Again, one should really study the draft S-2. Also study the exhibits.
The S-2 seems to need some work in that it appears that a portion of the language is inconsistent. They really need counsel to study these agreements to take out any ambiguities. For example, the GUARANTEED royalty to Mr. Grable seems unclear.
The S-2 states that "During the second year of the Agreement there is a minimum royalty provision of $250,000."
But if you read the actual text of the agreement it says "Beginning the second year of this Agreement the minimum annual Royalty shall be $250,000."
THE ACTUAL TEXT OF THE ROYALTY AGREEMENT SEEMS TO STATE THAT THE MINIMUM THRESHOLD OF $250,000 IS RECURRING IN PERPETUITY, AND NOT JUST FOR A SINGLE YEAR.
Which is correct is it a single year at $250,000 or an annual amount?
S-2 Text Language
the Company has agreed to pay to Mr. Grable a royalty based upon the net selling price (the dollar amount earned from the sale by the Company, both international and domestic, before taxes minus the cost of the goods sold and commissions or discounts paid) of all products and goods in which the Patent is used, before taxes and after deducting the direct cost of the product and commissions or discounts paid (the "Royalty") as follows:
GROSS SALES PERCENTAGE
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$0 to $1,999,999 in gross sales 10%
$2,000,000 to $3,999,999 in gross sales 9%
$4,000,000 to $6,999,999 in gross sales 8%
$7,000,000 to $9,999,999 in gross sales 7%
Greater than $10,000,000 in gross sales 6%
During the second year of the Agreement there is a minimum royalty provision of $250,000. The Company is required to have the Agreement ratified by its Shareholders at its next special or annual meeting of Shareholders and upon obtaining such ratification, the Royalties set forth above shall take the place of the Development Royalties set forth in the Amendment to Grable's Employment Agreement dated February 23, 1995, and such Amendment shall become void and have no effect.
Actual Royalty Agreement (Exhibit to S-2)
(2) Beginning the second year of this Agreement the minimum annual
Royalty shall be $250,000. In the event that the minimum is not paid in the first three quarterly payments in each year, sufficient funds shall be paid in the final quarter's payment. Sums shall not carry over from year to year.
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