62,500 shares of Common Stock were reserved for future issuance under the Stock Plan. Of the options granted under the Stock Plan, 487,500 of such options were currently exercisable. Shares of Common Stock issued upon the exercise of outstanding options will be "restricted securities" and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available. Potential exemptions include those available under Rule 144 and Rule 701. No prediction can be made as to the effect that future sales of Common Stock, or the availability of shares of Common Stock for future sale, will have on the market price of the Common Stock prevailing from time to time. Pursuant to the Lock-Up Agreements, the Company, all officers and directors of the Company and all holders of outstanding securities exercisable for or convertible into Common Stock have agreed not to, directly or indirectly, issue, agree or offer to sell, transfer, assign, distribute, grant an option for purchase or sale of, pledge, hypothecate or otherwise encumber or dispose of any beneficial interest in such securities for a period of 13 months following the date of this Prospectus (and with respect to 125,000 shares for a period of 24 months following the date of this Prospectus) without the prior written consent of the Representative. The Representative has no general policy with respect to the release of shares of Common Stock prior to the expiration of the Lock-Up period and no present intention to waive or modify any of these restrictions on the sale of Company securities. Assuming that the Representative does not release the shareholders from the Lock-Up Agreements, after the Lock-Up Period all of the shares of Common Stock will be eligible for sale in the public market. Of such shares of Common Stock, 4,707,928 shares of Common Stock will be eligible for sale under Rule 144 (subject to volume limitations imposed by such rule), 3,903,166 shares of Common Stock will be eligible for sale under Rule 144(k), and 687,500 shares of Common Stock will be eligible for sale under Rule 701. In addition, 550,000 shares of Common Stock and an additional 550,000 shares issuable upon exercise of outstanding warrants are subject to registration rights. The sale or issuance, or the potential for sale or issuance, of Common Stock after the Lock-Up Period could have an adverse impact on the market price of the Common Stock. Sales of substantial amounts of Common Stock or the perception that such sales could occur could adversely affect the prevailing market price for the Common Stock. See "Underwriting" and "Description of Securities-- Registration Rights." 49 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom Dirks & Company, Inc. is acting as Representative, have severally agreed subject to the terms and conditions contained in the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the Underwriters on a firm commitment basis, the respective number of shares of Common Stock set forth opposite their names:
NUMBER OF UNDERWRITERS SHARES - --------------------------------------------------------------------------------- ---------- Dirks & Company, Inc............................................................. ---------- Total 3,000,000 ---------- ----------
The Underwriters are committed to purchase all the Shares offered hereby, if any of the Shares are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to the conditions precedent specified therein. The Company has been advised by the Representative that the Underwriters initially propose to offer the Shares to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers concessions not in excess of $[ ] per Share. Such dealers may reallow a concession not in excess of $[ ] per Share to certain other dealers. After the commencement of the Offering, the public offering price, concessions and reallowances may be changed by the Representative. The Representative has informed the Company that it does not expect sales to discretionary accounts by the Underwriters to exceed five percent of the Shares offered by the Company hereby. The Company has agreed that, for (5) years after the date of this Prospectus, it will use its best efforts to cause one individual designated by the Representative, if any, to be elected to the Company's Board of Directors. Such individual may be a director, officer, employee or affiliate of the Representative. In the event the Representative elects not to designate a person to serve on the Company's Board of Directors, the Representative may designate a person to attend meetings of the Board of Directors. In addition, the Underwriting Agreement provides that the Company, its subsidiaries and its affiliates will grant to the Representative a right of first-refusal for a period of three (3) years after the date of this Prospectus, for any sale of securities to be made by the Company, its affiliates or any of its present or future subsidiaries. The Company has granted to the Underwriters the Over-Allotment Option, exercisable during the 45-day period from the date of this Prospectus, to purchase from the Company up to an additional 450,000 Shares at the initial public offering price, less underwriting discounts and the non-accountable expense allowance. Such option may be exercised only for the purpose of covering over-allotments, if any, incurred in the sale of the Shares offered hereby. To the extent such option is exercised in whole or in part, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the number of the additional Shares proportionate to its initial commitment. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make. The Company has agreed to pay to the Representative a non-accountable expense allowance equal to three percent of the gross proceeds derived from the sale of the Shares underwritten, of which $25,000 has been paid to date. 50 In connection with this Offering, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the Shares. Such transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase the Shares for the purpose of stabilizing its market price. The Underwriters also may create a short position for the account of the Underwriters by selling more Shares in connection with the Offering than they are committed to purchase from the Company, and in such case may purchase Shares in the open market following completion of the Offering to cover all or a portion of such short position. The Underwriters may also cover all or a portion of such short position, up to 450,000 Shares by exercising the Over-Allotment Option referred to above. In addition, the Representative may impose "penalty bids" under contractual arrangements with the Underwriters whereby it may reclaim from an Underwriter (or dealer participating in the Offering) for the account of other Underwriters, the selling concession with respect to the Shares that are distributed in the Offering but subsequently purchased for the account of the Underwriters in the open market. Any of the transactions described in this paragraph may result in the maintenance of the prices of the Shares at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and, if they are undertaken, they may be discontinued at any time. The Company's directors, and executive officers, and all holders of shares of Common Stock, options, warrants or other securities convertible, exercisable or exchangeable for Common Stock, have, pursuant to certain lock-up agreements (the "Lock-up Agreements"), agreed not to offer, sell, or otherwise dispose of any shares of Common Stock for a period of 13 months following the date of this Prospectus (and with respect to 125,000 shares for a period of 24 months following the date of this Prospectus) without the prior written consent of the Representative and the Company. An appropriate legend shall be placed on the certificates representing such securities. The Representative has no general policy with respect to the release of shares prior to the expiration of the lock-up period and no present intention to waive or modify any of these restrictions on the sale of Company securities. Prior to this Offering, there has been no public market for the Common Stock. Consequently, the initial public offering price of the Common Stock has been determined by negotiation between the Company and the Representative and does not necessarily bear any relationship to the Company's asset value, net worth or other established criteria of value. The factors considered in such negotiations, in addition to prevailing market conditions, included the history of and prospects for the industry in which the Company competes, an assessment of the Company's management, the prospects of the Company, its capital structure and such other factors as were deemed relevant. Dirks & Company, Inc., the Representative, commenced operations in July 1997. The Representative has co-managed two public offerings of securities and participated in an additional two public offerings of securities as an underwriter. Accordingly, the Representative has limited experience as an underwriter of public offerings of securities. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to a copy of each such agreement which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. See "Additional Information." LEGAL MATTERS Certain legal matters in connection with the securities offered hereby are being passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York, New York. Orrick Herrington & Sutcliffe LLP, New York, New York, has served as counsel to the Underwriters in connection with this Offering. 51 EXPERTS The financial statements of the Company as of December 31, 1997 and for the six months ended December 31, 1997 and for the year ended June 30, 1997 appearing in this Prospectus and the Registration Statement, have been audited by Pannell Kerr Forster PC, independent auditors, as set forth in their report thereon included elsewhere in this Prospectus and in the Registration Statement, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. The financial statements of the Company for the period October 12, 1995 (inception) to June 30, 1996, appearing in this Prospectus and the Registration Statement, have been audited by Stirtz Bernards Boyden Surdel & Larter P.A., independent auditors, as set forth in their report thereon included elsewhere in this Prospectus and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (together with all amendments and exhibits thereto, the "Registration Statement") on Form SB-2 under the Securities Act with respect to the Securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement, certain portions of which are omitted in accordance with the rules and regulations of the Commission. In addition, statements contained in this Prospectus concerning the provisions of any document filed as an exhibit are of necessity brief descriptions thereof and are not necessarily complete, and in each instance reference is made to the copy of the document filed as an exhibit to the Registration Statement, each such statement being qualified in its entirety by this reference. The Registration Statement, including all exhibits and schedules thereto, may be inspected and copied at public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; 500 West Madison Street, Chicago, Illinois 60661; 7 World Trade Center, New York, New York 10048; and 5757 Wilshire Boulevard, Los Angeles, California 90036. Copies of such material, including the Registration Statement, can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material may also be accessed electronically at the Commission's site on the World Wide Web located at http://www.sec.gov. The Company intends to distribute to its stockholders annual reports containing financial statements audited by its independent certified public accountants and will make available copies of quarterly reports containing unaudited interim financial statements for the first three quarters of each fiscal year. 52 NORTON MOTORS INTERNATIONAL INC. INDEX TO FINANCIAL STATEMENTS
PAGE ----- Independent Auditors' Reports.............................................................................. F-2 Balance Sheet.............................................................................................. F-4 Statement of Operations.................................................................................... F-5 Statement of Stockholders' (Deficit)....................................................................... F-6 Statement of Cash Flows.................................................................................... F-7 Notes to Financial Statements.............................................................................. F-8
F-1 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Norton Motors International Inc. (A Development Stage Enterprise) We have audited the accompanying balance sheet of Norton Motors International Inc., (a development stage enterprise) as of December 31, 1997 and the related statements of operations, stockholders' (deficit) and cash flows for the year ended June 30, 1997 and for the six months ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The Company is in the development stage and has incurred operating losses of $6,874,239 (unaudited) through March 31, 1998. The Company has $97,480 (unaudited) of cash as of March 31, 1998, which is not sufficient to fund operations for one year. The Company plans to file for an initial public offering of its common stock which, if completed, is expected to provide the Company with the working capital necessary to fund operations for at least one year. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Norton Motors International Inc., (a development stage enterprise) as of December 31, 1997, and the results of its operations and its cash flows for the year ended June 30, 1997 and for the six months ended December 31, 1997, in conformity with generally accepted accounting principles. Pannell Kerr Forster PC New York, NY April 20, 1998 F-2 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Norton Motors International Inc. (A Development Stage Enterprise) We have audited the accompanying statements of operations, stockholders' (deficit) and cash flows of Norton Motors International Inc., (formerly March Motors International, Inc.) (a development stage enterprise) for the period October 12, 1995 (inception) through June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Norton Motors International Inc., (a development stage enterprise) for the period October 12, 1995 (inception) to June 30, 1996, in conformity with generally accepted accounting principles. Stirtz Bernards Boyden Surdel & Larter, P.A. Edina, Minnesota March 18, 1997 F-3 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEET ASSETS
MARCH 31, 1998 (UNAUDITED) DECEMBER 31, -------------------------- 1997 ACTUAL PRO FORMA ------------- ----------- ------------- (SEE NOTE 1) Current assets Cash................................................................ $ 110,231 $ 97,480 Prepaid expenses.................................................... 60,583 -- ------------- ----------- Total current assets.............................................. 170,814 97,480 ------------- ----------- Property and equipment--at cost Land and building (note 2).......................................... -- 1,150,000 Equipment........................................................... 19,836 19,836 ------------- ----------- 19,836 1,169,836 Less accumulated depreciation....................................... (4,013) (4,723) ------------- ----------- 15,823 1,165,113 ------------- ----------- Deferred public offering costs........................................ 55,000 97,184 Intellectual property (note 2)........................................ -- 440,000 Other assets.......................................................... 2,800 2,600 ------------- ----------- 57,800 539,784 ------------- ----------- Total assets...................................................... $ 244,437 $ 1,802,377 ------------- ----------- ------------- ----------- LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current liabilities Accounts payable and accrued expenses............................... $ 21,046 $ 220,741 $ 220,741 Accrued interest payable............................................ 33,826 29,076 29,076 Advances payable--related parties (note 3).......................... 248,844 -- -- Convertible subordinated debentures (note 5)........................ 1,097,000 2,516,000 -- Notes payable--related parties (note 4)............................. -- 1,600,405 1,600,405 ------------- ----------- ------------- Total current liabilities......................................... 1,400,716 4,366,222 1,850,222 ------------- ----------- ------------- Commitments and contingencies (note 7) Stockholders' (deficit) (note 6) Common stock, $.01 par value; 50,000,000 shares authorized; issued and outstanding at December 31,1997--3,241,480; at March 31, 1998--7,276,428, pro forma--8,611,094............................. 32,415 72,764 86,111 Additional paid-in capital.......................................... 3,199,530 4,246,030 6,628,683 Subscription receivable............................................. (8,400) (8,400) (8,400) (Deficit) accumulated during the development stage.................. (4,379,824) (6,874,239) (6,874,239) ------------- ----------- ------------- Total stockholders' (deficit)..................................... (1,156,279) (2,563,845) (167,845) ------------- ----------- ------------- Total liabilities and stockholders' (deficit)..................... $ 244,437 $ 1,802,377 $ 1,682,377 ------------- ----------- ------------- ------------- ----------- -------------
See notes to financial statements F-4 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENT OF OPERATIONS
OCTOBER 12, FROM 1995 INCEPTION (INCEPTION) SIX MONTHS THREE MONTHS ENDED OCTOBER 12, TO YEAR ENDED ENDED MARCH 31 1995 TO JUNE 30, JUNE 30, DECEMBER 31, -------------------------- MARCH 31, 1996 1997 1997 1997 1998 1998 ----------- ------------- ------------- ----------- ------------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) Cost and expenses: Research and development expense (note 7)........................ $ 529,996 $ 903,901 $ 1,557,219 $ 264,343 $ 314,127 $ 3,305,243 General and administrative expense......................... 153,564 354,962 443,944 37,692 342,612 1,295,082 Other expenses (notes 2 and 7)................. -- -- 254,595 -- 1,799,349 2,053,944 ----------- ------------- ------------- ----------- ------------- ------------- 683,560 1,258,863 2,255,758 302,035 2,456,088 6,654,269 Interest expense.................. 136,600 11,217 33,826 11,217 38,327 219,970 ----------- ------------- ------------- ----------- ------------- ------------- Net (loss)...................... $ (820,160) $ (1,270,080) $ (2,289,584) $(313,352) $ (2,494,415) $ (6,874,239) ----------- ------------- ------------- ----------- ------------- ------------- ----------- ------------- ------------- ----------- ------------- ------------- Pro forma net (loss) per common share (note 1).................... $ (0.16) $ (0.26) $ (0.27) ------------- ------------- ------------- ------------- ------------- ------------- Shares of Common Stock used for purpose of computing pro forma net (loss) per share (note 1)......... 8,006,692 8,972,275 9,210,037 ------------- ------------- ------------- ------------- ------------- -------------
See notes to financial statements F-5 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENT OF STOCKHOLDERS' (DEFICIT) FOR THE PERIOD FROM OCTOBER 12, 1995 (INCEPTION) TO MARCH 31, 1998
(DEFICIT) COMMON STOCK ACCUMULATED ------------------------ ADDITIONAL DURING THE NUMBER OF PAID-IN SUBSCRIPTION DEVELOPMENT SHARES PAR VALUE CAPITAL RECEIVABLE STAGE TOTAL ----------- ----------- ----------- ------------- ------------ ---------- Balance - October 12, 1995.................... $ -- $ -- $ -- $ -- $ -- Founders shares at $.01 per share........... 840,000 8,400 -- (8,400) -- -- Common stock issued for cash at $.67 per share..................................... 675,000 6,750 443,250 -- -- 450,000 Stock issued for services................... 75,000 750 49,250 -- -- 50,000 Common stock issued for cash at $1.67 per share..................................... 9,000 90 14,910 -- -- 15,000 Issuance of stock warrants for services..... -- -- 79,100 -- -- 79,100 Issuance of stock warrants for loan......... -- -- 130,500 -- -- 130,500 Offering costs.............................. -- -- (39,000) -- -- (39,000) Net (loss).................................. -- -- -- -- (820,160) (820,160) ----------- ----------- ----------- ------------- ------------ ---------- Balance - June 30, 1996....................... 1,599,000 15,990 678,010 (8,400) (820,160) (134,560) Common stock issued for cash at $1.67 per share..................................... 364,800 3,648 604,352 -- -- 608,000 Common stock issued through loan conversion at $1.67 per share........................ 90,000 900 149,100 -- -- 150,000 Exercise of stock options/warrants at $.67 per share................................. 447,750 4,477 294,023 -- -- 298,500 Stock issued for services................... 315,000 3,150 206,850 -- -- 210,000 Loan conversion at $.45 share............... 225,000 2,250 97,750 -- -- 100,000 Offering costs.............................. -- -- (101,095) -- -- (101,095) Net (loss).................................. -- -- -- -- (1,270,080) (1,270,080) ----------- ----------- ----------- ------------- ------------ ---------- Balance - June 30, 1997....................... 3,041,550 30,415 1,928,990 (8,400) (2,090,240) (139,235) Exercise of warrants at $.67 per share...... 36,750 368 24,132 -- -- 24,500 Exercise of warrants at $.67 through loan conversion................................ 103,500 1,035 67,965 -- -- 69,000 Stock issued for services................... 59,680 597 178,443 -- -- 179,040 Stock to be issued for services (note 7).... -- -- 1,000,000 -- -- 1,000,000 Net (loss) for the six months ended December 31, 1997.................................. -- -- -- -- (2,289,584) (2,289,584) ----------- ----------- ----------- ------------- ------------ ---------- Balance - December 31, 1997................... 3,241,480 32,415 3,199,530 (8,400) (4,379,824) (1,156,279) Stock issued for services................... 350,000 3,500 1,046,500 -- -- 1,050,000 Stock issued for purchase of intellectual assets (note 2)........................... 3,684,948 36,849 -- -- -- 36,849 Net (loss) for the three months ended March 31, 1998.................................. -- -- -- -- (2,494,415) (2,494,415) ----------- ----------- ----------- ------------- ------------ ---------- Balance - March 31, 1998 (unaudited).......... 7,276,428 $ 72,764 $4,246,030 $ (8,400) $(6,874,239) $(2,563,845) ----------- ----------- ----------- ------------- ------------ ---------- ----------- ----------- ----------- ------------- ------------ ----------
See notes to financial statements F-6 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENT OF CASH FLOWS
FROM OCTOBER 12, INCEPTION 1995 SIX MONTHS THREE MONTHS ENDED OCTOBER 12, (INCEPTION) YEAR ENDED ENDED MARCH 31 1995 TO TO JUNE 30, JUNE 30, DECEMBER 31, ------------------------ MARCH 31, 1996 1997 1997 1997 1998 1998 ----------- ----------- ------------ ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) Cash flows from operating activities Net (loss).............................. $(820,160) ($1,270,080) $(2,289,584) $(313,352) ($2,494,415) ($6,874,239) Adjustments to reconcile net (loss) to net cash (used) by operating activities Stock issued for services............. 97,100 210,000 1,179,040 -- 1,050,000 2,536,140 Asset acquisition expense............. -- -- -- -- 869,349 869,349 Non-cash expenses..................... -- 56,653 21,122 -- -- 77,775 Accrued interest expense.............. 130,500 -- 33,826 -- 27,310 191,636 Depreciation and amortization......... -- 3,397 1,816 1,412 910 6,123 Changes in certain other accounts Prepaid expenses.................... (4,768) 4,768 (60,583) (232) 60,583 -- Deferred costs and other assets..... (4,000) (90,000) 36,046 (90,000) (42,488) (100,442) Accounts payable and accrued expenses.......................... 86,100 39,700 (105,800) 64,138 200,000 220,000 ----------- ----------- ------------ ----------- ----------- ----------- Net cash (used) by operating activities...................... (515,228) (1,045,562) (1,184,117) (338,034) (328,751) (3,073,658) ----------- ----------- ------------ ----------- ----------- ----------- Cash flows (used) by investing activities Purchase of equipment................... -- (19,836) -- (19,836) -- (19,836) ----------- ----------- ------------ ----------- ----------- ----------- Cash flows from financing activities Proceeds from advances payable.......... 250,000 92,357 212,638 -- -- 554,995 Repayment of advances payable........... -- -- (64,926) -- -- (64,926) Proceeds from issuing convertible subordinated debentures............... -- -- 1,097,000 -- 146,000 1,243,000 Proceeds from issuing notes payable..... -- -- -- -- 170,000 170,000 Proceeds from issuing common stock...... 465,000 906,500 24,500 218,500 -- 1,396,000 Offering costs.......................... (7,000) (101,095) -- -- -- (108,095) ----------- ----------- ------------ ----------- ----------- ----------- Net cash provided by financing activities...................... 708,000 897,762 1,269,212 218,500 316,000 3,190,974 ----------- ----------- ------------ ----------- ----------- ----------- Net increase (decrease) in cash... 192,772 (167,636) 85,095 (139,370) (12,751) 97,480 Cash at beginning of period............... -- 192,772 25,136 195,732 110,231 -- ----------- ----------- ------------ ----------- ----------- ----------- Cash at end of period..................... $ 192,772 $ 25,136 $ 110,231 $ 56,362 $ 97,480 $ 97,480 ----------- ----------- ------------ ----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
See notes to financial statements F-7 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES BACKGROUND AND CHANGES IN CORPORATE NAME AND YEAR-END March Motors Limited (Limited) was formed in 1995 to design and develop high performance motorcycles to be marketed in the premium-priced segment of the worldwide motorcycle marketplace. In August 1996, March Motors International, Inc. (March) was incorporated in the state of Minnesota concurrent with an exchange of shares whereby, shareholders of Limited exchanged their shares for an equal number of shares in March; and Limited became a wholly-owned subsidiary of March. March completed a strategic business transaction at the end of March 1998 through its acquisition (Norton Asset Acquisition) of trademarks, tradenames, a manufacturing facility, and certain other assets from Norton Motorcycles Limited (Norton) (see note 2). Subsequent to the Norton Asset Acquisition, March changed its official name to Norton Motors International Inc. (the Company) Additionally, the Company also changed its reporting fiscal year from June 30 to December 31. The Company intends to market and distribute its products through dealers and distributors in the United States and abroad. DEVELOPMENT STAGE ACTIVITY Through March 31, 1998, the Company's development activities consisted primarily of efforts to raise funds and the development of motorcycles and other bodywork components. The Company has not yet commenced the selling of its products and, therefore, has not generated any revenue therefrom. Accordingly, at March 31, 1998, the Company is considered to be in the development stage, as defined in Statement of Financial Accounting Standards No. 7. Since inception (October 12, 1995) through March 31, 1998 the Company has incurred losses of $6,874,239. Management of the Company expects to incur additional substantial losses in the near term. The Company has not marketed any products or generated revenues from operations since inception. Future revenues, if any, are expected to be generated from sales of products. No assurance can be given that the development of the Company's products will be successfully completed and that such products can be manufactured at acceptable costs and with appropriate quality or that any products can be successfully marketed. The likelihood of the success of the Company must be considered in light of the uncertainty caused by problems, expenses, complications and delays frequently encountered in connection with the development of new business ventures. These business risks include the possible need for additional capital, dependence on a limited number of key personnel, competition and the ability to obtain required regulatory approvals and market its products and services. Management is actively pursuing an initial public offering (IPO) of its common stock to finance operations of the Company (see note 8). F-8 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. UNAUDITED INTERIM FINANCIAL DATA The interim financial data as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 and for the period from inception (October 12, 1995) through March 31, 1998 are unaudited; however, in the opinion of management, the interim financial data include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for these interim periods. The interim financial data are not necessarily indicative of the results of operations for a full fiscal year. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of the Company's financial instruments approximates fair value. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. PROPERTY AND EQUIPMENT The building is stated at cost (see note 2) and will be depreciated on a straight-line basis over 39 years from the date of acquisition. Equipment is also stated at cost and is being depreciated on a straight-line basis over 7 years. INTELLECTUAL PROPERTY ASSETS Intellectual property assets obtained from Norton (see note 2), which consists mainly of trademarks, will be amortized on a straight-line basis over 17 years. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. F-9 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company has not recorded any income tax expense during the period from inception to March 31, 1998 because of operating losses incurred since inception. At December 31, 1997, the Company has net operating loss carryforwards for Federal income tax purposes of approximately $2,500,000. The net operating loss carryforwards expire through 2012 and are subject to review and possible adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 contains provisions that may limit the net operating loss carryforward available to be used in any given year in the event of significant changes in ownership interest. NONMONETARY TRANSACTION Common stock, options and warrants issued for services are generally recorded at the estimated fair value of the instrument given or the services rendered, whichever is more readily determinable. PRO FORMA NET LOSS PER COMMON SHARE Pro forma net loss per common share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods presented. Common equivalent shares include convertible subordinated debentures and stock options and warrants. Common equivalent shares are excluded from the computation if their effect is antidilutive, except that, pursuant to the rules of the Securities and Exchange Commission, common equivalent shares (using the treasury stock method and an assumed initial public offering price of $6 per share) issued during the twelve months prior to the initial filing date of the proposed public offering have been included in the computation as if they were outstanding for all periods presented. Historical net loss per share information is not considered meaningful due to the significant changes in the Company's stockholders' equity prior to the consummation of the IPO. Accordingly, such per share information is not presented. The pro forma net loss per common share assumes a three for two stock split (see note 6). In early 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of stock options, warrants and convertible securities. Dilutive earnings per share is very similar to the previously reported fully diluted earnings per share. PRO FORMA BALANCE SHEET PRESENTATION The pro forma balance sheet at March 31, 1998 reflects (1) the automatic conversion of all outstanding convertible subordinated debentures into 1,258,000 shares of common stock (see note 5) (2) the issuance of 166,666 shares of common stock as settlement of a royalty agreement (see note 7c) and (3) the repurchase of 90,000 shares of stock and warrants to purchase 90,000 shares of Common Stock from a former director of the Company (see note 7d), all of which will occur either before or upon the consummation of the Company's initial public offering (see note 8). F-10 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION The Company applies Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB Opinion No. 25) and related interpretations in accounting for its stock option plan. FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") was issued in October 1995 and, if fully adopted, changes the methods for recognition of cost on plans similar to those of the Company. Adoption of SFAS 123 is optional; however, pro forma disclosures as if the Company adopted the cost recognition requirements under SFAS 123 are provided, if applicable. SUPPLEMENTAL CASH FLOW INFORMATION Noncash investing and financing activity is summarized as follows: Advances payable to related parties converted into common stock amounted to $250,000 during the year ended June 30, 1997 and $38,000 during the six months ended December 31, 1997. Notes payable were issued in exchange for real and personal property ($1,150,000) and advances payable to related parties ($280,405) during the three months ended March 31, 1998. During the three months ended March 31, 1998, the Company issued $1,272,500 of convertible subordinated debentures and 3,684,948 shares of common stock (par value--$36,849) in exchange for intellectual property valued at $440,000. (See note 2) NOTE 2--ACQUISITION OF CERTAIN NORTON ASSETS On March 11, 1998, March and Norton entered into an asset purchase agreement whereby March acquired various trademarks, tradenames and intellectual property (the Intellectual property assets) and certain property, equipment and other assets (the Factory assets) from Norton. A summary of the consideration paid to Norton for its Intellectual property assets and the Factory assets is as follows: 1. In consideration for the Intellectual property assets, March issued 3,684,948 shares of common stock to the owners of Norton which amount was equal to the total of (1) all then issued and outstanding shares of common stock (2) all pending issuances, and (3) the amount of shares of common stock that could otherwise be obtained or issued through conversion of certain indebtedness, subscriptions, rights, plans, instruments, warrants, options or otherwise such that the shareholders of Norton collectively became a 50% owner of the Company. In addition, the Company issued $1,272,500 in convertible subordinated debentures (see note 5) to the Norton shareholders (Norton Debentures) which was an amount equal to the entire principal ($1,243,500) and accrued interest ($29,000) on all of the then currently outstanding debentures (the Norton Debentures are automatically converted to common stock upon the consummation of the pending IPO of the Company). The Company also issued warrants to the Norton shareholders for the purchase of 550,000 common shares of the Company which are exercisable at $3 per share and expire in four years. F-11 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 2--ACQUISITION OF CERTAIN NORTON ASSETS (CONTINUED) 2. In consideration for the Norton Factory assets, the Company issued a Series A note payable to the Norton shareholders in the amount of $1,150,000 (see note 4). This note is collateralized by the Factory assets through a mortgage on the Company's production facility and all supplies therein. The Company also issued a warrant to purchase 383,333 shares of common stock at $3 per share. Incident to this acquisition of the Norton assets, the Company did not assume any liabilities or obligations of Norton of any kind or nature currently outstanding or to be outstanding in the future. Norton had not been active in the production and marketing of motorcycles and its Factory assets had not been used for the production of motorcycles for a number of years. Accordingly, the Company has accounted for these transactions as an acquisition of assets. The acquisition of the Factory assets have been recorded at the value of the principal amount of the Series A note payable in the amount of $1,150,000 which approximates the Factory assets fair value. The acquisition of the Intellectual property assets have been recorded at $440,000, the historical cost basis carried over from the Norton shareholders. The difference between the face value of the convertible subordinated debentures ($1,272,500) and the par value of the common stock ($36,849) issued to the Norton shareholders and the historical cost of the intellectual property assets ($440,000) amounted to $869,349 and has been included as part of other expenses in the three month period ended March 31, 1998. Additionally, no value has been assigned to the 550,000 warrants issued in connection with the acquisition of the Intellectual property assets. (See note 6) NOTE 3--ADVANCES PAYABLE--RELATED PARTY The advances payable to related parties consists of various operating advances made by certain officers of March. At March 31, 1998 these advances and accrued interest were converted into Series A and Series C notes payable (see note 4). Interest expense on these advances during the six months ended December 31, 1997 and the three months ended March 31, 1998 amounted to $6,750 and $9,252, respectively. NOTE 4--NOTES PAYABLE--RELATED PARTIES The Company has issued both Series A and Series C notes during the three months ended March 31, 1998. These notes were issued as a result of (1) the conversion of $280,405 in advances and accrued interest payable (see note 3), (2) $170,000 in operating advances from shareholders of March and Norton, and (3) $1,150,000 in connection with the purchase of the Norton Factory assets (see note 2). Each note was issued with warrants equivalent to one-third of the principal amount of the note. The warrants are F-12 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 4--NOTES PAYABLE--RELATED PARTIES (CONTINUED) exercisable at $3 per share and expire three years from the date of issuance. A summary of these notes at March 31, 1998 is as follows:
MARCH 31, 1998 -------------- (UNAUDITED) Series A notes bear interest at 10% per annum and mature at the earlier of nine months from the date of issuance or upon the closing of an IPO.................................................. $ 1,372,252 Series C note bears interest at 10% per annum and mature at the earlier of 2 years from the date of issuance or upon the closing of an IPO....................................................... 228,153 -------------- $ 1,600,405 --------------
All of the above notes have been issued to current shareholders and/or directors of the Company. Interest expense on these notes for the three month period ended March 31, 1998 was not material. Subsequent to March 31, 1998, the Company issued an additional $1,287,994 in Series A notes. NOTE 5--CONVERTIBLE SUBORDINATED DEBENTURES
DECEMBER 31, MARCH 31, 1997 1998 ------------ ------------ (UNAUDITED) The convertible subordinated debentures (Debentures) bear interest at 10% per annum, payable semi-annually, and mature in September 2000. The Debentures are automatically convertible into common stock of the Company upon the consummation of the IPO. The Debentures may also be converted at any time into common shares at the option of the holder based upon the lesser of $2 per share or one-half the proposed IPO price........................................................................... $ 1,097,000 $ 2,516,000 ------------ ------------
NOTE 6--STOCKHOLDERS' (DEFICIT) STOCK SPLIT In September 1997, the Board of Directors approved a three-for-two stock split of issued and outstanding common shares. In addition, in March 1998 the Board of Directors approved an increase in the authorized number of shares of common stock to 50,000,000. All shares, per share, option and warrant information in the accompanying financial statements has been restated to reflect the effect of the split and change in authorized shares. STOCK OPTION PLANS Under the Company's stock option plan, incentive and nonqualified stock options may be granted to employees, consultants and outside directors, to purchase a maximum of 750,000 shares of Common Stock. F-13 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 6--STOCKHOLDERS' (DEFICIT) (CONTINUED) Under the incentive plan, the exercise price of each option shall not be less than fair value of the share on the date of grant, and an option's maximum term is ten years. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its non-qualified stock option plan as stock options granted under this plan have an exercise price equal to or greater than the estimated fair value on the date of grant. Since inception, the Company has issued options to three of its employees/ directors. If compensation costs had been determined based upon the fair value at the grant date for awards consistent with SFAS No. 123, the effects on net loss and pro forma net loss per share would not have been material. The following table summarizes the Company's stock option activity for the periods ended June 30, 1997, December 31, 1997 and March 31, 1998:
THREE MONTHS ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30, 1997 DECEMBER 31, 1997 MARCH 31, 1998 ----------------------- ---------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- ----------- --------- ----------- --------- ----------- Outstanding at beginning of period...................... 262,500 $ .67 262,500 $ 4.57 262,500 $ 4.57 Granted............................................... 262,500 4.57 -- -- 325,000 6.00 Exercised............................................. (262,500) .67 -- -- -- -- ---------- --------- --------- Outstanding at end of period............................ 262,500 4.57 262,500 4.57 587,500 5.36 ---------- ----- --------- ----- --------- -----
The number of stock options exercisable at June 30, 1997, December 31, 1997 and March 31, 1998 was 262,500, 262,500 and 387,500, respectively. The following table summarizes information about the Company's stock options outstanding:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- ------------------------ WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE ----------- ----------- --------------- ----------- ----------- ----------- December 31, 1997................................ $ 4 - $6 262,500 9 $ 4.57 262,500 $ 4.57 March 31, 1998................................... $ 4 - $6 587,500 9.34 5.36 387,500 5.03
WARRANTS In early 1996, the Company issued warrants to purchase 450,000 shares of common stock at $.45 and $.67 per share in connection with certain loans made by directors of the Company. The fair value of those warrants were estimated at $130,500 and have been reflected as part of interest expense in the accompanying statement of operations for the period ended June 30, 1996. Additionally, in June 1996 the Company F-14 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 6--STOCKHOLDERS' (DEFICIT) (CONTINUED) issued warrants to purchase 270,000 shares of common stock at $.67 per share. These warrants were issued for consulting services and were valued at $47,100. During the year ended June 30, 1997, March issued 545,760 warrants at $2.67 per share in connection with private placement offerings and 55,500 warrants at $.67 per share in connection with advances made by certain directors of the Company. Additionally, in connection with the issuance of Series A and Series C notes (see note 4) during the three months ended March 31, 1998, the Company issued 533,466 warrants exercisable at $3 per share. During March 1998, in connection with the Norton Asset Acquisition (see note 2), the Company issued 550,000 warrants exercisable at $3 per share, expiring four years from the date of issuance. The value of these warrants at the time of issuance was estimated by management and determined not to be material to the Company's results of operations and financial position. The following table summarizes activity for warrants through March 31, 1998:
NUMBER EXERCISE OUTSTANDING PRICE ----------- -------------- Balance, June 30, 1996.............................................................. 720,000 $.45 to $.67 Issued............................................................................ 601,260 .67 to 2.67 Exercised......................................................................... (410,250) .45 to .67 ----------- -------------- Balance, June 30, 1997.............................................................. 911,010 .67 to 2.67 Issued............................................................................ -- -- Exercised......................................................................... (140,250) .67 ----------- -------------- Balance, December 31, 1997.......................................................... 770,760 .67 to 2.67 Issued............................................................................ 1,083,466 3.00 Exercised......................................................................... -- -- ----------- -------------- Balance, March 31, 1998 (unaudited)................................................. 1,854,226 $.67 to $3.00 ----------- --------------
NOTE 7--COMMITMENTS AND CONTINGENCIES A. EMPLOYMENT AGREEMENTS The Company has a three year employment agreement with its President which expires in January 2001. This agreement provides for salary levels of $60,000 per annum, a one time restricted stock grant of 100,000 shares, and a stock option for 300,000 shares of common stock exercisable at $6 per share 100,000 shares of which are immediately exercisable, 100,000 of which are exercisable on the first anniversary of the grant date and 100,000 of which are exercisable on the second anniversary of the grant date. The President may defer all compensation until the consummation of the Company's proposed IPO, and convert such amount into shares of common stock at the rate of $3 per share. In June 1998, the Company entered into a one year employment agreement with its Chief Executive Officer. Terms of the agreement provide for stock options of 100,000 shares of common stock exercisable at $6 per share. F-15 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED) B. DEVELOPMENT AGREEMENTS The Company has entered into agreements (Development Contracts) to develop various components for five models of high performance motorcycles, with each model intended for a distinct segment of the premium-priced motorcycle marketplace. A substantial amount of the Company's design and development has been completed, with all remaining development to be accomplished by Melling Consultancy Design Limited (MCD) under the above mentioned Development Contracts. The owner of MCD is also a stockholder and director of the Company. Manufacture and assembly of the Company's products will take place at its recently acquired production facility in England. Under the terms of the Development Contracts the Company is required to make future payments as described below: 1998............................................................ $ 691,200 1999............................................................ 691,200 2000............................................................ 480,000 2001............................................................ 480,000 2002............................................................ 480,000 --------- $2,822,400 ---------
The Development Contracts provide for the Company to retain all rights and title to design technology and development performed by MCD for the Company including any trade secrets and patents. The Development Contracts also contain non-compete and non-disclosure terms to protect the proprietary rights of the Company, and also provide that MCD and the Company will use their best efforts to cooperate in the commercial production and marketing of the Company's motorcycle products. MCD and the Company also have certain termination rights in the event of material breaches or insolvency of either party, with the Company retaining complete ownership of all technology and products developed by MCD prior to any such terminations. A substantial amount of the research and development costs included in the accompanying statement of operations is related to the above Development Contracts. C. ROYALTY SETTLEMENT In September 1997, the Company entered into an agreement with one of its developers (who is also a stockholder and director of the Company) whereby the Company agreed to issue the developer shares of Common Stock equal to $1,000,000, based upon the proposed IPO price per share, in exchange for all of the developer's rights to receive royalty payments on future sales. This transaction has been reflected as a part of research and development expenses and as additional paid-in capital, in the six month period ended December 31, 1997. D. PRODUCT DISTRIBUTION SETTLEMENT In January 1998, the Company entered into a settlement agreement with a former director. Under the terms of the agreement, the Company regained certain product distribution rights in North America which F-16 NORTON MOTORS INTERNATIONAL INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED) NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED) had previously been owned by the former director, in exchange for $180,000 payable at the earlier of an IPO or June 30, 1998. Additionally, the Company has agreed to repurchase 90,000 shares of its common stock along with the 90,000 warrants from this former director for $120,000. Payment of the $120,000 is also due at the earlier of an IPO or June 30, 1998. The accompanying March 31, 1998 financial statements include an accrual and a charge to other expenses for the $180,000 production distribution rights settlement. E. ACQUISITION FINDERS AGREEMENT In February 1998, March entered into a settlement of its finders agreement relating to the Norton Asset Acquisition by issuing 250,000 shares of its common stock (valued at $3 per share). The settlement amounted to $750,000 and is included as part of other expenses in the three months ended March 31, 1998. F. WRITE-OFF OF ACQUISITION DEPOSIT During the six months ended December 31, 1997 the Company terminated an agreement relating to the proposed acquisition of a race car manufacturer. As a result, the Company wrote off, to other expense, $254,595 representing its initial deposit on the proposed acquisition. G. CONSULTING AGREEMENT On March 31, 1998 the Company entered into a three-year consulting agreement with Global Coin Corporation ("GCC") whereby the Company engaged GCC to assist the Company in its development program, start-up and operations. Under the terms of the consulting agreement, GCC is to receive compensation in the form of an annual sum of $60,000, payable in equal monthly installments of $5,000. NOTE 8--SUBSEQUENT EVENT PROPOSED PUBLIC OFFERING The Company intends to file a Registration Statement with the SEC for the sale of 3,000,000 shares of Common Stock (excluding the underwriters' over-allotment option for additional shares). Upon the effectiveness of this offering: - All outstanding convertible subordinated debentures will convert to 1,258,000 shares of common stock (see note 5). - The Company will be required to issue to one of its directors $1,000,000 worth of shares of its common stock based upon the IPO price (see note 7c). - The Company will be required to repay the principal and interest due on all outstanding notes payable (see note 4). F-17 [PICTURES OF HISTORICAL NORTON MOTORCYCLES] CLASSIC NORTON MOTORCYCLES THESE PICTURES DEPICT NORTON MOTORCYCLES MADE EARLIER IN THIS CENTURY. NORTON MOTORS INTERNATIONAL INC. IS A NEW COMPANY ORGANIZED IN 1995 AND IS NOT RELATED TO THE COMPANIES WHICH SOLD SUCH NORTON MOTORCYCLES, EXCEPT THAT NORTON MOTORS INTERNATIONAL INC. BELIEVES IT HAS SECURED CERTAIN TRADEMARKS PREVIOUSLY USED BY THE FORMER NORTON COMPANIES. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO UNDERWRITER, DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................... 3 Risk Factors..................................... 7 Use of Proceeds.................................. 17 Capitalization................................... 19 Dilution......................................... 20 Dividend Policy.................................. 20 Selected Financial Data.......................... 21 Management's Discussion and Analysis of Financial Condition and Plan of Operation................ 22 Business......................................... 26 Management....................................... 39 Certain Transactions............................. 43 Principal Stockholders........................... 45 Description of Securities........................ 47 Shares Eligible For Future Sale.................. 49 Underwriting..................................... 50 Legal Matters.................................... 51 Experts.......................................... 52 Available Information............................ 52 Index to Financial Statements.................... F-1
------------------------ UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. [LOGO] MOTORS INTERNATIONAL INC. 3,000,000 SHARES OF COMMON STOCK --------------------- PROSPECTUS --------------------- DIRKS & COMPANY, INC. , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Except as hereinafter set forth, there is no statute, charter provision, by-law, contract or other arrangement under which any controlling person, director or officer of Norton Motors International Inc. is insured or indemnified in any manner against liability which he may incur in his capacity as such. The Articles of Incorporation, as amended ("Articles of Incorporation"), of the Company provides that the Company shall indemnify to the fullest extent permitted by Minnesota law any person whom it may indemnify thereunder, including directors, officers, employees and agents of the Company. Such indemnification (other than as ordered by a court) shall be made by the Company only upon a determination that indemnification is proper in the circumstances because the individual met the applicable standard of conduct. Advances for such indemnification may be made pending such determination. Such determination shall be made by a majority vote of a quorum consisting of disinterested directors, or by independent legal counsel or by the stockholders. In addition, the Articles of Incorporation provides for the elimination, to the extent permitted by Minnesota law, of personal liability of directors to the Company and its stockholders for monetary damages for breach of fiduciary duty as directors. The Company has obtained a directors and officers insurance and company reimbursement policy in the amount of $1,000,000. The policy insures directors and officers against unindemnified loss arising from certain wrongful acts in their capacities and would reimburse the Company for such loss for which the Company has lawfully indemnified the directors and officers. See the second and third paragraphs of Item 28 below for information regarding the position of the Securities and Exchange Commission with respect to the effect of any indemnification for liabilities arising under the Securities Act of 1933, as amended ("Securities Act"). ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated costs and expenses to be borne by the Company in connection with the offering described in the Registration Statement, other than underwriting commissions and discounts. With the exception of the SEC Registration Fee and NASD Filing Fee, all amounts shown are estimates. SEC Registration Fee........................................... $ 6,615.38 American Stock Exchange Fee.................................... 50,000.00 NASD Filing Fee................................................ 2,743.00 Legal Fees and Expenses........................................ 150,000.00 Accounting Fees and Expenses................................... 90,000.00 Printing and Engraving Expenses................................ 75,000.00 Blue Sky Fees and Expenses..................................... 40,000.00 Transfer Agent's and Registrar's Fees.......................... 5,000.00 Miscellaneous Expenses......................................... 80,641.62 ---------- Total...................................................... $500,000.00 ---------- ----------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. During the past three years, the following securities were sold by the Company without registration under the Securities Act. Except as otherwise indicated, the securities were sold by the Company in reliance upon the exemption provided by Section 4(2) of the Securities Act. With respect to such transactions, each purchaser of securities represented to the Company that such purchaser (i) had sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the risks and merits of the transaction and was capable of bearing the economic risks of such investment II-1 including a complete loss of its investment, (ii) had an opportunity to discuss the business, management and financial affairs of the Company with the Company's representatives, (iii) acquired the securities for his own account for the purpose of investment and not with a view to or for resale in connection with any distribution thereof and (iv) understood that (a) the securities had not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof, (b) the securities must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (c) the securities would bear a legend to such effect and (d) the Company will make a notation on its transfer books to such effect. All transactions have been adjusted to reflect the stock split of the Company's outstanding Common Stock effected in September 1997 on the basis of 3 shares of Common Stock for every 2 shares of Common Stock. In October 1995, the Company issued the following shares of Common Stock at a per share offering price of $.01 to the following persons:
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- ------------------- John R. Silseth Sr....................................................... 525,000 Donald F. Shiff.......................................................... 90,000 Joseph Novogratz......................................................... 75,000 Wm. Delmonico............................................................ 37,500 Dennis J. Hinton......................................................... 75,000 Genesis Capital Group.................................................... 37,500
From March 1996 through June 1996, the Company issued the following shares of Common Stock at a per share offering price of $.67 per share to the following persons:
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- ------------------- Neal Broten.............................................................. 15,000 Douglas Anderson......................................................... 15,000 Howard Cox............................................................... 37,500 Michael F. Bank.......................................................... 15,000 John Tsatsos............................................................. 15,000 J&J Acres Trust.......................................................... 37,500 Ernest Roberg............................................................ 37,500 David L. Bank............................................................ 30,000 Steven Graybow........................................................... 22,500 Scott C. Bullock......................................................... 15,000 John T. Kubinski......................................................... 37,500 Marvin D. Bullock........................................................ 37,500 Timothy D. Burns......................................................... 15,000 Wayne W. Mills........................................................... 22,500 Barry Gilbert Shiff...................................................... 7,500 John C. Field............................................................ 7,500 Frederick C. Boos........................................................ 30,000 Joseph I. Langer......................................................... 15,000 Dresser Family Trust..................................................... 15,000 John R. Silseth, Sr...................................................... 75,000 Donald F. Shiff.......................................................... 75,000 Joseph Novogratz......................................................... 75,000 Thomas Hay Trust......................................................... 22,500
II-2 In June 1996, the Company issued the following shares of Common Stock at a per share offering price of $1.67 to the following person:
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- --------------------- Joel Ronning............................................................. 9,000
In June 1996, the Company issued the following shares of Common Stock in exchange for services rendered:
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- ------------------- Joseph Novogratz......................................................... 75,000
In December 1996, the Company issued the following Units at an offering price of $2.50 per Unit (each Unit equal to 1.5 shares of Common Stock and one warrant to purchase 1.5 shares of Common Stock at an exercise price of $2.67 of per share) to the following persons. In connection with this private placement, R.J. Steichen, the agent for the private placement, was given an agent's warrant to purchase 45,480 shares at $1.67 for five years which upon expiration is converted into a three year warrant to purchase 45,480 shares at $2.67 per share.
NAME NUMBER OF SHARES - --------------------------------------------------------------------------- ----------------- J&J Acres Trust............................................................ 30,000 Douglas Anderson........................................................... 7,500 Frederick C. Boos.......................................................... 10,500 Scott Bullock.............................................................. 7,500 Alex Daneman............................................................... 90,000 Darwin J. DeRosier......................................................... 7,500 Timothy D. Foster.......................................................... 30,000 Robert L. Gearou........................................................... 15,000 Sam Hong................................................................... 6,000 Dr. Michael King........................................................... 7,500 James & Eliz Kochiras...................................................... 15,000 James Kramer 401(k)........................................................ 6,000 John T. Kubinski........................................................... 7,500 Wayne W. Mills............................................................. 30,000 Joseph Novogratz........................................................... 19,800 D. Bradly Olah............................................................. 15,000 Noel P. Rahn............................................................... 30,000 Donald F. Shiff............................................................ 15,000 John F. Stapleton.......................................................... 30,000 Nicolas P. Streglis Trust.................................................. 15,000 Gary & Leslie Troyer....................................................... 30,000 Frederick Watson Trust..................................................... 30,000
In May 1997, the Company issued the following shares of Common Stock pursuant to the exercise of warrants at an exercise price of $.45 per share to the following person:
NAME NUMBER OF SHARES - --------------------------------------------------------------------------- ----------------- Joseph Novogratz........................................................... 225,000
II-3 In February 1997, the Company issued the following shares of Common Stock for services rendered to the following persons:
NUMBER OF SHARES NAME COMMON STOCK - --------------------------------------------------------------------------- ----------------- Joseph Novogratz........................................................... 75,000 Robert O. Knutson.......................................................... 75,000 James Kramer............................................................... 15,000 Austin Friars House........................................................ 150,000
In February 1997, the Company issued the following shares of Common Stock upon the exercise of certain options and warrants at an exercise price of $.67 per share to the following persons:
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- ------------------- John Kubinski............................................................ 60,000 Wayne Mills.............................................................. 75,000 Maru Partners............................................................ 15,000
In February and July 1997, the Company issued the following shares of Common Stock upon the exercise of certain options and warrants at an exercise price of $.67 per share to the following persons:
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- ------------------- Donald F. Shiff.......................................................... 51,000 Real Estate Graphics..................................................... 30,000 Neil Sell................................................................ 3,750 Thomas Petters........................................................... 7,500 Michael F. Bank.......................................................... 6,000 David L. Bank............................................................ 6,000 Neil Sell................................................................ 3,750 Michael F. Bank.......................................................... 9,000 David L. Bank............................................................ 9,000 Carol M. Kramer.......................................................... 7,500 Donald F. Shiff.......................................................... 15,000
In February 1997 the Company issued the following shares of Common Stock pursuant to option exercises at an exercise price of $.67 per share to the following persons:
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- ------------------- Joseph Novogratz......................................................... 193,500 James Kramer............................................................. 60,000 Larry Kramer............................................................. 15,000 Harvey Swenson........................................................... 15,000 Dennis Herkal............................................................ 6,000
II-4 In 1997, the Company issued the following principal amounts of 10% Convertible Subordinated Debentures Series 1997 to the following persons:
PRINCIPAL AMOUNT NAME OF DEBENTURES - ---------------------------------------------------------------------------- ---------------- Robert L. Gearou............................................................ $ 50,000 Bob Inc..................................................................... 50,000 John T. Vetscher............................................................ 40,000 Gus W. Boosalis............................................................. 30,000 Timothy Burns............................................................... 10,000 Howard S. Cox............................................................... 25,000 W. Merton & J. Dresser, JTWROS.............................................. 30,000 Gary H. & Jaqueline Frana, JTWROS........................................... 21,000 George C. Klima............................................................. 15,000 Richfield Bank & Trust Co, TTEE FBO George C. Klima IRA..................... 35,000 Joseph I. Langer............................................................ 25,000 Robert R. Olson............................................................. 18,000 Richard R. Tieva............................................................ 24,000 Gary & Leslie Troyer JTWROS................................................. 30,000 John Tsatsos................................................................ 10,000 Frederick O. Watson Trust................................................... 60,000 William S. & Nancy A. Wright JTWROS......................................... 30,000 David Boyd.................................................................. 25,000 Ann E. Nardini.............................................................. 7,500 Donald F. Shiff............................................................. 10,000 Robert E. Long.............................................................. 26,000 Gene J. Helsing............................................................. 10,000 Lester Goetzke.............................................................. 4,000 REG Partners LLP............................................................ 140,000 Donald Blakstad............................................................. 50,000 Ruth Lordan................................................................. 20,000 Jeff L. Whitmore............................................................ 10,000 KB Development Co. II LLP................................................... 25,000 Chia-Hao & Jane Sun Ha Chang, JTWROS........................................ 5,000 Paul and Shirley Kramer..................................................... 10,000 Edward & Mary Kramer........................................................ 12,000 Dennis Herkal............................................................... 38,000 James and Carol Kramer...................................................... 46,000 Duane Peterson.............................................................. 20,000 Relience/Kramer............................................................. 15,000 Robert Cieslukowski......................................................... 250,000 Gene Helseng................................................................ 5,000 Kramer Debt Conversion...................................................... 12,000
In October 1997, in exchange for payables in the amount of $179,040, the Company issued Common Stock to the following person at $3.00 per share:
NUMBER OF SHARES OF NAME COMMON STOCK - --------------------------------------------------------------------------------------------- ------------------- Al Melling................................................................................... 59,680
II-5 In March 1998, the Company issued Common Stock in exchange for services rendered to the following persons:
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- ------------------- Joseph Novogratz......................................................... 100,000 Minneapple Capital....................................................... 250,000
In March 1998, the Company issued the following principal amounts of 10% Convertible Subordinated Debentures, Series 1997 in connection with the Norton Asset Acquisition to the following entities:
PRINCIPAL AMOUNT OF NAME DEBENTURES - -------------------------------------------------------------------------- ------------------ Cataract N.V.(1).......................................................... $ 1,145,250 Global Coin Corporation(2)................................................ 127,250
In March 1998, the Company issued the following principal amounts of Series A 1998 10% Notes in connection with the Norton Asset Acquisition to the following entities:
AMOUNT OF SERIES A NAME NOTES - --------------------------------------------------------------------- ----------------------- Cataract N.V.(1)..................................................... $ 1,035,000 Global Coin Corporation(2)........................................... 115,000
- ------------------------ (1) In connection with the Norton Asset Acquisition and a cash contribution of $90,000, Cataract N.V. was given 870,000 warrants to purchase Common Stock at $3.00 per share. Such warrants were attached to the Series A Notes. (2) In connection with the Norton Asset Acquisition and a cash contribution of $10,000, Global Coin Corporation was given 96,666 warrants to purchase Common Stock at $3.00 per share. Such warrants were attached to the Series A Notes. In March 1998, the Company issued Common Stock in connection with the acquisition of certain assets of Norton Motors Limited to the following entities.
NUMBER OF SHARES OF NAME COMMON STOCK - ------------------------------------------------------------------------- ------------------- Cataract N.V............................................................. 3,316,453 Global Coin Corporation.................................................. 368,495
In March 1998, the Company issued the following principal amount of Series C 1998 10% Note to the following person upon the conversion of certain advances payable. The Series C 1998 Note has a warrant to purchase shares of Common Stock equal to 1/3 of the principal amount of the note at $3.00 per share:
NAME AMOUNT OF NOTE - ------------------------------------------------------------------------------ -------------- Joseph Novogratz.............................................................. $ 228,153
In March 1998, the Company issued the following principal amount of Series A 1998 10% Note to the following person upon the conversion of certain advances payable. The Series A 1998 Note has a warrant to purchase shares of Common Stock equal to 1/3 of the principal amount of the note at $3.00 per share:
NAME AMOUNT OF NOTE - ------------------------------------------------------------------------------ -------------- Donald Shiff.................................................................. $ 52,252
II-6 From March 1998 to June 12, 1998, the Company issued the following principal amounts of Series A 1998 10% Notes in a private placement to the following persons. Each Series A 1998 Note has a warrant to purchase shares of Common Stock equal to 1/3 of the principal amount of the note at $3.00 per share:
NAME AMOUNT OF NOTES - ----------------------------------------------------------------------------- --------------- Cataract, N.V................................................................ $ 90,000 Global Coin Corporation...................................................... 10,000 Joseph Novogratz............................................................. 10,000 Donald Shiff................................................................. 20,000 6400 Partnership............................................................. 40,000 Edward Homes................................................................. 50,000 Richard Wawrzniak............................................................ 5,000 Robert Cieslukowski.......................................................... 200,000 Edward Kramer................................................................ 20,000 Vernon M. Pollard............................................................ 20,000 David G. Ness................................................................ 21,000 Michael Baghodoian........................................................... 500,000 Hemisphere Management........................................................ 120,000 BOB Inc...................................................................... 50,000 Steven Graybow............................................................... 21,000 Robert L. Gearou............................................................. 50,000 Fidelity Trust............................................................... 150,000 Cataract N.V................................................................. 72,895 Global Coin Corporation...................................................... 8,099
The sales set forth above are claimed to be exempt from registration with the Securities and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering. All certificates representing the shares of Common Stock issued by the Registrant referred to herein and currently outstanding have been properly legended. II-7 ITEM 27. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ----------- -------------------------------------------------------------------------------------------------------- 1 Form of Underwriting Agreement. *3.1 Amended and Restated Articles of Incorporation of the Company. 3.2 By-laws of the Company, as amended. 4.1 Form of Common Stock Certificate. 4.2 Grant of Registration Rights of Common Stock and Warrant Stock by March Motors International, Inc. dated March 31, 1998. 4.3 Form of Series A 1998 10% Note. 4.4 Form of Series C 1998 10% Note. 4.5 Form of Warrant Certificate (attached to 1998 10% Note). 4.6 Form of 10% Convertible Subordinated Debenture, Series 1997 due September 30, 2000. 4.7 Representative's Warrant Agreement between the Company and the Representative. *5 Opinion of Olshan Grundman Frome & Rosenzweig LLP. *10.1 Asset Purchase Agreement dated as of March 11, 1998 by and between March Motors International, Inc. and Norton Motorcycles Limited, as amended. 10.2 Development and Marketing Agreement dated December 15, 1995 by and between March Group PLC and March Motors Limited. 10.3 Development and Marketing Agreement dated December 15, 1995 by and between M.C.D. Limited and March Motors Limited. 10.4 Development and Marketing Agreement dated as of November 1, 1996 by and between M.C.D. Limited, March Motors Limited and Al Melling. 10.5 Promotional Agreement dated as of February 26, 1997 by and between M.C.D. Limited, March Motors Manufacturing Company and Al Melling. 10.6 Agreement dated as of September 4, 1997 by and between M.C.D. Limited and March Motors International, Inc. 10.7 Employment Agreement by and between March Motors International, Inc. and Joseph F. Novogratz dated January 1, 1998, as amended. 10.8 Consulting Agreement by and between March Motors International, Inc. and Global Coin Corporation dated March 31, 1998. 10.9 Financial Advisory Services Agreement dated February 25, 1997 by and between March Motors Manufacturing Company and Austin Friars Securities Limited. 10.10 Settlement Letter Agreements dated January 5, 1998 between North Pacific Lines, Alex Daneman and March Motors Ltd. 10.11 Employment Agreement by and between Norton Motors International Inc. and Myron Calof dated as June 1, 1998. 10.12 Finders Agreement dated February 15, 1997 between Minneapple Capital, Ltd. and March Motors Manufacturing Company. 10.13 Settlement Agreement dated as of March 31, 1998 between Minneapple Capital, Ltd. and Norton Motors International Inc. 10.14 Norton Motors International Inc. 1997 Incentive and Stock Option Plan. *23.1 Consent of Olshan Grundman Frome & Rosenzweig LLP, included in Exhibit 5. 23.2 Consent of Pannell Kerr Forster PC, independent auditors. 23.3 Consent of Stirtz Bernards Boyden Surdel & Larter, P.A. independent accountants. 24 Power of Attorney (included in Part II, page II-9). 27.1 Financial Data Schedule.
- ------------------------ * To be filed by amendment. II-8 ITEM 28. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) File, during any period in which it offers or sales securities, a post-effective amendment to this registration statement to; (i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement of the securities offered, in the offering of such securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. The undersigned small business issuer will provide to the Representative at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned small business issuer will: (1) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (2) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and the offering of the securities at that time as the initial bona fide offering of those securities. II-9 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Registration Statement, to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 18th day of June, 1998. NORTON MOTORS INTERNATIONAL INC. BY: /S/ MYRON CALOF ----------------------------------------- Name: Myron Calof Title: Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joseph Novogratz and Myron Calof, and each one of them individual, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement, and any registration statement relating to the offering hereunder pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same with the Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated. NAME TITLE DATE - ------------------------------ --------------------------- ------------------- /s/ JOSEPH NOVOGRATZ Co-Chairman of the Board, June 18, 1998 - ------------------------------ President and Director Joseph Novogratz /s/ LUIGI AQUILINI Co-Chairman of the Board June 18, 1998 - ------------------------------ and Director Luigi Aquilini /s/ MYRON CALOF Chief Executive Officer and June 18, 1998 - ------------------------------ Director (Principal Myron Calof Executive Officer) Chief Financial Officer June 18, 1998 /s/ STEPHEN R. CIESLUKOWSKI (Principal Officer and - ------------------------------ Principal Accounting Stephen R. Cieslukowski Officer) /s/ AL MELLING Director June 18, 1998 - ------------------------------ Al Melling /s/ ROBERT CIESLUKOWSKI Director June 18, 1998 - ------------------------------ Robert Cieslukowski /s/ ANTHONY VAUGHAN Director June 18, 1998 - ------------------------------ Anthony Vaughan II-10 EX-1 2 FORM OF UNDERWRITING AGREEMENT Exhibit 1 OHS DRAFT 6/10/98 [Form of Underwriting Agreement - Subject to Additional Review] 3,000,000 Shares of Common Stock NORTON MOTORS INTERNATIONAL, INC. UNDERWRITING AGREEMENT New York, New York , 1998 DIRKS & COMPANY, INC. As Representative of the several Underwriters named in Schedule A to Exhibit A annexed hereto 520 Madison Avenue 10th Floor New York, New York 10022 Ladies and Gentlemen: Norton Motors International, Inc., a Minnesota corporation (the "Company"), confirms its agreement with Dirks & Company, Inc. ("Dirks") and each of the underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 11), for whom Dirks is acting as Representative (in such capacity, Dirks shall hereinafter be referred to as "you" or the "Representative"), with respect to the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective number of shares ("Shares") of the Company's common stock, $0.01 par value per share ("Common Stock"). The aggregate 3,000,000 shares of Common Stock are hereinafter referred to as the "Firm Securities". Upon your request, as provided in Section 2(b) of this Agreement, the Company shall also issue and sell to the Underwriters, acting severally and not jointly, up to an additional 450,000 shares of Common Stock for the purpose of covering over-allotments, if any. Such 450,000 shares of Common Stock are hereinafter collectively referred to as the "Option Securities." The Company also proposes to issue and sell to you warrants (the "Representative's Warrants") pursuant to the Representative's Warrant Agreement (the "Representative's Warrant Agreement") for the purchase of an additional 450,000 shares of Common Stock. The shares of Common Stock issuable upon exercise of the Representative's Warrants are hereinafter referred to as the "Representative's Securities." The Firm Securities, the Option Securities, the Representative's Warrants and the Representative's Securities (collectively, hereinafter referred to as the "Securities") are more fully described in the Registration Statement and the Prospectus referred to below. 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each of the Underwriters as of the date hereof, and as of the Closing Date (as hereinafter defined) and each Option Closing Date (as hereinafter defined), if any, as follows: (a) The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement, and an amendment or amendments thereto, on Form SB-2 (No. 333-_________), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Firm Securities, the Option Securities and the Representative's Securities under the Securities Act of 1933, as amended (the "Act"), which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Act, and the rules and regulations (the "Regulations") of the Commission under the Act. The Company will promptly file a further amendment to said registration statement in the form heretofore delivered to the Underwriters and will not file any other amendment thereto to which the Underwriters shall have objected in writing after having been furnished with a copy thereof. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement becomes effective (including the prospectus, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein (including, but not limited to those documents or information incorporated by reference therein) and all information deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration Statement", and the form of prospectus in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and regulations adopted by the Commission under either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable. (b) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus, the Registration Statement or Prospectus or any part of any thereof and no proceedings for a stop order suspending the effectiveness of the Registration Statement or any of the Company's securities have been instituted or are pending or threatened. Each of the Preliminary Prospectus, the Registration Statement and Prospectus at the time of filing thereof conformed with the requirements of the Act and the Rules and Regulations, and none of the Preliminary Prospectus, the Registration Statement or Prospectus at the time of filing thereof contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements made in reliance upon 2 and in conformity with written information furnished to the Company with respect to the Underwriters by or on behalf of the Underwriters expressly for use in such Preliminary Prospectus, Registration Statement or Prospectus or any amendment thereof or supplement thereto. (c) When the Registration Statement becomes effective and at all times subsequent thereto up to the Closing Date (as defined herein) and each Option Closing Date (as defined herein), if any, and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Underwriters or a dealer, the Registration Statement and the Prospectus will contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations, and will conform to the requirements of the Act and the Rules and Regulations; neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided, however, that this representation and warranty does not apply to statements made or statements omitted in reliance upon and in strict conformity with information furnished to the Company in writing by or on behalf of any Underwriter expressly for use in the Preliminary Prospectus, Registration Statement or Prospectus or any amendment thereof or supplement thereto. (d) Each of the Company and the Company's wholly-owned subsidiary, March Motors Limited, a Minnesota corporation ("March") (such subsidiary is hereinafter referred to as the "Subsidiary"), has been duly organized and is validly existing as a corporation in good standing under the laws of the state of its incorporation. Except as set forth in the Prospectus, neither Company nor the Subsidiary owns an interest in any corporation, partnership, trust, joint venture or other business entity. Each of the Company and the Subsidiary is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing. The Company owns, directly or indirectly, one hundred percent (100%) of the outstanding capital stock of the Subsidiary, and all of such shares have been validly issued, are fully paid and non-assessable, were not issued in violation of any preemptive rights and are owned free and clear of any liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever. Each of the Company and the Subsidiary has all requisite power and authority (corporate and other), and has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; each of the Company and the Subsidiary is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all applicable federal, state, local and foreign laws, rules and regulations; and neither the Company nor the Subsidiary has received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the condition, financial or otherwise, or the earnings, position, prospects, value, operation, properties, business or results of operations of the Company. The disclosures in the Registration Statement concerning the effects of federal, state, local, and foreign laws, rules and regulations on the 3 Company's and the Subsidiary's business as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances under which they were made. (e) The Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus under "Capitalization" and "Description of Securities" and will have the adjusted capitalization set forth therein on the Closing Date and each Option Closing Date, if any, based upon the assumptions set forth therein, and the Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Representative's Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company conform or, when issued and paid for, will conform, in all respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable and the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The Securities are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and will conform to the description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the Securities to be sold by the Company hereunder, the Underwriters or the Representative, as the case may be, will acquire good and marketable title to such Securities free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever. (f) The consolidated financial statements of the Company and the Subsidiary, together with the related notes and schedules thereto, included in the Registration Statement, each Preliminary Prospectus and the Prospectus fairly present the financial position, income, changes in cash flow, changes in stockholders' equity and the results of operations of the Company and the Subsidiary at the respective dates and for the respective periods to which they apply and such financial statements have been prepared in conformity with generally accepted accounting principles and the Rules and Regulations, consistently applied throughout the periods involved and such financial statements as are audited have been examined by Stirtz Bernards Boyden Surdel & Larter and Pannell Kerr Foster, P.C., who are independent certified public accountants within the meaning of the Act and the Rules and Regulations, as indicated in their respective reports filed therewith. There has been no adverse change or development involving a prospective adverse change in the condition, financial or otherwise, or in the earnings, position, prospects, value, operation, properties, business, or results of operations of the Company or the Subsidiary, whether or not arising in the ordinary course of business, since the date of the financial statements included in the Registration Statement and the Prospectus and the outstanding debt, the property, both tangible and intangible, and the business of the Company 4 and the Subsidiary, conform in all material respects to the descriptions thereof contained in the Registration Statement and the Prospectus. Financial information (including, without limitation, any pro forma financial information) set forth in the Prospectus under the headings "Summary Financial Data," "Selected Financial Data," "Capitalization," and "Management's Discussion and Analysis of Financial Condition and Plan of Operation," fairly present, on the basis stated in the Prospectus, the information set forth therein, and have been derived from or compiled on a basis consistent with that of the audited financial statements included in the Prospectus; and, in the case of pro forma financial information, if any, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. The amounts shown as accrued for current and deferred income and other taxes in such financial statements are sufficient for the payment of all accrued and unpaid federal, state, local and foreign income taxes, interest, penalties, assessments or deficiencies applicable to the Company and the Subsidiary, whether disputed or not, for the applicable period then ended and periods prior thereto; adequate allowance for doubtful accounts has been provided for unindemnified losses due to the operations of the Company and the Subsidiary; and the statements of income do not contain any items of special or nonrecurring income not earned in the ordinary course of business, except as specified in the notes thereto. (g) Each of the Company and the Subsidiary (i) has paid all federal, state, local, and foreign taxes for which it is liable, including, but not limited to, withholding taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has furnished all information returns it is required to furnish pursuant to the Code, (ii) has established adequate reserves for such taxes which are not due and payable, and (iii) does not have any tax deficiency or claims outstanding, proposed or assessed against it. (h) No transfer tax, stamp duty or other similar tax is payable by or on behalf of the Underwriters in connection with (i) the issuance by the Company of the Securities, (ii) the purchase by the Underwriters of the Firm Securities and the Option Securities from the Company and the purchase by the Representative of the Representative's Warrants from the Company, (iii) the consummation by the Company of any of its obligations under this Agreement, or (iv) resales of the Firm Securities and the Option Securities in connection with the distribution contemplated hereby. (i) Each of the Company and the Subsidiary maintains insurance policies, including, but not limited to, general liability, and property insurance, which insures each of the Company, the Subsidiary and their respective employees, against such losses and risks generally insured against by comparable businesses. Neither the Company nor the Subsidiary (A) has failed to give notice or present any insurance claim with respect to any matter, including but not limited to the Company's business, property or employees, under any insurance policy or surety bond in a due and timely manner, (B) has any disputes or claims against any underwriter of such insurance policies or surety bonds or has failed to pay any premiums due and payable thereunder, or (C) has failed to comply with all conditions contained in such insurance policies and surety bonds. There are no facts or circumstances under any such insurance policy or surety bond which would relieve any insurer of its obligation to satisfy in full any valid claim of the Company or the Subsidiary. 5 (j) There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of, the Company or the Subsidiary which (i) questions the validity of the capital stock of the Company, this Agreement or the Representative's Warrant Agreement, or of any action taken or to be taken by the Company pursuant to or in connection with this Agreement or the Representative's Warrant Agreement, (ii) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all material respects), or (iii) might materially and adversely affect the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of the Company or the Subsidiary. (k) The Company has full legal right, power and authority to authorize, issue, deliver and sell the Securities, enter into this Agreement and the Representative's Warrant Agreement and to consummate the transactions provided for in this Agreement and the Representative's Warrant Agreement; and this Agreement and the Representative's Warrant Agreement have each been duly and properly authorized, executed and delivered by the Company. Each of this Agreement and the Representative's Warrant Agreement constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, and none of the Company's issue and sale of the Securities, execution or delivery of this Agreement or the Representative's Warrant Agreement, its performance hereunder and thereunder, its consummation of the transactions contemplated herein and therein, or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company or the Subsidiary pursuant to the terms of (i) the certificate of incorporation or by-laws of the Company or the Subsidiary, (ii) any license, contract, collective bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary is or may be bound or to which its or assets (tangible or intangible) is or may be subject, or any indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation applicable to the Company or the Subsidiary of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or the Subsidiary or any of its or their respective activities or properties. (l) No consent, approval, authorization or order of, and no filing with, any court, regulatory body, government agency or other body, domestic or foreign, is required for the issuance of the Securities pursuant to the Prospectus and the Registration Statement, the performance of this Agreement and the Representative's Warrant Agreement and the transactions contemplated hereby and thereby, including without limitation, any waiver of any preemptive, first refusal or other rights that any entity or person may have for the issue and/or sale of any of 6 the Securities, except such as have been or may be obtained under the Act or may be required under state securities or Blue Sky laws in connection with the Underwriters' purchase and distribution of the Firm Securities and the Option Securities, and the Representative's Warrants to be sold by the Company hereunder. (m) All executed agreements, contracts or other documents or copies of executed agreements, contracts or other documents filed as exhibits to the Registration Statement to which the Company or the Subsidiary is a party or by which it or they may be bound or to which its or their respective assets, properties or business may be subject have been duly and validly authorized, executed and delivered by the Company or the Subsidiary and constitute the legal, valid and binding agreements of the Company or the Subsidiary, as the case may be, enforceable against it in accordance with its terms. The descriptions in the Registration Statement of agreements, contracts and other documents are accurate and fairly present the information required to be shown with respect thereto by Form SB-2, and there are no contracts or other documents which are required by the Act to be described in the Registration Statement or filed as exhibits to the Registration Statement which are not described or filed as required, and the exhibits which have been filed are complete and correct copies of the documents of which they purport to be copies. (n) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, neither the Company nor the Subsidiary has (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, (ii) entered into any transaction other than in the ordinary course of business, or (iii) declared or paid any dividend or made any other distribution on or in respect of its capital stock of any class, and there has not been any change in the capital stock, or any change in the debt (long or short term) or liabilities or material adverse change in or affecting the general affairs, management, financial operations, stockholders' equity or results of operations of the Company or the Subsidiary. (o) No default exists in the due performance and observance of any term, covenant or condition of any license, contract, collective bargaining agreement, indenture, mortgage, installment sale agreement, lease, deed of trust, voting trust agreement, stockholders agreement, partnership agreement, note, loan or credit agreement, purchase order, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary may be bound or to which the property or assets (tangible or intangible) of the Company or the Subsidiary is subject or affected. (p) Each of the Company and the Subsidiary has generally enjoyed a satisfactory employer-employee relationship with its employees and is in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours. There are no pending investigations involving the Company or the Subsidiary by the U.S. Department of Labor, or any other governmental agency responsible for the enforcement of such federal, state, local, or foreign laws and regulations. There is no unfair labor practice charge or complaint against the Company or the Subsidiary pending before the National Labor Relations Board or any lockout, strike, 7 picketing, boycott, dispute, slowdown or stoppage pending or threatened against or involving the Company or the Subsidiary, or any predecessor entity, and none has ever occurred. No representation question exists respecting the employees of the Company or the Subsidiary, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company or the Subsidiary. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or the Subsidiary. No labor dispute with the employees of the Company or the Subsidiary exists, or, is imminent. (q) Neither the Company nor the Subsidiary maintains, sponsors or contributes to any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). Neither the Company nor the Subsidiary maintains or contributes, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code, which could subject the Company or the Subsidiary to any tax penalty on prohibited transactions and which has not adequately been corrected. Each ERISA Plan is in compliance with all reporting, disclosure and other requirements of the Code and ERISA as they relate to any such ERISA Plan. Determination letters have been received from the Internal Revenue Service with respect to each ERISA Plan which is intended to comply with Code Section 401(a), stating that such ERISA Plan and the attendant trust are qualified thereunder. Neither the Company nor the Subsidiary has never completely or partially withdrawn from a "multiemployer plan." (r) Neither the Company, the Subsidiary nor any of its or their respective employees, directors, stockholders, partners, or affiliates (within the meaning of the Rules and Regulations) of any of the foregoing has taken or will take, directly or indirectly, any action designed to or which has constituted or which might be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or otherwise. (s) Except as otherwise disclosed in the Prospectus, none of the patents, patent applications, trademarks, service marks, trade names and copyrights, and licenses and rights to the foregoing presently owned or held by the Company or the Subsidiary, are in dispute so far as known by the Company or are in any conflict with the right of any other person or entity. Each of the Company and the Subsidiary (i) owns or has the right to use, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, all patents, trademarks, service marks, trade names and copyrights, technology and licenses and rights with respect to the foregoing, used in the conduct of its business as now conducted or proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person, corporation or other entity under or with respect to any of the foregoing and (ii) is not obligated or under any liability whatsoever to make any payment by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright, know-how, technology or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise. 8 (t) Each of the Company and the Subsidiary owns and has the unrestricted right to use all trade secrets, know-how (including all other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), inventions, designs, processes, works of authorship, computer programs and technical data and information (collectively herein "intellectual property") that are material to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company, free and clear of and without violating any right, lien, or claim of others, including without limitation, former employers of its employees; provided, however, that the possibility exists that other persons or entities, completely independent of the Company or the Subsidiary, or its or their respective employees or agents, could have developed trade secrets or items of technical information similar or identical to those of the Company or the Subsidiary. Neither the Company nor the Subsidiary is aware of any such development of similar or identical trade secrets or technical information by others. (u) Each of the Company and the Subsidiary has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects, or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable. (v) Stirtz Bernards Boyden Surdel & Larter and Pannell Kerr Foster, P.C., whose reports are filed with the Commission as a part of the Registration Statement, are independent certified public accountants as required by the Act and the Rules and Regulations. (w) The Company has caused to be duly executed legally binding and enforceable agreements pursuant to which each of the Company's officers, directors, stockholders and holders of securities exchangeable or exercisable for or convertible into shares of Common Stock (except for the holders of the Company's 10% Convertible Subordinated Notes Due September 30, 2000) has agreed not to, directly or indirectly, issue, offer, offer to sell, sell, grant any option for the sale or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein for a period of not less than thirteen (13) months following the effective date of the Registration Statement (the "Lock-Up Period") without the prior written consent of the Representative and the Company. During the 13 month period commencing on the effective date of the Registration Statement, the Company shall not, without the prior written consent of the Representative, sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any options, rights or warrants with respect to any shares of Common Stock, except pursuant to (i) options granted and available to be granted pursuant to the Company's 1997 Incentive and Stock Option Plan and (ii) warrants issued in connection with the sale of the Company's Series A 1998 10% Notes. In the case of the holders of the Company's 10% Convertible Subordinated Notes Due September 30, 2000, the Lock-Up Period shall be 12 months following the effective date of the Registration Statement. The Company will cause the Transfer Agent (as hereinafter defined) to mark an appropriate legend on the face of stock certificates representing all of such securities and to place "stop transfer" orders on the Company's stock ledgers. 9 (x) There are no claims, payments, issuances, arrangements or understandings, whether oral or written, for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or any other arrangements, agreements, understandings, payments or issuance with respect to the Company, or any of its officers, directors, stockholders, partners, employees or affiliates, that may affect the Underwriters' compensation, as determined by the National Association of Securities Dealers, Inc. ("NASD"). (y) The Common Stock has been approved for listing on the American Stock Exchange ("Amex"). (z) Neither the Company, the Subsidiary nor any of their respective officers, employees, agents or any other person acting on behalf of the Company or the Subsidiary has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency (domestic or foreign) or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company or the Subsidiary (or assist the Company or the Subsidiary in connection with any actual or proposed transaction) which (a) might subject the Company or the Subsidiary, or any other such person to any damage or penalty in any civil, criminal or governmental litigation or proceeding (domestic or foreign), (b) if not given in the past, might have had a material adverse effect on the assets, business or operations of the Company or the Subsidiary, or (c) if not continued in the future, might adversely affect the assets, business, condition, financial or otherwise, earnings, position, properties, value, operations or prospects of the Company or the Subsidiary. The Company's internal accounting controls are sufficient to cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as amended. (aa) Except as set forth in the Prospectus, no officer, director, stockholder or partner of the Company, or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Rules and Regulations) of any of the foregoing persons or entities has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company or the Subsidiary, or (B) purchases from or sells or furnishes to the Company or the Subsidiary any goods or services, or (ii) a beneficial interest in any contract or agreement to which the Company or the Subsidiary is a party or by which it may be bound or affected. Except as set forth in the Prospectus under "Certain Transactions," there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company or the Subsidiary, and any officer, director, or 5% or greater securityholder of the Company, or any partner, affiliate or associate of any of the foregoing persons or entities. (bb) Any certificate signed by any officer of the Company, and delivered to the Underwriters or to Underwriters' Counsel (as defined herein) shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. 10 (cc) The minute books of the Company have been made available to the Underwriters and contain a complete summary of all meetings and actions of the directors (including committees thereof) and stockholders of the Company, since the time of its incorporation, and reflect all transactions referred to in such minutes accurately in all material respects. (dd) Except and to the extent described in the Prospectus, no holders of any securities of the Company or of any options, warrants or other convertible or exchangeable securities of the Company have the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company or to require the Company to file a registration statement under the Act and no person or entity holds any anti-dilution rights with respect to any securities of the Company. (ee) The Company has as of the effective date of the Registration Statement entered into an employment agreement with each of Joseph Novogratz and Myron Calof in the form filed as Exhibits ____ and ____, respectively, to the Registration Statement. (ff) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the Company further agrees that if it or any affiliate commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's, or any affiliate's, business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (gg) The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus under the caption "Use of Proceeds" will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (hh) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparations of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 11 2. Purchase, Sale and Delivery of the Securities. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter, severally and not jointly, agrees to purchase from the Company at a price of $_______ [91% of the initial public offering price per share of Common Stock] per share of Common Stock, that number of Firm Securities set forth in Schedule A opposite the name of such Underwriter, subject to such adjustment as the Representative in its sole discretion shall make to eliminate any sales or purchases of fractional shares, plus any additional number of Firm Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 11 hereof. (b) In addition, on the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase all or any part of an additional 450,000 shares of Common Stock at a price of $_________ per share of Common Stock [10% of the initial public offering price per share of Common Stock]. The option granted hereby will expire forty-five (45) days after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement if the Company has elected to rely upon Rule 430A under the Rules and Regulations, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Firm Securities upon notice by the Representative to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for any such Option Securities. Any such time and date of delivery (an "Option Closing Date") shall be determined by the Representative, but shall not be later than three (3) full business days after the exercise of said option, nor in any event prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon by the Representative and the Company. Nothing herein contained shall obligate the Underwriters to make any over-allotments. No Option Securities shall be delivered unless the Firm Securities shall be simultaneously delivered or shall theretofore have been delivered as herein provided. (c) Payment of the purchase price for, and delivery of certificates for, the Firm Securities shall be made at the offices of Dirks at 520 Madison Avenue, 10th Floor, New York, New York 10022, or at such other place as shall be agreed upon by the Representative and the Company. Such delivery and payment shall be made at 10:00 a.m. (New York City time) on ________, 1998 or at such other time and date as shall be agreed upon by the Representative and the Company, but not less than three (3) nor more than five (5) full business days after the effective date of the Registration Statement (such time and date of payment and delivery being herein called the "Closing Date"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned office of the Representative or at such other place as shall be agreed upon by the Representative and the Company on each Option Closing Date as specified in the notice from the Representative to the Company. Delivery of the certificates for the Firm Securities and the Option Securities, if any, shall be made to the Underwriters against payment by the Underwriters, severally and not jointly, 12 of the purchase price for the Firm Securities and the Option Securities, if any, to the order of the Company for the Firm Securities and the Option Securities, if any, by New York Clearing House funds. In the event such option is exercised, each of the Underwriters, acting severally and not jointly, shall purchase that proportion of the total number of Option Securities then being purchased which the number of Firm Securities set forth in Schedule A hereto opposite the name of such Underwriter bears to the total number of Firm Securities, subject in each case to such adjustments as the Representative in its discretion shall make to eliminate any sales or purchases of fractional shares. Certificates for the Firm Securities and the Option Securities, if any, shall be in definitive, fully registered form, shall bear no restrictive legends and shall be in such denominations and registered in such names as the Underwriters may request in writing at least two (2) business days prior to the Closing Date or the relevant Option Closing Date, as the case may be. The certificates for the Firm Securities and the Option Securities, if any, shall be made available to the Representative at such office or such other place as the Representative may designate for inspection, checking and packaging no later than 9:30 a.m. on the last business day prior to the Closing Date or the relevant Option Closing Date, as the case may be. (d) On the Closing Date, the Company shall issue and sell to the Representative Representative's Warrants at a purchase price of $.0001 per warrant, which Representative's Warrants shall entitle the holders thereof to purchase an aggregate of 300,000 shares of Common Stock. The Representative's Warrants shall be exercisable for a period of four (4) years commencing one (1) year from the effective date of the Registration Statement at a price equaling one hundred twenty percent (120%) of the respective initial public offering price of the Shares. The Representative's Warrant Agreement and form of Warrant Certificate shall be substantially in the form filed as Exhibit [___] to the Registration Statement. Payment for the Representative's Warrants shall be made on the Closing Date. 3. Public Offering of the Shares. As soon after the Registration Statement becomes effective as the Representative deems advisable, the Underwriters shall make a public offering of the Shares (other than to residents of or in any jurisdiction in which qualification of the Securities is required and has not become effective) at the price and upon the other terms set forth in the Prospectus. The Representative may from time to time increase or decrease the public offering price after distribution of the Shares has been completed to such extent as the Representative, in its sole discretion deems advisable. The Underwriters may enter into one of more agreements as the Underwriters, in each of their sole discretion, deem advisable with one or more broker-dealers who shall act as dealers in connection with such public offering. 4. Covenants and Agreements of the Company. The Company covenants and agrees with each of the Underwriters as follows: (a) The Company shall use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as practicable and will not at any time, whether before or after the effective date of the Registration Statement, file any amendment to the Registration Statement or supplement to the Prospectus or file any document under the Act or Exchange Act before termination of the offering of the Shares by the Underwriters of which the Representative shall not previously have been advised and furnished with a copy, or to which the Representative shall have objected or which is not in compliance with the Act, the Exchange Act or the Rules and Regulations. 13 (b) As soon as the Company is advised or obtains knowledge thereof, the Company will advise the Representative and confirm the notice in writing (i) when the Registration Statement, as amended, becomes effective, if the provisions of Rule 430A promulgated under the Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A and when any post-effective amendment to the Registration Statement becomes effective; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto, or the institution of proceedings for that purpose; (iii) of the issuance by the Commission or by any state securities commission of any proceedings for the suspension of the qualification of any of the Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the receipt of any comments from the Commission; and (v) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company will make every effort to obtain promptly the lifting of such order. (c) The Company shall file the Prospectus (in form and substance satisfactory to the Representative) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission pursuant to Rule 424(b)(1) (or, if applicable and if consented to by the Representative, pursuant to Rule 424(b)(4)) not later than the Commission's close of business on the earlier of (i) the second business day following the execution and delivery of this Agreement and (ii) the fifth business day after the effective date of the Registration Statement. (d) The Company will give the Representative notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the corresponding prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will furnish the Representative with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such prospectus to which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel") shall object. (e) The Company shall endeavor in good faith, in cooperation with the Representative, at or prior to the time the Registration Statement becomes effective, to qualify the Securities for offering and sale under the securities laws of such jurisdictions as the Representative may designate to permit the continuance of sales and dealings therein for as long as may be necessary to complete the distribution, and shall make such applications, file such documents and furnish such information as may be required for such purpose; provided, however, the Company shall not be required to qualify as a foreign corporation or file a general or limited consent to service of process in any such jurisdiction. In each jurisdiction where such qualification shall be effected, the Company will, unless the Representative agrees that such action is not at the time necessary or advisable, use all reasonable efforts to file and make such 14 statements or reports at such times as are or may reasonably be required by the laws of such jurisdiction to continue such qualification. (f) During the time when a prospectus is required to be delivered under the Act, the Company shall use all reasonable efforts to comply with all requirements imposed upon it by the Act and the Exchange Act, as now and hereafter amended and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus, or any amendments or supplements thereto. If at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify the Representative promptly and prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act, each such amendment or supplement to be satisfactory to Underwriters' Counsel, and the Company will furnish to the Underwriters copies of such amendment or supplement as soon as available and in such quantities as the Underwriters may request. (g) As soon as practicable, but in any event not later than forty-five (45) days after the end of the 12-month period beginning on the day after the end of the fiscal quarter of the Company during which the effective date of the Registration Statement occurs (ninety (90) days in the event that the end of such fiscal quarter is the end of the Company's fiscal year), the Company shall make generally available to its security holders, in the manner specified in Rule 158(b) of the Rules and Regulations, and to the Representative, an earnings statement which will be in the detail required by, and will otherwise comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which statement need not be audited unless required by the Act, covering a period of at least twelve (12) consecutive months after the effective date of the Registration Statement. (h) During a period of seven (7) years after the date hereof, the Company will furnish to its stockholders, as soon as practicable, annual reports (including financial statements audited by independent public accountants) and unaudited quarterly reports of earnings, and will deliver to the Representative: (i) concurrently with furnishing such quarterly reports to its stockholders, statements of income of the Company for each quarter in the form furnished to the Company's stockholders and certified by the Company's principal financial or accounting officer; (ii) concurrently with furnishing such annual reports to its stockholders, a balance sheet of the Company as at the end of the preceding fiscal year, together with statements of operations, stockholders' equity, and cash flows of the Company for such fiscal year, accompanied by a copy of the certificate thereon of independent certified public accountants; 15 (iii) as soon as they are available, copies of all reports (financial or other) mailed to stockholders; (iv) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, the NASD or any securities exchange; (v) every press release and every material news item or article of interest to the financial community in respect of the Company, or its affairs, which was released or prepared by or on behalf of the Company; and (vi) any additional information of a public nature concerning the Company (and any future subsidiary) or its businesses which the Representative may request. During such seven-year period, if the Company has an active subsidiary, the foregoing financial statements will be on a consolidated basis to the extent that the accounts of the Company and its subsidiary(ies) are consolidated, and will be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (i) The Company will maintain a transfer agent and warrant agent ("Transfer Agent") and, if necessary under the jurisdiction of incorporation of the Company, a Registrar (which may be the same entity as the Transfer Agent) for its Common Stock. (j) The Company will furnish to the Representative or on the Representative's order, without charge, at such place as the Representative may designate, copies of each Preliminary Prospectus, the Registration Statement and any pre-effective or post-effective amendments thereto (two of which copies will be signed and will include all financial statements and exhibits), the Prospectus, and all amendments and supplements thereto, including any prospectus prepared after the effective date of the Registration Statement, in each case as soon as available and in such quantities as the Representative may request. (k) On or before the effective date of the Registration Statement, the Company shall provide the Representative with true original copies of duly executed, legally binding and enforceable agreements pursuant to which, for a period of thirteen (13) months from the effective date of the Registration Statement, each of the Company's stockholders and holders of securities exchangeable or exercisable for or convertible into shares of Common Stock (except for the holders of the Company's 10% Convertible Subordinated Notes Due September 30, 2000) agrees that it or he or she will not, directly or indirectly, issue, offer to sell, sell, grant an option for the sale or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein without the prior consent of the Representatives (collectively, the "Lock-up Agreements"). During the 13 month period commencing on the effective date of the Registration Statement, the Company shall not, without the prior written consent of the Representative, sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of, 16 directly or indirectly, any shares of Common Stock or any options, rights or warrants with respect to any shares of Common Stock except pursuant to (i) options granted and available to be granted pursuant to the Company's 1997 Incentive and Stock Option Plan and (ii) warrants issued in connection with the sale of the Company's Series A 1998 10% Notes. In the case of the holders of the Company's 10% Convertible Subordinated Notes Due September 30, 2000, the Lock-up Agreement shall be for a period of 12 months following the effective date of the Registration Statement. On or before the Closing Date, the Company shall deliver instructions to the Transfer Agent authorizing it to place appropriate legends on the certificates representing the securities subject to the Lock-up Agreements and to place appropriate stop transfer orders on the Company's ledgers. (l) Neither the Company, the Subsidiary, nor any of their respective officers, directors, stockholders, nor any of their respective affiliates (within the meaning of the Rules and Regulations) will take, directly or indirectly, any action designed to, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company. (m) The Company shall apply the net proceeds from the sale of the Securities in the manner, and subject to the conditions, set forth under "Use of Proceeds" in the Prospectus. No portion of the net proceeds will be used, directly or indirectly, to acquire any securities issued by the Company. (n) The Company shall timely file all such reports, forms or other documents as may be required (including, but not limited to, a Form SR as may be required pursuant to Rule 463 under the Act) from time to time, under the Act, the Exchange Act, and the Rules and Regulations, and all such reports, forms and documents filed will comply as to form and substance with the applicable requirements under the Act, the Exchange Act, and the Rules and Regulations. (o) The Company shall furnish to the Representative as early as practicable prior to each of the date hereof, the Closing Date and each Option Closing Date, if any, but no later than two (2) full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company (which in no event shall be as of a date more than thirty (30) days prior to the date of the Registration Statement) which have been read by the Company's independent public accountants, as stated in their letters to be furnished pursuant to Sections 6(k) and 6(l) hereof. (p) The Company shall cause the Common Stock to be quoted on Amex and, for a period of seven (7) years from the date hereof, use its best efforts to maintain the Amex quotation of the Common Stock to the extent outstanding. (q) For a period of five (5) years from the Closing Date, the Company shall furnish to the Representative at the Company's sole expense, (i) daily consolidated transfer sheets relating to the Common Stock, (ii) the list of holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey" for secondary sales of the Company's securities prepared by counsel to the Company. 17 (r) As soon as practicable, (i) but in no event more than five (5) business days before the effective date of the Registration Statement, file a Form 8-A with the Commission providing for the registration under the Exchange Act of the Securities and (ii) but in no event more than thirty (30) days after the effective date of the Registration Statement, take all necessary and appropriate actions to be included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such inclusion for a period of not less than seven (7) years. (s) The Company hereby agrees that it will not, for a period of thirteen (13) months from the effective date of the Registration Statement, adopt, propose to adopt or otherwise permit to exist any employee, officer, director, consultant or compensation plan or similar arrangement permitting (i) the grant, issue, sale or entry into any agreement to grant, issue or sell any option, warrant or other contract right (x) at an exercise price that is less than the greater of the public offering price of the Shares set forth herein and the fair market value on the date of grant or sale or (y) to any of its executive officers or directors or to any holder of 5% or more of the Common Stock; (ii) the maximum number of shares of Common Stock or other securities of the Company purchasable at any time pursuant to options or warrants issued by the Company to exceed the aggregate 500,000 shares reserved for future issuance under the Company's 1997 Incentive and Stock Option Plan; (iii) the payment for such securities with any form of consideration other than cash; or (iv) the existence of stock appreciation rights, phantom options or similar arrangements. (t) Until the completion of the distribution of the Securities, the Company shall not, without the prior written consent of the Representative and Underwriters' Counsel, issue, directly or indirectly, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering contemplated hereby, other than trade releases issued in the ordinary course of the Company's business consistent with past practices with respect to the Company's operations. (u) For a period equal to the lesser of (i) seven (7) years from the date hereof, and (ii) the sale to the public of the Representative's Securities, the Company will not take any action or actions which may prevent or disqualify the Company's use of Form SB-2 (or other appropriate form) for the registration under the Act of the Representative's Securities. (v) For a period of three (3) years from the effective date of the Registration Statement, the Company hereby agrees to grant the Representative a preferential right of first refusal on the terms and subject to the conditions set forth in this paragraph, to purchase for its account, or to sell for the account of the Company, or of any present or future subsidiaries, any securities issued or to be issued by the Company, or any present or future subsidiaries, with respect to which the Company, or any present or future subsidiaries may seek a sale of such securities and the Company will consult, and will cause any such present or future subsidiaries to consult with the Representative with regard to any such offering or placement and will offer, or cause any of its present or future subsidiaries to offer, to the Representative the opportunity, on terms not more favorable to the Company, or any present or future subsidiary than they can secure elsewhere, to purchase or sell any such securities. If the Representative fails to accept in writing such proposal made by the Company, or any present or future subsidiaries within thirty (30) business days after receipt of a notice containing such proposal (which notice may be 18 delivered to the Representative simultaneously), then the Representative shall have no further claim or right with respect to the proposal contained in such notice. If, thereafter such proposal is modified, the Company shall again consult, and cause any present or future subsidiary to consult, with the Representative in connection with such modification and shall in all respects have the same obligations and adopt the same procedures with respect to such proposal as are provided hereinabove with respect to the original proposal, except that the thirty (30) business day period provided hereinabove shall instead be twenty (20) business days. (w) For a period of five (5) years after the effective date of the Registration Statement, the Company shall cause one (1) individual selected by the Representative to be elected to the board of directors of the Company, if requested by the Representative. In the event that the Representative shall not have designated such individual at the time of any meeting of the Company's board of directors or in the event that such individual has not been elected or is unavailable to serve, the Company shall notify the Representative of each meeting of its board of directors and, in such event, an individual selected by the Representative shall be permitted to attend all meetings of the Company's board of directors as a non-voting advisor and to receive all notices and other correspondence and communications sent by the Company to the members of its board of directors. Such board member or non-voting advisor shall receive no more or less director compensation than is paid to other non-officer directors of the Company for attendance at meetings of the Company's board of directors and such board member or non-voting advisor shall be entitled to receive reimbursement for all reasonable costs incurred in attending such meetings, including, but not limited to, food, lodging and transportation. The Company hereby agrees to indemnify and hold such director or non-voting advisor harmless, to the maximum extent permitted by law, against any and all actions, suits, proceedings, inquiries, arbitrations, investigations, litigation, governmental or other proceedings, domestic or foreign, and awards and judgments arising out of such individual's service as a director or non-voting advisor and, in the event that the Company maintains a liability insurance policy affording coverage for the acts of its officers and directors, and/or in the event that the Company has entered into an indemnification agreement with any of its officers or directors, the Company agrees to include such director or non-voting advisor as an insured under such insurance policy and/or to enter into an indemnification agreement with such director or non-voting advisor which is at least as favorable to such individual as any indemnification agreement that the Company has entered into with any of its officers or directors. The rights and benefits of such indemnification and the benefits of such insurance shall, to the maximum extent possible, extend to the Representative insofar as it may be or may be alleged to be responsible for such director or non-voting advisor. The Company agrees to provide its outside directors with compensation as deemed appropriate and customary for similar companies. 5. Payment of Expenses. (a) The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date (to the extent not paid at the Closing Date) all expenses and fees (other than fees of Underwriters' Counsel, except as provided in (iv) below) incident to the performance of the obligations of the Company under this Agreement and the Representative's Warrant Agreement, including, without limitation, (i) the fees and expenses of accountants and counsel for the Company, (ii) all costs and expenses incurred in connection with the preparation, duplication, printing (including mailing and handling charges), filing, delivery and mailing (including the payment of postage with respect thereto) of the Registration Statement and the 19 Prospectus and any amendments and supplements thereto and the printing, mailing (including the payment of postage with respect thereto) and delivery of this Agreement, the Representative's Warrant Agreement, the Agreement Among Underwriters, the Selected Dealer Agreements, and related documents, including the cost of all copies thereof and of the Preliminary Prospectuses and of the Prospectus and any amendments thereof or supplements thereto supplied to the Underwriters and such dealers as the Underwriters may request, in quantities as hereinabove stated, (iii) the printing, engraving, issuance and delivery of the Securities including, but not limited to, (x) the purchase by the Underwriters of the Firm Securities and the Option Securities and the purchase by the Representative of the Representative's Warrants from the Company, (y) the consummation by the Company of any of its obligations under this Agreement and the Representative's Warrant Agreement, and (z) resale of the Firm Securities and the Option Securities by the Underwriters in connection with the distribution contemplated hereby, (iv) the qualification of the Securities under state or foreign securities or "Blue Sky" laws and determination of the status of such securities under legal investment laws, including the costs of printing and mailing the "Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments Survey," if any, and disbursements and fees of counsel in connection therewith, (v) costs and expenses incurred by the Company in connection with the "road show", (vi) fees and expenses of the Transfer Agent and registrar and all issue and transfer taxes, if any, (vii) applications for assignment of a rating of the Securities by qualified rating agencies, (viii) the fees payable to the Commission and the NASD, and (ix) the fees and expenses incurred in connection with the quotation of the Securities on Amex and any other exchange. (b) If this Agreement is terminated by the Underwriters in accordance with the provisions of Section 6 or Section 12, the Company shall reimburse and indemnify the Underwriters for all of their actual out-of-pocket expenses, including the fees and disbursements of Underwriters' Counsel, less any amounts already paid pursuant to Section 5(c) hereof. (c) The Company further agrees that, in addition to the expenses payable pursuant to subsection (a) of this Section 5, it will pay to the Representative on the Closing Date by certified or bank cashier's check or, at the election of the Representative, by deduction from the proceeds of the offering of the Firm Securities, a non-accountable expense allowance equal to 3% of the gross proceeds received by the Company from the sale of the Firm Securities, $35,000 of which has been paid to date. In the event the Representative elects to exercise the overallotment option described in Section 2(b) hereof, the Company further agrees to pay to the Representative on each Option Closing Date, by certified or bank cashier's check, or at the Representative's election, by deduction from the proceeds of the Option Securities purchased on such Option Closing Date, a non-accountable expense allowance equal to 3% of the gross proceeds received by the Company from the sale of such Option Securities. 6. Conditions of the Underwriters' Obligations. The obligations of the Underwriters hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company herein as of the date hereof and as of the Closing Date and each Option Closing Date, if any, as if they had been made on and as of the Closing Date or each Option Closing Date, as the case may be; the accuracy on and as of the Closing Date or Option Closing Date, if any, of the statements of the officers of the Company made pursuant to the provisions hereof; and the 20 performance by the Company on and as of the Closing Date and each Option Closing Date, if any, of its covenants and obligations hereunder and to the following further conditions: (a) The Registration Statement shall have become effective not later than 12:00 P.M., New York time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at the Closing Date and each Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the Rules and Regulations, the price of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations within the prescribed time period and, prior to the Closing Date, the Company shall have provided evidence satisfactory to the Representative of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. (b) The Representative shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On or prior to each of the Closing Date and each Option Closing Date, if any, the Representative shall have received from Underwriters' Counsel, such opinion or opinions with respect to the organization of the Company, the validity of the Securities, the Registration Statement, the Prospectus and other related matters as the Representative may request and Underwriters' Counsel shall have received such papers and information as they request to enable them to pass upon such matters. (d) At the Closing Date, the Underwriters shall have received the favorable opinion of Olshan Grundman Frome & Rosenzweig LLP, counsel to the Company, dated the Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) each of the Company and the Subsidiary (A) has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction, (B) is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing, and (C) has all requisite corporate power and authority, and has obtained any and all necessary 21 authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; each of the Company and the Subsidiary is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all federal, state and local laws, rules and regulations; and, neither the Company nor the Subsidiary has received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially adversely affect the business, operations, condition, financial or otherwise, or the earnings, business affairs, position, prospects, value, operation, properties, business or results of operations of the Company or the Subsidiary. The disclosures in the Registration Statement concerning the effects of federal, state and local laws, rules and regulations on the Company's business as currently conducted and as contemplated are correct in all material respects and do not omit to state a fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they were made. (ii) the Company owns, directly or indirectly, one hundred percent (100%) of the outstanding capital stock of the Subsidiary, and all such shares have been validly issued, are fully paid and non-assessable, were not issued in violation of any preemptive rights and are owned free and clear of any liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever. (iii) except as described in the Prospectus, the Company does not own an interest in any other corporation, partnership, joint venture, trust or other business entity; (iv) the Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus, and any amendment or supplement thereto, under "CAPITALIZATION", and neither the Company nor the Subsidiary is a party to or bound by any instrument, agreement or other arrangement providing for it to issue, sell, transfer, purchase or redeem any capital stock, rights, warrants, options or other securities, except for this Agreement and the Representative's Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company conform in all material respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or any similar rights granted by the Company. The Securities to be sold by the Company hereunder and under the Representative's Warrant Agreement are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and conform to the 22 description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities are in due and proper form. The Representative's Warrants constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the number and type of securities of the Company called for thereby. Upon the issuance and delivery pursuant to this Agreement of the Firm Securities and the Option Securities and the Representative's Warrants to be sold by the Company, the Underwriters and the Representative, respectively, will acquire good and marketable title to the Firm Securities and the Option Securities and the Representative's Warrants free and clear of any pledge, lien, charge, claim, encumbrance, pledge, security interest, or other restriction or equity of any kind whatsoever. No transfer tax is payable by or on behalf of the Underwriters in connection with (A) the issuance by the Company of the Securities, (B) the purchase by the Underwriters of the Firm Securities and the Option Securities from the Company, and the purchase by the Representative of the Representative's Warrants from the Company (C) the consummation by the Company of any of its obligations under this Agreement or the Representative's Warrant Agreement, or (D) resales of the Firm Securities and the Option Securities in connection with the distribution contemplated hereby. (v) the Registration Statement is effective under the Act, and, if applicable, filing of all pricing information has been timely made in the appropriate form under Rule 430A, and no stop order suspending the use of the Preliminary Prospectus, the Registration Statement or Prospectus or any part of any thereof or suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to the best of such counsel's knowledge, threatened or contemplated under the Act; (vi) each of the Preliminary Prospectus, the Registration Statement, and the Prospectus and any amendments or supplements thereto (other than the financial statements and other financial and statistical data included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations. (vii) to the best of such counsel's knowledge, (A) there are no agreements, contracts or other documents required by the Act to be described in the Registration Statement and the Prospectus and filed as exhibits to the Registration Statement other than those described in the Registration Statement (or required to be filed under the Exchange Act if upon such filing they would be incorporated, in whole or in part, by reference therein) and the Prospectus and filed as exhibits thereto, and the exhibits which have been filed are correct copies of the documents of which they purport to be copies; (B) the descriptions in the Registration Statement and the Prospectus and any supplement or amendment thereto of contracts and other documents to which the Company or the Subsidiary is a party or by which it is bound, including any document to which the Company or the Subsidiary is a party or by which it is bound, incorporated by reference into the Prospectus and any supplement or amendment thereto, are accurate and fairly represent the information required to be shown by Form SB-2; (C) there is not 23 pending or threatened against the Company or the Subsidiary any action, arbitration, suit, proceeding, inquiry, investigation, litigation, governmental or other proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of the Company or the Subsidiary which (x) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all respects), (y) questions the validity of the capital stock of the Company or this Agreement or the Representative's Warrant Agreement, or of any action taken or to be taken by the Company pursuant to or in connection with any of the foregoing; (D) no statute or regulation or legal or governmental proceeding required to be described in the Prospectus is not described as required; and (E) there is no action, suit or proceeding pending, or threatened, against or affecting the Company or the Subsidiary before any court or arbitrator or governmental body, agency or official (or any basis thereof known to such counsel) in which there is a reasonable possibility of a decision which may result in a material adverse change in the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of the Company or the Subsidiary, which could adversely affect the present or prospective ability of the Company to perform its obligations under this Agreement or the Representative's Warrant Agreement or which in any manner draws into question the validity or enforceability of this Agreement or the Representative's Warrant Agreement; (viii) the Company has full legal right, power and authority to enter into each of this Agreement and the Representative's Warrant Agreement, and to consummate the transactions provided for therein; and each of this Agreement and the Representative's Warrant Agreement has been duly authorized, executed and delivered by the Company. Each of this Agreement and the Representative's Warrant Agreement, assuming due authorization, execution and delivery by each other party thereto constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law), and none of the Company's execution or delivery of this Agreement and the Representative's Warrant Agreement, its performance hereunder or thereunder, its consummation of the transactions contemplated herein or therein, or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company or the Subsidiary pursuant to the terms of, (A) the certificate of incorporation or by-laws of the Company or the Subsidiary, (B) any license, contract, collective bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which 24 the Company or the Subsidiary is a party or by which it is or they are or may be bound or to which any of its or their respective properties or assets (tangible or intangible) is or may be subject, or any indebtedness, or (C) any statute, judgment, decree, order, rule or regulation applicable to the Company or the Subsidiary of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or the Subsidiary or any of their respective activities or properties. (ix) no consent, approval, authorization or order, and no filing with, any court, regulatory body, government agency or other body (other than such as may be required under Blue Sky laws, as to which no opinion need be rendered) is required in connection with the issuance of the Firm Securities and the Option Securities pursuant to the Prospectus and the Registration Statement, the issuance of the Representative's Warrants, the performance of this Agreement and the Representative's Warrant Agreement, and the transactions contemplated hereby and thereby; (x) the properties and business of the Company conforms in all material respects to the description thereof contained in the Registration Statement and the Prospectus; and each of the Company and the Subsidiary has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, in each case free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable; (xi) neither the Company nor the Subsidiary is in breach of, or in default under, any term or provision of any license, contract, collective bargaining agreement, indenture, mortgage, installment sale agreement, deed of trust, lease, voting trust agreement, stockholders' agreement, partnership agreement, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary may be bound or to which the properties or assets (tangible or intangible) of the Company or the Subsidiary is subject or affected; and neither the Company nor the Subsidiary is in violation of any term or provision of its Articles of Incorporation or By-Laws or in violation of any franchise, license, permit, judgment, decree, order, statute, rule or regulation; (xii) the statements in the Prospectus under "RISK FACTORS," "THE COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions, are correct in all material respects; (xiii) the Securities have been accepted for quotation on Amex; 25 (xiv) the persons listed under the caption "PRINCIPAL STOCKHOLDERS" in the Prospectus are the respective "beneficial owners" (as such phrase is defined in regulation 13d-3 under the Exchange Act) of the securities set forth opposite their respective names thereunder as and to the extent set forth therein; (xv) neither the Company nor the Subsidiary, nor any of their respective officers, stockholders, employees or agents, nor any other person acting on behalf of the Company or the Subsidiary has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who is or may be in a position to help or hinder the business of the Company or the Subsidiary (or assist it in connection with any actual or proposed transaction) which (A) might subject the Company or the Subsidiary to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (B) if not given in the past, might have had an adverse effect on the assets, business or operations of the Company or the Subsidiary, as reflected in any of the financial statements contained in the Registration Statement, or (C) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company or the Subsidiary; (xvi) no person, corporation, trust, partnership, association or other entity has the right to include and/or register any securities of the Company in the Registration Statement, require the Company to file any registration statement or, if filed, to include any security in such registration statement; (xvii) except as described in the Prospectus, there are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or financial consulting arrangements or any other arrangements, agreements, understandings, payments or issuances that may affect the Underwriters' compensation, as determined by the NASD; (xviii) assuming due execution by the parties thereto other than the Company, the Lock-up Agreements are legal, valid and binding obligations of the parties thereto, enforceable against the party and any subsequent holder of the securities subject thereto in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law); (xix) except as described in the Prospectus, neither the Company nor the Subsidiary (A) maintains, sponsors or contributes to any ERISA Plans, (B) maintains or contributes, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has ever completely or partially withdrawn from a "multiemployer plan"; 26 (xx) the Company is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba; (xxi) neither the Company, the Subsidiary or any of their affiliates shall be subject to the requirements of or shall be deemed an "Investment Company," pursuant to and as defined under, respectively, the Investment Company Act. Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company, and representatives of the independent public accountants for the Company, at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed the contents of the Preliminary Prospectus, the Registration Statement, the Prospectus, and related matters and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Prospectus, the Registration Statement and Prospectus, on the basis of the foregoing, no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement or any amendment thereto, at the time such Registration Statement or amendment became effective or the Preliminary Prospectus or Prospectus or amendment or supplement thereto as of the date of such opinion contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Preliminary Prospectus, the Registration Statement or the Prospectus). Such counsel shall further state that its opinions may be relied upon by Underwriters' Counsel in rendering its opinion to the Underwriters. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance satisfactory to Underwriters' Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of fact, to the extent they deem proper, on certificates and written statements of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel if requested. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and that the Representative, Underwriters' Counsel and they are each justified in relying thereon. Any opinion of counsel for the Company and the Subsidiary shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable state accord. (e) At the Closing Date, the Underwriters shall have received the favorable opinion of __________________ , patent counsel to the Company and the Subsidiary, dated the Closing Date, addressed to the Underwriters, in form and substance satisfactory to Underwriters' Counsel and in substantially the form of Schedule B hereto. 27 (f) At each Option Closing Date, if any, the Underwriters shall have received the favorable opinions of each of Olshan Grundman Frome & Rosenzweig LLP, counsel to the Company and the Subsidiary, and __________________, patent counsel to the Company and the Subsidiary dated such Option Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel confirming as of such Option Closing Date the statements made by each of Oshan Grundman Frome & Rosenzweig LLP, and __________________, in their respective opinions delivered on the Closing Date. (g) On or prior to each of the Closing Date and each Option Closing Date, if any, Underwriters' Counsel shall have been furnished such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in subsection (c) of this Section 6, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions of the Company herein contained. (h) Prior to each of the Closing Date and each Option Closing Date, if any, (i) there shall have been no material adverse change nor development involving a prospective change in the condition, financial or otherwise, earnings, position, value, properties, results of operations, prospects, stockholders' equity or the business activities of the Company or the Subsidiary, whether or not in the ordinary course of business, from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus; (ii) there shall have been no transaction, not in the ordinary course of business, entered into by the Company or the Subsidiary, from the latest date as of which the financial condition of the Company is set forth in the Registration Statement and Prospectus which is adverse to the Company; (iii) neither the Company nor the Subsidiary shall be in default under any provision of any instrument relating to any outstanding indebtedness; (iv) the Company shall not have issued any securities (other than the Securities) or declared or paid any dividend or made any distribution in respect of its capital stock of any class and there has not been any change in the capital stock or any material change in the debt (long or short term) or liabilities or obligations of the Company (contingent or otherwise); (v) no material amount of the assets of the Company or the Subsidiary shall have been pledged or mortgaged, except as set forth in the Registration Statement and Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have been pending or threatened (or circumstances giving rise to same) against the Company or the Subsidiary, or affecting any of its or their respective properties or businesses before or by any court or federal, state or foreign commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may adversely affect the business, operations, earnings, position, value, properties, results of operations, prospects or financial condition or income of the Company or the Subsidiary; and (vii) no stop order shall have been issued under the Act and no proceedings therefor shall have been initiated, threatened or contemplated by the Commission. (i) At each of the Closing Date and each Option Closing Date, if any, the Underwriters shall have received a certificate of the Company signed by the principal executive officer and by the chief financial or chief accounting officer of the Company, dated the Closing Date or Option Closing Date, as the case may be, to the effect that each of such persons has carefully examined the Registration Statement, the Prospectus and this Agreement, and that: 28 (i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to such Closing Date or Option Closing Date, as the case may be; (ii) No stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best of each of such person's knowledge, are contemplated or threatened under the Act; (iii) The Registration Statement and the Prospectus and, if any, each amendment and each supplement thereto, contain all statements and information required to be included therein, and none of the Registration Statement, the Prospectus nor any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and neither the Preliminary Prospectus or any supplement thereto included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (a) the Company has not incurred up to and including the Closing Date or the Option Closing Date, as the case may be, other than in the ordinary course of its business, any material liabilities or obligations, direct or contingent; (b) the Company has not paid or declared any dividends or other distributions on its capital stock; (c) neither the Company nor the Subsidiary has entered into any transactions not in the ordinary course of business; (d) there has not been any change in the capital stock or long-term debt or any increase in the short-term borrowings (other than any increase in the short-term borrowings in the ordinary course of business) of the Company; (e) neither the Company nor the Subsidiary has sustained any loss or damage to its properties or assets, whether or not insured; (f) there is no litigation which is pending or threatened (or circumstances giving rise to same) against the Company or the Subsidiary or any affiliated party which is required to be set forth in an amended or supplemented Prospectus which has not been set forth; and (g) there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been set forth. References to the Registration Statement and the Prospectus in this subsection (i) are to such documents as amended and supplemented at the date of such certificate. (j) By the Closing Date, the Underwriters will have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriters, as described in the Registration Statement. 29 (k) At the time this Agreement is executed, the Underwriters shall have received a letter, dated such date, addressed to the Underwriters in form and substance satisfactory (including the non-material nature of the changes or decreases, if any, referred to in clause (iii) below) in all respects to the Underwriters and Underwriters' Counsel, from Pannell Kerr Foster, P.C.: (i) confirming that they are independent certified public accountants with respect to the Company and the Subsidiary within the meaning of the Act and the applicable Rules and Regulations; (ii) stating that it is their opinion that the financial statements and supporting schedules of the Company included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations thereunder and that the Representative may rely upon the opinion of Pannell Kerr Foster, P.C. with respect to the financial statements and supporting schedules included in the Registration Statement; (iii) stating that, on the basis of a limited review which included a reading of the latest available unaudited interim financial statements of the Company, a reading of the latest available minutes of the stockholders and board of directors and the various committees of the board of directors of the Company, consultations with officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (A) the unaudited financial statements and supporting schedules of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements of the Company included in the Registration Statement, or (B) at a specified date not more than five (5) days prior to the effective date of the Registration Statement, there has been any change in the capital stock or long-term debt of the Company, or any decrease in the stockholders' equity or net current assets or net assets of the Company as compared with amounts shown in the March 31, 1998 balance sheet included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any change or decrease, setting forth the amount of such change or decrease, and (C) during the period from March 31, 1998 to a specified date not more than five (5) days prior to the effective date of the Registration Statement, there was any decrease in net revenues, net earnings or increase in net earnings per common share of any of the Company or the Subsidiary, in each case as compared with the corresponding period beginning March 31, 1997, other than as set forth in or contemplated by the Registration Statement, or, if there was any such decrease, setting forth the amount of such decrease; (iv) setting forth, at a date not later than five (5) days prior to the date of the Registration Statement, the amount of liabilities of the Company and the Subsidiary taken as a whole (including a break-down of commercial paper and notes payable to banks); 30 (v) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; (vi) statements as to such other matters incident to the transaction contemplated hereby as the Representatives may request. (l) At the time this Agreement is executed, the Underwriters shall have received a letter, dated such date, addressed to the Underwriters in form and substance satisfactory in all respects to the Underwriters and Underwriters' Counsel from Stirtz Bernards Boyden Surdel & Larter: (i) confirming that they are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable rules and regulations; and (ii) stating that it is their opinion that the financial statements and supporting schedules of the Company included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations thereunder and that the Representative may rely upon the opinion of Stirtz Bernards Boyden Surdel & Larter with respect to the financial statements and supporting schedules included in the Registration Statement. (m) At the Closing Date and each Option Closing Date, if any, the Underwriters shall have received from each of Pannell Kerr Foster, P.C. and Stirtz Bernards Boyden Surdel & Larter a letter, dated as of the Closing Date or the Option Closing Date, as the case may be, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (k) and subsection (l) of this Section, except that the specified date referred to shall be a date not more than five (5) days prior to the Closing Date or the Option Closing Date, as the case may be, and, if the Company has elected to rely on Rule 430A of the Rules and Regulations, to the further effect that they have carried out procedures as specified in clause (v) of subsection (k) of this Section with respect to certain amounts, percentages and financial information as specified by the Representative and deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (v). (n) On each of the Closing Date and each Option Closing Date, if any, there shall have been duly tendered to the Representative for the several Underwriters' accounts the appropriate number of Securities. 31 (o) No order suspending the sale of the Securities in any jurisdiction designated by the Representative pursuant to subsection (e) of Section 4 hereof shall have been issued on either the Closing Date or the Option Closing Date, if any, and no proceedings for that purpose shall have been instituted or shall be contemplated. (p) On or before the Closing Date, the Company shall have executed and delivered to the Representative, (i) the Representative's Warrant Agreement substantially in the form filed as Exhibit [___] to the Registration Statement, in final form and substance satisfactory to the Representative, and (ii) the Representative's Warrants in such denominations and to such designees as shall have been provided to the Company. (q) On or before the Closing Date, the Firm Securities and Option Securities shall have been duly approved for quotation on Amex, subject to official notice of issuance. (r) On or before the Closing Date, there shall have been delivered to the Representative all of the Lock-up Agreements, in form and substance satisfactory to Underwriters' Counsel. If any condition to the Underwriters' obligations hereunder to be fulfilled prior to or at the Closing Date or the relevant Option Closing Date, as the case may be, is not so fulfilled, the Representative may terminate this Agreement or, if the Representative so elects, it may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each of the Underwriters (for purposes of this Section 7 "Underwriter" shall include the officers, directors, partners, employees, agents and counsel of the Underwriter, including specifically each person who may be substituted for an Underwriter as provided in Section 11 hereof), and each person, if any, who controls the Underwriter ("controlling person") within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions, proceedings, investigations, inquiries, suits and litigation in respect thereof), whatsoever (including but not limited to any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such claim, action, proceeding, investigation, inquiry, suit or litigation, commenced or threatened, or any claim whatsoever), as such are incurred, to which the Underwriter or such controlling person may become subject under the Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon (A) any untrue statement or alleged untrue statement of a material fact contained (i) in any Preliminary Prospectus, the Registration Statement or the Prospectus (as from time to time amended and supplemented); (ii) in any post-effective amendment or amendments or any new registration statement and prospectus in which is included securities of the Company issued or issuable upon exercise of the Securities; or (iii) in any application or other document or written communication (in this Section 7 collectively called "application") executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, Amex or any other securities exchange; (B) the omission or alleged 32 omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of the Prospectus, in the light of the circumstances under which they were made), or (C) any breach of any representation, warranty, covenant or agreement of the Company contained herein or in any certificate by or on behalf of the Company or any of its officers delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such statement or omission was made in reliance upon and in strict conformity with written information furnished to the Company with respect to any Underwriter by or on behalf of such Underwriter expressly for use in any Preliminary Prospectus, the Registration Statement or Prospectus, or any amendment thereof or supplement thereto, or in any application, as the case may be. The indemnity agreement in this subsection (a) shall be in addition to any liability which the Company may have at common law or otherwise. (b) Each of the Underwriters agrees severally, but not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of the Act, to the same extent as the foregoing indemnity from the Company to the Underwriters but only with respect to statements or omissions, if any, made in any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any application made in reliance upon, and in strict conformity with, written information furnished to the Company with respect to any Underwriter by such Underwriter expressly for use in such Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any such application, provided that such written information or omissions only pertain to disclosures in the Preliminary Prospectus, the Registration Statement or Prospectus directly relating to the transactions effected by the Underwriters in connection with this Offering. The Company acknowledges that the statements with respect to the public offering of the Firm Securities and the Option Securities set forth under the heading "Underwriting" and the stabilization legend in the Prospectus have been furnished by the Underwriters expressly for use therein and constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Prospectus. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any claim, action, suit, investigation, inquiry, proceeding or litigation, such indemnified party shall, if a claim in respect thereof is to be made against one or more indemnifying parties under this Section 7, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent that it has been prejudiced in any material respect by such failure or from any liability which it may have otherwise). In case any such claim, action, suit, investigation, inquiry, proceeding or litigation is brought against any indemnified party, and it notifies an indemnifying party or parties of the commencement thereof, the indemnifying party or parties will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case but the fees and expenses of 33 such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying parties in connection with the defense of thereof at the expense of the indemnifying party, (ii) the indemnifying parties shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense thereof within a reasonable time after notice of commencement thereof, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense thereof on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying parties. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one claim, action, suit, investigation, inquiry, proceeding or litigation or separate but similar or related claims, actions, suits, investigations, inquiries, proceedings or litigation in the same jurisdiction arising out of the same general allegations or circumstances. Anything in this Section 7 to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim, action, suit, investigation, inquiry, proceeding or litigation effected without its written consent; provided, however, that such consent was not unreasonably withheld. An indemnifying party will not, without the prior written consent of the indemnified parties, settle, compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit, investigation, inquiry, proceeding or litigation in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim, action, suit, investigation, inquiry, proceeding or litigation), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit, investigation, inquiry, proceeding or litigation and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in any case in which (i) an indemnified party makes claim for indemnification pursuant to this Section 7, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of this Section 7 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any indemnified party, then each indemnifying party shall contribute to the amount paid as a result of such losses, claims, damages, expenses or liabilities (or actions in respect thereof) (A) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified on the other hand, from the offering of the Firm Securities and the Option Securities or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In any case where the Company is the contributing party and the Underwriters are the indemnified party, the relative benefits received by the Company on the one hand, and the Underwriters, on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Firm Securities and the Option Securities (before 34 deducting expenses) bear to the total underwriting discounts received by the Underwriters hereunder, in each case as set forth in the table on the Cover Page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, or by the Underwriters, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), the Underwriters shall not be required to contribute any amount in excess of the underwriting discount applicable to the Firm Securities and the Option Securities purchased by the Underwriters hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls the Company or the Underwriter within the meaning of the Act, each officer of the Company who has signed the Registration Statement, and each director of the Company shall have the same rights to contribution as the Company or the Underwriter, as the case may be, subject in each case to this subsection (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect to which a claim for contribution may be made against another party or parties under this subsection (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have hereunder or otherwise than under this subsection (d), or to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may have at common law or otherwise. 8. Representations and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or contained in certificates of officers of the Company submitted pursuant hereto, shall be deemed to be representations, warranties and agreements at the Closing Date and the Option Closing Date, as the case may be, and such representations, warranties and agreements of the Company and the indemnity agreements contained in Section 7 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter, the Company, any controlling person of any Underwriter or the Company, and shall survive termination of this Agreement or the issuance and delivery of the Securities to the Underwriters and the Representative, as the case may be. 9. Effective Date. This Agreement shall become effective at 10:00 a.m., New York City time, on the next full business day following the date hereof, or at such earlier time after the Registration Statement becomes effective as the Representative, in its discretion, shall release the Securities for sale to the public; provided, however, that the provisions of Sections 5, 7 and 10 of this Agreement shall at all times be effective. For purposes of this Section 9, the Securities to be purchased hereunder shall be deemed to have been so released upon the earlier of dispatch by the Representative of telegrams to securities dealers releasing such securities for offering or the 35 release by the Representative for publication of the first newspaper advertisement which is subsequently published relating to the Securities. 10. Termination. (a) Subject to subsection (b) of this Section 10, the Representative shall have the right to terminate this Agreement, (i) if any domestic or international event or act or occurrence has materially adversely disrupted, or in the Representative's opinion will in the immediate future materially adversely disrupt, the financial markets; or (ii) if any material adverse change in the financial markets shall have occurred; or (iii) if trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the Commission or any governmental authority having jurisdiction over such matters; or (iv) if trading of any of the securities of the Company shall have been suspended, or any of the securities of the Company shall have been delisted, on any exchange or in any over-the-counter market; (v) if the United States shall have become involved in a war or major hostilities, or if there shall have been an escalation in an existing war or major hostilities or a national emergency shall have been declared in the United States; or (vi) if a banking moratorium has been declared by a state or federal authority; or (vii) if a moratorium in foreign exchange trading has been declared; or (viii) if the Company or the Subsidiary shall have sustained a loss material or substantial to the Company by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative's opinion, make it inadvisable to proceed with the offering, sale and/or delivery of the Securities; or (ix) if there shall have been such a material adverse change in the conditions or prospects of the Company, or such material adverse change in the general market, political or economic conditions, in the United States or elsewhere, that, in each case, in the Representative's judgment, would make it inadvisable to proceed with the offering, sale and/or delivery of the Securities or (x) if either Joseph Novogratz, Al Melling or Myron Calof shall no longer serve the Company in their respective present capacities. (b) If this Agreement is terminated by the Representative in accordance with the provisions of Section 10(a) the Company shall promptly reimburse and indemnify the Representative for all of its actual out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters (less amounts previously paid pursuant to Section 5(c) above). Notwithstanding any contrary provision contained in this Agreement, if this Agreement shall not be carried out within the time specified herein, or any extension thereof granted to the Representative, by reason of any failure on the part of the Company to perform any undertaking or satisfy any condition of this Agreement by it to be performed or satisfied (including, without limitation, pursuant to Section 6 or Section 12) then, the Company shall promptly reimburse and indemnify the Representative for all of its actual out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters (less amounts previously paid pursuant to Section 5(c) above). In addition, the Company shall remain liable for all Blue Sky counsel fees and disbursements, expenses and filing fees. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is otherwise carried out, the provisions of Section 5 and Section 7 shall not 36 be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. 11. Substitution of the Underwriters. If one or more of the Underwriters shall fail (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 6, Section 10 or Section 12 hereof) to purchase the Securities which it or they are obligated to purchase on such date under this Agreement (the "Defaulted Securities"), the Representative shall have the right, within 24 hours thereafter, to make arrangement for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the total number of Firm Securities to be purchased on such date, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the total number of Firm Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriters (or, if such default shall occur with respect to any Option Securities to be purchased on an Option Closing Date, the Underwriters may at the Representative's option, by notice from the Representative to the Company, terminate the Underwriters' obligation to purchase Option Securities from the Company on such date). No action taken pursuant to this Section 11 shall relieve any defaulting Underwriter from liability in respect of any default by such ------- Underwriter under this Agreement. In the event of any such default which does not result in a termination of this Agreement, the Representative shall have the right to postpone the Closing Date for a period not exceeding seven (7) days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 12. Default by the Company. If the Company shall fail at the Closing Date or at any Option Closing Date, as applicable, to sell and deliver the number of Securities which it is obligated to sell hereunder on such date, then this Agreement shall terminate (or, if such default shall occur with respect to any Option Securities to be purchased on an Option Closing Date, the Underwriters may at the Representative's option, by notice from the Representative to the Company, terminate the Underwriters' obligation to purchase Option Securities from the Company on such date) without any liability on the part of any non-defaulting party other than pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant to this Section 12 shall relieve the Company from liability, if any, in respect of such default. 13. Notices. All notices and communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be 37 directed to the Representative at Dirks & Company, Inc., 520 Madison Avenue, 10th Floor, New York, New York 10022, Attention: Jessy W. Dirks, Chairman, with a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to the Company at 14252 23rd Avenue North, Plymouth, Minnesota 55447-4910, Attention: Joseph Novogratz, Co-Chairman of the Board of Directors, with a copy to: Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York 10022, Attention: Robert H. Friedman, Esq. 14. Parties. This Agreement shall inure solely to the benefit of and shall be binding upon, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 7 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 15. Construction. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the choice of law or conflict of laws principles. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which taken together shall be deemed to be one and the same instrument. 17. Entire Agreement; Amendments. This Agreement and the Representative's Warrant Agreement constitute the entire agreement of the parties hereto and supersede all prior written or oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may not be amended except in a writing, signed by the Representative and the Company. 38 If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, NORTON MOTORS INTERNATIONAL, INC. By: ------------------------------------- Joseph Novogratz Co-Chairman Confirmed and accepted as of the date first above written. DIRKS & COMPANY, INC. For itself and as Representative of the several Underwriters named in Schedule A hereto. By: -------------------------------- Name: Title: 39 SCHEDULE A Number of Shares Name of Underwriters to be Purchased - -------------------- --------------- Dirks & Company, Inc................................... Total.................................................. -------------------- ==================== A-1 SCHEDULE B [FORM OF INTELLECTUAL PROPERTY OPINION] ___________________, 1998 DIRKS & COMPANY, INC. As Representative of the several Underwriters named in Schedule A to Exhibit A annexed hereto 520 Madison Avenue 10th Floor New York, New York 10022 Re: Initial Public Offering of 3,000,000 Shares of Common Stock of Norton Motors International, Inc. ------------------------------------------------- Gentlemen: We have acted as special counsel to Norton Motors International, Inc. a Minnesota corporation (the "Company"), in connection with the entering into by the Company of that certain Underwriting Agreement by and between Dirks & Company, Inc. (as Representative of the several underwriters named therein) (the "Representative") and the Company, dated _______________, 1998 (the "Underwriting Agreement"). This opinion is provided to you pursuant to Section 6(e) of the Underwriting Agreement. For the purpose of rendering the opinions set forth below we have reviewed the following (collectively, the "Documents"): (i) the Underwriting Agreement; (ii) that certain Form SB-2 as filed by the Company with the Securities and Exchange Commission on ______, 1998, together with any and all exhibits and schedules and all heretofore filed amendments thereto (collectively, the "Registration Statement"); (iii) the Company's prospectus dated _______________, 1998 (the "Prospectus"); (iv) a search of the United States Patent and Trademark Office records relevant to ownership of any and all: patents and patent applications (including, without limitation, the patents and patent applications listed on Schedule A annexed hereto and hereby incorporated by reference herein (collectively, the "Patents")), and trademarks, trademark B-1 applications, service marks and service mark applications (collectively, the "Marks") (including, without limitation, the Marks listed on Schedule B annexed hereto and hereby incorporated by reference herein (collectively, the "Trademarks")), owned, purportedly owned or licensed by the Company (including, those patents, patent applications and Marks licensed, without limitation, pursuant to the licenses listed on Schedule C annexed hereto and hereby incorporated by reference herein (collectively, the "Licenses")), conducted by ______________________________ and certified as true and correct as of _______________________, 1998 (no earlier than 5 days prior to the effective date of the Registration Statement); (v) a search of the United States Copyright Office records relevant to ownership of any and all copyrighted material (including, without limitation, the copyright in, or license permitting the Company's actual use of, the material licensed or otherwise distributed by either the Company and listed on Schedule D annexed hereto and hereby incorporated by reference herein (collectively, the "Copyrighted Material")), owned, purportedly owned or licensed by the Company conducted by _____________________ and certified as true and correct as of __________________, 1998 (no earlier than 5 days prior to the effective date of the Registration Statement); (vi) an intellectual property litigation search with respect to all Patents, Trademarks, Licenses and Copyrighted Material, listed on Schedules A, B, C and D, respectively; (i) a search of the Uniform Commercial Code ("UCC") recordation offices, in the following jurisdictions - Minnesota, Delaware and New York, with respect to the following two categories of general intangibles: (a) the intellectual property general intangibles of the Company, including, without limitation, the Company's patents, patent applications, inventions, know how, trademarks, service marks, copyrights, service and trade names, intellectual property licenses and other rights, and (b) the intellectual property general intangibles licensed to the Company, including, without limitation, the patents, patent applications, inventions, know how, trademarks, service marks, copyrights, service and trade names and other intellectual property rights licensed to the Company pursuant to the Licenses (listed on Schedule C), said search certified to us as complete and accurate by ________________ and current through ________________________, 1998 (no earlier than 5 days prior to the effective date of the Registration Statement) and said jurisdictions being the only jurisdictions in which filing of UCC financing statements or other documents may be filed to effectively evidence a security or other interest in said general intangibles; and B-2 (viii) any and all records, documents, instruments and agreements in our possession or under our control relating to the Company. We have also examined such corporate records, documents, instruments and agreements, and inquired into such other matters, as we have deemed necessary or appropriate as a basis for the opinions set forth herein. Whenever our opinion herein is qualified by the phrase "to the best of our knowledge" or "to the best of our knowledge, after due inquiry," such language means that, based upon (i) our inquiries of officers of the Company, (ii) our review of the Documents, and (iii) our review of such other corporate records, documents, instruments and agreements described in the first sentence of this paragraph, we believe that such opinions are factually correct. To the best of our knowledge, as to all matters of fact represented to you by the Company, we advise you that nothing has come to our attention that would cause us to believe that such facts are incorrect, incomplete or misleading or that reliance thereon is not warranted under the circumstances. We call to your attention that our opinion is limited to such facts as they exist on the date hereof and do not take into account any change of circumstances, fact or law subsequent thereto. Based upon and subject to the foregoing, we are of the opinion that: 1. To the best of our knowledge, after due inquiry, except as described in the Prospectus, the Company owns or has the right to use, free and clear of all liens, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, (i) all patents and patent applications (including, without limitation, the Patents), (ii) all trademarks and service marks (including, without limitation, the Trademarks), (iii) all copyrights (including, without limitation, the Copyrighted Material), (iv) all service and trade names, and (v) all intellectual property licenses (including, without limitation, the Licenses), used in, or required for, the conduct of the Company's business. 2. To the best of our knowledge, after due inquiry, the Company possesses all material intellectual property licenses or rights used in, or required for, the conduct of its respective business (including, the Licenses and without limitation, any such licenses or rights described in the Prospectus as being owned, possessed or licensed by the Company) and such licenses and rights are in full force and effect. B-3 3. To the best of our knowledge, after due inquiry, there is no claim or action, pending, threatened or potential, which affects or could affect the rights of the Company with respect to any trademarks, service marks, copyrights, service names, trade names, patents, patent applications or licenses used in, or required for, the conduct of the Company's business. 4. To the best of our knowledge, after due inquiry, there is no intellectual property based claim or action, pending, threatened or potential, which affects or could affect the rights of the Company with respect to any products, services, processes or licenses, including, without limitation, the Licenses used in the conduct of the Company's business. 5. To the best of our knowledge, after due inquiry, except as described in the Prospectus, the Company is not under any obligation to pay royalties or fees to any third party with respect to any material, technology or intellectual properties developed, employed, licensed or used by the Company. 6. To the best of our knowledge, after due inquiry, the statements in the Prospectus under the headings, "Risk Factors - Uncertainty Regarding Patents and Proprietary Rights," and "Business - Patents and Proprietary Rights", are accurate in all material respects, fairly represent the information disclosed therein and do not omit to state any fact necessary to make the statements made therein complete and accurate. 7. To the best of our knowledge, after due inquiry, the statements in the Registration Statement and Prospectus do not contain any untrue statement of a material fact with respect to the intellectual property position of the Company, or omit to state any material fact relating to the intellectual property position of the Company which is required to be stated in the Registration Statement and the Prospectus or is necessary to make the statements therein not misleading. We call your attention to the fact that the members of this firm are licensed to practice law in the State of ______________ and before the United States Patent and Trademark Office as Registered Patent Attorneys. Accordingly, we express no opinion with respect to the laws, rules and regulations of any jurisdictions other than the State of ___________ and the United States of America. The opinions expressed herein are for the sole benefit of, and may be relied upon only by, the several Underwriters named in Schedule A to the Underwriting Agreement and Orrick, Herrington & Sutcliffe LLP. Very truly yours, B-4 EX-3.2 3 BY-LAWS OF THE COMPANY Exhibit 3.2 BYLAWS OF NORTON MOTORS INTERNATIONAL INC. ARTICLE I. OFFICES, CORPORATE SEAL Section 1.01. Registered Office. The registered office of the corporation in Minnesota shall be set forth in the articles of incorporation or in the most recent amendment of the articles of incorporation or resolution of the directors filed with the secretary of state of Minnesota changing the registered office. Section 1.02. Other Offices. The corporation may have such other offices, within or without the state of Minnesota, as the directors shall, from time to time, determine. Section 1.03. Corporate Seal. The corporation shall have no seal. ARTICLE II. MEETINGS OF SHAREHOLDERS Section 2.01. Place and Time of Meetings. Except as provided otherwise by the Minnesota Business Corporation Act, meetings of the shareholders may be held at any place, within or without of the state of Minnesota, as may from time to time be designated by the directors and in the absence of such designation, shall be held at the registered office of the corporation in the state of Minnesota. The directors shall designate the time of day for each meeting and, in the absence of such designation, every meeting of shareholders shall be held at ten o'clock a.m. Section 2.02. Regular Meetings. (a) A regular meeting of the shareholders shall be held on such a date, as the board of directors shall be resolution establish. (b) At a regular meeting the shareholders, voting as provided in the articles of incorporation and these bylaws, shall elect qualified successors for directors who serve for an indefinite term or whose terms have expired or are due to expire within six months after the date of the meeting and shall transact such other business as may properly come before them. Section 2.03. Special Meetings. Special Meetings of the shareholders any be held at any time and for any purpose and may be called by the chief executive officer, the chief financial officer, two or more directors or by a shareholder or shareholders holding 10% or more of the voting power of all shares entitled to vote, except that a special meeting for the purpose of considering any action to directly or indirectly facilitate or affect a business combination, including any action to change or otherwise affect the composition of the board of directors for that purpose, must be called by 25% or more of the voting power of all shares entitled to vote. A shareholder or shareholders holding the requisite percentage of the voting power of all shares entitled to vote may demand a special meeting of the shareholders by written notice of demand given to the chief executive officer or chief financial officer of the corporation and containing the purposes of the meeting. Within 30 days after receipt of the demand, by one of those offices, the board of directors shall cause a special meeting of shareholders to be called and held on notice no later than 90 days after receipt of the demand, at the expense of the corporation. Special meetings shall be hold on the date and at the time and place fixed by the chief executive officer or the board of directors, except that a special meeting called by or at demand of a shareholder or shareholders shall be held in the county where the principle executive office is located. The business transacted at a special meeting shall be limited to the purposes as stated in the notice of the meeting. Section 2.04. Quorum, Adjourned Meetings. The holders of a majority of the shares entitled to vote shall constitute a quorum for the transaction of business at any regular meeting, the meeting may be adjourned from time to time without notice other than the announcement at the time of adjournment of the date, time and place of the adjourned meeting. If a quorum is present, a meeting may be adjourned from time to time without notice other than the announcement at the time of adjournment of the date, time, and place of the adjourned meeting. At adjourned meetings at which a quorum is present, any business may be transacted at the meeting as originally noticed. If a quorum is present when a meeting is convened, the shareholders present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders originally present to leave less than a quorum. Section 2.05. Voting. At each meeting of the shareholders every shareholder have the right to vote shall be entitled to vote either in person or by proxy. Each shareholder, unless the articles of incorporation or statutes provide otherwise, shall have one vote for each share having voting power registered in such shareholder's name on the books of the corporation. Jointly owned shares may be voted by any joint owner unless the corporation receives written notice from any one of them denying the authority of that person to vote those shares. Upon the demand of any shareholder, the vote upon any question before the meeting shall be by ballot. All questions shall be decided by a majority vote of the number of shares entitled to vote and represented at the meeting at the time of the vote except if otherwise required by statute, the articles of incorporation, or these bylaws. Section 2.06. Record Date. The board of directors may fix a date, not exceeding 60 days preceding the date of any meeting of shareholders, as a record date for the determination of the shareholders entitled to notice of, and to vote at, such meeting, notwithstanding any transfer of shares on the books of the corporation after any record date so fixed. If the board of directors fails to fix a record date of determination of the shareholders, the record date shall be the 20th day preceding the date of such meeting. Section 2.07. Notice of Meetings. There shall be mailed to each shareholder, shown by the books of the corporation to be a holder of record of voting shares, at his or her address as shown by the books of the corporation, a notice setting out the time and place of each regular meeting and each special meeting, except (unless otherwise provided in section 2.04 hereof) where the meeting is an adjourned meeting and the date, time and place of the meeting were announced at the time of adjournment, which notice shall be mailed at least five days prior thereto (unless otherwise provided in section 2.04 hereof); except that notice of a meeting at which a plan of merger or exchange is to be considered shall be mailed to all shareholders of record, whether entitled to vote or not, at least fourteen days prior thereto. Every notice of any special meeting called pursuant to section 2.03 here of shall state the purpose or purposes for which the meeting has been called, and the business transacted at all special meetings shall be confined to the purposes stated in the notice. The written notice of any meeting at which a plan of merger or exchange is to be considered shall so state such as a purpose of the meeting. A copy or short description of the plan of merger or exchange shall be included in or enclosed with such notice. Section 2.08. Waiver of Notice. Notice of any regular or special meeting may be waived by any shareholder either before, at or after such meeting orally or in writing signed by such shareholder or a representative entitled to vote the shares of such shareholder. A shareholder, by his or her attendance at any meeting of shareholders, shall be deemed to have waived notice of such meeting, except where the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item of that meeting. Section 2.09. Written Action. Any action which might be taken at a meeting of the shareholders may be taken without a meeting if done in writing and signed by all of the shareholders entitled to vote on that action. ARTICLE III. DIRECTORS Section 3.01. General Powers. The business and affairs of the corporation shall be managed by or under the authority of the board of directors, except as otherwise permitted by statute. Section 3.02. Number, Qualification and Term of Office. Until the organizational meeting of the board of directors, the number of directors shall be the number named in the articles of incorporation. Thereafter, the number of directors shall be increased or decreased from time to time by resolution of the board of directors or the shareholders. Directors need not be shareholders. Each of the directors shall hold office until the regular meeting of shareholders next held after such director's election and until such director's successor shall have been elected and shall qualify, or until the earlier death, resignation, removal, or disqualification of such director. Section 3.03. Board Meetings. Meetings of the board of directors may be held from time to time at such time and place within or without the state of Minnesota as may be designated in the notice of such meeting. Section 3.04. Calling Meetings; Notice. Meetings of the board of directors may be called by the chairman of the board by giving at least twenty-four hours notice, or by any other director by giving at least five days' notice, of the date, time and place thereof to each director by mail, telephone, telegram, or in person. If the day or date, time and place of a meeting of the board of directors has been announced at a previous meeting of the board, no notice is required. Notice of an adjourned meeting of the board of directors need not be given other than by announcement at the meeting at which adjournment is taken. Section 3.05. Waiver of Notice. Notice of any meeting of the board of directors may be waived by any director either before, at or after such meeting orally or in a writing signed by such director. A director, by his or her attendance at any meeting of the board of directors, shall be deemed to have waived notice of such meeting, except where the director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate thereafter in the meeting. Section 3.06. Quorum. A majority of the directors holding office immediately prior to a meeting of the board of directors shall constitute a quorum for the transaction of business at such meeting. Section 3.07. Absent Directors. A director may give advance written consent or opposition to a proposal to be acted on at a meeting of the board of directors. If such director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. Section 3.08. Conference Communications. Any or all directors may participate in any meeting of the board of directors, or of any duly constituted committee thereof, by any means of communication through which the directors may simultaneously hear each other during such meeting. For the purposes of establishing a quorum and taking any action at the meeting, such directors participating pursuant to this section 3.08 shall be deemed present in person at the meeting; and the placed of the meeting shall be the place of origination of the conference telephone conversation or other comparable communication technique. Section 3.09. Vacancies; Newly Created Directorships. Vacancies on the board of directors of this corporation occurring by reason of death, resignation, removal, or disqualification shall be filled for the unexpired term by a majority of the remaining directors of the board although less than a quorum; newly created directorships resulting from an increase in the authorized number of directors by action of the board of directors as permitted by section 3.02 may be filled by a majority vote of the directors serving at the time of such increase; and each director elected pursuant to this section 3.09 shall be a director until such director's successor is elected by the shareholders at their next regular or special meeting. Section 3.10. Removal. Any or all of the directors may be removed from office at any time, with or without cause, by the affirmative vote of the shareholders entitled to vote at an election of directors except, as otherwise provided by the Minnesota Business Corporation Act, Section 302A.223, as amended when the shareholders have the right to cumulate their votes. A director named by the board of directors to fill a vacancy may be removed from office at any time, with or without cause, by the affirmative vote of the remaining directors if the shareholders have not elected directors in the interim between the time of the appointment to fill such vacancy and the time of the removal. In the event that the entire board or any one or more directors be so removed, new directors may be elected at the same meeting. Section 3.11. Committees. A resolution approved by the affirmative vote of a majority of the board of directors may establish committees having the authority of the board in the management of the business of the corporation to the extent provided in the resolution. A committee shall consist of one or more persons, who need not be directors, appointed by affirmative vote of a majority of the directors present. Committees are subject to the direction and control of, and vacancies in the membership thereof shall be filled by, the board of directors. A majority of the committee present at a meeting is a quorum for the transaction of business, unless a larger or smaller proportion or number is provided in a resolution approved by the affirmative vote of a majority of the directors present. Section 3.12. Written Action. Any action which might be taken at a meeting of the board of directors, or any duly constituted committee thereof, may be taken without a meeting if done in writing and signed by all of the directors or committee members, unless the articles provide otherwise and the action need not be approved by the shareholders. Section 3.13. Compensation. Directors who are not salaried officers of this corporation shall receive such fixed sum per meeting attended or such fixed annual sum as shall be determined, from time to time, by resolution of the board of directors. The board of directors may, by resolution, provide that all directors shall receive their expenses, if any, attendance at meetings of the board of directors or any committee thereof. Nothing herein contained shall be construed to preclude any director from serving this corporation in any other capacity and receiving proper compensation therefor. ARTICLE IV. OFFICERS Section 4.01. Number. The officers of the corporation shall consist of a chairman of the board (if one is elected by the board), the president, one or more vice presidents (if desired by the board), a treasurer, a secretary (if one is elected by the board) and such other officers and agents as may, from time to time, be elected by the board of directors. Any number of offices may be held by the same person. Section 4.02. Election, Term of Office and Qualifications. The board of directors shall elect or appoint, by resolution approved by the affirmative vote of a majority of the directors present, from within or without their number, the president, treasurer and such other officers as may be deemed advisable, each whom shall have the powers, rights, duties, responsibilities and terms of office provided for in these bylaws or a resolution of the board of directors not inconsistent therewith. The president and all other officers who may be directors shall continue to hold office until the election and qualification of their successors, notwithstanding an earlier termination of their directorship. Section 4.03. Removal and Vacancies. Any officer may be removed from his or her office by the board of directors at any time with or without cause. Such removal, however, shall be without prejudiced to the contract rights of the person so removed. If there be a vacancy in an office of the corporation by reason of death, resignation or otherwise, such vacancy shall be filled for the unexpired term. Section 4.04. Chairman of the Board. The chairman of the board, if one is elected, shall preside at all meetings of the shareholders and directors and shall have such other duties as may be prescribed, from time to time, by the board of directors. Section 4.05. President. The president shall be the chief executive officer and shall have general active management of the business of the corporation. In the absence of the chairman of the board, he or she shall preside at all meetings of the shareholders and directors. He or she shall see that all orders and resolutions of the board of directors are carried into effect. He or she shall execute and deliver, in the name of the corporation, any deeds, mortgages, bonds, contracts, or other instruments pertaining to the business of the corporation unless the authority to execute and deliver is required by law to be exercised by another person or is expressly delegated by the articles or bylaws or by the board of directors to some other officer or agent of the corporation. He or she shall maintain records of and , whenever necessary, certify all proceedings of the board of directors and the shareholders, and in general, shall perform all duties usually incident to the office of the president. He or she shall have such other duties as may, from time to time, be prescribed by the board of directors. Section 4.06. Vice President. Each vice president, if one or more is elected, shall have such powers and shall perform such duties as prescribed by the board of directors or by the president. In the event of the absence or disability of the president, the vice president(s) shall succeed to his or her power and duties in the order designated by the board of directors. Section 4.07. Secretary. The secretary, if one is elected, shall be secretary of and shall attend all meetings of the shareholders and board of directors and shall record all proceedings of such meetings in the minute book of the corporation. He or she shall give proper notice of meetings of shareholders and directors. He or she shall perform such other duties as may, from time to time, be prescribed by the board of directors or by the president. Section 4.08. Treasurer. The treasurer shall be the chief financial officer and shall keep accurate financial records for the corporation. He or she shall deposit all moneys, drafts and checks in the name of, and to the credit of, the corporation in such banks and depositories as the board of directors shall, from time to time designate. He or she shall have power to endorse, for deposit, all notes, checks and drafts received by the corporation. He or she shall disburse the funds of the corporation, as ordered by the board of directors, making proper vouchers therefor. He or she shall render to the president and the directors, whenever requested, an account of all his or her transactions as treasurer and of the financial condition of the corporation, and shall perform such other duties as may, from time to time, be prescribed by the board of directors or by the president. Section 4.09. Compensation. The officers of the corporation shall receive such compensation for their services as may be determined, from time to time, by resolution of the board of directors. ARTICLE V. SHARES AND THEIR TRANSFER Section 5.01. Certificates for Shares. All shares of the corporation shall be certified shares. Every owner of shares of the corporation shall be entitled to a certificate, to be in such form as shall be prescribed by the board of directors, certifying the number of shares of the corporation owned by such shareholder. The certificates for such shares shall be numbered in the order in which they shall be issued and shall be signed in the name of the corporation, by the president and by the secretary or an assistant secretary or by such officers as the board of directors may designate. If the certificate surrendered to the corporation for exchange or transfer shall be cancelled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in section 5.04. Section 5.02. Issuance of Shares. The board of directors is authorized to cause to issued shares of the corporation up to the full amount authorized by the articles of incorporation in such amounts as may be determined by the board of directors as may be permitted by law. Shares may be issued for any consideration, including, without limitation, in consideration of cash or other property, tangible or intangible, received or to be received by the corporation under a written agreement, of services rendered or to be rendered to the corporation under a written agreement, or of an amount transferred from surpuls to stated captial upon a share dividend. At the time of approval of the issuance of shares, the board of directors shall state by resolution, its determination of the fair value to the corporation in monetary terms of any consideration other than cash for which shares are to be issued. Section 5.03. Transfer of shares. Transfer of shares on the books of the corporation may be authorized only by the shareholder named in the certificate, or the shareholder's legal representative, or the shareholder's duly authorized attorney-in-fact, and upon surrender of the certificate or the certificates for such shares. The corporation may treat as the absolute owner of shares of the corporation, the person or persons in whose name shares are registered on the books of the corporation. Section 5.04. Loss of Certificates. Except as otherwise provided by the Minnesota Business Corporation Act, Section 302A.419, any shareholder claiming a certificate for shares to be lost, stolen, or destroyed shall make an affidavit of that fact in such form as the board of directors shall require and shall, if the board of directors so requires, give the corporation a bond of indemnity in form, in an amount, and with one or more sureties satisfactory to the board of directors, to indemnify the corporation against any claim which may be made against it on account of the reissue of such certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to have been lost, stolen or destroyed. ARTICLE VI. DISTRIBUTIONS, RECORD DATE Section 6.01. Distributions. Subject to the provisions of the articles of incorporation, of these bylaws, and of law, the board of directors may authorize and cause the corporation o make distributions whenever and in such amounts or forms as, in its opinion, are deemed advisable. Section 6.02. Record Date. Subject to any provisions of the articles of incorporation, the board of directors may fix a date not exceeding 120 days preceding the date fixed for the payment of any distribution as the record date for the determination of the shareholders entitled to receive payment of such distribution notwithstanding any transfer of shares on the books of the corporation. ARTICLE VII. BOOKS AND RECORDS, FISCAL YEAR Section 7.01. Share Register. The board of directors of the corporation shall cause to be dept at its principal executive office, or at any other place or places within the United States determined by the board: (1) a share register not more than one year old, containing the names and addresses of the shareholders and the number and classes of shares held by each shareholder; and (2) a record of the dates on which certificates or transaction statements representing shares were issued. Section 7.02. Other Books and Records. The board of directors shall cause to be kept at its principal executive office, or it its principal executive office is not in Minnesota, shall make available at its Minnesota registered office within ten days after receipt by an officer of the corporation of a written demand for them make by a shareholder or other person authorized by the Minnesota Business Corporation Act, Section 302A.461, originals or copies of: (1) records of all proceedings of shareholders for the last three years; (2) records of all proceedings of the board for the last three years; (3) its articles and all amendments currently in effect; (4) its bylaws and all amendments currently in effect; (5) financial statements required by the Minnesota Business Corporation Act, Section 302A.463 and the financial statements for the most recent interim period prepared in the course of the operation of the corporation for distribution to the shareholders or to a governmental agency as a matter of public record; (6) reports made to shareholders generally within the last three years; (7) a statement of the names and usual business addresses of its directors and principal officers; and (8) any shareholder voting or control agreements of which the corporation is aware. Section 7.03. Fiscal Year. The fiscal year of the corporation shall be determined by the board of directors. ARTICLE VIII. LOANS, GUARANTEES, SURETYSHIP Section 8.01. The corporation may lend money to, guarantee an obligation of, become a surety for, or otherwise financially assist a person if the transaction, or a class of transaction belongs, is approved by the affirmative vote of a majority of the directors present, and: (1) is in the usual and regular course of business of the corporation; (2) is with, or for the benefit of, a related corporation, an organization in which the corporation has a financial interest, an organization with which the corporation has a business relationship, or an organization to which the corporation has the power to make donations; (3) is with, or for the benefit of, an officer or other employee of the corporation or a subsidiary, including an officer or employee who is a director of the corporation or a subsidiary, and may reasonably be expected, in the judgement of the board, to benefit the corporation; or (4) has been approved by (a) the holders of two-thirds of the voting power of the shares entitled to vote which are owned by persons other than the interested person or persons, or (b) the unanimous affirmative vote of the holders of all outstanding shares whether or not entitled to vote. Such loan, guarantee, surety contract or other financial assistance may be with or without interest, and may be unsecured, or may be secured in the manner as a majority of the directors present approve, including, without limitation, a pledge of or other security interest in shares of the corporation. Nothing in the section shall be deemed to deny, limit or restrict the powers of guaranty, surety, or warranty of the corporation at common law or under a statute of the state of Minnesota. ARTICLE IX. INDEMNIFICATION OF CERTAIN PERSONS Section 9.01. The corporation shall indemnify all officers and directors of the corporation, for such expenses and liabilities, in such manner, under such circumstances and to such extent as permitted by Section 302A.521 of the Minnesota Business Corporation Act, as now enacted or hereafter amended. The Board of Directors may authorize the purchase and maintenance of insurance and/or the execution of individual agreements for the purpose of such indemnification, and the corporation shall advance all reasonable costs and expenses (including attorneys' fees) incurred in defending any action, suit or proceeding to all persons entitled to indemnification under this section 9.01, all in the manner, under the circumstance and to the extent permitted by Section 302A.521 of the Minnesota Business Corporation Act, as now enacted or hereafter amended. Unless otherwise approved by the Board of Directors, the corporation shall not indemnify any employee of the corporation who is not otherwise entitled to indemnification pursuant to this section 9.01. ARTICLE X. AMENDMENTS Section 10.01. These bylaws may be amended or altered by a vote of the majority of the whole board of directors at any meeting. Such authority of the board of directors is subject to the power of the shareholders, exercisable in the manner provided in the Minnesota Business Corporation Act, Section 302A.181, subd. 3, to adopt, amend, or repeal bylaws adopted, amended, or repealed by the board of directors. After the adoption of the initial bylaws, the board of directors shall not make or alter any bylaws fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the board of directors, or fixing the number of directors or their classifications, qualifications, or terms of office, except that the board of directors may adopt or amend any bylaw to increase their number. ARTICLE XI. SECURITIES OF OTHER CORPORATIONS Section 11.01. Voting Securities Held by the Corporation. Unless otherwise ordered by the board of directors, the president shall have full power and authority on behalf of the corporation (a) to attend any meeting of security holders of other corporations in which the corporation may hold securities and to vote such securities on behalf of this corporation; (b) to execute any proxy for such meeting on behalf of the corporation; or (c) to execute a written action in lieu of a meeting of such other corporation on behalf of this corporation. At such meeting, the president shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the corporation possesses. The board of directors may, from time to time, grant such power and authority to one or more other persons and may remove such power and authority from the president or any other person or persons. Section 11.02. Purchase and Sale of Securities. Unless otherwise ordered by the board of directors, the president shall have full power and authority on behalf the corporation to purchase, sell, transfer or encumber any and all securities of any other corporation owned by the corporation, and may execute and deliver such documents as may be necessary to effectuate such purchase, sale, transfer, or encumbrance. The board of directors may, from time to time, confer like powers upon any other person or persons. EX-4.1 4 FORM OF COMMON STOCK CERTIFICATE Exhibit 4.1 Number Shares *________* *________* MARCH MOTORS MANUFACTURING COMPANY 10,000,000 Authorized Common Shares, $.01 Par Value This certifies that_____________________________________ is the registered holder of _______________________ Shares transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. In Witness Whereof, the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal to be hereunto affixed this 1st day of September A.D. 97 The shares represented by this certificate may not be transferred without (I) the opinion of counsel Joseph Novogratz satisfactory to this corporation that such transfer may Chairman/Secretary lawfully be made without registration or qualification under the Federal Securities Act of 1933 and applicable state securities laws; or (II) such registration or qualification. For Value Received ______________________________ hereby sell, assign and transfer unto _________________________________________ Shares represented by the within certificate and do hereby irrevocably constitute and appoint _________________________________________ Attorney to transfer the said Shares on the books of the within named Corporation within the full power of substitution in the premises. Dated_________________________________ In the presence of _____________________ ___________________________________ EX-4.2 5 GRANT OF REGISTRATION RIGHTS OF COMMON STOCK Exhibit 4.2 GRANT OF REGISTRATION RIGHTS OF COMMON STOCK AND WARRANT STOCK BY MARCH MOTORS INTERNATIONAL, INC. WHEREAS, March Motors International, Inc., a Minnesota corporation ("March"), and Norton Motorcycles Limited, a company incorporated under the laws of Great Britain ("Norton") have entered into an Asset Purchase Agreement dated March 15, 1998 (the "Asset Purchase Agreement"); and WHEREAS, a portion of the purchase price to be paid by March under such agreement is to be paid by delivery to Norton (or its nominees, as the case may be) of: (i) a certain number of shares of common stock of March, par value $.01 per share ("Common Stock"), as provided in Paragraph 2 of the Asset Purchase Agreement; and (ii) certain warrants to acquire 550,000 additional shares of Common Stock, exercisable at $3.00 per share (the "Warrants"); and WHEREAS, such shares of Common Stock issued to Norton pursuant to the Asset Purchase Agreement or which may be acquired upon exercise of the Warrants will be "restricted securities"; and WHEREAS, as a condition of closing of the transactions contemplated by the Asset Purchase Agreement, March has agreed to grant to Norton (or its nominees) certain registration rights with respect to some of the shares of Common Stock to be issued pursuant to the Asset Purchase Agreement and all shares of Common Stock to be acquired upon exercise of the Warrants; and WHEREAS, Pursuant to the Asset Purchase Agreement, Norton has the right to assign its shares of the Company to nominees of Norton's choosing; and WHEREAS, Norton has assigned a certain number of the "Registrable Shares" (as defined below) to Cataract N.V., a Netherlands Antilles company ("Cataract")and Global Coin Corporation, a British Columbia company ("Global"); NOW, THEREFORE, it is hereby agreed as follows: AGREEMENT 1.) Definitions. (a) As used herein, "Registrable Shares" shall mean 495,000 and 55,000 shares of the Common Stock issued to Cataract and Global (or their respective assignees), respectively, at the Closing, and any and all shares of Common Stock issuable to Cataract or Global (or their respective assignees) upon exercise of the Warrants, which shares (i) have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) are not eligible for resale by the holder thereof pursuant to Rules 144(k) (or any successor provision thereto). (b) The determination of a "majority of Registrable Shares" or similar term used herein shall be made by reference to the 550,000 shares issued to Cataract and Global pursuant to the Asset Purchase Agreement and having rights hereunder, together with shares issued or issuable to Cataract and Global (or their respective assignees) upon exercise of the Warrants, computed by reference only to all such shares as a single group but without reference to any other shares of March which may have, either at Closing or thereafter, registration rights. (c) All other capitalized terms used but not defined herein shall have the meanings ascribed to them in the Asset Purchase Agreement. 2.) Required Registration. (a) Following a registration relating to an initial public offering (an "Initial Public Offering") of March's equity securities under Section 5 of the Securities Act and upon request of holders of at least a majority of Registrable Shares March shall prepare and file a registration statement under the Securities Act covering the Registrable Shares which are the subject of such requests and shall use its best efforts to cause such registration statements to become effective; provided, however: (1) All Registrable Shares covered by such registration statement shall be converted into Common Stock prior to effectiveness of such registration statement; (2) March shall not be obligated to cause a registration statement to become effective prior to ninety (90) days following the effective date of a Company-initiated registration (other than a registration effected solely to qualify an employee benefit plan or to effect a business combination pursuant to Rule 145); (3) March shall not be obligated to prepare and file such registration statement until March becomes eligible to use Securities Act Form S-3 or until twenty-four (24) months following the effective date of the registration statement for the Initial Public Offering, whichever first occurs; and (4) March shall not be obligated to effect more than one such registration pursuant to which the holders of Registrable Shares have been provided with the opportunity to register their Registrable Shares under this Section 2, such registration has been declared or ordered effective and the securities offered pursuant to such registration have been sold. (b) Upon the receipt of a request from holders of Registrable Shares described in Section 2(a), March shall promptly give written notice to all other record holders of Registrable Shares that such registration is to be effected. March shall include in such 2. registration statement such Registrable Shares for which is has received written requests to register by such other record holders within fifteen (15) days after March's written notice to such other record holders. (c) In the event that the holders of a majority of Registrable Shares for which registration has been requested pursuant to this Section determine for any reason not to proceed with a registration at any time before the registration statement has been declared effective by the Securities and Exchange Commission (the "Commission"), and such holders thereafter request March to withdraw such registration statement, the holders of such Registrable Shares agree to bear their own expenses incurred in connection therewith and to reimburse March for the expenses incurred by it attributable to such registration statement, and in such event, the holders of such Registrable Shares shall not be deemed to have exercised their right to require March to register Registrable Shares pursuant to this Section 2. 3.) Incidental Registration. (a) If March shall determine to register any of its equity securities pursuant to a registration statement to be filed with the Commission on or prior to August 15, 1999, either for its own account or the account of a security holder or holders, other than: (i) March's Initial Public Offering; (ii) a registration relating solely to employee benefit plans; or (iii) a registration solely to effect a business combination pursuant to Rule 145 promulgated under the Securities Act, March shall: (1) promptly give to each record holder of Registrable Shares written notice thereof; and (2) use its best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Shares specified in a written request or requests, made within fifteen (15) days after March's written notice to record holders of Registrable Shares; provided, however, that all such Registrable Shares to be so registered shall be converted into Common Stock prior to sale pursuant to such registration statement, and that for purposes of this sentence, "best efforts" shall not require March to reduce the amount of sale price of the securities it proposes to distribute for its own account. (b) If any registration pursuant to this section shall be underwritten in whole or in part, March may require that the Registrable Shares requested for inclusion pursuant to this Section 3 be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters (including, without limitation, provisions requiring indemnification differing from or in addition to the provisions requiring indemnification hereunder). In addition, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the number of Registrable Shares to be included in the registration and underwriting. In such event, March shall so advise all 3. holders of Registrable Shares which would otherwise be registered and underwritten pursuant hereto, and the number of shares of securities that may be included in the registration and underwriting shall be allocated among all holders of Registrable Shares requesting inclusion in the registration in proportion, as nearly as practicable, to the respective amounts of Registrable Shares originally requested by such holders to be included in the registration statement. Those securities which are thus excluded from the underwritten public offering, and any other Common Stock owned by such holders, shall be withheld from the market by the holders thereof for a period, not to exceed one hundred eighty (180) days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering. (c) If any holder of Registrable Shares to be included disapproves of the terms of any such underwriting, such holder may elect to withdraw therefrom by written notice to March and the managing underwriter. Any Registrable Shares excluded or withdrawn from such underwriting shall be withdrawn from such registration. (d) March shall have the right to terminate or withdraw any registration initiated by it under this Section 3 prior to the effectiveness of such registration whether or not any holder of Registrable Shares has elected to include securities in such registration. 4.) Registration Procedures. If and whenever March is required by the provisions of Section 2 or Section 3 of this Grant to effect the registration of any Registrable Shares under the Securities Act, March will: (a) Prepare and file with the Commission a registration statement with respect to such Registrable Shares, and with respect to a registration under Section 2, use its best efforts to cause such registration statement to become and remain effective for a period of twelve (12) months or such lesser time if all such Registrable Shares have been sold pursuant to such registration statement; (b) With respect to registrations under Section 2, prepare and file with the Commission such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective for at least twelve (12) months or such lesser time if all such Registrable Shares have been sold pursuant to such registration statement; (c) Furnish to the security holders participating in such registration and to the underwriters of the Registrable Shares being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such security holders and underwriters may reasonably request in order to facilitate the public offering of such Registrable Shares; ` (d) Use its best efforts to register or qualify the Registrable Shares covered by such registration statement under such state securities or blue sky laws of such jurisdictions as such participating holders may reasonably request within ten (10) days following the original filing of such registration statement, except that March shall not for any purpose 4. be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (e) Notify the security holders participating in such registration, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; and (f) Prepare and promptly file with the Commission and promptly notify such holders of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when the prospectus relating to such securities is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading. 5.) Expenses. With respect to any registration requested pursuant to Section 2 (except as otherwise provided in such section with respect to registrations voluntarily terminated at the request of the requesting security holders) and with respect to each inclusion of securities in a registration statement pursuant to Section 3, March shall bear the following fees, costs and expenses: all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for March, fees and disbursements of counsel for the underwriter or underwriters of such securities (if March is required by the underwriter or underwriters to bear such fees and disbursements), all internal Company expenses, the premiums and other costs of policies of insurance of March against liability arising out of the public offering, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified. Fees and disbursements of counsel and accountants for the selling security holders, underwriting discounts and commissions and transfer taxes for selling security holders and any other expenses incurred by the selling holders not expressly included above shall be borne by the selling security holders. 6.) Indemnification. (a) March will indemnify each holder of Registrable Shares to be included in a registration pursuant to Section 2 or 3 hereof, each of its officers, directors and partners and such holder's legal counsel and independent accountants, and each person controlled by or controlling such holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to Section 2 or 3 hereof, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification 5. or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by March of the Securities Act or the Securities Exchange Act of 1934, as amended, or securities act of any state or any rule or regulation thereunder, and relating to action or inaction required by March in connection with any such registration, qualification or compliance, and will reimburse each such holder, each of its officers, directors and partners and such holder's legal counsel and independent accountants, and each person controlled by or controlling such holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that March will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to March by an instrument duly executed by such holder or underwriter and stated to be specifically for use therein; and provided, further, that March will not be liable to any such person or entity with respect to any such untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus that is corrected in the final prospectus filed with the Commission pursuant to Rule 424(b) promulgated under the Securities Act (or any amendment or supplement to such prospectus) if the person asserting any such loss, claim, damage or liability purchased securities but was not sent or given a copy of the prospectus (as amended or supplemented) at or prior to the written confirmation of the sale of such securities to such person in any case where such delivery of the prospectus (as amended or supplemented) is required by the Securities Act, unless such failure to deliver the prospectus (as amended or supplemented) was a result of March's failure to provide such prospectus (as amended or supplemented). (b) Each holder will, if shares held by such holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify March, each of its directors and officers and its legal counsel and independent accountants, each underwriter, if any, of March's securities covered by such a registration statement, each person who controls March or such underwriter within the meaning of Section 15 of the Securities Act, and each other such holder, each of its officers, directors and partners and each person controlling such holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse March, such holders, such directors, officers, legal counsel, independent accounts, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such 6. registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to March by an instrument duly executed by such holder and stated to be specifically for use therein; provided, however, that the obligations of such holders hereunder shall be limited to an amount equal to the gross proceeds before expenses and commissions to each such holder of shares to be registered sold as contemplated herein. (c) Each party entitled to indemnification under this section (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting thereof, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent, but only to the extent, that the Indemnifying Party's ability to defend against such claim or litigation is impaired as a result of such failure to give notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 31st day of March, 1998. MARCH: MARCH MOTORS INTERNATIONAL, INC. By: /s/ Joseph Novogratz -------------------------------- Its: Chairman CATARACT: CATARACT, N.V., By: /s/ W. J. Langeveld -------------------------------- Its: Managing Director GLOBAL: GLOBAL COIN CORPORATION, By: /s/ Roberto Aquilini -------------------------------- Its: President EX-4.3 6 FORM OF SERIES A 1998 10% NOTE Exhibit 4.3 Series A 1998 10% Bridge Note SERIAL NUMBER ________________________ DATED _______________________, 1998 PRINCIPAL AMOUNT (US$) $____________________ NORTON MOTORS INTERNATIONAL INC., a Minnesota corporation (hereinafter referred to as "Maker"), for value received, hereby promises to pay to the order of _______________________________________ at the address designated below, or to any registered transferee (hereinafter "Noteholder"), the principal sum of $ , on the earlier of (i) the date which is within five (5) days of receipt of funds by Maker of its Initial Public Offering (hereinafter referred to as an "IPO", defined as a registered offering raising net proceeds to Maker of at least $4,000,000, which the Maker intends to conduct but of which there is no assurance) proceeds, or (ii) the date which is nine (9) months after the above-stated issuance date of this Bridge Note, together with interest from the issuance date hereof until all principal hereof is paid at the rate of Ten Percent (10%) simple per annum, in lawful money of the United States of America. Payment of all accrued interest shall be made at the same time as the payment of principal hereof. 1. Part of Class. This note is one of an issue of Series A 1998 10% Bridge Notes of Maker authorized to be issued incident to a limited private placement being offered to private "accredited investors" to fund completion of motorcycle development, acquisition of certain assets, and pay certain IPO expenses. 2. Payment of Interest. Interest on this Bridge Note shall accrue from the date of issuance hereof and shall be due in full upon the maturity of the principal hereof. 3. Acceleration of Maturity. In the event of any bankruptcy, liquidation,, dissolution or other insolvency of Maker, then the Noteholder may declare the entire principal and accrued interest due and payable immedi-ately without further notice, demand or presentation. 4. Status of Note. This Bridge Note is unsecured in all respects, and this Note shall rank equally with all other unsecured debt of the Maker to the extent such other unsecured debt is not superior by its terms in right of payment to this Note. 5. Obligation of Maker. This Note shall constitute a binding obligation of the Maker until satisfied in full. No director, officer, employee, or personal representative of Maker shall have any personal liability for any obligations of Maker hereunder or for any claim whatsoever based on this Note. 6. Investment Intent of Noteholder. Noteholder hereof acknowledges and represents that Noteholder has acquired this Note for investment and without a view to any distribution, transfer or resale hereof within the meaning of the Securities Act of 1933; and that no transfer of this Note shall be valid unless made in compliance with appropriate securities laws restrictions set forth hereon. 7. Covenants of Maker. The Maker hereof agrees that for so long as this Note, or any portion thereof, is outstanding, the Maker will; i. Maintain and preserve its corporate existence and all rights, franchises, and other authority adequate for the conduct of its business; maintain its properties, equipment, facilitiies and intellectual property in good status, order and repair; and conduct its business in an orderly manner without voluntary interruption. ii. Maintain adequate insurance including public liability, property damage, fire and other hazards in respect to the property and business of Maker, with responsible insurance carriers. iii. Pay and discharge, before becoming delinquent, all taxes, assessments, and governmental charges upon or against the Maker or its properties, and all its other material liabilities as they become due, except to the extent and so long as any of such taxes, assessments, charges, or other liabilities are being contested by Maker in good faith. iv. Promptly notify Noteholder in writing of any event of default hereunder. v. Maker will not make any substantial change in the character of its business. vi. Maker shall not make any loans or advances to any person or entity other than in the ordinary course of its business, nor shall the Maker guarantee the obligations of any other party unless it is a subsidiary of Maker, nor shall the Maker incur or assume any material mortgage, pledge, encumbrance or lien against the property of Maker unless for a valid business purpose. vii. Maker shall not liquidate, dissolve, merge, consolidate, or enter into a material business combina- tion with another entity unless in the normal and ordinary course of business; nor shall Maker sell, lease, assign or transfer any substantial part of its business or fixed assets or material intellectual property; provided, however, that Maker shall have the authority to complete the acquisition of assets from Norton Motorcycles Limited. 8. Event of Default. The following shall be a default on this Note: (a) The Maker shall fail to make any payment of interest or principal to the Noteholder when due under this Note, or (b) An event specified in paragraph 3 of this Note has occurred, or (c) Maker shall fail to perform and observe any of the covenants contained herein and such default shall remain uncured for 30 days after written notice thereof from Noteholder to Maker. 9. Transfer. This Note may not be sold, pledged or otherwise transferred to any person other than an "accredited investor" as such term is defined under Regulation D of the Securities Act of 1933. Any transfer of this Bridge Note shall be made only by surrendering this Note duly endorsed to Maker for cancellation, together with written instructions to Maker that a replacement Note of like principal amount be issued to such qualified transferee(s). 10. Remedy on Default. In the event of any default hereunder, the Noteholder hereof shall have the option to declare the principal amount hereof plus any accrued interest herein to be immediately due and payable upon written notice by Noteholder to Maker without further notice, demand, presentment for payment, notice of intention to accelerate or acceleration. The Maker hereby guarantees payment of this Note and waives demand for payment, presentation for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration of maturity, and any other such or similar notices. The Maker further agrees to pay all costs and expenses of collection, including reasonable attorneys' fees, incurred by Noteholder in collecting any indebtedness on this Note. 11. General. Noteholder shall not by any act, delay, omission or otherwise be deemed to have waived any of Noteholder's rights or remedies hereunder, and no waiver of any kind shall be valid unless in writing and signed by Noteholder. This Note has been executed in the State of Minnesota and shall be construed and governed by the laws of Minnesota. No modification or amendment of the terms of this Note shall be effective unless made in writing signed by Maker and Noteholder. This shall be 2 binding on Maker and any successors or assigns, provided Maker shall not assign its obligations under this Note without the required written consent of Noteholder. 12. Notice. All demands and notices to be given hereunder shall be delivered or mailed to Maker at 7667 Equitable Drive, Eden Prairie, MN 55344 (or at such new substituted address notified to Noteholder by Maker); and in the case of Noteholder to the address written below (or at such new substituted address notified to Maker by Noteholder.) IN WITNESS WHEREOF, the Maker has caused this Bridge Note to be signed by its duly authorized officer as of the aforesaid date of issuance. NORTON MOTORS INTERNATIONAL INC. By_________________________________ Joseph Novogratz, President Restrictive Legend: THIS NOTE HAS NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY APPLICABLE BLUE SKY LAWS; AND ACCORDINGLY THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT AND APPLICABLE BLUE SKY LAWS, OR SATISFYING THE CONDITIONS OF AN EXEMPTION FROM SUCH REGISTRATION TO THE REASONABLE SATISFACTION OF LEGAL COUNSEL OF THE MAKER. Further Representation of Noteholder: This Bridge Note is accompanied by a Stock Purchase Warrant of Maker, of a 3-year term, which grants Noteholder the right to purchase restricted common shares of Maker at $3/share up to the original principal amount of this Note. Noteholder hereby acknowledges and represents that any future exercise of such Warrant by Noteholder (or any qualified transferee of Noteholder) will be acquired for long-term investment with no intention at such time of exercise of reselling, transferring, distributing to the public, or otherwise disposing of such common shares; and Noteholder further represents and agrees that any common stock to be issued to Noteholder incident to exercise of such Warrant shall be legended by Maker to evidence such restricted status under relevant securities laws and regulations. ___________________________________ Signature of Noteholder ___________________________________ Printed or typed name of Noteholder ___________________________________ Name of Noteholder organization (if applicable) ___________________________________ Street Address of Noteholder ___________________________________ City, State, and Zip of Noteholder 3 EX-4.4 7 FORM OF SERIES C 1998 10% NOTE Exhibit 4.4 MARCH MOTORS INTERNATIONAL, INC. Series C 1998 10% Bridge Note Serial No. _________ Dated: _______,1998 Principal Amount: $____________ MARCH MOTORS INTERNATIONAL, INC., a Minnesota corporation (hereinafter "Maker"), for value received, hereby promises to pay to the order of at the address designated below, or to any registered transferee (hereinafter "Noteholder), the principal sum of $_______________, on the earlier of (i) the date which is within five (5) days of receipt of funds by Maker of its Initial Public Offering (herein after referred to as an "IPO", defined as a registered offering raising net proceeds to Maker of at least $4,000,000, which the Maker intends to conduct but of which there is no assurance) proceeds, or (ii) the date which is nine (9) months after the above-stated issuance date of this Bridge Note, together with interest from the issuance date hereof until all principal hereof is paid at the rate of Ten Percent (10) simple per annum, in lawful money of the United States of America. Payment of all accrued interest shall be made at the same time as the payment of principal hereof. 1. Description of Note. This note is a single bridge Note being issued to Noteholder to evidence certain outstanding debt owed to Noteholder incident to Noteholder's providing bridge and working capital financing to Maker, receipt of all of which is hereby acknowledged. 2. Payment of Interest. Interest on this Bridge Note shall accrue from the date of issuance hereof and shall be due in full upon the maturity of the principal hereof. 3. Acceleration of Maturity. In the event of any bankruptcy, liquidation, dissolution or other insolvency of Maker, then the Noteholder may declare the entire principal and accrued interest due and payable immediately without further notice, demand or presentment. 4. Status of Note. This Bridge Note is unsecured in all respects, and this Note shall rank equally with all other unsecured debt of the Maker to the extent such other unsecured debt is not superior by its terms in right of payment to this Note, except that this Bridge Note shall be superior to any and all Series A 1998 10% Bridge Notes now or hereafter issued by Maker. 5. Obligation of Maker. This Note shall constitute a binding obligation of the Maker until satisfied in full. No director, officer, employee or personal representative of Maker shall have any personal liability for any obligations of Maker hereunder or for an claim whatsoever based on this Note. 6. Investment Intent of Noteholder. Noteholder hereof acknowledges and represents that Noteholder has acquired this Note for investment and without a view to any distribution, transfer or resale hereof within the meaning of the Securities Act of 1933; and that no transfer of this Note shall be valid unless made in compliance with appropriate securities laws restrictions set forth hereon. 7. Covenants of Maker. The Maker hereof agrees that for so long as this Note, or any portion thereof, is outstanding, the Maker will: i. Maintain and preserve its corporate existence and all rights, franchises, and other authority adequate for the conduct of its business; maintain its properties, equipment, facilities and intellectual property in good status, order and repair; and conduct its business in an orderly manner without voluntary interruption. ii. Maintain adequate insurance including public liability, property damage, fire and other hazards in respect to the property and business of Maker, with responsible insurance carriers. iii. Pay and discharge, before becoming delinquent, all taxes, assessments, and governmental charges upon or against the Maker of its properties, and all its other material liabilities as they become due, except to the extent and so long as any of such taxes, assessments, charges, or other liabilities are being contested by Maker in good faith. v. Promptly notify Noteholder in writing of any event of default hereunder. vi. Maker will not make any substantial change in the character of its business. vii. Maker shall not make any loans or advances to any person or entity other than in the ordinary course of its business, nor shall the Maker guarantee the obligations of any other party unless it is a subsidiary of Maker, nor shall the Maker incur or assume any material mortgage, pledge, encumbrance or lien against the property of Maker unless for a valid business purpose. viii. Maker shall not liquidate, dissolve, merge, consolidate, or enter into a material business combination with another entity unless in the normal and ordinary course of business; nor shall Maker sell, lease, assign or transfer any substantial part of its business or fixed assets or material intellectual property; provided, however, that Maker shall have the authority to complete the acquisition of assets from Norton Motorcycles Limited. 8. Event of Default. The following shall be a default on this Note: (a) The Maker shall fail to make any payment of interest or principal to the Noteholder when due under this Note, or (b) An event specified in paragraph 3 of this Note has occurred, or (c) Maker shall fail to perform and observe any of the covenants contained herein and such default shall remain uncured for 30 days after written notice thereof from Noteholder to Maker. 9. Transfer. This Note may not be sold, pledged or otherwise transferred to any person Securities Act of 1933. Any transfer of this Bridge Note shall be made only by other than an "accredited investor" as such term is defined under Regulation D of the surrendering this Note duly endorsed to Maker for cancellation, together with written instructions to Maker that a replacement Note of like principal amount be issued to such qualified transferee(s). 10. Remedy on Default. In the event of any default hereunder, the Noteholder hereof shall have the option to declare the principal amount hereof plus any accrued interest hereon to be immediately due and payable upon written notice by Noteholder to Maker without further notice, demand, presentment for payment, notice of intention to accelerate or acceleration. The Maker hereby guaranties payment of this Note and waives demand for payment, presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration of maturity, and any other such or similar notices. The Maker further agrees to pay all costs and expenses of collection, including reasonable attorney's fees, incurred by Noteholder in collecting any indebtedness on this Note. 11. General. Noteholder shall not by any act, delay, omission or otherwise be deemed to have waived any of Noteholder's rights or remedies hereunder, and no waiver of any kind shall be valid unless in writing and signed by Noteholder. This Note has been executed in the State of Minnesota and shall be construed and governed by the laws of Minnesota. No modification or amendment of the terms of this Note shall be effective unless made in writing assigned by Maker and Noteholder. This Note shall be binding on Maker and any successors or assigns, provided Maker shall not assign its obligations under this Note without the required written consent of Note holder. 12. Notices. All demands and notices to be given hereunder shall be delivered or mailed to Maker at 7667 Equitable Drive, Eden Prairie, Minnesota 55344 (or at such new substituted address notified to Noteholder by Maker); and in the case of Noteholder to the address written below (or at such new substituted address notified to Maker by Noteholder). IN WITNESS WHEREOF, the Maker has caused this Bridge Note to be signed by its duly authorized officer as of the aforesaid date of issuance. MARCH MOTORS INTERNATIONAL, INC. By_______________________________________ Joseph Novogratz, President Restrictive Legend: THIS NOTE HAS NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY APPLICABLE BLUE SKY LAWS; AND ACCORDINGLY THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT AND APPLICABLE BLUE SKY LAWS, OR SATISFYING THE CONDITIONS OF AN EXEMPTION FROM SUCH REGISTRATION TO THE REASONABLE SATISFACTION OF LEGAL COUNSEL OF THE MAKER. Further Representation of Noteholder: This Bridge Note is accompanied by a Stock Purchase Warrant of Maker, of a 3-year term, which grants Noteholder the right to purchase restricted common shares of Maker at $3/share up to the original principal amount of this Note. Noteholder hereby acknowledges and represents that any future exercises of such Warrant by Noteholder (or any qualified transferee of Noteholder) will be acquired for long-term investment with no intention at such time of exercise of reselling, transfering, distributing to the public, or otherwise disposing of such common shares; and Noteholder further represents and agrees that any common stock to be issued to 3 Noteholder incident to exercise of such Warrant shall be legended by Maker to evidence such restricted status under relevant securities laws and regulations. ________________________________ Signature of Noteholder ________________________________ Printed or typed name of Noteholder ________________________________ Address of Noteholder ________________________________ City State ZIP 4 MARCH MOTORS INTERNATIONAL, INC. No._____________ Warrant Certificate Certificate for _________ Warrants THIS CERTIFIES THAT or registered assigns is the owner of the number of Warrants specified above, of which each one entitles the holder thereof to purchase one fully paid and nonassessable common share, subject to adjustment as provided herein, no par value, of March Motors International, Inc. a Minnesota corporation ("the Company") at any time after the date hereof at a exercise price of $3.00 per share. Each such Warrant may be exercised on nay business day before the Expiration Date which is 3 years after the date of this Warrant Certificate, and the holder hereof or any assigns, as the case may be, here by acknowledges that the restricted common stock to be issued underlying these Warrants shall constitute "restricted securities" as defined under the Securities Act of 1933. The Company is under no obligation to register common shares underlying these Warrants, and accordingly the holder hereof, or any assigns, recognizes that any common stock purchased incident to exercise of these Warrants will be purchased as a long-term investment with no view toward transfer, resale, disposition, or distribution to the public. Upon payment for any common shares incident to exercise of these Warrants, all of such shares shall be legally and validly issued and fully paid and nonassessable. The Warrants represented hereby are exercisable upon presentation and surrender of this Warrant Certificate, with the election to purchase duly executed by the holder hereof in writing, at the corporate office of the Company, and upon payment to the Company of the Warrant exercise price for the shares of common stock purchasable upon such exercise in US Dollars in cash or other immediately available funds, or upon surrender of obligations of the Company having an unpaid principal balance equal to such exercise price. These Warrants are exercisable at the election of the holder hereof or any assigns either in whole or in part anytime and from time to time up to the number of shares specified above. Such shares shall be deemed issued as of the date of surrender of the Warrant Certificate and receipt by the Company of the exercise price herein. In the event this Warrant Certificate is exercised in respect to less than all of such shares, a new Warrant Certificate or Certificates shall be issued on surrender hereof for the number of shares represented by Warrants which have not yet been exercised. The Company shall not be required to issue any fractional shares incident to any exercise of these Warrants; rather any exercise hereof shall be rounded off to the nearest whole common share of the Company. 5 These Warrants are issued to the above-named holder incident to the terms of a Bridge Note of the Company which is a single Note known as the Company's Series C 1998 10% Bridge Note. Prior to exercise of any Warrants represented hereby, the holder hereof shall not be entitled to any rights of a stockholder of the Company, including without limitation the right to vote or receive dividends or other distributions. The Purchase Price, the number of shares purchasable upon exercise hereof, and the number of Warrants outstanding anytime during the term hereof are subject to adjustment from time to time on the occurrence of any event such as declarations of stock dividends, stock splits (forward or reverse), reorganizations or mergers or other business combinations, reclassification of shares, consolidation, or any other such event, so the Holder of any Warrant exercised after such event or time shall be entitled to receive the number and price of shares which, if such Warrant had been exercised immediately prior to such event, such Holder would have owned. Such adjustment or adjustments shall be made successively whenever such event shall occur. This Warrant Certificate and these Warrants have not been registered under any securities laws and cannot be transferred or sold in public market transactions unless they have been registered under relevant federal and state securities laws, or they satisfy an appropriate exemption from such registration. This restriction on further transfer, sale or disposition of the common shares underlying these Warrants shall be affixed by standard restrictive legend on any certificates for common shares issued incident to exercise hereof. Prior to presentment for transfer of any of there Warrants to the Company or its transfer agent, as the case may be, the Company may deem and treat the registered holder hereof as the absolute owner hereof and of each Warrant for all purposes, and the Company shall not be affected by any notice to the contrary. This Warrant Certificate and each Warrant represented hereby shall be construed and governed by the laws of the State of Minnesota. EXECUTED duly by the Company on the day and year first stated herein. MARCH MOTORS INTERNATIONAL, INC. By______________________________________ Joseph Novogratz, President -------------------------------------------------------------- ASSIGNMENT FORM (To Be Executed By The Registered Holder Hereof To Transfer Warrants) FOR VALUE RECEIVED, the undersigned hereby sells, transfers and assigns ______________ of the Warrants represented by this Certificate to _______________ and does hereby irrevocably constitute and appoint ____________ Attorney to transfer this Warrant Certificate on the records of the Company with full power of substitution in the premises. 7 Signature(s)________________________________ ________________________________ ________________________________ Dated:__________________ EX-4.5 8 FORM OF WARRANT CERTIFICATE Exhibit 4.5 NORTON MOTORS INTERNATIONAL INC. Warrant Certificate No. W-_____________ Certificate for _________ Warrants THIS CERTIFIES THAT - -------------------------------------------------------------------------------- or registered assigns is the owner of the number of Warrants specified above, of which each one entitles the holder thereof to purchase one fully paid and nonassessable common share, subject to adjustment as provided herein, no par value, of March Motors International, Inc. a Minnesota corporation ("the Company") at any time after the date hereof at a exercise price of $3.00 per share. Each such Warrant may be exercised on nay business day before the Expiration Date which is 3 years after the date of this Warrant Certificate, and the holder hereof or any assigns, as the case may be, here by acknowledges that the restricted common stock to be issued underlying these Warrants shall constitute "restricted securities" as defined under the Securities Act of 1933. The Company is under no obligation to register common shares underlying these Warrants, and accordingly the holder hereof, or any assigns, recognizes that any common stock purchased incident to exercise of these Warrants will be purchased as a long-term investment with no view toward transfer, resale, disposition, or distribution to the public. Upon payment for any common shares incident to exercise of these Warrants, all of such shares shall be legally and validly issued and fully paid and nonassessable. The Warrants represented hereby are exercisable upon presentation and surrender of this Warrant Certificate, with the election to purchase duly executed by the holder hereof in writing, at the corporate office of the Company, and upon payment to the Company of the Warrant exercise price for the shares of common stock purchasable upon such exercise in US Dollars in cash or other immediately available funds, or upon surrender of obligations of the Company having an unpaid principal balance equal to such exercise price. These Warrants are exercisable at the election of the holder hereof or any assigns either in whole or in part anytime and from time to time up to the number of shares specified above. Such shares shall be deemed issued as of the date of surrender of the Warrant Certificate and receipt by the Company of the exercise price herein. In the event this Warrant Certificate is exercised in respect to less than all of such shares, a new Warrant Certificate or Certificates shall be issued on surrender hereof for the number of shares represented by Warrants which have not yet been exercised. The Company shall not be required to issue any fractional shares incident to any exercise of these Warrants; rather any exercise hereof shall be rounded off to the nearest whole common share of the Company. 5 These Warrants are issued to the initial holder hereof incident to the terms of a Bridge Note of the Company purchased by such initial holder which Bridge Note is part of the Company's Series A 1998 10% Bridge Note. Prior to exercise of any Warrants represented hereby, the holder hereof shall not be entitled to any rights of a stockholder of the Company, including without limitation the right to vote or receive dividends or other distributions. The Purchase Price, the number of shares purchasable upon exercise hereof, and the number of Warrants outstanding anytime during the term hereof are subject to adjustment from time to time on the occurrence of any event such as declarations of stock dividends, stock splits (forward or reverse), reorganizations or mergers or other business combinations, reclassification of shares, consolidation, or any other such event, so the Holder of any Warrant exercised after such event or time shall be entitled to receive the number and price of shares which, if such Warrant had been exercised immediately prior to such event, such Holder would have owned. Such adjustment or adjustments shall be made successively whenever such event shall occur. This Warrant Certificate and these Warrants have not been registered under any securities laws and cannot be transferred or sold in public market transactions unless they have been registered under relevant federal and state securities laws, or they satisfy an appropriate exemption from such registration. This restriction on further transfer, sale or disposition of the common shares underlying these Warrants shall be affixed by standard restrictive legend on any certificates for common shares issued incident to exercise hereof. Prior to presentment for transfer of any of there Warrants to the Company or its transfer agent, as the case may be, the Company may deem and treat the registered holder hereof as the absolute owner hereof and of each Warrant for all purposes, and the Company shall not be affected by any notice to the contrary. This Warrant Certificate and each Warrant represented hereby shall be construed and governed by the laws of the State of Minnesota. EXECUTED duly by the Company on the day and year first stated herein. MARCH MOTORS INTERNATIONAL, INC. By______________________________________ Joseph Novogratz, President -------------------------------------------------------------- ASSIGNMENT FORM (To Be Executed By The Registered Holder Hereof To Transfer Warrants) FOR VALUE RECEIVED, the undersigned hereby sells, transfers and assigns ______________ of the Warrants represented by this Certificate to _______________ and does hereby irrevocably constitute and appoint ____________ Attorney to transfer this Warrant Certificate on the records of the Company with full power of substitution in the premises. 7 Signature(s)________________________________ ________________________________ ________________________________ Dated:__________________ EX-4.6 9 FORM OF 10% CONVERTIBLE SUBORDINATED SERIES 1997 Exhibit 4.6 MARCH MOTORS INTERNATIONAL, INC. 10% Convertible Subordinated Debenture, Series 1997 Serial No._____ $___________________ Dated: October 29, 1997 MARCH MOTORS INTERNATIONAL, INC., a Minnesota corporation (hereafter called "Holder"), the principle sum of $_____________, on the due date of September 30, 2000 (subject to earlier conversion thereof), together with interest from the date hereof until paid at the rate of ten percent (10%) simple per annum, in lawful money of the United States of America. Maker covenants and agrees that so long as any portion of this debenture principal remains outstanding and unpaid either to the principal hereof or any interest heron, Maker will comply with the following provisions, to which this debenture is subject and by which it will be governed: 1. Part of Class. This debenture is one of an issue of 10% subordinated convertible debentures, series 1997, of Maker provided to be issued incident to a private placement authorizing a total principal amount of $1,500,000 being offered to private investors. 2. Payment of Interest. Interest at the rate of 10% per annum shall be paid semi-annually on the 30th day of December and the 30th day of June of each year of the term hereof commencing December 30, 1997. 3. Acceleration of Maturity. In the event of nonpayment by Maker to Holder within 30 days of the date due of any principal or interest hereunder, or any portion thereof, or in the event of any bankruptcy, liquidation, dissolution or other insolvency of Maker, then and in either event the Holder may declare the entire principal and accrued interest due and payable immediately without further notice, demand or presentment. Maker also agrees to pay all reasonable costs of collection, including reasonable attorney fees, in case payment shall not be made under the terms and conditions of this debenture. 4. Subordination. The indebtedness evidenced by this debenture shall be subordinate in right of payment to all Senior Debt, with the term "Senior Debt" meaning indebtedness to financial institutions for purchase money loans secured by real or personal property, or for financing collateralized by inventories and accounts receivable and constituting working capital used in the business of the Maker, whether created , assumed, or incurred before or after the date hereof, and renewals, extensions and refundings of any such indebtedness. The subordination provisions contained herein are expressly and only for the benefit of third party Senior creditors of Maker. Payment of Principal and interest on this debenture shall not be subordinated to the prior payment and interest on this debenture shall not be subordinated to the prior payment of any such Senior Debt as to all amounts which actually are paid by Maker hereunder if Maker is not in default under the terms of any such Senior Debt at such time or times such payment or payments are made hereunder to holder. 5. Conversion. i) This debenture shall be automatically converted into common stock of the Maker in whole on the effective date of registration of an Initial Public Offering (IPO) of the Maker, with such automatic IPO conversion basis being the lesser of $2.00 per share ($3 pre-split) or one-half of the IPO offering price. ii) This debenture shall be convertible anytime in whole or in part, and from time to time, at the option of the holder, at the rate of one(1) share of common stock of the Maker for each Two Dollars ($2.00) of principal amount hereof being converted ($3 pre-split). iii) The Maker shall not be required to issue any fractional shares of common stock incident to any conversion of this debenture, and any resulting fractional amount shall be rounded off to the nearest whole common share. 6. Manner of Conversion. In order to convert this debenture into common stock of Maker, the Holder shall surrender, at the principal office of Maker, this debenture duly endorsed to Maker, or in blank,. and give written notice to Maker that all or part of this debenture is to be converted, such notice is to specify clearly the portion to be converted. As of the time of such written notice, the Holder shall be treated for all purposes as the record holder of the common stock into which this debenture is converted, and the portion converted shall be deemed to be satisfied and discharged, and the shares of common stock of Maker into which this debenture is converted shall be fully paid and nonassessable. In the event only a portion of this debenture has been converted, Marker shall issue and deliver to Holder a new debenture identical to the one surrendered except that it shall be in the correct principal amount not yet converted into common stock of Maker. 7. Anti-Dilution. If Maker shall change the number of shares of its common stock issued and outstanding as of the date hereof by stock dividend, stock split, sale without consideration, reorganization, recapitalization, merger or other business combination, then and in each such event a proportionate adjustment shall be make to the conversion rate herein as well as to any common stock previously issued upon conversion of this debenture. 8. Transfers and Investment Representation. By accepting this debenture Holder represents that the principal amount of this debenture and all shares of common stock of Maker acquired upon conversion hereof are acquired and will be acquired for Holder's own account for long-term investment and with no intention at the time of acquisition of distributing or reselling the same or and part thereof to the public, and Holder further agrees that any common stock into which this debenture is converted shall be legended to evidence its status as restricted securities under relevant securities laws. Any transfer of this debenture shall be made only by surrendering this debenture duly endorsed to Maker, or in blank, for a cancellation, together with written instructions to Maker, that a new debenture of like principal amount should be issued to the transferee(s) designated by Holder in exchange therefor. 9. Registration. Neither this debenture nor the shares of common stock issuable upon conversion thereof have been registered under the Securities Act of 1993 or any other securities laws. The Holder hereof agrees that prior to making any disposition of the debenture or of any common stock issued upon conversion thereof, Holder will give written notice to the Company 2 of such proposed disposition and Holder further will not make any such disposition until, in the opinion of counsel for the Maker, either (i) registration is not required for such disposition, or (ii) a registration covering the proposed disposition has become effective. Upon receipt by Maker of such written notice of proposed disposition by Holder, Maker will use its best efforts to ascertain as promptly as possible whether or not registration is required and will advise Holder promptly with respect thereto. 10. Notices. All demands and notices to be given hereunder shall be delivered or mailed to Marker at 7667 Equitable Drive, Eden Prairie, Minnesota 55344, until a new address shall be substituted by like notice from Maker; and in the case of Holder to the address written below, until a new address is substituted by Holder by like notice to Maker. MARCH MOTORS INTERNATIONAL, INC. By__________________________________ Joseph Novorgratz ------------------------------------ President ------------------------------------ Holder ------------------------------------ Address ------------------------------------ City State Zip ------------------------------------ SS# or Tax ID# of Holder EX-4.7 10 REPRESENTATIVE'S WARRANT AGREEMENT Exhibit 4.7 - -------------------------------------------------------------------------------- NORTON MOTORS INTERNATIONAL, INC. AND DIRKS & COMPANY, INC. REPRESENTATIVE'S WARRANT AGREEMENT Dated as of , 1998 - -------------------------------------------------------------------------------- REPRESENTATIVE'S WARRANT AGREEMENT dated as of _________, 1998 between NORTON MOTORS INTERNATIONAL, INC., a Minnesota corporation (the "Company"), and DIRKS & COMPANY, INC. (hereinafter referred to variously as the "Holder" or "Holders" or the "Representative"). W I T N E S S E T H: WHEREAS, the Company proposes to issue to the Representative warrants ("Warrants") to purchase up to an aggregate 300,000 shares of Common Stock, $0.01 par value, of the Company; and WHEREAS, the Representative has agreed pursuant to the underwriting agreement (the "Underwriting Agreement") dated as of the date hereof between the Company and the several Underwriters listed therein to act as the Representative in connection with the Company's proposed public offering of up to 3,000,000 shares of Common Stock at a public offering price of $______ per share of Common Stock (the "Public Offering"); and WHEREAS, the Warrants to be issued pursuant to this Agreement will be issued on the Closing Date (as such term is defined in the Underwriting Agreement) by the Company to the Representative in consideration for, and as part of the Representative's compensation in connection with, the Representative acting as the Representative pursuant to the Underwriting Agreement; NOW, THEREFORE, in consideration of the premises, the payment by the Representative to the Company of an aggregate thirty dollars ($30.00), the agreements herein set forth and other good and valuable consideration, hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Representative (or its designees) is hereby granted the right to purchase, at any time from _____________, 1999 [twelve months after date of this Agreement], until 5:30 P.M., New York time, on ___________, 2003 [five years after date of this Agreement], up to an aggregate of 300,000 shares of Common Stock at an initial exercise price (subject to adjustment as provided in Section 8 hereof) of $_____ per share of Common Stock [120% of initial public offering price per share of Common Stock], subject to the terms and conditions of this Agreement. Except as set forth herein, the shares of Common Stock are in all respects identical to the shares of Common Stock being purchased by the Underwriters for resale to the public pursuant to the terms and provisions of the Underwriting Agreement. The shares of Common Stock are sometimes hereinafter referred to collectively as the "Securities." 2. Warrant Certificates. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. Section 3.1 Method of Exercise. The Warrants initially are exercisable at an aggregate initial exercise price (subject to adjustment as provided in Section 8 hereof) per share of Common Stock set forth in Section 6 hereof payable by certified or official bank check in New York Clearing House funds, subject to adjustment as provided in Section 8 hereof. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the shares of Common Stock purchased at the Company's principal executive offices in Minnesota (presently located at 14252-23rd Avenue North, Plymouth, Minnesota 55447-4910) the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to 2 fractional shares of the Common Stock). Warrants may be exercised to purchase all or part of the shares of Common Stock. In the case of the purchase of less than all the shares of Common Stock purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the shares of Common Stock purchasable thereunder. Section 3.2 Exercise by Surrender of Warrant. In addition to the method of payment set forth in Section 3.1 and in lieu of any cash payment required thereunder, the Holder(s) of the Warrants shall have the right at any time and from time to time to exercise the Warrants in full or in part by surrendering the Warrant Certificate in the manner specified in Section 3.1 hereof. The number of shares of Common Stock to be issued pursuant to this Section 3.2 shall be equal to the difference between (a) the number of shares of Common Stock in respect of which the Warrants are exercised and (b) a fraction, the numerator of which shall be the number of shares of Common Stock in respect of which the Warrants are exercised multiplied by the Exercise Price and the denominator of which shall be the Market Price (as defined in Section 3.3 hereof) of the shares of Common Stock. Solely for the purposes of this paragraph, Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been sent to the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the average of the Market Prices for each of the five trading days preceding the Notice Date, whichever of (i) or (ii) is greater. Section 3.3 Definition of Market Price. As used herein, the phrase "Market Price" at any date shall be deemed to be when referring to the Common Stock, the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or by the American Stock 3 Exchange ("Amex") or by the National Association of Securities Dealers Automated Quotation System ("Nasdaq"), or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted by Nasdaq, the average closing bid price as furnished by the National Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted on Nasdaq, as determined in good faith (using customary valuation methods) by resolution of the members of the Board of Directors of the Company, based on the best information available to it. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock and/or other securities, properties or rights underlying such Warrants shall be made forthwith (and in any event within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the shares of Common Stock (and/or other securities, property or rights issuable upon the exercise of the Warrants) shall be executed on behalf of the Company by the manual or facsimile signature of the then Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company. Warrant 4 Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. Certificates representing the shares of Common Stock (and/or other securities, property or rights issuable upon exercise of the Warrants) shall be dated as of the Notice Date (regardless of when executed or delivered) and dividend bearing securities so issued shall accrue dividends from the Notice Date. 5. Restriction On Transfer of Warrants. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof; that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the date hereof, except to officers of the Representative. 6. Exercise Price. Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be $_____ per share of Common Stock [120% of the initial public offering price of the Common Stock]. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. Any transfer of a Warrant shall constitute an automatic transfer and assignment of the registration rights set forth in Section 7 hereof with respect to the Securities or other securities, properties or rights underlying the Warrants. Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context or unless otherwise specified. 5 7. Registration Rights. Section 7.1 Registration Under the Securities Act of 1933. The Warrants, the shares of Common Stock, or other securities issuable upon exercise of the Warrants (collectively, the "Warrant Securities") have been registered under the Securities Act of 1933, as amended (the "Act") pursuant to the Company's Registration Statement on Form SB-2 (Registration No. 333-_______) (the "Registration Statement"). All of the representations and warranties of the Company contained in the Underwriting Agreement relating to the Registration Statement, the Preliminary Prospectus and Prospectus (as such terms are defined in the Underwriting Agreement) and made as of the dates provided therein, are incorporated by reference herein. The Company agrees and covenants promptly to file post-effective amendments to such Registration Statement as may be necessary in order to maintain its effectiveness and otherwise to take such action as may be necessary to maintain the effectiveness of the Registration Statement as long as any Warrants are outstanding. In the event that, for any reason, whatsoever, the Company shall fail to maintain the effectiveness of the Registration Statement, the certificates representing the Warrant Securities shall bear the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended ("Act"), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available. Section 7.2 Piggyback Registration. If, at any time commencing after the date hereof and expiring seven (7) years thereafter, the Company proposes to register any of its securities under the Act (other than pursuant to Form S-4, Form S-8 or a comparable registration statement) it will give written notice by registered mail, at least thirty (30) days prior to the filing 6 of each such registration statement, to the Representative and to all other Holders of the Warrants and/or the Warrant Securities of its intention to do so. If the Representative or other Holders of the Warrants and/or Warrant Securities notify the Company within twenty (20) business days after receipt of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford the Representative and such Holders of the Warrants and/or Warrant Securities the opportunity to have any such Warrant Securities registered under such registration statement. Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. Section 7.3 Demand Registration. (a) At any time commencing after the date hereof and expiring five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter defined) of such securities (assuming the exercise of all of the Warrants) shall have the right (which right is in addition to the registration rights under Section 7.2 hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Securities and Exchange Commission (the "Commission"), on one occasion, a registration statement and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Representative and Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Warrant Securities for nine (9) consecutive months by such Holders and any other 7 Holders of the Warrants and/or Warrant Securities who notify the Company within ten (10) days after receiving notice from the Company of such request. (b) The Company covenants and agrees to give written notice of any registration request under this Section 7.3 (whether such request is made pursuant to Section 7.3(a) or 7.3(c) hereof) by any Holder or Holders to all other registered Holders of the Warrants and the Warrant Securities within ten (10) days from the date of the receipt of any such registration request. (c) In addition to the registration rights under Section 7.2 and Section 7.3(a), at any time commencing after the date hereof and expiring five (5) years thereafter, any Holder(s) of Warrants and/or Warrant Securities shall have the right, exercisable by written request to the Company, to have the Company prepare and file with the Commission, on one occasion, a registration statement so as to permit a public offering and sale for nine (9) consecutive months by any such Holder(s) of its or their Warrants and/or Warrant Securities; provided, however, that the provisions of Section 7.4(b) hereof shall not apply to any such registration request and all costs incident thereto shall be at the expense of the Holders) making such request. (d) Notwithstanding anything to the contrary contained herein, if the Company shall not have filed a registration statement for the Warrant Securities within the time period specified in Section 7.4(a) hereof pursuant to the written notice specified in Section 7.3(a) of a Majority of the Holders of the Warrants and/or Warrant Securities, the Company may, at its option, upon the written notice of election of a Majority of the Holders of the Warrants and/or Warrant Securities requesting such registration, repurchase (i) any and all Warrant Securities of such Holders at the higher of the Market Price per share of Common Stock, determined as of (x) the date of the notice sent pursuant to Section 7.3(a) or (y) the expiration of the period specified in Section 7.4(a) and (ii) any and all Warrants of such Holders at such Market Price less the Exercise Price of such Warrant. Such repurchase shall be in immediately available funds 8 and shall close within two (2) days after the later of (i) the expiration of the period specified in Section 7.4(a) or (ii) the delivery of the written notice of election specified in this Section 7.3(d). Section 7.4 Covenants of the Company With Respect to Registration. In connection with any registration under Section 7.2 or 7.3 hereof, the Company covenants and agrees as follows: (a) The Company shall use its best efforts to file a registration statement within thirty (30) days of receipt of any demand therefor, shall use its best efforts to have any registration statements declared effective at the earliest possible time, and shall furnish each Holder desiring to sell Warrant Securities such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs (excluding fees and expenses of Holder(s)' counsel and any underwriting or selling commissions), fees and expenses in connection with all registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. (c) The Company will take all necessary action which may be required in qualifying or registering the Warrant Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (d) The Company shall indemnify the Holder(s) of the Warrant Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 9 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify each of the Underwriters contained in Section 7 of the Underwriting Agreement. (e) The Holder(s) of the Warrant Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 7 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company. (f) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (g) The Company shall not permit the inclusion of any securities other than the Warrant Securities to be included in any registration statement filed pursuant to Section 7.3 hereof, or permit any other registration statement to be or remain effective during the effectiveness of a registration statement filed pursuant to Section 7.3 hereof (other than (i) shelf 10 registrations effective prior thereto and (ii) registrations on Form S-4 or S-8), without the prior written consent of the Holders of the Warrants and Warrant Securities representing a Majority of such securities. (h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement) relating to the due incorporation of the Company, the validity of the shares being issued, the due execution and delivery of the underwriting agreement and Rule 10b-5, and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, with respect to events subsequent to the date of such financial statements, as are customarily covered in accountants' letters delivered to underwriters in underwritten public offerings of securities. (i) The Company shall as soon as practicable after the effective date of the registration statement, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the effective date of the registration statement. (j) The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing 11 underwriters, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such Holder or underwriter shall reasonably request. (k) The Company shall enter into an underwriting agreement with the managing underwriters selected for such underwriting by Holders holding a Majority of the Warrant Securities requested pursuant to Section 7.3(a) to be included in such underwriting, which may be the Representative. Such agreement shall be satisfactory in form and substance to the Company, each Holder and such managing underwriter(s), and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter(s). The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Warrant Securities whether pursuant to Section 7.2 or Section 7.3(a) and may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of such underwriter(s) shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriter(s) except as they may relate to such Holders and their intended methods of distribution. 12 (l) For purposes of this Agreement, the term "Majority" in reference to the Holders of Warrants or Warrant Securities, shall mean in excess of fifty percent (50%) of the then outstanding Warrants or Warrant Securities that (i) are not held by the Company, an affiliate, officer, creditor, employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction therewith and (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act. 8. Adjustments to Exercise Price and Number of Securities. Section 8.1 Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. Section 8.2 Stock Dividends and Distributions. In case the Company shall pay a dividend in, or make a distribution of, shares of Common Stock or of the Company's capital stock convertible into Common Stock, the Exercise Price shall forthwith be proportionately decreased. An adjustment made pursuant to this Section 8.2 shall be made as of the record date for the subject stock dividend or distribution. Section 8.3 Adjustment in Number of Securities. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 8, the number of Warrant Securities issuable upon the exercise at the adjusted exercise price of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Securities issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 13 Section 8.4 Definition of Common Stock. For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Certificate of Incorporation of the Company as may be amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. Section 8.5 Merger or Consolidation. In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of securities of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 8. The above provision of this subsection shall similarly apply to successive consolidations or mergers. Section 8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made if the amount of said adjustment shall be less than two cents (2) per Warrant Security, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and 14 together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least two cents (2?) per Warrant Security. 9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Securities in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock or other securities, properties or rights. 11. Reservation and Listing of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price 15 therefor, all shares of Common Stock, and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock issued to the public in connection herewith may then be listed and/or quoted on the Amex or Nasdaq. 12. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings or capital surplus (in accordance with applicable law), as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or 16 (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least thirty (30) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made and sent when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holders. 14. Supplements and Amendments. The Company and the Representative may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates (other than the Representative) in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any 17 provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Representative may deem necessary or desirable and which the Company and the Representative deem shall not adversely affect the interests of the Holders of Warrant Certificates. 15. Successors. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 16. Termination. This Agreement shall terminate at the close of business on __________, 2005. Notwithstanding the foregoing, the indemnification provisions of Section 7 shall survive such termination until the close of business on _________, 2011. 17. Governing Law; Submission to Jurisdiction. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws. The Company, the Representative and the Holders hereby agree that any action, proceeding or claim against it arising out of, or relating in any way to, this Agreement shall be brought and enforced in the courts of the State of New York or of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company, the Representative and the Holders hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon any of the Company, the Representative and the Holders (at the option of the party bringing such action, proceeding or claim) may be served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 13 hereof. Such mailing shall be 18 deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. The Company, the Representative and the Holders agree that the prevailing party(ies) in any such action or proceeding shall be entitled to recover from the other party(ies) all of its/their reasonable legal costs and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefore. 18. Entire Agreement; Modification. This Agreement (including the Underwriting Agreement to the extent portions thereof are referred to herein) contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 19. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 20. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 21. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Representative and any other registered Holder(s) of the Warrant Certificates or Warrant Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole benefit of the Company and the Representative and any other registered Holders of Warrant Certificates or Warrant Securities. 19 22. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. NORTON MOTORS INTERNATIONAL, INC. By: ------------------------------------- Name: Title: Attest: - ---------------------------- Secretary DIRKS & COMPANY, INC. By: ------------------------------------- Name: Title: 20 EXHIBIT A [FORM OF WARRANT CERTIFICATE] THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK TIME, ___________, 2003 No. W- Warrants to Purchase ____ shares of Common Stock WARRANT CERTIFICATE This Warrant Certificate certifies that , or registered assigns, is the registered holder of Warrants to purchase initially, at any time from _________, 1999 until 5:30 p.m. New York time on __________, 2003 ("Expiration Date"), up to __________ fully-paid and non-assessable shares of common stock, $0.01 par value ("Common Stock"), of NORTON MOTORS INTERNATIONAL, INC., a Minnesota corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $_____ per share of Common Stock upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the warrant agreement dated as of _________, 1998 between the Company and DIRKS & COMPANY, INC. (the "Warrant Agreement"). Payment of the Exercise Price shall be made by certified or official bank check in New York Clearing House funds payable to the order of the Company or by surrender of this Warrant Certificate. No Warrant may be exercised after 5:30 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. 22 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of _____________, 1998 NORTON MOTORS INTERNATIONAL, INC. By: ----------------------------------- Name: Title: [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase: / / __________ shares of Common Stock; and herewith tenders in payment for such securities a certified or official bank check payable in New York Clearing House Funds to the order of Norton Motors International, Inc. in the amount of $_______________________, all in accordance with the terms of Section 3.1 of the Representative's Warrant Agreement dated as of _________, 1998 between Norton Motors International, Inc. and Dirks & Company, Inc. The undersigned requests that a certificate for such securities be registered in the name of whose address is and that such Certificate be delivered to whose address is . Dated: Signature ------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ________________________________________ (Insert Social Security or Other Identifying Number of Holder) 24 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase: / / _____________ shares of Common Stock; and herewith tenders in payment for such securities ________ Warrants all in accordance with the terms of Section 3.2 of the Representative's Warrant Agreement dated as of ________, 1998 between Norton Motors International, Inc. and Dirks & Company, Inc. The undersigned requests that a certificate for such securities be registered in the name of whose address is and that such Certificate be delivered to whose address is . Dated: Signature ------------------------------ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ---------------------------------------- (Insert Social Security or Other Identifying Number of Holder) 25 [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED hereby sells, assigns and transfers unto - -------------------------------------------------------------------------------- (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature: ----------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ---------------------------------------- Insert Social Security or Other Identifying Number of Assignee) 26 EX-10.2 11 DEVELOPMENT AND MARKETING AGREEMENT Exhibit 10.2 DEVELOPMENT AND MARKETING AGREEMENT THIS DEVELOPMENT AND MARKETING AGREEMENT ("Agreement") is made as of this 15th day of December, 1995 (the "Effective Date") by and between March Group PLC, a corporation formed under the laws of the United States Kingdom ("March Group") and March Motors Limited, a corporation formed under the laws of the United Kingdom (the "Company"). WHEREAS, March Group is engaged in the business of designing, developing, manufacturing and selling high performance chassis for performance motor vehicles including motorcycles; WHEREAS, the Company is interested in producing, marketing and selling superbikes for sale to the general public; and WHEREAS, March Group and the Company are desirous of working toghether cooperatively to design and develop a superbike for sale by the Company on a worldwide basis. NOW, THEREFORE, in consideration of the mutual promises contained in the Agreement, the parties hereto agree as follows: 1: Definitions As used herein, the following terms shall have the following meanings: a. "Affiliates" means corporations or other business organizations that, either directly or through one or more intermediaries, control, are controlled by, or are under common control with, a party hereto. b. "Control" means ownership of 50% or more of the voting securities of an entity. c. "Development Program" means March Group's efforts to design and develop the Superbike and produce a prototype of the Superbike as more fully described on Exhibit A attached hereto. d. "Intellectual Property" means copyrights, patents, trademarks and trade secrets, whether or not registered, filed, applied for or the like, and all related rights. e. "Licensed Name" shall mean the name and mark "March" including all common law rights and registrations of March Group in the same. f. "Licensed Products" shall mean any motorcycle or piston engine developed, produced or manufactured by or for the Company and all merchandise sold by the Company which utilized the Licensed Name. g. "March Group Technology" means the proprietary technology and related Intellectual Property of March Group, and improvements and modifications to such technology, necessary to develop and produce the Superbike. h. "Service Components" as used in this Agreement shall mean those components sold by the Company for use as service parts for Licensed Products previously sold. i. "Specifications" means the specifications for the design, performance and manufacturability of the Superbike, which are to be developed by the March Group hereunder. j. "Superbike" means the certain high performance motorcycle developed by March Group pursuant to the Development Program. 2. Development Program March Group agrees to use all commercially reasonable efforts to complete the Development Program within ten (10) months of the Effective Date. The parties agree that the estimated cost of designing the Superbike is approximately Three Hundred Thousand Pounds (300,000) and the estimated cost of production of a working prototype of the Superbike is approximately Two Hundred Thousand Pounds (200,000). The Company hereby agrees to pay March Group the sum of Five Hundred Thousand Pounds (500,000) in consideration of March Group's continuing compliance with the Development Program. Such amount will be payable in ten (10) equal installments of Fifty Thousand Pounds(50,000) each, with the first such installment being due and payable on December 15, 1995, and the remaining installments being due and payable on the first day of each succeeding month, such installment payments shall be contingent upon and subject to March Group's continued compliance with the Development Program. Upon each installment payment made by the Company pursuant to this Section 2, the Company shall obtain and retain all right, title and interest in and to the Specifications, the Superbike and all Intellectual Property therein. Except as otherwise provided for in this Agreement, March Group shall be responsible for all costs and expenses incurred in carrying out the Development Program. March Group agrees to consult with the Company on a regular basis regarding the progress of the Development Program, and will give the Company the opportunity to review and approve the functional specifications prior to commencing the engineering design phase of the Development Program. In connection with the Development Program, March Group agrees to assist in creating an operating manual for the Superbike which the Company will distribute to purchasers and end-users of the Superbike. If March Group fails to develop the 2 Superbike within ten (10) months of the Effective Date, the Company shall have the right to terminate this Agreement pursuant to Section 12 hereunder. 3. Ownership of Technology. a. March Group Technology. March Group owns and possesses all right, title, and interest in the March Group Technology and the Licensed Name. March Group has not licensed any of the March Group Technology or the Licensed Name to any third party. March Group has taken all necessary action to protect the March Group Technology and the Licensed Name. March Group has not received any notice of, nor are there any facts known to March Group which indicate a likelihood of, any infringement or misappropriation by, or conflict from, any third party contesting the validity of the March Group Technology or the Licensed Name has been made, is currently outstanding or, to the best knowledge of March Group, is threatened; March Group has not received any notice of any infringement, misappropriation or violation by it of any intellectual property rights of any third parties and March Group has not infringed, misappropriated or otherwise violated any such intellectual property rights; and no infringement, illicit copying, misappropriation or violation has occurred or will occur with respect to the products currently under development (in their present state of development), including the Superbike, or with respect to the conduct of the March Group's business as now conducted. The parties agree that March Group shall retain all right, title, and interest in and to the March Group Technology and all Intellectual Property therein, subject only to the license granted hereunder. b. Company Technology. The parties agree that the company shall retain all right, title, and interest in an to the Specifications, the Superbike and all Intellectual Property therein, subject only to the royalty obligation. 4. License a. License to the Company. Subject to the terms and conditions of this agreement, March Group hereby grants to the Company, and the Company hereby accepts for the term of this Agreement, an irrevocable, exclusive and worldwide license to use the Licensed Name in connection with the manufacture, marketing and sale of Licensed Products. In addition to the foregoing, March Group hereby consents to the use of, and grants to the Company a royalty-free license to use, the Licensed Name in the Company's legal name. b. Sublicenses. The Company shall have the right to sublicense the license granted under Section 4(a) to its Affiliates, and the Company shall have the right to sublicense the license granted under Section 4(a) to third parties solely to the extent necessary to allow subcontractors to modify the Licensed Products or provide a component of the Superbike with the Licensed Name, to allow distributors and similar 3 parties to sell the Licensed Products, and to allow end-users to use (on a perpetual basis) the Superbike. Except as set forth in this Section 4(b), the license granted under Section 4(a) may not be sublicensed. c. Royalties. i. The Company, in consideration of the grant of the license in Section 4(a), agrees to pay to March Group royalties at the rate of two and one-half percent (2.5%) of the net selling price of Superbikes sold by the Company plus one percent (1%) in the Superbike's spare parts sales. For this purpose, "net selling price" shall mean the dealer invoice price for each Superbike sold by the Company utilizing the Licensed Name, less returns, allowances and shipping charges. ii. The Company, in consideration of the grant of the license in Section 4(a), agrees to pay to March Group royalties at the rate of one percent (1.0%) of the net selling price of motorcycles piston engines sold by the Company utilizing the Licensed Name. For this purpose, "net selling price" shall mean the invoice price for each engine sold by the Company, except for those engines sold as part of a Superbike for which no additional royalty shall be payable, less returns, allowances and shipping charges. iii. The Company, in consideration of the grant of the license in Section 4(a), agrees to pay to March Group royalties at the rate of one percent (1.0%) of the net selling price of all merchandise sold by the Company which utilizes the Licensed Name. For this purpose, "net selling price" shall mean the sales price of any such merchandise sold by the Company utilizing the Licensed Name, less returns, allowances and shipping charges. iv. All royalties calculated pursuant to Section 4(c)(i) and 4(c)(iii) shall be paid to March Group net of any tax or charge imposed by any United Kingdom government or political subdivision thereof except for income tax or tax in lieu of income tax imposed thereon and required to be withheld by the Company pursuant to valid governmental authority. With respect to any such tax properly withheld, the Company shall furnish March Group with receipts showing the withheld taxes to have been duly deposited with the taxing authority. The Company shall be solely responsible for payment of any value added tax on this Agreement or any payments made pursuant to this Agreement. v. Royalties are to be paid in monthly installments (less taxes provided in Section 4(c)(iv) within thirty (30) days after the Company's receipt of final payments for any Licensed Product. Each installment will be payable in British Pounds by wire transfer to a bank account designated by March Group. 4 vi. For as long as royalties are due under this Agreement, the Company will keep true and accurate records adequate to permit royalties due to March Group to be computed and verified. The records will be open at all reasonable times during business hours for inspection by a duly authorized representative of March Group to the extent necessary for the determination of the accuracy of the reports made hereunder. March Group's representative will have the right to make companies of the relevant records. vii. The Company acknowledges that nothing contained in this Agreement shall be interpreted so as to grant the Company the right to use the Licensed Name in connection with the development, manufacturing, marketing or sale of four wheeled vehicles. d. Technical Assistance. March Group will provide knowledgeable and competent personnel as reasonable necessary (at its own expense) to complete the development of the Superbike and to ensure that the Superbike operates in accordance with the Specifications. 5. Supply of Superbike to the Company. March Group agrees touse all commercially reasonsable efforts to identify and introduce sources of suppliers and employees required by the Company to produce and manufacture the Superbike. 6. Marketing Obligations a. Best Efforts to Promote Marketing. At all times during the term of this Agreement, both parties will use best efforts to promote the manufacture, sale, marketing, and distribution of the Superbike. b. Marketing Practices. Both parties agree to (I) conduct business in a manner that reflects favorably at all times on the good name, goodwill and reputation of the other party, (ii) not engage in deceptive, misleading or unethical practices that are or might be detrimental to the other party, (iii) not make any false or misleading representation with regard to the other party or its products, (iv) not publish or utilize or cooperate in the publication or utilization of any misleading or deceptive advertising material that relates in any way to the other party and its products, (v) not make any representation or warranty to anyone with respect to the specifications, features or capabilities of the other party's products that are inconsistent with the literature distributed by distributed by the other party, including all disclaimers contained in such literature, and (vi) not make any warranty or representation to anyone that would give the recipient any claim of action against the other party. c. Establishing of March Racing, Ltd. The Company will form a company to be named March Racing, Ltd., or some other name as similar to March Racing, Ltd. as possible ("March Racing"). The parties agree to share equally the costs of formation of March Racing. Upon the formation of March Racing, the Company and 5 March Group will each own 50% of the voting securities of March Racing. The Company and March Group will each appoint two (2) individuals to serve on the Board of Directors of March Racing. March Group will appoint Robin Herd as the Chairman of the Board of Directors of March Group if Mr. Herd shall consent to the appointment to such position. d. Sponsorship for the Superbike. March Group use all commercially reasonable efforts to organize sponsors for the Superbike and for the business and conduct of March Racing. 7. Additional Covenants of the Company. a. Board of Directors. The Company will permit March Group to designate one member of the Company's Board of Directors at all times during the term of this Agreement. The Company will continue to use all commercially reasonable efforts to keep such individuals on the Board of Directors of the Company during the term of this Agreement. b. Engine Development Agreement. The Company will use all commercially reasonable efforts to enter into an agreement with M.C.D. Limited to design and develop a working prototype of a 750 cc, four cylinder motorcycle engine (the "engine") for the Superbikes to be designed and supplied under this Agreement. 8. Additional Covenants of March Group. a. Agreement not to Compete. (i) Except as a contemplated by this Agreement, March Group agrees that during the term of this Agreement and for a period of five (5) years after the termination of this Agreement, it will not, directly or indirectly, engage in competition with the Company in any manner or capacity (e.g., as an advisor, principal, agent, partner, officer, director, stockholder, employee, member of any association or otherwise) in any phase of the business which the Company is conducting during the term of this Agreement. (ii) The obligation of March Group under Section 8(a)(i) shall apply to any geographic area in which the Company (y) has engaged in business during the term of this agreement through production, promotional, sales or marketing activity, or otherwise, or (z) has otherwise goodwill, business reputation, or any customer relations. (iii) Ownership by March Group, as a passive investment, of less than 1% of the outstanding shares of capital stock of any corporation listed on a securities exchange or publicly traded on any recognized market shall not constitute a breach of this Section 8. 6 (iv) March Group further agrees that during the term of this Agreement it will not, directly or indirectly, assist or encourage any other person in carrying out, directly or indirectly , any activity that would be prohibited by the foregoing provisions of this Section 8 if such activity were carried out by March Group, either directly or indirectly. In particular, March Group agrees that it will not, directly or indirectly, induce any employee of March Group to carry out, directly or indirectly, any such activity. b. Engine Development Assistance. In connection with the Company's covenant set forth above in Section 7(b), March Group hereby agrees to attend bi-weekly progress meetings with Al Melling of M.C.D. Limited, or any other engineer of M.C.D. Limited as the Company shall indicate to March Group in writing, to discuss the integration of the engine into the Specifications for the Superbike. 9. Confidentiality. a. Obligation. Each party shall keep confidential and not disclose to any third party or use for its own benefit, except as expressly permitted herein, or for the other party to it (collectively "Confidential Information"); (i) any information provided to it by the other party marked with a proprietary, confidential or other similar notice, or orally disclosed to it by the other party and followed by a writing with thirty (30 ) days of such oral disclosure indicating said information was confidential, and (ii) even if not so marked, information that is reasonably understood by it to be confidential, including the March Group Technology, on the one hand, and the Specifications and the Company Technology, on the other hand. b. Exclusions. The term "Confidential Information" shall not include information which (i) is or becomes generally known or available through no act or failure to act by the receiving party, (ii) is already known by the receiving party at the time of receipt as evidenced by its records, (iii) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on disclosure, (iv) is disclosed by written permission of the party disclosing the Confidential Information, or (v) is required to disclosed by court order or law, but in such event notice shall be provided at least ten (10) days in advance of such disclosure. c. Access to Information. Each party shall limit access to Confidential Information to those of its employees or agents ( including subcontractors) who have a need for such Confidential Information, or to its sublicensees to the extent necessary to allow such sublicensee to fully use their sublicenses, and who are under a written obligation shall be at least as restrictive as those obligations specified in Section 9(a) above. d. Injunction Relief. The parties acknowledge that a breach or threatened breach of this Section 9 by any of the parties may cause the nonbreaching party to suffer irreparable harm and injure such that no remedy at law will adequately compensate the other party. Thus, the nonbreaching party 7 shall have the right to obtain injunctive relief with respect to such breach or threatened breach, in addition to any other available remedy or relief. 10. Warranties. a. Warranties by March Group. March Group warrants that, for a period of five (5) years from the date of delivery of the prototype Superbike, such prototype shall conform to the Specifications and shall be free from defects in materials and workmanship. b. Warranty Pass-Through. The Company is permitted to provide to its end-users the warranty granted to it hereunder. The Company hereby agrees to indemnify and hold harmless March Group for any warranty or representation made by the Company that exceeds or that is otherwise inconsistent with such warranty. c. Survival. The provisions of this Section 10 shall survive the expiration of termination of this Agreement for any reason. 11. Intellectual Property Indemnification. March Group shall indemnify the Company for any damages finally awarded or settlement amount paid in respect of any loss, liability or expense suffered or incurred by the Company or any of its customers for any patent, copyright, trade secret or similar infringement claim brought against the Company or any of its customers in respect of the Company's use or such customer's use of the Superbike or any of the Licensed Products or the March Group Technology (but only to the extent that such infringement claim is related to the Superbike or such Licensed Products), or any material supplied by March Group to the Company pursuant to this Agreement. The Company shall notify March Group as soon as practicable of any such infringement claim brought against either the Company or any of its customers. If the Company defends such a claim, then, if requested by the Company, March Group shall provide the Company with full documentation and cooperation to assist the Company in defending such claim. If any item furnished hereunder, including without limitation the Specification or the Superbike supplied hereunder, is in March Group's opinion likely to or does become the subject of a claim for infringement of any patent, copyright or other proprietary right, March Group may, at its option and expense, procure ore the Company or any affected customer, the right to continue using the same, or modify it so that it becomes noninfringing, but without diminishing March Group's obligation hereunder. 12. Term, Termination, and Effect of Termination 8 a. Term. This Agreement shall commence on the Effective Date and, subject to earlier termination as provided herein, shall continue until the date which is eighteen (18) months after the Effective Date. b. Termination on Bankruptcy. Either party may terminate this Agreement upon written notice if a petition for relief under any bankruptcy law or legislation is filed by or against the other party, the other party makes an assignment for the benefit of creditors, or a receiver, is appointed for an or a substantial portion of any of the other party's assets, and such petition, assignment or appointment is not dismissed or vacated within thirty (30) days. c. Termination for Failure to Develop Specifications. If the Company terminates this Agreement for failure by March Group to develop the Specifications or the Superbike as provided herein, this Agreement shall be terminated and all licenses granted hereunder to March Group and the Company shall be terminated. d. Effect of Material Breach by March Group. If March Group materially breaches this Agreement, the Company shall have the right to terminate this Agreement, including the license rights and obligations set forth in Section 4, shall survive any such termination. e. Effect of Material Breach by the Company. If the Company materially breaches this Agreement and fails to correct such default within sixty (60) days after written notice of such default is provided to the Company by March Group, March Group shall have the right, at its sole option, to terminate the Company's license under Section 4(a) or to terminate this Agreement. If March Group terminates the Company's license, all other rights and obligations of the parties under this Agreement shall survive and upon such termination, the Company shall immediately refrain from distributing the Superbike anywhere in the world using the Licensed Name. f. Surviving Rights. Termination or expiration of this Agreement shall not affect any other rights of the parties which may have accrued up to the date of such termination or expiration and, in addition, (i) no party shall be relieved of any obligation for any sums due to the other party, (ii) the Company shall have the right to continued use of the Licensed Name to sell any and all Licensed Products in its inventory on the date this Agreement terminates or expires, (iii) the Company shall be entitled to take physical possession of and ownership of all Specifications and the prototype Superbike developed to date if this Agreement terminates for any reason prior to the completion of the Development Program, and (iv) no party shall be relieved of its obligations under Section 9 (Confidentiality), 10 (Warranties), 11 (Intellectual Property Indemnification), 13 (Limitation of Liability), and 14(k) (Choice of Governing Law). 13. Compliance With Laws. 9 In connection with and furtherance of its marketing and manufacturing activities hereunder, each party shall be responsible for obtaining, and shall use all reasonable commercial efforts to obtain, any and all required governmental authorizations, including without limitations any import licenses and foreign exchange permits, and, it applicable, shall be responsible for filing or registering this Agreement with the appropriate authorities. 14. Miscellaneous. a. Relationship of Parties. The parties are not employees of legal representatives of the other party for any purpose. Neither party shall have the authority to enter into any contracts in the name of or on behalf of the other party. b. Further Assurances. The parties agree that each party has the exclusive right to enjoin any infringement by a third party of any Intellectual Property of the party related to such party's technology. In the event that any unlawful copying of the Specifications or the Superbike, infringement of a party's rights in the Specifications or the Superbike, infringement or registration by a third party of the rights of March Group or the Company comes to the attention of either party , such party shall immediately inform the other in writing, stating the full facts of the infringement or registration, known to it, including the identity or registration and evidence thereof. Each of the parties agree to cooperate fully with the other party at the expense of such other party if such other party if other party sues to enjoin such infringements or to oppose or invalidate any such registration. c. Trademarks. Except as otherwise permitted by this Agreement, the Company shall not(nor shall attempt to) adopt, use, or register any acronym, trademark, trade names or other marketing name of Mach Group or any confusingly similar work or symbol as part of the Company's own name or the name of any of its Affiliates or the names of the products it markets. The Company acknowledges the validity of the trademarks and March Group's ownership thereof. All such trademarks and any additional marks of which March Group may in the future be the proprietor will bear the designation TM or the designation (R) as specified by March Group. d. Nonassignability; Binding on Successors. Either party may assign or otherwise transfer this Agreement to an Affiliate or in Connection with a sale of all or substantially all of its assets, or of its business, whether via merger or otherwise. Except as permitted in the preceding sentence, neither party shall assign any of its right or obligations under this Agreement without the express written consent of the other party, which consent shall not unreasonably be withheld. Any attempted assignment under this Agreement without such consent shall be void. In the case of any permitted assignment or transfer of or under this Agreement without such consent shall be void. In the case of any permitted assignment or transfer of or under this Agreement, this Agreement or the 10 relevant provisions shall be binding upon the executors, heirs, representatives, administrators and assigns of the parties hereto. e. Severability. In the event any provision of the this Agreement is held to be invalid or unenforceable, the valid or enforceable portion thereof and the remaining provisions of this Agreement will remain in full force and effect. f. Force Majeure. Neither party shall be liable to the other for its failure to perform any of its obligations under this Agreement, except for payment obligations, during any period in which such performance is delayed because rendered impracticable or impossible due to circumstances beyond its reasonable control, including without limitation earthquakes, governmental regulation, fire, flood, labor difficulties, civil disorder, and acts of God, provided that the party experiencing the delay promptly notifies the other party of the delay. g. Waiver. Any waiver (express or implied) by either party of any breach of this Agreement shall be in writing and shall not constitute a waiver of any other subsequent breach. h. Entire Agreement; Amendment. This Agreement and the exhibits attached hereto constitute the entire, final, complete, and exclusive agreement between the parties and supersede an previous agreements or representations, written or oral, with respect to the subject matter of this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly representative of each party. i. Counterparts. This Agreement may be executed in counterparts with the same force and effects as if the signatories had executed the same instrument. j. Notice. All notices, communications, requests, demands, consents and the like required or permitted under this Agreement will be in writing and will be deemed given and received (i) when delivered personally, (ii) when sent by confirmed telecopy, (iii) ten(10) days after having been duly mailed by first class, registered or certified mail, postage prepaid, or (iv) three (3) business days after deposit with a commercial overnight carrier, with written verification of receipt. All notices will be addressed as follows: If to March Group: Attention: Leslie McTaggart Telephone: 01280-700611 Telecopy: 01280-700699 With a copy to: Attention: Richard Ling Telephone: 0171-628-5326 Telecopy: 0171-628-5326 11 If to the Company: Attention: Telephone: Telecopy: With a copy to: Dorsey & Whitney P.L.L.P. Pillsbury Center South 220 S. Sixth Street Minneapolis, Minnesota 55402 USA Attention: Thomas S. Hay, Esq. Telephone: (612) 340-2600 Telecopy: (612) 340-2868 or to such other address as the person to whom notice is to be given may have furnished to the other in writing in accordance herewith, except that notices of change of address will be effective only upon receipt. A notice given by any means other than as specified herein will be deemed duly given when actually received by the addressee. k. Choice of Governing Law, Arbitration. This Agreement is made in accordance with and shall be governed and construed under the laws of the United Kingdom, as applied to agreements executed and performed entirely in the United Kingdom. The official text of this Agreement and any Exhibit or any notice given or accounts or statements required by this Agreement shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language. Any dispute or difference arising between the parties hereto will be referred binding arbitration to be conducted in London, England in accordance with the International Chamber of Commerce. The award of the arbitrator(s) shall be enforceable in any court having jurisdiction over the party (or over the property of the party) against whom enforcement is sought. l. Rights and Remedies Cumulative. The rights and remedies provided in this Agreement shall be cumulative and not exclusive of any other rights and remedies provided by law or otherwise. m. Captions and Section References. The section headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or extent of such section or in any way affect such section. 12 n. Authority to Enter and Execute Agreement; Prior Grants. Each party represents and warrants to the other that it has the right, full power and lawful authority to enter into this Agreement for the purpose herein (including the granting of licenses under this Agreement) and to carry out its obligations hereunder. Each party further warrants to the other that it has no other outstanding agreements or obligations inconsistent with the terms and provisions hereof and that it has not made any prior grants of rights in or to the March Group Technology, the Specifications and the Superbike, on the other hand, to any third party which are inconsistent or would interfere in the performance of this agreement. o. Publicity. All notices to third parties and an other publicity concerning this Agreement or its subject matter shall be jointly planned and coordinated between the parties. Neither party shall act unilaterally in this regard without the prior written approval of the other party, which approval shall not be unreasonably withheld, and which shall be deemed to be given when disclosure is specifically required by law. All related communications within each party's organization shall be of a confidential nature. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MARCH GROUP PLC By /s/ Richard Ling _________________________ Its Chairman ______________________ MARCH MOTORS LIMITED By /s/ Joseph Novogratz __________________________ Its Managing Director _______________________ 13 Exhibit A DEVELOPMENT PROGRAM Time Period Work Objectives December 1995 Begin on conceptual design; conduct stress analysis of - -January 1996 frame and swinging arm assemblies; produce overall design schemes; discussions with engine manufacturer regarding power deliver, torque application and delivery; conduct analysis of braking and cornering forces, damper performance, lift and drag. February 1996 Produce detail design of complete motorcycle including theoretical weight calculations; discussions with suppliers of brakes, wheels, instrumentation lights, hydraulics with engine manufacturer on design program of engine for motorcycle. March 1996 Production of patterns and tooling for carbon fibre, composite component parts; continuation of detail design of complete motorcycle. April -May 1996 Manufacture of set of carbon fibre components; procurement of "bought-out" component parts for prototype assembly; compilation of weight register for all parts. June-July 1996 Assembly of motorcycle; installation of engine; initial shake down tests; construction of second prototype if required; construction of essential spare parts. August -September 1996 Prototype completion; testing, correction, pre-production complete. 14 Amendment Agreement This amendment Agreement (the "Amendment Agreement"), dated as of __________, 1996 is entered into by and between March Group PLC, a corporation formed under the laws of the United Kingdom("March Group"), and March Motors Limited, a corporation formed under the laws of the United Kingdom (the "Company"). WHEREAS, the Company and March Group entered into that certain Development Agreement dated as of January 1, 1996 (the "Agreement"); WHEREAS, the Agreement originally contemplated that the Company would pay March Group the sum of Five Hundred Thousand Pounds (500,000) in consideration of March Group's continuing compliance with the Development Program (as defined in the Agreement) and that such amount would be payable in ten (10) equal installments of Fifty Thousand Pounds (50,000) each, with the first such installments being due and payable on the first day of each succeeding months and WHEREAS, the Company and March Group now desire to amend the Agreement so that the installments due and owing to March Group under the terms of the Agreement will be as set forth below. NOW, THEREFORE, in consideration of the continued performance by the Company and March Group of their respective promises and obligations under the Agreement and all documents of agreements executed and delivered pursuant to hereto and thereto, and for other good and valuable considerations, the receipt and adequacy of which is hereby acknowledged, the Company and March Group hereby agrees as follows: 1. Amendment to the Agreement. The Agreement is hereby amended as follows: Section 2 shall be amended to read in its entirety as follows: 2. Development Agreement: March Group agrees to use all commercial reasonable efforts to complete the Development Program within ten (10) months of the Effective Date. The parties agree that the estimated cost of designing the Superbike is 15 approximately Three Hundred Thousand Pounds (300,000) and the estimated cost of production of a working prototype of the Superbike is approximately Two Hundred Thousand Pounds(200,000). The Company hereby agrees to pay March Group the sum of Five Hundred Thousand Pounds (500,000) in consideration of March Group's continuing compliance with the Development Program. Such amount will be payable in ten(10) installments as set forth below: January 1996 25,000 February 1996 25,000 March 1996 30,000 April 1996 40,000 May 1996 40,000 June 1996 60,000 July 1996 60,000 August 1996 70,000 September 1996 80,000 October 1996 70,000 Each installment shall be due and payable on the first day of each month, such installment payments shall be contingent upon and subject to March Group's continued compliance with the Development Program. Upon each installment payment made by the Company pursuant to this Section 2, the Company shall obtain and retain all right, title and interest in and to the Specifications, the Superbike and all Intellectual Property therein. Except as otherwise provided for in this Agreement, March Group shall be responsible for all costs and expenses incurred in carrying out the Development Program. March Group agrees to consult with the Company on a regular basis regarding the progress of the Development Program, and will give the Company the opportunity to review and approve the functional specifications prior to commencing the engineering design phase of the Development Program. In connection with the development Program, march Group agrees to assist in creating an operating manual for the Superbike which the Company will distribute to purchasers and end-users of the Superbike. If March Group fails to develop the Superbike within ten (10) months of the Effective Date, the Company shall have the right to terminate this Agreement pursuant to Section 12 hereunder." 2. No Other Amendments: No Waivers. Except as specifically amended herein, all of the terms, covenants and conditions of the Agreement, as amended hereby, remain in full force and effect. 3. Recitals. The above recitals are true and correct as of the date hereof and constitute a part of this Amendment Agreement. 4. Choice of Governing Law. This Amendment Agreement is mad in accordance with and shall be governed and construed under the laws of the United 16 Kingdom, as applied to agreements executed and performed entirely in the United Kingdom. The official text of this Amendment Agreement and any Exhibit or any notice given or accounts or statements by this Amendment Agreement shall be in English. 5. Counterparts. This Amendment Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to an original, and all of which counterparts of this Amendment Agreement when taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Amendment Agreement as of the day and year first above written. MARCH GROUP PLC By _________________________ Its ____________________ MARCH MOTORS LIMITED By __________________________ Its ____________________ 17 ADDENDUM TO DEVELOPMENT AND MARKETING AGREEMENT THIS ADDENDUM TO DEVELOPMENT AND MARKETING AGREEMENT ("Addendum") is made as of this 27th day of January, 1997 by and between March Group PLC, a corporation formed under the laws of the United Kingdom ("March Group"), and March Motors Limited, a corporation formed under the laws of the United Kingdom (the "Company"). WHEREAS, March Group and the Company entered into that certain Development and Marketing agreement dated as of December 15, 1996, as amended on February 27, 1996 (the "Agreement"). WHEREAS, pursuant to the Agreement, the parties thereto agreed to work together to design and develop a high performance chassis (and related components) for use in the Company's Superbike. WHEREAS, the parties to the Agreement have decided to amend the Agreement to extend the term thereof. NOW, THEREFORE, in consideration of the premises, the mutual promises contained in the Agreement, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: Section 12(a) of the Agreement shall be amended in its entirety to read as follows: "a. Term. This Agreement shall commence on the Effective Date and, subject to earlier termination as provided herein, shall continue thereafter in perpetuity; provided, however, that, after the third anniversary of the Effective Date, if the Company (including any affiliates thereof) ceases to manufacture or market motorcycles, spare motorcycle parts and related merchandise, this Agreement may be terminated by either party upon the expiration of 90-day written notice to the other party of the first party's intention to terminate this Agreement." This Addendum may be executed in counterparts with the same force and effect as if each of the signatories had executed the same instrument. 18 IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the day and year first above written. MARCH GROUP PLC By /s/ Richard Ling _____________________ Its Chairman MARCH MOTORS LIMITED By /s/ Joseph Novogratz ______________________ Its President 19 EX-10.3 12 DEVELOPMENT AND MARKETING AGREEMENT Exhibit 10.3 DEVELOPMENT AND MARKETING AGREEMENT THIS DEVELOPMENT AND MARKETING AGREEMENT ("Agreement") is made as of this 15th date of December, 1995, (the "Effective Date") by and between M.C.D. Limited, a corporation formed under the laws of the United Kingdom ("MCD") and March Motors Limited, a corporation formed under the laws of the United Kingdom (the "Company"). WHEREAS, MCD is engaged in the business of designing, developing and selling high performance engines for performance motor vehicles including motorcycles. WHEREAS, the Company is interested in producing, marketing and selling superbikes for sale to the general public; WHEREAS, the Company is also interested in producing, marketing and selling engines for use in Indy race cars; and WHEREAS, MCD and the Company are desirous of working together cooperatively to design and develop piston engines for use in the Company's superbike and for sale for use in Indy race cars. NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, the parties hereto agree as follows: 1. Definitions. As used herein, the following terms shall have the following meanings: a. "Affiliates" means corporations or other business organizations that, either directly or through one or more intermediaries, control, are controlled by, or are under common control with, a party hereto. b. "Control" means ownership of 50% or more of the voting securities of an entity. c. :Development Program" means MCD's efforts to design and develop and produce working prototypes of the following engines: (i) a 750cc, 4 cylinder, twin-cam engine, drivetrain and gearbox for use with the Company's superbike motorcycle, and (ii) an Indianapolis PPG regulation race engine. d. "Engine(s)" means, individually or collectively, that certain 750cc, 4 cylinder, twin-cam engine, drivetrain and gearbox for use with the Company's superbike motorcycle and that certain Indianapolis PPG regulation race engine, such as developed by MCD pursuant to the Development Program set forth in this Agreement. e. "Intellectual Property" means copyrights, patents, trademarks and trade secrets, whether or not registered,. filed, applied for or the like, and all related rights. f. "MCD Technology" means the proprietary technology and related Intellectual Property of MCD, and improvements and modifications to such technology, necessary to develop and produce the Engines. g. "Specifications" means the drawings, specifications and vendor lists for the design, performance and manufacturability of the Engines, which are to be developed by MCD hereunder. 2. Development Program MCD agrees to use all commercially reasonable efforts to complete the Development Program with ten (10) months of the Effective Date. The parties agree that the target cost to produce each motorcycle Engine shall be Four Thousand Pounds (4,000), and the target cost to produce each Indy race car Engine shall be Thirty-three Thousand Pounds (33,000). The parties agree that the estimated cost of designing the Engines is approximately One Hundred Thousand Pounds (100,000). The Company hereby agrees to pay MCD the sum of One Hundred Thousand Pounds (100,000) in consideration of MCD's continuing compliance with the Development Program. Such amount will be payable in ten (10) equal installments of Ten Thousand Pounds (10,000) each, with the first such installment being due and payable on December 15, 1995, and the remaining installments being due and payable on the first day of each succeeding month, such installment payments shall be contingent upon and subject to MCD's continued compliance with the Development Program. Upon each installment payment made by the Company pursuant to this Section 2, the Company shall obtain and retain all right, title and interest in and to the Specifications, the Engines and all Intellectual Property therein. Except as otherwise provided for in the Agreement, MCD shall be responsible for all costs and expenses incurred in carrying out the Development Program. MCD agrees to consult with the Company on a regular basis regarding the progress of the Development Program, and will give the Company the opportunity to review and approve the functional specifications prior to commencing the engineering design phase of the Development Program. In connection with the Development Program, MCD agrees to assist in creating an operating manual for the Engines which the Company will distribute to purchasers and end-users of the vehicles which the Engines are to be a part. If MCD fails to develop the Engines within ten (10) months of the Effective Date, the Company shall have the right to terminate this Agreement pursuant to Section 12 hereunder. 3. Ownership of Technology. a. MCD Technology. MCD owns and possesses all right, title and interest in the MCD Technology. MCD has not licensed any of the MCD Technology 2 to any third party. MCD has taken all necessary action to protect the MCD Technology. MCD has not received any notice of, nor are there any facts known to MCD which indicate a likelihood of, any infringement or misappropriation by, or conflict from, any third party with respect to the MCD Technology; no claim by any third party contesting the validity of the MCD Technology has been made, is currently outstanding or, to the best knowledge of MCD, is threatened; MCD has not received any notice of any infringement, misappropriation or violation by it of any intellectual property rights of any third parties and MCD has not infringed, misappropriated or otherwise violated any such intellectual property rights; and no infringement, illicit copying, misappropriation or violation has occurred or will occur with respect to the products currently under development (in their present state of development), including the Engines, or with respect to the conduct of the MCD's business as now conducted. The parties agree that MCD shall retain all right, title and interest in and to the MCD Technology and all Intellectual Property therein, subject only to the license granted hereunder. b. Company Technology. The parties agree that the Company shall retain all right, title and interest in and to the Specifications, the Engines, all Intellectual Property therein, and after the third anniversary of this Agreement, all molds, tooling, casts and equipment used to manufacture the Engines, subject only to the royalty obligation. c. Technical Assistance. MCD will provide knowledgeable and competent personnel as reasonably necessary (at its own expense) to complete the development of the Engines and to ensure that the Engines operate in accordance with the Specifications. MCD hereby agrees to attend bi-weekly progress meetings with March Group PLC to discuss the integration of the motorcycle Engine into the specifications for the motorcycle which shall utilize such Engine. MCD also agrees to provide, at no additional cost, knowledgeable and competent personnel as reasonably necessary, to assist the Company in all phases of assembly and manufacture of the Engines. 4. License and Royalty. a. License to the Company. Subject to the terms and conditions of this Agreement, MCD hereby grants to the Company, and the Company hereby accepts from MCD, a royalty-free, perpetual, irrevocable, exclusive and worldwide license to use the MCD Technology in connection with the manufacture, marketing and sale of the Engines. b. The Company agrees to pay to MCD royalties at the rate of two and one-half percent (2.5%) of the net selling price of motorcycles utilizing the motorcycle Engine sold by the Company. For this purpose, "net selling price" shall mean the dealer invoice price for each motorcycle sold by the Company utilizing the Engine, less returns, allowances and shipping charges. 3 c. The Company agrees to pay to MCD royalties at the rate of two and one-half percent (2.5%) of the net selling price of Indy race car Engines sold by the Company. For this purpose, "net selling price" shall mean the dealer invoice price for each Indy race car Engine sold by the Company, less returns, allowances and shipping charges. d. All royalties calculated pursuant to Sections 4(b) and 4(c) shall be paid to MCD net of any tax or charge imposed by and United Kingdom government or political subdivision thereof except for income tax or tax in lieu of income tax imposed thereon and required to be withheld by the Company pursuant to valid governmental authority. With respect to any such tax properly withheld, the Company shall furnish MCD with receipts showing the withheld taxes to have been duly deposited with the taxing authority. The Company shall be solely responsible for payment of any value added tax on this Agreement or any payments made pursuant to this Agreement. e. Royalties are to be paid in monthly installments (less taxes as provided in Section 4(d) within thirty (30) days after the Company's receipt of final payment for any Indy race car Engine or motorcycle utilizing the motorcycle Engine developed pursuant to this Agreement. Each installment will be payable in British Pounds by wire transfer to a bank account designated by MCD. f. For as long as royalties are due under this Agreement, the Company will keep true and accurate records adequate to permit royalties due to MCD to be computed and verified. The records will be open at all reasonable times during business hours for inspection by a duly authorized representative of MCD to the extent necessary for the determination of the accuracy of the reports made hereunder. MCD's representative will have the right to make copies of the relevant records. 5. Production Equipment. MCD shall provide the Company with a list of vendors who will develop the molds, tooling, dies and casts to produce component parts for the manufacture of the Engines. All such molds, tooling, dies and casts shall be referred to in this Agreement as the "Production Equipment." From the Effective Time until the third anniversary of this Agreement, the Production Equipment shall be used by the Company, MCD, any affiliate of the Company or MCD and their respective subcontractors for the sole and exclusive benefit of the Company. After the third anniversary of this Agreement, the Production Equipment shall become the property of the Company and shall be used by the Company or its subcontractors exclusively for the development and manufacture of the Engines pursuant to the Company's purchase orders. 6. Marketing Obligations a. Best Efforts to Promote Marketing. At all times during the term of this Agreement, both parties will use best efforts to promote the manufacture, sale, marketing and distribution of the motorcycles utilizing the Engines. 4 b., Marketing Practices. Both parties agree to (i) conduct business in a manner that reflects favorably at all times on the good name, goodwill and reputation of the other party, (ii) not engage in deceptive, misleading or unethical practices that are or might be detrimental to the other party, (iii) not make any false or misleading representation with regard to the other party or its products, (iv) not publish or utilize or cooperate in the publication or utilization of any misleading or deceptive advertising material that relates in any way to the other party and its products, (v) not make any representation or warranty to anyone with respect to the specifications, features or capabilities of the other party's products that are inconsistent with the literature distributed by the other party, including all disclaimers contained in such literature, and (vi) not make any warranty or representation to anyone that would give the recipient any claim or right of action against the other party. 7. Additional Covenants of MCD a. Agreement not to Compete (i) Except for MCD's existing relationship with MotorradUnd Zweiradwerk GmbH, and as otherwise contemplated by this Agreement, MCD agrees that during the term of this Agreement and for a period of five (5) years after the termination of this Agreement, it will not, directly or indirectly, engage in competition with the Company in any manner or capacity (e.g. as an advisor, principal, agent, partner, officer, director, stockholder, employee, member of any association or otherwise) in any phase of the business which the Company is conducting during the term of this Agreement. (ii) The obligations of MCD under Section 7(a)(i) shall apply to any geographic area in which the Company (y) has engaged in business during the term of this Agreement through production, promotional, sales or marketing activity, or otherwise, or (z) has otherwise established its goodwill, business reputation, or any customer relations. (iii) Ownership by MCD as a passive investment, of less than 1% of the outstanding shares of capital stock of any corporation listed on a securities exchange or publicly traded on any recognized market shall not constitute a breach of this Section 7. (iv) MCD further agrees that during the term of this Agreement it will not, directly or indirectly, assist or encourage any other person in carrying out, directly or indirectly, any activity that would be prohibited by the foregoing provisions of this Section 7 if such activity were carried out by MCD, either directly or indirectly. In particular, MCD agrees that it will not, directly or indirectly, induce any employee of MCD to carry out, directly or indirectly, any such activity. 8. Confidentiality 5 a. Obligation. Each party shall keep confidential and not disclose to any third party or use for its own benefit, except as expressly permitted herein, or for the benefit of any third party, any of the following information disclosed by the other party to it (collectively "Confidential Information"): (I) any information provided to it by the other party marked with a proprietary, confidential or other similar notice, or orally disclosed to it by the other party and followed by a writing within thirty (30) days of such oral disclosure indicating said information was confidential, and (ii) even if not so marked, information that is reasonably understood by it to be confidential, including the MCD Technology, on the one hand, and the Specifications and the Company Technology, on the other hand. b. Exclusions. The term "Confidential Information" shall not include information which (i) is or becomes generally known or available through no act or failure to act by the receiving party, (ii) is already known by the receiving party at the time of receipt as evidenced by its records, (iii) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on disclosure, (iv) is disclosed by written permission of the party disclosing the Confidential Information, or (v) is required to be disclosed by court order or law, but in such event notice shall be provided at least ten (10) days in advance of such disclosure. c. Access to Information. Each party shall limit access to Confidential Information to those of its employees or agents (including subcontractors) who have a need for such Confidential Information, or to its sublicensees to the extent necessary to allow such sublicensee to fully use their sublicenses, and who are under a written obligation to keep such information confidential. Such written obligation shall be at least as restrictive as those obligations specified in Section 8(a) above. d. Injunctive Relief. The parties acknowledge that a breach or threatened breach of this Section 8 by any of the parties may cause the nonbreaching party to suffer irreparable harm and injury such that no remedy at law will adequately compensate the other party. Thus, the nonbreaching party shall have the right to obtain injunctive relief with respect to such breach or threatened breach, in addition to any other available remedy or relief. 9. Warranties a. Warranties by MCD. MCD warrants that, for a period of five (5) years from the date of delivery of the prototype Engines, such prototypes shall conform to the Specifications and shall be free from defects in materials and workmanship. b. Warranty Pass-Through. The Company is permitted to provide to its end-users the warranty granted to it hereunder. The Company hereby agrees to indemnify and hold harmless MCD for any warranty or representation made by the Company that exceeds or that is otherwise inconsistent with such warranty. 6 c. Survival. The provisions of this Section 9 shall survive the expiration or termination of this Agreement for any reason. 10. Intellectual Property Indemnification MCD shall indemnify the Company for any damages finally awarded or settlement amounts paid in respect of any loss, liability or expense suffered or incurred by the Company or any of its customers for any patent, copyright, trade secret or similar infringement claim brought against the Company or any of its customers in respect of the Company's use or such customer's use of the Engines or any of the MCD Technology (but only to the extent that such infringement claim is related to the Engines), or any material supplied by MCD to the Company pursuant to this Agreement. The Company shall notify MCD as soon as practicable of any such infringement claim brought against either the Company or any of its customers. If the Company defends such a claim, then, if requested by the Company, MCD shall provide the Company with full documentation and cooperation to assist the Company in defending such claim. If any item furnished hereunder, including without limitation the Specification or the Engines supplied hereunder, is in MCD's opinion likely to or does become the subject of a claim for infringement of any patent, copyright or other proprietary right, MCD may, at its option and expense, procure for the Company or any affected customer, the right to continue using the same, or modify it so that it becomes non-infringing, but without diminishing MCD's obligations hereunder. 11. Term, Termination and Effect of Termination a. Term. This Agreement shall commence on the Effective Date and, subject to earlier termination as provided herein, shall continue until the date which is five (5) years after the Effective Date. The Agreement shall be renewable for additional one (1) year periods upon mutual written agreement by the parties at least ninety (90) days prior to the expiration of the then-current term. b. Termination on Bankruptcy. Either party may terminate this Agreement upon written notice if a petition for relief under any bankruptcy law or legislation is filed by or against the other party, the other party makes an assignment for the benefit of creditors, or a receiver is appointed for an or a substantial portion of any of the other party's assets, and such petition, assignment or appointment is not dismissed or vacated within thirty (30) days. c. Termination for Failure to Develop Specifications. If the Company terminates this Agreement for failure by MCD to develop the Specifications or the Engines as provided herein, this Agreement shall be terminated and the Company shall be entitled to all rights in and to the Specifications, the Engines, all molds, tooling, dies, casts, and all Intellectual Property therein, developed to date. 7 d. Effect of Material Breach by MCD. If MCD materially breaches this Agreement, the Company shall have the right to terminate this Agreement and the Company shall be entitled to all rights in and to the Specifications, the Engines, all molds, tooling, dies, casts and all Intellectual Property therein, developed to date, and the continuing right to the license granted to the Company in Section 4(a) relating to the MCD Technology. e. Effect of Material Breach by the Company. If the Company materially breaches this Agreement and fails to correct such default within sixty (60) days after written notice of such default if provided to the Company by MCD, MCD shall have the right, at its sole option, to terminate this Agreement and the Company shall be entitled to all rights in and to the Specifications, the Engines, all molds, tooling, dies, casts and all Intellectual Property therein, developed to date, and the continuing right to the license granted to the Company in Section 4(a) relating to the MCD Technology. f. Surviving Rights. Termination or expiration of this Agreement shall not affect any other rights of the parties which may have accrued up to the date of such termination or expiration and, in addition, (I) no party shall be relieved of any obligation for any sums due to the other party, (ii) the Company shall be entitled to take physical possession of and ownership of all Specifications, the Engines, all molds, tooling, dies, casts and all Intellectual Property therein, developed to date, and the continuing right to the license granted to the Company in Section 4(a) relating to the MCD Technology, and (iv) no party shall be relieved of its obligations under Sections 9 (Confidentiality), 10 (Warranties), 11 (Intellectual Property Indemnification), 13 (Limitation of Liability, and 14(k) (Choice of Governing Law). 13. Compliance With Laws In connection with and in furtherance of its marketing and manufacturing activities hereunder, each party shall be responsible for obtaining, and shall use all reasonable commercial efforts to obtain, any and all required governmental authorizations, including without limitation any import licenses and foreign exchange permits, and, if applicable, shall be responsible for filing and registering this Agreement with the appropriate authorities. 14. Miscellaneous. a. Relationship of Parties. The parties are not employees or legal representatives of the other party for any purpose. Neither party shall have the authority to enter into any contracts in the name of or on behalf of the other party. b. Further Assurances. The parties agree that each party has the exclusive right to enjoin any infringement by a third party of any Intellectual Property of the party related to such party's technology. In the event that any unlawful copying of the Specifications or the 8 Engines, infringement of a party's rights in the Specifications or the Engines, or infringement or registration by a third party of the rights of MCD or the Company comes to the attention of either party, such party shall immediately inform the other in writing, stating the full facts of the infringement or registration known to it, including the identity of the suspected infringer or registrant, the place of the asserted infringement or registration and evidence thereof. Each of the parties agree to cooperate fully with the other party at the expense of such other party if such other party sues to enjoin such infringements or to oppose or invalidate any such registration. d. Nonassignability; Binding on Successors. Either party may assign or otherwise transfer this Agreement to an Affiliate or in connection with a sale of all or substantially all of its assets, or of its business, whether via merger or otherwise. Except as permitted in the preceding sentence, neither party shall assign any of its rights or obligations under this Agreement without the express written consent of the other party, which consent shall not unreasonably be withheld. Any attempted assignment under this Agreement without such consent shall be void. In the case of any permitted assignment or transfer of or under this Agreement, this Agreement or the relevant provisions shall be binding upon the executors, heirs, representatives, administrators and assigns of the parties hereto. e. Severability. In the event any provision of this Agreement is held to be invalid or unenforceable, the valid or enforceable portion thereof and the remaining provisions of this Agreement will remain in full force and effect. f. Force Majeure. Neither party shall be liable to the other for its failure to perform any of its obligations under this Agreement, except for payment obligations, during any period in which such performance is delayed because rendered impracticable or impossible due to circumstances beyond its reasonable control, including without limitation earthquakes, governmental regulation, fire, flood, labor difficulties, civil disorder, and acts of God, provided that the party experiencing the delay promptly notifies the other party of the delay. g. Waiver. Any waiver (express or implied) by either party of any breach of this Agreement shall be in writing and shall not constitute a waiver of any other of subsequent breach. h. Entire Agreement Amendment. This Agreement and the exhibits attached hereto constitute the entire, final, complete and exclusive agreement between the parties and supersede an previous agreements or representations, written or oral, with respect to the subject matter of this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each party. i. Counterparts. This agreement may be executed in counterparts with the same force and effect as if each of the signatories had executed the same instrument. 9 j. Notice. All notices, communications, requests, demands, consents and the like required or permitted under this Agreement will be in writing and will be deemed given and received (I) when delivered personally, (ii) when sent by confirmed telecopy, (iii) ten (10) days after having been duly mailed by first class, registered or certified mail, postage prepaid, or (iv) three (3) business days after deposit with a commercial overnight carrier, with written verification of receipt. All notices will be addressed as follows: If to MCD: Attention: Telephone" Telecopy: With a copy to: Attention: Telephone: Telecopy: If to the Company: Attention: Telephone: Telecopy: With a copy to: Dorsey & Whitney P.L.L.P. Pillsbury Center South 220 S. Sixth Street Minneapolis, Minnesota 55402 USA Attention: Thomas S. Hay, Esq. Telephone: (612) 340-2600 Telecopy: (612) 340-2868 or to such other address as the person to whom notice is to be given may have furnished to the other in writing in accordance herewith, except that notices of change of address will be effective only upon receipt. A notice given by any means other than as specified herein will be deemed duly given when actually received by the addressee. k. Choice of Governing Law, Arbitration. This Agreement is made in accordance with and shall be governed and construed under the laws of the United Kingdom, as applied to agreements executed and performed entirely in the 10 United Kingdom. The official text of this Agreement and any Exhibit or any notice given or accounts or statements required by this Agreement shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language. Any dispute or difference arising between the parties hereto will be referred to binding arbitration to be conducted in London, England in accordance with the International Chamber of Commerce. The aware of the arbitrator(s) shall be enforceable in any court having jurisdiction over the party (or over the property of the party) against whom enforcement is sought. l. Rights and Remedies Cumulative. The rights and remedies provided in this Agreement shall be cumulative and not exclusive of any other rights and remedies provided by law or otherwise. m. Captions and Section References. The section headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or extent of such section or in any way affect such section.. n. Authority to Enter Into and Execute Agreement; Prior Grants. Each party represents and warrants to the other that it has the right, full power and lawful authority to enter into this Agreement for the purposes herein (including the granting of licenses under this Agreement) and to carry out its obligations hereunder. Each party further warrants to the other that it has no other outstanding agreements or obligations inconsistent with the terms and provisions hereof and that it has not made any prior grants of rights in or to the MCD Technology, the Specifications and the Engines, on the one hand, or the Company Technology, on the other hand, to any third party which are inconsistent or would interfere in the performance of this Agreement. o. Publicity. All notices to third parties and an other publicity concerning this Agreement or its subject matter shall be jointly planned and coordinated between the parties. Neither party shall act unilaterally in this regard without the prior written approval of the other party, which approval shall not be unreasonably withheld, and which shall be deemed to be given when disclosure is specifically required by law. All related communications within each party's organization shall be of a confidential nature. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. M.C.D. Limited By: /s/ Al Melling ------------------------ Its: Principle ----------------------- March Motors Limited By: /s/ Joseph Novogratz ------------------------ Its: Managing Director ----------------------- EX-10.4 13 DVELOPMENT AND MARKETING AGREEMENT Exhibit 10.4 DEVELOPMENT AND MARKETING AGREEMENT THIS DEVELOPMENT AND MARKETING AGREEMENT ("Agreement") is made as of this 1st day of November, 1996 (the "Effective Date") by and between M.C.D. Limited, a corporation formed under the laws of the United Kingdom ("MCD"), March Motors Limited, a corporation formed under the laws of the United Kingdom (the "Company"), and Al Melling ("Consultant"). WHEREAS, MCD is engaged in the business of designing, developing and selling high performance engines for performance motor vehicles including motorcycles; WHEREAS, the Company is interested in producing, marketing and selling superbikes for sale to the general public; WHEREAS, the Company is also interested in producing, marketing and selling engines for use in Indy race cars; and WHEREAS, MCD and the Company are desirous of working together cooperatively to design and develop piston engines for use in the Company's superbike and for sale for use in Indy race cars. NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, the parties hereto agree as follows: 1. Definitions As used herein, the following terms shall have the following meanings: a. "Affiliates" means corporations or other business organizations that, either directly or through one or more intermediaries, control, are controlled by, or are under common control with, a party hereto. b. "Control" means ownership of 50% or more of the voting securities of an entity. c. "Design Program" means MCD's efforts to design the following engines: (i) a 1500cc, eight cylinder, twin-cam engine, drivetrain and gear box for use with the Company's superbike motorcycle, and (ii) a single cylinder, twin-plug cylinder head, desmodratic valve gear, built-up bearings on crankshaft and balancer shaft, 600cc engine, drivetrain and gearbox for use with the 600cc Motorcycle Frame. d. "Engine(s)" means, individually or collectively, that certain 1500cc, 4 cylinder, twin-cam engine, drivetrain and gearbox for use with the Company's superbike motorcycle and that certain single cylinder, twin-ply cylinder head, desmodratic valve gear, built-up bearings on crankshaft and balancer shaft, 600cc engine, drivetrain and gearbox for use with the Company's superbike motorcycle, each as designed by MCD pursuant to the Development Program set forth in this Agreement. e. "Intellectual Property" means copyrights, patents, trademarks and trade secrets, whether or not registered, filed, applied for or the like, and all related rights. f. "MCD Technology" means the proprietary technology and related Intellectual Property of MCD, and improvements and modifications to such technology, necessary to develop and produce the Engines for the Company. g. "600cc Motorcycle Frame" means that certain 600cc "one-off" motorcycle frame owned by MCD, which was raced by MCD using a Rotax motor and which is to be used by the Company as the motorcycle frame with its 600cc motorcycle Engine. h. "Specifications" means the drawings, specifications and vendor lists for the design, performance and manufacturability of the Engines, which are to be designed by MCD hereunder. i. "600cc Prototype Motorcycle" means the prototype motorcycle to be produced by MCD as part of the Design Program by combining the 600cc Motorcycle Frame and the 600cc motorcycle Engine. 2. Design Program MCD agrees to use all commercially reasonable efforts to complete the Design Program by the end of May 1997. The parties agree that the target cost to produce each 1500cc motorcycle Engine shall be Four Thousand Pounds (4,000), and the target costs to produce each 600cc motorcycle Engine shall be One Thousand Eight Hundred Pounds (1,800). The parties agree that the estimated cost of designing both Engines is approximately Seventy Thousand Pounds (70,000). The Company hereby agrees to pay MCD the sum of Seventy Thousand Pounds (70,000) in consideration of MCD's continuing compliance with the Design Program. Such amount will be payable in seven (7) equal installments of Ten Thousand Pounds (10,000) each, with the first such installment being due and payable on November 15, 1996, and the remaining installments being due and payable on the first day of each succeeding month, such installment payments shall be contingent upon and subject to MCD's continued compliance with the Design Program. Upon each installment payment made by the Company pursuant to this Section 2, the Company shall obtain and retain all right, title and interest in and to the Specifications, the Engines and all Intellectual Property therein. MCD also agrees to sell the Company all of MCD's rights, title and interest in the 600cc Motorcycle Frame, including the exclusive right to design, produce, market and sell frames based on the 600cc Motorcycle Frame, and, in consideration therefor, the Company agrees to pay MCD the sum of Twenty-Five Thousand Pounds (25,000) on November 15, 1996. MCD further agrees to produce one fully-operational 600cc Prototype Motorcycle as part of the Design Program. Except for reasonable travel expenses incurred by MCD in its performance of this Agreement which costs shall be paid for by the Company and except as otherwise provided in this Agreement, MCD shall be responsible for all costs and expenses incurred in carrying out the Design Program. MCD agrees to consult with the Company on a regular basis regarding the progress of the Design Program, and will give the Company the opportunity to review and approve the functional specifications prior to commencing the engineering phase of the Design Program. In connection with the Design Program, MCD agrees to assist the Company in creating an owners' manual for the 1500cc Motorcycle Engine and the 600cc Prototype Motorcycle which the Company will distribute to the purchasers and end-users of such products. MCD also agrees to supply the Company with a parts list for the 600cc Prototype Motorcycle, which list shall identify each part comprising such Motorcycle, the name of the distributor for each such part and the price for each such part. If MCD fails to develop the Engines and the 600cc Prototype Motorcycle by May 31, 1997, the Company shall have the right to terminate this Agreement pursuant to Section 12 hereunder; provided, however, that the Company will not be able to terminate this Agreement if such delay is directly caused by the delay or nonperformance of MCD's subcontractors. 3. Ownership of Technology. a. MCD Technology. MCD owns and possesses all right, title and interest in the MCD Technology. MCD has not licensed any of the MCD Technology to any third party. MCD has taken all necessary action to protect the MCD Technology. MCD has not received any notice of, nor are there any facts known to MCD which indicate a likelihood of, any infringement or misappropriation by, or conflict from, any third party with respect to the MCD Technology; no claim by any third party contesting the validity of the MCD Technology has been made, is currently outstanding or, to the best knowledge of MCD, is threatened; MCD has not received any notice of any infringement, misappropriation or violation by it of any intellectual property rights of any third parties and MCD has not infringed, misappropriated or otherwise violated any such intellectual property rights; and no infringement, illicit copying, misappropriation or violation has occurred or will occur with respect to the products currently under development (in their present state of development), including the Engines, or with respect to the conduct of the MCD's business as now conducted. The parties agree that MCD shall retain all right, title and interest in and to the MCD Technology and all Intellectual Property therein, subject only to the license granted hereunder. b. Company Technology. The parties agree that the Company shall retain all right, title and interest in and to the Specifications, the Engines, all Intellectual Property therein. c. Technical Assistance. MCD will provide knowledgeable and competent personnel as reasonably necessary to work with the Company's personnel, at the Company's expense, to complete the development of the Engines and to ensure that the Engines operate in accordance with the Specifications. MCD hereby agrees to attend 3 bi-weekly progress meetings with March Group PLC to discuss the integration of the motorcycle Engine into the specifications for the motorcycle which shall utilize such Engine. MCD also agrees to provide knowledgeable and competent personnel as reasonably necessary, to assist the Company in all phases of assemble and manufacture of the Engines. 4. License and Royalty. a. License to the Company. Subject to the terms and conditions of this Agreement, MCD hereby grants to the Company, and the Company hereby accepts from MCD, a royalty-free, perpetual, irrevocable, exclusive and worldwide license to use the MCD Technology in connection with the manufacture, marketing and sale of the Engines. b. The Company agrees to pay to MCD royalties at the rate of two and one-half percent (2.5%) of the net selling price of motorcycles utilizing the motorcycle Engines sold by the Company. For this purpose, "net selling price" shall mean the dealer invoice price for each motorcycle sold by the Company utilizing the Engines, less returns, allowances and shipping charges. c. All royalties calculated pursuant to Section 4(b) shall be paid to MCD net of any tax or charge imposed by any United Kingdom government or political subdivision thereof except for income tax or tax in lieu of income tax imposed thereon and required to be withheld by the Company pursuant to valid governmental authority. With respect to any such tax properly withheld, the Company shall furnish MCD with receipts showing the withheld taxes to have been duly deposited with the taxing authority. The Company shall be solely responsible for payment of any value added tax to this Agreement or any payments made pursuant to this Agreement. d. Royalties are to be paid in monthly installments (less taxes as provided in Section 4(c) within thirty (30) days after the Company's receipt of final payment for any motorcycle utilizing the motorcycle Engines developed pursuant to this Agreement. Each installment will be payable in British Pounds by wire transfer to a bank account designated by MCD. e. For as long as royalties are due under this Agreement, the Company will keep true and accurate records adequate to permit royalties due to MCD to be computed and verified. The records will be open at all reasonable times during business hours for inspection by a duly authorized representative of MCD to the extent necessary for the determination of the accuracy of the reports made hereunder. MCD's representative will have the right to make copies of the relevant records. 5. Production Equipment. MCD shall provide the Company with a list of vendors who will develop the molds, tooling, dies and casts to produce component parts for the manufacture of the Engines. All such molds, tooling, dies and casts shall be 4 referred to in this Agreement as the "Production Equipment." From the Effective Time until the third anniversary of this Agreement, the Production Equipment shall be used by the Company, MCD, any affiliate of the Company or MCD and their respective subcontractors for the sole and exclusive benefit of the Company. 6. Marketing Obligations. a. Best Efforts to Promote Marketing. At all times during the term of this Agreement, both parties will use best efforts to promote the manufacture, sale, marketing and distribution of the motorcycles utilizing the Engines. b. Marketing Practices. Both parties agree to (i) conduct business in a manner that reflects favorably at all times on the good name, goodwill and reputation of the other party, (ii) not engage in deceptive, misleading or unethical practices that are or might be detrimental to the other party, (iii) not make any false or misleading representation with regard to the other party or its products, (iv) not publish or utilize or cooperate in the publication or utilization of any misleading or deceptive advertising material that relates in any way to the other party and its products, (v) not make any representation or warranty to anyone with respect to the specifications, features or capabilities of the other party's products that are inconsistent with the literature distributed by the other party, including all disclaimers contained in such literature, and (vi) not make any warranty or representation to anyone that would give the recipient any claim or right of action against the other party. 7. Additional Covenants of MCD. a. Agreement not to Compete. (i) Except for MCD's existing relationship with Motorrad-Und Zweiradwerk GmbH, and as otherwise contemplated by this Agreement, MCD agrees that during the term of this Agreement and for a period of five (5) years after the termination of this Agreement, it will not, directly or indirectly, engage in competition with the Company in any manner or capacity (e.g., as an advisor, principal, agent, partner, officer, director, stockholder, employee, member of any association or otherwise) in any phase of the business which the Company is conducting during the term of this Agreement. Specifically, MCD shall not design for any other developer of competition motorcycles V-8 engines, single cylinder 500cc to 700cc engines, 750cc engines, or any engine which would be used as a world superbike engine. (ii) The obligations of MCD under Section 7 (a)(i) shall apply to any geographic area in which the Company (y) has engaged in business during the term of this Agreement through production, promotional, sales or marketing activity, or otherwise, or (z) has otherwise established its goodwill, business reputation, or any customer relations. 5 (iii) Ownership by MCD, as a passive investment, of less than 1% of the outstanding shares of capital stock of any corporation listed on a securities exchange or publicly traded on any recognized market shall not constitute a breach of this Section 7. (iv) MCD further agrees that during the term of this Agreement it will not, directly or indirectly, assist or encourage any other person in carrying out, directly or indirectly, any activity that would be prohibited by the foregoing provisions of this Section 7 if such activity were carried out by MCD, either directly or indirectly. In particular, MCD agrees that it will not, directly or indirectly, induce any employee of MCD to carry out, directly or indirectly, any such activity. 8. Confidentiality. a. Obligation. Each party shall keep confidential and not disclose to any third party or use for its own benefit, except as expressly permitted herein, or for the benefit of any third party, any of the following information disclosed by the other party to it (collectively "Confidential Information"): (i) any information provided to it by the other party marked with a proprietary, confidential or other similar notice, or orally disclosed to it by the other party and followed by a writing within thirty (30) days of such oral disclosure indicating said information was confidential, and (ii) even if not so marked, information that is reasonably understood by it to be confidential, including the MCD Technology, on the one hand, and the Specifications and the Company Technology, on the other hand. b. Exclusions. the term "Confidential Information" shall not include information which (i) is or become generally known or available through no act or failure to act by the receiving party, (ii) is already known by the receiving party at the time of receipt as evidenced by its records, (iii) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on disclosure, (iv) is disclosed by written permission of the party disclosing the Confidential Information, or (v) is required to be disclosed by court order or law, but in such event notice shall be provided at least ten (10) days in advance of such disclosure. c. Access to Information. Each party shall limit access to Confidential Information to those of its employees or agents (including subcontractors) who have a need for such Confidential Information, or to its sublicensees to the extent necessary to allow such sublicensee to fully use their sublicensees, and who are under a written obligation to keep such information confidential. Such written obligation shall be at least as restrictive as those obligations specified in Section 8(a) above. d. Injunctive Relief. The parties acknowledge that a breach or threatened breach of this Section 8 by any of the parties may cause the nonbreaching party to suffer irreparable harm and injury such that no remedy at law will adequately compensate the other party. Thus, the nonbreaching party shall have the right to obtain 6 injunctive relief with respect to such breach or threatened breach, in addition to any other available remedy or relief. 9. Warranties. a. Warranties by MCD. MCD warrants that, for a period of five (5) years from the date of delivery of the prototype Engines, such prototypes shall conform to the Specifications. b. Warranty Pass-Through. The Company is permitted to provide to its end-users the warranty granted to it hereunder. The Company hereby agrees to indemnify and hold harmless MCD for any warranty or representation made by the Company that exceeds or that is otherwise inconsistent with such warranty. c. Survival. The provisions of this Section 9 shall survive the expiration or termination of this Agreement for any reason. 10. Intellectual Property Indemnification. MCD shall indemnify the Company for any damages finally awarded or settlement amounts paid in respect of any loss, liability or expense suffered or incurred by the Company or any of its customers for any patent, copyright, trade secret or similar infringement claim brought against the Company or any of its customers in respect of the Company's use or such customer's use of the Engines, the 600cc Motorcycle Frame or any of the MCD Technology, or any material supplied by MCD to the Company pursuant to this Agreement. The Company shall notify MCD as soon as practicable of any such infringement claim brought against either the Company or any of its customers. If the Company defends such a claim, then, if requested by the Company, MCD shall provide the Company with full documentation and cooperation to assist the Company in defending such claim. If any item furnished hereunder, including without limitation the Specifications, the 600cc Motorcycle Frame or the Engines supplied hereunder, is in MCD's opinion likely to or does become the subject of a claim for infringement of any patent, copyright or other proprietary right, MCD may, at its option and expense, procure for the Company or any affected customer, the right to continue using the same, or modify it so that it becomes non-infringing, but without diminishing MCD's obligations hereunder. 11. Consulting Relationship. a. Retention of Consultant; Services to be Performed. The Company hereby retains Consultant to render such training, consulting and advisory services relating to the Engines, and the motorcycle engine produced pursuant to that certain Development and Marketing agreement dated as of December 15, 1995 by and between the Company and MCD, as the Company may request. Consultant hereby accepts such engagement and agrees to perform such services for the Company upon the terms and 7 conditions set forth in this Agreement. During the term of this Agreement, Consultant shall devote such portion of his business time, attention, skill and energy to the business of the Company as may be reasonably required to perform the services required by this Agreement and shall assume and perform to the best of his ability such reasonable responsibilities and duties as shall be assigned to Consultant from time to time by the Company. During the term of this Agreement, Consultant shall report to the Managing Director of the Company. b. Compensation. As compensation in full for Consultant's services hereunder, the Company shall pay to Consultant a consulting fee at the rate of Ten Thousand Pounds (10,000) per month. The consulting fee shall be payable to Consultant in arrears at the end of each calendar month beginning on June 30, 1997 and continuing until December 31, 1999, provided, however, that if this Agreement is terminated prior to its natural expiration, the Company shall have no further obligations to Consultant. In the event that Consultant becomes disabled and is unable to perform normal consulting and/or advisory services pursuant to this Agreement, the Company shall not be obligated for the payment of any further compensation hereunder until such disability has ceased and Consultant is able to resume his normal responsibilities hereunder, even though this Agreement has not been terminated by the Company in accordance with its terms. c. Expenses. Consultant shall be reimbursed by the Company in accordance with the policies and procedures that are established from time to time by the Company for all reasonable and necessary out-of-pocket expenses that are incurred by Consultant in performing his duties under this Agreement, including, without limitation, reasonable travel expenses incurred by Consultant. d. Improvements and Inventions. (i) Notification and Disclosure. Consultant shall promptly notify the Company in writing of the existence and nature of, and shall promptly and fully disclose to the Company, any and all ideas, designs, practices, processes, apparatus, improvements and inventions, whether or not they are believed to be patentable (all of which are hereinafter sometimes referred to as "inventions"), which Consultant has conceived or first actually reduced to practice and/or may conceive or first actually reduce to practice during the period of Consultant's consulting arrangement with the Company or which Consultant may conceive or reduce to practice within six (6) months after termination of this Agreement, if such inventions relate to a product or process upon which Consultant worked during the term of his consulting arrangement with the Company. (ii) Ownership and Patenting of Inventions. All such inventions shall be the sole and exclusive property of the Company or its nominee, and 8 during the term of this Agreement and thereafter, whenever requested to do so by the Company, Consultant shall execute and assign any and all applications, assignments and other instruments that the Company shall deem necessary or convenient in order to apply for and obtain Letters Patent of the United States and/or of any foreign countries for such inventions and in order to assign and convey to the Company or its nominee the sole and exclusive right, title and interest in and to such inventions. Consultant will render aid and assistance to the Company in any interference or litigation pertaining to such inventions, and all expenses reasonably incurred by Consultant at the request of the Company shall be borne by the Company. In this connection, if such aid or assistance requires any expenditure of Consultant's time after termination of this Agreement, Consultant shall be entitled to compensation for the time requested by the Company at an hourly rate equal to the pro rata hourly rate at which Consultant was being paid for a normal pay period immediately prior to the end of the term of this Agreement. 12. Term, Termination and Effect of Termination. a. Term. This Agreement shall commence on the Effective Date and, subject to earlier termination as provided herein, shall continue until the date which is five (5) years after the Effective Date. The Agreement shall be renewable for additional one (1) year periods upon mutual written agreement by the parties at least ninety (90) days prior to the expiration of the then-current term. b. Termination on Bankruptcy. Either party may terminate this Agreement upon written notice if a petition for relief under any bankruptcy law or legislation is filed by or against the other party, the other party makes an assignment for the benefit of creditors, or a receiver is appointed for an or a substantial portion of any of the other party's assets, and such petition, assignment or appointment is not dismissed or vacated within thirty (30) days. c. Termination for Failure to Develop Specifications. If the Company terminates this Agreement for failure by MCD to develop the Specifications or the Engines as provided herein, this Agreement shall be terminated and the Company shall be entitled to all rights in and to the Specifications and all Intellectual Property therein, designed to date. MCD will not be held responsible for late delivery from suppliers or subcontractors. d. Effect of Material Breach by MCD. If MCD materially breaches this Agreement, the Company shall have the right to terminate this Agreement and the Company shall be entitled to all rights in and to the Specifications and all Intellectual Property therein, developed to date, and the continuing right to the license granted to the Company in Section 4(a) relating to the MCD Technology. e. Effect of Material Breach by the Company. If the Company materially breaches this Agreement and fails to correct such default within sixty (60) days after written notice of such default is provided to the Company by MCD, MCD shall have 9 the right, at its sole option, to terminate this Agreement and the Company shall be entitled to all rights in and to the Specifications and all Intellectual Property therein, designed and paid for to date, and the continuing right to the license granted to the Company in Section 4 (a) relating to the MCD Technology. f. Surviving Rights. Termination or expiration of this Agreement shall not affect any other rights of the parties which may have accrued up to the date of such termination or expiration and, in addition, (i) no party shall be relieved of any obligation for any sums due to the other party, (ii) the Company shall be entitled to take physical possession of and ownership of all Specifications and all Intellectual Property therein, designed to date, and the continuing right to the license granted to the Company in Section 4(a) relating to the MCD Technology, and (iv) no party shall be relieved of its obligations under Sections 8 (Confidentiality), 9 (Warranties), 10 (Intellectual Property Indemnification) and 14 (k) (Choice of Governing Law). 13. Compliance With Laws. In connection with and in furtherance of its marketing and manufacturing activities hereunder, each party shall be responsible for obtaining, and shall use all reasonable commercial efforts to obtain, and all required governmental authorizations, including without limitation any import licenses and foreign exchange permits, and, if applicable, shall be responsible for filing or registering this Agreement with the appropriate authorities. 14. Miscellaneous. a. Relationship of Parties. The parties are not employees or legal representatives of the other party for any purpose. Neither party shall have the authority to enter into any contracts in the name of or on behalf of the other party. b. Further Assurances. The parties agree that each party has the exclusive right to enjoin any infringement by a third party of any Intellectual Property of the party related to such party's technology. In the event that any unlawful copying of the Specifications, the 600cc, Motorcycle Frame or the Engines, infringement of a party's rights in the Specifications, the 600cc Motorcycle Frame or the Engines, or infringement or registration by a third party of the rights of MCD or the Company comes to the attention of either party, such party shall immediately inform the other in writing, stating the full facts of the infringement or registration known to it, including the identity of the suspected infringer or registrant, the place of the asserted infringement or registration and evidence thereof. Each of the parties agree to cooperate fully with the other party at the expense of such other party if such other party sues to enjoin such infringements or to oppose or invalidate any such registration. d. Nonassignability; Binding on Successors. Either party may assign or otherwise transfer this Agreement to an Affiliate or in connection with a sale of all or 10 substantially all of its assets, or of its business, whether via merger or otherwise. Except as permitted in the preceding sentence, neither party shall assign any of its rights or obligations under this Agreement without the express written consent of the other party, which consent shall not unreasonably be withheld. Any attempted assignment under this Agreement without such consent shall be void. In the case of any permitted assignment or transfer of or under this Agreement, this Agreement or the relevant provisions shall be binding upon the executors, heirs, representatives, administrators and assigns of the parties hereto. e. Severability. In the event any provision of this Agreement is held to be invalid or unenforceable, the valid or enforceable portion thereof and the remaining provisions of this Agreement will remain in full force and effect. f. Force Majeure. Neither party shall be liable to the other for its failure to perform any of its obligations under this Agreement, except for payment obligations, during any period in which such performance is delayed because rendered impracticable or impossible due to circumstances beyond its reasonable control, including without limitation earthquakes, governmental regulation, fire, flood, labor difficulties, civil disorder, and acts of God, provided that the party experiencing the delay promptly notifies the other party of the delay. g. Waiver. Any waiver (express or implied) by either party of any breach of this Agreement shall be in writing and shall not constitute a waiver of any other or subsequent breach. h. Entire Agreement; Amendment. This Agreement and the exhibits attached hereto constitute the entire, final, complete and exclusive agreement between the parties and supersede any previous agreements or representations, written or oral, with respect to the subject matter of this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each party. i. Counterparts. This Agreement may be executed in counterparts with the same force and effect as if each of the signatories had executed the same instrument. j. Notice. All notices, communications, requests, demands, consents and the like required or permitted under this Agreement will be in writing and will be deemed given and received (i) when delivered personally, (ii) when sent by confirmed telecopy, (iii) ten (10) days after having been duly mailed by first class, registered or certified mail, postage prepaid, or (iv) three (3) business days after deposit with a commercial overnight carrier, with written verification of receipt. All notices will be addressed as follows: 11 If to MCD: Attention: Telephone: Telecopy: With a copy to: Attention: Telephone: Telecopy: If to the Company: March Motors Limited c/o IDI Distributors 7667 Equitable Drive Eden Prairie, MN 55344 U.S.A. Attention: Joseph Novogratz Telephone: (612) 937-2000 Telecopy: (612) 937-9809 With a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 S. Sixth Street Minneapolis, Minnesota 55402 USA Attention: Thomas S. Hay, Esq. Telephone: (612) 340-2600 Telecopy: (612) 340-2868 or to such other address as the person to whom notice is to be given may have furnished to the other in writing in accordance herewith, except that notices of change of address will be effective only upon receipt. A notice given by any means other than as specified herein will be deemed duly given when actually received by the addressee. k. Choice of Governing Law, Arbitration. This Agreement is made in accordance with and shall be governed and construed under the laws of the United Kingdom, as applied to agreements executed and performed entirely in the United Kingdom. The official text of this Agreement and any Exhibit or any notice given or accounts or statements required by this Agreement shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any other translation into any other language. Any dispute or difference arising between the parties hereto will be 12 referred to binding arbitration to be conducted in London, England in accordance with the International Chamber of Commerce. The award of the arbitrator(s) shall be enforceable in any court having jurisdiction over the party (or over the property of the party) against whom enforcement is sought. 13 l. RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided in this Agreement shall be cumulative and not exclusive of any other rights and remedies provided by law or otherwise. m. CAPTIONS AND SECTION REFERENCES. The section headings appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or extent of such section or in any way affect such section. n. AUTHORITY TO ENTER INTO AND EXECUTE AGREEMENT; PRIOR GRANTS. Each party represents and warrants to the other that it has the right, full power and lawful authority to enter into this Agreement for the purposes herein (including the granting of licenses under this Agreement) and to carry out its obligations hereunder. Each party further warrants to the other that it has no other outstanding agreements or obligations inconsistent with the terms and provisions hereof and that it has not made any prior grants or rights in or to the MCD Technology, the Specifications and the Engines, on the one hand, or the Company Technology, on the other hand, to any third party which are inconsistent or would interfere in the performance of this Agreement. o. PUBLICITY. All notices to third parties and any other publicity concerning this Agreement or its subject matter shall be jointly planned and coordinated between the parties. Neither party shall act unilaterally in this regard without the prior written approval of the other party, which approval shall not be unreasonably withheld, and which shall be deemed to be given when disclosure is specifically required by law. All related communications within each party's organization shall be of a confidential nature. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. M.C.D. LIMITED By /s/ Al Melling ----------------------- Its Principle ------------------- MARCH MOTORS LIMITED By /s/ Joseph Novogratz ----------------------- Its President/Chairman ------------------- /s/ Al Melling ----------------------- Consultant EX-10.5 14 PROMOTIONAL AGREEMENT Exhibit 10.5 PROMOTIONAL AGREEMENT MARCH MARQUE RACING SERIES THIS PROMOTIONAL AGREEMENT Agreement") is made as this 26th day of February, 1997 (the "Effective Date") by and between M.C.D. Limited, a corporation formed under the laws of the United Kingdom ("MCD"), March Motors Manufacturing Company, a Minnesota corporation (the "Company"), and Al Melling ("Consultant"). WHEREAS, MCD and Consultant have expressed an interest in promoting the sale of the Company's 600cc single cylinder motorcycle in a racing series; WHEREAS, the Company wishes to hire MCD and Consultant to establish, oversee and promote such a racing series to promote the commercial sale of such motorcycle: NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Race Promotion. MCD and Consultant shall use best efforts to establish, oversee and promote a European racing series which features the Company's 600cc single cylinder motorcycle (the "Racing Series"). The Racing Series shall consist of at least five (5) races, each featuring at least one race between selected drivers riding only the Company's 600cc single cylinder motorcycle (similar in nature to the International Race of Champions (IROC) automobile racing series in the United States of America). MCD and Consultant shall be responsible for planning, organizing sponsorship, race track scheduling, safety concerns, insurance, maintenance of the Company's motorcycles that are used in the Racing Series and promotion of such Racing Series. 2. Payment for Services The Company shall pay MCD and Consultant a total of $5,000 per month beginning on May 1, 1997 and ending on April 1, 1999, with such payments to be divided among MCD and Consultant as MCD and Consultant shall determine; provided, however, that if this Agreement is terminated prior to its natural expiration under Section 3(a) hereof the Company shall have no further obligations to MCD or Consultant other then to pay any payments then in arrears. All payments shall be made payable to the order of Al Melling. In the event that Consultant becomes disabled and is unable to perform under this Agreement, the Company shall not be obligated for the payment of any further payments hereunder until such disability has ceased and Consultant is able to resume his normal responsibilities hereunder, even though this Agreement has not been terminated by the Company in accordance with its terms. Consultant shall be reimbursed by the Company in accordance with the policies and procedures that are established from time to time by the Company for all reasonable and necessary out-of-pocket expenses that are incurred by Consultant in performing his duties under this Agreement, including, without limitation, reasonable travel expenses incurred by Consultant. 3. Term, Termination and Effect of Termination a. Term. This Agreement shall commence on the Effective Date and, subject to earlier termination as provided herein, shall continue until April 1, 1999. Thereafter, this Agreement automatically shall renew for one (1) year periods unless and until any party delivers written notice of its intent to terminate this Agreement; provided that such notice is delivered to the other parties at least ninety (90) days prior to the expiration of the then-current term. b. Termination on Bankruptcy. Any party may terminate this Agreement upon written notice of a petition for relief under any bankruptcy law or legislation is filed by or against another party, any party makes an assignment for the benefit of creditors, or a receiver is appointed for any or a substantial portion of any other party's assets, and such petition assignment or appointment is not dismissed or vacated with thirty (30) days. c. Termination for Failure to Promote. The Company may terminate this Agreement upon written notice if either MCD or Consultant, or both of them, shall fail to use best efforts to promote, oversee and establish at least five (5) races pursuant to Section 1 hereof and such failure is not cured within (60) days of receipt of such notice. d. Effect of Material Breach by the Company. If the Company materially breaches this Agreement and fails to correct such default within sixty (60) days after written notice of such default is provided to the Company by MCD or Consultant, MCD and Consultant each shall have the right to terminate this Agreement and no party to this Agreement shall have any further obligation hereunder except that the Company must pay any payments due as of the date of such termination. 4. Miscellaneous. a. Relationship of Parties. The parties are not employees or legal representatives of the other parties for any purpose. No party shall have the authority to enter into any contracts in the name of or on behalf of the other parties. b. Nonassignability; Binding on Successors. Any party may assign or otherwise transfer this Agreement to an Affiliate or in connection with a sale of all or 2 substantially all of its assets, or of its business, whether via merger or otherwise. Except as permitted in the preceding sentence, no party shall assign any of its rights or obligations under this Agreement without the express written consent of the other parties, which consent shall not unreasonably be withheld. Any attempted assignment under this Agreement without such consent shall be void. In the case of any permitted assignment or transfer of or under this Agreement, this Agreement or the relevant provisions shall be binding upon the executors, heirs, representatives, administrators and assigns of the parties hereto. c. Severability. In the event any provision of this Agreement is held to be invalid or unenforceable, the valid or enforceable portion thereof and the remaining provisions of this Agreement will remain in full force and effect. d. Force Majeure. No party shall be liable to the others for its failure to perform any of its obligations under this Agreement during any period in which such performance is delayed because rendered impracticable or impossible due to circumstances beyond its reasonable control, including without limitation earthquakes, governmental regulation, fire, flood, labor difficulties, civil disorder, and acts of God, provided that the party experiencing the delay promptly notifies the other parties of the delay. e. Waiver. Any waiver (express or implied) by any partyof any breach of this Agreement shall be in writing and shall not constitute a waiver of any other or subsequent breach. f. Entire Agreement; Amendment. This Agreement constitutes the entire, final, complete and exclusive agreement between the parties and supersedes any previous agreements or representations written or oral with respect to the subject matter of this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each party. g. Counterparts. This Agreement may be executed in counterparts with the same force and effect as if each of the signatories had executed the same instrument. h. Notice. All notices, communications, requests, demands, consents and the like required or permitted under this Agreement will be in writing and will be deemed given and receive (i) when delivered personally, (ii) when sent by confirmed telecopy, (iii) ten (10) days after having been duly mailed by first class, registered or certified mail, postage prepaid, or (iv) three (3) business days after deposit with a commercial overnight carrier, with written verification of receipt. All notices will be addressed as follows: 3 If to MCD or Consultant: ---------------------- ---------------------- ---------------------- ---------------------- Attention: Al Melling Telephone: Telecopy: If to the Company: March Motors Manufacturing Company c/o IDI Distributors, Inc. 7667 Equitable Drive Eden Prairie, Minnesota 55344 USA Attention: James Kramer Telephone: (612) 545-7737 Telecopy: (612) 545-1782 With a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 S. Sixth Street Minneapolis, Minnesota 55402 USA Attention: Scott L. Barrington, Esq. Telephone: (612) 340-5601 Telecopy: (612) 340-8738 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. M.C.D. LIMITED By /s/ M.R. Brensky ______________________________ Its Secretary MARCH MOTORS MANUFACTURING COMPANY By James J. Kramer ------------------ Its President/CEO /s/ Al Melling ----------------------------------- Al Melling ("Consultant") 5 EX-10.6 15 AGREEMENT DTD 9/4/97 MCD LTD & MARCH MOTORS Exhibit 10.6 THIS AGREEMENT is made as of this 4th day of September, 1997 (the "Effective Date") by and between MCD, an unincorporated private company owned by Al Melling, aka M.C.D. Limited ("MCD"), and March Motors International, Inc., a Minnesota corporation with English operations being carried on by its wholly-owned subsidiary March Motors Limited, a U.K. corporation (March). WHEREAS, March has been involved over the past couple years in the design, development and marketing of three distinct motorcycle models (March Superbike, March Sportbike and March Cruiser) as well as an engine for use in Indy race cars; FURTHER WHEREAS, on behalf of March, MCD has been conducting certain and development work for March on such motorsport products pursuant to a Development and Marketing Agreement of December 15th, 1995 covering the March 750cc Superbike engine and Indy car engine ("MCD Superbike Agreement") and a Development and Marketing Agreement of November 1, 1996 covering the 1500cc cruiser engine and the entire 600cc sportbike engine and bodywork ("MCD Cruiser/Sportbike Agreement"), (which two agreements are collectively the ("MCD Agreements"); and FURTHER WHEREAS, the parties hereto have entered into this Agreement (i) to make certain material amendments to the prior MCD Agreements, (ii) to include additional extensive development by MCD covering additional products as set forth herein, and (iii) to provide for additional consulting by MCD after January 1, 200 NOW, THEREFORE in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows: 1. Definitions- Definitions of terms contained in the MCD Agreements shall retain the meanings set forth in such prior MCD Agreements. The Development Program for additional motorcycle products covered by this Agreement shall include the following: a. Nemesis 200 - MCD shall design and develop a powerful, highspeed, high performance premium March motorcycle for a top-of-the-line March product based on integrating the March V-8 engine with a new chassis design with general specifications including approximately 1500 cc engine capacity, B.H.P. of 261 at 13,000 max RPM, maximum torque of approximately 140 ft.lbs. at 11,000 RPM, four valves and three spark plugs per cylinder, coil-over-plug ignition, two camshafts per cylinder bank and a 6-speed gearbox, with engine design features intended to provide a March motorcycle capable of top roadgoing speeds exceeding 200 mph. b. March Cruiser - MCD shall design and develop an American-style "cruiser" powered by the March V-8 engine designed to particularly create an engine sound typical of American cruisers and a low-slung chassis design, cylinder banks offset approximately 90 degrees from each other, and a powerful macho image. Engine capacity shall be approximately 1800 cc with max B.H.P. of approximately 216 and max RPM of approximately 9000, an electric fuel-injected management system, two valves per cylinder and a 6-speed gearbox. c. Three 600cc Motorcycles - In addition to the 600cc March Sportbike nearing completion pursuant to the prior MCD Cruiser/Sportbike Agreement, MCD shall design and develop the following three additional products, all of which shall employ the one-cylinder 600cc engine which now exists and was developed by MCD: i. Race Replica. MCD shall design and develop a new chassis and related components for a March Race Replica to be intended for use in the March Marque Racing Series. ii. Super Motard. MCD shall design and develop a March motard-style bike in order to provide March with this particular product segment in its full line of motorcycles. iii. Trail Bike. MCD will design and develop a distinctive March Trail Bike for off-road motorcycle sporting use. d. Re-Engineering of Superbike - MCD shall conduct a comprehensive re-engineering of the March Superbike which is being powered by the 750cc in-line 4-cylinder engine developed by MCD pursuant to the MCD Superbike Agreement. Re-engineering of the Superbike shall particularly be cognizant of its future into the World Superbike racing competition. 2. Development Program. MCD agrees to use all commercial reasonable efforts to complete the design and development of the foregoing products within the following schedules, which include a running production prototype of each product: Nemesis 200 - June 30, 1998 (full running production prototype) March Cruiser - June 30, 1998 (full running production prototype) 600cc Race Replica - A model prototype shall be ready for show purposes by December 31, 1997, with the running production prototype completed by May 31, 1998. 600cc Super Motard - June 30, 1998 (full running production prototype) 600cc Trail Bike - August 31, 1998 ( full running production prototype) Superbike Re-engineering - June 30, 1998 (full running production prototype) All chassis and related components developed by MCD under this Development Program shall be accompanied by a complete production documentation package, including specifications and drawings organized and indexed in a production manual, a complete suppliers' list and bill of particulars including component pricing, and a complete description of the various motorcycle models including necessary schematics, line drawings and other documentation relating to all features and components of such products. MCD also shall assist as necessary in the preparation of professional owners' and distributors' manuals for the use and repair of March motorcycles and components thereto. Cost breakdowns for components shall be based on annual sales of 500 units of each model. In addition to the above schedule for the Nemesis 200 and March Cruiser running production prototypes, MCD hereby also agrees to use all commercially reasonable efforts to complete and deliver a model prototype for each of these two motorcycles by December 31, 1997. In addition to the foregoing development, MCD also shall use all commercially reasonable efforts to design a V-4 750cc high performance motorcycle engine, with complete working drawings of the V-4 by December 31, 1999. The parties hereto also acknowledge the design of the Indy-car design has been about 80% completed, and that although the ownership of 2 such Indy-car design belongs to March, the completion of design and development of such engine shall be the subject of a future agreement to be entered into by the parties hereto. March further acknowledges that in regard to engine development for motor car engines, MCD is not working exclusively for March, but rather is free to conduct design and development work for third parties whether or not they compete with March. Future Consulting By MCD - The parties hereto further agree hereby that MCD will provide consulting for March over a three-year period commencing January 1, 2000 regarding future design, development and marketing of engine and motorcycle chassis products. Compensation to MCD - For all development and consulting to be conducted by MCD under the development covered by this Agreement, March shall pay MCD: i. A monthly development payment of Twenty-one Thousand (21,000) English Pounds with the first payment on September 1, 1997 and each monthly payment thereafter on the 1st day of each succeeding month, provided that each such monthly payment is contingent upon MCD's continued compliance with the foregoing development program. Upon each such payment being made to MCD, March shall retain all right, title and interest in and to all product and components and their Specifications and related Intellectual Property. MCD also agrees to consult with March on a regular basis regarding the progress of the various segments of this Development Program, and to give March the opportunity to review and approve the material design features of products covered by this Agreement prior to commencing prototype models. In the event MCD fails to develop motorcycle products and engines as required by the foregoing schedules, March shall have the right to terminate this Agreement pursuant to Section 18 hereunder. ii. For the consulting services to be provided by MCD over the aforementioned 3-year period, March shall pay MCD a monthly consulting payment of Twenty-five Thousand (25,000) English Pounds with the first payment on January 1, 2000 and each succeeding monthly payment being due on the 1st day of each month thereafter. 3. MCD Technology. Regarding any prior MCD technology used for this Development Program, MCD hereby represents the following: MCD has not licensed any of such MCD Technology to any third party; MCD has taken all necessary action to protect such MCD technology; MCD has not received any notice of, nor are there any facts known to MCD which indicate a likelihood of, any infringement or misappropriation by, or conflict from, any third party with respect to such MCD Technology; no claim contesting the validity of such MCD Technology has been made, or is currently outstanding or threatened; MCD has not received any notice of any infringement, misappropriation or violation by it of any intellectual property rights of any third parties and MCD has not infringed, misappropriated or otherwise violated any such intellectual property rights; and no infringement, illicit copying, misappropriation or violation has occurred or will occur with respect to the products currently under development and to be developed under this Agreement, or with respect to MCD's business as now conducted. March shall retain all right, title and interest in and to the products being developed hereby and all related intellectual property, and any related molds, tooling, casts and other equipment used to manufacture working prototyped or commercial models of such products. 4. Technical Assistance. MCD shall provide personnel and assistance as necessary to complete the development of 3 all products required by the Agreement and to insure that they perform in accordance with their respective design specifications, and further MCD shall provide competent personnel and technical assistance as necessary to assist March in all phases of assembly and manufacture of such products. 5. Marketing Obligations. At all times during the term of the Agreement, the parties hereto will use their best efforts to promote the manufacture, sale, marketing and distribution of March motorcycles utilizing engines and bodywork developed by MCD. MCD and March mutually agree to at all times (i) conduct business in a manner that reflects favorably on the good name, goodwill and reputation of the other party, (ii) not engage in deceptive, misleading or unethical practices that are or might be detrimental to the other party, (iii) not make any false or misleading representation with regard to the other party or its products, (iv) not publish or utilize or cooperate in the publication or utilization of any misleading or deceptive advertising material that relates in any way to the other party and its products, (v) not make any representation or warranty to anyone with respect to the specifications, features or capabilities of the other party's products that are inconsistent with the literature distributed by the other party, and (vi) not make any warranty or representation to anyone that would give the recipient thereof any claim or right of action against the other party. 6. Amendments to Prior MCD Agreements - The parties hereto agree that the prior two MCD Agreements between the parties hereto shall be amended hereby only as follows: a. Engine Schedule - The 750cc in-line 4-cylinder engine shall be completely designed by September 30, 1997 to enable MCD to furnish March with initial detailed working drawings by that date. All development work for the working prototype of this engine shall be completed by February 28, 1998. Provided all components and parts are available from suppliers and subcontractors as needed, MCD shall conduct and deliver to March comprehensive performance dynamometer test results by February 28, 1998. The 1500cc V-8 engine shall be completely designed by November 30, 1997 to enable MCD to furnish March with initial detailed working drawings by that date. All development work for the working prototype of this V-8 engine shall be completed by June 30, 1998. Provided all components and parts are available from suppliers and subcontractors as needed, MCD shall conduct and deliver to March comprehensive performance dynamometer test results by June 30, 1998. The 600cc single-cylinder engine shall be completely designed by November 30, 1997 to enable MCD to furnish March with initial detailed working drawings by that date. All development work for the working prototype of this engine shall be completed by April 30, 1998. Provided all components and parts are available from suppliers and subcontractors as needed, MCD shall conduct and deliver to March comprehensive performance dynamometer tests results by April 30, 1998. b. Engine Logo Markings - All engines developed by MCD shall carry the MCD logo on the Cam cover, and the March logo shall be on the outer engine casing. c. Royalty Rights - MCD obtained certain royalty rights under the prior MCD Agreements, and all of such royalty rights are amended as follows: 4 In lieu of receiving cash royalty payments as originally provided for between the parties hereto, MCD shall receive common stock of March equal to $1,000,000 in U.S. currency, subject to resale pursuant to Rule 144 of the Securities Act of 1933, with the number of shares and value thereof being based on the IPO )Initial Public Offering) price of common stock of March. MCD hereby acknowledges that the delivery of such common stock to MCD shall constitute full and complete payment of any and all royalties specified in such two prior MCD Agreements. d. MCD has submitted certain invoices to March for work and expenses incurred by MCD incident to development work performed on behalf of March and which are outstanding as of the date of this Agreement. March shall make full payment on such invoices to MCD to satisfy such outstanding invoices totaling approximately 140,000 English pounds as follows: i) Transfer to MCD of a Chevrolet Corvette already obtained by March for this purpose; ii) The value of delivery costs incurred by March to deliver said car; and iii) The remaining balance (beyond the value of such Corvette and related delivery costs) shall be paid to MCD through issuance and delivery to MCD of March common stock, subject to resale pursuant to Rule 144, equal to such remaining balance of invoices based on a value of $3.00 per share of common stock. MCD shall submit to March proper invoices to verify the amount of such outstanding balances owed to MCD incident to these expenses yet unpaid. 7. Policy Regarding Future Invoices. Incident to future development work and expenses incurred by MCD to perform design and development for March under this Agreement and under the Prior MCD Agreements, MCD shall notify March of any upcoming expenses and fees prior to becoming obligated thereon, for the purpose of obtained March approval of such expenses prior to being undertaken. 8. Time Devoted By Al Melling. Regarding MCD's development and consulting services to be performed under this Agreement and prior MCD Agreements, MCD and Al Melling hereby agree that Al Melling will devote a substantial portion of his personal time and efforts toward the development and marketing of March motor sports products including the time he devotes incident to the March Marque Racing Series. 9. Melling Becomes Director of March. Upon execution of this Agreement by the parties hereto, Melling also agrees to serve on the Board of Directors of March contingent upon his being covered by a standard "errors and omissions" insurance policy during the time he serves in such directorship. 10. Acknowledge By Melling. When Melling receives satisfaction of his outstanding verified invoices pursuant to Section 6d of this Agreement, MCD and Melling hereby acknowledge that they have received all payments due them under any and all contracts between the parties hereto prior to the date hereof. 11. March Marque Racing Series. 5 In February 1997 the parties hereto entered into a "March Marque Racing Series" Agreement for the purpose of promoting the commercial sale of March motorcycles, and such agreement requires MCD and Melling to establish and oversee a European racing series featuring the March 600cc Sportbike, with certain races limited to drivers riding March Sportbikes. The parties hereto agree that the payment to MCD and Melling under this racing series agreement shall be increased to 5,000 English Pounds per month instead of $5,000 U.S. Dollars per month, with such increased payments to commence for the month of September, 1997 and extend through August, 1999. The parties hereto acknowledge that this racing series will now be planned for 1999 instead of the initially planned 1998. Other than the foregoing changes, all other terms and conditions of the original racing series agreement shall remain in full force and effect. 12. Agreement Not to Compete. Other than MCD's existing relationship with Motorrad-Und Zweiradwerk GmbH, MCD agrees that during the term of the Agreement and for a period of five (5) years after any termination of this Agreement, MCD and Melling will not, directly or indirectly, engage in any competition with March in any manner or capacity (e.g. as an advisor, principal, agent, partner, officer, director, stockholder, employee, member of any association or otherwise) in any phase of the business which March is conducting during the term of this Agreement. The obligations of MCD and Melling under this section 12 of this Agreement shall apply to any geographic area in which March has engaged in business during the term of this Agreement through production, promotional, sales or marketing activity, or otherwise, or has otherwise established its goodwill, business reputation, or any customer relations. Ownership as a passive investment of less than 1% of the capital stock of any corporation which is publicly traded shall not constitute a breach of this Section 12. MCD and Melling further agree that during the term of this Agreement they will not, directly or indirectly, assist or encourage any other person in carrying out any activity that would be prohibited by the foregoing provisions of this Section 12 if such activity were carried out by MCD or Melling, either directly or indirectly. In particular, MCD and Melling agree they will not, directly or indirectly, induce any employee of MCD to carry out, directly or indirectly, any such activity. 13. Confidentiality. Each party hereto shall keep confidential and not disclose to any third party or use for its own benefit, except as expressly permitted herein, or for the benefit of any third party, any of the following information disclosed by the other party to it (collectively "Confidential Information"): (I) any information provided to it by the other party which is marked with a proprietary, confidential or other similar notice, or orally disclosed to it by the other party and followed by a writing within thirty (30) days of such oral disclosure indicating said information was confidential, and (ii) even if not so marked, any information that is reasonably understood by it to be confidential, including the MCD Technology, on the one hand, and the Specifications and Company (March) Technology, on the other hand. The term "Confidential Information" should not include information which (i) is or becomes generally known or available through no act or failure to act by the receiving party, (ii) 6 is already known by the receiving party at the time of receipt as evidenced by its records, (iii) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction of disclosure, (iv) is required to be disclosed by court order or otherwise by law, but in such event notice shall be provided at least ten (10) days in advance of such disclosure. Each party shall limit access to Confidential information to those of its employees or agents (including subcontractors) who have a definite "need to know", or to its sublicensees to the extent necessary to allow any such sublicensee to fully use their sublicenses, and who also are under a written obligation to keep such information confidential, with such written obligation to be at least as restrictive as those obligations specified in this Section 13 of the Agreement. The parties hereto particularly acknowledge to each other that a breach or threatened breach of this Section 13 by any of the parties hereto may cause the nonbreaching party to suffer irreparable hard and injury or such nature that no remedy at law will adequately cure or compensate the nonbreaching party. In such event, the nonbreaching party shall have the right to obtain injunctive relief with respect to such breach or threatened breach, in addition to any other available remedy or relief. 14. Warranties. Warranties By MCD - MCD warrants that, for a period of five (5) years from the date of delivery of the working prototypes of engines, bodywork or any other components developed under this Agreement, such prototypes shall conform to their specifications. Moreover, March is permitted to provide its end-users the warranty granted to it hereunder. March also hereby agrees to indemnify and hold harmless MCD for any warranty or representation made by March that exceeds such warranty pass-through rights hereunder. The provisions of this Section 14 regarding warranties of MCD shall survive the expiration or termination of this Agreement for any reason. 15. Intellectual Property Indemnification. MCD shall indemnify and hold harmless March for any damages finally awarded or settlement amounts paid in respect of any loss, liability or expense suffered or incurred by March or any of its customers for any patent, copyright, trade secret or similar infringement claim brought against March or any of its customers in respect to the use by March or any such customer of the engines, bodywork or any other components developed hereunder or of any of the MCD Technology (but only to the extent that such infringement claim involves the engines, bodywork or other components developed hereunder), or any material supplied by MCD to March pursuant to this Agreement. March shall notify MCD as soon as practicable of any such infringement claim brought against either March or any of its customers. If March defends such a claim, then, if requested by March, MCD shall provide March with full documentation and cooperation to assist March in defending any such claim. If any item furnished hereunder, including without limitation the Specifications or products supplied or developed under this Agreement, is in MCD's opinion likely to or does become subject of a claim for infringement of any patent, copyright or other proprietary right, MCD may, at its option and expense, procure for March or any affected customer, the right to continue using the same, or modify it so that it becomes non-infringing, but without diminishing MCD's obligations hereunder. 16. Compliance With Laws. 7 In Connection with and in furtherance of its marketing and manufacturing activities contemplated hereunder, each party hereto shall be responsible for obtaining, and shall use all reasonable commercial efforts to obtain, any and all required governmental authorizations, including without limitation any import licenses and foreign exchange permits, and if applicable, shall be responsible for filing and registering this Agreement with the appropriate authorities. 17. Improvements and Inventions. MCD and Melling shall promptly notify and fully disclose to March any and all ideas, designs, practices, processes, improvements and inventions (all hereinafter referred to as "inventions"), whether or not they are believed to be patentable, which MCD or Melling have conceived or reduced to practice during the period of this Agreement, or which are conceived or reduced to practice within six (6) months after termination of this Agreement, if such inventions are related to a product or process which was worked upon by MCD or Melling incident to this Agreement or Melling's consulting arrangement with March. All such inventions shall be the sole and exclusive property of March or its nominee, and during the term of this Agreement and thereafter, whenever requested to do so by March, Melling and/or MCD shall execute and assign all applications, assignments or other instruments necessary to enable March to apply for and obtain patents, copyrights or any other proprietary rights in and to such inventions. MCD and Melling will also render whatever aid and assistance to March is needed regarding any interference or litigation pertaining to such inventions, and all expenses reasonably borne by MCD or Melling at the request of March shall be borne by March. 18. Term, Termination and Effect of Termination. a. Term - This Agreement shall commence upon its execution by the parties hereto and, subject to earlier termination as provided herein, shall continue until the date which is two (2) years after such effective date. b. Termination on Bankruptcy - Either party hereto may terminate this Agreement upon written notice if a petition for relief under any bankruptcy law or legislation is filed by or against the other party, the other party makes an assignment for the benefit of creditors, or a receiver is appointed for the other party or a substantial portion of the assets of the other party, and such petition, assignment or appointment is not dismissed or vacated within thirty (30) days. c. Termination for Failure to Develop Specifications. - If March terminates this Agreement for failure by MCD to develop the Specifications or the products, engines and other components as required herein, this Agreement shall be terminated and March shall be entitled to all rights in and to the Specifications, the engines and other products or components, all molds, tooling dies casts and all Intellectual Property therein, developed to data pursuant to this Agreement. d. Effect of Material Breach by MCD - If MCD materially breaches this Agreement, March shall have the right to terminate this Agreement and March shall be entitled to all rights in and to the Specifications, the engines and other products or components, and all molds, tooling, dies, casts and all Intellectual Property therein, developed to date pursuant to this Agreement, as well as the continuing right to the license granted to March in Section 3 hereunder regarding MCD Technology. e. Effect of Material Breach by March - If March materially breaches this Agreement and fails to correct such default within sixty(60) days after written notice of default is provided to 8 March by MCD, MCD shall have the right at its sole option to terminate this Agreement and be entitled to damages caused by such termination, including damages that may result from the term of this Agreement. f. Surviving Rights - Termination or expiration of this Agreement shall not affect the rights of the parties which may have accrued up to the date of such termination or expiration and, in addition, (i) no party shall be relieved of any obligation for any sums due to the other party, (ii) the Company shall be entitled to take physical possession of and ownership of all Specifications, the engines and other products and components developed hereunder, and all molds, tooling, casts, dies and all Intellectual Property therein, as well as the continuing right to the license granted to March in Section 3 hereunder regarding MCD Technology, and (iii) no party shall be relieved of its obligations under Sections 13 (Confidentiality), 14((Warranties), 15 (Intellectual Property Indemnification), 16 ( Compliance With Laws), and 19 (Choice of Governing Law). 19. General. a. Relationship of Parties - The respective parties hereto are not employees or legal representatives of the other party for any purpose, and neither party hereto shall have the right or authority to enter into any contracts or understandings in the name of or on behalf of the other party. b. Nonassignability; Binding on Successors - Either party hereto may assign or otherwise transfer this Agreement or rights herein to an Affiliate or in connection with a sale of all or substantially all of its assets, or of its business, whether via merger or other business combination or otherwise. Except as permitted in the preceding sentence, neither party shall assign any of its rights or obligations hereunder without the express written consent of the other party, which consent shall not be unreasonably withheld, and any attempted assignment without such consent shall be void. In the event of any permitted assignment or transfer under this Agreement, this Agreement and its provisions shall be binding upon the executors, heirs, representatives, administrators and assigns of the parties hereto. c. Waiver and Severability -Any waiver (express or implied) by either party or any broach of this Agreement or its terms shall be in writing and shall not constitute a waiver of any other subsequent breach. In the event any provision of this Agreement is held to be invalid or unenforceable for any reason whatsoever, the valid or enforceable portion thereof and any remaining provisions of this Agreement will remain in full force and effect. d. Force Majeure -Neither party shall be liable to the other party for its failure to perform any of its obligations under this Agreement during any period in which such performance is delayed because rendered impracticable or impossible due to circumstances beyond reasonable control, including without limitation, earthquakes, governmental regulation, fire, flood, labor difficulties, civil disorder or war, acts of God, or otherwise, provided the party experiencing the delay promptly notifies the other party of the delay. e. Entire Agreement: Amendment -This Agreement constitutes the entire, final, complete and exclusive agreement between the parties hereto along with the prior MCD Agreements, and 9 supercedes any previous understandings or representations of the parties hereto, written or oral, with respect to the subject matter of this Agreement. This Agreement may not be modified or amended except in a writing signed by a duly authorized representative of each party hereto. f. Counterparts -This Agreement may be executed by the parties hereto in counterparts with the same force and effect as if each of the signatures to this Agreement had executed the same instrument. g. Cumulative Rights and Remedies -The rights and remedies provided in this Agreement shall be cumulative and not exclusive of any other rights and remedies provided by law or otherwise. h. Captions and Section References -The section headings appearing this Agreement are inserted only for the convenience and in no way to define, limit, construe, or describe the scope or extent of such section or in any way affect the meaning of such section. i. Publicity -All notices to third parties and other publicity or releases concerning this Agreement or its subject matter shall be jointly planned and agreed to by the parties hereto. Neither party shall act unilaterally in this regard without the prior written approval of the other party, which approval shall not be unreasonably withheld, and which shall be deemed to be given when such disclosure is required by securities or other laws. All related communications within each party's organization shall be of a strictly confidential nature. j. Choice of Governing Law; Arbitration -This Agreement is made in accordance with and shall be governed and construed under the laws of the United Kingdom, as applied to agreements executed and performed entirely in the United Kingdom. The official text of this Agreement and any other documents, notices, or statements of account required by this Agreement shall be in English and not construed by any other language. Any dispute or difference arising between the parties hereto regarding this Agreement will be referred to binding arbitration to be conducted in London, England, in accordance with the International Chamber of Commerce, and the award of any arbitrator in such arbitration shall be enforceable in any court having jurisdiction over the party (or the party's property) against whom enforcement is sought. k. Notices -All notices, communications, requests, demands, consents and the like required or permitted under this Agreement will be in writing and will be deemed given and received (i) when delivered personally, (ii) when sent by confirmed telecopy, (iii) ten (10) days after having been mailed by first class mail which is registered or certified, postage prepaid, or (iv) three business days after deposit with a commercial overnight carrier, with written verification of receipt. All notices shall be addressed as follows: If to MCD: If to March: ---------- ------------ M.C.D. Limited March Motors International, Inc. C/O Al Meiling 7667 Equitable Drive 43 Mallor Street Eden Prairie, MN 55347 Rochdale Telephone: (612) 937-2000 Lanc, England OL126XD Telecopy: (612) 937-9809 Telephone: 01706 711608 Telecopy: 01705 868125 10 or to such other address as the person to whom notice is to be given may have furnished to the other party in writing in accordance herewith, except that such changes of address will be effective only upon receipt. A notice given in some means other than specified herein shall be deemed duly given when and if actually received by the addressee. l. Authority to Enter Into Agreement; No Prior Grants -Each party hereto represents and warrants to the other party that it has the right, full power and lawful authority to enter into this Agreement for all purposes stated herein, and to carryout its obligations hereunder. Each party hereto further warrants inconsistent in any manner whatsoever with the terms and provisions of this Agreement and that it has not make any prior grants of rights in or to the MCD Technology, the Specifications and engines and other components covered by this Agreement, on the one hand, or the March Technology, on the other hand, to any third party which are inconsistent with or would interfere with the performance of any part of this Agreement by any party hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. M.C.D. Limited By Al Melling --------------- Al Melling, Its Principle MARCH MOTORS INTERNATIONAL, INC. and March Motors Limited, its wholly-owned subsidiary By Joseph Novogratz ---------------------- Joseph Novogratz, Chairman and Managing Director 11 EX-10.7 16 EMPLOYMENT AGREEMENT - J. NOVOGRATZ Exhibit 10.7 EMPLOYMENT AGREEMENT BY AND BETWEEN MARCH MOTORS INTERNATIONAL, INC. AND JOSEPH F. NOVOGRATZ THIS AGREEMENT entered into on January 1, 1998, is made by and between March Motors International, Inc. (hereinafter referred to as "March") and Joseph F. Novogratz (hereinafter referred to as "JFN"). WHEREAS, March and JFN have been parties to an oral agreement regarding outstanding interest-free loans made to March by JFN which shall continue until said time as March is able to repay JFN. WHEREAS, March desires the services of JFN to assist March in its operations as provided herein, and JFN has agreed to provide such services; NOW, THEREFORE, March and JFN in consideration of the mutual promises and covenants contained herein, agree as follows: I. EMPLOYMENT March agrees to employ JFN as its Chairman of the Board. JFN hereby accepts such employment. JFN will serve March under the direction of its Board of Directors. During the term of this Agreement, JFN agrees to devote his business time, skill, energy, and attention to the services and businesses of March and shall perform such services in a diligent, trustworthy, loyal, and business-like manner, all for the purpose of advancing its business of March. II. EXCLUSIVITY OF SERVICES JFN will devote his best efforts to the performance of his duties hereunder. JFN will not, without he written consent of the Board of Directors of March, engage in any activity which conflicts or interferes with the performance of his duties hereunder during the term of this Employment Agreement, except as specified herein. JFN may continue to operate Insulation Distributors, Inc. III. TERM This Employment Agreement shall have a term of three years ("initial term") beginning on January 1, 1998 and expiring on December 31, 2020. This Employment Agreement will, after expiration of the initial term, automatically extend for consecutive additional one year terms ("succeeding terms") absent sixty (60) days of written notice from either party to the other, prior to the expiration of either the initial term or any succeeding term, or the parties' intent not to renew the Employment Agreement. Both the initial term in any succeeding terms shall be subject to termination before expiration under Section VII of this Agreement. IV. COMPENSATION In consideration of JFN's acceptance and continued employment and performance of duties under this Employment Agreement, including but not limited to the provisions of Sections V and VI, March shall pay to JFN the following: (a) Salary - JFN shall be issued immediately 100,000 restricted shares of the company's common stock as an inducement to enter into the agreement and for all services and loans committed to the company in 1997. JFN shall be paid a salary of $60,000.00 per year. (b) Benefits - JFN shall, for each fiscal year this Employment Agreement remains effective, be entitled to benefit plans on the same terms as such benefits are generally available to other senior executives of March, as well as any benefits which are expressly granted to JFN by the Board of Directors of March. (c) Expense Reimbursement - March will pay or reimburse JFN for all reasonable and necessary out-of-pocket expenses incurred by him and the performance of his duties under this Employment Agreement, subject to the presentation of appropriate vouchers in accordance with March's normal policies for expense verification, and in an amount not to exceed On Thousand Dollars ($1,000.00) in any calendar month. (d) Stock Option - For each year of employment, March will grant a stock option to JFN in the amount of 100,000 shares at $6 per share, effective January 1, 1998. V. COVENANT NOT TO SOLICIT In partial consideration of the compensation paid under this Employment Agreement, including, but not limited to, the benefits outlined above, JFN agrees that during the time of whether voluntary or involuntary, provided that any involuntary termination is in compliance with this Employment Agreement, he shall not, either personally or through an employer, firm, agent, servant, employee, partner, shareholder, representative, affiliate or any other entity: (a) Deliver products or services or attempt to deliver products or services which are of the same type or nature as those which JFN provided or offered during his employment under this Employment Agreement, to any customer of March, except as specifically provided herein, without prior written consent of March. March's products and services shall be defined for these purposes to include those products and services offered by March during JFN's employment with March for a period of 12 months following the termination of JFN's employment with March. (b) Employ or offer to employ any individual employed by March within the four (4) months proceeding the termination of JFN's employment or request, advise, or entice any such individual to leave the employment of March. JFN further agrees that in the event he breaches any of the covenants contained in Section V or VI of this Employment Agreement, irreparable harm will result to March, that March's remedy at law will be inadequate, and that March will be entitled to an injunction to restrain any continuing breach of this Employment Agreement by JFN, his partners, agents, servants, employees, or representatives, or any other persons or entities acting for or with him. March shall, without limitation, be entitled to damages, reasonable attorneys' fees, and any other costs and expenses incurred in connection with the enforcement of Section V or VI of this Agreement, in addition to any other rights or remedies which March may have at law or in equity. -2- VI. NONDISCLOSURE OF INFORMATION (A) JFN agrees that any information related to the business of March, or of any March's clients or customers, which is acquired by JFN during his employment by March, shall be regarded as confidential and solely for the proprietary benefit of March. JFN shall not, except as is necessary in the ordinary course of conducting business for March, use such information for himself or disclose such information to any other person or entity directly or indirectly, either during the term of this Employment Agreement, or any time thereafter, unless he obtains the prior written approval of March. (B) JFN shall not remove any records or documents from the premises of March or March's clients or customers in either original, duplicate, or copied form, except as is necessary in the ordinary course of business for March and subject to the approval of March's management person with the authority to act upon such matters. JFN shall immediately deliver to March, upon termination of his employment with March, or at any other time upon March's request, any such records or documentation in JFN's possession or control. VII. TERMINATION (A) JFN's employment shall be terminated under any of the following circumstances: (1) By the mutual agreement of JFN and March; (2) Upon the death of JFN; or (3) Upon the voluntary termination of this Agreement by March or JFN. (B) In the event that JFN's employment is terminated under paragraph VII, JFN's entitlement to compensation under Section VI of this Agreement shall be immediately cease. VIII. CONSENT TO VENUE AND JURISDICTION JFN and March consent to venue and jurisdiction in the District Court of Hennepin, State of Minnesota, and in the United States District Court for the district of Minnesota, and to service of process under Minnesota law in any action commenced to enforce this Employment Agreement. IX. ENTIRE AGREEMENT This Employment Agreement constitutes the entire agreement between the parties, and may not be amended or modified except by the mutual written agreement of JFN and March. This agreement supersedes any previous employment agreement, written or oral, that the parties may have entered into. X. GOVERNING LAW This Employment Agreement shall be construed and governed by the laws of the State of Minnesota. -3- XI. SEVERABILITY If any provision of this Employment Agreement shall, for any reason, be adjudged to be void, invalid, or unenforceable by a court of law, the remaining provisions of this Employment Agreement shall nonetheless continue and remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement. March Motors International, Inc. Dated: 6th January 1998 By: /s/ Leslie MacTaggart ------------------------------------- Its: Director --------------------------------- /s/ Joseph Novogratz Dated: 12-16-97 ----------------------------------------- Joseph F. Novogratz -4- AMENDMENT OF EMPLOYMENT AGREEMENT WHEREAS, the undersigned is currently serving under an employment agreement for 1998 with March Motors International, Inc., a Minnesota corporation, whereby he is being paid a salary of $60,000 for his service in 1998. NOW THEREFORE, FOR VALUABLE CONSIDERATION, the undersigned hereby agrees to the following: 1. The undersigned will defer all his compensation under such employment contract until the Company completes its pending Initial Public Offering (IPO), raising net proceeds to March of $4,000,000.00 or more at which time the undersigned will receive all deferred 1998 compensation from the proceeds of such IPO. 2. The undersigned agrees that the consideration he has received for this deferral of compensation is the closing of the purchase of Norton assets by the Company. 3. This deferral of compensation shall cover all payments from January 1, 1998 forward. Joseph Novogratz may at any time convert the amount deferred as above provided to common shares of March at the rate of $3.00 of deferred compensation per common share. /s/ Joseph F. Novogratz ---------------------------- Joseph F. Novogratz SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment of the Employment Agreement is made as of the 1st day of June, 1998, by and among Norton Motors International Inc. (the "Company") and Joseph F. Novogratz ("JFN"). RECITALS WHEREAS, the Company and JFN are parties to an Employment Agreement dated as of January 1, 1998, as amended by an Amendment to Employment Agreement, the terms of which are incorporated herein by reference (the "Employment Agreement"). Any terms used herein and not otherwise defined shall have the meanings ascribed to them in the Employment Agreement. WHEREAS, the Company and JFN desire to amend the Employment Agreement as set forth herein. NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as follows: 1. The first sentence of Article I shall be deleted in its entirety and a new sentence shall be added as follows: "March agrees to employ JFN as its President and Co- Chairman of the Board." 2. Article IV, Section (c) shall be deleted in its entirety, and a new Section (c) shall be added as follows: "(c) Expense Reimbursement - March will pay or reimburse JFN for all reasonable and necessary out of pocket expenses incurred by him in the performance of the duties under this Employment Agreement, subject to the presentation of appropriate vouchers in accordance with March's normal policies for expense verification. 3. Article IV, Section (d) shall be deleted in its entirety and a new Section (d) shall be added as follows: (d) Stock Option - The Company will grant a stock option to JFN in the amount of 300,000 shares, at an exercise price of $6.00 per share, effective January 1, 1998. Of the 300,000 options granted under this Section (d), options to purchase 100,000 shares shall be immediately exercisable, options to purchase 100,000 shares shall become exercisable on the first anniversary of the Employment Agreement, and options to purchase 100,000 shares shall become exercisable on the second anniversary of the Employment Agreement, provided, however, at such time as JFN is no longer either President or Co-Chairman of the Company, all options which have not become exercisable shall terminate. 4. Except as herein amended, the Employment Agreement, as amended, is expressly ratified and confirmed. IN WITNESS WHEREOF, the parties have executed this Second Amendment of Employment Agreement as of the day and year first above written. NORTON MOTORS INTERNATIONAL INC., a Minnesota corporation By: -------------------------------- Name: ------------------------------ Title: ----------------------------- ----------------------------------- Joseph F. Novogratz -2- EX-10.8 17 CONSULTING AGREEMENT - GLOBAL COIN CORPORATION Exhibit 10.8 CONSULTING AGREEMENT BY AND BETWEEN MARCH MOTORS INTERNATIONAL, INC. AND GLOBAL COIN CORPORATION THIS AGREEMENT entered into on March 31st, 1998, is made by and between March Motors International, Inc. (hereinafter referred to as "March") and Global Coin Corporation, a Company incorporated under the laws of British Columbia, Canada (hereinafter referred to as "Global"). WHEREAS, March desires the services of Global to assist March in its development program, start-up, intended IPO and operations (the "Goals"), and Global has agreed to provide such services. NOW, THEREFORE, March and Global in consideration of the mutual promises and covenants contained herein, agree as follows: I. ENGAGEMENT March hereby engaged Global to assist March in achieving the Goals. Global hereby accepts such engagement, subject to the provisions hereof. During the term of this Agreement Global agrees to render the foregoing assistance in a reasonably diligent, trustworthy, loyal and business like manner, all for the purpose of advancing the business interests of March. II. EXCLUSIVITY OF SERVICES Global will devote its best efforts to the performance of its duties hereunder. Global will not, without the written consent of the Board of Directors of March, engage in any activity in competition with the Goals during the term of this Agreement, except as specified herein. Global may continue to operate and develop its other business interests. III. TERM This Agreement shall have a term of approximately three years ("initial term"), beginning on April 1, 1998 and expiring on December 31, 2000. This Agreement will, after expiration of the initial term, automatically extend for consecutive additional one year terms ("succeeding terms") absent sixty (60) days of written notice from either party to the other, prior to the expiration of either the initial term or any succeeding term, of such party's intent not to renew this Agreement. Both the initial term and any succeeding terms shall be subject to termination before expiration under Section VII of this Agreement. IV. COMPENSATION In consideration of Global's acceptance of continued engagement and the performance of its duties under this Agreement, including but not limited to the provisions of Sections V and VI, March shall pay to Global the following: (a) Direct Remuneration-Global shall be paid an annual sum of $60,000.00 for its agreement hereunder, payable in equal monthly installments of $5,000.00 on the 1st day of each month during the term hereof; PROVIDED HOWEVER that Global agrees to defer the receipt of the said sum of the following conditions: [i] Global may at any time convert the amount deferred to such point in time to common shares of March at the rate of $3.00 deferred compensation per common share; [ii] Any deferred amount not converted to common shares under [i] above shall be paid to Global upon the closing of an offering of March's securities conducted pursuant to a registration statement filed by March under Section 5 of the Securities Act of 1933, as amended, raising net proceeds to March of $4,000,000.00 or more [an "IPO"]; and [iii] The foregoing provisions of this Section IV[a] shall survive the termination or expiration of this Agreement. (b) Benefits-Global shall nominate an employee to represent Global under this Agreement. Such employee shall, for each fiscal year this Agreement remains effective, be entitled to March benefit plans on the same terms as such benefits are available or granted to other senior executives of March. (c) Expense Reimbursement-March will pay or reimburse Global for all reasonable and necessary out-of-pocket expenses incurred by Global in the performance of its duties under this Agreement, subject to the presentation of appropriate vouchers in accordance with March's normal policies for expense verification, and in an amount not to exceed One Thousand Dollars ($1,000.00) in any calendar month. V. COVENANT NOT TO SOLICIT In partial consideration of the compensation paid under this Agreement, including, but not limited to, the benefits outlined above, Global agrees that during the term hereof, and the term hereof regardless of whether this Agreement is terminated -2- with or without Global's concurrence provided that any involuntary termination is in compliance with this Agreement, Global shall not: (a) Deliver products or services or attempt to deliver products or services which are of the same type or nature as those which Global provided or offered during its engagement under this Agreement, to any customer of March, except as specifically provided herein, without prior written consent of March. March's products and services shall be defined for these purposes to include those products and services offered by March during Global's engagement with March. (b) Employ or offer any individual employed by March within the four (4) months preceding the termination of Global's engagement, or request, advise or entice any such individual to leave the employment of March. Global further agrees that in the event it breaches any of the covenants contained in Section V or VI of this Agreement, irreparable harm will result to March, that March's remedy at law will be inadequate, and that March will be entitled to an injunction to restrain any continuing breach of this Agreement by Global. March shall, without limitation, be entitled to damages, reasonable attorneys' fees, and any other costs and expenses incurred in connection with the enforcement of Section V or VI of this Agreement, in addition to any other rights or remedies which March may have at law or in equity. VI. NONDISCLOSURE OF INFORMATION (a) Global agrees that any information related to the business of March, or of any of March's clients or customers, which is acquired by Global during its engagement by March, shall be regarded as confidential and solely for the proprietary benefit of March. Global shall not, except as is necessary in the ordinary course of conducting business for March, use such information for itself or disclose such information to any other person or entity directly or indirectly, either during the term of this Agreement, or any time thereafter, unless it obtains the prior written approval of March. (b) Global shall not remove any records or documents from the premises of March or March's clients or customers in either original, duplicate, or copies form, except as is necessary in the ordinary course of conducting business for March and subject to the approval of March's management person with the authority to act upon such matters. Global shall immediately deliver to March, upon termination of its engagement with March, or at any other time upon March's request, any such records or documentation in Global's possession or control. -3- VII. TERMINATION (a) Global's engagement hereunder shall be terminated under any of the following circumstances: [i] by the mutual agreement of Global and March; or [ii] upon the termination of this Agreement by March or Global under Section III. (b) In the event that Global's engagement is terminated under this paragraph VII, Global's entitlement to compensation under Section IV of this Agreement which would be earned after termination shall be immediately cease. VIII. CONSENT TO VENUE AND JURISDICTION Global and March consent to venue and jurisdiction in the District Court of Hennepin, State of Minnesota, and in the United States District Court for the district of Minnesota, and to service of process under Minnesota law in any action commenced to enforce this Agreement. IX. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties, and may not be amended or modified except by the mutual written agreement of Global and March. This agreement supersedes any previous agreement, written or oral, that Global and March may have entered into. X. GOVERNING LAW This Agreement shall be construed under and governed by the laws of the State of Minnesota. XI. SEVERABILITY If any provision of this Agreement shall, for any reason, be adjudged to be void, invalid, or unenforceable by a court of law, the remaining provisions of this Agreement shall nonetheless continue and remain in full force and effect. -4- IN WITNESS WHEREOF, the parties hereto have executed this Agreement. MARCH MOTORS INTERNATIONAL, INC. By: /s/ Joseph Novogratz ------------------------------ Its: President ------------------------------ GLOBAL COIN CORPORATION By: /s/ Myron Calof ------------------------------ Its: Vice President ------------------------------ -5- EX-10.9 18 FINANCIAL ADVISORY SERVICES AGREEMENT Exhibit 10.9 FINANCIAL ADVISORY SERVICES AGREEMENT THIS AGREEMENT, made and entered into this 25th day of February, 1997, by and between MARCH MOTORS MANUFACTURING COMPANY ("MMM"), a Minnesota corporation headquartered in suburban Minneapolis, Minnesota, USA and AUSTIN FRIARS SECURITIES LIMITED ("AFS"), a company registered in England, UK number 2205736; WITNESSETH WHEREAS MMM is engaged in the development, production and marketing of high quality motorcycle products and accessories for sale in the USA and most overseas international regions and the design, development and production of such motorcycle products will be carried on primarily in the United Kingdom ("UK) under contract with experienced engine and motor frame designers and manufacturers; FURTHER WHEREAS, AFS for many years has been involved in the business of corporate finance and investment banking and incident thereto AFS has provided professional financial advisory services to numerous companies both in the UK, the USA; FURTHER WHEREAS, MMM desires to retain the advisory services of AFS to assist with financial and venture capital transactions, develop a well-known image for MMM among the international investment community, assist with the promotion of MMM products, and advised regarding any future acquisitions of MMM; and FURTHER WHEREAS, AFS is willing to be employed in such an advisory services capacity for MMM on the terms and conditions contained in this agreement. NOW THEREFORE, for MMM's consideration and upon the mutual covenants and promises contained in this Agreement, the parties hereto agree as follows: 1. Both parties hereto acknowledge that AFS has performed advisory services to MMM during it's star up development stage which transpired during 1996, particularly in assisting MMM in meeting and entering into key relationships with the entities who are currently designing and developing MMM's motorcycle products. Accordingly, part of the consideration being given by MMM pursuant to this Agreement is to fulfill these accrued obligations of MMM toward AFS for the services extended by them to MMM during 1996 and early 1997 until the date of execution of this agreement. 2. Engagement Period The services to be provided by AFS for MMM incident to this Agreement shall be for a term commencing on the date hereof and terminating 12 months from that date, and shall continue on a month by month basis thereafter until terminated by either party hereto upon 30 days written notice. 3. Retention of AFS During the engagement period of the Agreement, MMM shall retain, and does hereby retain, AFS to provide corporate finance and investment banking services to MMM including but not limited to the following; i) Any structural reorganizations or recapitalisations of MMM or its British subsidiary deemed necessary to further the growth and visibility of MMM in its industry and with the general investment community; ii) Advice to MMM regarding any future capital raising, whether through debt or equity placements, including introductions of MMM's officers and agents to key UK and European contacts for their potential involvement in private or public placements of securities of MMM and its products and future business strategies; iii) AFS will assist MMM with the preparation of a Research Report for use in the investment banking and financial communities, which report shall contain a comprehensive description of MMM and its products and future business strategies; iv) AFS will use its best efforts to promote the business plan and products of MMM within the investment community of the UK and certain European venues where AFS conducts its investment banking transactions; v) Liaison services between MMM and its UK associates who are developing and producing the engines and body for its motorcycle products; vi) Assistance in the future to enable MMM's voting securities to be admitted to the Official List of the London Stock Exchange, of which AFS is a limited corporate member; 2 vii) Acquisition services regarding any future acquisition or merger transactions between MMM and the UK or other overseas companies which would develop in a synergistic and beneficial result to both parties of any such business combination, which in certain cases may include the actual negotiating of such business combination of behalf of MMM. 4. Compensation For such advisory services, AFS shall receive: i) One hundred thousand (100,000) common shares of MMM, which shall be issued and delivered promptly after the execution of this agreement by the parties hereto, and after such issuance and delivery to AFS, all of such shares shall be fully paid and nonassessable. AFS acknowledges hereby that such common stock shall be issued by MMM in restricted form and shall not be freely tradable unless subsequently registered or meeting an appropriate exemption from such registration under any applicable securities laws and regulations. ii) Incident to any acquisition undertaken by MMM due to the services of AFS, MMM shall pay AFS a merger of business combination fee being the understanding of the parties hereto that most likely such merger compensation will be based upon a standard percentage fee depending upon the value of such transaction to MMM. iii) AFS shall be completely reimbursed for any expenses incurred by AFS due to its performance of advisory services herunder for the benefit of MMM. 5. General i) Notices - Any notice to be given thereunder by either party to the other party shall be in English and be sent by airmail to the address set forth on the execution page of this agreement, or to such further amended address as given in writing by either party hereto to the other party from time to time. 3 ii) Severability - If any provision of this Agreement or obligation arising hereunder is determined to be invalid, void or unenforceable or any reason, all remaining provisions shall nevertheless continue in full force without being invalidated or impaired in any way. iii) Governing Law and Language - This Agreement shall be governed and interpreted under the laws of the state of Minnesota and controlled in all respects by the English language. iv) Non-Waiver of Rights - The failure of either party hereto to enforce any of the provisions of this Agreement shall not be considered any kind of a waiver of such provisions of this Agreement or the right of such party thereafter to enforce any provisions of this Agreement. v) Entire Agreement - This Agreement constitutes the entire and only agreement between the parties hereto relating to the matters contemplated herein, and supersedes and cancels any prior agreement, understandings, commitments, negotiations and/or representations in respect thereto, whether written or oral; and this Agreement may not be released, discharged, abandoned, changed or modified in any manner except by mutual consent of all parties hereto in writing. vi) Assignment - This Agreement cannot be assigned by either party hereto without the express written consent of the other party. This Agreement shall inure to the benefit of and bind the parties hereto and their respective legal representatives, successors and permitted assigns. 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be entered into on the date first above written and executed by their respective duly authorized representatives. SIGNED by: P.D. Rickett - ---------------------- P.D. RICKETT, Director for and on behalf of AUSTIN FRIARS SECURITIES LIMITED Austin Friars House 2-6 Austin Friars London EC2N 2HE SIGNED by: James D. Kramer - ---------------------- JAMES D. KROMER, president for and on behalf of MARCH MOTORS MANUFACTURING COMPANY Address 7667 Equitable Drive Eden Prairie, MN 55344 EX-10.10 19 SETTLEMENT LETTER AGREEMENT Exhibit 10.10 January 5, 1998 VIA FAX AND MAIL [FAX NO. (612) 937-9809] Mr. Joseph Novogratz, Chairman & CEO March Motors Ltd. 7667 Equitable Drive Eden Prairie, MN 55344 RE: Settlement Dear Mr. Novogratz: Effective upon our receipt of a countersigned copy of this letter (which must be received, if at all on or before January 7, 1998), North Pacific Lines a corporation organized under the laws of the Cayman Islands ("NPL"), agrees to the following terms: (i) NPL relinquishes all claims to stock, stock options, warrants, or other rights in March Motors; (ii) March Motors will pay NPL the sum of $120,000 on or before the first to occur of (a) the closing of the IPO currently being undertaken by March Motors, or (b) June 30, 1998. Simple interest will accrue at the rate of 10% per annum from the date of this letter and will be payable along with the $120,000; (iii) March Motors will grant to NPL, effective immediately, a fully exercisable, five-year option to purchase 225,000 shares of March Motors common stock at an exercise priced of $0.66-2/3 per share; (iv) Upon payment of all sums becoming payable as described above, NP: will enter into a mutual release with March Motors whereby the parties shall irrevocably release and hold harmless the other party incident to any transactions and activities which have involved March Motors and NPL, with respect to any claims, lawsuits, obligations, or rights whatsoever other than those set forth herein. If the foregoing is acceptable, please fax an acknowledgement to me [Fax No. (415) 332-1629] at your earliest convenience. Please mail the hard copy to my attorney, Mark Ostler, Cohen & Ostler, A Professional Corporation, 525 University Avenue, Suite 410, Palo Alto, California 94301. Very truly yours, North Pacific Lines Alex G. Daneman, Director U.S. Division ACKNOWLEDGED AND AGREED: Joseph Novogratz - ---------------- Joseph Novogratz Chairman & CEO of March Motors January 5, 1998 VIA FAX AND MAIL FAX NO. (612) 937-9809) Mr. Joseph Novogratz, Chairman and CEO March Motors Ltd. 7667 Equitable Drive Eden Prairie, MN 55344 RE: Settlement Dear Mr. Novogratz: Effective upon my receipt of a countersigned copy of this letter (which I must receive, if at all, on or before January 7, 1998), I agree to the following terms: (i) I resign as a director of March Motors; (ii) I agree to the termination of my North American distribution rights to March Motors; (iii) I relinquish all claims to stock, stock options, warrants, or other rights in March Motors; (iv) March Motors will pay me the sum of $180,000 on or before the first to occur of (a) the closing of the IPO currently being undertaken by Motors, or (b) June 30, 1998. Simple interest will accrue at the rate of 10% per annum from the date of this letter and will be payable along with the $180,000; (v) March Motors will pay me $7,800 for reimbursable expenses upon March Motors' countersigning this letter; (vi) Upon payment of all sums becoming payable as describe above, I will enter into a mutual release with March Motors whereby the parties shall irrevocably release and hold harmless the other party incident to any transactions and activities which have involved March Motors and Daneman, with respect to any claims, lawsuits, obligations, or rights whatsoever other than those set forth herein. If the foregoing is acceptable, please fax an acknowledgement to me [Fax No. (415) 332-1629] at your earliest convenience. Please mail the hard copy to my attorney, Mark Ostler, Cohen & Ostler, A Professional Corporation, 525 University Avenue, Suite 410, Palo Alto, California 94301. Very truly yours, Alex G. Daneman, Director ACKNOWLEDGED AND AGREED: /s/ Joseph Novogratz - -------------------------------- Joseph Novogratz Chairman and CEO of March Motors EX-10.11 20 EMPLOYMENT AGREEMENT - MYRON CALOF Exhibit 10.11 EMPLOYMENT AGREEMENT OF MYRON CALOF AGREEMENT made as of this 1st day of June, 1998 by and between Norton Motors International Inc., a Minnesota corporation, with offices at 14252 23rd Avenue North, Plymouth, Minnesota 52447- 4910 (hereinafter called the "Company") and Myron Calof, residing at c/o the Aquilini Investment Group, 2145 West 13th Avenue Vancouver, BC Canada V6K252 (hereinafter called "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ Executive and Executive is willing to undertake such employment on the terms and subject to the conditions hereinafter set forth; and NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows: 1. Employment. For the period commencing on the date hereof and ending on the first anniversary of the date hereof, unless extended by written agreement between the Company and Executive, the Company hereby employs Executive to render the services as Chief Executive Officer of the Company to perform such duties on behalf of the Company as the Board of Directors of the Company may from time to time determine consistent with his position with the Company. 2. Duties. Executive hereby accepts such employment and agrees that throughout the period of his employment hereunder, except as may otherwise be approved in advance by the Board of Directors of the Company or permitted below, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, Executive shall devote such time, attention, knowledge and skills throughout the Employment Term (as defined below) to the performance of the services required of him hereunder in furtherance of the business of the Company. Executive shall render his services to the Company during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of his position and his other obligations. Executive shall at all times be subject to, observe and carry out such rules, regulations, policies, directions and restrictions as the Company shall from time to time establish. Notwithstanding the foregoing, Executive is an Executive Vice President for Aquilini Investment Group and will continue to hold such position and perform the duties of such position during the Employment Term. 3. Term. Executive shall be employed for the period set forth in Section 1 unless his employment is earlier terminated pursuant to the provisions of Section 7 hereof (the "Employment Term"). 4. Compensation. As full compensation for his services hereunder, the Company shall pay to Executive $1.00 and shall issue to Executive options to purchase 100,000 shares of Common Stock of the Company, immediately exercisable, at an exercise price of $4.00 per share, which options shall terminate on the fifth anniversary of the date hereof. The payment of any salary or commissions hereunder shall be subject to income tax, social security and other applicable withholdings as well as such deductions as may be required under the Company's employee benefit plans. 5. Benefits. During the Employment Term, Executive shall be: (a) eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its employees generally in accordance with the provisions of any such plans, as the same may be in effect on and after the date hereof, provided that Executive shall be provided with health insurance for him and his family substantially equivalent to that which is currently in place; and (b) entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses and telephone usage, incurred by Executive in the performance of his duties hereunder on behalf of the Company. Except as specifically provided herein, Executive shall receive no other benefits or other compensation. 6. Non-Competition Non-Disclosure. Executive hereby covenants, agrees and acknowledges as follows: (a) In partial consideration of the consideration paid under this Employment Agreement, including but limited to, the benefits outlined above, Executive agrees that during the Employment Term and for a period of 12 months thereafter, he shall not, either personally or through an employer, firm, agent, servant, employee, partner, shareholder, representative, affiliate or any other entity: (i) Deliver products or services or attempt to deliver products or services which are of the same type or nature as those which Executive provided or offered, during his employment under this Employment Agreement, to any -2- customer of the Company, except as specifically provided herein, without prior written consent of the Company. The Company's products and services shall be defined for these purposes to include those products and services offered by the Company during Executive's employment with the Company and for a period of 12 months following the termination of the Executive's employment with the Company. (ii) Employ or offer to employ any individual employed by the Company within the four (4) months proceeding the termination of Executive's employment or request, advise, or entice any such individual to leave the employment of the Company. (b) (i) Executive agrees that any information related to the business of the Company, or of any of the Company's clients or customers, which is acquired by Executive during his employment by the Company, shall be regarded as confidential and solely for the proprietary benefit of the Company. Executive shall not, except as is necessary in the ordinary course of conducting business for the Company, use such information for himself or disclose such information to any other person or entity directly or indirectly, either during the Employment Term, or any time thereafter, unless he obtains the prior written approval of the Company. (ii) Executive shall not remove any records or documents from the premises of the Company or the Company's clients or customers in either original, duplicate, or copied form, except as is necessary in the ordinary course of conducting business for the Company and subject to the approval of the Company's management person with the authority to act upon such matters. Executive shall immediately deliver to the Company, upon termination of his employment with the Company, or at any other time upon the Company's request, any such records or documentation in Executive's possession or control. -3- (c) Executive further agrees that in the event he breaches any of the covenants contained in this Section 6, irreparable harm will result to the Company, that the Company's remedy at law will be inadequate, and that the Company will be entitled to an injunction to restrain any continuing breach of this Employment Agreement by Executive, his partners, agents, servants, employees, or representatives, or any other persons or entities acting for or with him. The Company shall, without limitation, be entitled to damages, reasonable attorneys' fees, and any other costs and expenses incurred in connection with the enforcement of this Section 6, in addition to any other rights or remedies which the Company may have at law or in equity. 7. Early Termination. The Company may at any time terminate Executive for any of the following circumstances: (a) By mutual agreement of the Company and the Executive (b) Upon the death of the Executive; (c) Upon the voluntary termination of this Agreement by the Company or the Executive. In the event the Employment Term is terminated by either the Company or Executive, the Company shall pay Executive all amounts accrued and unpaid pursuant to Section 4 through the date of such termination, and shall have no further obligation to Executive. Following any such termination hereunder, Executive shall retain all options granted to him under this Agreement. 8. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 9. Severability. Executive agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 hereof is void or constitutes an unreasonable restriction against Executive, such provision shall not be rendered void but shall still apply to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 is held by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. -4- 10. Waiver. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 11. Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto and no amendment or modification hereof shall be valid or binding unless made in writing and signed by the party against whom enforcement thereof is sought. 12. Notice. Any notice required, permitted or desired to be given pursuant to any of the provisions of this Agreement shall be deemed to have been sufficiently given or served for all purposes if delivered in person or sent by certified mail, return receipt requested, postage and fees prepaid to the parties at their addresses set forth above. Either of the parties hereto may at any time and from time to time change the address to which notice shall be sent hereunder by notice to the other party given under this Section 13. The date of the giving of any notice sent by mail shall be the date of the posting of the mail. 13. Choice of Law. This Agreement and the legal relations between the parties hereto shall be governed by and in accordance with the laws of the State of Minnesota, without regard to principles of conflicts of law. 14. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. NORTON MOTORS INTERNATIONAL INC., a Minnesota corporation By: -------------------------------- ----------------------------------- -5- EX-10.12 21 FINDERS AGREEMENT - MINNEAPPPLE CAPITAL & MMC Exhibit 10.12 MINNEAPPLE CAPITAL, LTD. 5507 Malibu Drive Edina, Minnesota 55436 FINDERS AGREEMENT THIS AGREEMENT defines the terms and conditions under which MINNEAPPLE (hereinafter referred to as "MCAP"), shall provide services for MARCH MOTORS MANUFACTURING COMPANY, (hereinafter referred to as "CLIENT"). 1. The term of this agreement shall be sixty (60) months, beginning on February 15, 1997. 2. CLIENT has retained MCAP for services to support CLIENT in arranging mergers, acquisitions, and other financial matters. 3. MCAP shall treat all information in a confidential manner. 4. CLIENT is solely responsible for acceptance of the terms and conditions of any agreement negotiated with a third party participant. 5. It is agreed that, as compensation for finding services rendered, CLIENT shall pay MCAP a finder's fee equal to ten percent (10%) of the total transaction. The term "transaction" is defined to mean in the broadest sense, sourced by MCAP, including mergers, acquisitions, licensing fees, sales of assets, consolidation, reorganization, corporate alliances or strategic partnerships. Specifically, any future transaction with March Group Plc or Norton Motors 1993 (or their affiliates), MCAP shall be deemed a finder. The fee is payable at the time of closing in cash, or at the option of CLIENT, in cash and equity (up to 50% of the total fee), valuing such equity at the same value used in the financing transaction for which the fee is applicable. 6. This Agreement sets forth the entire understanding of the parties relating to the subject matter and supersedes and cancels any prior communication, understanding and agreements between the parties. This Agreement cannot be modified or changed, nor can any of its provisions be waived, except by a writing signed by all the parties. 7. This Agreement shall be governed by the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties hereto have caused this Finders Agreement to be executed on this 15th day of February, 1997. /s/ John R. Silseth /s/ James D. Kramer - --------------------------------- ---------------------------------- Minneapple Capital, Ltd. March Motors Manufacturing Company by John R. Silseth, C.E.O. by James D. Kramer, C.E.O. EX-10.13 22 SETTLEMENT AGREEMENT MINNEAPPLE CAP & MMM Exhibit 10.13 SETTLEMENT AGREEMENT SETTLEMENT AGREEMENT (the "Agreement"), made and entered into as of this 31st day of March 1998, by and among MINNEAPPLE CAPITAL, LTD., a Minnesota entity, having its principal place of business at 5507 Malibu Drive, Edina, Minnesota 55435 ("Minneapple"), and Norton Motors International Inc., a Minnesota corporation, having its principal place of business at 14252 23rd Avenue, North, Plymouth, Minnesota 55447-4910 (the "Company"). WITNESSETH: WHEREAS, the Company and Minneapple have entered into that certain Finders Agreement dated February 15, 1997 (the "Finders Agreement"), defining the terms and conditions under which Minneapple would provide services for the Company, and subject to which Minneapple is owed certain consideration for services rendered; and WHEREAS, the Company and Minneapple agree that the Finders Agreement fully and completely sets forth the relationship between the parties, and that all other agreements, whether written or verbal, are hereby terminated by this Settlement Agreement; and WHEREAS, the Company and Minneapple propose to enter into this Settlement Agreement in order to settle all outstanding compensation owed under the Finders Agreement, such that the terms of this Settlement Agreement will provide for the mutual settlement and release by the parties of any obligations of each to the other, except for those obligations set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the parties hereto hereby agree as follows: 1. Termination of Finders Agreement. The parties mutually agree that the Finders Agreement shall be hereby terminated, subject to the terms contained herein. Upon performance of the obligations set forth in this Agreement, the parties shall have no further obligations under the terms of the Finders Agreement or any other Agreement heretofore entered into between the parties, whether verbal or otherwise. 2. Compensation for Services Rendered. The Company has issued to Minneapple 250,000 shares of Common Stock of the Company as full payment for all amounts due to Minneapple under the Finders Agreement. The parties hereby agree that no other compensation shall be owed or payable to Minneapple under the Finders Agreement or any other agreement heretofore entered into between the parties, whether verbal or otherwise. 3. Mutual Release. (a) Minneapple has remised, released and forever discharged, and by these presents does for itself and its employees, officers, directors, shareholders, agents, affiliates, successors and assigns, remise, release and forever discharge the Company, its directors, officers, shareholders, employees, attorneys, accountants and agents (collectively, the "Releasees"), and all of the heirs, executors, administrators, successors and assigns of each of the Releasees, of and from all manner of actions, causes of action, promises, variances, damages, judgments, claims, liabilities, obligations, demands, suits, debts, dues, sums of money, accounts, bonds, bills, covenants, contracts, controversies and agreements whatsoever, in law or in equity, which against any of the Releasees, Minneapple ever had, now has or which its successors or assigns hereafter can, shall or may have for, upon or by reason of any manner, cause or thing whatsoever from the beginning of the world to the date of this Agreement. (b) The Company, has remised, released and forever discharged, and by these presents does for itself and its employees, officers, directors, shareholders, agents, affiliates, successors and assigns, remise, release and forever discharge Minneapple, its directors, officers, shareholders, employees, attorneys, accountants and agents (the "Minneapple Releasees"), and all of the heirs, executors, administrators, successors and assigns of each of the Minneapple Releasees, of and from all manner of actions, causes of action, promises, variances, damages, judgments, claims, liabilities, obligations, demands, suits, debts, dues, sums of money, accounts, bonds, bills, covenants, contracts, controversies and agreements whatsoever, in law or in equity, which against Minneapple, the Company ever had, now has or which its successors or assigns hereafter can, shall or may have for, upon or by reason of any manner, cause or thing whatsoever from the beginning of the world to the date of this Agreement. 4. General Provisions. (a) Entire Agreement; Amendment and Waiver. This constitutes the entire agreement between the parties hereto with respect to the subject matter contained herein and supersedes all prior oral or written agreements, if any, between the parties with respect to such subject matter. Any amendments hereto or modifications hereof must be made in writing and executed by each of the parties hereto. (b) Notices. All notices hereunder shall be in writing and or mailed, registered or certified mail, return receipt requested or delivered by a nationally recognized overnight courier service to each party at its address set forth above, or and, in each -2- case, to such other address as any party shall have given to the other party by similar notice. (c) Governing Law. This Agreement shall be governed by the laws of the State of Minnesota. (d) Binding Effect; Assignment. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the Company and Minneapple and each of their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other parties. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. (e) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be made and executed on the date first above written. MINNEAPPLE CAPITAL, LTD. By: ------------------------------ Name: Title: NORTON MOTORS INTERNATIONAL INC. By: ------------------------------ Name: Title: -3- EX-10.14 23 NORTON MOTORS INTL. INC. 1997 INCENTIVE & STOCK Exhibit 10.14 NORTON MOTORS INTERNATONAL INC. 1997 INCENTIVE AND STOCK OPTION PLAN Section 1. Purpose. The purpose of this 1997 Incentive and Stock Option Plan (the "Plan") is to promote the interests of Norton Motors International Inc. (the "Company") and its shareholders by aiding the Company in attracting and retaining employees and directors capable of contributing to the growth and success of, and providing strategic direction to, the Company, and by offering such employees and directors an opportunity to acquire a proprietary interest in the Company, thereby providing them with incentives to put forth maximum efforts for the success of the Company's business and aligning the interests of such employees and directors with those of the Company's shareholders. Section 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Board of Directors. (b) "Award" shall mean any Option granted under the Plan. (c) "Award Agreement" shall mean any written agreement contract or other instrument or document evidencing any Award granted under the Plan. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (e) "Committee" shall mean a committee of the Board of Directors of the Company to whom the powers and duties of such Board of Directors under the Plan may be delegated pursuant to Section 3(b) hereof, which shall consist of members appointed from time to time by the Board of Directors and shall be composed solely of two or more directors, each of whom is an "outside director" within the meaning of Section 162(m) of the Code to the extent required by such Section. (f) "Company" shall mean March Motors Manufacturing Company, a Minnesota corporation, and any successor corporation. (g) "Eligible Person" shall mean any employee, officer, director, consultant or independent contractor providing services to the Company or any Affiliate. (h) "Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended. (i) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as the Board of Directors shall establish in good faith from time to time. Where there is a public market for the Shares, the fair market value per Share on a given date shall be the closing price of a Share in the over-the-counter market on such date, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by The Nasdaq Stock Market ("Nasdaq")) or, in the event the Shares are traded on the Nasdaq National Market ("NMS") or listed on a stock exchange, the fair market value per Share shall be the closing price on such system or exchange on such date, as reported in The Wall Street Journal; if such market or exchange is not open for trading on such date, the Fair Market Value shall be determined as of the day closest to such date when such market or exchange is open for trading. (j) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision. (k) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option. (l) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (m) "Participant" shall mean an Eligible Person whom the Board of Directors designates to receive an Award under the Plan. (n) "Person" shall mean any individual, corporation, partnership, association or trust. (o) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act or any successor rule or regulation. (p) "Shares" shall mean shares of Common Stock, $.01 par value, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan. Section 3. Administration. (a) Administration by the Board of Directors. The Plan shall be administered by the Board of Directors of the Company, with the advice of a committee. Subject to the express provisions of the Plan and to applicable law, the Board of Directors shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award Agreement and accelerate the exercisability of Options; (vi) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (vii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (viii) make any other determination and take any other action that the Board of Directors deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Board of Directors, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate. (b) Delegation to Committee. Notwithstanding anything to the contrary contained herein, the Board of Directors may, at any time and from time to time, delegate its powers and duties hereunder to a Committee solely for purposes of complying with Section 162(m) of the Code. (c) References to Board of Directors. Unless stated to the contrary, as used herein, references to the Board of Directors shall mean the Committee to whom the Board of Directors has delegated its powers and duties in the event such powers and duties have been so delegated. -2- Section 4. Shares Available for Awards. (a) Shares Available. Subject to adjustment as provided in Section 4(c), the aggregate number of Shares which may be issued under all Awards under the Plan shall be 500,000 Shares to be issued under the Plan shall be authorized but previously unissued Shares. If any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. (b) Accounting for Awards. For purposes of this Section 4, if an Award entitles the holder thereof to purchase Shares, the number of Shares covered by such Award shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. (c) Adjustments. In the event that the Board of Directors shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Board of Directors to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Board of Directors shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number. Section 5. Eligibility Any Eligible Person, including any Eligible Person who is an officer or director of the Company or any Affiliate, shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Board of Directors may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Board of Directors, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full or part-time employees (which term as used herein includes, without limitation, officers and directors who are also employees), and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code or any successor provision. Section 6. Awards. (a) Options. The Board of Directors is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Board of Directors shall determine: (i) Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Board of Directors; provided, however, that the purchase price per Share purchasable under an Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. -3- (ii) Option Term. The term of each Option shall be fixed by the Board of Directors; provided, however, that the term of an Incentive Stock Option may not extend more than ten years from the date of grant of such Incentive Stock Option. (iii) Time and Method of Exercise. The Board of Directors shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, previously owned Shares, Shares issuable upon exercise of the Award or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in deemed to have been made. (iv) Certain Options to be Treated as Non-Qualified Stock Options. If the aggregate Fair Market Value of all Shares subject to Incentive Stock Options granted to a Participant under all plans of the Company and its parent and subsidiary corporations (as described in Section 422(d) of the Code) that are exercisable for the first time during any calendar year exceeds $100,000 at the time an Option is granted to such Participant, then such Option shall be treated as an Option that does not qualify as an Incentive Stock Option. (v) Ten Percent Shareholder Rule. Notwithstanding any other provision in the Plan, if at the time an Option is otherwise to be granted pursuant to the Plan to a Participant who owns, directly or indirectly (within the meaning of Section 424(d) of the Code), Common Stock of the Company possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or any subsidiary, then any Incentive Stock Option to be granted to such Participant pursuant to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and the exercise price of such Option shall be not less than 110% of the Fair Market Value of the Shares covered, and such Option by its terms shall not be exercisable after the expiration of five years from the date such Option is granted. (vi) Option Limitations Under the Plan. No Eligible Person who is an employee of the Company at the time of grant may be granted any Option, the value of which is based solely on an increase in the value of the Shares after the date of grant of such Option, covering more than 500,000 Shares in the aggregate in any calendar year. The foregoing annual limitation specifically includes the grant of any Option representing "qualified performance-based compensation" within the meaning of Section 162(m) of the Code to the extent required by such Section. (b) General (i) No Cash Consideration for Awards. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. (ii) Grant of Additional Awards. An Eligible Person who has been granted an Award under this Plan may be granted additional Awards under the Plan if the Board of Directors shall so determine. (iii) Limits on Transfer of Awards. No Award and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. (iv) Term of Awards. The term of each Award shall be for such period as may be determined by the Board of Directors and the Board of Directors shall be under no duty to provide terms of like duration for Awards granted under the Plan. (v) Restrictions; Securities Exchange Listing. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Board of Directors may deem advisable under the Plan or the rules, regulations and other -4- requirements of the Securities and Exchange Commission and any applicable federal or state securities laws, and the Board of Directors may cause a legend or legends to be placed on such certificates to make appropriate reference to such restrictions. If the Shares or other securities are quoted on Nasdaq, traded on NMS or listed on a stock exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for quotation or trading on NMS or such stock exchange. Section 7. Income Tax Withholding. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, all of which are and shall remain the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all or a portion of the federal and state taxes to be withheld or collected upon exercise of an Award, the Board of Directors, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise of such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise of such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined. Section 8. General Provisions. (a) No Rights to Awards. No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants, or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants. (b) Award Agreements. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant. (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (d) No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained as an employee or director of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment or directorship at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment or directorship free from any liability or any claim under the Plan, except as otherwise expressly provided in the Plan or in any Award Agreement. (e) Governing Law. The validity, construction and effect of the Plan or of any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the laws of the State of Minnesota. (f) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Board of Directors, such provision shall be construed or deemed amended to conform to applicable law, or if it cannot be so construed or deemed amended without, in the determination of the Board of Directors, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect. -5- (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Board of Directors shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. (i) Headings. Headings are given to the Securities and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. (j) Other Benefits. No compensation or benefit awarded to or realized by any Participant under the Plan shall be included for the purpose of computing such Participant's compensation under any compensation-based retirement, disability, or similar plan of the Company unless required by law or otherwise provided by such other plan. Section 9. Amendment and Termination; Adjustments. Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or the Plan: (a) Amendments to the Plan. The Board of Directors of the Company may amend, alter, suspend, discontinue or terminate the Plan; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the shareholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval, would: (i) violate the rules or regulations of Nasdaq; NMS or any stock exchange that are applicable to the Company; or (ii) cause the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan. (b) Amendments to Awards. The Board of Directors may waive any conditions or rights of the Company under any outstanding Award, prospectively or retroactively. The Board of Directors may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, without the consent of the Participant or holder or beneficiary thereof, except as otherwise provided herein or in the Award Agreement. (c) Correction of Defects, Omissions and Inconsistencies. The Board of Directors may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect. Section 10. Effective Date; Term. (a) Effective Date. The Plan shall be effective as of the day on which the Company's shareholders approve the Plan (the "Effective Date"); provided, however, that if the Company's shareholders do not approve the Plan at the next meeting of Shareholders, the Plan shall be null and void and all Awards granted prior to the date of such Special Meeting shall be of no force or effect. -6- (b) Term. Awards shall be granted under the Plan only during a 10-year period beginning on the Effective Date. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, however, any Award theretofore granted may extend beyond the end of such 10-year period, and the authority of the Board of Directors provided for hereunder, shall extend beyond the termination of the Plan. -7- EX-23.2 24 CONSENT OF PANNELL KERR FORSTER EX. 23.2 CONSENT OF PANNELL KERR FORSTER PC We hereby consent to the inclusion in the Registration Statement on Form SB-2 of Norton Motors International Inc. of our report dated April 20, 1998 on our audit of the financial statements of Norton Motors International Inc. as of December 31, 1997 and for the year ended June 30, 1997 and the six months ended December 31, 1997. We also hereby consent to the reference to our firm under the caption "Experts" in the Registration Statement. Pannell Kerr Forster PC New York, New York June 18, 1998 EX-23.3 25 CONSENT OF STIRTZ BERNARDS EXHIBIT 23.3 CONSENT OF STIRTZ BERNARDS BOYDEN SURDEL & LARTER, P.A. We hereby consent to the inclusion in the Registration Statement on Form SB-2 of Norton Motors International Inc. of our report dated March 18, 1997 on our audit of the financial statements of Norton Motors International Inc. for the period October 12, 1995 (inception) through June 30, 1996. We also hereby consent to the reference to our firm under the caption "Experts" in the Registration Statement. Stirtz Bernards Boyden Surdel & Larter, P.A. Edina, Minnesota June 18, 1998 EX-27 26 EX-27
5 6-MOS OTHER DEC-31-1997 MAR-31-1998 JUL-01-1997 JAN-01-1998 DEC-31-1997 MAR-31-1998 110,231 97,480 0 0 0 0 0 0 0 0 170,814 97,480 19,836 1,169,836 4,013 4,723 244,437 1,802,377 1,400,716 4,366,222 1,097,000 4,116,405 0 0 0 0 32,415 72,764 (1,188,694) (2,636,609) 244,437 1,802,377 0 0 0 0 0 0 2,255,758 2,456,088 0 0 0 0 33,826 38,327 0 0 0 0 0 0 0 0 0 0 0 0 (2,289,584) (2,494,415) 0 0 $(0.26) $(0.27)
-----END PRIVACY-ENHANCED MESSAGE-----