<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ROCKSHOX, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3751 77-0396555
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
401 CHARCOT AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 435-7469
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
STEPHEN SIMONS
PRESIDENT
ROCKSHOX, INC.
401 CHARCOT AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 435-7469
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------------
COPY TO:
<TABLE>
<S> <C> <C>
Michael A. Woronoff, Esq. Sandra A. Golze, Esq. Gregory K. Miller, Esq.
Skadden, Arps, Slate, Meagher & Flom McCutchen, Doyle, Brown & Enersen, LLP Latham & Watkins
300 South Grand Avenue, Suite 3400 Three Embarcadero Center 505 Montgomery Street, Suite 1900
Los Angeles, California 90071 San Francisco, California 94111-4066 San Francisco, California 94111
(213) 687-5000 (415) 393-2000 (415) 391-0600
Fax: (213) 687-5600 Fax: (415) 393-2286 Fax: (415) 395-8095
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If 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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value per share................... $77,625,000 $26,768
<FN>
(1) Estimated pursuant to Rule 457 solely for purposes of calculating the
registration fee.
</TABLE>
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ROCKSHOX, INC.
CROSS REFERENCE SHEET
REQUIRED BY ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page of Prospectus.
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages of
Prospectus; Additional Information.
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors.
4. Use of Proceeds...................................... Use of Proceeds.
5. Determination of Offering Price...................... Underwriting.
6. Dilution............................................. Dilution.
7. Selling Security Holders............................. Principal and Selling Stockholders; Management.
8. Plan of Distribution................................. Underwriting.
9. Description of Securities to Be Registered........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Capital Stock.
10. Interests of Named Experts and Counsel............... Not applicable.
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; The
Recapitalization and the Merger; Use of Proceeds;
Dividend Policy; Capitalization; Dilution; Selected
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal and Selling Stockholders; Description of
Capital Stock; Shares Eligible for Future Sale;
Additional Information; Financial Statements.
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not applicable.
</TABLE>
<PAGE>
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.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 12, 1996
SHARES
[ROCKSHOX LOGO]
COMMON STOCK
------------------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by ROCKSHOX, INC. (the
"Company" or "RockShox").
Prior to the Offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price for the
Common Stock will be between $ and $ per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
Application will be made to have the Common Stock approved for quotation on
The Nasdaq Stock Market under the symbol "RSHX."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Selling Stockholders named herein have granted the several Underwriters
an option, exercisable within 30 days after the date hereof, to purchase up
to an aggregate of additional shares of Common Stock, on the same
terms as set forth above, to cover over-allotments, if any. The Company will
not receive any of the proceeds from the sale of such shares by the Selling
Stockholders. If all such additional shares are purchased, the total Price
to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made in New York, New York
on or about , 1996.
MERRILL LYNCH & CO.
ROBERTSON, STEPHENS & COMPANY
JEFFERIES & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
[PICTURES]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT INDICATES OTHERWISE, THE
"COMPANY" OR "ROCKSHOX," AS USED IN THIS PROSPECTUS, MEANS ROCKSHOX, INC., ITS
PREDECESSORS AND THEIR RESPECTIVE PARENTS AND SUBSIDIARIES ON A CONSOLIDATED
BASIS. UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES TO A FISCAL YEAR
ARE TO THE COMPANY'S FISCAL YEAR. IN 1995, THE COMPANY CHANGED ITS FISCAL YEAR
END FROM DECEMBER 31 TO MARCH 31.
THE COMPANY
RockShox is the worldwide leader in the design, manufacture and marketing of
high performance bicycle suspension products. The Company developed the first
widely accepted front suspension fork for the mountain bike industry, and,
through a series of new product introductions, has continued to be at the
forefront of the design and development of bicycle suspension. ROCKSHOX
suspension products enhance riding performance and comfort by mitigating the
impact of rough terrain and providing better wheel contact with the riding
surface. The Company, which currently manufactures both front suspension forks
and rear shocks for mountain bikes, has combined technical innovation with high
quality products and creative marketing to establish one of the most widely
recognized brand names in the bicycle industry. In a 1995 BICYCLING MAGAZINE
readers' survey, 45% of the respondents who owned a suspension fork owned a
ROCKSHOX manufactured product--more than twice the share of the next leading
manufacturer--and more than 65% of the respondents who planned to purchase a
suspension fork within the next two years planned to purchase a ROCKSHOX
suspension fork.
The Company's sales have grown rapidly, from approximately $6 million in
fiscal 1991 to approximately $83.5 million in fiscal 1996, a compound annual
growth rate of approximately 85.5%. The Company believes that its growth has
been the result of increasing market acceptance of bicycle suspension worldwide
and, more specifically, growing demand for ROCKSHOX suspension products. From
1992 to 1996, the number of mountain bike models available in the U.S. with
suspension has increased from approximately 80 to over 660. The Company has been
a key contributor to this growth, with ROCKSHOX components now specified on over
460, or more than 60%, of these 1996 suspension-equipped mountain bike models.
The Company believes that significant opportunities for growth continue to exist
worldwide since the number of mountain bikes sold with suspension, while rapidly
increasing, represented only 17% of all mountain bike units sold domestically by
independent bicycle dealers ("IBDs") in 1995. The Company further believes that
the market penetration of suspension-equipped mountain bikes is even lower
internationally.
RockShox currently markets ten front suspension forks and three rear shocks
under its JUDY, INDY, QUADRA, MAG and DELUXE product lines. The Company's
products have been repeatedly recognized for their innovative design and
superior performance. For example, the Company's first product, the RS1, won a
"Best of 1989" award from BICYCLE GUIDE MAGAZINE, and, in 1993, its first QUADRA
front suspension fork was voted "Best Product Tried This Year" by readers of
MOUNTAIN BIKE MAGAZINE. The Company's JUDY suspension fork received the 1994
award for "Best Technical Development of the Year" in the bicycle industry from
VELO NEWS, and, in 1995, the Company's QUADRA suspension fork was designated as
the "Best Value" among suspension forks by BICYCLING MAGAZINE'S BUYERS GUIDE. As
further evidence of the advanced design and technical benefits of its products,
the Company anticipates that ROCKSHOX suspension will be used by many of the
mountain bike racers competing in the 1996 Olympic Games in Atlanta.
Approximately two-thirds of the Company's sales are to bicycle manufacturers
("OEMs"), including Trek, GT and Specialized, who incorporate ROCKSHOX branded
components as part of new, fully-assembled mountain bikes sold worldwide. The
Company is the primary supplier of front suspension forks to eight out of the
ten leading OEMs selling through domestic IBDs. Management believes that OEM
customers recognize the strength of the Company's brand name as a deciding
factor in the consumer's choice of mountain bikes. In addition, the Company
believes that OEMs choose RockShox for product innovation and quality as well as
reliable worldwide distribution and service.
3
<PAGE>
The Company's products are also sold as an accessory component to consumers
through a network of over 10,000 IBDs worldwide. According to a
Company-sponsored survey, more than 94% of responding domestic IBDs identified
ROCKSHOX as the leading brand of suspension product sold in their stores and
management believes that the Company enjoys a similar retail presence
internationally. The Company's front suspension forks and rear shocks are
generally priced to consumers from $199 to $649 and from $199 to $289,
respectively.
Management believes that the Company can continue to take advantage of
significant growth opportunities by (i) maintaining its leadership in providing
front suspension forks to the high-end of the mountain bike market, a segment
that has experienced approximately 33% cumulative growth in unit sales from 1992
to 1995, (ii) expanding its product offerings with recently-introduced rear
shocks that allow the Company to more aggressively pursue the fast growing
market for full suspension mountain bikes (i.e., bikes that include both front
suspension and rear shocks), (iii) developing more moderately priced suspension
forks, such as the QUADRA 5, which meet the needs of the emerging high-volume,
mid-priced mountain bike suspension market and (iv) leveraging the ROCKSHOX
brand name into new product categories, including suspension products for road
and trekking bikes.
The Company's principal executive office is located at 401 Charcot Avenue,
San Jose, California 95131; its telephone number is (408) 435-7469.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... shares
Common Stock to be outstanding after the
Offering.................................... shares (1)
Use of proceeds.............................. The net proceeds to the Company will be used
to repay indebtedness, to redeem all of the
outstanding shares of Holdings Preferred
Stock (as defined below), to make a payment
to terminate the Bonus Plan (as defined
below) and for working capital purposes. See
"Use of Proceeds."
Listing...................................... Application will be made to have the Common
Stock approved for quotation on The Nasdaq
Stock Market under the symbol "RSHX."
</TABLE>
- ------------------------
(1) Excludes approximately shares of Common Stock issuable upon exercise
of stock options outstanding under the Company's 1996 Stock Plan (the "Stock
Plan"). See "Management -- 1996 Stock Plan."
------------------------
Unless otherwise noted, all Common Stock share amounts, per share data and
other information set forth in this Prospectus (i) have been adjusted to reflect
the consummation of the Merger (as defined below) and (ii) assume that the
Underwriters' over-allotment option granted by certain stockholders of the
Company (the "Selling Stockholders") has not been exercised. See "The
Recapitalization and the Merger."
This Prospectus includes references to registered trademarks and brand names
of the Company and of manufacturers who purchase the Company's products,
including Trek Bicycle Corp. ("Trek"), GT Bicycles, Inc. ("GT") and Specialized
Bicycle Components, Inc. ("Specialized"). The Company's trademarks and brand
names include: ROCKSHOX, ROCKSHOX, JUDY, INDY, DELUXE, QUADRA, MAG and ROCKSHOX
GARB.
Market data and industry information referred to in this Prospectus are
derived from various trade publications and industry sources (including results
of a suspension study conducted by the Bicycle Market Research Institute
("BMRI"), BMRI's U.S. 1995 Annual Market Assessment Report for Bicycles (20" and
over), MOUNTAIN BIKE MAGAZINE'S 1996 Industry Survey and BICYCLING MAGAZINE'S
September 1995 Subscription Study) as well as the Company's own research and
estimates. Unless otherwise noted, all references to "IBDs" include bike shops,
other sports specialty stores, mail order and television shopping.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS YEAR ENDED MARCH 31,
YEAR ENDED DECEMBER 31, ENDED 1996 (1)
------------------------------------------ MARCH 31, --------------------------
1991 1992 1993 1994 1995 (1) ACTUAL PRO FORMA (2)
--------- --------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ 6,050 $ 16,442 $ 30,941 $ 37,900 $ 14,279 $ 83,509 $ 83,509
Cost of sales................. 4,017 10,565 20,113 24,477 9,590 54,110 54,110
--------- --------- --------- --------- ----------- ----------- -------------
Gross profit................ 2,033 5,877 10,828 13,423 4,689 29,399 29,399
Operating expenses............ 1,923 5,541 6,634 6,283 7,627 14,621 12,871
--------- --------- --------- --------- ----------- ----------- -------------
Income (loss) from
operations................... 110 336 4,194 7,140 (2,938) 14,778 16,528
Interest and other (income)
expense, net................. 21 67 16 6 51 5,650 (136)
--------- --------- --------- --------- ----------- ----------- -------------
Income (loss) before income
taxes........................ 89 269 4,178 7,134 (2,989) 9,128 16,664
Provision for (benefit from)
income taxes................. 9 104 1,521 2,420 (653) 3,464 6,478
--------- --------- --------- --------- ----------- ----------- -------------
Net income (loss)............. $ 80 $ 165 $ 2,657 $ 4,714 $ (2,336) $ 5,664 $ 10,186
--------- --------- --------- --------- ----------- ----------- -------------
--------- --------- --------- --------- ----------- ----------- -------------
Net income (loss) per share
(3).......................... $ $ $ $ $ $ $
--------- --------- --------- --------- ----------- ----------- -------------
--------- --------- --------- --------- ----------- ----------- -------------
Shares used in per share
calculations (3).............
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(4)
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................. $ 2,327 $
Total assets.................................................................... 26,932
Total debt...................................................................... 44,500
Mandatorily redeemable preferred stock.......................................... 7,357
Stockholders' equity (deficit).................................................. (39,615)
</TABLE>
5
<PAGE>
- ------------------------
(1) In 1995, the Company changed its fiscal year end from December 31 to March
31.
(2) The pro forma statement of operations data give effect to the Offering and
the application of the net proceeds therefrom as if the Offering had
occurred on April 1, 1995 and reflect the reduction of operating expenses of
$1.8 million related to the elimination of the Bonus Plan, the reduction of
interest expense of $5.8 million and the tax effect of the foregoing (but
exclude the effect of write-offs of approximately $2.5 million relating to
unamortized debt issuance costs, expenses of approximately $7.3 million
relating to the termination of the Bonus Plan and the tax effect of the
foregoing). See "Selected Financial Data," "Use of Proceeds" and Note 2 of
Notes to Pro Forma Condensed Consolidated Financial Statements.
(3) For an explanation of the determination of the number of shares used in per
share calculations and net income (loss) per share, see Note 2 of Notes to
Consolidated Financial Statements.
(4) Pro forma as adjusted to give effect to the Offering and the application of
the net proceeds therefrom as if the Offering had occurred on March 31,
1996, including write-offs of approximately $2.5 million relating to
unamortized debt issuance costs, expenses of approximately $7.3 million
relating to the termination of the Bonus Plan, approximately $7.4 million to
redeem all of the outstanding shares of Holdings Preferred Stock and $27.5
million, $11.0 million and $6.0 million to repay the Existing Credit
Facilities (as defined below), the Senior Notes (as defined below) and the
Junior Notes (as defined below), respectively, and the tax effect of the
foregoing. See "Use of Proceeds," "Capitalization" and Note 1 of Notes to
Pro Forma Condensed Consolidated Financial Statements.
6
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD TAKE INTO ACCOUNT THE CONSIDERATIONS SET FORTH
BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE
PURCHASING ANY OF THE SHARES OF THE COMMON STOCK OFFERED HEREBY.
ECONOMIC AND MARKET CONDITIONS
Consumer purchases of bicycles and bicycle components, including the
Company's products, are discretionary. Any decline in general economic
conditions, uncertainties regarding future economic prospects or changes in
other economic factors that affect consumer spending could have a material
adverse effect on the Company's direct customers (OEMs, distributors and IBDs)
and, therefore, on the Company or its prospects. Any decline in the size of, or
lack of growth in, the overall bicycle market or the mountain bike segment, or a
decline in the number or business prospects of OEMs, distributors or IBDs, in
general, or the Company's customers, in particular, could have a material
adverse effect on the Company or its prospects.
DEPENDENCE ON MOUNTAIN BIKE FRONT SUSPENSION PRODUCT LINES
Substantially all of the Company's historical revenues have been
attributable to sales of mountain bike front suspension forks. The Company
believes that most of its sales for the foreseeable future will be of mountain
bike front suspension forks. Such products have been produced in substantial
numbers and widely accepted by the bicycle industry and consumers for less than
five years and there can be no assurance of their continuing popularity. Given
the Company's dependence on sales of mountain bike front suspension forks, any
decline or lack of growth in the popularity of, or market demand for, mountain
bike front suspension forks, in general, or the Company's products, in
particular, could have a material adverse effect on the Company or its
prospects. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General" and "Business--Products."
SALES CONCENTRATION; DEPENDENCE ON OEMS
In fiscal 1996, approximately 56% of the Company's sales were to the
Company's ten largest customers, certain of which (including Trek) purchase from
the Company as both an OEM customer and a distributor. Sales to Trek accounted
for more than 10% of the Company's net sales in fiscal 1996, substantially all
of which were for OEM use by Trek. At March 31, 1996 and June 30, 1996, the
Company's three OEM customers with the largest accounts receivable balances
accounted for approximately 61.5% and 47.8%, respectively, of the Company's
accounts receivable. The Company has no long-term contracts with any of its
customers and there can be no assurance that the Company's current or future
customers will continue to purchase from the Company. The loss of, substantial
decline in purchases of the Company's products by, or financial insolvency of,
any of the Company's largest customers individually, or a number of the
Company's other customers in the aggregate, could have a material adverse effect
on the Company or its prospects.
While the OEM market is fragmented, according to BMRI, ten leading OEM
brands represent over 75% of bicycle sales dollars generated through domestic
IBDs. Management believes that these OEMs also represent a significant portion
of better quality mountain bikes sold worldwide. All of these leading OEMs are
current customers of the Company and certain of these OEMs are among the
Company's largest customers. Management believes that any material growth in the
Company's business will likely require it to increase sales to, and will result
in additional sales concentration with, the Company's largest OEM customers. In
addition, the Company's customers, including OEMs, may acquire, or be acquired
by, other entities (including the Company's competitors) and there can be no
assurance that the combined entity will continue to purchase any or the same
amount of the Company's products.
See "Business--Industry Overview," "--Sales and Distribution" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS; FORECASTING OF OEM ORDERS
Management believes that the Company's future operating results will
fluctuate on a quarterly basis due to a variety of factors, including seasonal
cycles, weather conditions, the timing and mix of orders and reorders, and the
number and timing of new product introductions. Management anticipates that the
Company's sales will normally be lowest in its first and fourth fiscal quarters,
which end on June 30 and
7
<PAGE>
March 31, respectively. Results in such quarters are particularly sensitive to
the timing and size of OEM orders and reorders, which are difficult to forecast.
Any misjudgment by the Company or any of its OEM customers of the demand for any
of its respective products could have a material adverse effect on the Company
or its prospects. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Selected Quarterly Financial Data;
Seasonality," "Business-- Manufacturing" and "--Sales and Distribution."
SUSTAINABILITY AND MANAGEMENT OF GROWTH
Since its founding in 1989, the Company has experienced rapid and
substantial growth. The Company does not expect to achieve such high rates of
growth in the future. There can be no assurance that the Company will continue
to grow or that the Company will be able to sustain the level of sales that it
has achieved in the past. Furthermore, there can be no assurance that the
Company will be able to successfully implement its sales growth strategy or
that, if implemented, such a strategy will result in increases to, or
maintenance of, the Company's profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General."
The Company's rapid and substantial growth has placed, and could continue to
place, a significant strain on its employees and operations. Several members of
the Company's senior management have only recently joined the Company and other
members have only limited relevant prior experience outside of the Company. See
"Management--Directors, Executive Officers and Key Employees." To manage growth
effectively, the Company will be required to continue to implement changes in
its business; expand its operations, facilities and internal controls to handle
increased demand; enhance its information technology systems; and develop, train
and manage an increasing number of management-level and other employees.
Unexpected difficulties encountered during expansion, or management's inability
to respond effectively to or plan for such expansion, could have a material
adverse effect on the Company or its prospects.
NEW PRODUCT INTRODUCTIONS
The Company's future success will depend, in part, upon its continued
ability to develop and successfully introduce new and/or innovative bicycle
suspension products and other types of bicycle components that will be widely
accepted by the bicycle industry and consumers. There can be no assurance that
the Company will introduce any new products or, if introduced, that any such
products will be commercially successful. Furthermore, successful product
designs can be displaced or rendered obsolete by other product designs
introduced by the Company or its competitors. As a result of these and other
factors, there can be no assurance that the Company will expand the markets it
serves or will successfully maintain or increase its market share through
product innovations. The Company also anticipates that it may from time to time
evaluate acquisition opportunities to expand its product lines, including the
possible acquisition of non-suspension bicycle component product lines. The
Company has no experience in making such acquisitions, and there can be no
assurance that the Company will be able to compete successfully at favorable
prices for available acquisition candidates. The Company also has no significant
experience in developing, manufacturing or marketing non-suspension bicycle
components.
COMPETITION
The markets for bicycle components, in general, and bicycle suspension
products, in particular, are highly competitive. The Company competes with other
bicycle component companies that produce suspension products for sales to OEMs,
distributors and IBDs as well as with OEMs who produce their own line of
suspension products for their own use and for sale through distributors and
IBDs. The Company believes that it currently has the leading market share in
front suspension forks. The Company only recently introduced its rear shock
products for the emerging full suspension market and believes it currently
trails the leading manufacturer of rear shocks. In order to build or retain its
market share, the Company must continue to successfully compete in areas that
influence the purchasing decisions of OEMs, distributors, IBDs and consumers,
including design, price, quality, technology, distribution, marketing, style,
brand image and customer service. There can be no assurance that any number of
bicycle component manufacturers, OEMs or other companies, including those who
are larger and have greater resources than the Company and who currently do not
provide bicycle suspension products or do so on a limited basis, will not become
8
<PAGE>
direct or more significant competitors of the Company. In addition, OEMs
frequently design their bicycles to meet certain retail price points, and, as a
result, may choose not to use a suspension product or may select a lower priced
ROCKSHOX or competing product in order to incorporate other components in the
bicycle's specifications that the OEM perceives as being more desirable to the
consumer. The Company could therefore face competition from existing or new
competitors that introduce and promote suspension products or other bicycle
components perceived by the bicycle industry or consumers to offer price or
performance advantages to, or that otherwise have greater consumer appeal than,
the Company's products. See "Business--Competition."
LIMITED PROTECTION OF TECHNOLOGY
Because much of the technology associated with suspension products is in the
public domain, patent protection is generally available only for particular
features or functions of a product, rather than for any product as a whole.
Management believes that many of the Company's current suspension products
contain some elements that are protected by the Company's patents. Nevertheless,
the Company's competitors currently replicate and may continue to replicate
certain features and functions of the Company's products. There can be no
assurance that current or future patent protection will prevent competitors from
offering competing products, that any issued patents will be upheld, or that
patent protection will be granted in any or all of the countries in which
applications are currently pending or granted on the breadth of the description
of the invention. In addition, due to considerations relating to, among others
things, cost, delay or adverse publicity, there can be no assurance that the
Company will elect to enforce its intellectual property rights.
The Company's competitors have also obtained and may continue to obtain
patents on certain features of their products, which may prevent or discourage
the Company from offering such features on its products, which, in turn, could
result in a competitive disadvantage to the Company. The Company has
occasionally received, and may receive in the future, claims asserting
intellectual property rights owned by third parties that relate to the Company's
products and product features. Although to date the Company has incurred no
material liabilities as a result of any such claims, there can be no assurance
that the Company will not incur material liabilities in the future. In addition,
if any person were to assert valid claims of infringement with respect to, or
otherwise have enforceable proprietary rights in, features that the Company
includes or desires to include on its products, and if the Company were unable
to design or alter its products or production methods so as to avoid such
infringement at a reasonable cost or to negotiate an acceptable licensing or
other arrangement with such person, the Company could, among other things, be
precluded from making or marketing products containing such features and be
required to make payments to such person, which could have a material adverse
effect on the Company or its prospects. See "Business--Intellectual Property."
DEPENDENCE ON SUPPLIERS; MANUFACTURING RISKS
Although the Company has established relationships with its principal
suppliers and manufacturing sources, the Company does not currently have
long-term contracts with any of its vendors, nor does the Company currently have
multiple vendors for all parts, tooling, supplies or services critical to the
Company's manufacturing processes. The Company's future success will depend, in
part, on its ability to maintain relationships with its current suppliers and
manufacturing sources, and to develop relationships with new suppliers. Failure
of a key supplier to meet the Company's product needs on a timely basis with
sufficient product of sufficient quality, loss of a key supplier, significant
delay, disruption or cancellation of an order for critical parts, tooling,
supplies or services or significant disruption in the Company's production or
distribution activities for any other reason, including an earthquake or other
catastrophic event, could have a material adverse effect on the Company or its
prospects. See "Business--Manufacturing" and "Certain Transactions--Other."
INTERNATIONAL BUSINESS AND SALES
The bicycle industry is, and many of the Company's OEM customers are, highly
dependent on manufacturing in overseas locations, and changes in economic
conditions, currency exchange rates, tariff regulations, "local content" laws or
other trade restrictions or political instability ("International Conditions")
could adversely affect the cost or availability of products sold by or to the
bicycle industry as a whole and the Company's OEM customers in particular, any
of which could have a material adverse effect on the Company
9
<PAGE>
or its prospects. In addition, insufficient international consumer demand for
mountain bikes and related products, in general, or the Company's products, in
particular, whether due to changes in International Conditions, consumer
preferences or other factors, could adversely affect the bicycle industry, the
Company's OEM customers or the Company's sales, any of which could have a
material adverse effect on the Company or its prospects.
PRODUCT LIABILITY
Because of the risks inherent in bicycling, in general, and mountain biking,
in particular, and because of the function of the Company's products, the
Company from time to time is a defendant in a number of product liability
lawsuits and expects that this will continue to be the case in the future. These
lawsuits generally seek damages, sometimes in substantial amounts, for personal
injuries sustained as a result of alleged defects in the Company's products.
Although the Company has experienced no material financial loss relating to such
lawsuits and maintains product liability insurance, due to the uncertainty as to
the number of claims or the nature and extent of liability for personal injuries
and changes in the historical or future levels of insurance coverage or the
terms or cost thereof, such insurance may not be adequate or available to cover
product liability claims or the applicable insurer may not be solvent at the
time of any covered loss, any of which could have a material adverse effect on
the Company or its prospects. See "Business--Legal Proceedings."
GOVERNMENT REGULATION; ADVERSE PUBLICITY
Bicycle suspension products are within the jurisdiction of the United States
Consumer Product Safety Commission (the "CPSC") and other Federal, state and
foreign regulatory bodies. In 1996, the CPSC sent a letter to major
manufacturers and importers of mountain bikes as well as several suspension
component manufacturers, including RockShox, expressing concern about reports of
injuries and recall activity relating to failures of mountain bike suspension
forks and urging manufacturers to participate in the development of voluntary
safety performance standards for such suspension products through the American
Society of Testing and Materials (the "ASTM"). The Company cannot predict
whether standards relating to the Company's products or otherwise affecting the
bicycle suspension industry will be adopted (whether by the CPSC or another
Federal, state or foreign regulatory body) and, if adopted, no assurance can be
given that the implementation of such standards will not have a material adverse
effect on the Company or its prospects.
Adverse publicity relating to mountain bike suspension or mountain biking
generally, or publicity associated with actions by the CPSC or others expressing
concerns about the safety or function of the Company's products, other
suspension products or mountain bikes (whether or not such publicity is
associated with a claim against the Company or results in any action by the
Company or the CPSC), could have an adverse effect on the Company's reputation,
brand image or markets, any of which could have a material adverse effect on the
Company or its prospects.
PRODUCT RECALL; WARRANTY COSTS
Bicycles and bicycle components are frequent subjects of product recalls,
corrective actions and manufacturers' bulletins, certain of which have involved
suspension products. The Company has conducted three voluntary corrective
actions, none of which has been financially material to the Company.
Nevertheless, the number of suspension products sold by the Company has
dramatically increased since the Company's founding in 1989, new product
introductions are occurring frequently, and the Company's products may have not
been used by riders for a period of time sufficient to determine all of the
effects of prolonged use and the environment on such products. As a result,
there can be no assurance that there will not be recalls, corrective actions or
other activity voluntarily or involuntarily undertaken by the Company or
involving the CPSC or other regulatory bodies on a more frequent basis or at a
higher cost than in the past, any of which could have a material adverse effect
on the Company or its prospects. See "Business--Product Recall."
All of the Company's suspension products are covered by a one-year limited
warranty. The Company maintains an accrued liability on its balance sheet
representing management's estimate of future warranty costs for products sold
through the date thereof. There can be no assurance that such accrued liability
may not change in the future or that future warranty costs for sales made
through such date will not be greater
10
<PAGE>
than the amounts accrued by the Company on its consolidated financial
statements, either of which could have a material adverse effect on the Company
or its prospects. See Note 5 of Notes to Consolidated Financial Statements.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the management and leadership skills of the
members of its senior management team and other key personnel, including certain
members of its product development team. The loss of any such personnel or the
inability to attract, retain and motivate key personnel could have a material
adverse effect on the Company or its prospects. See "Management--Directors,
Executive Officers and Key Employees."
CONCENTRATION OF OWNERSHIP
Immediately after the Offering, Stephen Simons and Paul Turner, each of whom
is a director and executive officer of the Company, will each beneficially own
% of the outstanding Common Stock (assuming that the Underwriters'
over-allotment option is not exercised). In addition, immediately after the
Offering, persons and entities affiliated with The Jordan Company will
beneficially own % of the outstanding Common Stock (assuming that the
Underwriters' over-allotment option is not exercised). Each of John W. Jordan II
and Adam E. Max is an affiliate of The Jordan Company and a director and officer
of the Company. As a result, such persons and entities may have the ability to
strongly influence, and, if they choose to act together, will control, the
election of directors and the results of other matters submitted to a vote of
stockholders. Such concentration of ownership, together with the anti-takeover
effects of certain provisions in the Delaware General Corporation Law (the
"DGCL"), may have the effect of delaying or preventing a change in control of
the Company. See "Management," "Principal and Selling Stockholders" and
"Description of Capital Stock."
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price of the Common Stock offered hereby
will be determined by negotiations among the Company, the Selling Stockholders
and the Underwriters and may not be indicative of the market price for the
Common Stock after the Offering. The market price for shares of the Common Stock
may be volatile and may fluctuate based upon a number of factors, including,
without limitation, business performance, timing of revenues, news announcements
or changes in general trading market conditions. See "Underwriting."
FUTURE SALES OF COMMON STOCK; SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Offering, the Company will have outstanding
shares of Common Stock, assuming no stock options are exercised. Of these
shares, all of the shares sold in the Offering will be freely transferable
by persons other than "affiliates" (as hereinafter defined) of the Company,
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"). Future sales of substantial amounts of Common
Stock (including shares issued upon the exercise of options that may be granted
pursuant to any employee stock option or other equity plan of the Company), or
the perception that such sales could occur, could have an adverse effect on the
market price of the Common Stock. If such sales or any other factor should
reduce the market price of Common Stock, the Company's ability to raise
additional capital in the equity markets could be adversely affected. The
Company and all of the Selling Stockholders and executive officers of the
Company have agreed, subject to certain exceptions, not to sell, offer to sell,
grant any option (other than pursuant to the Stock Plan) for the sale of, or
otherwise dispose of, any shares of Common Stock or securities convertible into
or exercisable or exchangeable for Common Stock (except for shares offered in
the Offering) for a period of 180 days after the date of this Prospectus without
the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
See "Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."
DILUTION
The initial public offering price is expected to be substantially higher
than the book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offering will therefore incur immediate and substantial
dilution of $ per share. See "Dilution."
11
<PAGE>
THE RECAPITALIZATION AND THE MERGER
On March 24, 1995, Stephen Simons, Debra Simons and Paul Turner transferred
all of the outstanding shares of capital stock of the Company's predecessor
("Old RockShox") to RSx Holdings, Inc., a newly formed Delaware corporation
("Holdings"), and RSx Acquisition, Inc., a newly formed Delaware corporation
("Acquisition"). In exchange therefor, Mr. and Mrs. Simons and Mr. Turner
received 50% of the common stock of Holdings ("Holdings Common Stock"), $6
million aggregate principal amount of 13.5% junior subordinated notes of
Holdings (the "Junior Notes"), 4,000 shares of Series B Preferred Stock of
Holdings (the "Series B Preferred Stock") and approximately $39 million in cash.
Holdings then acquired all of the capital stock of Acquisition and contributed
to Acquisition all of Holdings' shares of capital stock of Old RockShox,
whereupon Old RockShox became a wholly owned subsidiary of Acquisition. Old
RockShox was then merged into Acquisition and Acquisition changed its name to
ROCKSHOX, INC. The transactions described in this paragraph are collectively
referred to as the "Recapitalization."
As part of the Recapitalization, MCIT PLC and persons and entities
affiliated with The Jordan Company purchased the remaining 50% of the Holdings
Common Stock, 3,000 shares of Series A Preferred Stock of Holdings (the "Series
A Preferred Stock" and, together with the Series B Preferred Stock, the
"Holdings Preferred Stock") and $11 million aggregate principal amount of 13.5%
senior subordinated notes of Holdings (the "Senior Notes") for an aggregate
purchase price of approximately $14.5 million.
In order to finance the Recapitalization, Acquisition entered into a credit
agreement (the "Existing Credit Facilities") pursuant to which Acquisition
borrowed $30 million under a term loan, and was permitted to borrow up to $6
million under a bank line of credit.
See "Certain Transactions--The Recapitalization."
Immediately prior to the closing of the Offering, Holdings will be merged
with and into the Company, with the Company as the surviving corporation (the
"Merger"), and each share of Holdings Common Stock will be converted into
shares of Common Stock of the Company. Unless the context otherwise
requires, all information set forth in this Prospectus has been adjusted to
reflect the consummation of the Merger.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be approximately $ million
based on an assumed initial public offering price of $ per share, after
deducting the underwriting discount and estimated expenses of the Offering.
The Company intends to use such net proceeds from the Offering (i) to repay
borrowings plus accrued interest, if any, outstanding under the Existing Credit
Facilities ($27.5 million principal amount at March 31, 1996); (ii) to repay the
$11 million principal amount of the Senior Notes plus accrued interest, if any;
(iii) to repay the $6 million principal amount of the Junior Notes plus accrued
interest, if any; (iv) to redeem all of the outstanding shares of Holdings
Preferred Stock (which had an aggregate redemption value of $7.4 million at
March 31, 1996); (v) to make payments totalling approximately $7.3 million to
terminate the bonus arrangement provided for pursuant to the employment
agreements between Holdings and Messrs. Simons and Turner (the "Bonus Plan");
and (vi) for working capital purposes. See "The Recapitalization and the
Merger," "Management--Employment Agreements" and "Certain Transactions--The
Recapitalization."
The Bonus Plan and the Existing Credit Facilities were entered into, and the
Senior Notes, the Junior Notes and the shares of Holdings Preferred Stock were
issued, in connection with the Recapitalization. The borrowings under the
Existing Credit Facilities mature on March 31, 2001 and bear interest at 300
basis points over the applicable LIBOR rate or 170 basis points over the bank's
reference rate, generally at the Company's option. At March 31, 1996, loans
outstanding under the Existing Credit Facilities bore interest at a blended
rated of 8.56%. The Senior Notes and the Junior Notes each bear interest at
13.5% per annum and mature on April 30, 2005 and May 31, 2006, respectively. The
debt outstanding under each of the Existing Credit Facilities, the Senior Notes
and the Junior Notes is prepayable without interest or premium. The holders of
the Series A Preferred Stock are entitled to receive, at the option of the Board
of Directors of Holdings, annual dividends at the rate of either (i) .05 shares
of the Series A Preferred Stock per share or (ii) $50 per share. The holders of
the Series B Preferred Stock are entitled to receive annual dividends at the
rate of $50 per share. Each share of the Holdings Preferred Stock is redeemable
at the option of the Company at any time and is mandatorily redeemable by the
Company on July 31, 2006, in each case for $1,000 plus all accrued and unpaid
dividends thereon.
The Company intends to replace the Existing Credit Facilities with a new
revolving credit facility (the "New Credit Facility") on or after the
consummation of this Offering.
If the Underwriters exercise their over-allotment option, the Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company anticipates that all earnings will be retained for the
foreseeable future for use in the operations of the business; the Company's
Board of Directors has not declared a cash dividend on the Common Stock
subsequent to the Recapitalization, and the Company does not expect to pay cash
dividends in the foreseeable future. Any future decision with respect to
dividends will depend on earnings, capital needs, restrictions imposed by
lenders or other security holders of the Company and the Company's operating and
financial condition, among other factors. In addition, the Company is currently
prohibited by the terms of the Existing Credit Facilities from paying cash
dividends on the Common Stock, and may in the future enter into loan or other
agreements (including, without limitation, the New Credit Facility) or issue
debt securities or preferred stock that restrict the payment of cash dividends
on the Common Stock.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization and current portion of
long-term debt of the Company at March 31, 1996, as adjusted to reflect the sale
of shares of Common Stock by the Company in the Offering and the
application of the estimated net proceeds therefrom to redeem all of the
outstanding shares of Holdings Preferred Stock; repay the Existing Credit
Facilities, the Senior Notes and the Junior Notes, including write-offs of
approximately $2.5 million relating to unamortized debt issuance costs; and
terminate the Bonus Plan, resulting in expenses of approximately $7.3 million.
See "Use of Proceeds." The information below should be read in conjunction with
the Consolidated Financial Statements and the related notes thereto, which are
included elsewhere in this Prospectus. See also "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Capital Stock."
<TABLE>
<CAPTION>
MARCH 31, 1996(1)
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current portion of long-term debt......................................................... $ 3,000 $
--------- -----------
--------- -----------
Long-term debt, excluding current portion:
Existing Credit Facilities.............................................................. $ 24,500 $
Senior Notes............................................................................ 11,000
Junior Notes............................................................................ 6,000
--------- -----------
Total long-term debt.................................................................. 41,500
--------- -----------
Mandatorily redeemable preferred stock:
Series A Preferred Stock................................................................ 3,153
Series B Preferred Stock................................................................ 4,204
--------- -----------
Total mandatorily redeemable preferred stock.......................................... 7,357
--------- -----------
Stockholders' equity (deficit):
Preferred Stock, par value $.01 per share, shares authorized, no shares outstanding,
pro forma as adjusted.................................................................. --
Common Stock, par value $.01 per share, 100,000 shares authorized, pro forma as
adjusted shares authorized, 100,000 shares outstanding, shares outstanding, pro
forma as adjusted (2).................................................................. 1
Additional paid-in capital.............................................................. 499
Distribution in excess of net book value................................................ (45,422)
Retained earnings....................................................................... 5,307
--------- -----------
Total stockholders' equity (deficit).................................................. (39,615)
--------- -----------
Total capitalization................................................................ $ 9,242 $
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Gives effect to the Merger, which will occur immediately prior to the
closing of the Offering.
(2) Does not include approximately shares of Common Stock issuable upon
exercise of options outstanding under the Stock Plan. See "Management--1996
Stock Plan."
14
<PAGE>
DILUTION
The negative net tangible book value of the Company at March 31, 1996 was
approximately $42.1 million, or $ per share of Common Stock. Negative net
tangible book value per share is equal to the Company's total tangible assets
less its total liabilities and Holdings Preferred Stock, divided by the number
of shares of Common Stock outstanding. After giving effect to the sale by the
Company of shares of Common Stock in the Offering and the application of
the net proceeds therefrom, the pro forma net tangible book value of the Company
at March 31, 1996 would have been approximately $ million, or $
per share. See "Use of Proceeds." This represents an immediate net tangible book
value dilution of $ per share to investors purchasing shares in the Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1)............... $
Negative net tangible book value at March 31, 1996.............. $
Increase attributable to new investors in the Offering..........
---------
Pro forma net tangible book value per share after the Offering
(2)..............................................................
---------
Dilution per share to new investors............................... $
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1996 the
difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders of the Company (the "Existing Stockholders") and the
investors purchasing shares in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- --------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders (3)............................. % $ 500,000 % $
New investors......................................... % $ % $
--------- --------- ---------- ---------
Total............................................... 100.0% 100.0%
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
- ------------------------
(1) Before deducting estimated underwriting discount and estimated expenses of
the Offering payable by the Company.
(2) Excludes approximately shares of Common Stock issuable upon exercise
of options to be outstanding upon consummation of the Offering pursuant to
the Stock Plan. See "Management--1996 Stock Plan." To the extent that
options are exercised, there will be further dilution to new investors.
(3) If the Underwriters' over-allotment option is exercised in full, the number
of shares held by the Existing Stockholders will be reduced to
shares, or % of the number of shares to be outstanding after
the Offering.
15
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data for the fiscal years ended December 31,
1993 and 1994 and March 31, 1996 and the three months ended March 31, 1995 and
the balance sheet data at December 31, 1994 and March 31, 1995 and 1996 are
derived from the Consolidated Financial Statements contained elsewhere herein,
which have been audited by Coopers & Lybrand L.L.P., independent accountants.
See "Experts." The statement of operations data for the years ended December 31,
1991 and 1992, and the balance sheet data at December 31, 1991, 1992 and 1993,
are derived from the Company's consolidated financial statements, which are not
contained herein and, with the exception of the balance sheet at December 31,
1993, are unaudited. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the entire year. The
selected pro forma statement of operations and balance sheet data set forth
below are for informational purposes only and may not necessarily be indicative
of the results of operations of the Company in the future. The following
selected financial data should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, the Pro Forma Condensed
Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
THREE MONTHS MARCH 31, 1996 (1)
YEAR ENDED DECEMBER 31, ENDED ----------------------
------------------------------------------ MARCH 31, PRO
1991 1992 1993 1994 1995 (1) ACTUAL FORMA (2)
--------- --------- --------- --------- ------------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 6,050 $ 16,442 $ 30,941 $ 37,900 $ 14,279 $ 83,509 $ 83,509
Cost of sales................... 4,017 10,565 20,113 24,477 9,590 54,110 54,110
--------- --------- --------- --------- ------------- --------- -----------
Gross profit.................... 2,033 5,877 10,828 13,423 4,689 29,399 29,399
--------- --------- --------- --------- ------------- --------- -----------
Selling, general and
administrative expense......... 1,788 4,703 5,098 4,210 5,404 11,220 10,408
Research, development and
engineering expense............ 135 838 1,536 2,073 2,223 3,401 2,463
--------- --------- --------- --------- ------------- --------- -----------
Income (loss) from operations... 110 336 4,194 7,140 (2,938) 14,778 16,528
Interest and other (income)
expense, net................... 21 67 16 6 51 5,650 (136)
--------- --------- --------- --------- ------------- --------- -----------
Income (loss) before income
taxes.......................... 89 269 4,178 7,134 (2,989) 9,128 16,664
Provision for (benefit from)
income taxes................... 9 104 1,521 2,420 (653) 3,464 6,478
--------- --------- --------- --------- ------------- --------- -----------
Net income (loss)............... $ 80 $ 165 $ 2,657 $ 4,714 $ (2,336) $ 5,664 $ 10,186
--------- --------- --------- --------- ------------- --------- -----------
--------- --------- --------- --------- ------------- --------- -----------
Net income (loss) per share
(3)............................ $ $ $ $ $ $ $
--------- --------- --------- --------- ------------- --------- -----------
--------- --------- --------- --------- ------------- --------- -----------
Shares used in per share
calculations (3)...............
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31,
------------------------------------
AT DECEMBER 31, 1996
------------------------------------------ 1996 PRO FORMA
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(4)
--------- --------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)..... $ (29) $ 906 $ 2,226 $ 5,995 $ 1,939 $ 2,327 $
Total assets..................... 2,123 4,081 7,660 13,493 17,679 26,932
Total debt....................... 512 1,146 1,345 998 48,500 44,500
Mandatorily redeemable preferred
stock........................... -- -- -- -- 7,000 7,357
Stockholders' equity (deficit)... 27 167 2,774 7,188 (44,922) (39,615)
</TABLE>
- ------------------------
(1) In 1995, the Company changed its fiscal year end from December 31 to March
31.
(2) The pro forma statement of operations data give effect to the Offering and
the application of the net proceeds therefrom as if the Offering had
occurred on April 1, 1995 and reflect the reduction of operating expenses of
$1.8 million related to the elimination of the Bonus Plan, the reduction of
interest expense of $5.8 million and the tax effect of the foregoing (but
exclude the effect of write-offs of approximately $2.5 million relating to
unamortized debt issuance costs, expenses of approximately $7.3 million
relating to the termination of the Bonus Plan and the tax effect of the
foregoing). See "Use of Proceeds" and Note 2 of Notes to Pro Forma Condensed
Consolidated Financial Statements.
(3) For an explanation of the determination of the number of shares used in per
share calculations and net income (loss) per share, see Note 2 of Notes to
Consolidated Financial Statements.
(4) Pro forma as adjusted to give effect to the Offering and the application of
the net proceeds therefrom as if the Offering had occurred on March 31,
1996, including write-offs of approximately $2.5 million relating to
unamortized debt issuance costs, expenses of approximately $7.3 million
relating to the termination of the Bonus Plan, approximately $7.4 million to
redeem all of the outstanding shares of Holdings Preferred Stock and $27.5
million, $11.0 million and $6.0 million to repay the Existing Credit
Facilities, the Senior Notes and the Junior Notes, respectively, and the tax
effect of the foregoing. See "Use of Proceeds," "Capitalization" and Note 1
of Notes to Pro Forma Condensed Consolidated Financial Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the Consolidated Financial Statements and the
related notes thereto, which are included elsewhere in this Prospectus.
GENERAL
RockShox is the worldwide leader in the design, manufacture and marketing of
high performance bicycle suspension products. The Company's sales have grown
rapidly, from approximately $6 million in fiscal 1991 to approximately $83.5
million in fiscal 1996, a compound annual growth rate of approximately 85.5%.
The Company believes that its growth has been the result of increasing market
acceptance of bicycle suspension and, more specifically, growing demand for the
ROCKSHOX brand of suspension products.
Substantially all of the Company's historical revenues have been
attributable to sales of mountain bike front suspension forks. The Company's two
principal channels of distribution are: (i) sales to OEMs and (ii) sales to
distributors and IBDs (the "retail accessory market"). A large portion of the
Company's sales are to a small group of OEM customers. See "Risk Factors--Sales
Concentration; Dependence on OEMs."
The Company has substantial international sales, a significant portion of
which include products shipped to Asian manufacturing subcontractors for certain
U.S.-based OEMs. The Company believes that a substantial portion of these
products are ultimately shipped back to the U.S. and sold domestically by OEMs.
The Company recognizes revenue upon shipment of the product and, to date,
product returns have not been material.
The Company's gross margins have remained relatively consistent over the
past several years. While gross margins are generally higher on retail accessory
market sales compared to OEM sales, OEM sales are much higher volume, which
allows the Company an opportunity to capitalize on manufacturing efficiencies.
Research, development and engineering costs are expensed as incurred.
The Company moved its principal operations from North Carolina to California
in August 1992. In September 1994, the Company consolidated its operations in
its present facilities located in San Jose, California. In 1995, the Company
changed its fiscal year end from December 31 to March 31, which more closely
corresponds to the Company's product model year and business cycle.
In March 1995, the Company consummated the Recapitalization, which resulted
in Stephen Simons, Paul Turner and certain members of their respective families
owning 50% of Holdings Common Stock and MCIT PLC and persons and entities
affiliated with The Jordan Company owning the other 50% of Holdings Common
Stock. In order to finance the Recapitalization, the Company incurred
approximately $48.5 million of debt. In connection with the Recapitalization,
the Company incurred the following expenses during the quarter ended March 31,
1995: (i) initial payments of an aggregate of $4.7 million under the Bonus Plan,
of which $2.8 million was included in selling, general and administrative
expense and $1.9 million was included in research, development and engineering
expense; and (ii) $400,000 of expenses related to the Recapitalization, which
were included in selling, general and administrative expense. See "The
Recapitalization and the Merger."
RESULTS OF OPERATIONS
The following table sets forth operations data as a percentage of net sales
for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, YEAR ENDED
1993 1994 MARCH 31, 1996
--------- --------- --------------
<S> <C> <C> <C>
Net sales......................................................... 100.0% 100.0% 100.0%
Cost of sales..................................................... 65.0 64.6 64.8
Gross margin...................................................... 35.0 35.4 35.2
Selling, general and administrative expenses...................... 16.5 11.1 13.4
Research, development and engineering expenses.................... 4.9 5.5 4.1
Operating income (loss)........................................... 13.6 18.8 17.7
</TABLE>
18
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1996 (FISCAL 1996) COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1994 (FISCAL 1994)
NET SALES. Net sales increased by approximately 120.3% to $83.5 million in
fiscal 1996 compared to $37.9 million in fiscal 1994. (Net sales increased by
approximately 97.7% to $83.5 million in fiscal 1996 compared to $42.2 million
for the twelve months ended March 31, 1995.) The increase in net sales was
primarily due to higher unit volume in fiscal 1996 of both the Company's JUDY
product, for which significant shipments began in late fiscal 1994, and the
Company's expanded QUADRA product line, which experienced increased demand
during fiscal 1996. Sales to OEMs increased by approximately 133.2% to $57.1
million (or approximately 68.4% of net sales) in fiscal 1996 from $24.5 million
(or approximately 64.6% of net sales) in fiscal 1994. Net sales to the retail
accessory market increased by approximately 96.8% to $26.4 million (or
approximately 31.6% of net sales) in fiscal 1996 from $13.4 million (or
approximately 35.4% of net sales) in fiscal 1994. The Company does not expect to
achieve such high rates of growth in the future. See "Risk Factors --
Sustainability and Management of Growth."
International sales, a significant portion of which included products
shipped to Asian manufacturing subcontractors for certain U.S.-based OEMs,
accounted for approximately 48.6% and 49.4% of net sales in fiscal 1996 and
fiscal 1994, respectively.
GROSS MARGIN. Gross margin (gross profit as a percentage of net sales)
remained relatively constant at approximately 35.2% in fiscal 1996 compared to
approximately 35.4% in fiscal 1994. Increases in facility expenses and
provisions for warranty costs and inventory reserves in fiscal 1996 were largely
offset by a greater absorption of fixed manufacturing costs due to the higher
sales volumes in fiscal 1996 compared to fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased by approximately 166.5% to $11.2 million (or
approximately 13.4% of net sales) in fiscal 1996 from $4.2 million (or
approximately 11.1% of net sales) in fiscal 1994 principally due to increased
sales and marketing expenses, which related in part to an increase in headcount,
provisions for uncollectible accounts receivable, an officer bonus of $1.1
million under the Bonus Plan in fiscal 1996 compared to discretionary bonuses
paid to certain officers of approximately $800,000 in fiscal 1994 and certain
severance provisions incurred in fiscal 1996.
As discussed in Note 6 of Notes to Consolidated Financial Statements, the
Company incurred officer bonuses of $2.2 million in fiscal 1996 under the Bonus
Plan entered into following the Recapitalization (of which $1.1 million was
included in selling, general and administrative expense as discussed in the
preceding paragraph and $1.1 million was included in research, development and
engineering expense as discussed below). As discussed in "Use of Proceeds," the
Bonus Plan will be terminated upon completion of the Offering. In the quarter
that the registration statement relating to the Offering becomes effective, the
Company will incur a one-time pre-tax charge of approximately $7.3 million in
connection with the termination of the Bonus Plan.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSE. Research, development and
engineering expense increased by approximately 64% to $3.4 million (or
approximately 4.1% of net sales) in fiscal 1996 compared to $2.1 million (or
approximately 5.5% of net sales) in fiscal 1994. Research, development and
engineering expense included an officer bonus in fiscal 1996 of $1.1 million
under the Bonus Plan, as discussed above, and a discretionary bonus in fiscal
1994 of approximately $800,000, which was paid to an officer of the Company.
Excluding these bonuses, research, development and engineering expense was
approximately 2.8% and 3.4% of net sales in fiscal 1996 and fiscal 1994,
respectively.
INTEREST EXPENSE. The Company incurred interest expense of $5.8 million in
fiscal 1996 (which included amortization of capitalized financing costs)
compared to $21,000 in fiscal 1994. The increase was due to debt issued in
connection with the Recapitalization that occurred in March 1995. In the quarter
that the registration statement relating to the Offering becomes effective, the
Company will incur a one-time pre-tax charge, reflected as an extraordinary
item, as a result of the write-off of capitalized financing costs, of
approximately $2.5 million in connection with the planned repayment of such
debt.
19
<PAGE>
PROVISION FOR INCOME TAXES. The Company's effective tax rate increased to
37.9% in fiscal 1996 from 33.9% in fiscal 1994 primarily due to a decrease in
research and development tax credits and higher state income taxes in fiscal
1996 compared to fiscal 1994.
FISCAL YEAR ENDED DECEMBER 31, 1994 (FISCAL 1994) COMPARED TO FISCAL YEAR
ENDED DECEMBER 31, 1993 (FISCAL 1993)
NET SALES. Net sales increased by approximately 22.5% to $37.9 million in
fiscal 1994 compared to $30.9 million in fiscal 1993 primarily due to the
introduction of the Company's JUDY product in late fiscal 1994 and continued
growth in the Company's QUADRA product line. Sales to OEMs increased by
approximately 25.7% to $24.5 million (or approximately 64.6% of net sales) in
fiscal 1994 from $19.5 million (or approximately 62.9% of net sales) in fiscal
1993. Net sales to the retail accessory market increased by approximately 17.1%
to $13.4 million (or approximately 35.4% of net sales) in fiscal 1994 from $11.5
million (or approximately 37.1% of net sales) in fiscal 1993.
International sales accounted for approximately 49.4% and 44.5% of net sales
in fiscal 1994 and fiscal 1993, respectively. This increase resulted principally
from an increase in net sales of products shipped to Asian manufacturing
subcontractors for certain U.S.-based OEMs.
GROSS MARGIN. Gross margin remained relatively constant at approximately
35.4% in fiscal 1994 compared to approximately 35.0% in fiscal 1993. Improvement
in fiscal 1994 gross margin was due to increased sales volume, which covered
fixed overhead and which was partially offset by increased customer service and
materials costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense decreased by approximately 17.4% to $4.2 million (or
approximately 11.1% of net sales) in fiscal 1994 from $5.1 million (or
approximately 16.5% of net sales) in fiscal 1993. This decrease was principally
due to discretionary bonuses paid to certain officers of approximately $800,000
during fiscal 1994 compared to discretionary bonuses paid to certain officers of
approximately $1.8 million during fiscal 1993, partially offset by an increase
in other marketing expenses in fiscal 1994.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSE. Research, development and
engineering expense increased by approximately 35.0% to $2.1 million (or
approximately 5.5% of net sales) in fiscal 1994 compared to $1.5 million (or
approximately 4.9% of net sales) in fiscal 1993 primarily due to an increase in
headcount. Fiscal 1994 includes discretionary bonuses paid to an officer of the
Company of approximately $800,000 compared to discretionary bonuses paid to
certain officers in fiscal 1993 of approximately $900,000.
INTEREST EXPENSE. Interest expense was $21,000 in fiscal 1994 compared to
$36,000 in fiscal 1993, less than 1% of net sales in both periods.
PROVISION FOR INCOME TAXES. The Company's effective tax rate decreased to
33.9% in fiscal 1994 from 36.4% in fiscal 1993 principally due to lower state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, the Company has satisfied its operating
cash needs, other than expenses relating to the Recapitalization, principally
through cash flow from operations. Net cash provided by operating activities was
$8.5 million during fiscal 1996, which consisted of net income of $5.7 million,
depreciation and amortization of $1.7 million, provisions for doubtful accounts
and excess and obsolete inventory of $3.5 million and increases in accounts
payable and accrued liabilities of $7.6 million offset partially by increases in
deferred income taxes of $2.3 million, accounts receivable of $1.7 million and
inventories of $6.1 million. Currently, the Company does not generally grant
extended payment terms to its OEM or distributor customers, and requires its
retail accessory market customers to pay by credit card or cash on delivery. The
Company may change this policy in the future in response to competitive or other
market conditions.
Net cash used in investing activities was $4.0 million during fiscal 1996,
which consisted of purchases of property, equipment and other assets. The
Company expects that its capital expenditures will increase to approximately $7
million in fiscal 1997.
20
<PAGE>
In March 1995, the Company effected the Recapitalization. See "The
Recapitalization and the Merger." Net cash used by financing activities was $4.0
million during fiscal 1996, which consisted of a $2.5 million reduction in
long-term debt, a $1.3 million payment to satisfy all revolving loans under the
Existing Credit Facilities and a $250,000 repayment of a note held by a
stockholder. At March 31, 1996, the Company had working capital of $2.3 million
and had available a $6.0 million line of credit. The Company intends to replace
the Existing Credit Facilities with the New Credit Facility on or after
consummation of the Offering. See "Use of Proceeds."
RECENT ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121"), which requires the Company to review
for impairment of long-lived assets and, in certain situations, recognize an
impairment loss. SFAS No. 121 will become effective for the Company's fiscal
year ending March 31, 1997. The Company has studied the implications of SFAS No.
121 and, based on its initial evaluation, does not expect SFAS No. 121 to have a
material impact on the Company's financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which established a fair value-based method of accounting for stock-based
compensation plans. The Company is currently following the requirements of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company plans to adopt SFAS No. 123 utilizing the disclosure
alternative during fiscal 1997.
SELECTED QUARTERLY FINANCIAL DATA; SEASONALITY
The following table presents selected quarterly financial information for
the last eight fiscal quarters. This information has been prepared by the
Company on a basis consistent with the Company's audited financial statements
and includes all adjustments, consisting of normal recurring adjustments, that
management considers necessary for a fair presentation of the results for such
quarters. The operating results for any quarter are not necessarily indicative
of the results for any entire year.
<TABLE>
<CAPTION>
QUARTER ENDED:
---------------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1995 1995 1995 1995
----------- --------------- ------------- ----------- ----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 6,853 $ 7,568 $ 13,543 $ 14,279 $ 18,784 $ 21,258 $ 23,223
Gross margin............. 2,281 2,596 4,752 4,689 6,420 7,493 8,363
Operating income
(loss).................. 768 767 3,103 (2,938) 3,087 3,976 5,337
<CAPTION>
MARCH 31,
1996
-----------
<S> <C>
Net sales................ $ 20,244
Gross margin............. 7,123
Operating income
(loss).................. 2,378
</TABLE>
Because of the Company's rapid and substantial growth, historical quarterly
operating results do not reflect management's expectations of future quarterly
operating results. Management believes that future operating results will
fluctuate on a quarterly basis due to a variety of factors, including seasonal
cycles associated with the bicycle industry; the effects of weather conditions
on consumer purchases; the timing of orders from OEMs, distributors and IBDs;
the number and timing of new product introductions; and changes in the mix of
products ordered and re-ordered by OEMs, distributors and IBDs. Management
anticipates that the Company's sales will normally be lowest in its first and
fourth fiscal quarters, which end on June 30 and March 31, respectively. See
"Risk Factors--Quarterly Fluctuations in Operating Results; Forecasting of OEM
Orders."
21
<PAGE>
BUSINESS
RockShox is the worldwide leader in the design, manufacture and marketing of
high performance bicycle suspension products. The Company developed the first
widely accepted front suspension fork for the mountain bike industry, and,
through a series of new product introductions, has continued to be at the
forefront of the design and development of bicycle suspension. The Company,
which currently manufactures both front suspension forks and rear shocks for
mountain bikes, has combined technical innovation with high quality products and
creative marketing to establish one of the most widely recognized brand names in
the bicycle industry. In a 1995 BICYCLING MAGAZINE readers' survey, 45% of the
respondents who owned a suspension fork owned a ROCKSHOX manufactured
product--more than twice the share of the next leading manufacturer--and more
than 65% of the respondents who planned to purchase a suspension fork within the
next two years planned to purchase a ROCKSHOX suspension fork.
The Company's sales have grown rapidly, from approximately $6 million in
fiscal 1991 to approximately $83.5 million in fiscal 1996, a compound annual
growth rate of approximately 85.5%. The Company believes that its growth has
been the result of increasing market acceptance of bicycle suspension worldwide
and, more specifically, growing demand for ROCKSHOX suspension products. From
1992 to 1996, the number of mountain bike models available in the U.S. with
suspension has increased from approximately 80 to over 660. The Company has been
a key contributor to this growth, with ROCKSHOX components now specified on over
460, or more than 60%, of these 1996 suspension-equipped mountain bike models.
The Company believes that significant opportunities for growth continue to exist
worldwide since the number of mountain bikes sold with suspension, while rapidly
increasing, represented only 17% of all mountain bike units sold domestically by
IBDs in 1995. The Company further believes that the market penetration of
suspension-equipped mountain bikes is even lower internationally.
RockShox currently markets ten front suspension forks and three rear shocks
under its JUDY, INDY, QUADRA, MAG and DELUXE product lines. The Company's
products have been repeatedly recognized by the bicycle industry for their
innovative design and superior performance. Since introducing its first
suspension fork in 1989, the Company has received numerous awards for its
technical advances and the overall desirability of its products. See "--Product
Awards." As further evidence of the advanced design and technical benefits of
its products, the Company anticipates that ROCKSHOX suspension will be used by
many of the mountain bike racers competing in the 1996 Olympic Games in Atlanta.
Approximately two-thirds of the Company's sales are to OEMs, including Trek,
GT and Specialized, who incorporate ROCKSHOX branded components as part of new,
fully-assembled mountain bikes sold worldwide. The Company is the primary
supplier of front suspension forks to eight out of the ten leading OEMs selling
through domestic IBDs. Management believes that OEM customers recognize the
strength of the Company's brand name as a deciding factor in the consumer's
choice of mountain bikes. In addition, the Company believes that OEMs choose
RockShox for product innovation and quality as well as reliable worldwide
distribution and service.
The Company's products are also sold as an accessory component to consumers
through a network of over 10,000 IBDs worldwide. According to a
Company-sponsored survey, more than 94% of responding domestic IBDs identified
ROCKSHOX as the leading brand of suspension product sold in their stores and
management believes that the Company enjoys a similar retail presence
internationally. The Company's front suspension forks and rear shocks are
generally priced to consumers from $199 to $649 and from $199 to $289,
respectively.
OPERATING STRATEGIES
The Company believes that it currently has the leading market share in front
suspension forks and is a major participant in the developing market for rear
shocks. The Company has established and continues to enhance its position as the
worldwide leader in the design, manufacture and marketing of high performance
bicycle suspension products through the following operating strategies:
- INNOVATIVE PRODUCT DEVELOPMENT. Management believes that no other company
has been as successful as RockShox in bringing to market a series of new
and innovative mountain bike suspension products.
22
<PAGE>
From the original oil-damped RS1 fork introduced in 1989 to the new
generation of the JUDY cartridge system, RockShox has successfully
maintained its leadership in the growing mountain bike suspension market.
In the current model year, the Company has introduced six new products,
including the INDY product line, and has incorporated design improvements
in a number of its more seasoned product offerings. The Company supports
its research and development efforts with a team of 14 product development
professionals, sophisticated computer-based design tools and an advanced
product testing center.
- WIDELY RECOGNIZED BRAND NAME AND DISTINCTIVE IMAGE. The Company has one of
the leading brand names in the bicycle industry and is closely identified
with the mountain biking culture. Every front suspension fork sold by the
Company today, including components sold as part of OEM mountain bikes,
prominently displays the ROCKSHOX brand name. The Company promotes its
brand name and image through focused marketing programs, including
sponsorship of mountain bike race teams and creative advertising in a
variety of U.S. and international bicycle publications. The Company's
brand name and products receive further promotion through inclusion in
many OEM advertisements and frequent editorial references in cycling
publications.
- STRONG RELATIONSHIPS WITH OEMS AND IBDS. The Company has become an
increasingly important supplier to leading mountain bike OEMs worldwide.
The Company's products are currently included on more than 60% of the
mountain bike models sold with suspension in the U.S., according to
MOUNTAIN BIKE MAGAZINE'S 1996 annual industry survey. Management believes
that its OEM customers recognize the strength of the ROCKSHOX name as a
deciding factor in the consumer's choice of mountain bikes. The Company
supports its OEM customer relationships with joint product development and
global distribution and service. The Company's products, both as part of
an OEM mountain bike or as an accessory item, are sold to consumers
through a network of over 10,000 IBDs worldwide. Management believes that
ROCKSHOX is the leading brand of suspension product sold by IBDs, and that
IBD enthusiasm for ROCKSHOX has contributed to consumer acceptance of the
Company's suspension products. The Company maintains its strong position
among IBDs in a variety of ways, ranging from unique point-of-sale
materials to worldwide warranty support.
- PRODUCT LINE EXPANSION AND BRAND SEGMENTATION. The Company has
successfully expanded the market for mountain bike suspension by extending
its product line and segmenting its brands to address a growing range of
price points and performance needs. In 1992, the Company offered only two
suspension forks and participated in a narrow market segment represented
by mountain bikes that retailed for over $1,000. Today, RockShox offers
ten front suspension forks under four different product lines and has
effectively expanded the primary market for its products to mountain bikes
that retail from $600 to more than $2,500. The Company believes its broad
and segmented product lines enable RockShox to leverage its design and
manufacturing capabilities to meet the cost and performance needs of its
customers at various price points while maintaining brand name integrity.
- INCREASINGLY EFFICIENT DESIGN AND MANUFACTURING PROCESSES. The Company
constantly seeks increased productivity in its product development and
manufacturing activities. Continuing improvements in product design as
well as the Company's ability to bring critical manufacturing processes
in-house have generated significant operating efficiencies. As a result,
the Company has been able to expand the target market for its products by
introducing more moderately-priced suspension products without
experiencing a material change in its overall gross margin. Management
believes that the Company's emphasis on design and manufacturing
improvements will continue to be a critical factor in RockShox's ability
to expand the market for its products and to compete internationally.
GROWTH STRATEGIES
The Company has developed the following growth strategies to capitalize on
its strong brand name, successful products and operating capabilities:
- CAPITALIZE ON THE ONGOING GROWTH OF HIGH-END MOUNTAIN BIKE SEGMENT. The
Company believes that the high-end of the mountain bike market will
continue to grow at a faster rate than the overall
23
<PAGE>
bicycle market, creating the opportunity for increased sales of suspension
products. According to BMRI, mountain bikes retailing for $600 or more in
the U.S. experienced cumulative unit sales growth of approximately 33%
from 1992 to 1995, and this segment of the market is expected to continue
to grow in the coming year. Furthermore, bicycle suspension, including
ROCKSHOX, has achieved significant market penetration among these higher
priced mountain bikes. The Company believes that it is well positioned to
capitalize on the anticipated growth of the high-end mountain bike market
based on its existing market penetration and leadership, widely recognized
brand name, innovative and high quality products, and strong OEM
relationships.
- PURSUE FAST GROWING FULL SUSPENSION MARKET. According to MOUNTAIN BIKE
MAGAZINE, the number of mountain bike models available in the U.S. with
full suspension has grown from 39 in 1992 to 216 in 1996. The Company
recently introduced its DELUXE line of rear shocks, which complements its
front suspension forks and allows the Company to participate fully in the
growing demand for full suspension mountain bikes. Since it is generally
not possible to retrofit a mountain bike with rear suspension, management
believes that consumer interest in full suspension should generate
incremental demand for new mountain bikes. This demand for new, full
suspension mountain bikes should lead to additional sales of the Company's
well-established front suspension forks as well as provide a growing
market for its newly introduced rear shocks.
- EXPAND INTO THE HIGHER-VOLUME, MID-PRICED MOUNTAIN BIKE SEGMENT. Most of
the Company's products are included on higher-priced mountain bikes that
retail for $600 or more. According to BMRI, approximately 17% of all
mountain bike units sold in the U.S. by IBDs during 1995 were priced at
$600 or above, and 80% of these units included suspension. In contrast,
approximately 83% of mountain bikes sold by IBDs in 1995 were priced under
$600 and, while suspension is becoming more common on such bikes, less
than 15% included suspension. Management believes that the demand for
suspension on mountain bikes priced below $600 is potentially significant
and growing rapidly. The Company intends to continue to broaden its
product line within its existing distribution channels to capture more of
this high-volume, mid-priced mountain bike market. The Company recently
repositioned, and is already experiencing success with, its QUADRA
suspension fork, which is priced to be incorporated on OEM mountain bikes
that retail for as low as $475.
- LEVERAGE BRAND NAME IN NEW PRODUCT CATEGORIES. Management believes that
the performance and comfort of suspension can be applied to bicycles other
than mountain bikes. The Company is currently designing new suspension
forks for other types of bicycles, including road and trekking bikes, and
expects to introduce a new road fork on a limited basis in fiscal 1997.
The Company also anticipates that it may develop new products and from
time to time evaluate acquisition opportunities to expand its product
lines, including the possible development or acquisition of non-suspension
bicycle component product lines. See "Risk Factors--New Product
Introductions."
INDUSTRY OVERVIEW
BICYCLING. BMRI estimates that approximately 12 million bicycles (excluding
juvenile bikes) were sold in the United States in 1995, representing
approximately $2.2 billion of retail sales. Although unit sales of bicycles in
the U.S. have increased less than 7% since 1993, the average retail price per
bicycle during this same time period has increased more than 26% to $183. The
Company believes the average retail price per bicycle has increased in recent
years as consumers have "traded-up" to purchase new bicycles with more advanced
performance features, including suspension.
Limited information is available regarding the sale of bicycles in
international markets; however, it is estimated that 114 million bicycles were
produced worldwide in 1995. The Company believes the two largest international
bicycle markets are Western Europe and Japan, where approximately 18 million and
8.5 million bicycles were sold in 1994, respectively.
Bicycles are sold through two primary retail channels: mass merchandise
retailers and IBDs. In the United States, mass merchandise retailers typically
sell lower priced bicycles that retail for under $400 (the average price per
bicycle sold by mass merchandise retailers in 1995 was $105) with minimal
service. In
24
<PAGE>
contrast, IBDs typically sell higher quality, higher priced bicycles with full
service and sales support. IBD retail prices can exceed $2,500 with an average
price in 1995 of $349. IBDs (including general sporting goods stores), which
accounted for 27% of U.S. unit sales and 48% of U.S. bicycle retail dollars in
1993, are increasingly becoming the preferred channel for bicycle purchases,
and, in 1995, accounted for 32% of U.S. unit sales and 61% of U.S. bicycle
retail dollars.
IBDs sell new, fully-assembled OEM bicycles as well as a wide range of
bicycle performance accessories and products. Leading OEMs selling through IBDs
include Trek, Schwinn Cycling and Fitness, Inc. ("Schwinn"), Specialized,
Cannondale Corporation ("Cannondale") and GT, all of which are customers of the
Company. Whether included as part of an OEM's fully-assembled mountain bike or
as an aftermarket accessory, RockShox suspension products are only available to
consumers through IBDs.
MOUNTAIN BIKES. BMRI estimates that approximately eight million mountain
bikes were sold in the United States in 1995, representing approximately $1.6
billion of retail sales. As a percentage of all bicycles sold in the U.S., sales
of mountain bikes have increased from approximately 54% of units in 1992 to
approximately 67% of units in 1995 and from approximately 58% of retail dollars
in 1992 to approximately 72% of retail dollars in 1995. In addition, management
believes the international popularity of mountain biking is growing and mountain
bikes now represent a significant share of the international bicycle market. The
growth in popularity of mountain bikes is attributable, in part, to the superior
comfort of mountain bikes as compared to road bicycles as well as the
dramatically increased terrain available for mountain biking versus other types
of cycling.
According to BMRI, over 2.1 million mountain bikes were sold by IBDs in the
U.S. in 1995 at an average price of $425. According to BMRI, during the same
period another four to five million mountain bike units were sold by IBDs in
Western Europe. Management believes that there has been a general trend of
increasing sales and increasing average selling price for mountain bikes, which
has benefitted IBDs worldwide over the past several years.
The growth of the high performance segment of the mountain bike market has
been a major factor in the overall strength of IBD mountain bike sales
worldwide. BMRI estimates that unit sales of mountain bikes with a retail price
over $600 by IBDs in the U.S. have increased by 33% from 1992 to 1995, and
management believes a similar trend has occurred over the same period in the
international market. The recent popularity of the more expensive mountain bikes
is due in large part to innovations such as lighter frames and suspension, which
attract both first-time buyers and consumers "trading-up" to obtain more
advanced performance features.
Despite recent growth, high priced mountain bikes still represent a small
part of the overall mountain bike market as measured by units. Most mountain
bikes sold by domestic IBDs retail for under $600 per unit as follows:
<TABLE>
<CAPTION>
1995 U.S. IBD
MOUNTAIN BIKE SALES
------------------------------
UNITS
RETAIL PRICE POINT (IN THOUSANDS) % OF TOTAL
- ------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
$600 and over...................................................... 360 17%
$599 and under..................................................... 1,760 83%
----- ---
Total.......................................................... 2,120 100%
----- ---
----- ---
</TABLE>
Source: BMRI
SUSPENSION. According to BMRI, approximately 360,000 suspension-equipped
mountain bikes were sold by IBDs in the United States in 1995. The average
retail price of a suspension-equipped mountain bike sold in 1995 through
domestic IBDs was $925, and over 80% of all mountain bikes sold domestically for
$600 or more included suspension as standard equipment. The significant market
penetration of suspension at the high-end of the mountain bike market reflects
the industry's success in developing suspension products for
25
<PAGE>
performance-oriented mountain bike enthusiasts and racers. Management believes
that an opportunity is now emerging to design suspension products for the
broader, mid-priced market. Since 1992, an increasing number of mountain bike
models priced below $600 are being sold with suspension, as demonstrated below:
<TABLE>
<CAPTION>
NUMBER OF MODELS DESIGNED BY OEMS WITH SUSPENSION AVAILABLE IN THE U.S.
- ------------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL PRICE POINT 1992 1996
- ---------------------------------------------------------------- ----- -----
$600 or more.................................................... 84 608
$599 or less.................................................... 0 56
--
---
Total....................................................... 84 664
--
--
---
---
</TABLE>
Source: MOUNTAIN BIKE MAGAZINE
Today, less than 15% of mountain bikes sold for under $600 in the U.S. by IBDs
include suspension, but management expects market penetration in this price
segment to increase dramatically over the next several years following the
pattern established at the high-end of the mountain bike market.
In addition, full suspension bike models, which have a front suspension fork
and a rear shock, are becoming increasingly common. According to MOUNTAIN BIKE
MAGAZINE, mountain bike models available in the U.S. with full suspension have
increased from 39 in 1992 to 216 in 1996. Management expects full suspension to
gain increased market share and achieve substantial market penetration, first on
mountain bikes priced above $1,000 and, eventually, on mountain bikes at lower
price points.
While suspension has grown in popularity in recent years, a number of
manufacturers of suspension products have withdrawn from the market. These
former manufacturers of suspension products were primarily mountain bike OEMs
who produced suspension products under their own brand name for their own use.
Management believes these OEMs withdrew from the suspension market because they
could not develop the necessary technical proficiency, cost efficiency or brand
name recognition to compete with other suspension manufacturers.
CORPORATE HISTORY
RockShox was founded by Steve Simons and Paul Turner in 1989. Their interest
in suspension technology preceded the founding of RockShox by many years, and
can be traced back to their independent experiences as designers of high
performance products in the motorcycle industry.
In 1977, Mr. Simons founded a company that specialized in the design and
production of advanced motorcycle suspension products, including the manufacture
of motorcycle front forks. Through this venture, Mr. Simons obtained patents on
two of his suspension fork designs, and became known for his technical and
manufacturing expertise relating to motorcycle suspension. During this same
period, Mr. Turner worked for the Honda motocross team and, subsequently, became
an independent consultant in the motorcycle industry.
In 1988, Mr. Turner, who had become increasingly interested in mountain bike
competition, approached Mr. Simons with a prototype of a mountain bike
suspension fork for which Mr. Turner needed production advice. Messrs. Simons
and Turner took this prototype and created a commercially-viable bicycle
component ready for production. This suspension fork, the RS1, was introduced at
a bicycle trade show in January 1989. Several months later, RockShox was
incorporated in North Carolina. The original stockholders of RockShox included
Messrs. Simons and Turner as well as Dia-Compe, Inc., a U.S. subsidiary of a
Japanese bicycle parts manufacturer ("Dia-Compe"), which provided start-up
capital, manufacturing facilities and administrative support for the venture.
In July 1992, Dia-Compe was divested by its parent and, in turn, sold its
interest in RockShox to Mr. Simons and his wife, Debra Simons. The Company then
moved its principal operations from North Carolina to California. In September
1994, the Company consolidated its operations into its present facilities
located in San Jose, California.
Recognizing both the opportunities and challenges of managing and operating
a high-growth company, Messrs. Simons and Turner decided to seek a partner to
support their efforts and strengthen the Company's
26
<PAGE>
management team. In March 1995, the Company was recapitalized in a transaction
with The Jordan Company. As a result thereof, Messrs. Simons and Turner and
certain members of their respective families became equal owners in the Company
with MCIT PLC and certain persons and entities affiliated with The Jordan
Company. See "The Recapitalization and the Merger." In addition, the Company has
recently made several significant additions to its management group. See
"Management--Directors, Executive Officers and Key Employees."
PRODUCTS
ROCKSHOX suspension products are generally designed to enhance riding
performance and comfort, and include front suspension forks and rear shocks
based on elastomer, hydraulic and spring coil technologies. The Company's
bicycle suspension systems incorporate two functional components: a spring and a
damper. The spring function absorbs the impact of rough terrain and returns the
fork to its original position after compression. The damper also absorbs impact
and moderates the movement of the fork as it returns to its original position.
As a result, suspension mitigates the impact of rough terrain and provides
better wheel contact with the riding surface, especially on off-road or nonpaved
surfaces, enabling the cyclist to ride with more speed, comfort and control.
Every ROCKSHOX fork uses aerospace alloys and features adjustable
suspension, a progressive spring rate, structural rigidity, low weight and
durable construction. Adjustable suspension allows the rider to fine-tune the
fork's performance to accommodate weight, skill level and performance
objectives. Key to any suspension system is the spring rate, which allows the
front suspension fork to move easily over small bumps but not "bottom out" over
larger ones. The structural rigidity of ROCKSHOX suspension forks improves the
rider's ability to control the bike, while low weight enhances overall bicycle
performance. Every ROCKSHOX fork is covered by a one-year limited warranty.
The 1997 models represent the Company's broadest line of product offerings
to date. For the 1997 model year, the Company has ten front suspension forks,
including five new forks, and three rear shocks, including one new rear shock.
All of the Company's products that were introduced prior to the current product
year have experienced model year modifications or upgrades since they were
originally introduced.
The following tables summarize the Company's 1997 product offerings of front
forks and rear shocks:
FRONT FORKS
<TABLE>
<CAPTION>
TYPICAL
RETAIL BIKE SUGGESTED WEIGHT FOR DATE OF
PRICE RETAIL PRICE IN SUSPENSION STANDARD ORIGINAL
1997 MODEL POINT(1) ACCESSORY MARKET INTENDED USE TECHNOLOGY CONFIGURATION SHIPMENT(2)
- ----------- ------------- ---------------- ---------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
QUADRA 5 $475-$800 Not offered at Recreational; Elastomer 3.2 pounds May 1994
retail Light Terrain
INDY C $500-$850 $199 Recreational; Coil/Solid 3.25 pounds April 1996
Moderate Terrain Urethane
INDY XC $600-$1,200 $239 Cross-Country; Coil/Multicellular 3.1 pounds May 1996
Moderate Terrain Urethane ("MCU")
INDY SL $900-$2,000 $359 Cross-Country; Coil/MCU 2.7 pounds June 1996
Moderate Terrain
MAG 21 $850-$1,200 $299 Cross-Country; Air/Oil 3.0 pounds September 1992
Moderate Terrain
JUDY C $900-$2,000 Not offered at Cross-Country; Cartridge 3.25 pounds July 1996
retail Extreme Terrain
JUDY XC $1,100-$2,500 $399 Cross-Country; Cartridge 2.95 pounds September 1994
Extreme Terrain
JUDY DH $1,500+ $549 Downhill Racing Cartridge 3.5 pounds September 1994
JUDY SL $1,600+ $649 Cross-Country; Cartridge 2.7 pounds September 1994
Extreme Terrain
JUDY DHO $2,000 $1,000 Downhill Racing Cartridge 4.2 pounds Fall 1996
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
REAR SHOCKS
<CAPTION>
TYPICAL
RETAIL BIKE SUGGESTED WEIGHT FOR DATE OF
PRICE RETAIL PRICE IN SUSPENSION STANDARD ORIGINAL
1997 MODEL POINT(1) ACCESSORY MARKET INTENDED USE TECHNOLOGY CONFIGURATION SHIPMENT(2)
- ----------- ------------- ---------------- ---------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
DELUXE $1,000-$1,200 Not offered at Recreational Coil over 0.71 pounds June 1995
retail hydraulic damper
COUPE $1,200-$1,700 $199 Cross-Country/ Coil over 0.71 pounds July 1996
DELUXE Downhill hydraulic damper
SUPER $1,700+ $289 Cross-Country/ Coil over 0.79 pounds June 1995
DELUXE Downhill Racing hydraulic damper
with oil reservoir
</TABLE>
- ------------------------------
(1) The typical retail bike price point represents management's estimate of the
retail price range for OEM mountain bikes that include the indicated
product.
(2) Following their introduction, models are generally upgraded and revised
each year.
The following describes the Company's 1997 model year product offerings:
QUADRA
The QUADRA product line has been offered by the Company since 1992 and,
in 1995, BICYCLING MAGAZINE recognized the QUADRA 21R as the "best value" in
front suspension forks. Building on this reputation for providing suspension
performance at a moderate price, the Company repositioned the line to
capture more of the mid-priced OEM mountain bike market. As a result, the
line includes only one offering in 1997, the QUADRA 5, which is targeted at
recreational and mid-performance cyclists. The QUADRA 5 utilizes an
elastomeric damper to provide reliable performance and has low maintenance
requirements. The fork is not currently available as a retail accessory, and
has been targeted for inclusion on OEM mountain bikes that retail between
$475 and $800.
INDY
The INDY line was introduced for the 1997 bicycle model year. The INDY
series is comprised of three suspension forks: the INDY C, the INDY XC and
the INDY SL. These forks are targeted at cyclists who spend between $500 and
$2,000 on a mountain bike. All three INDY forks utilize a combination spring
coil/ urethane elastomer system that allows for a responsive ride while
maintaining a relatively low fork weight for its price range. Management
believes that INDY technology and design delivers significant performance at
a moderate price. The INDY product line retails to consumers from
approximately $199 for the INDY C to approximately $359 for the INDY SL.
MAG
The MAG line is targeted at high-performance and professional cyclists
who spend more than $850 on a mountain bike. The MAG line utilizes an
air/oil hydraulic damper and uses RockShox's exclusive STATIC LOCKOUT to
minimize energy absorption and fork contraction during pedaling. The MAG 21
is the only fork currently sold under the MAG line. The MAG 10, MAG 21 SL
and MAG 21 SL/TI forks previously in this line were superseded in the 1995
model year by the Judy line.
JUDY
In 1994, the Company introduced the Judy line, which was recognized at
such time by VELO NEWS as the "Technical Development of the Year" in the
bicycle industry. The JUDY product line is based on an adjustable hydraulic
damper cartridge unit in which the damping mechanism is sealed in a
replaceable cartridge. For 1997, the JUDY line consists of five forks: the
JUDY C, the JUDY XC, the JUDY SL, the JUDY DH and the JUDY DHO. The JUDY C,
a recent addition to the JUDY product line, can be purchased only by OEMs
and is currently not available as a retail accessory. The JUDY XC retails
for approximately $399 and is targeted at racing and other performance
enthusiasts. The JUDY SL weighs only 2.7 pounds, retails for approximately
$649 and is designed for cyclists who demand premium performance with
minimum weight and who spend in excess of $1,600 on a mountain bike. The
JUDY DH retails for approximately
28
<PAGE>
$549 and is a more rigid, heavy-duty fork, specifically designed to meet the
demanding requirements of the downhill racer. The JUDY DHO is the Company's
newest downhill racing fork and is expected to retail for approximately
$1,000.
DELUXE REAR SHOCKS
In the 1996 model year, the Company introduced the DELUXE line, its
first rear suspension products to be incorporated on full suspension
bicycles. The DELUXE series has been expanded for the 1997 model year, and
consists of three rear shocks: the DELUXE, the COUPE DELUXE and the SUPER
DELUXE. All three rear shocks feature oil damped, nitrogen charged
suspension technology, and allow the Company to target a variety of
performance levels in the emerging full suspension mountain bike market. The
Company's rear shocks retail from approximately $199 for the COUPE DELUXE to
approximately $289 for the SUPER DELUXE.
PRODUCT AWARDS
Management believes that improvements in RockShox's existing suspension
products and the development of new product designs and technologies are
necessary for the Company's continued success and growth. The Company is
generally recognized as an industry leader in product development and design,
and has won numerous awards for its products, including the following:
<TABLE>
<CAPTION>
YEAR MAGAZINE PRODUCT AWARD
- --------- ------------------------ -------------- ----------------------------------------------------------------
<S> <C> <C> <C>
1989 BICYCLING GUIDE MAGAZINE RS1 "Best of 1989"
1993 MOUNTAIN BIKE QUADRA 21R "Best Product Tried This Year"
ROCKSHOX forks "Cycling Product Most Likely to Top Your Wish List This
Year"
1994 VELO NEWS JUDY "Technical Development of the Year"
1995 BICYCLING MAGAZINE QUADRA 21R "Best Value Fork"
BUYERS GUIDE JUDY XC "Best Overall Fork"
1995 MOUNTAIN BIKE JUDY SL "Favorite Suspension Fork"
JUDY SL "Cycling Product Most Likely to Top Your Wish List This
Year"
1995 AUGUST BIKE MAGAZINE MAG 21 "Winner: Fork Fatigue Test"
(Germany)
</TABLE>
RESEARCH AND PRODUCT DEVELOPMENT
Management believes that the Company's commitment to product innovation,
research and development is one of the most significant in the bicycle
suspension industry. As of June 30, 1996, the Company's product development
activities, based in San Jose, California, were supported by 14 professionals,
including nine project engineers, who utilize an array of sophisticated design
and analytical tools. Development for each major product line (e.g., JUDY, INDY,
etc.) is headed by a senior level project engineer with assistance from at least
one other project engineer. In addition, the Company has an ongoing advanced
materials/ technologies program led by its engineering manager, which
investigates and applies materials and processes not currently used in the
manufacture of current products.
The Company maintains a testing center in San Jose, California to collect
data and test designs prior to commercial introduction. The testing center is
staffed by two technicians and managed by a senior project engineer, who perform
various fatigue, impact and cycle tests on components and assembled prototypes
during the design process. In addition, the Company operates a field test site
in Santa Cruz, California to provide in-use data on new products. Management
believes that these testing facilities and procedures allow the Company to
design superior suspension products and provide a competitive advantage with
regard to product quality and safety.
The product development process usually begins one to two years prior to the
expected commercial introduction of a new product, and generally focuses on
having a product ready for distribution at the start of
29
<PAGE>
the applicable model year. In addition, short-term projects involving annual
upgrades of existing products and improvements to manufacturing processes occur
regularly. New product ideas come from a variety of sources, including feedback
from mountain bike race teams, OEMs, consumers and the Company's employees.
Products are developed using design and engineering software tools that provide
full parametric three-dimensional modeling and finite element analysis, allowing
for computer optimization of structures and greatly reducing the time required
to develop and prototype designs. Currently, an interdepartmental team,
including representatives from the Company's engineering, manufacturing, and, in
certain cases, sales and marketing departments, is established at the beginning
of every development project. Management believes this interdepartmental
approach to product development reduces the time necessary to bring a successful
product to market.
Current areas of focus for product development include, among others, (i)
research in the area of new materials and processes to reduce the cost and
improve the performance of the Company's current products; (ii) the continuation
of the development of rear suspension products; (iii) the introduction of
products appropriately priced for the mid-priced segment of the mountain bike
market; and (iv) the design of new products, including suspension systems for
road and trekking bikes. The Company's future success will depend, in part, upon
its continued ability to develop and successfully introduce new and popular
bicycle suspension products and other types of bicycle components. There can be
no assurance that the Company will introduce any new products or, if introduced,
that any such products will be commercially successful. See "Risk Factors--New
Product Introductions."
Research and product development expenditures in fiscal years 1993, 1994 and
1996 were approximately $1.5 million, $2.1 million and $3.4 million,
respectively.
MANUFACTURING
All manufacturing is done in the Company's San Jose facilities on multiple,
continuous flow assembly lines. These lines are computer-controlled and are
comprised of a combination of automated and manual assembly stations supported
by satellite subassembly operations. The assembly lines are designed for
efficiency and can potentially produce a complete suspension fork every 20
seconds. In addition to assembly activities, the Company does some machining of
parts on-site. Management reviews manufacturing processes available through
sub-contractors to determine if opportunities exist to re-engineer such
processes and to bring them in-house. To this end, the manufacturing department
has its own engineering function, which is currently carried out by four
engineers and six technicians. Typically, RockShox brings certain machining
operations into the Company on the basis of cost, quality control, lead-time and
the critical nature of the subcomponent in achieving production efficiencies.
Such in-house machining is generally performed on specialized equipment designed
and built by the Company's manufacturing engineers and subcontractors.
As of June 30, 1996, manufacturing included approximately 220 non-unionized
employees plus approximately 100 temporary hires brought in during the peak
building season from June through January. The Company generally operates on a
single shift, adding a second shift when needed. Extensive training occurs so
supervisors and lead assemblers can manage their own work areas and monitor
product quality. In addition, computerized testing and statistical process
control are used to maintain and measure product quality during the assembly
process. Finished products are also tested in the Company's product development
test center.
The Company works closely with a variety of vendors to meet its production
needs, including machine shops, die casters, forging houses, tube manufacturers
and injection molders. Currently, all of the Company's major suppliers are based
in the U.S. The Company continually reviews its vendor relationships with regard
to cost, delivery and quality. During fiscal 1996, the Company purchased $8.5
million of machined fork crowns from its largest vendor. See "Certain
Transactions--Other."
Production planning starts with a general forecast several months before the
beginning of the model/ fiscal year. This general forecast is then turned into a
more complete, time-phased forecast by customer and suspension product, which
guides initial planning for parts and labor requirements. As the year
progresses, the forecast is constantly reviewed and compared with actual
customer orders. Manufacturing inventory
30
<PAGE>
levels are currently managed through an Integrated ERP (Enterprise Resource
Planning) Package. The Company is in the process of shifting to Graphical User
Interface based system, a software package that management believes should
enhance manufacturing flexibility.
The Company's policy is to require firm purchase orders from OEMs 60 days
prior to shipment, which generally allows the Company to manufacture product
against a known backlog. As of June 30, 1996, the Company's backlog was
approximately $21.9 million. Substantially all of the Company's backlog orders
are expected to be filled within 90 days, although there can be no assurance
that all such backlog orders will be filled within that time period.
See "Risk Factors--Sales Concentration; Dependence on OEMs," "--Quarterly
Fluctuations in Operating Results; Forecasting of OEM Orders" and "--Dependence
on Suppliers; Manufacturing Risks"
SALES AND DISTRIBUTION
The Company's products are primarily sold to OEMs, who incorporate ROCKSHOX
branded components as part of new, fully-assembled mountain bikes sold
worldwide, and through distributors or, in some cases, directly to IBDs, each of
whom serve the retail accessory market. For the fiscal year ended March 31,
1996, approximately 68% of the Company's total net sales were to OEMs and
approximately 32% were to distributors and IBDs. OEM customers have become
increasingly important to the Company as bicycle suspension has evolved from an
accessory niche component into standard equipment on better quality mountain
bikes. The following table demonstrates the historical shift in the Company's
customer base and product distribution:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
----------------------------------------------------------------------------------------
DECEMBER 31, 1993 DECEMBER 31, 1994 MARCH 31, 1996
---------------------------- ---------------------------- ----------------------------
NET SALES NET SALES NET SALES
(IN % OF (IN % OF (IN % OF
THOUSANDS) NET SALES THOUSANDS) NET SALES THOUSANDS) NET SALES
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OEMs............................. $ 19,479 63% $ 24,482 65% $ 57,103 68%
Distributors and IBDs............ 11,462 37% 13,418 35% 26,406 32%
------------- --- ------------- --- ------------- ---
Total........................ $ 30,941 100% $ 37,900 100% $ 83,509 100%
------------- --- ------------- --- ------------- ---
------------- --- ------------- --- ------------- ---
</TABLE>
Management believes that the Company's products play an important role in
the sale of OEM bikes and that OEMs are aware of the influence that the ROCKSHOX
brand name has on a consumer's selection of a mountain bike. Every front
suspension fork sold today to OEMs prominently displays the ROCKSHOX name. In
addition to its strong brand name, the Company believes that OEMs also choose
ROCKSHOX for product innovation, reliability and quality. The Company further
solidifies its OEM relationships by providing a high level of customer service,
ranging from early stage engineering and design support to worldwide
distribution and aftermarket service for its products.
The Company currently sells to over 150 OEM accounts worldwide. While the
OEM market is fragmented, according to BMRI, ten leading OEM brands represent
over 75% of bicycle sales dollars generated through domestic IBDs. Management
believes that these OEMs also represent a significant portion of better quality
mountain bikes sold worldwide. All of these leading OEMs are customers of the
Company and eight of the ten rely on RockShox as their primary supplier of front
suspension forks. The Company has substantial international sales, a significant
portion of which include products shipped to Asian manufacturing subcontractors
for certain U.S.-based OEMs. See "Risk Factors--Sales Concentration; Dependence
on OEMs," "--International Business and Sales" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
The sales process for OEM customers begins in January and February with
presentations of the Company's product line for the coming model year.
Typically, the Company learns between April and June if its products have been
specified on various OEM bike models and of OEM volume expectations per model,
although such estimates are subject to significant adjustment throughout the
year. Shipments are then made directly to OEMs or to their subcontractors
(typically bicycle frame manufacturers located in Asia) beginning in the
April-June quarter and peaking in the July-September quarter. OEM sales slow
down in the second half of the Company's fiscal year and are principally
comprised of OEM reorders, which the
31
<PAGE>
Company believes primarily reflect the popularity and sell-through rates of
various OEM mountain bikes that incorporate ROCKSHOX components. See "Risk
Factors -- Quarterly Fluctuations in Operating Results; Forecasting of OEM
Orders."
Sales to distributors and IBDs generally trail the OEM process, with sales
to distributors at their highest during the middle of the Company's fiscal year
(August and September) and sales to dealers peaking during the following March
and April. The Company currently has six distributors in the United States, all
of whom are owned by OEM customers, and 40 additional distributors worldwide.
Management believes that sales of the Company's products through OEM-owned
distributors are an important revenue source for OEMs and further strengthen the
Company's relationships with its major customers. Distributors purchase ROCKSHOX
products for resale to IBDs and also provide worldwide servicing and marketing
support for all of the Company's products. In the U.S., the Company sells
directly to IBDs at prices that typically are equal to or in excess of prices
available through third party distributors and often for product quantities too
small for third-party distributors to handle. Direct sales to IBDs in the United
States were approximately $4.7 million in fiscal 1996.
As of June 30, 1996, the Company had approximately 35 people in sales and
customer service functions. The Company's principal sales activities are based
in San Jose, California. In addition, the Company has an independent sales
representative based in Bern, Switzerland. The Company's customer service
activities include a warranty program managed by an in-house technical support
department in the U.S. and a distributor network of technicians outside the U.S.
In fiscal 1996, approximately 56% of the Company's sales were to the
Company's ten largest customers, certain of which (including Trek) purchase from
the Company as both an OEM customer and a distributor. Sales to Trek accounted
for more than 10% of the Company's net sales in fiscal 1996, substantially all
of which were for OEM use by Trek. The Company received an award from Trek as a
"key supplier of the year" in 1995. At March 31, 1996 and June 30, 1996, the
Company's three OEM customers with the largest accounts receivable balances
accounted for approximately 61.5% and 47.8%, respectively, of the Company's
accounts receivable. The Company has no long-term contracts with any of its
customers. See "Risk Factors-- Sales Concentration; Dependence on OEMs."
MARKETING
ROCKSHOX is a leading brand name in the bicycle industry. Management
believes that the Company's brand image, in combination with the performance
features of its products, is an important element in the consumer's decision to
purchase ROCKSHOX suspension as an accessory product and that its OEM customers
recognize the strength of the ROCKSHOX brand name as a deciding factor in the
consumer's choice of mountain bikes.
The Company promotes and maintains its brand name through focused marketing
efforts such as sponsorship of mountain bike racing teams, magazine advertising
and editorial programs, IBD packaging and point of sale materials, participation
in trade shows and promotional clothing and merchandise. The Company's marketing
department oversees all aspects of the promotion of the Company's products and
brand name.
The principal user of the Company's products is the mountain bike enthusiast
between 19 and 34 years of age. To appeal to this market, the Company emphasizes
the high performance features of its products as well as its affinity with the
mountain biking culture. The goal of the Company's marketing efforts is to
communicate both technical information and an offbeat and irreverent image.
The sponsorship of mountain bike racing teams and racers is an important
part of the Company's marketing strategy. The Company believes that the
association of its products with successful racers increases consumer awareness
of and demand for RockShox suspension products. The Company currently co-
sponsors 20 world-class and over 50 junior and amateur race teams, many of which
also have affiliations with OEMs. Since most OEMs market the same bikes used by
their race teams to consumers, RockShox sponsorship of an OEM team is considered
by the Company to have a direct influence on the OEM's decision to specify
ROCKSHOX suspension products on its consumer bike models. The Company's
sponsorship
32
<PAGE>
agreements with racing teams generally are for a one-year term, and provide for
a retainer plus contingent performance payments. The Company also provides free
product and technical support for sponsored racers, including access to
RockShox's technical service trucks, which are fixtures at many of the major
races in the U.S. and Europe. There can be no assurance that such racing teams
will continue to be sponsored by the Company and use the Company's products on
terms the Company deems acceptable, or that the Company will be able to attract
new mountain bike racing teams to use its products in the future.
The Company's products are advertised in a variety of U.S. and international
consumer and trade bicycle publications, including BICYCLING, MOUNTAIN BIKE,
MOUNTAIN BIKE ACTION, VELO NEWS and BICYCLE RETAILER, as well as on the World
Wide Web. The Company's goal is to expand awareness of the ROCKSHOX brand name
and to support product line segmentation with advertising campaigns built around
the JUDY, INDY, DELUXE and other product lines. The Company also seeks to
increase RockShox's editorial exposure in bicycle print media by working closely
with magazine editors. The Company's focus on editorial content has helped
maintain high visibility for the ROCKSHOX brand name and the Company's products.
The Company currently supports its brand name in the retail bike market by
supplying unique packaging, point of sale displays and posters to IBDs, as well
as by providing brochures that are designed to help explain the technical
performance features of its products. Materials are generally provided at cost
or for free to distributors and IBDs. The Company also maintains a strong
presence at national and international trade shows. As part of its retail
marketing efforts, the Company recently introduced a line of mountain bike
lifestyle clothing known as ROCKSHOX GARB. The clothing line includes t-shirts,
cotton jerseys, jackets, vests and hats and is sold to distributors, bicycles
shops and directly to consumers at race events. The Company believes that
ROCKSHOX GARB provides another avenue to promote the ROCKSHOX brand name and the
Company's products.
Sales and marketing expenditures totaled approximately $2.7 million, $1.8
million and $3.7 million in fiscal years 1993, 1994 and 1996, respectively.
COMPETITION
The markets for bicycle components, in general, and bicycle suspension
products, in particular, are highly competitive. The Company competes with other
bicycle component companies that produce suspension products for sale to OEMs,
distributors and IBDs as well as with OEMs who produce their own line of
suspension products for their own use and for sale through distributors and
IBDs.
The Company competes with several component companies that manufacture front
suspension products including, among others, Answer Products (a division of LDI,
Ltd.), which manufactures Manitou products ("Manitou"), Rapid Suspension
Technology USA, Inc. ("RST"), Marzocchi SpA ("Marzocchi"), SR Suntour USA, Inc.,
Amp Research Corp. ("Amp") and Girvin, Inc. ("Girvin"), which manufactures Pro-
Flex bicycles and FasTrax products and which is a subsidiary of K2 Incorporated
("K2"). The Company also competes with several component companies that
manufacture rear shocks including, among others, Fox Factory, Inc. ("Fox"), RST,
Risse Racing Technology, Inc., Amp, Marzocchi, Noleen Racing Inc. and Girvin.
The Company believes that it currently has the leading market share in front
forks. The Company only recently introduced its rear shock products for the
emerging full suspension market and believes it currently trails Fox, the
leading manufacturer of rear shocks.
Over the past few years, Trek, Scott U.S.A. and Schwinn have discontinued
their own lines of suspension products and have been specifying ROCKSHOX
products on many of their mountain bike models. Today, Cannondale and K2 are the
only major OEMs that have their own brand of suspension products, although
Cannondale does use ROCKSHOX products on certain bike models. Both of these OEMs
also make their suspension products available to the retail accessory market. In
addition, Manitou has recently introduced its own bicycle with Manitou-branded
front and rear shocks.
In order to build or retain its market share, the Company must continue to
successfully compete in areas that influence the purchasing decisions of OEMs,
distributors, IBDs and consumers, including design, price, quality, technology,
distribution, marketing, style, brand image and customer service. There can be
no assurance that any number of bicycle component manufacturers, OEMs or other
companies, including those
33
<PAGE>
who are larger and have greater resources than the Company and who currently do
not provide bicycle suspension products or do so on a limited basis, will not
become direct or more significant competitors of the Company. In addition, OEMs
frequently design their bicycles to meet certain retail price points, and, as a
result, may choose not to use a suspension product or may select a lower priced
ROCKSHOX or competing product in order to incorporate other components in the
bicycle's specifications that the OEM perceives as being more desirable to the
consumer. The Company could therefore face competition from existing or new
competitors that introduce and promote suspension products or other bicycle
components perceived by the bicycle industry or consumers to offer price or
performance advantages to, or otherwise have greater consumer appeal than, the
Company's products.
See "Risk Factors--Competition."
INTELLECTUAL PROPERTY
Because much of the technology associated with suspension products is in the
public domain, patent protection is generally available only for particular
features or functions of a product, rather than for any product as a whole.
Management believes that many of the Company's current suspension products
contain some elements that are protected by the Company's patents. Nevertheless,
the Company's competitors currently replicate and may continue to replicate
certain features and functions of the Company's products. There can be no
assurance that current or future patent protection will prevent competitors from
offering competing products, that any issued patents will be upheld, or that
patent protection will be granted in any or all of the countries in which
applications are currently pending or granted on the breadth of the description
of the invention. In addition, due to considerations relating to, among other
things, cost, delay or adverse publicity, there can be no assurance that the
Company will elect to enforce its intellectual property rights.
The Company currently holds patents on its fork brace and hydraulic valving
in certain European countries and the United States, and it is attempting to
have patents granted thereon in Canada, Japan and Taiwan. The Company also holds
patents in the United States covering its removable cartridge technology and
rear shock suspension and has applied for a patent covering its hydraulically
damped spring shock absorbing fork technology. The Company is seeking
corresponding patent protection in Canada, Japan, Taiwan and certain European
countries. The Company also has trademark registrations for its name and the
name of its products in the United States and both registrations and
applications in Canada and certain South American and Pacific Rim countries.
Although the Company believes that patents are useful in maintaining the
Company's competitive position, it considers other factors, such as the
Company's brand name, ability to design innovative products, technical and
manufacturing expertise and customer service to be its primary competitive
advantages.
The Company's competitors have also obtained and may continue to obtain
patents on certain features of their products, which may prevent or discourage
the Company from offering such features on its products, which, in turn, could
result in a competitive disadvantage to the Company. The Company has
occasionally received, and may receive in the future, claims asserting
intellectual property rights owned by third parties that relate to the Company's
products and product features. Although to date the Company has incurred no
material liabilities as a result of any such claims, there can be no assurance
that the Company will not incur material liabilities in the future. In addition,
if any person were to assert valid claims of infringement with respect to, or
otherwise have enforceable proprietary rights in, features that the Company
includes or desires to include on its products, and if the Company were unable
to design or alter its products or production methods so as to avoid such
infringement at a reasonable cost or to negotiate an acceptable licensing or
other arrangement with such person, the Company could, among other things, be
precluded from making or marketing products containing such features and be
required to make payments to such person, which could have a material adverse
effect on the Company or its prospects. See "Risk Factors--Limited Protection of
Technology."
FACILITIES
The Company's headquarters are located in an approximately 55,000 square
foot building in San Jose, California, pursuant to a lease that expires in 2000.
The Company leases three other facilities of approximately 15,000, 26,000 and
36,000 square feet in San Jose, pursuant to leases that expire in 1997, 2000 and
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<PAGE>
2001, respectively. The Company also leases several smaller facilities. The
Company believes that its existing facilities are adequate to meet its existing
requirements. The Company expects that it will need additional space if its
sales continue to grow.
LEGAL PROCEEDINGS
Because of the risks inherent in bicycling, in general, and mountain biking,
in particular, and because of the function of the Company's products, the
Company from time to time is a defendant in a number of product liability
lawsuits and expects that this will continue to be the case in the future. These
lawsuits generally seek damages, sometimes in substantial amounts, for personal
injuries sustained as a result of alleged defects in the Company's products.
Although the Company has experienced no material financial loss relating to such
lawsuits and maintains product liability insurance, due to the uncertainty as to
the number of claims or the nature and extent of liability for personal injuries
and changes in the historical or future levels of insurance coverage or the
terms or cost thereof, such insurance may not be adequate or available to cover
product liability claims or the applicable insurer may not be solvent at the
time of any covered loss, any of which could have a material adverse effect on
the Company or its prospects. See "Risk Factors--Product Liability."
The Company may from time to time be a party to various other claims,
complaints and other legal action that arise in the normal course of business.
The Company believes that the outcome of such legal proceedings, individually or
in the aggregate, will not have a material adverse effect on the Company or its
prospects.
GOVERNMENT REGULATION
Bicycle suspension products are within the jurisdiction of the CPSC and
other Federal, state and foreign regulatory bodies. Under CPSC regulations, a
manufacturer of consumer goods is obligated to notify the CPSC if, among other
things, the manufacturer becomes aware that one of its products has a defect
that could create a substantial risk of injury. If the manufacturer has not
already undertaken to do so, the CPSC may require a manufacturer to recall a
product, which may involve product repair, replacement or refund.
In 1996, the CPSC sent a letter to major manufacturers and importers of
mountain bikes as well as several suspension component manufacturers, including
RockShox, expressing concern about reports of injuries and recall activity
relating to failures of mountain bike suspension forks and urging manufacturers
to participate in the development of voluntary safety performance standards for
such suspension products through the ASTM. While an employee of the Company is
participating in the development of these standards by chairing an ASTM task
force on bicycle suspension, such standards, if adopted, could increase the
development and manufacturing costs of the Company's products, make the
Company's products less desirable (by, for example, increasing the weight of the
product) or favor a competitor's product. The Company cannot predict whether
standards relating to the Company's products or otherwise affecting the bicycle
suspension industry will be adopted (whether by the CPSC or another Federal,
state or foreign regulatory body) and, if adopted, no assurance can be given
that the implementation of such standards will not have a material adverse
effect on the Company or its prospects.
Adverse publicity relating to mountain bike suspension or mountain biking
generally, or publicity associated with actions by the CPSC or others expressing
concerns about the safety or function of the Company's products, other
suspension products or mountain bikes (whether or not such publicity is
associated with a claim against the Company or results in any action by the
Company or the CPSC), could have an adverse effect on the Company's reputation,
brand image or markets, any of which could have a material adverse effect on the
Company or its prospects.
Several local, state and Federal authorities have recently considered
substantial restrictions or closures of public trails to biking use, citing
environmental concerns and disputes between mountain bikers and other trail
users (including hikers). Such restrictions or closures, if implemented in a
regional or widespread manner, could lead to a decline in the popularity of
mountain biking, which could have a material adverse effect on the Company or
its prospects.
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The Company is subject to Federal, state and local environmental laws,
regulations and ordinances. The Company has not incurred, and does not expect to
incur, any significant expenditures or liabilities for environmental matters. As
a result, the Company believes that its environmental obligations will not have
a material adverse effect on the Company or its prospects.
See "Risk Factors--Government Regulation; Adverse Publicity."
PRODUCT RECALL
Bicycles and bicycle components are frequent subjects of product recalls,
corrective actions and manufacturers' bulletins, certain of which have involved
suspension products. The Company has conducted one voluntary corrective action
without CPSC involvement and two voluntary corrective actions in conjunction
with the CPSC. None of these actions has been financially material to the
Company.
The Company's first voluntary corrective action was conducted without CPSC
involvement and involved braces on the MAG 20 and MAG 30 forks, which were
manufactured prior to 1992. In response to reports of fork breakage, the Company
instituted the corrective action in early 1992 and offered to replace the
braces. The cost of this voluntary corrective action was immaterial.
The second voluntary corrective action involved approximately 21,000 MAG 20
and MAG 30 suspension forks, which were manufactured between October 1991 and
June 1992. The Company received notice of two incidents involving minor injuries
and concluded, after investigation, that some fork crowns did not meet the
Company's standards. After reviewing the progress of such corrective action, in
March 1996, the CPSC ceased monitoring the Company's voluntary corrective action
and closed its investigation, although, in doing so, it stated that it would
reopen the investigation if it determined that the public had not been
adequately protected by such corrective action. The Company estimates that the
cost of this voluntary corrective action will be approximately $150,000, which
amount has been provided for on the Company's financial statements to date.
The third voluntary corrective action involved molded plastic top caps used
on approximately 180,000 QUADRA 5, QUADRA 21R and QUADRA 21 forks manufactured
between January 1995 and August 1995. The Company received reports of top caps
coming loose and popping up. Although no reports of serious injury were
received, the Company decided to provide replacement top caps. In January 1996,
the CPSC indicated that the nature and degree of risk of injury presented by
such products did not necessitate action by the CPSC. The Company estimates that
the cost of this voluntary corrective action will be approximately $300,000,
which amount has been provided for on the Company's financial statements to
date.
The number of suspension products sold by the Company has dramatically
increased since the Company's founding in 1989, new product introductions are
occurring frequently, and the Company's products may not have been used by
riders for a period of time sufficient to determine all of the effects of
prolonged use and the environment on such products. As a result, there can be no
assurance that there will not be recalls, corrective actions or other activity
voluntarily or involuntarily undertaken by the Company or involving the CPSC or
other regulatory bodies on a more frequent basis or at a higher cost than in the
past, involving past, current or future products, including those products
previously subject to voluntary corrective action, any of which could have a
material adverse effect on the Company or its prospects.
See "Risk Factors--Product Recall; Warranty Costs."
EMPLOYEES
As of June 30, 1996, the Company employed approximately 300 full-time
employees. In addition, the Company utilizes approximately 100 occasional
personnel in its assembly operations to meet production demand. The Company is
not a party to any labor agreements and none of its employees is represented by
a labor union. The Company considers its relationship with its employees to be
excellent and has never experienced a work stoppage.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the directors,
executive officers and other key employees of the Company. Shortly after
consummation of the Offering, the Company intends to appoint two directors who
are neither officers nor employees of the Company, The Jordan Company or their
respective affiliates ("Independent Directors").
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ------------------------------------
<S> <C> <C>
John W. Jordan, II 52 Chairman of the Board of Directors
Stephen W. Simons 41 President and Director
Paul Turner 37 Vice President of Advanced Research
and Director
Charles E. Noreen, Jr. 35 Chief Financial Officer
Robert Kaswen 49 Executive Vice President of
Operations
Elizabeth Bradley 37 Director of Sales and Marketing
Adam E. Max 38 Vice President and Director
</TABLE>
Mr. Jordan has served as Chairman of the Board of Directors of the Company
since March 1995. Mr. Jordan will resign as Chairman of the Board of Directors
prior to the consummation of the Offering, and will continue to serve as a
director of the Company. Mr. Jordan has been the managing partner of The Jordan
Company, which he founded, since February 1982. Mr. Jordan is also a director of
Jordan Industries, Inc., American Safety Razor Company, Jackson Products, Inc.,
Carmike Cinemas, Inc., NEWFLO Corporation, Welcome Home, Inc., Apparel Ventures,
Inc. and other private companies.
Mr. Simons is a co-founder of the Company, has been a director since its
inception in 1989 and became President in 1992. In addition to executive
functions, he oversees product manufacturing and sales. Prior to founding the
Company, Mr. Simons founded SIMONS, which developed suspension modifications and
complete motorcycle front forks. Mr. Simons also founded Simons Precision, a
precision manufacturer of parts for motorcycles. Simons Precision is now known
as Simons & Susslin, Inc. and is wholly owned by persons who are not affiliated
with either the Company or Mr. Simons. See "Certain Transactions."
Mr. Turner is a co-founder of the Company, has been a director since its
inception in 1989 and became Vice President in 1992. In addition to executive
functions, Mr. Turner often represents the Company at industry and public
events, and participates in certain marketing decisions. Prior to founding the
Company in 1989, Mr. Turner worked with Honda Motor Company and founded Paul
Turner Racing. Mr. Turner is generally regarded as a pioneer in bicycle
suspension and is well known throughout the mountain bike industry.
Mr. Noreen has been the Chief Financial Officer of the Company since May
1996. Prior to such time, Mr. Noreen was an audit manager and then a partner in
the San Jose, California office of the accounting firm of Coopers & Lybrand
L.L.P., which he joined in 1983.
Mr. Kaswen joined the Company in October 1992 and became Executive Vice
President of Operations in April 1996. Since joining the Company, Mr. Kaswen has
progressively assumed responsibility for engineering, production, materials
management, quality assurance and service warranty functions. From May 1990 to
September 1992, Mr. Kaswen was the Director of Professional Services for
Relevant Business Systems, Inc., a supplier of software for manufacturing
companies.
Ms. Bradley joined RockShox in May 1996 as Director of Sales and Marketing.
From 1989 until joining the Company, Ms. Bradley was an Executive Vice
President, Marketing and Strategic Planning of Giro Sport Design, a manufacturer
of performance bicycle helmets. Ms. Bradley was the Marketing Director of a
division of Saturday's Group from 1988 to 1989 and an account executive at
Chiat/Day Advertising from 1983 to 1986.
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<PAGE>
Mr. Max has served as a director and officer of the Company since March
1995. Mr. Max will resign as an officer of the Company prior to the consummation
of the Offering. Mr. Max is a principal of The Jordan Company, which he joined
in April 1986. Mr. Max is also a director of a number of private companies.
BOARD OF DIRECTORS
The Company's Board of Directors is currently comprised of Messrs. Simons,
Turner, Jordan and Max. Shortly following the consummation of the Offering, the
Company intends to appoint two Independent Directors.
Upon the appointment of the Independent Directors, the Board of Directors
will establish an Audit Committee and a Compensation Committee. The Audit
Committee will be responsible for recommending to the Board of Directors the
engagement of the independent auditors of the Company and reviewing with the
independent auditors the scope and results of the audits, the internal
accounting controls of the Company, audit practices and the professional
services furnished by the independent auditors. The Compensation Committee will
be responsible for reviewing and approving all compensation and for
administering the Stock Plan.
The DGCL provides that a company may indemnify its directors and officers as
to certain liabilities. The Company's Certificate of Incorporation and Bylaws
provide for the indemnification of its directors and officers to the fullest
extent permitted by law, and the Company intends to enter into separate
indemnification agreements with each of its directors and officers and to
purchase directors' and officers' liability insurance. The effect of such
provisions is to indemnify, to the fullest extent permitted by law, the
directors and officers of the Company against all costs, expenses and
liabilities incurred by them in connection with any action, suit or proceeding
in which they are involved by reason of their affiliation with the Company.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company will receive no compensation for
serving on the Board. It is expected that directors who are not employees of the
Company will receive $20,000 per year. All directors will be reimbursed for
expenses incurred in connection with attendance at Board or Committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
President (who serves as its chief executive officer) and to each of its other
most highly compensated executive officers whose salary and bonus exceeded
$100,000 in fiscal 1996.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------- ALL OTHER
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR (1) ($) ($) ($)
- -------------------------------------------- ----------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
Stephen W. Simons 1996 $ 250,000 $ 1,062,500(2) $ 2,820,056(3)
President
Paul Turner 1996 250,000 1,062,500(2) 1,880,056(3)
Vice President of Advanced Research
Robert Kaswen 1996 105,000 185,000(4) 56
Executive Vice President
of Operations
Robert Hood 1996 132,500 0 33
Treasurer-Chief Operating Officer
and Chief Financial Officer (5)
</TABLE>
- ------------------------
(1) The information provided is for the Company's 1996 fiscal year.
(2) Includes bonus earned for fiscal year 1996, which will be paid in fiscal
year 1997.
(3) Includes initial one-time bonus payments under the Bonus Plan (described
below). See "--Employment Agreements."
(4) Includes $100,000, which will be paid in fiscal year 1997.
(5) Mr. Hood resigned from the Company on February 16, 1996. Salary does not
include severance payments totalling $200,000 made or to be made to Mr. Hood
in fiscal years 1996 and 1997 pursuant to a severance agreement, dated
February 28, 1996, between Mr. Hood and the Company, or $44,444 paid in
consideration of Mr. Hood's release of the Company from certain claims.
EMPLOYMENT AGREEMENTS
Each of Stephen W. Simons and Paul Turner entered into an employment
agreement with the Company, dated as of March 24, 1995 (each, an "Employment
Agreement"). Each Employment Agreement was for an initial one-year term and
automatically renews for additional one-year terms, not to exceed four one-year
renewal terms in total, at the election of Messrs. Simons or Turner, as the case
may be. Each Employment Agreement may be terminated by the Company for cause (as
defined therein) or by Messrs. Simons or Turner, as the case may be, for good
reason (as defined therein). Pursuant to his respective Employment Agreement,
each of Messrs. Simons and Turner (i) received initial payments of $2,820,000
and $1,880,000, respectively, (ii) receives an annual salary of $250,000 and
certain perquisites and (iii) is entitled to receive an annual payment under the
Bonus Plan based upon the Company's operating results up to a maximum payment of
$1.5 million per year during the first four fiscal years and an aggregate of $5
million over five fiscal years, beginning with the 1996 fiscal year. Each of
Messrs. Simons and Turner earned approximately $1.1 million pursuant to the
Bonus Plan for the 1996 fiscal year. The Company intends to use the net proceeds
of the Offering to, among other things, make payments of $3.65 million to each
of Messrs. Simons and Turner to terminate the Bonus Plan. Prior to the
consummation of the Offering, each Employment Agreement will be amended to
reflect the Merger and the termination of the Bonus Plan. Such amendments will
be effective as of the consummation of the Offering.
1996 STOCK PLAN
In May 1996, Holdings' Board of Directors adopted, and Holdings'
stockholders approved, the Stock Plan. In connection with the Merger, the Board
of Directors of the Company approved the assumption by the Company of Holdings'
obligations under the Stock Plan and the conversion of Stock Rights (as defined
below) to purchase shares of Holdings Common Stock into identical Stock Rights
to purchase shares of Common Stock.
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<PAGE>
The Stock Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company upon the establishment
thereof. See "--Board of Directors."
The Stock Plan provides for the issuance of up to a maximum of shares
of Common Stock pursuant to awards under the Stock Plan, subject to adjustment
to protect against dilution in the event of certain changes in the Company's
capitalization, including stock splits and dividends on the Common Stock. The
Stock Plan provides for the granting of "incentive stock options" within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended,
nonstatutory stock options and stock purchase rights (collectively, "Stock
Rights") to employees and directors of the Company.
Options are rights to purchase the number of shares of Common Stock at the
option price (and upon such other conditions) specified in the applicable option
agreement. Stock purchase rights (which may be issued alone or in tandem with
other awards under the Stock Plan, or cash awards outside of the Stock Plan)
entitle the holder to purchase shares of Common Stock on such terms and
conditions as are set forth in the Rights Notice (as defined in the Stock Plan)
and the stock purchase agreement provided in connection with the award. Under
the Stock Plan, incentive stock options may be granted only to employees
(including employees who are officers or directors) of the Company or any parent
or subsidiary of the Company, and nonstatutory stock options and stock purchase
rights may be granted to employees and directors of the Company or any of its
subsidiaries.
The exercise price of options will be determined by the Committee; PROVIDED,
that (i) incentive stock options may not be granted with option exercise prices
less than the Fair Market Value (as defined in the Stock Plan) of the Common
Stock on the date of grant, (ii) options granted to employees who, at the time
of such grant, own stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent, subsidiary or
predecessor of the Company may not have option exercise prices less than 110% of
the Fair Market Value of the Common Stock on the date of grant and (iii)
nonstatutory options may not be granted with option exercise prices less than
85% of the current Fair Market Value of the Common Stock on the date of grant.
The Stock Plan provides that the form of consideration to be paid for the shares
of the Common Stock to be issued upon exercise of options or pursuant to stock
purchase rights will be determined by the Committee, and may be a cash payment,
a payment in shares of the Common Stock or any combination thereof or any other
form of consideration permitted under applicable law. The Stock Plan also
provides that shares of previously owned Common Stock delivered in payment of
the option price will be valued at the Fair Market Value of such shares on the
date of exercise of the option or purchase of the Common Stock and must have
been held by the optionee for a period of six months prior to surrender.
Unless the Committee determines otherwise, each option will become
exercisable for 20% of the shares of the Common Stock underlying such option
each year. All options expire no more than ten years after the date of grant
other than those granted to optionees who own stock representing more than 10%
of the voting power of all classes of stock of the Company or any of its
subsidiaries on the date of grant, which will expire no more than five years
from the date of grant. The Committee may at any time offer to buy a Stock Right
previously granted, based on such terms and conditions as the Committee
establishes and communicates to the optionee at the time such offer is made.
Stock Rights may not be sold, pledged, assigned, hypothecated, transferred,
gifted or disposed of in any manner other than by will or by the laws of descent
or distribution and may be exercised during the lifetime of the optionee only by
such optionee. The Stock Plan also provides that if requested by the Company or
any representative of the underwriters in connection with the first two
registration statements relating to offerings of any securities of the Company
under the Securities Act, holders of Stock Rights may not sell or otherwise
transfer the shares acquired upon exercise of such Stock Rights during the
180-day period following the effective date of such registration statements.
The Stock Plan provides that in the event of (i) a reorganization, merger or
consolidation of the Company with one or more corporations, as a result of which
the Company is not the surviving corporation, (ii) a sale of all or
substantially all of the property of the Company to another corporation, (iii) a
transaction (or a series of related transactions) in which there is a change in
the beneficial ownership, directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power or value of the Company's
then outstanding equity securities or (iv) the dissolution or liquidation of the
Company, the
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<PAGE>
Stock Plan and any options outstanding thereunder will terminate unless
provision is made in connection with such transaction for the (a) assumption of
such options or (b) substitution for such options of new incentive awards
covering the stock of a successor employer corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to number and kind of shares
and prices. The Committee may also provide, in any option agreement entered into
in connection with the Stock Plan, that all or a portion of unvested options
accelerate upon a transaction specified in clause (i) or (iii) of the preceding
sentence, subject to such terms and conditions as may be approved by the
Committee.
In addition, the Committee may at any time amend, alter, suspend or
discontinue the Stock Plan, so long as any such amendment, alteration,
suspension or termination does not adversely affect Stock Rights already
granted. The Stock Plan will expire in May 2006, unless terminated earlier by
the Board of Directors of the Company.
In May 1996, 11 employees were granted stock options to purchase an
aggregate of shares of Common Stock pursuant to the Stock Plan, including
a grant to Mr. Kaswen of option shares. None of the stock options granted
under the Stock Plan have been exercised. No options were outstanding as of
March 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during its 1996 fiscal
year. The Board of Directors determined officers' compensation during the 1996
fiscal year. During such fiscal year, the Company engaged in certain
transactions with certain of its directors and certain entities affiliated with
certain of such directors. See "Certain Transactions."
CERTAIN TRANSACTIONS
THE RECAPITALIZATION
On March 24, 1995, Holdings issued 25,000 shares of Holdings Common Stock to
each of Messrs. Simons and Turner and 50,000 shares of Holdings Common Stock to
MCIT PLC, which is managed by an affiliate of The Jordan Company and in which
affiliates of The Jordan Company have an ownership interest, and to certain
individuals and entities affiliated with The Jordan Company. Holdings also
issued 3,000 shares of Series A Preferred Stock to MCIT PLC. In addition,
Holdings issued shares of Series B Preferred Stock as follows: Stephen Simons,
1,200 shares; Stephen and Debra Simons, 1,200 shares; and Paul Turner, 1,600
shares. Holdings also issued $6 million aggregate principal amount of the Junior
Notes to Stephen and Debra Simons and Paul Turner and $11 million aggregate
principal amount of the Senior Notes to MCIT PLC. See "The Recapitalization and
the Merger."
CONSULTING AGREEMENT. On March 24, 1995, the Company entered into a
management consulting agreement (the "Consulting Agreement") with TJC Management
Corporation ("TJCMC"), an affiliate of The Jordan Company, pursuant to which
TJCMC was retained to render consulting services to the Company. Pursuant to the
Consulting Agreement, TJCMC is entitled to (i) a quarterly fee of $62,500; (ii)
an investment banking and sponsorship fee of 2% of the aggregate consideration
paid (including non-competition and similar payments, but net of transaction
expenses) in connection with an initial public offering of Common Stock, the
sale of all or substantially all of the Common Stock or substantially all of the
assets of the Company to a company other than an affiliate, or the purchase by
the Company of all the equity or substantially all of the assets of a company
(other than an affiliate) and (iii) a financial consulting fee of 1% of the
amount obtained or made available pursuant to any financing. The fees payable
under clauses (ii) and (iii) of the preceding sentence are payable with respect
to a transaction only if TJCMC is retained to render services in connection
therewith. Pursuant to the Consulting Agreement, TJCMC received a fee of $1.0
million in March 1995 in connection with the consummation of the
Recapitalization. The Board of Directors of the Company has agreed to pay TJCMC
a fee of $1.0 million in connection with the consummation of the Offering in
lieu of any fees payable under clause (ii) above. The Consulting Agreement also
provides that if TJCMC renders services outside the ordinary course of business,
TJCMC is entitled to an additional amount equal to the value of such services.
Also pursuant to the Consulting Agreement, TJCMC and certain of its
41
<PAGE>
affiliates are indemnified from certain liabilities related to services
performed pursuant to the Consulting Agreement and TJCMC is entitled to
reimbursement of reasonable out-of-pocket expenses. The term of the Consulting
Agreement generally continues until April 1, 2000.
NONCOMPETITION AGREEMENTS. Each of Stephen Simons, Debra Simons and Paul
Turner has entered into a noncompetition agreement, dated March 24, 1995,
pursuant to which each such person agreed, among other things, that until March
24, 1998 he or she will not directly or indirectly engage in, assist or have any
active interest in a business located anywhere in the contiguous United States
that (i) competes with the Company or (ii) sells to, supplies, provides goods or
services to, purchases from or does business in any manner with the Company.
Each such person also agreed that until three years from and after the date such
person ceases to be employed by the Company, he or she will not directly or
indirectly (a) divert or attempt to divert from the Company any business with
any customer or account with which he or she had any contact or association,
which was under his or her supervision, or the identity of which was learned by
him or her as a result of his or her employment with the Company, (b) solicit
any person transacting business with the Company to terminate its relationship
or association with the Company, or to represent, distribute or sell services or
products in competition with the services or products of the Company or (c)
solicit any employee of the Company to leave its employ. Mrs. Simons resigned as
an officer of the Company on August 1, 1995 and, therefore, the provisions of
the preceding sentence will terminate on August 1, 1998 with respect to Mrs.
Simons.
EMPLOYMENT AGREEMENTS. Each of Stephen Simons and Paul Turner has entered
into an Employment Agreement, which is described in "Management--Employment
Agreements."
STOCKHOLDERS AGREEMENT.
VOTING AND RESTRICTIONS ON TRANSFER. The Company, Stephen Simons, Debra
Simons, Paul Turner, MCIT PLC and certain persons and entities affiliated with
The Jordan Company (collectively, the "Stockholder Parties") have entered into a
subscription and stockholders agreement, dated March 24, 1995 (the "Stockholders
Agreement"), pursuant to which each Stockholder Party agreed to vote all shares
of Common Stock owned by such Stockholder Party to maintain a Board of Directors
consisting of four members, two nominated by Messrs. Simons and Turner and two
nominated by the Stockholder Parties other than Messrs. Simons and Turner and
Debra Simons. The Stockholders Agreement also imposes certain restrictions on
transferability of the shares of Common Stock owned by the Stockholder Parties.
Such voting provisions and restrictions on transfer will terminate upon the
consummation of the Offering.
REGISTRATION RIGHTS. The Stockholders Agreement also provides MCIT PLC with
the right, subject to certain exceptions, to include its shares of Common Stock
in a registration statement proposed to be filed by the Company in connection
with any public offering. Such provision will terminate immediately following
the consummation of the Offering.
Also pursuant to the Stockholders Agreement, at any time after the
consummation of the Offering (i) if either Messrs. Simons or Turner is no longer
employed by the Company, any Stockholder Party holding at least 10% of the
outstanding shares of the Common Stock has the right (a "demand registration
right") to cause the Company to register its shares of the Common Stock under
the Securities Act, subject to certain exceptions, and (ii) the Stockholder
Parties have the right (an "incidental registration right") with respect to
shares of Common Stock, if the Company proposes to register any Common Stock
under the Securities Act for sale to the public (other than pursuant to a
registration statement on Forms S-4 or S-8, or any successor forms), to require
the Company to use its best efforts to cause a requested amount of their shares
of Common Stock to be covered by such registration statement, subject to
reduction pursuant to a specified formula if the managing underwriter determines
that such inclusion would adversely affect the marketing of the shares of Common
Stock to be sold by the Company. Pursuant to the Stockholders Agreement, the
Company is required to pay all registration expenses in connection with each
demand and incidental registration and has agreed to indemnify the Stockholder
Parties against, and provide contribution with respect to, certain liabilities
under the Securities Act. The Stockholder Parties have agreed to waive their
demand and incidental registration rights for a period of 180 days after the
date of this Prospectus. See "Principal and Selling Stockholders" and "Shares
Eligible for Future Sale."
42
<PAGE>
MCIT PLEDGE AGREEMENT. Holdings and MCIT PLC entered into a pledge
agreement (the "MCIT Pledge Agreement") pursuant to which Holdings pledged to
MCIT PLC, as agent for all holders of the Senior Notes, a continuing security
interest in and to all issued and outstanding shares of capital stock of
Acquisition, including all payments and rights with respect thereto and all
proceeds thereof. The MCIT Pledge Agreement will be terminated upon the
repayment of the Senior Notes. See "Use of Proceeds."
OTHER
Simons & Susslin, Inc. ("Susslin") entered into a consultant agreement (the
"Susslin Agreement") with Stephen Simons on January 1, 1994. At such time, Mr.
Simons also sold his entire ownership interest in Susslin, which equalled 50% of
its common stock, to the other stockholder. The Company purchased approximately
$3.6 million, $3.1 million and $8.5 million of machined fork crowns from Susslin
in fiscal years 1993, 1994 and 1996, respectively. Management believes that
purchases from Susslin during the 1997 fiscal year will be substantially less
than those during the 1996 fiscal year. Mr. Simons provides consulting services
to Susslin pursuant to the Susslin Agreement for business, sales and marketing
activities, in consideration of which Susslin pays Mr. Simons a fee equal to 3%
of Susslin's net sales (as defined therein). The Susslin Agreement terminates on
December 31, 2002; PROVIDED, that the Susslin Agreement (i) will be
automatically renewed for two years, if the total of all consulting fees paid to
Mr. Simons pursuant to the Susslin Agreement are less than $1,000,000 on
December 31, 2002, (ii) will automatically terminate when the total of all
consulting fees paid to Mr. Simons pursuant to the Susslin Agreement equal
$1,700,000 and (iii) may be terminated by Mr. Simons at any time upon 30 days'
written notice. As of May 31, 1996, Susslin had paid to Mr. Simons an aggregate
of $579,238 pursuant to the Susslin Agreement.
At the end of each of fiscal 1993 and fiscal 1994, the Company paid bonuses
to members of senior management. In order to preserve cash flow, each such
member of senior management who was also a stockholder of the Company loaned the
bonus amount back to the Company. The Company repaid each loan during the next
fiscal year. No amounts remain outstanding from any of these loans.
On November 10, 1995, Peter Turner, the brother of Paul Turner (a director
and executive officer of the Company) entered into an employment agreement with
the Company (the "Peter Turner Agreement") pursuant to which Peter Turner serves
as the Company's manager of product development engineering. Immediately prior
to joining the Company, Peter Turner was employed as Senior Engineer and
Manufacturing Manager at Cobe Cardiovascular, Inc. based in Arvada, Colorado.
The Peter Turner Agreement provides that Peter Turner is entitled to receive,
among other things, (i) a salary of $110,000 per year for the first two years of
his employment, after which time he will be eligible for his first compensation
review, and a cost of living adjustment for each of the first three years of his
employment with the Company, (ii) the right to participate in an annual bonus
program and receive a guaranteed bonus of at least $30,000 on December 31, 1996
for the first year of employment with the Company, (iii) a one-time relocation
allowance of $25,000, (iv) a secured interest-free bridge loan in the principal
amount of $150,000, which was repaid to the Company in January 1996 upon the
sale of Peter Turner's Colorado home, and (v) mortgage assistance in the amount
of $1,600 per month for up to six months.
In November 1993, Christine Feeter, the former wife of Paul Turner, resigned
as Vice President-Marketing of the Company and, in connection therewith,
received as severance $100,000 and the continuation of health insurance coverage
for one year. In March 1995, the Company and Ms. Feeter entered into agreements
pursuant to which, among other things, Ms. Feeter received $310,000 from the
Company in consideration of her release of the Company from certain claims.
Immediately prior to the Recapitalization, Ms. Feeter sold her entire ownership
interest in the Company to Paul Turner.
For certain additional related transactions, see "Use of Proceeds" and
"Management."
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of , 1996 and as adjusted to give effect
to the Offering by (i) each beneficial owner of more than 5% of Common Stock,
(ii) each of the Company's directors, (iii) each of the Company's executive
officers named in the table under "Management--Executive Compensation," (iv) all
directors and executive officers of the Company as a group and (v) each
potential Selling Stockholder if the Underwriters' over-allotment is exercised
in full. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect of such shares,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING (1) THE OFFERING (1)
--------------------- ---------------------
NAME NUMBER PERCENT NUMBER PERCENT
------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Stephen W. Simons (2)................................................. 25.0
Paul Turner (3)....................................................... 25.0
John W. Jordan II (4)................................................. 3.7
Adam E. Max (5)....................................................... 2.4
Robert Kaswen (6)..................................................... *
All directors and executive officers as a group (6 persons) (7)....... 56.2
OTHER STOCKHOLDERS:
MCIT PLC (8).......................................................... 23.8
Leucadia Investors, Inc (9)........................................... 6.0
David W. Zalaznick (10)............................................... 3.7
Jonathan F. Boucher (11).............................................. 3.2
John R. Lowden (12)................................................... 2.4
Thomas H. Quinn (13).................................................. 2.4
A. Richard Caputo, Jr. (14)........................................... 1.2
Paul A. Rodzevik (15)................................................. *
James E. Jordan, Jr. (16)............................................. *
</TABLE>
- ------------------------
* Less than 1%.
(1) Gives effect to the Merger, which will occur immediately prior to the
closing of the Offering. See "The Recapitalization and the Merger."
(2) Includes shares ( shares after the Offering) held by The
Simons Revocable Trust, of which Mr. Simons and Debra Simons, Mr. Simons'
wife, are trustees. Also includes shares ( shares after the
Offering) held by each of the Debra W. Simons Grantor Retained Annuity Trust
and the Stephen W. Simons Grantor Retained Annuity Trust, of which in each
case Mr. and Mrs. Simons are two of four trustees. Also includes
shares ( shares after the Offering) held by The Simons Children
Irrevocable Trusts, of which Mrs. Simons is one of three trustees and as to
which shares Mr. Simons disclaims beneficial ownership.
(3) Includes shares ( shares after the Offering) held by Turner
Family LP, a Colorado limited partnership (the "Turner Partnership"). Mr.
Turner is the sole general partner of the Turner Partnership, and a trust,
the trustees of which are persons other than Mr. Turner and the
beneficiaries of which are certain family members of Mr. Turner, is the sole
limited partner of the Turner Partnership holding a 40% interest in the
Turner Partnership. Mr. Turner disclaims beneficial ownership of the
shares ( shares after the Offering) representing the trust's
interest in the Turner Partnership.
(4) Includes shares ( shares after the Offering) held by John W.
Jordan II Revocable Trust, of which Mr. Jordan is trustee. Mr. Jordan is a
partner of The Jordan Company, an entity with which
44
<PAGE>
Messrs. Zalaznick, Boucher, Lowden, Max, Caputo, Rodzevik, Quinn and James
E. Jordan, Jr. and Leucadia Investors, Inc. ("Leucadia") are also
affiliated. Mr. Jordan's address is c/o The Jordan Company, 9 West 57th
Street, New York, New York 10019.
(5) Mr. Max is a principal of The Jordan Company, an entity with which Messrs.
John W. Jordan II, Zalaznick, Boucher, Lowden, Caputo, Rodzevik, Quinn and
James E. Jordan, Jr. and Leucadia are also affiliated. Mr. Max's address is
c/o The Jordan Company, 9 West 57th Street, New York, New York 10019.
(6) Includes shares with respect to which Mr. Kaswen has the right to
acquire beneficial ownership by virtue of currently exercisable stock
options and options that become exercisable within 60 days of ,
1996.
(7) Includes shares with respect to which all directors and executive
officers have the right to acquire beneficial ownership by virtue of
currently exercisable stock options and options that become exercisable
within 60 days of , 1996.
(8) The principal address of MCIT PLC is c/o Jordan/Zalaznick Advisers, Inc., 9
West 57th Street, New York, New York 10019.
(9) Leucadia is an affiliate of The Jordan Company, an entity with which
Messrs. John W. Jordan II, Zalaznick, Boucher, Lowden, Caputo, Rodzevik,
Quinn and James E. Jordan, Jr. are also affiliated. The principal address of
Leucadia is 315 Park Avenue South, New York, New York 10010.
(10) Mr. Zalaznick is a partner of The Jordan Company, an entity with which
Messrs. John W. Jordan II, Boucher, Lowden, Max, Caputo, Rodzevik, Quinn and
James E. Jordan, Jr. and Leucadia are also affiliated. Mr. Zalaznick's
address is c/o The Jordan Company, 9 West 57th Street, New York, New York
10019.
(11) Mr. Boucher is a principal of The Jordan Company, an entity with which
Messrs. John W. Jordan II, Zalaznick, Lowden, Max, Caputo, Rodzevik, Quinn
and James E. Jordan, Jr. and Leucadia are also affiliated. Mr. Boucher's
address is c/o The Jordan Company, 9 West 57th Street, New York, New York
10019.
(12) Mr. Lowden is a principal of The Jordan Company, an entity with which
Messrs. John W. Jordan II, Zalaznick, Boucher, Max, Caputo, Rodzevik, Quinn
and James E. Jordan, Jr. and Leucadia are also affiliated. Mr. Lowden's
address is c/o The Jordan Company, 9 West 57th Street, New York, New York
10019.
(13) Mr. Quinn is a President and Chief Operating Officer of Jordan Industries,
Inc., an affiliate of The Jordan Company, an entity with which Messrs. John
W. Jordan II, Zalaznick, Boucher, Lowden, Max, Caputo, Rodzevik and James E.
Jordan, Jr. and Leucadia are also affiliated. Mr. Quinn's address is c/o The
Jordan Company, 9 West 57th Street, New York, New York 10019.
(14) Mr. Caputo is a principal of The Jordan Company, an entity with which
Messrs. John W. Jordan II, Zalaznick, Boucher, Max, Lowden, Rodzevik, Quinn
and James E. Jordan, Jr. and Leucadia are also affiliated. Mr. Caputo's
address is c/o The Jordan Company, 9 West 57th Street, New York, New York
10019.
(15) Mr. Rodzevik is the Controller of The Jordan Company, an entity with which
Messrs. John W. Jordan II, Zalaznick, Boucher, Lowden, Max, Caputo, Quinn
and James E. Jordan, Jr. and Leucadia are also affiliated. Mr. Rodzevik's
address is c/o The Jordan Company, 9 West 57th Street, New York, New York
10019.
(16) Includes shares ( shares after the Offering) that are held
in the James E. Jordan, Jr. Profit Sharing Plan & Trust. Mr. Jordan is
President of the William Penn Funds, an affiliate of The Jordan Company, an
entity with which Messrs. John W. Jordan II, Zalaznick, Boucher, Lowden,
Max, Caputo and Quinn and Leucadia are also affiliated. Mr. Jordan's address
is c/o The Jordan Company, 9 West 57th Street, New York, New York 10019.
45
<PAGE>
SELLING STOCKHOLDERS EXERCISE OF OVER-ALLOTMENT OPTION
If the Underwriters' over-allotment option is exercised in full, the Selling
Stockholders will be selling an aggregate of shares of Common Stock. The
number of shares being sold, and, if sold, the number of shares and percentage
of outstanding shares owned after the Offering, by the following individuals and
entities will be as follows: . See the "Principal
and Selling Stockholders" table above, which indicates the number of shares
beneficially owned by each of these individuals and entities after the Merger
and prior to the Offering and "Management--Directors, Executive Officers and Key
Employees" and "Certain Transactions," which indicate certain relationships
between these individuals and entities and the Company.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Certificate") and Amended and Restated Bylaws (the "Bylaws") is a summary
and is qualified in its entirety by the provisions of the Certificate and the
Bylaws, copies of which have been filed as exhibits to the Company's
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The authorized capital stock of the Company includes shares of Common
Stock, par value $.01 per share, of which shares will be outstanding upon
the consummation of the Offering. Holders of Common Stock are entitled to one
vote for each share held on all matters submitted to a vote of the stockholders,
including the election of directors. The Certificate does not provide for
cumulative voting in the election of directors. Accordingly, holders of a
majority of shares of Common Stock entitled to vote in any election of directors
may elect all of the directors standing for election. Subject to preferences
that may be applicable to any Preferred Stock outstanding at the time, holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets of the Company remaining after payment of the
Company's liabilities and the liquidation preference, if any, of any outstanding
shares of Preferred Stock. Holders of Common Stock have no preemptive,
subscription or redemption rights. As of the date hereof, the Common Stock is
held of record by stockholders. The transfer agent with respect to the
Common Stock is .
PREFERRED STOCK
Pursuant to the Certificate, the Company is authorized to issue shares
of Preferred Stock, which may be issued from time to time in one or more classes
or series or both upon authorization by the Company's Board of Directors. The
Board of Directors, without further approval of the stockholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, and any other rights,
preferences, privileges and restrictions applicable to each class or series of
the Preferred Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a third party to gain control of the Company, discourage bids for Common
Stock at a premium or otherwise adversely affect the market price of Common
Stock.
Upon the redemption of the Holdings Preferred Stock, which will occur
immediately subsequent to the completion of the Offering, no shares of Preferred
Stock will be outstanding and the Company has no current plans to issue any
shares of Preferred Stock. See "Use of Proceeds." The Company is not aware of
any plans by a third party to seek control of the Company.
DELAWARE LAW AND CERTAIN CORPORATE PROVISIONS
Upon the consummation of this Offering, the Company will be subject to the
provisions of Section 203 of the DGCL. In general, this statute prohibits a
publicly held Delaware corporation from engaging under
46
<PAGE>
certain circumstances in a "business combination" (as defined below) with an
"interested stockholder" (as defined below) for a period of three years after
the date of the transaction in which such stockholder became an interested
stockholder, unless (i) prior to the date at which the stockholder became an
interested stockholder the Board of Directors approved either the business
combination or the transaction which resulted in the person becoming an
interested stockholder, (ii) the stockholder owned more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent) held on or subsequent to the date of
the business combination. An "interested stockholder" is a person who (i) owns
15% or more of the corporation's voting stock or (ii) is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the prior three years.
Section 203 defines a "business combination" to include, without limitation,
mergers, consolidations, stock sales and asset based transactions and other
transactions resulting in a financial benefit to the interested stockholder.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock assuming no stock options will have been exercised. Of
these shares, all of the shares sold in the Offering will be freely
transferable by persons other than "affiliates" of the Company, without
restriction or further registration under the Securities Act. The remaining
shares of Common Stock (including those underlying such options until
registered on a Registration Statement under the Securities Act) will be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemptions
contained in Rule 144 or 701.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for at
least two years, including an "affiliate" of the Company (as that term is
defined under the Securities Act), is entitled to sell, within any three-month
period, that number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume of the then outstanding shares during the four calendar weeks preceding
each such sale. A person (or persons whose shares are aggregated) who is not
deemed an "affiliate" of the Company and who has beneficially owned shares for
at least three years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above. Affiliates, including members
of the Board of Directors and senior management, continue to be subject to such
limitations.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors before the date the Company becomes
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons, including the Stock Plan.
Securities issued in reliance on Rule 701 are restricted securities and,
beginning 90 days after the date of this Prospectus, may be sold by persons
other than affiliates subject only to the manner of sale provisions of Rule 144
and by affiliates under Rule 144 without compliance with its two-year minimum
holding period requirements. Such securities will be subject, however, to any
lock-up agreements related to such securities.
The Company and all stockholders and executive officers of the Company have
agreed, subject to certain exceptions, not to sell, offer to sell, grant any
option (other than pursuant to the Stock Plan) for the sale of or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock (except for shares offered in the
Offering) for a period of 180 days after the date of this Prospectus without the
prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. See
"Underwriting."
47
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
No predictions can be made as to the effect, if any, that public sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of Common Stock in
the public market (including shares issued upon the exercise of options that may
be granted pursuant to any employee stock option or other equity plan of the
Company), or the perception that such sales could occur, could have an adverse
effect on the market price. If such sales reduce the market price of Common
Stock, the Company's ability to raise additional capital in the equity markets
could be adversely affected. See "Risk Factors--No Prior Public Market and
Possible Volatility of Stock Price" and "--Future Sales of Common Stock; Shares
Eligible for Future Sale."
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock available for issuance under the Stock
Plan. See "Management--1996 Stock Plan." Such registration statement relating to
the Stock Plan is expected to be filed soon after the date of this Prospectus
and will automatically become effective upon filing. As of the date of this
Prospectus, shares are subject to outstanding options under the Stock
Plan.
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Robertson, Stephens &
Company LLC and Jefferies & Company, Inc. are acting as representatives (the
"Representatives"), severally has agreed to purchase the aggregate number of
shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................................
Robertson, Stephens & Company LLC..........................................................
Jefferies & Company, Inc...................................................................
----------
Total..................................................................................
----------
----------
</TABLE>
In the Purchase Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Common
Stock being sold pursuant to such agreement if any of the shares of Common Stock
being sold pursuant to such agreement are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share of
Common Stock, and that the Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of Common Stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Selling Stockholders have granted to the Underwriters an option to
purchase up to an aggregate of shares of Common Stock at the initial
public offering price, less the underwriting discount. Such option, which will
expire 30 days after the date of this Prospectus, may be exercised solely to
cover over-allotments. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of the option shares
that the number of shares to be purchased initially by that Underwriter is of
the shares of Common Stock purchased by the Underwriters.
The Company and all stockholders and executive officers of the Company have
agreed, subject to certain exceptions, not to sell, offer to sell, grant any
option (other than pursuant to the Stock Plan) for the sale of or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock (except for shares offered in the
Offering) for a period of 180 days after the date of this Prospectus without the
prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors
considered in such negotiations, in addition to prevailing market conditions,
will be current market valuations of publicly traded companies that the Company
and the Underwriters believe to be reasonably comparable to the Company, an
assessment of the Company's results of operations in recent periods, estimates
of the business potential and earnings prospects of the Company, the current
state of the Company's industry and the economies of the Company's principal
markets as a whole. The initial public
49
<PAGE>
offering price set forth on the cover of the Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price is
subject to change as a result of market conditions and other factors. There can
be no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to the
Offering at or above the initial public offering price. Application will be made
to have the Common Stock approved for quotation on The Nasdaq Stock Market under
the symbol "RSHX."
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Company and the Selling Stockholders have agreed to indemnify the
several underwriters against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock have been passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, Los Angeles,
California, and have been passed upon for the Underwriters by Latham & Watkins,
San Francisco, California. Skadden, Arps, Slate, Meagher & Flom has from time to
time represented certain of the Underwriters in connection with unrelated legal
matters.
EXPERTS
The consolidated financial statements of RSx Holdings, Inc. and Subsidiaries
as of December 31, 1994 and March 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 1993 and 1994, the three month period
ended March 31, 1995 and the year ended March 31, 1996 that appear in this
Prospectus, and the related financial statement schedule that is included in the
Registration Statement, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their reports appearing herein and in the
Registration Statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company or the
Common Stock, reference is made to the Registration Statement and the schedules
and exhibits filed as a part thereof. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or other document filed as an exhibit to such Registration Statement.
The Registration Statement, including exhibits thereto, may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will
be also be available for inspection and copying at the regional offices of the
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and at
Northwest Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois
60661. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including, without limita-tion, statements containing the words
"believes," "anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: international, national and local general economic
and market conditions; demographic changes; the size and growth of the overall
bicycle market or the mountain bike segment thereof; the popularity of mountain
biking and suspension products; the size, timing and mix of purchases of the
Company's products; new product development and introduction; existing
government regulations and changes in, or the failure to comply with, government
regulations; adverse publicity dependence on OEMs; liability and other claims
asserted against the Company; competition; the loss of significant customers or
suppliers; fluctuations in operating results; changes in business strategy or
development plans; business disruptions; product recalls; warranty costs; the
ability to attract and retain qualified personnel; the ability to protect
technology; ownership of Common Stock; volatility of stock price; the use of
proceeds from the Offering; retention of earnings; and other factors referenced
in this Prospectus. Certain of these factors are discussed in more detail
elsewhere in this Prospectus, including, without limitation, under the captions
"Risk Factors," "Use of Proceeds," "Dividend Policy," "Capitalization,"
"Dilution," "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and "Principal and
Selling Stockholders." GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained or incorporated by reference herein to reflect future events or
developments.
51
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)................................................ F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Pro Forma Condensed Consolidated Balance Sheet............................................................. F-19
Pro Forma Condensed Consolidated Statement of Operations................................................... F-20
Notes to Pro Forma Condensed Consolidated Financial Statements............................................. F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
RSx Holdings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of RSx
Holdings, Inc. and Subsidiaries as of December 31, 1994 and March 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1993 and 1994,
the three month period ended March 31, 1995 and the year ended March 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of RSx Holdings,
Inc. and Subsidiaries as of December 31, 1994 and March 31, 1995 and 1996, and
the consolidated results of their operations and their cash flows for the years
ended December 31, 1993 and 1994, the three month period ended March 31, 1995
and the year ended March 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
May 21, 1996, except for Note 14,
as to which the date is June 24, 1996
F-2
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ----------------------
1994 1995 1996
------------ ---------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 1,208 $ 1,310 $ 1,808
Trade accounts receivable, net of allowance for doubtful accounts of $16
in 1994, $41 in 1995 and $1,432 in 1996.................................. 6,039 5,390 5,571
Inventories............................................................... 4,059 4,350 8,436
Prepaid expenses and other current assets................................. 415 483 397
Deferred income taxes..................................................... 538 1,507 3,805
------------ ---------- ----------
Total current assets.................................................... 12,259 13,040 20,017
Property and equipment, net................................................. 1,116 1,295 4,313
Capitalized financing costs, net............................................ 3,203 2,513
Other assets, net........................................................... 118 141 89
------------ ---------- ----------
Total assets.......................................................... $ 13,493 $ 17,679 $ 26,932
------------ ---------- ----------
------------ ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable.................................................... $ 3,908 $ 3,069 $ 1,769
Accounts payable to related party......................................... 418 733 494
Accrued incentive compensation payable to officers........................ -- -- 2,125
Accrued liabilities....................................................... 940 3,299 10,302
Bank line of credit....................................................... -- 1,250 --
Current portion of notes payable to related parties....................... 998 250 --
Current portion of long-term bank debt.................................... -- 2,500 3,000
------------ ---------- ----------
Total current liabilities............................................... 6,264 11,101 17,690
Deferred income taxes....................................................... 41 -- --
Long-term bank debt, net of current portion................................. -- 27,500 24,500
Notes payable to related parties, net of current portion.................... -- 17,000 17,000
------------ ---------- ----------
Total liabilities....................................................... 6,305 55,601 59,190
------------ ---------- ----------
Commitments and contingencies (Notes 5 and 8).
Mandatorily redeemable preferred stock issued to stockholders, $1.00 par
value:
Authorized: no shares in 1994 and 9,132 shares in 1995 and 1996;
Issued and outstanding: no shares in 1994 and 7,000 shares in 1995 and
1996; Redemption and liquidation value of $7,000 in 1995 and $7,357 in
1996..................................................................... -- 7,000 7,357
------------ ---------- ----------
Common stock, $0.01 par value:
Authorized: 100,000 shares in 1994, 1995 and 1996;
Issued and outstanding: 100,000 shares in 1994, 1995 and 1996............. 1 1 1
Additional paid-in capital.................................................. -- 499 499
Distributions in excess of net book value................................... -- (45,422) (45,422)
Retained earnings........................................................... 7,187 5,307
------------ ---------- ----------
Total stockholders' equity (deficit).................................... 7,188 (44,922) (39,615)
------------ ---------- ----------
Total liabilities, mandatorily redeemable preferred stock and
stockholders' equity (deficit)....................................... $ 13,493 $ 17,679 $ 26,932
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS YEAR
DECEMBER 31, ENDED MARCH 31, ENDED
---------------------- ---------------------- MARCH 31,
1993 1994 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $ 30,941 $ 37,900 $ 9,936 $ 14,279 $ 83,509
Cost of sales.................................... 20,113 24,477 6,142 9,590 54,110
---------- ---------- ---------- ---------- ----------
Gross profit................................. 10,828 13,423 3,794 4,689 29,399
---------- ---------- ---------- ---------- ----------
Selling, general and administrative expense...... 5,098 4,210 887 5,404 11,220
Research, development and engineering expense.... 1,536 2,073 405 2,223 3,401
---------- ---------- ---------- ---------- ----------
6,634 6,283 1,292 7,627 14,621
---------- ---------- ---------- ---------- ----------
Income (loss) from operations................ 4,194 7,140 2,502 (2,938) 14,778
Interest income.................................. 20 15 7 136
Interest expense................................. (36) (21) (9) (58) (5,786)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes............ 4,178 7,134 2,493 (2,989) 9,128
Provision for (benefit from) income taxes........ 1,521 2,420 845 (653) 3,464
---------- ---------- ---------- ---------- ----------
Net income (loss).......................... $ 2,657 $ 4,714 $ 1,648 $ (2,336) $ 5,664
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss)................................ $ 2,657 $ 4,714 $ 1,648 $ (2,336) $ 5,664
Accretion for dividends on mandatorily redeemable
preferred stock................................. -- -- -- -- 357
---------- ---------- ---------- ---------- ----------
Net income (loss) available to common
stockholders.................................... $ 2,657 $ 4,714 $ 1,648 $ (2,336) $ 5,307
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per share...................... $ $ $ $ $
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Shares used in per share calculations............
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DISTRIBUTIONS
COMMON STOCK ADDITIONAL IN EXCESS OF
----------------------- PAID-IN NET BOOK RETAINED
SHARES AMOUNT CAPITAL VALUE EARNINGS TOTAL
---------- ----------- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993........................... 100,000 $ 1 -- -- $ 166 $ 167
Dividends declared of $0.50 per common share...... -- -- -- -- (50) (50)
Net income........................................ -- -- -- -- 2,657 2,657
--
---------- ----- ------------ ----------- ----------
Balances, December 31, 1993......................... 100,000 1 -- -- 2,773 2,774
Dividends declared of $3 per common share......... -- -- -- -- (300) (300)
Net income........................................ -- -- -- -- 4,714 4,714
--
---------- ----- ------------ ----------- ----------
Balances, December 31, 1994......................... 100,000 1 -- -- 7,187 7,188
Net loss.......................................... -- -- -- -- (2,336) (2,336)
Issuance of common stock.......................... 100,000 1 $ 499 -- -- 500
Recapitalization and distributions to
stockholders..................................... (100,000) (1) -- $ (45,422) (4,851) (50,274)
--
---------- ----- ------------ ----------- ----------
Balances, March 31, 1995............................ 100,000 1 499 (45,422) -- (44,922)
Accretion for dividends on mandatorily redeemable
preferred stock.................................. -- -- -- -- (357) (357)
Net income........................................ -- -- -- -- 5,664 5,664
--
---------- ----- ------------ ----------- ----------
Balances, March 31, 1996............................ 100,000 $ 1 $ 499 $ (45,422) $ 5,307 $ (39,615)
--
--
---------- ----- ------------ ----------- ----------
---------- ----- ------------ ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS YEAR
DECEMBER 31, ENDED MARCH 31, ENDED
-------------------- --------------------- MARCH 31,
1993 1994 1994 1995 1996
--------- --------- --------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 2,657 $ 4,714 $ 1,648 $ (2,336) $ 5,664
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 127 193 34 78 1,746
Provision for doubtful accounts........................ -- -- -- 32 1,518
Provision for excess and obsolete inventories.......... -- 69 -- -- 2,009
Deferred income taxes.................................. (57) (388) -- (1,010) (2,298)
Changes in operating assets and liabilities:
Trade accounts receivable............................ (1,927) (2,874) 13 617 (1,699)
Inventories.......................................... (1,237) (803) 849 (291) (6,095)
Prepaid expenses and other current assets............ (60) (268) (490) (68) 86
Trade accounts payable and accrued liabilities....... 793 1,738 (484) 1,835 7,589
--------- --------- --------- ---------- -----------
Net cash provided by (used in) operating
activities........................................ 296 2,381 1,570 (1,143) 8,520
--------- --------- --------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment....................... (275) (890) (135) (409) (4,074)
Other.................................................... 2 (1) 1 129 52
--------- --------- --------- ---------- -----------
Net cash used in investing activities.............. (273) (891) (134) (280) (4,022)
--------- --------- --------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of bank debt...................... -- -- -- 31,250 --
Repayment of short-term borrowings and
bank debt............................................... (20) -- -- -- (3,750)
Payment of financing costs............................... -- -- -- (3,203) --
Repayment of notes payable to related parties............ (1,581) (1,345) (170) (998) (250)
Issuance of notes payable to related parties............. 1,770 998 -- 11,250 --
Proceeds from issuance of mandatorily redeemable
preferred stock......................................... -- -- -- 3,000 --
Payment of dividends..................................... (20) (300) -- -- --
Proceeds from issuance of common stock................... -- -- -- 500 --
Distributions related to reorganization.................. -- -- -- (40,274) --
--------- --------- --------- ---------- -----------
Net cash provided by (used in) financing
activities........................................ 149 (647) (170) 1,525 (4,000)
--------- --------- --------- ---------- -----------
Net increase in cash and cash equivalents.................. 172 843 1,266 102 498
Cash and cash equivalents, beginning of period............. 193 365 365 1,208 1,310
--------- --------- --------- ---------- -----------
Cash and cash equivalents, end of period................... $ 365 $ 1,208 $ 1,631 $ 1,310 $ 1,808
--------- --------- --------- ---------- -----------
--------- --------- --------- ---------- -----------
Supplemental disclosure of cash flow information:
Income taxes paid........................................ $ 1,298 $ 3,232 -- -- $ 4,180
Interest paid............................................ 5 21 -- $ 21 4,939
Dividends declared but not paid.......................... 30 -- -- -- --
Noncash distributions in excess of net book value--
Mandatorily redeemable preferred stock.................. -- -- -- 4,000 --
Noncash distributions in excess of net book value--
Junior subordinated notes............................... -- -- -- 6,000 --
Accretion for dividends on mandatorily redeemable
preferred stock......................................... -- -- -- -- 357
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. RECAPITALIZATION AND NATURE OF OPERATIONS:
RECAPITALIZATION:
RSx Holdings, Inc. (the Company) was formed in March 1995 as a holding
company which acquired all of the outstanding shares of capital stock of
RockShox, Inc. (Old RockShox) in a series of transactions that occurred on March
24, 1995 (the Recapitalization). On March 24, 1995, the stockholders of Old
RockShox transferred all of the outstanding shares of capital stock of Old
RockShox to the Company and RSx Acquisition, Inc. (Acquisition). In exchange
therefor, the stockholders of Old RockShox received $49,049,000, which consisted
of $39,049,000 of cash, $6,000,000 aggregate principal amount of junior
subordinated notes payable of the Company (junior notes), $4,000,000 of
non-convertible mandatorily redeemable Series B preferred stock of the Company
(Series B Preferred Stock) and 50% of the common stock of the Company. The
Company then acquired all of the capital stock of Acquisition and contributed to
Acquisition all of the Company's shares of capital stock of Old RockShox,
whereupon Old RockShox became a wholly owned subsidiary of Acquisition. Old
RockShox was then merged into Acquisition and Acquisition changed its name to
ROCKSHOX, INC. (RockShox). The transactions described in this paragraph are
collectively referred to as the Recapitalization.
As part of the Recapitalization, MCIT PLC and persons and entities
affiliated with The Jordan Company (Jordan) purchased the remaining 50% of the
common stock of the Company, $11,000,000 aggregate principal amount of senior
subordinated notes payable of the Company (senior notes) and $3,000,000 of
non-convertible mandatorily redeemable Series A preferred stock of the Company
(Series A Preferred Stock) for an aggregate purchase price of approximately
$14,500,000. Acquisition also entered into a $36,000,000 bank credit facility in
connection with the Recapitalization pursuant to which Acquisition borrowed
$30,000,000 under a term loan, and was permitted to borrow up to $6,000,000
under a bank line of credit.
The transaction has been accounted for as a recapitalization because no
change of control occurred, and accordingly, no change in the accounting basis
of Old RockShox assets has been made in the accompanying consolidated financial
statements. The amount of cash paid and securities issued to the stockholders of
Old RockShox of $50,274,000 exceeded Old RockShox's net assets of $4,852,000 on
the date of the Recapitalization by $45,422,000. This amount has been recorded
within the equity section as distributions in excess of net book value.
NATURE OF OPERATIONS:
The Company designs, manufactures and markets high performance bicycle
suspension products. The Company markets ten front suspension forks and three
rear shocks under its JUDY, INDY, QUADRA, MAG and DELUXE product lines. The
Company's products are primarily sold to bicycle manufacturers (OEMs) who
incorporate ROCKSHOX branded components as part of new, fully assembled mountain
bikes sold worldwide, and directly to independent bicycle dealers (IBDs) and
through distributors (collectively, the retail accessory market). For the years
ended December 31, 1993 and 1994, the three months ended March 31, 1995 and the
year ended March 31, 1996, approximately 63%, 65%, 62% and 68%, respectively, of
the Company's total net sales were to OEMs. For the years ended December 31,
1993 and 1994, the three months ended March 31, 1995 and the year ended March
31, 1996, approximately 37%, 35%, 38% and 32%, respectively, of the Company's
total net sales were to the retail accessory market.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany transactions and amounts
have been eliminated.
F-7
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FISCAL YEAR END:
Effective March 31, 1995, the Company changed its fiscal year end from
December 31 to March 31 to more closely correspond with the Company's product
model year and business cycle.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RISKS AND UNCERTAINTIES:
Substantially all of the Company's historical revenues have been
attributable to sales of mountain bike front suspension forks and, therefore,
any decline or lack of growth in the popularity of, or market demand for,
mountain bike suspension forks, in general, or the Company's products, in
particular, could have a material adverse effect on the Company or its
prospects. The markets for bicycle components, in general, and bicycle
suspension products, in particular, are highly competitive. In order to build or
retain its market share, the Company must continue to successfully compete in
the areas that influence the purchasing decisions of OEMs, distributors, IBDs
and consumers, including design, price, quality, technology, distribution,
marketing, style, brand image and customer service.
The Company does not currently have long term supply contracts with any of
its vendors, nor does the Company currently have multiple vendors for all parts,
tooling, supplies or services critical to the Company's manufacturing processes.
Failure of a key supplier to meet the Company's product needs on a timely basis
with sufficient product of sufficient quality, loss of a key supplier,
significant delay, disruption or cancellation of an order for critical parts,
tooling, supplies or services or significant disruption in the Company's
production or distribution activities for any other reason, including an
earthquake or other catastrophic event, could have a material adverse effect on
the Company or its prospects.
The bicycle industry is, and many of the Company's OEM customers are, highly
dependent on manufacturing in overseas locations. Changes in economic
conditions, currency exchange rates, tariff regulations, local content laws or
other trade restrictions or political instability (International Conditions)
could adversely affect the cost or availability of products sold by or to the
bicycle industry as a whole and the Company's OEM customers in particular, any
of which could have a material adverse effect on the Company or its prospects.
In addition, insufficient international consumer demand for mountain bikes and
related products, in general, or the Company's products, in particular, whether
due to changes in International Conditions, consumer preferences or other
factors, could adversely affect the bicycle industry, the Company's OEM
customers or the Company's sales, any of which could have a material adverse
effect on the Company or its products.
CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially expose the Company to concentrations
of credit risk consist principally of trade accounts receivable and cash and
cash equivalents.
The Company performs ongoing credit evaluations, generally does not require
collateral of its customers and maintains allowances for potential credit
losses. At March 31, 1996, three OEM customers accounted for 32.3%, 16.3% and
12.9% of accounts receivable. At March 31, 1995, two OEM customers accounted for
16.1% and 9.8% of accounts receivable. At December 31, 1994, two OEM customers
accounted for 21.3% and 14.3% of accounts receivable. (See Note 13 for
concentrations of revenue.)
F-8
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Substantially all cash balances are held in two financial institutions
domiciled in the United States.
INVENTORIES:
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives of one to seven years using the straight line method.
Leasehold improvements are amortized over the length of the lease or estimated
useful life, whichever is less. Major additions and betterments are capitalized,
while replacements, maintenance and repairs that do not improve or extend the
life of the assets are charged to expense. In the period assets are retired or
otherwise disposed of, the costs and related accumulated depreciation and
amortization are removed from the accounts, and any gain or loss on disposal is
included in results of operations.
CAPITALIZED FINANCING COSTS:
Capitalized financing costs associated with the issuance of the subordinated
debt and bank debt are being amortized over the terms of the related debt using
the straight-line method for the line of credit and the interest method for the
term loan and subordinated debt. Amortization expense for the year ended March
31, 1996 was $690,000. There was no amortization expense for the years ended
December 31, 1993 and 1994 and the amount was immaterial for the three month
period ended March 31, 1995.
REVENUE RECOGNITION:
The Company recognizes revenue, net of allowances for estimated returns,
upon shipment of product.
RESEARCH, DEVELOPMENT AND ENGINEERING:
Research, development and engineering expenses are charged to operations as
incurred.
WARRANTY:
All of the Company's products are covered by a one-year limited warranty.
Estimated future costs of repair, replacement or customer accommodation are
reflected in the accompanying consolidated financial statements.
ADVERTISING COSTS:
Advertising costs are charged to operations as incurred. Advertising costs
were $523,000, $594,000, $342,000 and $1,089,000 for the years ended December
31, 1993 and 1994, the three months ended March 31, 1995 and the year ended
March 31, 1996, respectively.
INCOME TAXES:
The Company's provision for (benefit from) income taxes comprises its
estimated tax liability currently payable and the change in its deferred income
taxes. Deferred tax assets and liabilities are determined based on differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the period in which the differences are expected
to affect taxable income.
RECENT ACCOUNTING PRONOUNCEMENTS:
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" (SFAS 121), which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS 121 will
become effective for the Company's 1997 fiscal year. The Company has studied the
implications of SFAS No. 121 and, based on its initial evaluation, does not
expect SFAS 121 to have a material impact on the Company's financial condition
or results of operations.
F-9
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
established a fair value based method of accounting for stock-based compensation
plans. The Company is currently following the requirements of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company plans to adopt SFAS 123 during fiscal 1997 utilizing the disclosure
alternative.
COMPUTATION OF NET INCOME (LOSS) PER SHARE:
Net income (loss) per share is computed using the weighted average number of
common shares outstanding during the period and, pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common and common
equivalent shares issued during the twelve months preceding the filing date of
RockShox's initial public offering (the Offering) have been included in the
calculation of the number of shares used to determine net income (loss) per
share as if the shares had been outstanding for all periods presented using the
treasury stock method.
INTERIM FINANCIAL DATA (UNAUDITED):
The unaudited financial statements for the three months ended March 31, 1994
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and results of operations in accordance with generally accepted accounting
principles.
RECLASSIFICATIONS:
Certain amounts in the prior periods' financial statements have been
reclassified to conform to the fiscal 1996 presentation. These reclassifications
did not change previously reported stockholders' equity (deficit) or net income
(loss).
3. INVENTORIES (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, --------------------
1994 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
Raw materials......................................................... $ 3,493 $ 2,719 $ 5,320
Finished goods........................................................ 566 1,631 3,116
------ --------- ---------
$ 4,059 $ 4,350 $ 8,436
------ --------- ---------
------ --------- ---------
</TABLE>
Any misjudgment by the Company or any of its OEM customers of the demand for
any of its respective products may cause the Company's excess and obsolete
inventory to exceed estimated allowances for such inventory.
F-10
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT, NET (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, --------------------
1994 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
Furniture and fixtures............................................... $ 708 $ 777 $ 1,553
Machinery and equipment.............................................. 493 669 2,870
Leasehold improvements............................................... 121 141 251
------ --------- ---------
1,322 1,587 4,674
Less accumulated depreciation and amortization....................... (359) (437) (1,493)
------ --------- ---------
963 1,150 3,181
Construction in progress 153 145 1,132
------ --------- ---------
$ 1,116 $ 1,295 $ 4,313
------ --------- ---------
------ --------- ---------
</TABLE>
Depreciation and amortization expense on property and equipment for the
years ended December 31, 1993 and 1994, the three months ended March 31, 1995
and the year ended March 31, 1996 was $127,000, $193,000, $78,000 and
$1,056,000, respectively.
5. ACCRUED LIABILITIES (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, --------------------
1994 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
Accrued payroll and benefits......................................... $ 524 $ 396 $ 1,401
Accrued income taxes payable......................................... 507 1,823
Accrued warranty..................................................... 50 300 4,231
Accrued interest payable............................................. 55 902
Accrued reorganization costs......................................... 995
Other................................................................ 366 1,046 1,945
------ --------- ---------
$ 940 $ 3,299 $ 10,302
------ --------- ---------
------ --------- ---------
</TABLE>
The Company has $4,231,000 in accrued warranty costs at March 31, 1996.
There can be no assurance that such accrued liability may not change in the
future or that future warranty costs for sales made through such date will not
be greater than the amounts accrued by the Company on its consolidated financial
statements, either of which could have a material adverse effect on the Company
or its prospects. No provision for these possible excess warranty costs has been
recorded in the accompanying financial statements.
6. RELATED PARTY TRANSACTIONS:
CONSULTING AND EMPLOYMENT AGREEMENTS:
In connection with the Recapitalization on March 24, 1995 (see Note 1), the
Company entered into annual employment agreements (the Employment Agreements)
with the Company's President and Vice President of Advanced Research, and a
management consulting agreement (the Consulting Agreement) with Jordan.
The Employment Agreements are dated as of March 24, 1995, were initially for
one-year terms and automatically renew for additional one-year terms, not to
exceed four one-year renewal terms in total, at the election of the applicable
officer. Under the terms of the Employment Agreements, initial payments of an
aggregate of $4,700,000 were made, of which $2,820,000 was charged to selling,
general and administrative
F-11
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS: (CONTINUED)
expense and $1,880,000 was charged to research and development expense in the
statement of operations for the three month period ended March 31, 1995.
Aggregate salaries of $500,000 plus certain additional incentive compensation
are payable annually. The incentive compensation is based upon the Company's
operating results up to a maximum of $3,000,000 per year during the first four
fiscal years and $10,000,000 for five fiscal years in the aggregate for both the
Company's President and Vice President of Advanced Research, beginning with the
fiscal year ended March 31, 1996. Incentive compensation under the Employment
Agreements totaled $2,125,000 for the fiscal year ended March 31, 1996, of which
$1,062,500 was charged to selling, general and administrative expense and
$1,062,500 was charged to research and development expense in the statement of
operations.
The Consulting Agreement between the Company and Jordan is dated March 24,
1995 and generally continues until April 1, 2000. Under the terms of the
Consulting Agreement, Jordan is entitled to a quarterly consulting fee of
$62,500, potential fees relating to certain future transactions and
reimbursement for any reasonable expenses.
NOTES PAYABLE:
In connection with the Recapitalization, the Company issued $11,000,000
aggregate principal amount of senior notes to Jordan and $6,000,000 aggregate
principal amount of junior notes to certain stockholders of the Company (see
Note 1). Each of the senior notes and the junior notes bear interest at 13.5%
per annum, with the interest payable semi-annually. Principal payments begin in
2003, with the final installments on the senior notes and the junior notes due
in 2005 and 2006, respectively.
The senior notes include provisions to accelerate payment based upon default
or violation of restrictive covenants contained in the Company's bank debt
agreement (see Note 7). The senior notes contain a covenant that requires the
Company to maintain a certain financial ratio and prohibits the payment of any
dividend or distribution on account of any class of the Company's capital stock,
except a dividend payable solely in shares of that class of stock, or a dividend
payable to holders of Series A and B Preferred Stock provided sufficient funds
are available.
The Company and MCIT PLC entered into a pledge agreement pursuant to which
the Company pledged to MCIT PLC, as agent for all holders of senior notes, a
continuing security interest in and to all issued and outstanding shares of
capital stock of Acquisition, including all payments and rights with respect
thereto and all proceeds thereof.
At March 31, 1995, the Company had a noncollateralized note payable of
$250,000 to a stockholder due June 24, 1995. The Company repaid this note during
fiscal 1996.
INVENTORY PURCHASES:
For the years ended December 31, 1993 and 1994, the three months ended March
31, 1995 and the year ended March 31, 1996, the Company paid $3,595,000,
$3,118,000, $1,271,000 and $8,529,000, respectively, to a supplier of raw
materials. Prior to January 1, 1994, the President of the Company owned 50% of
the common stock of this supplier. The President sold such stock on January 1,
1994. The President provides consulting services to this supplier, in
consideration of which the President receives payments of approximately 3% of
this supplier's net sales (as defined) through 2002.
STOCKHOLDERS AGREEMENT:
The Company, Stephen Simons, Debra Simons, Paul Turner, MCIT PLC and certain
persons and entities affiliated with Jordan (collectively, the Stockholder
Parties) have entered into a subscription and stockholders agreement, dated
March 24, 1995 (the Stockholders Agreement), pursuant to which each Stockholder
Party agreed to vote all shares of common stock of the Company owned by such
Stockholder Party to maintain a Board of Directors consisting of four members,
two nominated by Stephen Simons and
F-12
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS: (CONTINUED)
Paul Turner and two nominated by the Stockholder Parties other than Messrs.
Simons and Turner and Debra Simons. The Stockholders Agreement also imposes
certain restrictions on transferability of the shares of common stock of the
Company owned by the Stockholder Parties. Such voting provisions and
restrictions on transfer will terminate upon the consummation of the Offering.
The Stockholders Agreement also provides MCIT PLC with the right, subject to
certain exceptions, to include its shares of common stock of the Company in a
registration statement proposed to be filed by RockShox in connection with any
public offering. Such provision will terminate immediately following the
consummation of the Offering.
7. BANK DEBT:
The Company's wholly owned subsidiary, RockShox, has a bank line of credit,
subject to renewal on March 31, 2001, under which it may borrow up to
$6,000,000. At March 31, 1996, no borrowings were outstanding under the bank
line of credit. Borrowings under the bank line of credit are guaranteed by the
Company.
In connection with the Recapitalization (see Note 1), Acquisition entered
into a bank term loan of $30,000,000, pursuant to which escalating quarterly
installment payments began on June 30, 1995 with the final installment due on
March 31, 2001. The annual principal maturities during the years ending March
31, are as follows (IN THOUSANDS):
<TABLE>
<S> <C>
1997....................................................................... $ 3,000
1998....................................................................... 4,500
1999....................................................................... 5,600
2000....................................................................... 6,800
2001....................................................................... 7,600
---------
$ 27,500
---------
---------
</TABLE>
Both the bank line of credit and the term loan are collateralized by the
assets of the Company and bear interest at a floating rate that changes
depending on the Company's leverage ratio, subject to a maximum annual borrowing
rate, as defined in the agreement (8.56% at March 31, 1996). Interest is payable
quarterly. The credit agreement contains covenants, the more restrictive of
which, requires the maintenance of various financial ratios and, among other
things, restricts additional borrowings and the sale of assets. In addition, the
credit agreement prohibits the payment of any dividend as distribution on
account of any class of the Company's capital stock, except a dividend payable
solely in shares of that class of stock.
The credit agreement contains certain prepayment requirements relating to
the Company's cash flows, sale of certain assets, and additional issuance of
debt. The Company is required to make a mandatory prepayment on June 30
following the end of the fiscal year, beginning June 30, 1996, based on a
percentage of excess cash flow, as defined in the agreement. At March 31, 1996,
the Company was not required to make any prepayment under the excess cash flow
requirements.
8. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS:
The Company leases its plant and sales facilities and certain of its
equipment under noncancelable operating leases that expire at various times
through 2001. Certain of these leases require escalating monthly payments and,
therefore, periodic rent expense is being recognized on a straight-line basis.
Under these leases, the Company is responsible for maintenance costs, including
real property taxes, utilities and other costs. Also, certain of these leases
contain renewal options.
F-13
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Total rent expense for these leases for the years ended December 31, 1993
and 1994, the three months ended March 31, 1995 and the year ended March 31,
1996 was $163,000, $292,000, $97,000 and $520,000, respectively. Following is a
summary, by fiscal year, of future minimum lease payments under operating leases
at March 31, 1996 (IN THOUSANDS):
<TABLE>
<CAPTION>
FISCAL YEAR EQUIPMENT BUILDING TOTAL
- ------------------------------------------------------------------------ ------------- ----------- ---------
<S> <C> <C> <C>
1997.................................................................... $ 64 $ 734 $ 798
1998.................................................................... 64 687 751
1999.................................................................... 64 681 745
2000.................................................................... 64 692 756
2001.................................................................... 64 441 505
----- ----------- ---------
Total minimum lease payments............................................ $ 320 $ 3,235 $ 3,555
----- ----------- ---------
----- ----------- ---------
</TABLE>
CONTINGENCIES:
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. Management believes that the
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial condition, results of operations or cash flows.
9. MANDATORILY REDEEMABLE PREFERRED STOCK ISSUED TO STOCKHOLDERS:
In connection with the Recapitalization, the Company issued 3,000 shares of
Series A Preferred Stock and 4,000 shares of Series B Preferred Stock, both at a
price of $1,000 per share. The rights, preferences and privileges of holders of
the Series A Preferred Stock and Series B Preferred Stock are as follows:
DIVIDENDS:
Holders of Series A Preferred Stock are entitled to receive, at the option
of the Board of Directors, either stock dividends at an annual rate of 5% per
share or cash dividends at an annual rate of $50 per share. Stock dividends
accrue if no cash dividends are declared. Holders of Series B Preferred Stock
are entitled to receive cash dividends at an annual rate of $50 per share.
Dividends are cumulative and accrue from the date of issuance whether or not
earned or declared.
REDEMPTION:
The Company has the option to redeem the Series A Preferred Stock and the
Series B Preferred Stock at any time for $1,000 per share plus accrued but
unpaid dividends thereon (the Redemption Price). All shares of Series A
Preferred Stock and Series B Preferred Stock must be redeemed by the Company by
payment of the Redemption Price on July 31, 2006 or earlier, in connection with
a merger, consolidation or sale of substantially all the Company's assets in
which the Company's common stockholders hold a minority of the surviving voting
stock. Payment of any optional or mandatory redemption amounts cannot be made if
such payment results in any default under the Company's debt obligations.
Holders of Series A Preferred Stock will receive payment of the Redemption Price
before any redemption of Series B Preferred Stock.
F-14
<PAGE>
RSx HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. MANDATORILY REDEEMABLE PREFERRED STOCK ISSUED TO STOCKHOLDERS: (CONTINUED)
The mandatory redemption requirements include cumulative unpaid dividends.
Assuming no liquidity event, and no payment of dividends, the mandatory
redemption requirements total $12,184,000, all payable in 2006.
LIQUIDATION:
In the event of any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, holders of Series A Preferred Stock have a
liquidation preference over holders of Series B Preferred Stock and common stock
of $1,000 per share plus all accrued but unpaid dividends thereon. Holders of
Series B Preferred Stock have liquidation preference over holders of common
stock of $1,000 plus all accrued but unpaid dividends thereon.
10. INCOME TAXES:
The components of the provision for (benefit from) income taxes are
summarized as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED THREE
DECEMBER 31, MONTHS YEAR ENDED
-------------------- ENDED MARCH MARCH 31,
1993 1994 31, 1995 1996
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
State...................................................... $ 378 $ 558 $ 45 $ 1,127
Federal.................................................... 1,200 2,250 312 4,635
--------- --------- ----------- -----------
1,578 2,808 357 5,762
--------- --------- ----------- -----------
Deferred:
State...................................................... (10) (48) (150) (281)
Federal.................................................... (47) (340) (860) (2,017)
--------- --------- ----------- -----------
(57) (388) (1,010) (2,298)
--------- --------- ----------- -----------
$ 1,521 $ 2,420 $ (653) $ 3,464
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The principal items accounting for the difference between income taxes
computed at the U.S. statutory rate and the provision for (benefit from) income
taxes reflected in the statements of operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS YEAR ENDED
------------------------ ENDED MARCH MARCH 31,
1993 1994 31, 1995 1996
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
United States statutory rate............................... 34.0% 34.0% (34.0)% 35.0%
States taxes, net of federal benefit....................... 6.1 4.6 (5.0) 5.1
Other...................................................... (3.7) (4.7) 17.2 (2.2)
----- ----- ----- -----
36.4% 33.9% (21.8)% 37.9%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
F-15
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES: (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and liability are as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, --------------------
1994 1995 1996
--------------- --------- ---------
<S> <C> <C> <C>
Net operating losses.................................................. $ 1,350
Allowance for doubtful accounts....................................... $ 6 9 $ 681
Allowance for excess and obsolete inventory........................... 19 685
Accrued liabilities................................................... 128 73 1,650
Other................................................................. 344 75 789
----- --------- ---------
Net deferred tax asset............................................ $ 497 $ 1,507 $ 3,805
----- --------- ---------
----- --------- ---------
</TABLE>
No valuation allowance has been recorded as management believes the net
deferred tax asset will be realized in future periods through carryback to prior
years when the Company paid income taxes or through estimated future taxable
income. The amount of the deferred tax asset that is realizable could be reduced
in the near term if actual results differ significantly from estimates of future
taxable income.
11. EMPLOYEE BENEFIT PLAN:
The Company has established a defined contribution plan that is intended to
qualify under Section 401 of the Internal Revenue Code (the Plan). The Plan
covers substantially all officers and employees of the Company. Company
contributions to the Plan are determined at the discretion of the Board of
Directors. No Company contributions were made to the Plan for the years ended
December 31, 1993 and 1994, the three months ended March 31, 1995 or the year
ended March 31, 1996.
12. FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE:
The following methods and assumptions were used in estimating the fair
values of financial instruments:
CASH AND CASH EQUIVALENTS:
The carrying amounts for cash and cash equivalents approximate their
estimated fair values because of the short maturity of those financial
instruments.
MANDATORILY REDEEMABLE PREFERRED STOCK AND NOTES PAYABLE TO RELATED
PARTIES:
No estimates of the fair values of these financial instruments with
related parties could be made without incurring excessive costs (see Note
6).
LONG-TERM DEBT:
Based on rates currently available to the Company for debt with similar
terms and remaining maturities, the carrying amounts for long-term debt
approximate their estimated fair value.
F-16
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
The Company currently operates in one industry segment, the suspension class
of the bicycle industry, for financial reporting purposes. The Company's export
sales (including sales to domestic OEM's overseas manufacturing operations),
which are all denominated in U.S. dollars and are summarized as follows: (IN
THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, THREE MONTHS
-------------------- ENDED YEAR ENDED
1993 1994 MARCH 31, 1995 MARCH 31, 1996
--------- --------- --------------- --------------
<S> <C> <C> <C> <C>
Asia........................................ $ 7,234 $ 10,563 $ 2,800 $ 22,813
Europe...................................... 4,698 6,096 1,961 13,708
Other....................................... 1,838 2,072 964 4,091
--------- --------- ------ -------
$ 13,770 $ 18,731 $ 5,725 $ 40,612
--------- --------- ------ -------
--------- --------- ------ -------
</TABLE>
Revenues from individual customers in excess of 10% of net sales were as
follows (IN THOUSANDS, EXCEPT PERCENT DATA):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------- THREE MONTHS ENDED
YEAR ENDED
1993 1994 MARCH 31, 1995 MARCH 31, 1996
---------------------- ---------------------- ---------------------- ----------------------
CUSTOMER PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
- ------------------------- ----------- --------- ----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A........................ 10.7% $ 4,061 14.5% $ 2,073 17.9% $ 14,950
B........................ 17.5% $ 5,419 12.2% $ 1,737
</TABLE>
14. SUBSEQUENT EVENTS:
In May 1996, the Board of Directors and stockholders approved the 1996 Stock
Plan (the Stock Plan). The Stock Plan provides for the issuance of up to a
maximum of 11,100 shares of common stock pursuant to awards under the Stock
Plan. The Company has reserved 11,100 shares of common stock for issuance under
the Stock Plan. Under the Stock Plan, incentive stock options may be granted
only to employees (including employees who are officers or directors) of the
Company or any parent or subsidiary of the Company, and nonstatutory stock
options and stock purchase rights may be granted to employees and directors of
the Company or any of its subsidiaries.
The exercise price of options will be determined by the compensation
committee of the Board of Directors of RockShox upon the establishment thereof,
provided that (i) incentive stock options may not be granted with option
exercise prices less than fair market value (as defined in the Stock Plan) of
the common stock on the date of grant, (ii) options granted to employees
possessing more than 10% of the total combined voting power of all classes of
stock of the Company may not have exercise prices less than 110% of fair market
value and (iii) nonstatutory options may not be granted with option prices less
than 85% of the fair market value.
Each option will become exercisable for 20% of the shares of common stock
underlying such option each year, or at a rate determined by the compensation
committee of the Board of Directors. Options expire no more than ten years after
the date of grant other than those granted to optionees who own at least 10% of
the outstanding common stock on the date of grant, which will expire after five
years from the date of grant.
During May 1996, certain employees were granted stock options to purchase an
aggregate of 6,761 shares of common stock pursuant to the Stock Plan at exercise
prices of $387 and $414 per share.
In June 1996, the Board of Directors approved an increase in the number of
authorized shares of common stock to 111,100.
F-17
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AND STATEMENT OF OPERATIONS
(UNAUDITED)
The accompanying unaudited pro forma condensed consolidated balance sheet
and statement of operations give effect to certain transactions which will take
place upon the closing of the Offering as if the transactions had taken place as
of March 31, 1996 and April 1, 1995, respectively.
The pro forma information is not necessarily indicative of future operations
or the actual results that would have occurred had the transactions occurred at
the beginning of the period presented. The pro forma information and related
adjustments are based upon available information and upon certain assumptions
which the Company believes are reasonable. The pro forma condensed consolidated
balance sheet and statement of operations should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto contained
elsewhere herein.
F-18
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
MARCH 31, ADJUSTMENTS MARCH 31,
1996 (NOTE 1) 1996
----------- -------------------------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 1,808 $ (a) $
Trade accounts receivable, net.............................. 5,571 -- 5,571
Inventories................................................. 8,436 -- 8,436
Prepaid expenses and other current assets................... 397 -- 397
Deferred income taxes....................................... 3,805 3,932(e) 7,737
----------- ------------ ----------
Total current assets...................................... 20,017
Property and equipment, net................................. 4,313 -- 4,313
Capitalized financing costs, net............................ 2,513 $ (2,513)(c) --
Other assets, net........................................... 89 -- 89
----------- ------------ ----------
Total assets.......................................... $ 26,932 $ $
----------- ------------ ----------
----------- ------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable...................................... $ 1,769 -- $ 1,769
Accounts payable to related party........................... 494 -- 494
Accrued incentive compensation payable to officers.......... 2,125 -- 2,125
Accrued liabilities......................................... 10,302 -- 10,302
Current portion of long-term bank debt...................... 3,000 (3,000)(b) --
----------- ------------ ----------
Total current liabilities................................. 17,690 (3,000) 14,690
Long-term bank debt, net of current portion................... 24,500 (24,500)(b) --
Notes payable to related parties, net of current portion...... 17,000 (17,000)(b) --
----------- ------------ ----------
Total liabilities....................................... 59,190 (44,500) 14,690
----------- ------------ ----------
Commitments and contingencies.
Mandatorily redeemable preferred stock........................ 7,357 (7,357)(b) --
----------- ------------ ----------
Common stock, $0.01 par value,
Authorized: 100,000 shares actual, shares pro forma;
Issued and outstanding: 100,000 shares actual, shares
pro forma.................................................. 1 (a)
Additional paid-in capital.................................... 499 (a)
Distributions in excess of net book value..................... (45,422) -- (45,422)
Retained earnings............................................. 5,307 5,898 (c)(d)(e (591)
----------- ------------ ----------
Total stockholders' equity (deficit).................... (39,615)
----------- ------------ ----------
Total liabilities, mandatorily redeemable preferred
stock and stockholders' equity (deficit)............. $ 26,932 $ $
----------- ------------ ----------
----------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
F-19
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR PRO FORMA
ENDED PRO FORMA YEAR ENDED
MARCH 31, ADJUSTMENTS MARCH 31,
1996 (NOTE 2) 1996
------------ ----------------- ------------
<S> <C> <C> <C>
Net sales.......................................................... $ 83,509 -- $ 83,509
Cost of sales...................................................... 54,110 -- 54,110
------------ ------------
Gross profit................................................... 29,399 -- 29,399
------------ ------------
Selling, general and administrative expense........................ 11,220 (812)(f) 10,408
Research, development and engineering expense...................... 3,401 (938)(f) 2,463
------------ ----------------- ------------
14,621 (1,750) 12,871
------------ ----------------- ------------
Income from operations......................................... 14,778 1,750 16,528
Interest income.................................................... 136 -- 136
Interest expense................................................... (5,786) 5,786(g) --
------------ ----------------- ------------
Income before income taxes..................................... 9,128 7,536 16,664
Provision for income taxes......................................... 3,464 3,014(i) 6,478
------------ ----------------- ------------
Net income..................................................... $ 5,664 $ 4,522 $ 10,186
------------ ----------------- ------------
------------ ----------------- ------------
Net income......................................................... $ 5,664 $ 4,522 $ 10,186
Accretion for dividends on mandatorily redeemable preferred
stock............................................................ 357 (357)(h) --
------------ ----------------- ------------
Net income available to common stockholders........................ $ 5,307 $ 4,879 $ 10,186
------------ ----------------- ------------
------------ ----------------- ------------
Net income per share............................................... $ $
------------ ------------
------------ ------------
Shares used in per share computation............................... (j)
------------ ----------------- ------------
------------ ----------------- ------------
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
consolidated financial statements.
F-20
<PAGE>
RSX HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
1. PRO FORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED BALANCE SHEET:
To reflect (i) the estimated net proceeds from the Offering, (ii) payment
with the proceeds from the Offering of the Company's borrowings of long-term
bank debt and subordinated notes payable, (iii) the redemption of the Series A
and Series B Preferred Stock, (iv) the payment of $7,317,000 to the Company's
President and Vice President of Advanced Research to terminate a bonus plan (the
Bonus Plan), (v) the charge-off of capitalized financing costs related to the
bank debt and (vi) the income effect of the forgoing, certain pro forma
adjustments have been made to the accompanying pro forma condensed consolidated
balance sheet, as if the Offering was consummated on March 31, 1996, as follows:
(a) Issuance of shares of common stock at $ per share, net of
estimated issuance costs of $ and less payments of $27,500,000 and
$17,000,000 to repay bank debt and subordinated debt, respectively,
$7,357,000 to redeem the Series A and Series B Preferred Stock and
$7,317,000 to terminate the Bonus Plan.
(b) Use of proceeds to repay long-term bank debt and subordinated notes
payable to related parties of $27,500,000 and $17,000,000, respectively, and
to redeem the Series A and Series B Preferred Stock of $7,357,000. (See Note
6 of Notes to Consolidated Financial Statements.)
(c) Charge-off of capitalized financing costs of $2,513,000 related to
the bank debt.
(d) Use of $7,317,000 of proceeds to terminate the Bonus Plan with the
Company's President and Vice President of Advanced Research.
(e) Records the tax impact of the tax benefit realized from the
deductible portion of adjustments (b), (c) and (d) at a 40% incremental tax
rate.
2. PRO FORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS:
To reflect (i) the reduction of interest expense from the payment of the
long-term bank debt and subordinated notes payable, (ii) the reduction of
dividends payable to the holders of the Series A and Series B Preferred Stock
and (iii) the income tax effect of the forgoing, certain pro forma adjustments
have been made to the accompanying pro forma condensed consolidated statement of
operations, as if the Offering was consummated on April 1, 1995, as follows:
(f) Reduces the bonus expense recorded and payable under the Employment
Agreements with the Company's President and Vice President of Advanced
Research, in excess of the maximum of $250,000 and $125,000, respectively,
that will be payable to each of these individuals under the employment
agreements that will become effective upon consummation of the Offering.
(g) Records the reduction of interest expense resulting from repaying
the long-term bank debt and subordinated notes payable, and from the
reduction in amortization of the deferred financing costs.
(h) Records the reduction in dividends resulting from the redemption of
Series A and Series B Preferred Stock.
(i) Records the tax impact of the increase in the provision for income
taxes resulting from the decrease in tax deductible expenses in adjustments
(f) and (g) at a 40% incremental tax rate.
(j) Records the effect on shares used in per share computation as a
result of shares of common stock issued pursuant to the Offering.
The pro forma condensed consolidated statement of operations does not
reflect the charge of $2,513,000 related to the deferred financing cost or the
expense of $7,317,000 related to the termination of the Bonus Plan, both of
which will reduce net income in the quarter the Offering is consummated because
of the nonrecurring nature of each of these items.
F-21
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
The Recapitalization and the Merger............ 12
Use of Proceeds................................ 13
Dividend Policy................................ 13
Capitalization................................. 14
Dilution....................................... 15
Selected Financial Data........................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 22
Management..................................... 37
Certain Transactions........................... 41
Principal and Selling Stockholders............. 44
Description of Capital Stock................... 46
Shares Eligible for Future Sale................ 47
Underwriting................................... 49
Legal Matters.................................. 50
Experts........................................ 50
Additional Information......................... 50
Special Note Regarding Forward-Looking
Statements.................................... 51
Index to Consolidated Financial Statements and
Pro Forma Condensed Consolidated Financial
Statements.................................... F-1
</TABLE>
-------------------
UNTIL , 1996 (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 DELIVERY REQUIREMENT 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.
SHARES
[ROCKSHOX LOGO]
ROCKSHOX, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
ROBERTSON, STEPHENS & COMPANY
JEFFERIES & COMPANY, INC.
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses (other than underwriting discounts and commissions)
payable by the Company in connection with the issuance and distribution of the
Common Stock to be registered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee................................................... $ 26,768
NASD fees.............................................................. 8,263
NASDAQ Listing Fee..................................................... *
Printing and engraving expenses........................................ *
Management fees........................................................ *
Legal fees and expenses................................................ *
Accounting fees and expenses........................................... *
Blue Sky expenses (including legal fees)............................... *
Transfer agent fees and expenses....................................... *
Miscellaneous expenses................................................. *
-----------
Total................................................................ $ *
-----------
-----------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated in Delaware. Under Section 145 of the General
Corporation Law of the State of Delaware (the "DGCL"), a Delaware corporation
generally has the power to indemnify its present and former directors, officers,
employees and agents against expenses and liabilities incurred by them in
connection with any action, suit or proceeding to which they are, or are
threatened to be made, a party by reason of their serving in those positions so
long as they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the company, and with respect to
any criminal action or proceeding, so long as they had no reasonable cause to
believe their conduct was unlawful. The statute expressly provides that the
power to indemnify authorized thereby is not exclusive of any rights granted
under any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Certificate of Incorporation of the Company and Bylaws of the
Company provide for indemnification of present and former directors and officers
of the Company and persons serving as directors, officers, employees or agents
of other corporations or entities at the request of the Company, each to the
fullest extent permitted by the DGCL.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock) of
the DGCL, or (iv) for any transactions from which the director derived an
improper personal benefit. The Certificate of Incorporation of the Company
contains such a provision.
The Company intends to obtain insurance for the protection of its directors
and officers against claims asserted against them in their official capacities.
The purchase agreement among the Company and each of the underwriters (the
"Underwriters") and the selling stockholders named in this Registration
Statement (the "Purchase Agreement") will provide for indemnification by the
Underwriters of directors, officers and controlling persons of the Company
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), under certain circumstances.
II-1
<PAGE>
The preceding discussion of the Certificate of Incorporation of the Company,
the Bylaws of the Company, the Purchase Agreement and the DGCL is not intended
to be exhaustive and is qualified in its entirety by reference to the complete
texts of the Certificate of Incorporation of the Company, the Bylaws of the
Company and the Purchase Agreement, which are included in this Registration
Statement at Exhibits 3.1, 3.2 and 1.1, respectively, and to the DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 24, 1995, Stephen Simons, Debra Simons and Paul Turner transferred
all of the outstanding shares in the Company's predecessor to RSx Holdings Inc.,
a Delaware corporation ("Holdings"), and RSx Acquisition, Inc., a Delaware
corporation that later became a wholly owned subsidiary of Holdings, for 50% of
the outstanding common stock of Holdings ("Holdings Common Stock"), $6 million
aggregate principal amount of 13.5% junior subordinated notes of Holdings, 4,000
shares of Series B Preferred Stock of Holdings and approximately $40.3 million
in cash. Also on March 24, 1995, MCIT PLC and certain persons and entities
affiliated with The Jordan Company purchased the remaining 50% of Holdings
Common Stock and 3,000 shares of Series A Preferred Stock of Holdings in
consideration of approximately $3.5 million. Holdings also issued $11 aggregate
million principal amount of 13.5% senior subordinated notes to two affiliates of
The Jordan Company on such date. All of such issuances of securities by Holdings
were made in reliance on the exemption from registration provided by Section
4(2) of the Securities Act on the basis that no public offering was involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
1 Purchase Agreement, dated , 1996, among RockShox, Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, on behalf of the several underwriters, and
the selling stockholders named therein.*
2 Agreement and Plan of Merger, dated , 1996, between RSx Holdings, Inc.
and RockShox, Inc.*
3.1 Amended and Restated Certificate of Incorporation of RockShox, Inc.*
3.2 Amended and Restated Bylaws of RockShox, Inc.*
4 Form of Common Stock Certificate of RockShox, Inc.*
5 Opinion of Skadden, Arps, Slate, Meagher & Flom.*
10.1 Stock Purchase Agreement, dated March 24, 1995, among Stephen Simons, Debra
Simons, Paul Turner, RSx Holdings, Inc. and RSx Acquisition, Inc.
10.2 Management Consulting Agreement, dated as of March 24, 1995, between TJC
Management Corporation and RSx Holdings, Inc.
10.3 Purchase Agreement, dated as of March 23, 1995, between RSx Holdings, Inc. and
MCIT PLC.
10.4 Subscription and Stockholders Agreement, dated as of March 24, 1995, among RSx
Holdings, Inc., Stephen Simons, Debra Simons, Paul Turner and other stockholders
named therein.
10.5 Registration Rights Agreement, dated , 1996, among RockShox, Inc.,
Stephen Simons, Debra Simons, Paul Turner and other stockholders named therein.*
10.6 RSx Holdings, Inc. 1996 Stock Plan.
10.7 Employment Agreement, dated as of March 24, 1995, between RSx Holdings, Inc. and
Stephen Simons.
10.8 Amended and Restated Employment Agreement, dated , 1996, between
RockShox, Inc. and Stephen Simons.*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 Employment Agreement, dated as of March 24, 1995, between RSx Holdings, Inc. and
Paul Turner.
10.10 Amended and Restated Employment Agreement, dated , 1996, between
RockShox, Inc. and Paul Turner.*
10.11 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and
Stephen Simons.
10.12 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and
Debra W. Simons.
10.13 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and
Paul Turner.
10.14 Consultant Agreement, dated as of January 1, 1994, by and between Simons &
Susslin, Inc. and Stephen Simons.
10.15 Form of Lease, dated as of May 1, 1994, between Charcot Center Joint Venture and
RockShox, Inc.
10.16 Form of First Amendment to Lease, dated as of August 15, 1994, between Charcot
Center Joint Venture and RockShox, Inc.
10.17 Lease, dated as of October 1, 1995, between Whitecliffe I Apartments, Ltd. and
RockShox, Inc.
11 Statement regarding computation of net income (loss) per share.*
21 List of Subsidiaries of RockShox, Inc.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of the opinion
submitted as Exhibit 5). *
24 Power of attorney (see signature page included in Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
II-3
<PAGE>
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California, on July 12, 1996.
ROCKSHOX, INC.
By: /S/ CHARLES E. NOREEN, JR.
-----------------------------------
Name: Charles E. Noreen, Jr.
Title: Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints Charles E. Noreen, Jr. and Adam E. Max
and each acting alone, 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, and in any and all capacities, to sign any or all amendments or
supplements to this registration statement or any registration statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933 and to file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing necessary or
appropriate to be done with respect to such registration statements or any
amendments or supplements thereto 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, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/S/ JOHN W. JORDAN
II Chairman of the Board of
- ----------------------------------- Directors July 12, 1996
John W. Jordan II
/S/ STEPHEN W.
SIMONS President (Chief
- ----------------------------------- Executive Officer) July 12, 1996
Stephen W. Simons
/S/ CHARLES E. NOREEN,
JR. Chief Financial Officer
- ----------------------------------- (principal accounting July 12, 1996
Charles E. Noreen, Jr. officer)
/S/ PAUL
TURNER Vice President of
- ----------------------------------- Advanced Research and July 12, 1996
Paul Turner Director
/S/ ADAM E.
MAX Director and Vice
- ----------------------------------- President July 12, 1996
Adam E. Max
II-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the financial statements of RSx Holdings,
Inc. and Subsidiaries as of December 31, 1994 and March 31, 1995 and 1996, and
for the years ended December 31, 1993 and 1994, the three month period ended
March 31, 1995 and the year ended March 31, 1996, which financial statements are
included in the Registration Statement, we have also audited the financial
statement schedule listed in Item (16)(b) herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
May 21, 1996
S-1
<PAGE>
SCHEDULE II
RSX HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COSTS WRITE-OFF BALANCE
BEGINNING AND OF AT END
OF PERIOD EXPENSES ACCOUNTS OF PERIOD
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful accounts.................................... $ 40 $ 40
Allowance for excess and obsolete inventories......................
Year ended December 31, 1994
Allowance for doubtful accounts.................................... 40 $ 24 16
Allowance for excess and obsolete inventories...................... $ 69 69
Three months ended March 31, 1995
Allowance for doubtful accounts.................................... 16 32 7 41
Allowance for excess and obsolete inventories...................... 69 24 45
Year ended March 31, 1996
Allowance for doubtful accounts.................................... 41 1,518 127 1,432
Allowance for excess and obsolete inventories...................... 45 2,009 45 2,009
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
- ----------- -----------------
<C> <S> <C>
1 Purchase Agreement, dated , 1996, among RockShox, Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, on behalf of the several underwriters, and the
selling stockholders named therein.*
2 Agreement and Plan of Merger, dated , 1996, between RSx Holdings, Inc. and
RockShox, Inc.*
3.1 Amended and Restated Certificate of Incorporation of RockShox, Inc.*
3.2 Amended and Restated Bylaws of RockShox, Inc.*
4 Form of Common Stock Certificate of RockShox, Inc.*
5 Opinion of Skadden, Arps, Slate, Meagher & Flom.*
10.1 Stock Purchase Agreement, dated March 24, 1995, among Stephen Simons, Debra Simons,
Paul Turner, RSx Holdings, Inc. and RSx Acquisition, Inc.
10.2 Management Consulting Agreement, dated as of March 24, 1995, between TJC Management
Corporation and RSx Holdings, Inc.
10.3 Purchase Agreement, dated as of March 23, 1995, between RSx Holdings, Inc. and MCIT
PLC.
10.4 Subscription and Stockholders Agreement, dated as of March 24, 1995, among RSx
Holdings, Inc., Stephen Simons, Debra Simons, Paul Turner and other stockholders
named therein.
10.5 Registration Rights Agreement, dated , 1996, among RockShox, Inc., Stephen
Simons, Debra Simons, Paul Turner and other stockholders named therein.*
10.6 RSx Holdings, Inc. 1996 Stock Plan.
10.7 Employment Agreement, dated as of March 24, 1995, between RSx Holdings, Inc. and
Stephen Simons.
10.8 Amended and Restated Employment Agreement, dated , 1996, between RockShox,
Inc. and Stephen Simons.*
10.9 Employment Agreement, dated as of March 24, 1995, between RSx Holdings, Inc. and Paul
Turner.
10.10 Amended and Restated Employment Agreement, dated , 1996, between RockShox,
Inc. and Paul Turner.*
10.11 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and
Stephen Simons.
10.12 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and Debra
W. Simons.
10.13 Noncompetition Agreement, dated March 24, 1995, between RSx Holdings, Inc. and Paul
Turner.
10.14 Consultant Agreement, dated as of January 1, 1994, by and between Simons & Susslin,
Inc. and Stephen Simons.
10.15 Form of Lease, dated as of May 1, 1994, between Charcot Center Joint Venture and
RockShox, Inc.
10.16 Form of First Amendment to Lease, dated as of August 15, 1994, between Charcot Center
Joint Venture and RockShox, Inc.
10.17 Lease, dated as of October 1, 1995, between Whitecliffe I Apartments, Ltd. and
RockShox, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
- ----------- -----------------
<C> <S> <C>
11 Statement regarding computation of net income (loss) per share.*
21 List of Subsidiaries of RockShox, Inc.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included as part of the opinion
submitted as Exhibit 5). *
24 Power of attorney (see signature page included in Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
AMONG
DEBRA SIMONS, STEVE SIMONS, PAUL TURNER
RSx HOLDINGS, INC.,
A DELAWARE CORPORATION
AND
RSx ACQUISITION, INC.,
A DELAWARE CORPORATION
DATED MARCH 24, 1995
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is entered into on March
24, 1995, by and among each of Steve Simons, Debra Simons and Paul Turner
(the "Shareholders"), RSx Holdings, Inc., a Delaware corporation
("Holdings"), and RSx Acquisition, Inc., a Delaware corporation ("Company").
WHEREAS, the parties intend that, pursuant to the terms and subject
to the conditions set forth below, Company shall acquire approximately 78.81%
of the issued and outstanding shares of Rockshox Common Stock in exchange for
$37,050,000 in cash and the Balance Sheet Amount in cash and Holdings shall
acquire approximately 21.19% of the issued and outstanding shares of Rockshox
Common Stock in exchange for the Notes, the Preferred Stock and the Holdings
Common Stock.
NOW, THEREFORE, in reliance on the foregoing recital and in and for
the consideration and mutual covenants set forth in this Agreement, the
parties agree as follows:
SECTION 1. DEFINITIONS
The following terms when used in this Agreement have the meanings set
forth below:
1.1 "ACQUISITION" means the acquisition of the Shares pursuant to
the transactions contemplated by this Agreement.
1.2 "ACQUISITION PROPOSAL" means any proposal or offer from any
corporation, partnership, person or other entity or group (other than
Holdings or Company) regarding any acquisition of any of the capital stock or
all or substantially all of the assets of Rockshox, or any merger or
consolidation with or involving Rockshox, other than as contemplated by
Section 12.1(f).
1.3 "AFFILIATE" has the meaning set forth in Section 501(b) of
the rules and regulations promulgated by the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended.
1.4 "AGREEMENTS NOT TO COMPETE" mean the several Agreements Not
to Compete between each of the Shareholders and Holdings in the form of
EXHIBIT A.
1.5 "BALANCE SHEET AMOUNT" means cash in an amount equal to the
aggregate amount of cash, not to exceed $2,000,000, in Rockshox's bank
account on the date of Closing net of checks written but not cleared. The
amount in Rockshox's bank account on the date of Closing shall be deemed to
include $800,000, which was advanced to Paul Turner and not repaid by him
prior to the Closing Date.
1.6 "BANK FINANCING" means the senior financing to be provided by
First National Bank of Chicago or such other lender satisfactory to all the
parties in an amount not less than, and on commercially reasonable terms not
less favorable in the aggregate than, the amount and the terms set forth on
EXHIBIT B attached hereto.
1.7 "CLOSING" and "CLOSING DATE" have the respective meanings set
forth in Section 2.3.
2
<PAGE>
1.8 "CODE" means the Internal Revenue Code of 1986, as amended.
1.9 "CONSIDERATION" means $37,050,000 in cash except as provided in
Section 2.2, the Balance Sheet Amount, the Notes, the Preferred Stock and
the Holdings Common Stock.
1.10 "CONTINUING SHAREHOLDERS" mean Steve Simons and Paul Turner.
1.11 "CONTRACTS" mean contracts or agreements which shall include,
but shall not be limited to, all oral and written contracts, agreements,
agency agreements, loan agreements, mortgages, indentures, deeds of trust,
guarantees, commitments, joint venture agreements, purchase and/or sale
agreements, collective bargaining, union, consulting and/or employment
contracts, leases of real or personal property, easements, distribution or
dealer agreements, service agreements, license agreements and advertising
agreements.
1.12 "CURRENT AUDIT" means "Rockshox's balance sheet and statements
of income, changes in shareholders' equity and cash flow, at and for the
year ending December 31, 1994, audited and reported upon by Coopers &
Lybrand, independent certified public accountants.
1.13 "DISCLOSURE SCHEDULE" means EXHIBIT C hereto.
1.14 "EMPLOYMENT AGREEMENTS" mean Employment Agreements between
Holdings and each of the Continuing Shareholders, substantially in the form
of EXHIBITS D-1 AND D-2, respectively.
1.15 "ENCUMBRANCES" mean, with respect to an item, claims,
liabilities, liens, security interests, pledges, mortgages, restrictions,
options, charges and encumbrances of any kind, whether accrued, absolute,
contingent or otherwise, affecting that item.
1.16 "ENVIRONMENTAL REQUIREMENTS" means federal, state and local
laws relating to pollution or protection of the environment, including laws
or provisions relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, or hazardous or toxic materials,
substances, or wastes into air, surface water, groundwater, or land, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants or hazardous or toxic materials, substances, or wastes.
1.17 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.18 "GAAP" means generally accepted accounting principles,
consistently applied.
1.19 "GOVERNMENTAL ENTITY" means any court, administrative agency or
commission or other governmental authority or agency, domestic or foreign.
1.20 "HOLDINGS COMMON STOCK" means 50% of the issued and outstanding
common stock of Holdings, par value $.01 per share, as of the Closing Date.
1.21 "INDEMNIFIED PARTY" and "INDEMNIFYING PARTY" have the
respective meanings set forth in Section 14.5.
1.22 "NOTES" means the $6,00,000 aggregate principal amount of
Junior Subordinated Notes issued by Holdings in a form attached hereto as
EXHIBIT E.
3
<PAGE>
1.23 "NOTICE OF CLAIM AND "NOTICE OF POSSIBLE CLAIM" have the
respective meanings set forth in Section 14.5.
1.24 "OPERATIONS" means the receiving, assembly, shipping, marketing
and administrative operations which have occurred or are occurring on
Rockshox's premises since June 1990, but do not include the operations of
contractors and suppliers off Rockshox's premises and do not include
Rockshox's status solely as a tenant of any of its premises which status
might result in liabilities to Rockshox in respect of Environmental
Requirements.
1.25 "PREFERRED STOCK" means the Series B Preferred Stock issued by
Holdings as described in the Amended and Restated Certificate of
Incorporation attached hereto as EXHIBIT F.
1.26 "PROPRIETARY RIGHTS" has the meaning set forth in Section 3.9.
1.27 "ROCKSHOX" means Rockshox, Inc., a California corporation, and
shall be deemed to include each of its subsidiaries and solely for purposes
of Section 3.7 and Section 14.8, any predecessor of Rockshox or any person
or entity from which Rockshox incurs a liability for Taxes as a result of
transferee liability.
1.28 "ROCKSHOX AUDITED FINANCIALS" means Rockshox's balance sheets
as of December 31, 1993 and December 31, 1994, and its statements of income,
changes in shareholders' equity and cash flows for the respective fiscal
years then ended, audited and reported upon by Coopers & Lybrand,
independent certified public accountants.
1.29 "ROCKSHOX COMMON STOCK" means the common stock, without par
value, of Rockshox.
1.30 "SENIOR NOTES" means the $11,000,000 Senior Subordinated Notes
issued by Holdings in a form attached hereto as EXHIBIT G.
1.31 "SENIOR PREFERRED STOCK" means the Series A Preferred Stock
issued by Holdings as described in the Amended and Restated Certificate of
Incorporation attached as EXHIBIT F.
1.32 "SHAREHOLDERS' KNOWLEDGE" means the knowledge that the
Shareholders would have after inquiring of such persons currently employed
by Rockshox who would be reasonably expected to have knowledge regarding a
particular representation and warranty, whether or not the Shareholders
actually made inquiry of such persons.
1.33 "SHARES" has the meaning set forth in Section 3.2.
1.34 "STOCKHOLDERS AGREEMENT" means the stockholders agreement in a
form attached hereto as EXHIBIT H.
1.35 "TAXES" mean all net income, capital gains, gross income, gross
receipt, sales, use, transfer, ad valorem, franchise, tariffs, profits,
license, capital, withholding, payroll, employment, excise, goods and
services, severance, stamp, occupation, premium, property, windfall profits
or other tax or customs duties, or any interest, any penalties, additions to
4
<PAGE>
tax or additional amounts incurred or accrued under applicable tax law or
assessed or charged by any taxing authority (domestic or foreign). For
purposes of the definition of Taxes, any interest, penalties, additions to
tax or additional amounts that relate to Taxes for any period, or a portion
of any period, ended on or before the Closing Date shall include any
interest, penalties, additions to tax, or additional amounts relating to
Taxes for such periods, regardless of whether such items are incurred,
accrued, assessed or similarly charged on, before or after the Closing Date.
1.36 "TRANSACTION DOCUMENTS" mean this Agreement, the Agreements Not
to Compete, the Employment Agreements and the Stockholders Agreement.
SECTION 2. ACQUISITION.
2.1 TRANSFER OF ROCKSHOX COMMON STOCK. Upon the terms and subject to
the conditions of this Agreement the Shareholders shall transfer and (i)
Holdings shall acquire approximately 21.19% of the issued and outstanding
Rockshox Common Stock in exchange for the issuance of the Notes, the
Preferred Stock and the Holdings Common Stock and (ii) Company shall purchase
approximately 78.81% of the issued and outstanding Rockshox Common Stock in
exchange for $37,050,000 in cash except as provided in Section 2.2 and the
Balance Sheet Amount. Holdings and Company together shall acquire 100% of
the issued and outstanding stock of Rockshox.
2.2 PURCHASE PRICE. In consideration of the sale and contribution by
the Shareholders of Rockshox Common Stock, and in consideration of the
representations, warranties and covenants of the Shareholders set forth in
this Agreement
(a) Debra Simons and Steve Simons shall collectively receive
$11,265,000 and 30% of the Balance Sheet Amount from Company and shall
receive $1,800,000 in principal amount of the Notes and 1,200 shares of the
Preferred Stock from Holdings,
(b) Steve Simons shall individually receive $11,015,000 and 30% of
the Balance Sheet Amount from Company and shall receive $1,800,000 in
principal amount of the Notes, 1,200 shares of the Preferred Stock and 25,000
shares of the Holdings Common Stock from Holdings and
(c) Paul Turner shall receive $14,770,000 and 40% of the Balance
Sheet Amount from Company (which amount shall not be paid to Paul Turner but
shall satisfy his $800,000 loan from the Company) and shall receive
$2,400,000 inprincipal amount of the Notes, 1,600 shares of the Preferred
Stock and 25,000 shares of the Holdings Common Stock from Holdings.
All cash amounts and portions of the Balance Sheet Amount payable to
the Shareholders shall be delivered by means of wire transfer (as instructed
by each respective Shareholder) in the form of same day funds; provided,
however, that $250,000 of the amount due under clause (a) above shall be
payable upon the earlier of (i) 90 days after the Closing Date or (ii)
receipt by Rockshox of the refund of income taxes paid from the Internal
Revenue Service. The Shareholders consent to the allocation of Consideration
set forth in this Section 2.2 and release Holdings, Company and Rockshox
from any claims by them relating solely to the allocation of Consideration
among them.
2.3 THE CLOSING. Subject to termination of this
Agreement as provided in Section 13, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of Sidley & Austin, at 10:00 a.m. on March 24, 1995, or at such other
place, time and date as Holdings, Company and the Shareholders may mutually
select (the "Closing Date").
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SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING ROCKSHOX.
The Shareholders jointly and severally represent and warrant to
Holdings and Company as set forth below:
3.1 ORGANIZATION. Rockshox is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as now
conducted. Schedule 3.1 of the Disclosure Schedule lists each of the states
where Rockshox is qualified as a foreign corporation. The conduct of its
business and its ownership or use of property do not require Rockshox to be
qualified or licensed to do business as a foreign corporation in any state
except those listed in Schedule 3.1 of the Disclosure Schedule. True,
correct and complete copies of Rockshox's Articles of Incorporation, Bylaws
and certificates of authority for the states listed in Schedule 3.1 of the
Disclosure Schedule are attached to Schedule 3.1 of the Disclosure Schedule.
3.2 CAPITALIZATION. The authorized capital stock of Rockshox
consists of 10,000 shares of Rockshox Common Stock, of which only 1,000
shares are issued and outstanding as of the date of this Agreement (the
"Shares"). As of the date of this Agreement, the Shares are held by the
Shareholders and Christine Feeter. The Shares have been duly authorized and
are validly issued, fully paid and nonassessable. Rockshox has no treasury
stock and there are no outstanding rights, options, warrants, understandings,
commitments, conversion rights or other agreements for the purchase or
acquisition from Rockshox of any shares of its capital stock or securities
or options convertible into or exchangeable for any shares of such capital
stock. There are no preemptive rights to purchase or otherwise acquire any
securities of Rockshox pursuant to any provision of law or the Articles of
Incorporation or Bylaws of Rockshox; there are no rights to purchase or
otherwise acquire any securities of Rockshox by any agreement to which
Rockshox is a party or any existing voting or stock restriction agreement,
proxy or similar agreement to which Rockshox is a party; and there is no
agreement between Rockshox and any person or entity which results, or would
result, in any person or entity receiving economic benefits that are
substantially similar to owning shares of Rockshox Common Stock.
3.3 CONSENT/APPROVAL. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Rockshox in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement or to permit Rockshox to continue, in either
case without material change, its business activities as currently conducted
immediately after consummating the transfer of Shares contemplated by this
Agreement. Neither Rockshox nor any "Ultimate Parent Entity" (as defined in
16 C.F.R. Section 801.1(a) (1988)) of Rockshox immediately prior to the
transactions contemplated hereunder is a person that has total assets or
annual net sales of $100,000,000 or more within the meaning of 15 U.S.C.
Section 18a.
3.4 NO VIOLATION OF EXISTING AGREEMENTS. Except as set forth on
Schedule 3.4 of the Disclosure Schedule, the execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a benefit under:
(a) any provision of the Articles of Incorporation or Bylaws of
Rockshox;
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(b) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or
license to which Rockshox is a party or by which Rockshox or any of its
properties or assets is bound; or
(c) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Rockshox.
3.5 SUBSIDIARIES. Except as set forth in Schedule 3.5 of the
Disclosure Schedule, Rockshox does not have any subsidiaries or any equity
or ownership interest, direct or indirect, in any corporation, partnership,
limited liability company, joint venture, business trust or other entity,
whether or not incorporated.
3.6 FINANCIAL STATEMENTS. Rockshox has delivered to Holdings the
Rockshox Audited Financials. Except as set forth in Schedule 3.6 of the
Disclosure Schedule, the Rockshox Audited Financials are complete and
accurate and fairly present the financial position of Rockshox as of the
respective dates thereof, and such statements of income and retained earnings
and the notes thereto fairly present the results of operations for the
periods therein referred to, all in accordance with GAAP consistently
applied throughout the periods indicated (except as stated therein or in the
notes thereto).
3.7 TAX MATTERS. Except as set forth in Schedule 3.7 of the
Disclosure Schedule:
(a) Rockshox has timely filed true, correct and complete Tax
returns, reports or estimates, all prepared in accordance with applicable
laws, for all years and periods (and portions thereof) and for all
jurisdictions (whether federal, state, local or foreign) in which any such
returns, reports or estimates were due. All Taxes due and payable in respect
of such returns, reports and estimates have been paid, and there is no
current liability for any Taxes due in connection with any such returns.
Rockshox has delivered to Holdings copies of all federal, state and foreign
Tax returns filed by Rockshox for the six years ending December 31, 1994;
(b) Rockshox has never been a member of any consolidated, combined
or unitary group for federal, state, local or foreign Tax purposes;
(c) Rockshox is not a party to any joint venture, partnership or
other arrangement that could be treated as a partnership for federal income
Tax purposes;
(d) Rockshox has (i) withheld all required amounts from its
employees, agents and contractors and remitted such amounts to the proper
agencies; (ii) paid all employer contributions and premiums; and (iii) filed
all federal, state, local and foreign returns and reports with respect to
employee income Tax withholding, social security unemployment Taxes and
premiums, all in compliance with the withholding Tax provisions of the Code
and other applicable federal, state, local or foreign laws;
(e) the federal income Tax returns of Rockshox have been examined by
the Internal Revenue Service (the "IRS"), or have been closed by the
applicable statute of limitations, for all periods through 1990; the state
Tax returns of Rockshox have never been examined by the relevant agencies;
no deficiencies or reassessments for any Taxes have been assessed against
Rockshox, or to the Shareholders' Knowledge, been proposed or asserted
against Rockshox by any federal, state, local or foreign taxing authority;
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(f) Rockshox has not executed or filed with any taxing authority
(whether federal, state, local or foreign) any agreement or other document
extending or having the effect of extending the period for assessment,
reassessment or collection of any Taxes, and no power of attorney granted by
Rockshox with respect to any Taxes is currently in force;
(g) no federal, state, local or foreign Tax audits or other
administrative proceedings, discussions or court proceedings are presently
pending with regard to any Taxes or Tax returns of Rockshox;
(h) Rockshox has not entered into any agreement relating to Taxes
which affects any taxable year ending after the Closing Date. Rockshox has
not agreed to and it is not required to make any adjustment by reason of a
change in accounting methods that affects any taxable year ending after the
Closing Date. Neither the IRS nor any other agency has proposed any such
adjustment or change in accounting methods that affects any taxable year
ending after the Closing Date. Rockshox has no application pending with any
taxing authority requesting permission for any changes in accounting methods
that relate to its business or operations and that affects any taxable year
ending after the Closing Date;
(i) Rockshox is not and never has been a party to any Tax sharing
agreement or similar arrangement for the sharing of Tax liabilities or
benefits;
(j) none of the Shareholders is a foreign person within the meaning
of Code Section 1445;
(k) Rockshox has not consented to the application of Code Section
341(f);
(l) there is no contract, agreement, plan or arrangement covering
any employee or former employee of Rockshox that, individually or
collectively, could give rise to the payment by Rockshox of any amount that
would not be deductible by reason of Code Section 280G;
(m) no asset of Rockshox is tax-exempt use property under Code
Section 168(h);
(n) no portion of the cost of any asset of Rockshox has been
financed directly or indirectly from the proceeds of any tax-exempt state or
local government obligation described in Code Section 103(a);
(o) none of the assets of Rockshox is property that Rockshox is
required to treat as being owned by any other person pursuant to the safe
harbor lease provision of former Code Section 168(f)(8);
(p) Rockshox does not have and has not had a permanent establishment
in any foreign country and does not and has not engaged in a trade or
business in any foreign country; and
(q) neither the Code nor any other provision of law requires
Holdings or Company to withhold any portion of the Consideration.
3.8 TITLE.
(a) Rockshox has good and marketable title to all the properties,
interest in properties and assets, real and personal, reflected in the
balance sheet included in the Rockshox Unaudited
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Financials or acquired after the date of that balance sheet (except
properties, interests in properties and assets sold or otherwise disposed of
since the date of that balance sheet in the ordinary course of Rockshox's
business consistent with past practices), free and clear of all
Encumbrances, except liens for current taxes not yet due and payable and
liens imposed by law, such as materialmen's, mechanics', workers',
repairmen's, vendors', and warehousemen's liens, arising in the ordinary
course of business with respect to obligations that are not yet due and
payable. All real and personal property leases to which Rockshox is a party
are valid, binding and enforceable against or by Rockshox. Except as
disclosed on Schedule 3.8 of the Disclosure Schedule, there is not under the
lease for Rockshox's headquarters space in San Jose, California any existing
default or event of default or event that, with notice or lapse of time or
both, would constitute a default by Rockshox or, to the Shareholders'
Knowledge, by any other party to such lease. There is not under any other
leases to which Rockshox is a party any existing default or event of default
or event that, with notice or lapse of time or both, would constitute a
default by Rockshox or, to the Shareholders' Knowledge, by any other party
to such lease, which would individually exceed $50,000. True, correct and
complete copies of each Rockshox lease described in this Section 3.8 are
included in the Disclosure Schedule.
(b) To the Shareholders' Knowledge, except as shown on Schedule 3.8
of the Disclosure Schedule, and except with respect to Environmental
Requirements which are addressed exclusively in Section 3.15, each parcel of
real property, building, structure and improvement owned, leased or otherwise
utilized by Rockshox (collectively the "Premises") conforms in all material
respects to all applicable laws, including zoning regulations. To the
Shareholders' Knowledge, none of such applicable laws will, upon consummation
of the transactions contemplated by this Agreement, prohibit the use of such
properties, buildings, structures or improvements, for the purposes for
which they are now utilized.
(c) Rockshox does not currently have, and in the past has not had,
any interest (as owner, tenant or otherwise) in any real property, except as
disclosed on Schedule 3.8 of the Disclosure Schedule.
(d) Except as set forth on Schedule 3.8 of the Disclosure Schedule,
none of the personal property owned by Rockshox is subject to any contracts
of sale or lease, except contracts for the sale of inventory in the ordinary
course of business.
(e) Except as set forth on Schedule 3.8 of the Disclosure Schedule,
the inventory of Rockshox included in the Rockshox Audited Financials: (i)
is valued with respect to each category of inventory at the lower of cost
(using an average cost method) or market; (ii) does not include any damaged
or obsolete items, the value of which has not been written down, or with
respect to which reserves consistent with GAAP have not been established;
and (iii) does not include any items which are of a lower quality than
generally produced by Rockshox since June 1993, the value of which has not
been written down, or with respect to which reserves consistent with GAAP
have not been established.
3.9 PROPRIETARY RIGHTS. The Proprietary Rights List as set forth on
Schedule 3.9 of the Disclosure Schedule includes all patents, trademarks,
service marks and logos, trade names and copyrights registered with any
Governmental Entity ("Registered Rights"); licenses and sublicenses; and all
applications for intellectual property rights and registrations of
intellectual property rights with any federal, state, local, or foreign
regulatory, administrative, or governmental office or offices,
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in each case applicable to intellectual property which Rockshox owns or has
the right to use or to which Rockshox is a party or which Rockshox uses in
the operation of its business (the "Proprietary Rights"). All of the
Registered Rights are currently in full force and effect. No action, suit,
arbitration, or other proceeding or investigation is pending against Rockshox
for which Rockshox has been served, or, to Shareholders' Knowledge,
threatened against Rockshox or pending against Rockshox which has not been
served which involves any Proprietary Rights. None of the Proprietary Rights
is subject to any outstanding order, decree, judgment, stipulation, or
charge against Rockshox for which Rockshox has been served and, to
Shareholders' Knowledge, no order, judgment, stipulation or charge exists.
Except as disclosed in Schedule 3.9 of the Disclosure Schedule, there are no
royalty, commission, or similar arrangements between Rockshox and any third
party and no licenses, sublicenses, or agreements between Rockshox and any
third party relating to any of the Proprietary Rights. Except as set forth in
Schedule 3.9 of the Disclosure Schedule, Rockshox has not received any
notice of interference or infringement of or by the Proprietary Rights.
Except as set forth in Schedule 3.9 of the Disclosure Schedule, Rockshox has
not agreed to indemnify any person or entity for or against any infringement
of or by the Proprietary Rights. Except as set forth in Schedule 3.9 of the
Disclosure Schedule, to Shareholders' Knowledge, no other party is operating
a business or otherwise acting in violation or infringement of the
Proprietary Rights. Rockshox has good and marketable title to the Proprietary
Rights, free and clear of all Encumbrances. Schedule 3.9 of the Disclosure
Schedule describes the action Rockshox has taken to protect its intellectual
property rights, including, without limitation, the Proprietary Rights.
3.10 CONTRACTS.
(a) Except as disclosed in Schedule 3.10 of the Disclosure Schedule,
Rockshox is not a party to or subject to any Contract for borrowed money
(except trade accounts payable in the ordinary course of business) or any
other Contract:
(i) that calls for any fixed and/or contingent payment or
expenditure or any related series of fixed and/or contingent payments or
expenditures by Rockshox totaling more than $40,000 in any calendar year
or that has a term in excess of one year;
(ii) with agents, advisors, salesmen, sales representatives,
independent contractors or consultants that are not cancelable by it
(x) on no more than 30 days' notice and (y) without liability, penalty
or premium;
(iii) that restricts Rockshox from carrying on anywhere in
the world its business or any portion of its business as currently
conducted;
(iv) to make any investment in any other person or entity (in
the form of a loan, capital contribution or otherwise);
(v) with respect to obligations as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise in respect of
the obligation of any other person or entity;
(vi) for any line of credit, standby financing, revolving
credit or other similar financing arrangement of any sort that would
permit the borrowing by Rockshox of any sum;
(vii) purporting to appoint any person or entity as the
attorney-in-fact of Rockshox (whether revocable or irrevocable) for
any purpose whatsoever;
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(viii) in connection with which Rockshox would have any
interest in a joint venture or partnership; or
(ix) for the sale or lease of any real property.
(b) To the Shareholders' Knowledge, no party to any Contract to
which Rockshox is a party intends to cancel, withdraw, or terminate such
instrument.
(c) Rockshox is not in default under or in breach or violation of
or, to the Shareholders' Knowledge, alleged to be in default under or in
breach or violation of any Contract to which Rockshox is a party or by which
it or any of its properties or assets is bound and there exists no event,
condition or occurrence which, after notice or lapse of time, or both, would
constitute a default under any Contract, where any such default, breach, or
violation would result in a cost to Rockshox in excess of $50,000. To the
Shareholders' Knowledge, no other party is in default under, or in breach or
violation of, any Contract to which Rockshox is a party or by which any of
its properties or assets is bound, where any such default, breach, or
violation would result in a cost to Rockshox in excess of $50,000.
3.11 COMPLIANCE WITH LAW. Rockshox is in full compliance with all
laws, rules, or regulations applicable to its business and possesses all
regulatory consents, authorizations, approvals, licenses and permits
required by federal, state and local regulatory agencies in connection with
the conduct of all aspects of its business as presently conducted, except
where any individual lack of the same would not result in a cost to Rockshox
in excess of $50,000. Rockshox has not received any (i) notification of any
asserted present or past failure by Rockshox to comply with such laws, rules
or regulations which has not been resolved with the agency sending such
notice, or (ii) written complaint, inquiry or request for information from
any Governmental Entity relating thereto.
3.12 CERTAIN TRANSACTIONS. Except as set forth in Schedule 3.12 of
the Disclosure Schedule, none of the Shareholders has any direct or indirect
interest in (i) any equipment or other property or asset, real or personal,
tangible or intangible, including, without limitation, any of the
Proprietary Rights, used in connection with the business of Rockshox, (ii)
any creditor, supplier, customer, manufacturer, agent, representative, or
distributor of any of the Rockshox products or (iii) any entity that
competes with Rockshox, or with which Rockshox is affiliated or has a
business relationship, PROVIDED, HOWEVER, that none of the Shareholders nor
any other person shall be deemed to have such an interest solely by virtue of
the ownership of less than 5% of the outstanding stock or debt securities of
any publicly held company, the stock or debt securities of which are traded
on a recognized stock exchange or quoted on NASDAQ. Set forth on Schedule
3.12 of the Disclosure Schedule is a list of all distributions, payments or
advances made to any of the Shareholders or any Affiliate of a Shareholder
since January 1, 1992, except for payments of base compensation and related
employee benefits, and employee advances related to business expenses
incurred in the ordinary course of business.
3.13 LITIGATION. Except as set forth on Schedule 3.13 of the
Disclosure Schedule, there is no suit, action, proceeding, claim or
investigation pending against Rockshox or affecting any of its properties,
assets or operations before any court or administrative agency with respect
to which Rockshox has been served, and, to Shareholders' Knowledge, no such
action, proceeding, claim or investigation has been threatened or is pending
other than with respect to which Rockshox has been served. Schedule 3.13 also
includes accurate reports of all matters referred to Rockshox's insurance
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carriers since January 1, 1991. There is no judgment, decree, injunction,
rule or order of any Governmental Entity outstanding against Rockshox for
which Rockshox has been served and, to Shareholders' Knowledge, no judgment,
decree, injunction, rule or order exists.
3.14 CORPORATE MINUTES, ETC. Rockshox has delivered to counsel for
Holdings and Company true and correct copies of (i) its minute book
containing records of all proceedings, consents, actions, and meetings of
its shareholders and Board of Directors, (ii) all permits, orders, and
consents issued by any Governmental Entity with respect to Rockshox, or any
securities of Rockshox, and all applications for such permits, orders, and
consents, and (iii) the stock certificate and transfer books and the stock
register of Rockshox setting forth all issuances and transfers of any capital
stock of Rockshox. Such corporate minute books, stock certificate books,
stock registers and other corporate records of Rockshox provided to counsel
for Holdings are complete and accurate, and the signatures appearing on all
documents contained therein are the true signatures of the persons
purporting to have signed the same.
3.15 ENVIRONMENTAL. Rockshox has obtained and is in compliance with
all permits, licenses and other authorizations required for Operations by
Environmental Requirements. There are no conditions, circumstances,
activities, practices, incidents, or actions (collectively, "Conditions")
resulting from Operations which Conditions may reasonably form the basis of
any claim or suit against Rockshox based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling by Rockshox, or the emission, discharge, release or threatened
release by Rockshox into the environment, of any pollutant, contaminant, or
hazardous or toxic materials, substances or wastes which individual claim or
suit would result in a cost to Rockshox of an amount in excess of $50,000. To
the Shareholder's Knowledge, there are no Conditions on Rockshox's premises
which are unrelated to Operations which may reasonably form the basis of any
claim or suit against Rockshox based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling by Rockshox, or the emission, discharge, release or threatened
release by Rockshox into the environment, of any pollutant, contaminant, or
hazardous or toxic materials, substances or wastes which individual claim or
suit would result in a cost to Rockshox of an amount in excess of $50,000.
3.16 NO BROKERS. Except for Robertson Stephens & Company, Rockshox
is not obligated for the payment of fees or expenses of any broker or finder
in connection with the origination, negotiation or execution of this
Agreement or in connection with any transaction contemplated by this
Agreement.
3.17 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.17 of the Disclosure Schedule lists each health
insurance and group term life insurance policy to which Rockshox is a party.
True and complete copies of these policies have been provided to Holdings
and Company. Except for health insurance and group term life coverage,
Rockshox is not a party to, does not participate in and is not obligated to
contribute to any "employee welfare benefit plan" as such term is defined in
Section 3(1) of ERISA. Rockshox has no obligation to provide retiree health
benefits to any current or former employees. Except as provided on Section
3.17 of the Disclosure Schedule, Rockshox is not a party to, does not
participate in and is not obligated to contribute to any "employee pension
benefit plan," as such term is defined in Section 3(2) of ERISA, including,
without limitation, any pension, profit-sharing or stock bonus plan. In
addition, Rockshox is not a party to, does not participate in and is not
obligated to
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contribute to any other deferred compensation, cafeteria, severance pay,
stock option or other stock-related employee benefit plan.
(b) Rockshox is not a party to, and none of its operations is or has
ever been covered by, any "multi-employer plan" as such term is defined in
Section 3(37) or Section 4001(a)(3) of ERISA.
(c) The profit-sharing plan disclosed on Schedule 3.17 of the
Disclosure Schedule and the health insurance and group term life insurance
policies disclosed on Schedule 3.17 of the Disclosure Schedule, are operated
in accordance with all applicable statutes and regulations, including,
without limitation, ERISA and the Code.
(d) No plan fiduciary of any "employee welfare benefit plan" or
"employee pension benefit plan" in which Rockshox participates or has ever
participated has engaged in (i) any transaction in violation of Section
406(a) or (b) of ERISA, or (ii) any "prohibited transaction" (within the
meaning of Section 4975(c)(1) of the Code) for which no exemption exists
under Section 408 of ERISA or Section 4975(d) of the Code.
3.18 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 3.18 of the Disclosure Schedule, since December 31, 1994, Rockshox
has conducted its business in the ordinary and usual course consistent with
past practice and, without limiting the generality of the foregoing, has not:
(a) suffered any material adverse change;
(b) suffered any damage or destruction to any tangible personal
property of Rockshox, whether or not covered by insurance;
(c) granted any increase in the compensation payable or to become
payable by Rockshox to its non-shareholder employees except those occurring
in the ordinary course of business consistent with past practices; or
granted any increase in the compensation payable or to become payable by
Rockshox to its shareholder-employees not permitted by clause (d) below;
(d) paid total compensation to Paul Turner or Steve Simons at an
annualized rate in excess of $250,000 per year or paid total compensation to
Debra Simons at an annualized rate in excess of $100,000 per year;
(e) made any distribution or payment (other than as set forth in (d)
above) to any shareholder of Rockshox in excess of the amount required to
repay all amounts then due to such shareholder under any promissory notes
executed by Rockshox as reflected on the Current Audit;
(f) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of its capital stock or declared
any direct or indirect redemption, retirement, purchase or other acquisition
of such shares;
(g) issued any shares of, any warrants, rights or options for, or
entered into any other commitment relating to, its capital stock;
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(h) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other property other than in the
ordinary course of its business consistent with past practices;
(i) sold, assigned, transferred, or otherwise disposed of any
patent, trademark, tradename, copyright (or pending application for any
patent, trademark or copyright), invention, process, know-how, formula or
trade secret or interest therein or other intangible asset other than in the
ordinary course of its business consistent with past practices;
(j) permitted or allowed any of its property or assets to be
subjected to any Encumbrance, except liens of current taxes not yet due and
payable and liens imposed by law, such as materialmen's, mechanics',
workers', repairmen's, vendors' and warehousemen's liens;
(k) loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or arrangement
with, any of its officers, directors or shareholders other than travel
advances and other similar advance payments in the ordinary course of its
business consistent with past practices;
(l) borrowed any money, except for trade debt in the ordinary course
of business;
(m) entered into or been a party to any stock appreciation rights
plan, phantom stock plan or other agreement providing for payment to any
person in connection with the profitability of Rockshox; or
(n) agreed to take any action described in this Section 3.18 or
taken any action that would constitute a breach of any of the
representations or warranties of the Shareholders set forth in Section 3 of
this Agreement.
3.19 NO UNDISCLOSED LIABILITIES, CLAIMS, ETC. Except as set forth in
Schedule 3.19 of the Disclosure Schedule, and except for (a) liabilities
fully reflected or reserved against in the Rockshox Audited Financials; (b)
indebtedness, liabilities and obligations incurred in the ordinary course of
business consistent with past practices after December 31, 1994, and (c)
obligations identified on the Disclosure Schedule, Rockshox is not legally
obligated with respect to any indebtedness, liability or obligation (whether
fixed or contingent). This Section 3.19 is not intended to apply to any items
referenced in Section 14.2 or to product liability claims for property
damage or personal injury occurring prior to the Closing and not within the
Shareholders' Knowledge.
3.20 GOVERNMENT CONTRACTS. No Contract or other aspect of the
business of Rockshox is subject to the Armed Services Procurement
Regulations. Rockshox has not bid on or been awarded any "small business set
aside contract," any other "set aside contract" (both as defined in the Armed
Services Procurement Regulations) or other order or contract requiring small
business or other special status at any time during the last three (3) years.
None of Rockshox's expected sales or orders will be lost, and Rockshox's
customer relations will not be damaged, as a result of Rockshox's continuing
the operations of an entity that does not qualify as a small business (as
defined in the Armed Services Procurement Regulations).
3.21 WARRANTIES. Schedule 3.21 of the Disclosure Schedule includes a
copy of the form of all written warranties furnished by Rockshox to original
equipment manufacturers, dealers, or
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consumers of any product of Rockshox since January 1, 1993. The records of
Rockshox as to warranty claims are complete and accurate.
3.22 LABOR RELATIONS. There have been no strikes, work stoppages or
any demands for collective bargaining by any union or labor organization
since January 1, 1994; there is no collective bargaining relationship
between Rockshox and any union; no notice has been received by Rockshox that
there is any dispute or controversy with any union or other organization of
Rockshox's employees and there are no arbitration proceedings pending or, to
the Shareholders' Knowledge, threatened, involving a dispute or controversy.
Except where any single noncompliance would not result in a cost to Rockshox
of more than $50,000, Rockshox is in full compliance with all laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours including, without limitation, the Fair Labor
Standards Act, the Family and Medical Leave Act of 1993, the Americans with
Disabilities Act of 1990, the Veterans Reemployment Rights Act, the Equal
Employment Opportunities Act, as amended by the Civil Rights Act of 1991,
the Occupational Safety and Health Act, the Immigration Reform and Control
Act of 1986, the Age Discrimination in Employment Act, Title VII of the
Civil Rights Act of 1964, the Older Workers Benefit Protection Act, and all
other laws, each as amended to date, relating to employer/employee rights and
obligations.
3.23 INSURANCE. Schedule 3.23 of the Disclosure Schedule lists and
includes copies of all certificates of coverage regarding all of Rockshox's
existing insurance policies, the premiums therefor and the coverage of each
policy. The products liability and personal injury insurance maintained by
Rockshox has been on an occurrence basis since November 20, 1993.
3.24 DEALINGS WITH AFFILIATES. Schedule 3.24 of the Disclosure
Schedule sets forth a complete list (including the parties) of all Contracts
between Rockshox and any shareholder or director of Rockshox or their
Affiliates since January 1, 1993. All Contracts described in this Section
and not on the Disclosure Schedule shall be terminated as of the Closing.
3.25 BANK ACCOUNTS. Schedule 3.25 of the Disclosure Schedule
contains a list of all bank accounts, lock boxes, post office boxes and safe
deposit boxes maintained in the name of or controlled by Rockshox and the
names of the persons having access thereto.
3.26 COMPENSATION. Schedule 3.26 of the Disclosure Schedule lists
the current job title and total remuneration (including, without limitation,
salary, commissions and bonuses) for each Shareholder and for each officer,
director, employee or consultant of Rockshox who received total remuneration
in excess of $50,000 from Rockshox during any of the past three fiscal years
or who is expected to receive total remuneration in excess of such amount
during the current fiscal year.
3.27 OTHER EVENTS. To the Shareholders' actual knowledge, since
January 1, 1994, except as disclosed on Schedule 3.27 of the Disclosure
Schedule or otherwise on the Disclosure Schedule, there has not been any (i)
event which is reasonably likely to have a material adverse effect on the
business and operations of Rockshox in particular and not on the bicycle
suspension fork industry generally or (ii) legislation relating to Rockshox
or the bicycle industry generally pending or threatened in any state, country
or other Governmental Entity which is reasonably likely to have a material
adverse effect on the business and operations of Rockshox.
3.28 ABSENCE OF CERTAIN BUSINESS PRACTICES. No Shareholder nor any
person or entity acting on direction of a Shareholder or, to the
Shareholders' Knowledge, any employee of Rockshox
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has received, directly or indirectly any rebates, payments, commissions,
promotional allowances or any other economic benefit, regardless of its
nature and type, from any person with whom Rockshox has done business
directly or indirectly in a manner which would subject Rockshox to damage or
penalty for violations of law. No Shareholder nor any person or entity acting
on direction of a Shareholder or, to the Shareholders' Knowledge, any
employee of Rockshox has given or agreed to give, directly or indirectly, any
gift or similar benefit to any person in a manner which would subject
Rockshox to damage or penalty for violations of law.
3.29 DISCLOSURE. No representation or warranty made by the
Shareholders in this Agreement or in any of the Transaction Documents in
connection with any of the transactions contemplated by this Agreement
contains any untrue statement of material fact or omits to state a material
fact necessary in order to make the statements herein or therein not
misleading in light of the circumstances in which they are made.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.
The Shareholders, jointly and severally represent and warrant to
Holdings and Company that:
4.1 POWER, AUTHORIZATION AND VALIDITY.
(a) The Shareholders have the full right, power, legal capacity and
authority to enter into and perform their obligations under this Agreement.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any
other consent, approval or authorization from any other third party on the
part of the Shareholders is required in connection with the Shareholders'
execution or delivery of this Agreement or the consummation by the
Shareholders of the transactions contemplated by this Agreement.
(c) This Agreement constitutes a valid and binding obligation of the
Shareholders enforceable in accordance with its terms.
4.2 TITLE TO SECURITIES. The Shareholders own of record and
beneficially the number of shares of Rockshox Common Stock set forth opposite
their respective names on Schedule 4.2 of the Disclosure Schedule. The
Shareholders own all right, title and interest in and to the shares set
forth opposite their respective names on Schedule 4.2 of the Disclosure
Schedule free and clear of all Encumbrances other than restrictions on
transfer arising out of federal and state securities laws.
4.3 ABSENCE OF VIOLATIONS OR CONFLICTS. The execution and delivery
by the Shareholders of this Agreement and the consummation by the
Shareholders of the transactions contemplated by this Agreement do not and
will not with the passing of time or giving of notice or both (i) constitute
a violation of, be in conflict with, constitute a default or require any
payment under, or result in the creation or imposition of any lien upon any
properties or assets of Rockshox, under (x) any contract, agreement,
commitment, undertaking or understanding (including rights of refusal or
similar rights or other transfer restrictions) to which a Shareholder is a
party or to which a Shareholder or a Shareholder's properties or assets are
subject, bound or affected, (y) any judgment, decree or order of any
Governmental Entity to or by which a Shareholder or a Shareholder's
properties or assets are subject, bound or affected, or (z) any applicable
law; or (ii) create, or cause the acceleration of the
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maturity of, any debt, obligation or liability of a Shareholder that would
result in any lien or other claim upon the properties or assets of Rockshox.
4.4 LITIGATION. There is no action, proceeding, claim or
investigation pending with respect to which a Shareholder has been served
or, to the Shareholders' Knowledge, threatened against a Shareholder or
pending but with respect to which a Shareholder has not been served, relating
to a Shareholder's ownership of Rockshox Common Stock.
4.5 NO BROKERS. No Shareholder is obligated for the payment of fees
or expenses of any broker or finder in connection with the origination,
negotiation or execution of this Agreement or in connection with any
transaction contemplated by this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND COMPANY.
Holdings and Company represent and warrant to the Shareholders that:
5.1 POWER, AUTHORIZATION AND VALIDITY.
(a) Holdings and Company have the right, power, legal capacity and
authority to execute and deliver, and to consummate the transactions
contemplated by, the Transaction Documents, the Notes and the Preferred Stock
and to perform their obligations under each of them. The execution and
delivery of, and the consummation of the transactions contemplated by, each
of the Transaction Documents, the Notes and the Preferred Stock has been
duly and validly approved and authorized by Holdings or Company, respectively.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Holdings or Company in connection with the
execution and delivery of, and the consummation by them of the transactions
contemplated by, any of the Transaction Documents, the Notes and the
Preferred Stock. Neither Holdings, Company nor any "Ultimate Parent Entity"
(as defined in 16 C.F.R. Section 801.1(a) (1988)) of Holdings or Company
immediately prior to the transactions contemplated hereunder is a person
that has total assets or annual net sales of $100,000,000 or more within the
meaning of 15 U.S.C. Section 18a.
(c) Each of the Transaction Documents, the Notes and the Preferred
Stock has been, or upon its execution and delivery or issuance by Holdings
or Company will have been, duly executed and delivered by them and
constitutes or will constitute upon their execution and delivery or issuance,
a valid and binding obligation of Holdings or Company, enforceable in
accordance with its terms.
5.2 CAPITALIZATION. The authorized capital stock of Company consists
of 10,000 shares of common stock, 1,000 of which are issued and outstanding.
All such issued and outstanding shares have been duly authorized, are
validly issued, fully paid and nonassessable. The authorized capital stock
of Holdings consists of (i) 100,000 shares of common stock, 100 shares of
which are issued and outstanding as of the date of this Agreement; and (ii)
5,132 shares of Senior Preferred Stock and 4,000 shares of Preferred Stock,
none of which are outstanding. All such issued and outstanding shares have
been duly authorized, are validly issued, fully paid and nonassessable.
5.3 NO VIOLATION OF EXISTING AGREEMENTS. Neither the execution and
delivery of the Transaction Documents, the Notes and the Preferred Stock nor
the consummation of the transactions contemplated thereby will conflict
with, or result in a breach or violation of, any provision of any
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instrument or contract to which Holdings or Company is a party or by which
any such party is bound, or any federal, state or local judgment, writ,
decree, order, statute, rule or regulation applicable to Holdings or Company.
5.4 NO BROKERS. Except as disclosed on EXHIBIT I, neither Holdings
nor Company is obligated for the payment of fees or expenses of any broker
or finder in connection with the origination, negotiation or execution of
this Agreement or in connection with any transaction contemplated by this
Agreement.
5.5 LIMITATION OF WARRANTIES. In making their decision to enter
into this Agreement and the other Transaction Documents, and to issue the
Notes and the Preferred Stock and to consummate the transactions
contemplated thereby, neither Holdings nor Company have relied upon any
representation, warranty, statement, advice, document, projection or other
information of any type provided by Rockshox or the Shareholders or its or
their directors, officers, employees or agents (whether during Holdings' or
Company's due diligence or otherwise) other than the representations,
warranties, covenants and other agreements of the Shareholders expressly set
forth in this Agreement (including schedules relating thereto) and in Article
5 of the Stockholders Agreement. Holdings and Company acknowledge and agree
that, except for the representations, warranties, covenants and other
agreements of the Shareholders expressly set forth in this Agreement
(including the schedules relating thereto) and in Article 5 of the
Stockholders Agreement, neither Rockshox, the Shareholders nor any of its or
their directors, officers, employees or agents has made, or is making any
representation or warranty, written or oral, to Holdings or Company
concerning Rockshox or the Shareholders or its or their business, financial
statements, financial condition or prospects or any other matter whatsoever.
Notwithstanding this Section 5.5, no disclaimer of reliance in this
Agreement shall be construed to be a waiver by Holdings or Company of (i)
common law fraud on the part of any Shareholder or (ii) the right to assert
a claim for common law fraud.
5.6 INVESTMENT REPRESENTATIONS.
(a) Holdings and Company are acquiring the Rockshox Common Stock for
investment, for their own account and not with a view to or for sale in
connection with any distribution thereof or with any intention of disposing
of the same or any interest therein.
(b) Holdings' and Company's purchase of the Rockshox Common Stock
has not been accompanied by the publication of any advertisement, or any
form of general solicitation.
(c) Holdings and Company understand that the Rockshox Common Stock
must be held INDEFINITELY unless subsequently registered under the
Securities Act of 1933 (the "Act") and qualified under applicable state
securities laws or unless an exemption from such registration and
qualification is applicable to any subsequent transfer. Holdings and Company
hereby agree that the Rockshox Common Stock will not be sold without
registration under the Act and qualification under applicable state
securities laws or exemption therefrom.
(d) The sole director of each of Holdings and Company (i) has had
substantial investment experience; and (ii) has such knowledge and
experience in financial and business matters that he is capable of
undertaking the risks inherent in the proposed acquisition of the Rockshox
Common Stock.
5.7 LOCATION. The principal office of Holdings is located in the
State of New York.
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SECTION 6. COVENANTS REGARDING ROCKSHOX.
The Shareholders jointly and severally covenant to and agree with
Holdings and Company as follows:
6.1 CONDUCT OF BUSINESS. During the period on and from the date of
this Agreement to the Closing, Rockshox will operate its business in a manner
substantially similar to the way it has been operated since January 1, 1993.
Rockshox will not without the prior written consent of Holdings:
(a) borrow any money, other than trade debt in the ordinary course
of business consistent with past practice;
(b) incur any liability other than in the ordinary course of its
business consistent with past practices or in connection with the
performance or consummation of this Agreement;
(c) encumber or permit to be encumbered any of its assets, except
for liens of current taxes not yet due and payable and liens imposed by law,
such as materialmen's, mechanics', workers', repairmen's, vendors' and
warehousemen's liens;
(d) dispose of any of its properties or assets, except inventory in
the ordinary course of its business consistent with past practices or
equipment that is obsolete or fails to function properly;
(e) enter into any lease or contract for the purchase of any
property, real or personal, except in the ordinary course of its business
consistent with past practices;
(f) fail to maintain its equipment and other assets according to the
standards it has maintained up to the date of this Agreement, subject only
to ordinary wear and tear;
(g) pay any bonus, increased salary, or special remuneration to any
director, officer or employee, including any amounts for accrued but unpaid
salary or bonuses (other than amounts paid to non-shareholder employees not
in excess of normal payments made on a regular basis or amounts paid to
shareholder employees in respect of loans made by them to Rockshox as
reflected on the Current Audit);
(h) pay total compensation to Paul Turner or Steve Simons at an
annualized rate in excess of $250,000 per year or to Debra Simons at an
annualized rate in excess of $100,000 per year;
(i) change accounting methods;
(j) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, profits or otherwise, or redeem or
otherwise acquire any of its capital stock;
(k) amend or terminate any Contract listed in Schedule 3.10 of the
Disclosure Schedule or permit to lapse or expire any insurance policy;
(l) loan any money to any person or entity, except for trade credit
or employee advances in the ordinary course of business consistent with past
practices, or enter into any obligation as a guarantor or surety for any
obligation;
(m) waive or release any right or claim, in excess of $50,000;
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(n) issue or sell any shares of its capital stock of any class or
any other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments to issue
shares of capital stock or enter into any agreement which results in, or
would result in, any person or entity receiving economic benefits that are
substantially similar to owning shares of Rockshox Common Stock;
(o) split or combine the outstanding shares of any class or series
of its capital stock or enter into any recapitalization affecting the number
of outstanding shares of any class or series of its capital stock or
affecting any other of its securities;
(p) merge, consolidate or reorganize with any entity;
(q) amend its Articles of Incorporation or Bylaws; or
(r) agree to do any of the things described in the preceding clauses
of this Section 6.1.
6.2 ACCESS TO INFORMATION. Until the Closing, Rockshox will allow
Holdings and Company and their agents free access upon reasonable notice and
during normal working hours to its files, books, records, and officers,
including, without limitation, any and all information relating to Taxes,
commitments, Contracts, Proprietary Rights, personal property and financial
condition. Until the Closing, Rockshox shall cause its accountants to
cooperate with Holdings and Company and their agents in making available all
financial information reasonably requested, including, without limitation,
the right to examine all working papers pertaining to Rockshox in the
possession, custody or control of such accountants.
6.3 REGULATORY APPROVALS. Prior to the Closing, Rockshox will
execute and file, or join in the execution and filing of, any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any Governmental Entity that may be reasonably
required, or that Holdings and Company may reasonably request, in connection
with the consummation of the transactions contemplated by the Transaction
Documents. Rockshox will use its best efforts to obtain or, as applicable,
to assist Holdings and Company in obtaining all such authorizations,
approvals and consents.
6.4 SATISFACTION OF CONDITIONS PRECEDENT. Rockshox will use its
best efforts to satisfy or cause to be satisfied all the conditions precedent
that are set forth in Sections 12.1 and 12.3, and Rockshox will use its best
efforts to cause the transactions contemplated by the Transaction Documents
to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all
filings with, and give all notices to third parties which may be necessary
or reasonably required on its part in order to effect the transactions
contemplated by this Agreement.
SECTION 7. COVENANTS OF SHAREHOLDERS.
The Shareholders jointly and severally covenant to and agree with
Holdings and Company as follows:
7.1 REGULATORY APPROVALS. Prior to the Closing, the Shareholders
will execute and file, or join in the execution and filing of, any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any Governmental Entity that may be
reasonably
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required, or that Holdings and Company may reasonably request, in connection
with the consummation of the transfer of the Shares. The Shareholders will
use their best efforts to obtain or, as applicable, to assist in obtaining
all such authorizations, approvals and consents.
7.2 SATISFACTION OF CONDITIONS PRECEDENT. The Shareholders will use
their best efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Sections 12.1 and 12.3, and will use their
best efforts to cause the transactions contemplated by the Transaction
Documents to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties which may be
necessary or reasonably required on their part in order to effect the
transactions contemplated by this Agreement.
7.3 DISPOSITION OF SECURITIES; SOLICITATION; VOTING; ETC. From and
after the date of this Agreement until the Closing, and unless this
Agreement is terminated in accordance with Section 13, the Shareholders shall
not:
(a) transfer, sell or assign to any person or entity, or agree in
any manner to transfer, sell or assign to any person or entity, or pledge,
encumber, deposit in a voting trust or grant a proxy with respect to, any
Shares currently or hereafter owned or controlled by the Shareholders
without the prior written consent of Holdings;
(b) solicit or enter into any agreement or arrangement with any
person or entity with respect to any transfer, sale or assignment of any
Rockshox Common Stock, except transfers, sales or assignments specifically
contemplated by this Agreement; and
(c) vote the Shares currently or hereafter owned or controlled by
the Shareholders in favor of any merger, consolidation, sale of assets,
reorganization, recapitalization, liquidation or winding up of Rockshox in
any case, at any meeting of shareholders of Rockshox called therefor or at
any adjournment or postponement of such meeting reconvened after adjournment
or postponement (or in connection with any written consent in lieu of a
meeting relating to any such transaction).
7.4 OTHER NEGOTIATIONS. Between the date of this Agreement and the
Closing Date (or the earlier termination of this Agreement pursuant to
Section 13), no Shareholder will, directly or indirectly, through any agent
or otherwise, take any action to solicit, initiate, seek, encourage or
support any inquiry, proposal or offer from, furnish any information to, or
participate in any negotiations with, any corporation, partnership, person
or other entity or group other than Holdings and Company regarding any
Acquisition Proposal. If an Acquisition Proposal is received by, or such
information is requested from, a Shareholder, the Shareholder shall promptly
notify Holdings and Company of such fact and specify the information
requested and the name of the person making such proposal and/or requesting
such information.
7.5 TITLE TO SHARES. If the condition referenced in Section 12.1(f)
is satisfied, as evidenced by a certificate referenced in Section 12.3(b),
the Shares shall be, at Closing, owned by the Shareholders free and clear of
all Encumbrances other than restrictions on transfer arising out of federal
and state securities laws.
SECTION 8. COVENANTS OF HOLDINGS AND COMPANY.
Holdings and Company covenant to and agree with the Shareholders as
follows:
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8.1 REGULATORY APPROVALS. Prior to the Closing, Holdings and
Company will execute and file, or join in the execution and filing of, any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any Governmental Entity that may be
reasonably required, or that the Shareholders may reasonably request, in
connection with the consummation of the transactions contemplated by the
Transaction Documents. Holdings and Company will use their best effort to
obtain, or, as applicable, to assist the Shareholders in obtaining all such
authorizations, approvals and consents.
8.2 SATISFACTION OF CONDITIONS PRECEDENT. Holdings and Company will
use their best efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Sections 12.1 and 12.2, and Holdings and
Company will use their best efforts to cause the transactions contemplated
by the Transaction Documents to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of
third parties and to make all filings with, and give all notices to, third
parties which may be necessary or reasonably required on its part in order to
effect the transactions contemplated by this Agreement.
8.3 SENIOR NOTES/SENIOR PREFERRED STOCK. At or prior to the
Closing, Holdings shall cause the Senior Notes and the Senior Preferred Stock
to be issued pursuant to the terms and conditions as set forth in EXHIBIT F.
At the time of the Closing, no more than $11,000,000 in principal amount of
the Senior Notes shall be outstanding and no more than $3,000,000 in Senior
Preferred Stock shall be issued and outstanding; and all of the Senior
Notes, the Senior Preferred Stock and the shares of common stock of
Holdings, other than the Holdings Common Stock, shall be owned by The Jordan
Company or its Affiliates.
8.4 ADDITIONAL DEBT/EQUITY. At or prior to the Closing, except for
the Consideration, the debt referenced in Section 8.3 and the Bank Financing,
Holdings and Company shall not authorize the issuance of or issue any stock
or debt.
8.5 SUBSIDIARY. Immediately after the Closing, Company shall become
a wholly owned subsidiary of Holdings.
8.6 EMPLOYEE BONUSES. Immediately after the Closing, Company shall
pay to the employees designated by the Shareholders bonuses in amounts
determined by the Shareholders, in an aggregate amount of $600,000.
SECTION 9. MUTUAL COVENANTS.
Holdings, Company and the Shareholders covenant and agree as follows:
9.1 PUBLICITY. Until Closing, none of Rockshox, the Shareholders,
Holdings nor Company nor any Affiliates of the forgoing nor The Jordan
Company or any of its Affiliates shall issue any press release or other
public announcement or communication (except communications necessary to
syndicate the Bank Financing) regarding the transactions contemplated by
this Agreement without the prior written approval of the other parties to
this Agreement as to the content, which approval shall not be unreasonably
withheld; provided that this Section 9.1 shall not be deemed to prohibit any
disclosure which, in the opinion of counsel for the disclosing party, is
required by any applicable law or by any Governmental Entity.
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9.2 SECURITIES LAW MATTERS. Holdings shall prepare and file with
appropriate state securities or "Blue Sky" authorities all applications for
qualification or approval (or notices required to perfect exemptions from
such compliance) as may be required in connection with the Acquisition. The
Shareholders shall use their respective best efforts to assist Holdings as
may be necessary to comply with all appropriate state securities or Blue Sky
laws which may be applicable in connection with the Acquisition.
9.3 EMPLOYMENT MATTERS. At Closing, Holdings will execute with each
of the Continuing Shareholders their respective Employment Agreements.
9.4 STOCKHOLDERS AGREEMENT. At the Closing, Holdings and each of
the stockholders of Holdings will enter into the Stockholders Agreement.
9.5 AGREEMENTS NOT TO COMPETE. At the Closing, Holdings and each of
the Shareholders will enter into an Agreement Not To Compete.
SECTION 10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations, warranties, and covenants made in this
Agreement will survive the Closing Date and any investigation or inquiry
made by either party. However, any claim under Section 14 must be brought
within the following periods, and once brought, shall survive any applicable
statute of limitations:
(a) without limitation as to time with respect to (i) the
representations and warranties of the Shareholders in Section 3.2 and
Section 4; (ii) common law fraud; (iii) the indemnity obligations of
Shareholders to indemnify Holdings, Company and Rockshox for Buyer Losses
set forth in Section 14.1(ii) of this Agreement; (iv) the covenants of the
Shareholders in Sections 7.5 and 14.10 of this Agreement; and (v) the
representations and warranties of Holdings and Company in Section 5;
(b) within 90 days after the expiration of the applicable statute of
limitations with respect to the representations and warranties made in
Section 3.7 and the indemnity set forth in Section 14.8; and
(c) within a period of 18 months after the Closing (the "Indemnity
Period") with respect to all representations, warranties and covenants of
the Shareholders, Holdings and Company not specified in clauses (a) and (b)
of this Section 10.
SECTION 11. THE CLOSING.
(a) At the Closing, each party shall deliver to the others all
documents, certificates, schedules, agreements and instruments required by
this Agreement to be delivered at such time.
(b) At the Closing, Holdings and Company shall deliver to the
Shareholders the Consideration, as provided in Section 2.2 to accounts
designated by each Shareholder, in exchange for certificates representing all
of the Shares duly endorsed or with assignments separate from certificates
for transfer to Holdings or Company as set forth on EXHIBIT J.
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(c) From time to time after the Closing, at Holdings' or Company's
request and without further consideration from Holdings or Company, each
Shareholder shall execute and deliver such other instruments of conveyance
and transfer and take such other action as Holdings or Company reasonably may
require to convey, transfer to and vest in Holdings and Company, and to put
Holdings and Company in possession of the Shares.
SECTION 12. CONDITIONS TO CLOSING.
12.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to effect the transactions to be performed by such
party at the Closing are, at the option of such party, subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) no order shall have been entered, and not vacated, by a court or
administrative agency of competent jurisdiction, in any action or proceeding
which enjoins, restrains or prohibits the consummation of the Acquisition;
(b) there shall be no litigation pending or threatened by any
Governmental Entity in which (i) an injunction is sought against the
transactions contemplated by the Transaction Documents, or (ii) relief is
sought against any party hereto as a result of this Agreement and in which,
in the good faith judgment of the Shareholders or the Board of Directors of
Holdings (relying on the advice of their respective legal counsel), such
regulatory body has the probability of prevailing and such relief would have
a material adverse effect upon such party;
(c) any and all consents from third parties to that certain lease of
real property entered into between Rockshox and Charcot Center Joint
Venture, a California general partnership dated May 1, 1994, as amended,
shall have been obtained;
(d) all authorizations, consents, permits and approvals of all
federal, state and local governmental agencies and authorities required to
be obtained in order to permit consummation of the transactions contemplated
by this Agreement shall have been obtained;
(e) Company shall have obtained the Bank Financing; and
(f) prior to Closing, Christine Feeter shall have transferred all of
the shares of Rockshox Common Stock held of record by her to Paul Turner.
12.2 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS. The obligations
of the Shareholders to effect the transactions to be performed by them at
the Closing are, at the option of the Shareholders, subject to the
satisfaction at or prior to the Closing of the following additional
conditions:
(a) all of the representations and warranties of Holdings and
Company set forth in Section 5 shall be true in all material respects on and
as of the Closing Date with the same force and effect as if they had been
made at the Closing, except for changes contemplated by this Agreement, and
Holdings and Company shall have delivered to the Shareholders certificates
to such effect dated the Closing Date and signed by their respective
corporate officers;
(b) all of the terms, covenants and conditions of this Agreement to
be complied with and performed by Holdings and Company at or prior to the
Closing shall have been duly complied with
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and performed in all material respects, and Holdings and Company shall have
delivered to the Shareholders certificates to such effect dated the Closing
Date and signed by their respective corporate officers;
(c) the Shareholders shall have received from counsel for Holdings
and Company, an opinion, dated the Closing Date and substantially in the
form of EXHIBIT K;
(d) Holdings shall have executed and delivered the Employment
Agreements, the Agreements Not to Compete and the Stockholders Agreement; and
12.3 CONDITIONS TO OBLIGATIONS OF HOLDINGS AND COMPANY. The
obligations of Holdings and Company to effect the transactions to be
performed by them at Closing are, at the option of Holdings and Company,
subject to the satisfaction at or prior to the Closing of the following
additional conditions:
(a) all the representations and warranties of the Shareholders set
forth in Sections 3 and 4 shall be true in all material respects on and as
of the Closing Date with the same force and effect as if they had been made
at the Closing, except for changes contemplated by this Agreement, and the
Shareholders shall have delivered to Holdings a certificate to such effect
dated the Closing Date and signed by the Shareholders;
(b) all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Shareholders at or prior to the
Closing Date have been duly complied with and performed in all material
respects, and the Shareholders shall have delivered to Holdings and Company
a certificate to such effect dated the Closing Date and signed by the
Shareholders;
(c) Holdings and Company shall have received from McCutchen, Doyle,
Brown & Enersen, counsel for Rockshox, an opinion dated the Closing Date and
substantially in the form of EXHIBIT L;
(d) each of the Continuing Shareholders shall have executed and
delivered his respective Employment Agreement;
(e) each of the Shareholders shall have executed and delivered the
Stockholders Agreement and his or her respective Agreement Not to Compete;
(f) all of the directors shall have resigned as directors of
Rockshox effective as of the Closing; and
(g) each of the Shareholders shall have executed and delivered to
Holdings and Company a certificate in the form of EXHIBIT M attached, with
respect to Section 1445 of the Code.
SECTION 13. TERMINATION OF AGREEMENT.
13.1 TERMINATION BY HOLDINGS. This Agreement may be terminated at
any time before the Closing by Holdings and Company upon written notice to
the Shareholders, specifying the basis for such termination, if (i) any
Shareholder shall have breached in any material respect any of his or her
respective covenants or agreements contained in this Agreement and shall not
have cured such breach within 15 days after notice to the breaching party
from Holdings or Company, or (ii) through no breach of this Agreement by
Holdings or Company, the Closing shall not have occurred on or
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before March 31, 1995, or (iii) a condition to the obligations of Holdings
or Company shall not have been satisfied at the Closing.
13.2 TERMINATION BY THE SHAREHOLDERS. This Agreement may be
terminated at any time before the Closing by the delivery by all the
Shareholders of written notice to Holdings and Company, specifying the basis
for such termination, if (i) Holdings or Company shall have breached in any
material respect any of their respective covenants or agreements contained in
this Agreement and shall not have cured such breach within 15 days after
notice thereof to the breaching party from the Shareholders, or (ii) through
no breach of this Agreement by any of the Shareholders, the Closing shall not
have occurred on or before March 31, 1995, or (iii) a condition to the
obligations of the Shareholders shall not have been satisfied at the Closing.
13.3 MUTUAL CONSENT. This Agreement may be terminated, and the
Acquisition abandoned, at any time before the Closing, by the mutual consent
of Holdings, Company and the Shareholders.
13.4 EFFECT OF TERMINATION. Upon any permitted termination of this
Agreement pursuant to the provisions of this Section 13, all parties shall be
relieved of all further obligations under this Agreement, except for the
provisions of Section 15.7 regarding the payment of expenses.
SECTION 14. INDEMNIFICATION.
14.1 INDEMNITIES OF SHAREHOLDERS. The Shareholders, jointly and
severally, shall indemnify, defend, and hold harmless Holdings, Company and
Rockshox against and in respect of any and all claims, demands, losses,
costs, expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including interest, penalties, and reasonable accounting,
attorneys' and other professional fees, that Holdings, Company or Rockshox
shall incur or suffer which arise, result from, or relate to
(i) any breach of, or failure by the Shareholders to perform, any of
their representations, warranties, covenants, or agreements in this
Agreement or in any schedule or certificate, exhibit or instrument of
transfer furnished or to be furnished by the Shareholders in connection with
the execution or Closing of this Agreement; or
(ii) any claim by any current or former shareholder of Rockshox
against Rockshox, Company or Holdings relating to any acts or omissions
occurring on or prior to the Closing Date except claims for indemnification
made by a current or former shareholder of Rockshox as an employee,
director, officer or agent of Rockshox which meets all of the following
three conditions:
(1) the claim results from an action initiated by a person
other than a shareholder of Rockshox;
(2) the shareholder would be entitled to indemnification under
the charter documents of Rockshox; and
(3) the claim would not otherwise provide Rockshox, Holdings
or Company with a basis for indemnification under clause (i) of this
Section 14.1.
Any claim by Holdings, Company or Rockshox under this Section 14.1 shall be
referred to as a "Buyer Loss".
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14.2 ADDITIONAL BUYER LOSSES. Notwithstanding anything to the
contrary in this Agreement, and in addition to any claims by Holdings,
Company or Rockshox for a Buyer Loss under Section 14.1, a Buyer Loss shall
be deemed to include:
(i) Voluntary or involuntary recalls of products by Rockshox or
Company during the Indemnity Period to the extent and only to the extent
that the aggregate costs to Rockshox or Company exceeds $250,000;
(ii) Product warranty claims received during the Indemnity Period
relating to products manufactured before the Closing to the extent and only
to the extent that the aggregate cost of parts to Rockshox or Company exceeds
0.5% of gross sales during the Indemnity Period; and
(iii) Claims by employees and former employees of Rockshox made
during the Indemnity Period relating to events that occurred before the
Closing to the extent and only to the extent that the aggregate cost to
Rockshox or Company exceeds $100,000.
14.3 LIMITATIONS ON LIABILITY. Notwithstanding any other provision
of this Agreement (except the third sentence of this Section 14.3), the
Shareholders shall not be liable to Holdings, Company or Rockshox unless and
until the aggregate amount of all Buyer Losses exceeds $625,000. If and when
the aggregate amount of all Buyer Losses exceeds $625,000, the Shareholders
shall be liable only for the amount of Buyer Losses which exceed $312,500.
The limitation in the previous two sentences shall not apply as to claims
with respect to Sections 3.2, 3.7, 3.16, 4, 6, 7.5, 14.1(ii) or 14.8 or
claims based on common law fraud or any fees in excess of the amount
referenced in Section 15.7. In addition to any other remedy existing at law
or in equity, Holdings and Company shall be entitled, but shall not be
obligated, to offset any claim under this Section 14 which has been mutually
resolved between the parties or which has been adjudicated to a final
decision, and the period for appeals, if any, has passed, against any
obligation of Holdings or Company to the Shareholders now or hereafter
existing including, without limitation, payments of principal or interest due
on the Notes and payments of dividends or redemption payments on the
Preferred Stock. Neither Holdings nor Company shall have any right of offset
except as provided in this Section. The parties agree that the amount of
$113,000 for certain obsolete inventory referenced in Schedule 3.8.12 of the
Disclosure Schedule, and any costs incurred by the Company as a result of
the failure of Rockshox to file Forms 5500 in 1992 and 1993 with respect to
medical and life insurance plans, shall be deemed to be Buyer Losses and
applied against the $625,000.
14.4 INDEMNITIES OF HOLDINGS AND COMPANY. Holdings and Company,
jointly and severally, shall indemnify, defend, and hold harmless the
Shareholders against and in respect of any and all claims, demands, losses,
costs, expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including interest, penalties, and reasonable attorneys' fees,
that the Shareholders shall incur or suffer which arise, result from, or
relate to (i) any breach of, or failure by Holdings or Company to perform,
any of their representations, warranties, covenants, or agreements in this
Agreement or in any schedule, certificate, exhibit, or instrument furnished
or to be furnished by Holdings or Company under this Agreement; or (ii) any
personal guarantee by any Shareholder for obligations or liabilities of
Rockshox which were incurred by Rockshox in the ordinary course of business
and for which Rockshox received equivalent value (individually, a "Seller
Loss"). The Shareholders shall, within sixty days after the Closing, deliver
to Holdings all of the personal guarantees referenced in clause (ii) of this
Section 14.4. Upon the expiration of such sixty day
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period, the indemnification in clause (ii) of this section 14.4 shall apply
only to those personal guarantees delivered by the Shareholders.
14.5 CLAIMS FOR INDEMNIFICATION. The party seeking indemnification
(the "Indemnified Party") shall give each party from whom indemnification is
sought under this Section 14, excluding Section 14.8 (each an "Indemnifying
Party"), a written notice ("Notice of Claim") within 60 days following the
discovery of any Buyer Loss or Seller Loss; PROVIDED, HOWEVER, that the
failure of an Indemnified Party to give such notification shall not relieve
an Indemnifying Party of its indemnity obligations hereunder unless and to
the extent that such failure in fact materially prejudiced the defense of any
such claim. A Notice of Claim shall be delivered to each Indemnifying Party.
In the event a claim for a Buyer Loss or a Seller Loss is pending or
threatened or the Indemnified Party has a reasonable belief that there is a
valid basis for such a claim, the Indemnified Party shall give written
notice (a "Notice of Possible Claim") of such claim to each Indemnifying
Party within 60 days of discovery of the basis for such claim, regardless of
whether a Buyer Loss or Seller Loss has arisen from such claim. Any Notice
of Claim or Notice of Possible Claim shall set forth the representations,
warranties, covenants and agreements with respect to which the claim is made,
the specific facts giving rise to an alleged basis for the claim and the
amount of liability asserted or anticipated to be asserted by reason of the
claim.
14.6 DEFENSE. In the event that a claim for indemnification under
this Agreement is based upon a claim by a third party asserted against an
Indemnified Party or Parties, the Indemnifying Party or Parties shall be
entitled to control the defense thereof and to settle any such action on
such terms as it or they shall see fit so long as the Indemnified Party or
Parties shall be released from any liability by reason of such settlement;
PROVIDED, HOWEVER, that the Indemnified Party or Parties shall have the right
to participate in the defense of such action at its own expense and may
elect to control the defense of any claim or action which seeks remedies
other than money damages or where such action could, if determined adversely,
reasonably be expected to result in a material adverse effect on such
Indemnified Party or Parties. In the case where the Indemnified Party or
Parties elect to control the defense, the Indemnifying Party shall have the
right to approve counsel selected by the Indemnified Party and to meet
periodically with such counsel. The approval of counsel shall not be
unreasonably withheld by the Indemnifying Party provided that it shall not be
unreasonable for the Indemnifying Party to withhold approval because
competent counsel can be obtained at lower rates or with a reasonable
strategy which is reasonably anticipated to result in a lower cost. In
addition, the Indemnifying Party or Parties shall have the right to
participate in the defense of such action at its own expense. The
Indemnifying Party or Parties shall receive full cooperation and access to
all relevant and non-privileged records of the Indemnified Party or Parties
entitled to indemnification.
14.7 LIMITATION ON DAMAGES. Notwithstanding anything contained in
this Agreement to the contrary, the aggregate amount of Buyer Losses shall
not exceed $22 million, except for Buyer Losses incurred as a result of a
misrepresentation or breach of Sections 4 or 7 or 3.2, which shall not
exceed the aggregate of $55,450,000 (in the case of the Notes and the
Preferred Stock, in the same form or tender received by the Shareholders,
but without requiring Holdings, Company, or Rockshox to collect against any
non-cash amounts first).
14.8 TAXES.
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(a) The Shareholders shall be liable and shall indemnify Rockshox,
Holdings or Company jointly and severally for all Taxes of Rockshox for
taxable periods ending on or before December 31, 1994.
(b) All Taxes attributable to the operations of Rockshox for periods
ending after December 31, 1994 shall be borne by Rockshox. Any refunds or
credits in respect of Taxes for any period shall be the property of, and for
the benefit of, Rockshox, Holdings or Company, as the case may be.
(c) Any refunds, resulting from the carry back of losses or credits
incurred in taxable periods ending after December 31, 1994 to periods ended
on or before December 31, 1994 shall be the property of Rockshox, Holdings
or Company and shall not be for the benefit of Shareholders.
(d) (i) The Shareholders shall be responsible for causing Rockshox,
at Rockshox's expense, to prepare and file, prior to the Closing Date, all
Tax returns and reports of Rockshox for periods ending on or before December
31, 1994, which returns and reports shall be prepared and filed timely and
on a basis consistent with existing procedures for preparing such returns
and reports and in a manner consistent with prior practice with respect to
the treatment of specific items on the returns or reports; provided,
however, that if the treatment of any item on any such return or report has
not been provided by prior practice, the Shareholders shall cause Rockshox to
report such items in a manner that would result in the least amount of Tax
liability to Rockshox and Holdings for periods ending after December 31,
1994; provided, further, that such treatment shall be supported by
substantial authority within the meaning of Code Section 6662(d)(2)(B)(i).
(ii) Holdings shall be, or shall cause Rockshox to be,
responsible for preparing and filing all Tax returns and reports of Rockshox
for periods ending after December 31, 1994, which returns and reports shall
be prepared and filed timely and, to the extent they affect the Tax
liability of Rockshox for periods ending on or prior to December 31, 1994,
and for the purpose of determining the Shareholders' liability hereunder, on
a basis consistent with existing procedures for preparing such returns and
reports and in a manner consistent with prior practice with respect to the
treatment of specific items on the returns or reports unless such treatment
is not supported by substantial authority within the meaning of Code Section
6662(d)(2)(B)(i); provided, however, that if the treatment of any item on
any such return or report has not been provided by prior practice, Rockshox
shall report such items in a manner that would result in the least amount of
Tax liability to Rockshox and Holdings for periods after December 31, 1994,
unless such treatment is not supported by substantial authority within the
meaning of Code Section 6662(d)(2)(B)(i).
(iii) In the event the Shareholders are liable as provided in
Section 14.8(a) hereof for Taxes due in connection with the returns
described in this paragraph (d), the Shareholders shall pay the amount of
such liability to Rockshox or Holdings, as the case may be, immediately upon
request or upon the filing of such returns, whichever is later.
(e) Each of Holdings, Company, Rockshox and Shareholders will
provide the others with such assistance as may reasonably be requested by
any of them in connection with the preparation of any Tax return or report,
any audit or other examination by any taxing authority, any judicial or
administrative proceedings relating to liability for Taxes, or any other
claim arising under this Section 14.8, and each will retain and provide the
others upon reasonable request with any records or information that may be
relevant to any such Tax return or report, audit or examination, proceeding
or claim. Such assistance shall include making employees available on a
mutually convenient basis to provide additional information and explanation
of any material provided hereunder and shall
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include providing copies of any relevant Tax returns or reports and
supporting work schedules. Rockshox hereby agrees that it will retain, until
all appropriate statutes of limitation (including any extensions) expire,
copies of all Tax returns and reports for periods ending on or before
December 31, 1994, supporting work schedules and other records or
information which may be relevant to such Tax returns and reports. The party
requesting assistance hereunder shall reimburse the assisting party for
reasonable out-of-pocket expenses incurred in providing such assistance.
(f) (i) Except as provided below, if in connection with any
examination, investigation, audit or other proceeding in respect of any Tax
return covering the operations of Rockshox through December 31, 1994, any
Governmental Entity issues to Rockshox a notice of deficiency, a notice of
reassessment, a proposed adjustment, an assertion of claim or demand
concerning the tax period covered by such return, Rockshox shall notify
Shareholders of its receipt of such communication from the Governmental
Entity within fifteen (15) business days after receiving such notice of
deficiency, reassessment, adjustment or assertion of claim or demand. No
failure or delay of Rockshox in the performance of the foregoing shall
reduce or otherwise affect the obligations of Shareholders pursuant to this
Section 14.8, except to the extent that such failure or delay shall have
adversely affected Shareholders' ability to defend against, settle or
satisfy any liability or claim for Taxes that Shareholders are obligated to
pay under this Section 14.8.
(ii) Shareholders shall be entitled to control and conduct at
their expense, any audits, examinations or proceedings or portions thereof
(a "Tax Contest") relating to taxable periods ending on or before December 31,
1994; PROVIDED, HOWEVER, that the Shareholders shall not be entitled to
control such a Tax Contest if Rockshox reasonably determines that the
Shareholders would be financially unable to pay the potential liability for
Taxes related to such Tax Contest. With respect to a Tax Contest which a
party is entitled to control under this Section 14.8, such party shall have
the right to determine, in its sole discretion, such issues as (w) the forum,
administrative or judicial, in which to contest any proposed adjustment, (x)
the attorney and/or accountant to represent Rockshox in the Tax Contest, (y)
whether or not to appeal any decision of any administrative or judicial body,
and (z) whether to settle any such Tax Contest. Rockshox will deliver to
Shareholders any power of attorney required to allow them and their counsel
to represent Rockshox in connection with the Tax Contest controlled by
Shareholders under this Section 14.8.
(iii) Notwithstanding any other provision of this Agreement, any
contest or settlement by Shareholders and/or Rockshox of any issue raised in
an official inquiry, examination or proceeding that could result in an
official determination with respect to Taxes of Rockshox due or payable that
relate to a taxable period ending on or before December 31, 1994, that could
have an adverse effect on Rockshox's liability for any Taxes accruing after
December 31, 1994, shall be conducted jointly by Shareholders and Rockshox,
and a settlement (at the administrative level or during the course of
judicial proceedings) may only be entered into with the consent of
Shareholders and Rockshox, which consent shall not be unreasonably withheld.
(g) If there is an adjustment to any return or report of Taxes for
Rockshox which creates a deficiency in any Taxes for which Shareholders are
liable under the provisions of Section 14.8(a) or if the Shareholders shall
receive a refund with respect to Taxes that is for the benefit of Holdings
or Rockshox under the provisions of Sections 14.8(b) and (c) hereof,
Shareholders shall pay to Holdings, Company or Rockshox, as the case may be,
the amount of such deficiency in Taxes or refunds (including any interest
actually received on such refunds). No liability of Shareholders under this
Section 14.8(g) shall be payable until the occurrence of any action by any
Tax authority
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that is final or, if not final, is acquiesced in by Shareholders during the
course of any audit or any proceeding relating to Taxes. All payments
required to be made by Shareholders pursuant to this Section 14.8(g) shall
be made within ten (10) days of the occurrence of the event described in the
immediately preceding sentence or within three (3) days of the receipt of
the refund, as the case may be. Notwithstanding any other provision of this
Agreement, if Holdings or Rockshox elects to file amended Tax returns for
Rockshox for any taxable period ending on or before December 31, 1994,
Shareholders shall have no liability for any increase or deficiency in Taxes
that results from the amended positions taken on such amended Tax returns
unless (i) Holdings or Rockshox is required, under the Code or regulations
promulgated thereunder, to file such amended Tax returns, or (ii)
Shareholders have consented to the filing of such amended Tax returns, which
consent may be withheld by Shareholders in their absolute discretion.
(h) To the extent of any inconsistency between this Section 14.8 and
the provisions of Sections 14.1 through 14.7, this Section 14.8 shall
control.
14.9 TRANSFER TAXES. All federal, state, local, foreign and other
transfer, sales, use or similar Taxes applicable to, imposed upon or arising
out of the transfer of the shares of Rockshox shall be paid by the
Shareholders.
14.10 LEASE INDEMNITY. Notwithstanding Sections 14.1 through 14.3,
the Shareholders, jointly and severally, shall indemnify, defend, and hold
harmless Holdings, Company and Rockshox against and in respect of any and
all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries, and deficiencies, including interest, penalties, and
reasonable accounting, attorneys' and other professional fees, that
Holdings, Company or Rockshox shall incur or suffer which arise, result from,
or relate to the effect of the handwritten sentence below Section 35.3 of
that certain Lease dated February 4, 1993, by and between Kent and Lynn
Evans and Rockshox for property at 2584 Leghorn Street, Mountain View,
California (the "Evans Lease") which handwritten sentence reads as follow:
"Lessee has knowledge of existing contamination on the existing property".
This Section 14.10 shall be effective notwithstanding the listing of the
Evans Lease on the Disclosure Schedule.
SECTION 15. MISCELLANEOUS.
15.1 SPECIFIC PERFORMANCE. The parties agree that if any party
hereto does not perform the obligations required to be performed by such
party at the Closing, then any other party, in addition to all other rights
or remedies, shall be entitled to the remedy of specific performance
mandating that the other party or parties perform such obligation(s). In an
action for specific performance by any party hereto against any other party,
the other party shall not plead adequacy of damages at law.
15.2 GOVERNING LAW. It is the intention of the parties hereto that
the internal laws of the State of California (irrespective of its choice of
law principles) shall govern the validity of this Agreement, the
construction of its terms, and the interpretation and enforcement of the
rights and duties of the parties. The parties agree that any suit to enforce
any provision of this Agreement or arising out of or based upon this
Agreement or the business relationship between any of the parties may be
brought in the United States District Court for the Northern District of
California or the Superior or Municipal Court in and for the County of Santa
Clara, California. Each party agrees that such courts shall have in personam
jurisdiction with respect to such party, and such party by this Agreement
submits to the non-exclusive in personam jurisdiction of such courts.
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15.3 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. None of the
parties hereto may assign any of its rights or obligations under this
Agreement without the prior written consent of the other parties; provided,
however, that Holdings, the Company and Rockshox may assign to the party
providing the Bank Financing its rights to payment under Section 14 of this
Agreement. This Agreement will be binding upon and inure to the benefit of
the parties and their respective heirs, successors and permitted assigns.
15.4 SEVERABILITY. If any provision of this Agreement, or the
application of this Agreement, shall for any reason and to any extent be
held to be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall be
interpreted so as best to reasonably effect the intent of the parties
hereto. The parties further agree to replace such invalid or unenforceable
provision of this Agreement with a valid and enforceable provision which will
achieve, to the extent possible, the economic, business and other purposes
of the invalid or unenforceable provision.
15.5 INTEGRATION. This Agreement sets forth the entire understanding
of the parties relating to the transactions it contemplates, and supersedes
all prior understandings relating to them, whether written or oral. There
are no obligations, commitments, representations or warranties relating to
them except those expressly set forth in this Agreement.
15.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
15.7 EXPENSES. The parties shall each initially pay their own legal,
accounting and financial advisory fees and other out-of-pocket expenses
incurred incident to the negotiation, preparation and carrying out of this
Agreement and the transactions contemplated in this Agreement. In the event
that the Closing does not occur, any governmental filing fees incurred by the
parties shall be paid by Holdings and the parties shall each bear their own
legal, accounting and financial advisory fees and expenses and other
out-of-pocket expenses. In the event that the Closing occurs, all legal,
accounting and financial advisory fees and expenses and other out-of-pocket
expenses incurred by the Shareholders, Rockshox, Holdings and Company
incident to the negotiation, preparation and carrying out of this Agreement
and the transactions contemplated in this Agreement shall be borne by
Holdings. If the aggregate amount of fees and expenses and other
out-of-pocket expenses incurred by Rockshox and the Shareholders incident to
the negotiation, preparation and carrying out of this Agreement and the
transactions contemplated by this Agreement exceeds an aggregate of
$1,200,000, the excess shall be borne by the Shareholders in such proportion
as they shall agree and shall not become obligations of Rockshox, Holdings
or Company.
15.8 ATTORNEYS' FEES. Should suit be brought to enforce or interpret
any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation,
costs, expenses and fees on any appeal). The prevailing party shall be the
party entitled to recover its costs of suit, regardless of whether such suit
proceeds to final judgment. A party not entitled to recover its costs shall
not be entitled to recover attorneys' fees. No sum for attorneys' fees shall
be counted in calculating the amount of a judgment for purposes of
determining if a party is entitled to recover costs or attorneys' fees.
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15.9 NOTICES. All notices and other communications hereunder will be
in writing and will be deemed given (i) upon receipt if delivered personally
(or if mailed by registered or certified mail), (ii) the day after dispatch
if sent by overnight courier for next day delivery, or (iii) upon dispatch if
transmitted by facsimile (and confirmed by a copy delivered in accordance
with clause (i) or (ii)), addressed to the parties at the following
addresses:
The Shareholders: To the addresses set forth under their
respective signatures.
with a copy to: McCutchen, Doyle, Brown & Enersen
1331 North California Boulevard
P.O. Box V
Walnut Creek, California 94596
Facsimile: (510) 937-5390
Attention: Sandra A. Golze, Esq.
with a copy to: Holme, Roberts & Owen
1700 Lincoln Street
Denver, CO 80203
Facsimile: 303 866-0200
Attention: Steve Cohen
Holdings and Company: RSx Holdings, Inc.
9 West 57th Street, Suite 4000
New York, NY 10019
Facsimile: (212) 755-5263
Attention: Adam E. Max
with a copy to: Smith, Gill, Fisher & Butts, P.C.
1200 Main Street, Suite 3500
Kansas City, MO 64105
Facsimile: (816) 391-7600
Attention: Morris K. Withers, Esq.
Any party may change its address for such communications by giving
notice thereof to the other parties in conformity with this Section 15.9.
15.10 CONSTRUCTION AND INTERPRETATION OF AGREEMENT.
(a) This Agreement has been negotiated by the respective parties and
their attorneys and the language shall not be construed for or against any
party but shall be construed in accordance with the intent of the parties.
The titles and headings in this Agreement are for reference purposes only
and shall not in any manner limit the construction of this Agreement, which
shall be considered as a whole.
(b) Whenever the term "enforceable in accordance with its terms" or
like expression is used, it is understood that excepted therefrom are any
limitations on enforceability under applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditor's rights (whether at law or equity).
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15.11 NO JOINT VENTURE. Nothing contained in this Agreement shall
be deemed or construed as creating a joint venture or partnership between any
of the parties. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall
have the power to control the activities and operations of any other and
their status is, and at all times will continue to be, that of independent
contractors with respect to each other. No party shall have any power or
authority to bind or commit any other. No party shall hold itself out as
having any authority or relationship in contravention of this Section 15.11.
15.12 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described in this Agreement and contemplated by this Agreement and to carry
into effect the intents and purposes of this Agreement.
15.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of
this Agreement are intended, nor shall be interpreted, to provide or create
any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, partner of any party hereto or any
other person or entity unless specifically provided otherwise in this
Agreement, and, except as so provided, all provision hereof shall be solely
between the parties to this Agreement.
15.14 STOCK APPRECIATION RIGHTS. Within 60 days after the Closing,
the Shareholders and Holdings shall have mutually agreed upon a Stock
Appreciation Rights Plan for the benefit of selected employees of Rockshox.
15.15 WAIVER/MODIFICATION/AMENDMENT. No purported amendment of this
Agreement, or waiver, discharge or termination of any obligation under it,
shall be enforceable or admissible unless, and only to the extent, expressly
set forth in a writing signed by the party against which enforcement or
admission is sought. Without limiting the generality of the foregoing, no
oral promise or statement, nor any action, inaction, delay, failure to
require performance or course of conduct shall operate as, or evidence, an
amendment or waiver or have any other effect on this Agreement. Any waiver
granted shall be limited to the specific circumstance expressly described in
it, and shall not apply to any subsequent or other circumstance, whether
similar or dissimilar, or give right to, or evidence, any obligation or
commitment to grant any further waiver.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
RSx HOLDINGS, INC. SHAREHOLDERS:
By: /s/ ADAM E. MAX /s/ STEPHEN W. SIMONS
-------------------------------- ---------------------------------
Steve Simons
Its: President and Secretary 27461 Sherlock Rd.
Los Altos Hills, CA 94022
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<PAGE>
RSx ACQUISITION, INC. /s/ DEBRA W. SIMONS
_____________________________________
Debra Simons
By: /s/ Adam E. Max 27461 Sherlock Rd.
_____________________________ Los Altos Hills, CA 94022
Its: President and Secretary
______________________________
/s/ PAUL TURNER
____________________________________
Paul Turner
2838 3rd St.
Boulder, CO 80304
35
<PAGE>
EXHIBIT 10.2
MANAGEMENT CONSULTING AGREEMENT
THIS MANAGEMENT CONSULTING AGREEMENT ("Agreement") is executed as of the
24th day of March, 1995 by and between TJC MANAGEMENT CORPORATION, a Delaware
corporation (hereinafter referred to as the "Consultant"), and RSx HOLDINGS,
INC., a Delaware corporation (hereinafter referred to as the "Company").
W I T N E S S E T H:
WHEREAS, the Consultant has and/or has access to personnel who are
highly skilled in the field of rendering advice to business concerns such as
the Company; and
WHEREAS, the Company desires to retain Consultant to provide business
and financial advice to the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the parties hereto agree as
follows:
1. The Company hereby retains the Consultant, through the Consultant's
own personnel or through personnel available to the Consultant, to render
consulting services from time to time to the Company and its subsidiaries
(whether now existing or hereafter acquired) in connection with their
financial and business affairs, their relationships with their lenders,
stockholders and other third-party associates or affiliates, and the
expansion of their businesses. The term of this Agreement shall commence the
date hereof and continue until April 1, 2000 unless extended, or sooner
terminated, as provided in paragraph 5 below. The Consultant's personnel
shall be reasonably available to the Company's managers, auditors and other
personnel for consultation and advice, subject to Consultant's reasonable
convenience and scheduling. Services may be rendered at the Consultant's
offices or at such other locations selected by the Consultant as the Company
and the Consultant shall from time to time agree.
2. The Company shall pay the Consultant (i) a quarterly fee equal to
$62,500 payable on the 30th day of March, June, September and December of
each year, commencing March 30, 1995 (such quarterly fee shall be pro rated
from the date of this Agreement to March 30, 1995); (ii) an investment
banking and sponsorship fee of two percent (2.0%) of the aggregate
consideration paid (including non-competition and similar payments, but net
of transaction expenses) in connection with (a) an initial public offering of
the Company's common stock, (b) the sale of all the common stock or
substantially all of the assets of the Company to a third party that is not
affiliated with the Company or (c) the purchase by the Company or any direct
or indirect subsidiary of the Company of all the equity or substantially all
of the assets of a company that is not affiliated with the Company
<PAGE>
(an "Acquisition"); and (iii) a financial consulting fee of one percent
(1.0%) of the amount obtained or made available pursuant to any financing
after the date hereof (including without limitation, any refinancing) by the
Company utilizing the assistance of Consultant, including, but not limited
to, any financing obtained for the Company from one or more of the Jordan
Affiliates (as defined below); PROVIDED, HOWEVER, the fees payable under
clauses (ii) and (iii) shall only be paid by the Company with respect to a
transaction if the Consultant is retained by the Company to render services
in connection with such transaction. Notwithstanding the foregoing, if the
Consultant renders services to the Company outside the ordinary course of
business (which services must be approved in advance by the board of
directors of the Company), the Company shall pay an additional amount equal
to the value of such extraordinary services rendered by the Consultant.
3. Reasonable out-of-pocket expenses incurred by the Consultant and
its personnel in performing services hereunder to the Company and its
subsidiaries shall be promptly reimbursed to it by the Company upon the
Consultant's rendering of a statement therefor, together with such supporting
data as the Company shall reasonably require.
4. Notwithstanding the foregoing, the Company shall not be required to
pay the fees under Section 2 (without limiting the fees, reimbursements and
payments provided under Sections 3 and 8 of this Agreement which shall be due
and payable in all events), (a) if and to the extent expressly prohibited by
the provisions of any credit, stock, financing or other agreement or
instrument binding upon the Company, its subsidiaries or properties, (b) if
the Company has not paid interest on any interest payment date or has
postponed or not made any principal payments with respect to any of their
indebtedness on any scheduled payment dates, (c) if the Company has postponed
or not made any redemptions on any redemption date as set forth in its
certificate of incorporation with respect to its preferred stock, if any, or
(d) if the Company has failed to pay when due any of its obligations under
Section 4 of the Employment Agreements executed between the Company and each
of Steve Simons and Paul Turner, each dated as of the date hereof. Any
payments otherwise owed hereunder which are not made for any of the
above-mentioned reasons shall not be cancelled but rather shall accrue and
shall be payable by the Company promptly when, and to the extent, that the
Company is no longer prohibited from making such payments and when the
Company has become current with respect to such principal or interest
payments, or has become current with respect to such redemptions with respect
to such preferred stock, if any.
5. This Agreement may be terminated by not less than ninety (90) days'
prior written notice from the Company to the Consultant at any time after (i)
substantially all of the stock or substantially all of the assets of the
Company or all of its subsidiaries are sold, or (ii) the Company is merged or
consolidated into another entity, in either case, such that a majority of the
Company's stockholders immediately prior to such sale, merger or
consolidation are not the majority stockholders of the survivor of such
transaction.
6. The Consultant, its affiliates and their respective partners,
officers, directors and employees shall have no liability to the Company on
account of (i) any advice which it renders to the Company, provided the
Consultant believed in good faith that such advice was useful or beneficial
to the Company at the time it was rendered, or (ii) the Consultant's
inability to obtain financing or achieve other results desired by the Company
or Consultant's failure to render services to the Company at any particular
time or from time to time, or (iii) the failure of any Acquisition to meet
2
<PAGE>
the financial, operating or other expectations of the Company. The Company's
sole remedy for any claim under this Agreement shall be termination of this
Agreement.
7. Notwithstanding anything contained in this Agreement to the
contrary, the Company agrees and acknowledges that the Consultant and its
shareholders, employees, directors and affiliates intend to engage and
participate in acquisitions and business transactions outside the scope of
the relationship created by this Agreement and neither the Consultant nor any
of its shareholders, employees, directors or affiliates shall be under any
obligation whatsoever to make such acquisitions or business transactions
through the Company or offer such acquisitions or business transactions to
the Company. The Company further acknowledges to the Consultant that certain
affiliates of the Consultant are stockholders of the Company.
8. The Company will, to the fullest extent permitted by applicable
law, indemnify and hold harmless the Consultant, its affiliates and
associates, each of the Jordan Affiliates, and each of the respective owners,
partners, officers, directors, employees and agents of each of the foregoing,
from and against any loss, liability, damage, claim or expenses (including
the fees and expenses of counsel) arising as a result or in connection with
this Agreement, the Consultant's services hereunder or other activities on
behalf of the Company and its subsidiaries, except to the extent the
Consultant may be found by a court of competent jurisdiction to be liable for
gross negligence or willful misconduct. "Jordan Affiliates" shall mean Jordan
Industries, Inc.; Leucadia, Inc.; The Jordan Company; MCIT PLC;
Jordan/Zalaznick Capital Company; Jordan Zalaznick Advisers, Inc. and any
employees, partners, officers, directors or affiliates of any of the
foregoing.
9. The Consultant shall not at any time or in any manner, directly or
indirectly, use or disclose to any party other than the Company and its
subsidiaries any trade secrets or other Confidential Information (as defined
below). As used herein, the term "Confidential Information" means
information disclosed to or known by the Consultant as a consequence of its
relationship with the Company as a consultant and not generally known in the
industry in which the Company or its subsidiaries are engaged and that in any
way relates to the Company's or its subsidiaries' products, processes,
services, inventions (whether patentable or not), formulas, techniques or
know-how, including, but not limited to, information relating to distribution
systems and methods, research, development, manufacturing, purchasing,
accounting, engineering, marketing, merchandising and selling.
10. The Company acknowledges that the Consultant is an affiliate of
certain stockholders of the Company.
11. a. This Agreement sets forth the entire understanding of the
parties with respect to the Consultant's rendering of services to the
Company. This Agreement may not be modified, waived, terminated or amended
except expressly by an instrument in writing signed by the Consultant and the
Company.
b. The rights and obligations of the Consultant under this
Agreement may be assigned by the Consultant to any affiliate of the
Consultant without the consent of the Company, however, this Agreement may
not be assigned by the Company without the consent of the Consultant. The
terms of this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns upon such permitted
assignment.
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<PAGE>
c. In the event that any provision of this Agreement shall be held
to be void or unenforceable in whole or in part, the remaining provisions of
this Agreement and the remaining portion of any provision held void or
unenforceable in part shall continue in full force and effect.
d. Except as otherwise specifically provided herein, notice given
hereunder shall be deemed sufficient if sent by a nationally recognized
overnight delivery service, with delivery confirmed, to the address of the
party for whom intended at the principal executive office of such party, or
at such other address as such party may hereinafter specify by written notice
to the other party.
e. No waiver by either party of any breach of any provision of
this Agreement shall be deemed a continuing waiver or a waiver of any
preceding or succeeding breach of such provision or of any other provision
herein contained.
f. The Consultant and its personnel shall, for purposes of this
Agreement, be independent contractors with respect to the Company.
g. This Agreement shall be governed by the internal laws (and not
the law of conflicts) of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TJC MANAGEMENT CORPORATION
By: /s/ JOHN W. JORDAN II
------------------------------
Name: John W. Jordan II
----------------------------
Title: Chairman and Secretary
---------------------------
RSx HOLDINGS, INC.
By: /s/ STEVE SIMONS
-----------------------------
Steve Simons, President
4
<PAGE>
EXHIBIT 10.3
PURCHASE AGREEMENT,
dated as of March 23, 1995,
between
RSx HOLDINGS, INC.,
as Issuer,
and
MCIT PLC,
as Purchaser,
for
$11,000,000 Principal Amount of
13 1/2% Notes due April 30, 2005
and
3,000 5.0% Series A PIK Preferred Shares
and
23,810 Common Shares.
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT, dated as of March 23, 1995, between RSx HOLDINGS,
INC., a Delaware corporation (the "COMPANY"), and MCIT PLC, a public company
incorporated in England (the "PURCHASER"),
W I T N E S S E T H:
WHEREAS, TJC (such and other capitalized terms are used herein with the
meanings provided in SECTION 1.1) has formed the Company and RSx Acquisition,
Inc., a Delaware corporation ("RSX, INC."), to acquire Rockshox, Inc., a
California corporation ("OLD ROCKSHOX"), which is engaged in the manufacture and
marketing of bicycle suspension systems, from the three individuals
(collectively, the "SELLERS") named in ITEM 3.6 ("Sellers") of the Disclosure
Schedule for an aggregate consideration of $49,550,000, and
WHEREAS, the Company and RSx, Inc. are entering into with the Sellers a
stock purchase agreement, to be dated as of the Closing Date (as so originally
executed and delivered in the form furnished to the Purchaser in connection with
the execution and delivery of this Agreement, together with all amendments
thereto consented to by the Purchaser, the "ACQUISITION AGREEMENT"), pursuant to
which
(a) RSx, Inc. will acquire approximately 78.81% of the issued and
outstanding Capital Stock of Old RockShox in exchange for $39,050,000,
payment of $250,000 of which will be deferred in accordance with the terms
of the Acquisition Agreement, and
(b) the Company will acquire approximately 21.19% of the issued and
outstanding Capital Stock of Old RockShox in exchange for $6,000,000 of
Seller Subordinated Notes, 4,000 Series B Preferred Shares and 50,000
Common Shares,
(collectively, the "ACQUISITION"); and
WHEREAS, effective immediately upon the occurrence of the Acquisition,
(a) the Company will acquire RSx, Inc. as its wholly-owned Subsidiary
in exchange for contributing to RSx, Inc., INTER ALIA, all of the Capital
Stock of Old RockShox acquired by the Company in the Acquisition (the
"REORGANIZATION"); and
<PAGE>
(b) Old RockShox will merge (the "MERGER") with RSx, Inc., and RSx,
Inc., as the corporation surviving the Merger ("SURVIVING ROCKSHOX"), will
be renamed "RockShox, Inc."; and
WHEREAS, the Company and RSx, Inc. are entering into a credit agreement, to
be dated as of March 24, 1995 (as so originally executed and delivered in the
form furnished to the Purchaser in connection with the execution and delivery of
this Agreement, the "SENIOR CREDIT AGREEMENT"), with The First National Bank of
Chicago ("FNBC"), as lender (together with such other institutional lenders as
are or from time to time hereafter become parties thereto, the "SENIOR LENDERS")
and as the agent (the "SENIOR AGENT") for the Senior Lenders, pursuant to which
the Senior Lenders will extend credit to RSx, Inc. and Surviving RockShox in an
aggregate principal amount not to exceed $36,000,000 at any one time
outstanding, including for purposes of making payments aggregating approximately
$33,000,000 under the Acquisition Agreement and related documents; and
WHEREAS, the Company is entering into with each Person (collectively, the
"STOCKHOLDERS") identified in ITEM 3.5 ("Stockholders") of the Disclosure
Schedule a subscription and stockholders' agreement, to be dated as of the
Closing Date (as originally executed and delivered in the form furnished to the
Purchaser in connection with the execution and delivery of this Agreement, the
"STOCKHOLDERS' AGREEMENT"), pursuant to which each of the following groups of
Stockholders will agree to purchase Capital Stock of the Company as follows:
(a) the individuals named under the caption "Providers (including
Jordan Parties), I.E. Directors, Brokers, ET.AL." of such ITEM 3.5,
collectively 2,380 Common Shares; and
(b) various Jordan Principals, collectively 23,810 Common Shares; and
WHEREAS, the Company has authorized the sale to the Purchaser, and the
Purchaser is willing on the terms and conditions hereinafter set forth
(including ARTICLE III) to purchase through its nominees, MCIT (Existing Pool)
Limited (the "EXISTING POOL NOMINEE") and MCIT (New Pool) Limited (the "NEW POOL
NOMINEE" and collectively with the Existing Pool Nominee, the "NOMINEES"),
(a) $11,000,000 principal amount of 13 1/2% promissory notes in the
form of EXHIBIT A hereto due April 30, 2005, with the initial annual
prepayment thereof due on April 30, 2003;
2
<PAGE>
(b) 3,000 Series A Preferred Shares, representing on the Closing Date
100% of the Preferred Shares of such Series to be issued and outstanding on
the Closing Date; and
(c) 23,810 Common Shares, representing in the aggregate on the
Closing Date
(i) 23.81% of the authorized Common Shares which will then be
issued and outstanding, and
(ii) the economic equivalent of 21.429% of the aggregate number
of authorized Common Shares after giving full dilutive effect to the
maximum number of SARs which may from time to time be awarded to
management of the Company other than the Management Stockholders;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and
recitals, shall, except where the context otherwise requires, have the
following meanings (such meanings to be equally applicable to the singular
and plural forms thereof):
"ACQUISITION" is defined in CLAUSE (B) of the SECOND RECITAL.
"ACQUISITION AGREEMENT" is defined in the SECOND RECITAL.
"ACQUISITION DOCUMENT" means each of the Acquisition Agreement, the
Management Employment Agreements and the Seller Non-Competition Agreements.
"AFFILIATE" of any Person means any other Person which, directly or
indirectly, controls or is controlled by or under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan).
"AGREEMENT" means, on any date, this Purchase Agreement as originally in
effect and as thereafter from time to time amended, supplemented or otherwise
modified and in effect on such date.
3
<PAGE>
"APPROVAL" means, relative to the Company or any Subsidiary, each approval,
consent, filing or registration by or with any Federal, state or other
regulatory authority necessary to authorize or permit the execution, delivery or
performance of
(a) this Agreement, the Notes, the Pledge Agreement, the Deferred
Limited Interest Guaranty or any other Purchase Document or the
Stockholders' Agreement or for the validity or enforceability hereof or
thereof;
(b) the Acquisition Documents; and
(c) the Senior Credit Agreement or any Senior Loan Documents
executed and delivered by the Company (including the Senior Turnover
Letter), RSx, Inc. or Surviving RockShox or any Subsidiary pursuant
thereto or for the validity or enforceability thereof.
"AUTHORIZED OFFICER" means, relative to either Obligor, those of its
officers whose signatures and incumbency shall have been certified to the
Purchaser pursuant to CLAUSE (A)(II) of SECTION 3.2.
"BUSINESS DAY" means any day which is neither a Saturday or Sunday nor a
legal holiday on which banks are authorized or required to be closed in New
York, New York.
"CAPITAL STOCK" means, relative to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, partnership interests and other indicia of ownership of such
Person.
"CERTIFICATE OF MERGER" means collectively the Certificate of Ownership to
be filed with the Secretary of State of the State of California and the
Certificate of Ownership and Merger to be filed with the Secretary of State of
the State of Delaware, in each case in the form furnished to the Purchaser in
connection with the execution and delivery of this Agreement.
"CHANGE OF CONTROL" means
(a) the sale, lease or transfer of all or substantially all the
assets of the Company to any Person or group (as such term is defined in
Section 13(d)(3) of the Exchange Act) other than the Jordan Parties;
(b) the liquidation or dissolution of (or the adoption of a plan of
liquidation by) the Company;
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<PAGE>
(c) the acquisition by any Person or group (as so defined) (other
than the Jordan Parties and, at any time when Section 6.2 of the
Stockholders' Agreement shall continue to be in full force and effect, the
Management Stockholders) of a direct or indirect majority in interest (more
than 50%) of the Voting Stock of the Company by way of merger or
consolidation or otherwise;
(d) any transaction the result of which is that any Person or group
(as so defined) (other than, at any time when Section 6.2 of the
Stockholders' Agreement shall continue to be in full force and effect, the
Management Stockholders) beneficially owns, directly or indirectly, more of
the Voting Stock of the Company than is owned beneficially, directly or
indirectly, by the Jordan Parties;
(e) after the first sale of common equity by the Company pursuant to
a registration statement under the Securities Act that results in at least
20% of the then outstanding Voting Stock of the Company being held by the
public,
(i) the Jordan Parties own beneficially, directly or indirectly,
less than 25% of the aggregate amount of Voting Stock of the Company,
or
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors
of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of at least
66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company then in office; or
(f) any "Change of Board" or "Change of Control", in each case as
defined in the Senior Credit Agreement as in effect on the date hereof.
"CLOSING" is defined in SECTION 2.3.
"CLOSING DATE" is defined in SECTION 2.3.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed, or
otherwise modified from time to time.
"COMMON SHARE" means a share of common stock, $0.01 par value per share, of
the Company as authorized by the Company Certificate of Incorporation.
5
<PAGE>
"COMPANY" is defined in the PREAMBLE.
"COMPANY CERTIFICATE OF INCORPORATION" means the amended and restated
certificate of incorporation of the Company in the form furnished to the
Purchaser prior to the execution and delivery of this Agreement.
"CONSULTING SERVICES AGREEMENT" is defined in CLAUSE (B) of SECTION 3.8.
"CONTRACTUAL OBLIGATION" means, relative to the Company or any Subsidiary,
any provision of any security issued by it or of any Instrument or undertaking
to which it is a party or by which it or any of its property is bound.
"CONTROLLED GROUP" means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Company, are treated
as a single employer under Section 414(b) or 414(c) of the Code or section
4001(b)(1) of ERISA.
"DEFAULT" means
(a) any Event of Default or any condition or event which, after
notice or lapse of time or both, would constitute an Event of Default; and
(b) any condition or event which has resulted in, or would (including
after notice or lapse of time or both) permit, any or all of the monetary
obligations of RSx, Inc. or Surviving RockShox or any of its Subsidiaries
under the Senior Credit Agreement to be declared immediately due and
payable prior to their stated maturity.
"DEFERRED LIMITED INTEREST GUARANTY" is defined in SECTION 3.4.
"DISCLOSURE SCHEDULE" means SCHEDULE I attached hereto.
"ENVIRONMENTAL CLAIM" is defined in CLAUSE (A)(I) of SECTION 5.12.
"ENVIRONMENTAL LAWS" means all Federal, state or local laws, statutes,
ordinances, codes, rules, regulations, orders, decrees or directives imposing
liability or standards of conduct relating to the environment, industrial
hygiene, land use or the protection of human health and safety, natural
resources, pollution or waste management.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each
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<PAGE>
case as in effect from time to time. References to sections of ERISA also
refer to any successor sections.
"EVENT OF DEFAULT" is defined in SECTION 7.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING POOL NOMINEE" is defined in the SIXTH RECITAL.
"FINANCING MEMORANDUM" is defined in SECTION 5.18.
"FISCAL QUARTER" means each period of three consecutive calendar months
ending on each June 30, September 30, December 31 and March 31.
"FISCAL YEAR" means a period of 12 consecutive calendar months ending on
each March 31; references to a Fiscal Year with a number corresponding to any
calendar year (E.G., "the 1996 Fiscal Year") refer to the Fiscal Year ending on
March 31 of such calendar year.
"FNBC" is defined in the FOURTH RECITAL.
"FNBC INTERCREDITOR LETTER" is defined in CLAUSE (B) of SECTION 3.3.
"FNBC TURNOVER LETTER" is defined in CLAUSE (C) of SECTION 3.9.
"F.R.S. BOARD" means the Board of Governors of the Federal Reserve System
or any successor thereto.
"GAAP" is defined in SECTION 1.4.
"GUARANTY" means any agreement, undertaking or arrangement by which any
Person guarantees, endorses or otherwise becomes or is contingently liable upon
(by direct or indirect agreement, contingent or otherwise, to provide funds for
payment, to supply funds to or otherwise to invest in a debtor or otherwise to
assure a creditor against loss) the debt, obligation or other liability of any
other Person (other than by endorsements of instruments in the course of
collection) or guarantees the payment of dividends or other distributions upon
the shares of any other Person. The amount of the obligor's obligation under
any Guaranty shall (subject to any limitation set forth therein) be deemed to be
the outstanding principal amount (or maximum outstanding principal amount, if
larger) of the debt, obligation or other liability guaranteed thereby.
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<PAGE>
"HAZARDOUS MATERIAL" means:
(a) any substances that are defined or listed in, or otherwise
classified pursuant to, any applicable Environmental Laws as "hazardous
substances", "hazardous materials", "hazardous wastes", "toxic substances"
or any other formulation intended to define, list or classify substances by
reason of deleterious properties such as ignitability, corrosivity,
reactivity, carcinogenicity, reproductive toxicity or "TLCP" toxicity or
"EP" toxicity;
(b) any oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters
and other wastes associated with the exploration, development or production
of crude oil, natural gas or geothermal resources;
(c) any flammable substances or explosives or any radioactive
materials; or
(d) any asbestos in any form or electrical equipment which contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls
in excess of fifty parts per million.
"HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar terms contained in
this Agreement or any other Purchase Document refer to this Agreement or such
other Purchase Document, as the case may be, as a whole and not to any
particular Article, Section, paragraph or provision of this Agreement or such
other Purchase Document.
"INCLUDING" means including without limiting the generality of any
description preceding such term.
"INDEBTEDNESS" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money (including all
notes payable and drafts accepted representing extensions of credit) and
all obligations evidenced by bonds, debentures, notes or other similar
instruments on which interest charges are customarily paid;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
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<PAGE>
(c) all other items
(i) which, in accordance with GAAP, would be included as
liabilities on the liability side of the balance sheet of such Person
(including any leasing or similar arrangement which in accordance
with generally accepted accounting principles is (or should be)
classified as a capitalized lease) as of the date at which
Indebtedness is to be determined, and
(ii) which are incurred as a financing, whether or not in the
ordinary course of business;
(d) whether or not so included as liabilities in accordance with
GAAP,
(i) all obligations of such Person to pay the deferred purchase
price of property or services (excluding trade accounts payable
arising in the ordinary course of business which are not overdue by
more than 90 days) and indebtedness (excluding prepaid interest
thereon) secured by a Lien on property owned or being purchased by
such Person (including indebtedness arising under conditional sales
or other title retention agreements), whether or not such
indebtedness shall have been assumed by such Person or is limited in
recourse; PROVIDED, HOWEVER, that, for purposes of determining the
amount of any Indebtedness of the type described in this clause,
if recourse with respect to such Indebtedness is limited to such
property, the amount of such Indebtedness shall be limited to the
fair market value of such property; and
(ii) all Guaranties made by such Person; and
(e) net obligations under interest rate swap, exchange or cap
agreements.
"INDEMNIFIED LIABILITY" is defined in SECTION 8.4.
"INDEMNIFIED PARTY" is defined in SECTION 8.4.
"INSTITUTIONAL HOLDER" means the Purchaser (so long as it or its nominee
shall hold a Note or other Subject Security) and each other financial
institution which shall hold a Note or other Subject Security (other than a
financial institution which acquired all of the other Subject Securities held by
it in a distribution to the public or as the direct or indirect transferee of
Subject Securities acquired in such a distribution).
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"INSTRUMENT" means any contract, agreement, indenture, mortgage, document
or other writing (whether by formal agreement, letter or otherwise) under which
any obligation is evidenced, assumed or undertaken or any Lien (or right or
interest therein) is granted or perfected.
"INTELLECTUAL PROPERTY" is defined in SECTION 5.11.
"INTERCOMPANY CONSULTING AGREEMENT" is defined in CLAUSE (C) of
SECTION 3.8.
"JORDAN PARTY" means TJC, its Affiliates (other than the Company and
Subsidiaries) and the Purchaser and, with respect to each of the foregoing,
(a) each general partner, each limited partner and employee thereof
or any Affiliate thereof as of the Closing Date;
(b) any 50% (or more) owned Subsidiary of any one (or jointly of more
than one of any) Person specified in CLAUSE (A); and
(c) the spouse or any immediate family member of any Person specified
in CLAUSE (A) or any trust solely for the benefit of any such Person or the
spouse or any immediate family member of such Person.
"JORDAN PRINCIPAL" means
(a) each partner, executive or employee of TJC;
(b) any wholly-owned Subsidiary of any one (or jointly of more than
one of any) Person specified in CLAUSE (A); and
(c) the spouse or any immediate family member of any Person specified
in CLAUSE (A) or any trust solely for the benefit of any such Person or the
spouse or any immediate family member of such Person.
"JZAI" means Jordan/Zalaznick Advisers, Inc., a Delaware corporation.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any conditional sale or other title retention agreement,
any financing lease involving substantially the same economic effect as any of
the foregoing or the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
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"MANAGEMENT EMPLOYMENT AGREEMENT" means each employment agreement, dated
the Closing Date, between the Company and each Management Stockholder.
"MANAGEMENT INCENTIVE PAYMENT" is defined in CLAUSE (C) of SECTION 6.2.5.
"MANAGEMENT STOCKHOLDER" means each Stockholder identified under the
caption "Management" of ITEM 3.5 ("Stockholders") of the Disclosure Schedule.
"MATERIALLY ADVERSE EFFECT" means, with respect to any Person, an effect,
resulting from any occurrence of whatever nature (including any adverse
determination in any litigation, arbitration or governmental investigation or
proceeding), materially adverse to the consolidated properties, business
prospects, operations, earnings, assets, liabilities, or condition (financial or
otherwise) of such Person and its Subsidiaries.
"MCIT" is defined in the PREAMBLE.
"MERGER" is defined in CLAUSE (B) of the THIRD RECITAL.
"NEW POOL NOMINEE" is defined in the SIXTH RECITAL.
"1994 AUDITED FINANCIAL STATEMENT" is defined in CLAUSE (A) of SECTION 5.4.
"NOMINEE" is defined in the SIXTH RECITAL.
"NOTE" means each promissory note of the Company, dated the Closing Date,
substantially in the form of EXHIBIT A attached hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time) and all other
promissory notes accepted from time to time in substitution, replacement or
renewal therefor, including pursuant to SECTION 4.8 or 4.9.
"NOTEHOLDER" means at any time each Person (including each Nominee) then
registered in accordance with SECTION 4.7 as the owner of a Note.
"OBLIGATIONS" means all obligations of the Company with respect to the
repayment or performance of all obligations (monetary or otherwise) of the
Company arising under or in connection with the Notes or under this Agreement or
any other Purchase Document in respect of the Notes, the Indebtedness evidenced
thereby or to any Person as the holder of a Note.
"OBLIGOR" means the Company, RSx, Inc. or Surviving RockShox.
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"OLD ROCKSHOX" is defined in the FIRST RECITAL.
"OR" is not exclusive.
"ORGANIC DOCUMENT" means, relative to the Company or any Subsidiary, its
certificate of incorporation, its by-laws and all shareholder agreements, voting
trusts and similar arrangements applicable to any of its authorized shares of
Capital Stock.
"PERSON" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
"PLAN" means
(a) a "pension plan," as such term is defined in section 3(2) of
ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Company
or any corporation, trade or business that is, along with the Company, a
member of a Controlled Group, may have liability, including any liability
by reason of having been a substantial employer within the meaning of
section 4063 of ERISA at any time during the preceding five years, or by
reason of being deemed to be a contributing sponsor under section 4069 of
ERISA; or
(b) a "welfare plan," as such term is defined in section 3(1) of
ERISA.
"PLEDGE AGREEMENT" is defined in CLAUSE (A) of SECTION 3.3.
"PREFERRED SHARE" means a share of Preferred Stock, $1.00 par value per
share, of the Company as authorized by the Company Certificate of Incorporation.
"PRO FORMA FINANCIAL INFORMATION" is defined in CLAUSE (B) of SECTION 5.4.
"PURCHASE DOCUMENT" means this Agreement, the Notes, the Deferred Limited
Interest Guaranty, the Pledge Agreement and each other Instrument executed and
delivered by the Company or any Subsidiary to the Purchaser or any Noteholder
pursuant hereto, whether or not mentioned herein.
"PURCHASER" is defined in the PREAMBLE.
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"QUINN" means Thomas H. Quinn, to be elected in accordance with Section 6.2
of the Stockholders' Agreement as one of the two Board Advisors.
"REORGANIZATION" is defined in CLAUSE (A) of the THIRD RECITAL.
"REQUIRED NOTEHOLDERS" means, at any time, Noteholders owning 51% or more
of the then outstanding principal amount of the Notes.
"RSX, INC." is defined in the FIRST RECITAL.
"RSX, INC. CERTIFICATE OF INCORPORATION" means the certificate of
incorporation of RSx, Inc. in the form furnished to the Purchaser prior to the
execution and delivery of this Agreement.
"SAR" means stock appreciation, phantom stock, incentive stock or similar
contractual rights arising under stock-based incentive or compensation plans or
programs established by the Company for employees other than Management
Stockholders which do not involve any issuance of any Capital Stock or other
securities convertible thereinto and which, in the aggregate, do not dilute the
economic interests in the Company represented by the Common Shares acquired by
all Stockholders on the Closing Date by more than 10%.
"SEC" means the Securities Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" is defined in the FIRST RECITAL.
"SELLER NON-COMPETITION AGREEMENT" means the non-competition agreements,
dated the Closing Date, between the Company and each Seller.
"SELLER SUBORDINATED NOTE" is defined in CLAUSE (C)(III) of SECTION 3.6.
"SENIOR AGENT" is defined in the FOURTH RECITAL.
"SENIOR CREDIT AGREEMENT" is defined in the FOURTH RECITAL. At any time
after the Closing Date, "SENIOR CREDIT AGREEMENT" also means the Senior Credit
Agreement as originally executed and delivered, together with
(a) each successor Instrument pursuant to which Surviving RockShox
obtains from other financial institutions loans to refinance Indebtedness
outstanding under the Senior Credit Agreement in effect on the date of such
refinancing; PROVIDED, HOWEVER,
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that such successor Instrument shall contain no limitations of the
nature referred to in CLAUSE (B) of SECTION 6.2.7 which are collectively
more restrictive in any material respect than the comparable limitations
contained in the Senior Credit Agreement in effect on the date of such
refinancing; and
(b) all amendments, supplements, extensions, renewals and other
modifications made thereto or to any such successor Instrument from time to
time after the Closing Date in accordance with CLAUSE (C) of SECTION 6.2.7.
"SENIOR LENDER" is defined in the FOURTH RECITAL.
"SENIOR LOAN" means a loan outstanding under the Senior Credit Agreement.
"SENIOR LOAN DOCUMENT" means any Loan Document as defined in the Senior
Credit Agreement as in effect on the Closing Date.
"SENIOR PLEDGE AGREEMENT" is defined in CLAUSE (B) of SECTION 3.9.
"SERIES A PREFERRED SHARE" means a Preferred Share issued as a 5.0% Series
A Pay in Kind Preferred Share.
"SERIES B PREFERRED SHARE" means a Preferred Share issued as a 5.0% Series
B Cumulative Preferred Share.
"STOCKHOLDER" is defined in the FIFTH RECITAL.
"STOCKHOLDERS' AGREEMENT" is defined in the FIFTH RECITAL.
"SUBJECT SECURITY" is defined in SECTION 2.1.
"SUBSIDIARY" of any corporation means any other corporation 51% or more of
the outstanding shares of Voting Stock of which is owned directly or indirectly
by such corporation, and, except as otherwise indicated herein, references to
Subsidiaries refer to Subsidiaries of the Company.
"SURVIVING ROCKSHOX" is defined in CLAUSE (B) of the THIRD RECITAL.
"TAX SHARING AGREEMENT" is defined in CLAUSE (A) of SECTION 3.8.
"TAXES" is defined in SECTION 4.10.
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"TJC" means The Jordan Company, a New York partnership.
"TJC MANAGEMENT" means TJC Management Corporation, a Delaware corporation,
or its assignees.
"VOTING STOCK" means, relative to any Person, stock or similar equity
interests of such Person, pursuant to which the holders thereof have, at the
time of determination, the general voting power under ordinary circumstances
to vote for the election of directors (or persons performing similar
functions), managers, trustees or general partners of such Person
(irrespective of whether or not at the time any other class or classes will
have or might have voting power by reason of the happening of any
contingency).
SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule, each
Note and any other Purchase Document or any notice or other communication
delivered from time to time in connection with any Purchase Document.
SECTION 1.3. CROSS-REFERENCES. Unless otherwise specified, references in
this Agreement and in each other Purchase Document to any Article or Section
are references to such Article or Section of this Agreement or such other
Purchase Document, as the case may be, and unless otherwise specified,
references in any Article, Section or definition to any clause are references
to such clause of such Section, Article or definition.
SECTION 1.4. ACCOUNTING AND FINANCIAL DETERMINATIONS. Unless otherwise
specified, all accounting terms used herein or in any other Purchase Document
shall be interpreted, all accounting determinations and computations
hereunder or thereunder for periods after the Closing Date shall be made and
all financial statements required to be delivered hereunder or thereunder
shall be prepared, in accordance with generally accepted accounting
principles (subject, in the case of financial information as at the close of
any period other than a Fiscal Year, to the absence of footnotes and year-end
adjustments) as in effect on the date hereof and applied consistently with
the 1994 Audited Financial Statements ("GAAP").
ARTICLE II
PURCHASE AND SALE OF SECURITIES
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SECTION II.I. PURCHASE COMMITMENT. The Purchaser hereby severally agrees,
subject to the terms and conditions of this Agreement (including ARTICLE
III), to purchase from the Company, and the Company hereby agrees to sell to
the Purchaser, at the Closing the following securities (collectively, the
"SUBJECT SECURITIES"):
(a) $11,000,000 principal amount of Notes, allocated between the
Nominees as follows:
Existing Pool Nominee $5,500,000
New Pool Nominee $5,500,000;
(b) 3,000 Series A Preferred Shares, at $1,000 per share, allocated
between the Nominees as follows:
Existing Pool Nominee 1,500 shares
New Pool Nominee 1,500 shares; and
(c) 23,810 Common Shares, at $10.00 per share, allocated between the
Nominees as follows:
Existing Pool Nominee 11,905 shares
New Pool Nominee 11,905 shares
SECTION 11.2. ISSUE PRICE. The Company and the Purchaser agree that, for
purposes of section 1271 ET SEQ. of the Code, the issue price of each Note is
100% of its principal amount and the issue price of each Series A Preferred
Share and Common Share is the price set forth respectively for such Subject
Security in SECTION 2.1, and that this agreement is intended to constitute an
agreement as to the issue price for all Federal and other income tax purposes.
SECTION II.3. CLOSING. The sale of the Notes and the other Subject
Securities shall take place at a closing (the "CLOSING") at the offices of
Sidley & Austin, One First National Plaza, Chicago, Illinois at 10:00 a.m.,
local time, on March 24, 1995 or such other Business Day on or prior to March
30, 1995 as may be agreed upon by the Company and the Purchaser (the "CLOSING
DATE"). At the Closing, the Company will deliver to each Nominee.
(a) a single Note (or such greater number of Notes as the Purchaser
may request) in the aggregate principal amount set forth opposite such
Nominee's name in CLAUSE (A) of SECTION 2.1, dated the Closing Date, and
registered in such Nominee's name (or in the name of another nominee of
the Purchaser),
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(b) a certificate (or such greater number of certificates as the
Purchaser may request) representing the aggregate number of Series A
Preferred Shares set forth opposite such Nominee's name in CLAUSE (B) of
SECTION 2.1, dated the Closing Date, and registered in such Nominee's
name (or in the name of another nominee of the Purchaser), and
(c) a certificate (or such greater number of certificates as the
Purchaser may request) representing the aggregate number of Common Shares
set forth opposite such Nominee's name in CLAUSE (C) of SECTION 2.1,
dated the Closing Date, and registered in such Nominee's name (or in the
name of another nominee of the Purchaser),
each against delivery by such Nominee to the Company of immediately available
funds in the amount of the purchase price therefor. If at the Closing the
COmpany shall fail to tender to either Nominee the Subject Securities as
provided above in this Section or any of the conditions specified in
ARTICLE III shall not have been fulfilled to the Purchaser's satisfaction,
the Purchaser shall, at its election, be received of all further obligations
under this Agreement.
ARTICLE III
CONDITIONS TO CLOSING
The Purchaser's obligation to purchase and pay for the Subject Securities
is subject to the fulfillment, to the Purchaser's satisfaction, prior to, at
or concurrently with the Closing, of all of the following conditions:
SECTION III.1. CERTIFICATES OF INCORPORATION. Each of the following
shall have occurred (and the Purchaser shall have received from each of the
Company and Surviving RockShox a certificate, date the Closing Date, of its
Secretary or Assistant Secretary in the form of EXHIBIT B hereto confirming
INTER ALIA that):
(a) the Company and RSx, Inc. shall have adopted and duly filed with
the Secretary of State of the State of Delaware the Company Certificate
of Incorporation and the RSx, Inc. Certificate of Incorporation,
respectively, and, in the case of the RSx, Inc. Certificate of
Incorporation, the authorized Capital Stock shall, after giving effect to
the filing of the Certificate of Merger, consist exclusively of the Pledged
Shares (as defined in the Pledge Agreement); and
(b) no further amendments or modifications to the Company
Certificate of Incorporation or the Surviving RockShox Certificate of
Incorporation shall have been adopted or filed.
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SECTION III.2. RESOLUTIONS, ETC. The Purchaser shall have received:
(a) from each of the Company and Surviving RockShox, a certificate,
dated the Closing Date, in the form of EXHIBIT C hereto as to:
(i) resolutions of its Board of Directors then in full force
and effect authorizing (x) in the case of the Company, the issuance
of the Subject Securities and the execution, delivery and
performance of this Agreement, the Pledge Agreement and each other
Purchase Document to be executed by it and the Stockholders'
Agreement (y) in the case of Surviving RockShox, the execution,
delivery and performance of the Deferred Limited Interest Guaranty,
and
(ii) the incumbency and signatures of those of its officers
authorized to act with respect to each Purchase Document executed by
it and the Stockholders' Agreement; and
(b) such other documents (certified if requested) as the Purchaser
may reasonably request with respect to any Organic Document, Contractual
Obligation or Approval.
SECTION III.3. PLEDGE AGREEMENT, ETC. The Purchaser, as agent for the
Noteholders, shall have received:
(a) counterparts of a pledge agreement, dated the Closing Date (as
amended, supplemented and otherwise modified from time to time, the
"PLEDGE AGREEMENT"), duly executed by an Authorized Officer of the
Company in substantially the form of EXHIBIT D hereto; and
(b) an intercreditor agreement, dated the Closing Date (as amended,
supplemented and otherwise modified from time to time, the "FNBC
INTERCREDITOR LETTER"), in the form of ATTACHMENT 2 to the Pledge
Agreement duly executed on behalf of the Senior Agent.
SECTION III.4. DEFERRED LIMITED INTEREST GUARANTY. Surviving RockShox
shall have executed and delivered to the Purchaser, as agent for the
Noteholders, a guaranty agreement, dated the Closing Date (as amended,
supplemented and otherwise modified from time to time, the "DEFERRED LIMITED
INTEREST GUARANTY"), in substantially the form of EXHIBIT E hereto.
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SECTION III.5. OTHER STOCKHOLDER PURCHASES. Each of the following shall
have occurred (and the Purchaser shall have received a certificate, dated the
Closing Date, in the form of EXHIBIT F hereto confirming INTER ALIA that):
(a) the Company shall have entered into with each of the
Stockholders (other than the Purchaser) the Stockholders' Agreement in
the form furnished to the Purchaser prior to the execution and delivery
of this Agreement; and
(b) the Company shall have sold to all Stockholders (other than the
Management Stockholders and the Purchaser) pursuant to the Stockholders'
Agreement the respective number of shares of Capital Stock shown in
ITEM 3.5 ("Stockholders") of the Disclosure Schedule and received $261,900
in payment therefor in good funds.
SECTION III.6. SATISFACTION OF CONDITIONS TO ACQUISITION. Each of the
following shall have occurred (and the Purchaser shall have received a
certificate, dated the Closing Date, in the form of EXHIBIT G hereto
confirming INTER ALIA that):
(a) the Acquisition Agreement shall be in full force and effect, and
no material term or condition thereof shall have been amended, waived or
otherwise modified;
(b) all material conditions in the Acquisition Agreement to the
consummation of the Acquisition shall have been satisfied without
recourse to any provision permitting the waiver by the Company or RSx,
Inc. of any condition, obligation, covenant or other requirement;
(c) the Acquisition shall be consummated simultaneously with the
Closing in exchange for
(i) $38,000,000 in cash and $800,000 by forgiveness of
Indebtedness,
(ii) 50,000 Common Shares,
(iii) 4,000 Series B Preferred Shares, and
(iv) $6,000,000 aggregate original principal amount of
promissory notes (the "SELLER SUBORDINATED NOTES") to the Sellers in
the respective principal amounts set forth opposite their names in
ITEM 3.6 ("Sellers") of the Disclosure Schedule in the form
furnished to the Purchaser prior to the execution and delivery of
this Agreement and attached to such certificate; and
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(d) each Seller shall have entered into a Seller Non-Competition
Agreement with the Company in accordance with Sections 12.2(d) and 12.3(e)
of the Acquisition Agreement;
(e) each Seller identified underneath the caption "Management
Stockholders" of ITEM 3.5 ("Stockholders") of the Disclosure Schedule
shall have entered into a Management Employment Agreement with the Company
in accordance with Sections 12.2(d) and 12.3(d) of the Acquisition Agreement;
and
(f) the aggregate amount of all bonuses due to employees of Old
RockShox shall not exceed $5,300,000, and the Company shall have made
payment in full of at least $4,700,000 thereof to the Management
Stockholders.
SECTION III.7. REORGANIZATION AND MERGER FILING. Each of the following
shall have occurred (and the Purchaser shall have received a certificate,
dated the Closing Date, in the form of EXHIBIT H hereto confirming
INTER ALIA that):
(a) the Reorganization shall have occurred;
(b) the Certificate of Merger, in recordable form, shall have been
duly executed by the parties thereto;
(c) counterparts of the Certificate of Merger shall be available for
filing with the Secretaries of State of the States of California and
Delaware (which filing shall have been authorized by all parties thereto);
and
(d) such filings shall be consummated simultaneously with the Closing.
SECTION III.8. CERTAIN AFFILIATE AGREEMENTS. Each of the following shall
have occurred (and the Purchaser shall have received a certificate, dated the
Closing Date, in the form of EXHIBIT I hereto confirming INTER ALIA that):
(a) the Company and Surviving RockShox shall have entered into a tax
sharing agreement (as so originally executed and delivered, the
"TAX SHARING AGREEMENT"),
(b) the Company shall have entered into with TJC Management a
management services agreement (as so originally executed and delivered,
the "CONSULTING SERVICES AGREEMENT"), and
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(c) the Company and Surviving RockShox shall have entered into a
consulting agreement (as so originally executed and delivered, the
"INTERCOMPANY CONSULTING AGREEMENT"),
in each case in the form furnished to the Purchaser prior to the execution and
delivery of this Agreement.
SECTION III.9. EFFECTIVENESS, ETC. OF SENIOR CREDIT AGREEMENT. Each of
the following shall have occurred (and the Purchaser shall have received a
certificate, dated the Closing Date, in the form of EXHIBIT J hereto confirming
INTER ALIA that):
(a) the Company, RSx Inc. and FNBC shall have executed and delivered
the Senior Credit Agreement in the form furnished to the Purchaser prior
to the execution and delivery of this Agreement;
(b) the pledge agreement executed and delivered by the Company
pursuant to the Senior Credit Agreement (the "SENIOR PLEDGE AGREEMENT")
shall have been in the form furnished to the Purchaser prior to the
execution and delivery of this Agreement, and the Company shall have
delivered to the Senior Agent in pledge thereunder all of the issued and
outstanding shares of Capital Stock of Surviving RockShox identified in
ATTACHMENT 1 to the Pledge Agreement;
(c) the agreement required to be executed and delivered pursuant
to the Senior Credit Agreement by the Purchaser and the Sellers
undertaking to remit amounts received by such party in violation of
Section 6.3(F) of the Senior Credit Agreement after notice given by the
Senior Agent to each such other party in accordance with the terms
thereof (the "FNBC TURNOVER LETTER") shall have been in the form
furnished to the Purchaser prior to the execution and delivery of this
Agreement; and
(d) all conditions in the Senior Credit Agreement to Surviving
RockShox obtaining the initial borrowing thereunder shall have been
satisfied without recourse to any provision permitting the waiver by
any party thereto of any condition, obligation, covenant or other
requirement, and Surviving RockShox shall have procured an initial
borrowing thereunder of at least $30,000,000.
SECTION III.10. PERFORMANCE; NO DEFAULT. The representations and
warranties of the Company contained in this Agreement and those made in
writing by or on behalf of the Company in connection with any other Purchase
Document shall be correct when made and at the time of the Closing. The
Company shall have performed and complied with all agreements and conditions
contained in this Agreement required to be performed or complied with by it
prior to or at the Closing, and at the time of the Closing (and after giving
effect to
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the transactions contemplated by the Acquisition Agreement, the
Merger and the application of the proceeds of the Senior Loans and the sale
of the Notes, the Series A Preferred Shares and the Common Shares and no
Default shall have occurred and be continuing.
SECTION III.11. ABSENCE OF LITIGATION, ETC. Except as disclosed by the
Company pursuant to SECTION 5.7,
(a) no litigation, arbitration or governmental investigation or
proceeding shall be pending or, to the knowledge of the Company,
threatened against either Old RockShox or any of its Subsidiaries or
the Company or any Subsidiary
(i) which affects any of their respective properties, business
prospects, operations, earnings, assets, liabilities or condition
(financial or otherwise) and which might, in the opinion of the
Purchaser, have a Materially Adverse Effect on the Company and
Subsidiaries, or
(ii) which relates to the Acquisition Agreement or the Merger
or to this Agreement or the Subject Securities; and
(b) no development shall have occurred in any such litigation,
arbitration or governmental investigation or proceeding so disclosed,
which might, in the opinion of the Purchaser, have a Materially Adverse
Effect on the Company and Subsidiaries.
SECTION III.12. CERTIFICATE AS TO COMPLIANCE. The Purchaser shall have
received from the Company a certificate, dated the Closing Date, of its chief
executive or financial Authorized Officer as to satisfaction of the conditions
set forth in SECTIONS 3.10 and 3.11 in the form of EXHIBIT K hereto.
SECTION III.13. CERTIFICATE AS TO SOLVENCY, ETC. The Purchaser shall
have received a certificate, dated the Closing Date, of the chief accounting
and financial Authorized Officer of Surviving RockShox, in the form of
EXHIBIT L attached hereto.
SECTION III.14. OPINION OF COUNSEL. The Purchaser shall have received an
opinion, dated the Closing Date, from Smith, Gill, Fisher & Butts, counsel to
the Obligors, substantially in the form of EXHIBIT M hereto.
SECTION III.15. LEGAL EXPENSES. The Company shall have made payment in
full of all fees and expenses of counsel to the Purchaser which shall have
been invoiced to the Company on or prior to the Closing Date (including
amounts invoiced on account).
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SECTION III.16. LEGAL INVESTMENT. On the Closing Date, the Purchaser's
purchase of the Subject Securities shall not be prohibited by any applicable
law or governmental regulation and shall not subject it to any penalty or, in
the Purchaser's reasonable judgment, other onerous condition under or
pursuant to any applicable law or governmental regulation.
SECTION III.17. SATISFACTORY LEGAL FORM. All documents executed or
submitted pursuant hereto by or on behalf of the Company shall be
satisfactory in form and substance to the Purchaser and its counsel; the
Purchaser and its counsel shall have received all information, and such
counterpart originals or such certified or other copies of such Instrument,
as the Purchaser or its counsel may reasonably request; and all legal matters
incident to the transactions contemplated by this Agreement shall be
satisfactory to counsel to the Purchaser.
ARTICLE IV
PAYMENTS, REGISTRATION, ETC.
SECTION IV.1. PLACE OF PAYMENT. Payments of principal and interest
becoming due and payable on the Notes and any dividends or other payments on
or in respect of any Subject Securities shall be made at the office of
Republic National Bank of New York, 452 Fifth Avenue, 26th Floor, New York,
New York 10018.
SECTION IV.2. HOME OFFICE PAYMENT. So long as the Purchaser or its
nominee (including the Nominees) shall be the holder of any Subject Security,
and notwithstanding anything contained in SECTION 4.1 or in any Subject
Security to the contrary, the Company will pay all sums becoming due for
principal of and interest on such Note and all dividends or other payments on
or in respect of any other Subject Security, not later than 12:00 o'clock
noon, New York City time, on the date such payment is due, in immediately
available funds,
(a) in accordance with the payment instructions set forth below
such Purchaser's signature hereto with instructions (including, in the
case of payments on any Note held by a Nominee, to the account of such
Nominee so set forth) to the payee identified in such instructions to
telephone advice of credit in accordance with such instructions, or
(b) by such other method or at such other address or bank account
as such Purchaser may designate in writing,
without the presentation or surrender of such Subject Security or the making
of any notation thereon, except that any Note paid or prepaid in full (or any
other Subject Security which is
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redeemed in full) shall be surrendered to the Company at its principal office
for cancellation. Prior to any sale or other disposition of any Note held by
the Purchaser or its nominee, the Purchaser will, at its election, either
endorse thereon the amount of principal paid thereon and the last date to
which interest has been paid thereon or surrender such Note to the Company in
exchange for a new Note or Notes, as the case may be, pursuant to SECTION
4.8. The Company will afford the benefits of this Section to any
Institutional Holder which is the direct or indirect transferee of any
Subject Security purchased by the Purchaser under this Agreement and which
has made the same agreement relating to such Subject Security as the
Purchaser has made in this Section.
SECTION IV.3. OPTIONAL PAYMENTS. The Company may, at its option, prepay
at any time all or any part (in an integral multiple of $1,000) of the
outstanding principal amount of, or of interest due or to become due on the
next semi-annual payment date under, the Notes. Prepayments of principal
shall be in the amount so prepaid and be accompanied by payment in full of
all interest accrued on such principal amount and not yet paid. Each
prepayment shall be subject to the Company having given each Noteholder
written notice of such prepayment not more than 10 days and not less than
five days prior to the date fixed for such prepayment, in each case
specifying (w) such date, (x) the aggregate principal amount, if any, of (and
the amount of unpaid interest accrued on such principal amount), or the
amount of unpaid interest on, the Notes to be prepaid on such date, (y) the
principal amount, if any, of (and the amount of unpaid interest accrued on
such principal amount), or the amount of unpaid interest on, each Note held
by such Noteholder to be prepaid on such date and (z) the premium, if any,
applicable to such prepayment. Such notice shall be accompanied by an
officers' certificate certifying that the conditions to such prepayment have
been fulfilled and specifying the particulars of such fulfillment. Amounts
specified in any such notice for voluntarily prepayment in accordance with
this Section on any date shall be due and payable on such date and in the
amount so specified.
SECTION IV.4. MANDATORY PREPAYMENTS. The Company shall make prepayments
of principal of all Notes on each of the following dates preceding April 30,
2005 in the aggregate principal amounts set forth opposite such date:
April 30, 2003 $ 2,750,000
April 30, 2004 2,750,000
[Final maturity: April 30, 2005 5,500,000]
-----------
$11,000,000
Optional prepayments of principal made from time to time pursuant to SECTION
4.3 shall be applied against principal amounts shown above due at final
maturity and as mandatory prepayments, in either case ratably according to
such principal amounts shown.
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SECTION IV.5. ALLOCATION. Each partial prepayment paid or to be prepaid
of principal of the Notes and each prepayment of interest paid or to be
prepaid shall be allocated (in integral multiples of $1,000) among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof, with adjustments, to the extent
practicable, to compensate for any prior prepayments not made exactly in
such proportion. In the case of each prepayment of principal of the Notes,
the principal amount to be prepaid, together with interest on such principal
amount accrued to such date, shall mature and become due and payable on the
date fixed for such prepayment. From and after such date, unless the Company
shall fail to pay such principal amount when so due and payable, together
with the interest, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to
the Company and cancelled and shall not be reissued, and no Note shall be
issued in lieu of any prepaid principal amount of any Note.
SECTION IV.6. MANDATORY REDEMPTION OF NOTES. Upon the earliest to
occur of
(a) any Change of Control,
(b) the Company entering into any written or other arrangement which
will give rise to a Change of Control, or
(c) the Company having notice that any other Person has entered into
a written or other arrangement which will give rise to a Change of Control,
the Company will immediately give written notice of such transaction or event
to each Noteholder, which notice shall describe such transaction or event in
reasonable detail. Immediately upon (and concurrently with) the occurrence
of any Change of Control, the Company will purchase from each Noteholder all
of the outstanding Notes held by it at a purchase price in immediately
available funds equal to the then unpaid principal amount thereof together
with unpaid accrued interest thereon to the date of such purchase.
SECTION IV.7. REGISTRATION, TRANSFER, ETC. The Company will keep at
its principal office a register in which the Company will provide for the
registration of the Notes and their transfer. The Company may treat the
Person in whose name any Note is registered on such register as the owner
thereof for the purpose of receiving payment of the principal of and interest
on such Note and for all other purposes, whether or not such Note shall be
overdue, and the Company shall not be affected by any notice to the contrary
from any Person other than the applicable Noteholder. All references in this
Agreement to a "holder" of any Note shall mean the Person in whose name such
Note is at the time registered on such register.
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SECTION IV.8. TRANSFER AND EXCHANGE. Upon surrender of any Note for
registration of transfer or for exchange to the Company at its principal
office, the Company at its expense will execute and deliver in exchange
therefor a new Note or Notes, as the case may be, of the same class in
denominations of at least $100,000 (except a Note may be issued in a lesser
principal amount if the unpaid principal amount of the surrendered Note is
not evenly divisible by, or is less than, $100,000), as requested by the
holder or transferee, which aggregate the unpaid principal amount of such
Note, registered as such holder or transferee may request, dated so that
there will be no loss of interest on such surrendered Note and otherwise of
like tenor.
SECTION IV.9. REPLACEMENT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Note and, in the case of any such loss, theft or destruction of any Note,
upon delivery of an indemnity bond in such reasonable amount as the Company
may determine (or, in the case of any Note or Notes held by the Purchaser,
its nominee or another Institutional Holder, of an unsecured indemnity
agreement from the Purchaser or such other holder reasonably satisfactory to
the Company), or, in the case of any such mutilation, upon the surrender of
such Note for cancellation to the Company at its principal office, the
Company at its expense will execute and deliver, in lieu thereof, a new Note
of the same class and of like tenor, dated so that there will be no loss of
interest on such lost, stolen, destroyed or mutilated Note. Any Note in lieu
of which any such new Note has been so executed and delivered by the Company
shall not be deemed to be an outstanding Note for any purpose of this
Agreement.
SECTION IV.10. TAXES. All payments by the Company of principal of, and
interest on, the Notes and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings
or other charges of any nature whatsoever imposed by any taxing authority,
but excluding franchise taxes and taxes imposed on or measured by the
Purchaser's or any other Noteholder's net income or receipts (such
non-excluded items being called "TAXES"). In the event that any withholding
or deduction from any payment to be made by the Company hereunder is required
in respect of any Taxes pursuant to any applicable law, rule or regulation,
then the Company will
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Purchaser and each other Noteholder an
official receipt or other documentation satisfactory to the Purchaser and
each other Noteholder evidencing such payment to such authority; and
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(c) pay to the Purchaser and each other Noteholder such additional
amount or amounts as is necessary to ensure that the net amount actually
received by each Noteholder will equal the full amount such Noteholder
would have received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Purchaser or any
Noteholder with respect to any payment received by the Purchaser or such
Noteholder hereunder, the Purchaser or such Noteholder may pay such Taxes and
the Company will promptly pay such additional amount (including any
penalties, interest or expenses) as is necessary in order that the net amount
received by such person after the payment of such Taxes (including any Taxes
on such additional amount) shall equal the amount such person would have
received had not such Taxes been asserted.
If the Company fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Purchaser and the other Noteholder the
required receipts or other required documentary evidence, the Company shall
indemnify the Purchaser and the other Noteholders for any incremental Taxes,
interest or penalties that may become payable by the Purchaser or any other
Noteholder as a result of any such failure. For purposes of this SECTION
4.10, a distribution hereunder by the Purchaser or any other Noteholder to or
for the account of any Noteholder shall be deemed a payment by the Company.
Upon the request of the Company, the Purchaser for any other Noteholder
that is organized under the laws of a jurisdiction other than the United
States shall, prior to the due date of any payments under the Notes, execute
and deliver to the Company, on or prior to the first scheduled payment date
in each calendar year, one or more (as the Company may reasonably request)
United States Internal Revenue Service Forms 4224 or Forms 1001 or such other
forms or documents (or successor forms or documents), appropriately
completed, as may be applicable to establish the extent, if any, to which a
payment to the Purchaser or such other Noteholder is exempt from withholding
or deduction of Taxes. The Company shall not be obligated to pay for, or
indemnify any Purchaser with respect to, any tax, assessment or penalty
imposed upon a Purchaser which such Purchaser certified would not be
applicable with respect such Purchaser in a certificate provided by such
Purchaser to the Company pursuant to this Section 4.10.
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ARTICLE V
WARRANTIES, ETC.
To induce the Purchaser to enter into this Agreement and to purchase the
Subject Securities hereunder, the Company represents and warrants unto the
Purchaser as follows:
SECTION V.1. ORGANIZATION, POWER, AUTHORITY, ETC. Each Obligor is a
corporation validly organized and existing and in good standing under the
laws of the jurisdiction of its incorporation and has full power and
authority and holds all requisite governmental licenses, permits and other
approvals to own and hold its property and to conduct its business
substantially as currently conducted by it. The Company has full power and
authority to enter into and perform its obligations under this Agreement, the
Notes, the other Subject Securities, the Pledge Agreement, each other
Purchase Document and the Stockholders' Agreement and to issue the Subject
Securities, and Surviving RockShox has full power and authority to enter into
and perform its obligations under the Deferred Limited Interest Guaranty and
each other Purchase Document executed by it.
SECTION V.2. DUE AUTHORIZATION. The execution and delivery by the
Company of this Agreement, the Notes and other Subject Securities, the Pledge
Agreement, each other Purchase Document and the Stockholders' Agreement, the
performance by the Company of its obligations hereunder and thereunder, and
the issuance of the Subject Securities by the Company, and the execution and
delivery by Surviving RockShox of the Deferred Limited Interest Guaranty and
each other Purchase Document executed by it and the performance by Surviving
RockShox of its obligations thereunder, have been duly authorized by all
necessary corporate action, do not require any Approval, do not and will not
conflict with, result in any violation of, or constitute any default under,
any provision of any Organic Document or material Contractual Obligation or
any law or governmental regulation or court decree or order and will not
result in or require the creation or imposition of any Lien on any of its
properties pursuant to the provisions of any material Contractual Obligation.
SECTION V.3. VALIDITY, ETC. This Agreement constitutes, and the Notes
and other Subject Securities, the Pledge Agreement, each other Purchase
Document and the Stockholders' Agreement will on the due execution and
delivery thereof constitute, the legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms, subject, as
to enforcement only, to bankruptcy, insolvency, reorganization, moratorium
or similar laws at the time in effect affecting the enforceability of the
rights of creditors generally. The Deferred Limited Interest Guaranty and
each other Purchase Document executed by Surviving RockShox will on the due
execution and delivery thereof constitute the legal, valid and binding
obligation of Surviving RockShox enforceable in accordance with their
respective terms, subject, as to enforcement only, as aforesaid.
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SECTION V.4. FINANCIAL INFORMATION. All balance sheets, all statements
of operations, shareholders' equity and changes in financial position and all
other financial information of
(a) Old RockShox and its Subsidiaries which have been furnished by
or on behalf of the Company to the Purchaser for the purposes of or in
connection with this Agreement prior to its execution and delivery, I.E.
(i) the consolidated balance sheets at December 31, 1994,
December 31, 1993, December 31, 1992 and December 31, 1991 and the
related consolidated statements of earnings, of shareholders' equity
and of changes in financial position, for each of the fiscal years
then ended, of Old RockShox and its Subsidiaries, in the case of the
1994 and 1993 information, certified by Coopers & Lybrand and, in
the case of the 1992 and 1991 information, reviewed by Armstrong,
Gilmour & Associates (the 1994 information being the "1994
AUDITED FINANCIAL STATEMENTS"), and
(ii) the PRO FORMA consolidated balance sheets at March 31,
1995 (and after giving effect to the Acquisition and the Merger,
the purchase of the Subject Securities, the making of the initial
Senior Loans and the other transactions contemplated hereby to
occur concurrently with the Closing) of the Company and Subsidiaries
and of Surviving RockShox and its Subsidiaries (the "PRO FORMA
FINANCIAL INFORMATION") contained in the Financing Memorandum, and
(b) the Company and Subsidiaries and of Surviving RockShox and its
Subsidiaries furnished by or on behalf of the Company to the Purchaser
and other Noteholders after the Closing Date for the purposes of or in
connection with this Agreement or any transaction contemplated hereby
have been or will be prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
(except as disclosed therein) and do or will present fairly (subject, in the
case of the Pro Forma Financial Information, to the assumptions specified
therein) the consolidated financial condition of the corporations covered
thereby as at the dates thereof and the results of their operations for the
periods then ended. Neither the Company nor any Subsidiary has any material
contingent liability or liabilities for taxes, long-term leases or unusual
forward or long-term commitments or material unrealized or unanticipated
losses from unfavorable commitments which are not reflected in the financial
statements described in CLAUSE (A) or in the notes thereto or in ITEM
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5.4 ("Contingent Liabilities, etc.") or 5.6 ("Outstanding Indebtedness") of
the Disclosure Schedule.
SECTION V.5. ABSENCE OF MATERIAL ADVERSE CHANGE. There have been no
occurrences since December 31, 1994 which, individually or in the aggregate,
have had a Materially Adverse Effect on Old RockShox and its Subsidiaries or
of the Company and its Subsidiaries.
SECTION V.6. OUTSTANDING INDEBTEDNESS. Except as disclosed in ITEM 5.6
("Outstanding Indebtedness") of the Disclosure Schedule, the Pro Forma
Financial Information sets forth and identifies in reasonable detail all
long-term Indebtedness of the Company, Surviving RockShox and its
Subsidiaries on a consolidated basis expected to be outstanding immediately
after giving effect to the transactions contemplated hereby to occur on and
concurrently with the Closing.
SECTION V.7. LITIGATION, ETC. There is no pending or, to the knowledge of
the Company, threatened litigation, arbitration or governmental investigation
or proceeding against either Old RockShox or any of its Subsidiaries or the
Company or any Subsidiary or to which any of the properties, assets or
revenues of any thereof is subject
(a) which, if adversely determined, might have a Materially
Adverse Effect on the Company and Subsidiaries, except as disclosed
in ITEM 5.7 ("Litigation") of the Disclosure Schedule; or
(b) which relates to the Acquisition Agreement or the Merger.
SECTION V.8. CAPITALIZATION. On the Closing Date, the authorized
Capital Stock of the Company will be 109,132 shares, consisting of 9,132
Preferred Shares and 100,000 Common Shares, of which
(a) 3,000 Series A Preferred Shares,
(b) 4,000 Series B Preferred Shares, and
(c) 100,000 Common Shares,
will be issued in conformity with ITEM 3.5 ("Stockholders") of the Disclosure
Schedule. All of the 2,132 authorized Preferred Shares which will not be
issued on the Closing Date will be Series A Preferred Shares and will be
reserved for issuance from time to time solely in satisfaction of pay-in-kind
obligations. The Common Shares and the Preferred Shares to be issued to the
Purchaser will have been duly authorized for issuance and, when sold and
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delivered against payment therefor as provided herein, will be validly
issued, fully paid and non-assessable and will be free and clear of all
preemptive rights and Liens except as otherwise provided herein or in the
Stockholders' Agreement and will be entitled to the respective voting powers,
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof as are
set forth with respect thereto in the Company Certificate of Incorporation.
The Company does not have outstanding any Capital Stock or securities
convertible into or exchangeable for any shares of its Capital Stock, nor
does it have outstanding any rights or options to subscribe for or to
purchase any Capital Stock or securities convertible into or exchangeable for
any of its shares of Capital Stock, except SARs representing the economic
equivalent of Common Shares. The Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its Capital Stock. Except for the Stockholders' Agreement, none of
the Company or any Subsidiaries has entered into an agreement to register any
of its securities under the Securities Act.
SECTION V.9. REGULATION G. The Company is not engaged principally, or
as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying margin stock, and less than 25% of the
assets of the Company, individually and on a consolidated basis with all
Subsidiaries, consists of margin stock. Neither the proceeds of any Note nor
the proceeds of any loan under the Senior Credit Agreement will be used for a
purpose which violates, or would be inconsistent with, F.R.S. Board
Regulation G, U or X. Terms for which meanings are provided in F.R.S. Board
Regulation G or any regulations substituted therefor, as from time to time in
effect, are used in this Section with such meanings.
SECTION V.10. GOVERNMENT REGULATION. Neither the Company nor any
Subsidiary is (or shall upon the consummation of the transactions
contemplated hereby become)
(a) an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended;
or
(b) subject to regulation under the Federal Power Act, the
Interstate Commerce Act, the Commodity Exchange Act or any Federal or
state statute or regulation limiting its ability to incur or assume
Indebtedness for borrowed money.
SECTION V.11. PATENTS, TRADEMARKS, ETC. The Company and Surviving
RockShox own, or are licensed under, and have the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and
processes (collectively, "INTELLECTUAL
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PROPERTY") necessary for the conduct of their businesses as set forth in the
Financing Memorandum, and the consummation of the transactions contemplated
by this Agreement and the other Purchase Documents do not alter or impair any
such rights. Except as disclosed in ITEM 5.11 ("Patents, Trademarks, etc.")
of the Disclosure Schedule, there is no
(a) claim which has been asserted by any Person to the use of any
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto; or
(b) to the knowledge of the Company, valid basis for any such
claim or any claim that the use of such Intellectual Property by the
Company and Subsidiaries infringes or will infringe on the rights of
any Person.
SECTION V.12. ENVIRONMENTAL MATTERS. Except as disclosed in ITEM 5.12
("Environmental Matters") of the Disclosure Schedule,
(a) neither the Company nor any Subsidiary
(i) has pending or asserted against it, or, to its knowledge,
against any real property currently or formerly owned, leased or
operated by it, any claims, liabilities, investigations, litigation,
administrative proceedings, whether pending or threatened, or
judgments or orders relating to any Hazardous Materials (collectively,
"ENVIRONMENTAL CLAIMS"),
(ii) has caused or permitted any Hazardous Material to be used,
generated, reclaimed, transported, released, treated, stored or
disposed of in a manner which could form the basis for an
Environmental Claim against it, or
(iii) has assumed (by contract or by operation of law) any
liability of any Person for cleanup, remediation compliance or
required capital expenditures in connection with any Environmental
Claim,
(b) no Hazardous Materials are or were unlawfully stored by Old
RockShox or otherwise located by Old RockShox on real property currently
or formerly owned, leased or operated by the Company or any Subsidiary
or, to the best knowledge of the Company, on adjacent parcels of real
property, and no part of such real property or, to the best knowledge
of the Company, no part of such adjacent parcels of real property,
including the groundwater located thereon, is presently contaminated by
Hazardous Materials, and
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(c) each of the Company and each Subsidiary has been and is
currently in compliance with all applicable Environmental Laws,
including obtaining and maintaining in effect all permits, licenses
or other authorizations required by applicable Environmental Laws,
except as would not reasonably be expected, singly or in the aggregate, to
have a Materially Adverse Effect on the Company and Subsidiaries.
SECTION V.13. TITLE TO AND CONDITION OF PROPERTIES. Each of the Company
and Surviving RockShox has good and marketable title to all the real or
personal properties and other assets (tangible, intangible or mixed) it
purports to own, free and clear of all Liens, except for Liens permitted by
SECTION 6.2.3, and enjoys peaceful and undisturbed possession under all
leases to which it is a party as lessee, except for such leases that the
absence of which, singly or in the aggregate, could not have a Materially
Adverse Effect on the Company and Subsidiaries. All material Contractual
Obligations to which the Company or Surviving RockShox is a party are valid
and binding and in full force and effect and no default has, to the best
knowledge of the Company, occurred or is continuing thereunder. No consent
need be obtained (which has not been obtained) from any Person in respect of
any such Contractual Obligation in connection with the transactions
contemplated by this Agreement, which could, singly or in the aggregate, have
a Materially Adverse Effect on the Company and Subsidiaries.
SECTION V.14. OFFERING OF SUBJECT SECURITIES. Neither the Company, Old
RockShox nor TJC (or any Person employed to act on behalf of any thereof in
connection with the offer and sale of the Subject Securities) has directly or
indirectly offered the Notes, the Common Shares, the Preferred Shares or any
part thereof or any similar securities for sale to, or solicited any offer to
buy any of the same from, or otherwise approached or negotiated in respect
thereof with, anyone other than the Persons identified in ITEM 3.5
("Stockholders") or 5.14 ("Non-Stockholder Offerees") of the Disclosure
Schedule. Neither the Company, Old RockShox nor TJC (or anyone acting on
behalf of any of them) has taken or will take any action which would subject
the issuance or sale of the Notes, Common Shares or Preferred Shares to the
provisions of Section 5 of the Securities Act or to the registration or
qualification requirements of any securities or blue sky law of any
applicable jurisdiction.
SECTION V.15. SPECIAL PURPOSE, HOLDING COMPANY. Except as contemplated
by this Agreement and the other Purchase Documents, the Company, as of the
Closing Date, will have been created solely for purposes of the transactions
contemplated hereby and will not have any significant liabilities (other than
the Seller Subordinated Notes and Management Employment Agreements, the
Senior Pledge Agreement, the Consulting Services Agreement or the Preferred
Stock), own any significant assets (other than the
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Capital Stock of Surviving RockShox) or be engaged in any other significant
activity or business (other than the management of Surviving RockShox).
SECTION V.16. SUBSIDIARIES. As of the Closing Date,
(a) the Company will have no Subsidiaries other than RSx, Inc.
(and, after the Merger, Surviving RockShox);
(b) Old RockShox will have no Subsidiaries and no other Investments
in any joint venture, partnership or other Person, except as disclosed
in ITEM 5.16 ("Old RockShox Subsidiaries, etc."); and
(c) the Company will be the record and beneficial owner, free of
Liens except the Pledge Agreement and Senior Pledge Agreement, of 100%
of the issued and outstanding Capital Stock of RSx, Inc. (and, after
the Merger, Surviving RockShox).
SECTION V.17. SENIOR INDEBTEDNESS. The Company has the corporate power
and authority to incur the indebtedness evidenced by the Seller Subordinated
Notes. All Obligations, including the Obligations to pay principal of and
interest on the Notes, constitute "Senior Indebtedness" as defined in the
Seller Subordinated Notes and are entitled to the benefits of the
subordination provisions thereof which will be enforceable against the
holders of Seller Subordinated Notes by any Noteholder which has not
effectively waived the benefits thereof. All payments of principal of or
interest on the Seller Subordinated Notes made by or on behalf of the
Company or from the liquidation of its property or from any other source will
be subject to such subordination provisions. The Company acknowledges
that the Purchaser is entering into this Agreement in reliance upon such
subordination provisions and this Section.
SECTION V.18. ACCURACY OF INFORMATION. All factual information
heretofore or contemporaneously furnished by or on behalf of the Company in
writing to the Purchaser for purposes of or in connection with this
Agreement or any transaction contemplated hereby, I.E.
(a) the financing memorandum (the "FINANCING MEMORANDUM")
prepared by TJC transmitted under the letter, dated February 27, 1995,
from JZAI to MCIT, and
(b) the Acquisition Agreement and the Disclosure Schedule under
(and as defined in) the Acquisition Agreement true and complete copies
of which were furnished to the Purchaser prior to the execution and
delivery of this Agreement, is as of the Closing Date, and all other
such factual information
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hereafter furnished by or on behalf of the Company to the Purchaser
will be on the date as of which such information is dated or certified,
true and accurate in every material respect and not be incomplete by
omitting to state any material fact known to the Company necessary
to make such information not misleading. There is no fact known to
the Company or Surviving RockShox relating specifically to their
businesses (and not to the economy in general) that the Company or
Surviving RockShox has not disclosed to the Purchaser in writing that
could, singly or in the aggregate, have a Materially Adverse Effect on the
Company and Subsidiaries. The projections contained in the Financing
Memorandum are based on good faith estimates and assumptions by the
management of Surviving RockShox, which Surviving RockShox believes
are fair and reasonable in light of the historical financial
performance of Old RockShox and current and reasonably foreseeable
business conditions, and, to the knowledge of the Company and management
of Surviving RockShox, there are no facts or circumstances presently
existing which, singly or in the aggregate, would cause a material
reduction in such projections, it being recognized by the Purchaser,
however, that projections as to future events are not to be viewed as
fact and that actual results during the period or periods covered by
any such projections may differ from the projected results and that
the differences may be material.
ARTICLE VI
COVENANTS
SECTION VI.1. CERTAIN AFFIRMATIVE COVENANTS. The Company agrees with
(a) the Purchaser and each other Noteholder that, until all
Obligations have been paid and performed in full, the Company will
perform all of the covenants contained in SECTION 6.1; and
(b) with the Purchaser that, until all of the other Subject
Securities shall have been sold or transferred by the Purchaser and
other Institutional Investor or been purchased or redeemed by the
Company, the Company will perform the covenants contained in
CLAUSES (A) and (B) of SECTION 6.1.1 and in SECTION 6.1.6, 6.1.7 and 6.1.8.
SECTION VI.1.1. FINANCIAL INFORMATION, ETC. The Company will furnish,
or will cause to be furnished, to the Purchaser and each other Noteholder
copies of the following financial statements, reports and information:
(a) promptly when available and in any event when furnished
pursuant to the Senior Credit Agreement, copies of all financial
statements, certificates, audit and
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other reports, filings, projections, management letters and other
information furnished pursuant to Section 6.1(A) thereof;
(b) promptly when available and in any event within 90 days
after the close of each Fiscal Year (and only if, and to the extent,
not being furnished pursuant to clause (a)),
(i) a consolidated balance sheet as of the end of such
Fiscal Year, and consolidated statements of earnings and cash
flow and of changes in financial position for such Fiscal Year,
of the Company and Subsidiaries, prepared, commencing with the
1997 Fiscal Year, on a comparative basis with the preceding Fiscal
Year and certified without qualification by Coopers & Lybrand
(or other independent public accountants of recognized standing
selected by the Company and consented to by the Required Noteholders),
(ii) a certificate of such accountants stating that they have
examined the provisions of this Agreement and at the date of said
statement are not aware of any default in the performance by the
Company of any obligation to be performed by it hereunder, except
such, if any, as may be disclosed, including the nature thereof,
in such statement,
(iii) an unaudited consolidating balance sheet as of the end
of such Fiscal Year, and consolidating statements of income and
retained earnings and of changes in financial position for such
Fiscal Year, of the Company and Subsidiaries, prepared, commencing
with the 1997 Fiscal Year, on a comparative basis with the preceding
Fiscal Year and certified by the chief accounting, executive or
financial Authorized Officer of the Company, and
(iv) a certificate of the chief accounting, executive or
financial Authorized Officer of the Company stating that no Default
has occurred during the fourth quarter of such Fiscal Year (or
if a Default has occurred, a description thereof and a statement as
to whether it is continuing and as to what actions are being taken
to cure it);
(c) promptly when available and in any event within 45 days after
the close of each Fiscal Quarter (and only if, and to the extent, not
being furnished pursuant to CLAUSE (A)), consolidated and consolidating
balance sheets at the close of such Fiscal Quarter, and consolidated
and related consolidating statements of operations, shareholders' equity
and changes in financial position for such Fiscal Quarter and for the
period commencing at the close of the previous Fiscal Year and ending
with the close of such Fiscal Quarter, of the Company and Subsidiaries
(with, commencing
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with the 1997 Fiscal Year, comparative information at the close of and
for the corresponding Fiscal Quarter of the prior Fiscal Year and for
the corresponding portion of such prior Fiscal Year), certified by the
chief accounting, executive or financial Authorized Officer of the Company;
and
(d) such other information with respect to the financial
condition, business, property, assets, revenues and operations of the
Company or any Subsidiary as the Purchaser or the Required Noteholders may
from time to time reasonably request.
For purposes of financial statements delivered pursuant to CLAUSES (B) and
(C), all Subsidiaries of Surviving RockShox may be treated on a consolidated
basis on any date, and for any period, for which consolidating financial
information as to Surviving RockShox and its Subsidiaries shall have been
delivered pursuant to CLAUSE (A).
SECTION VI.1.2. NOTICE OF DEFAULT, LITIGATION, ETC. The Company will
furnish, or will cause to be furnished, to the Purchaser and each other
Noteholder prompt notice (with a description in reasonable detail) of:
(a) the occurrence of any Default;
(b) each consent, approval, waiver, modification, notice,
communication or other writing delivered, received or exchanged
pursuant to Section 6.1(B), 6.1(C), 6.1(D), 6.1(E), 6.1(F), 6.1(G),
6.1(H), 6.1(I), 7.1, 8.1 and 8.3 of the Senior Credit Agreement
(including therewith a copy of such consent, etc.); and
(c) if, and to the extent that, notice thereof is not being
furnished pursuant to CLAUSE (B):
(i) the occurrence of any litigation, arbitration or
governmental investigation or proceeding not previously
disclosed by the Company pursuant hereto which has been
instituted or, to the knowledge of the Company or any Subsidiary,
is threatened against, the Company or any Subsidiary or to
which any properties, assets or revenues of any thereof is
subject which, if adversely determined, might have a Materially
Adverse Effect on the Company and Subsidiaries,
(ii) any material adverse development which shall occur
in any litigation, arbitration or governmental investigation or
proceeding previously disclosed by the Company,
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(iii) the occurrence of any circumstance which has a
reasonable likelihood of having a Materially Adverse Effect on the
Company and Subsidiaries, and
(iv) the occurrence of a Reportable Event (as defined in the
Employee Retirement Income Security Act of 1974, as amended)
under, or the institution of steps by the Company or any Subsidiary
to withdraw from, or the institution by the Pension Benefit
Guaranty Corporation or otherwise of any steps to terminate, any
employee benefit plan covered by Title IV of such Act.
SECTION VI.1.3. PERFORM SENIOR CREDIT AGREEMENT. The Company will cause
Surviving RockShox to perform, comply with and be bound by
(a) at all times, all of its agreements, covenants and obligations
(i) contained in Sections 6.2(A), 6.2(C), 6.2(D), 6.2(E)
(but only the first sentence of clause (i) thereof only), 6.2(F)
(EXCLUDING, HOWEVER, the last sentence thereof), 6.2(H), 6.2(I)
and 6.3(D) (but only insofar as it relates to the Company) of
the Senior Credit Agreement as in effect on the Closing Date, and
(ii) contained in Sections 6.3(G) (but only insofar as it
relates to Subsidiaries), 6.3(J) and 6.3(P) of the Senior Credit
Agreement as in effect on the Closing Date and as such agreements,
covenants and obligations may insofar as they relate to Subsidiaries
and, subject to SECTION 6.2.7, from time to time, be waived,
amended or otherwise modified by the parties thereto, and
(b) after the Senior Credit Agreement shall cease to remain in
effect among the parties thereto, all of its agreements, covenants and
obligations contained in Section 6.3(B) of the Senior Credit Agreement
as in effect immediately prior to such cessation,
in each case, such Sections, and all other terms of the Senior Credit
Agreement to which reference is made herein, together with all related
definitions and ancillary provisions, being hereby incorporated into this
Agreement by reference as though specifically set forth in this Agreement;
PROVIDED, HOWEVER, that:
(c) all references to the "Agent" and "Lenders" shall be deemed to
refer to the Purchaser;
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(d) all references to the "Holdings" and "Borrower" shall be deemed
to refer to the Company and Surviving RockShox, respectively; and
(e) all references to "Loans" or "Commitments" shall be deemed to
refer to the Notes outstanding hereunder.
All such Sections and other terms, definitions and provisions of the Senior
Credit Agreement shall, except as otherwise consented to by the Required
Noteholders for purposes of this Agreement, continue in full force and effect
for the benefit of all Noteholders as if they were Lenders (as defined in the
Senior Credit Agreement), whether or not the Commitments or Loans (as so
defined) remain outstanding or the Senior Credit Agreement remains in effect
between the parties thereto.
SECTION VI.1.4. CONFORMING CHANGES. Concurrently with the execution and
delivery by Surviving RockShox of a successor Instrument which qualifies as
the Senior Credit Agreement in accordance with the definition of such term,
the Company will enter into an amendment to this Agreement clarifying or
correcting, as shall be necessary or appropriate, all references herein
(including in SECTIONS 6.1.1, 6.1.2 and 6.1.3) to the Senior Credit Agreement
to refer to such successor Instrument and its terms and provisions.
SECTION VI.1.5. PERFORMANCE OF INSTRUMENTS. The Company will perform
promptly and faithfully all of its obligations under each Purchase Document.
SECTION VI.1.6. MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Company
will cause to be done at all times all things necessary to maintain and
preserve its corporate existence, and the Company will continue to own and
hold, free of Liens (other than the Pledge Agreement and the Senior Pledge
Agreement), all of the outstanding shares of Capital Stock of Surviving
RockShox.
SECTION VI.1.7. PAYMENT OF TAXES, ETC. The Company will pay and
discharge, as the same may become due and payable, all federal, state and
local taxes, assessments, fees and other governmental charges or levies
against it or on any of its property, as well as claims of any kind which, if
unpaid, might become a material Lien upon any one of its properties;
PROVIDED, HOWEVER, that the foregoing shall not require the Company to pay or
discharge any such tax, assessment, fee, charge, levy or Lien so long as it
shall be diligently contesting the validity thereof in good faith by
appropriate proceedings and shall have set aside on its books adequate
reserves in accordance with GAAP with respect thereto.
SECTION VI.1.8. BOOKS AND RECORDS. The Company will, and will cause
each Subsidiary to, keep books and records reflecting all of its business
affairs and transactions in accordance with GAAP and permit the Purchaser and
each other Noteholder or any of their
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respective representatives, at reasonable times and intervals, to visit all
of its offices, to discuss its financial matters with its officers and
independent public accountant (and hereby authorizes such independent public
accountant to discuss its financial matters with the Purchaser and each other
Noteholder or its representatives whether or not any representative of the
Company is present) and to examine (and, at the expense of the Company,
photocopy extracts from) any of its books or other corporate records. The
Company shall pay any fees of such independent public accountant incurred in
connection with the Purchaser's or any other Noteholder's exercise of its
rights pursuant to this Section.
SECTION VI.2. CERTAIN NEGATIVE COVENANTS. The Company agrees with the
Purchaser and each other Noteholder that, until all Obligations have been
paid and performed in full, the Company will perform the following
obligations all of the covenants contained in SECTION 6.2.
SECTION VI.2.1. BUSINESS ACTIVITIES. The Company will not engage in any
business activity, except its consummation of the Acquisition, its ownership
thereafter of Surviving RockShox, its adoption of a plan or program to award
SARs and its performance from time to time of its obligations under this
Agreement, the Notes, the Pledge Agreement and each other Purchase Document,
the Stockholders' Agreement, the Acquisition Agreement, the Seller
Subordinated Notes, the Senior Credit Agreement, the Senior Pledge Agreement
and other Senior Loan Documents, the Intercompany Consulting Agreement,
the Consulting Services Agreement and the Management Employment Agreements
and each other Instrument contemplated hereby, whether or not executed on or
before the Closing Date.
SECTION VI.2.2. INDEBTEDNESS. The Company will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist or otherwise
become or be liable in respect of any Indebtedness other than:
(a) Indebtedness in respect of the Notes and other Obligations;
(b) Indebtedness of the Company in respect of the Consulting
Services Agreement, the Management Employment Agreements, the
Preferred Shares and the Seller Subordinated Notes;
(c) Indebtedness of Surviving RockShox under the Senior Credit
Agreement in an aggregate principal amount at any time outstanding
not to exceed the excess of $45,000,000 over the aggregate amount of
all permanent payments and prepayments of principal, and (without
duplication) all permanent reductions to commitments, made from
time to time thereunder;
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(d) for so long as Surviving RockShox shall have any Indebtedness
outstanding (or unused commitments in effect) under the Senior Credit
Agreement, any Indebtedness of Surviving RockShox or any of its
Subsidiaries which shall then be permitted by the Senior Credit Agreement
to be outstanding;
(e) at any time after payment in full of all Indebtedness of
Surviving RockShox under the Senior Credit Agreement (and the termination
of all commitments thereunder), Indebtedness of Surviving RockShox and its
Subsidiaries in an aggregate principal amount not exceeding $10,000,000
at any one time outstanding;
(f) Indebtedness of the Company to Surviving RockShox in an
aggregate principal amount not to exceed $2,500,000 at any time
outstanding; and
(g) Indebtedness owing among Surviving RockShox and its Subsidiaries.
SECTION VI.2.3. LIENS. The Company will not, and will not permit any
Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of
its property, revenues or assets, whether now owned or hereafter acquired,
except:
(a) Liens, including the Lien of the Pledge Agreement, securing
the Obligations;
(b) Liens granted by Surviving RockShox or any of its Subsidiaries
to secure Obligations under (and as defined in) the Senior Credit
Agreement and the Lien granted by the Company pursuant to the Senior
Pledge Agreement;
(c) Liens permitted by the Senior Credit Agreement to be granted
by Surviving RockShox or any of its Subsidiaries to secure Indebtedness
which is permitted from time to time to be outstanding by CLAUSE (C) or
(D) of SECTION 6.2.2;
(d) Liens for taxes, assessments, or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty
or being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside
on its books;
(e) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being contested in good faith by appropriate proceedings and for which
adequate reserves shall have been set aside on its books;
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(f) Liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance, or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds; and
(g) judgment liens in existence less than 15 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible) by
insurance for which, if against Surviving RockShox, are being contested in
good faith by appropriate proceedings and for which adequate reserves
have been set aside on its books.
SECTION VI.2.4. FIXED CHARGE COVERAGE RATIO. The Company will not
permit the "Fixed Charge Coverage Ratio" (as defined in the Senior Credit
Agreement as in effect on the Closing Date) of Surviving RockShox and its
Subsidiaries for any period of four consecutive Fiscal Quarters, commencing
with the four Fiscal Quarters ending March 31, 1996, to be less than 1:1.
SECTION VI.2.5. RESTRICTED PAYMENTS, ETC. On or after the Closing Date,
(a) the Company will not declare, pay or make any dividend or
distribution (in cash, property or obligations) on any shares of any
class of its Capital Stock (now or hereafter outstanding) or on any
warrants, options or other rights with respect to any shares of any
class of its Capital Stock (now or hereafter outstanding) other than
dividends or distributions payable in its Capital Stock, or warrants to
purchase its Capital Stock, or splitups or reclassifications of its
Capital Stock into additional or other shares of its Capital Stock) or
apply, or permit any Subsidiary to apply, any of its funds, property
or assets to the purchase, redemption, sinking fund or other retirement
or defeasance of any shares of any class of Capital Stock (now or
hereafter outstanding) of the Company;
(b) the Company will not, and will not permit any Subsidiary to,
purchase, redeem, retire, defease or make any payment of principal of
or interest on any Seller Subordinated Note;
(c) the Company will not, and will not permit any Subsidiary to,
pay, prepay, redeem, retire or defease any of its obligations to make
any payment (the "MANAGEMENT INCENTIVE PAYMENTS") pursuant to Section 4
of the Management Employment Agreements; and
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(d) the Company will not, and will not permit any Subsidiary to,
make any deposit for any of the foregoing purposes;
PROVIDED, HOWEVER, that:
(e) subject to the subordination and postponement provisions
contained in the Seller Subordinated Notes, the Company may make
payments of interest accrued thereon and of principal thereof on the
dates on which such payments are scheduled to be due by the terms thereof;
and
(f) the Company may make payment when due of fully accrued
Management Incentive Payments in accordance with Section 4 of the
Management Employment Agreements in an aggregate amount not exceeding,
with respect to each Management Stockholder, either $5,000,000 in the
aggregate or $1,500,000 in respect of any Fiscal Year (except the last
Fiscal Year in which such payments are due), commencing with the 1996
Fiscal Year, but only if and to the extent that after giving effect
thereto no Event of Default of the nature referred to in SECTION 7.1.1
shall have occurred and be continuing (or, to the knowledge of the Board
of Directors of the Company at the time of such payment, be likely to
occur within the next 190 days);
(g) the Company may declare and pay dividends on the Series A
Preferred Shares and the Series B Preferred Shares in accordance with
ARTICLE FOURTH, Section 2a of the Company Certificate of Incorporation
(as in effect on the Closing Date), but only if and to the extent that,
after giving effect thereto
(i) the funds then available to the Company are sufficient
(and are reasonably expected by the Board of Directors of the
Company to continue to be sufficient) to make the next scheduled
payment of interest to become due, and all other payments due and
to become due in the next 190 days, on the Notes,
(ii) no Default shall have occurred and be continuing (or
be likely to occur within the next 190 days), and
(iii) such payment is made at a time when there shall be no
limitations effective under (x) the proviso to SECTION 2.1 of the
Deferred Limited Interest Guaranty on the right of the Purchaser
to demand payment or (y) the proviso to paragraph SECTION 2(B)(I)
of the FNBC Intercreditor Letter on the necessity of the Purchaser
to consent to any exercise by the Senior Agent of its rights under
Section 9 of the Senior Pledge Agreement;
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PROVIDED, HOWEVER, FURTHER that nothing in this Section shall be construed to
restrict any payment to an Affiliate expressly permitted to be made by, or
expressly excluded from the restrictions of, SECTION 6.2.13.
SECTION VI.2.6. CONSOLIDATION, MERGER, ETC. The Company will not, and
will not permit any Subsidiary to, liquidate or dissolve, consolidate with,
or merge into or with, any other corporation or purchase or otherwise acquire
all or substantially all of the assets of any Person (or of any division
thereof), except:
(a) any Subsidiary may liquidate or dissolve voluntarily into, and
may merge with and into, any other Subsidiary;
(b) so long as no Default has occurred and is continuing or would
occur after giving effect thereto, the purchase or acquisition by any
Subsidiary of all of the outstanding shares of Capital Stock of, or
substantially all of the assets of, any Person; and
(c) any Subsidiary of Surviving RockShox may merge with any other
corporation permitted to be acquired pursuant to CLAUSE (B) and may be
created and capitalized for such purposes.
SECTION VI.2.7. MODIFICATION OF SENIOR CREDIT AGREEMENT. The Company
will not, and will not permit Surviving RockShox to, consent or agree to any
amendment, supplement, waiver or other modification of the Senior Credit
Agreement or the notes issued pursuant thereto so as to
(a) increase the maximum principal amount of Indebtedness
permitted to be incurred pursuant thereto above the maximum aggregate
principal amount of Indebtedness then permitted to be outstanding
thereunder by CLAUSE (C) of SECTION 6.2.2;
(b) amend Section 6.2(L) or 6.3(F) thereof or Section 7 or 9
of the Senior Pledge Agreement or any other provision hereof or
thereof in a manner adversely affecting Surviving RockShox's ability
to make payments to the Company; or
(c) amend, supplement or otherwise modify any term, condition
or provision applicable to the Company of the Senior Credit Agreement
or any other Senior Loan Document if the cumulative effect of such
amendment or modification and all other such amendments and modifications,
if any, becoming effective concurrently therewith, shall make the
Senior Credit Agreement materially more burdensome to the Company.
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SECTION VI.2.8. MODIFICATION OF CERTAIN COMPANY AGREEMENTS. The Company
will not consent or agree to any amendment, supplement or other modification
of any Seller Subordinated Note or Management Employment Agreement so as to
(a) increase the frequency or amount, or shorten the maturity of,
any payments of principal of or interest on the Seller Subordinated
Notes or of the Management Incentive Payments;
(b) materially increase any of the rights or privilege of any
holders of, or any of the obligations or duties of the Company under,
the Seller Subordinated Notes or Management Incentive Payments; or
(c) modify in any respect any of the subordination or postponement
provisions applicable to the Seller Subordinated Notes or Management
Incentive Payments.
SECTION VI.2.9. MODIFICATION OF OTHER SURVIVING ROCKSHOX INSTRUMENTS.
The Company will not permit Surviving RockShox to consent or agree to any
amendment, supplement or other modification of the Tax Sharing Agreement
or Intercompany Consulting Agreement which affects, in a manner adverse to
the Company, the amount or timing of payments required to be made by
Surviving RockShox.
SECTION VI.2.10. MODIFICATION OF AMENDED CERTIFICATE OF INCORPORATION.
The Company will not take any action to amend or modify any terms of Article
IV of the Company Certificate of Incorporation.
SECTION VI.2.11. NEGATIVE PLEDGES. The Company will not enter into any
agreement (excluding this Agreement and any other Purchase Document and the
Senior Credit Agreement) prohibiting the creation or assumption of any Lien
upon its properties, revenues or assets, whether now owned or hereafter
acquired.
SECTION VI.2.12. UPSTREAM LIMITATIONS. The Company will not, and will
not permit any Subsidiary to, enter into any agreement, contract or
arrangement (other than the Senior Credit Agreement or any Loan Document as
in effect on the Closing Date or amended in accordance with SECTION 6.2.7)
restricting the ability of any Subsidiary to pay or make dividends or
distributions in cash or kind, to make loans, advances or other payments of
whatsoever nature or to make transfers or distributions of all or any part
of its assets to the Company or to any Subsidiary of which such Subsidiary is
a Subsidiary.
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SECTION VI.2.13. TRANSACTIONS WITH AFFILIATES. The Company will not,
and will not permit any Subsidiary to, enter into, or cause, suffer, or permit
to exist:
(a) any arrangement or contract with any of its other Affiliates of
a nature customarily entered into by Persons which are Affiliates of
each other (including management or similar contracts or arrangements
relating to the allocation of revenues, taxes and expenses or otherwise)
requiring any payments to be made by the Company or any Subsidiary to any
Affiliate unless such arrangement is fair and equitable to the Company
or such Subsidiary; or
(b) any other transaction, arrangement or contract with any of
its other Affiliates which would not be entered into by a prudent Person
in the position of the Company or such Subsidiary with, or which is on
terms which are less favorable than are obtainable from, any Person
which is not one of its Affiliates.
Without any implication that the foregoing shall restrict payment
of any of the following,
(c) Surviving RockShox may pay TJC and/or its designee an investment
banking fee of $1,000,000 and its out-of-pocket expenses in connection
with the consummation of the Acquisition and the financing thereof,
(d) Surviving Rockshox may pay on the Closing Date the $4,700,000 of
employment bonuses due to the Management Stockholders pursuant to the
Management Employment Agreements,
(e) the Company may from time to time make payment of amounts
payable under the Consulting Services Agreement (as in effect on the
Closing Date) not exceeding $250,000 in the aggregate in any Fiscal Year
plus out-of-pocket expenses,
(f) Surviving RockShox may from time to time make payment of
amounts payable by it to the Company in respect of the Intercompany
Consulting Agreement,
(g) the Company may from time to time make payment to directors and
director advisors for compensation for services in such capacity not
exceeding $100,000 in the aggregate in any Fiscal Year, and
(h) the Company may from time to time make payment to each Management
Stockholder of "ongoing payments" pursuant to SECTIONS 3, 4 (subject to
the limitations of SECTION 6.2.5) and 5 of the Management Employment
Agreement,
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in each case at any time when due by the terms of such arrangement, but, in
the case of any such payment permitted by CLAUSE (E) or (G), only if and to
the extent that, after giving effect thereto,
(i) the funds then available to the Company are sufficient (and
are reasonably expected by the Board of Directors of the Company to be
sufficient) to make the next scheduled payment of interest to become
due, and all other payments due and to become due in the next 190 days,
on the Notes, and
(j) no Default shall have occurred and be continuing (or be likely
to occur within the next 190 days).
SECTION VI.2.14. INCONSISTENT AGREEMENTS. The Company will not, and
will not permit any Subsidiary to, enter into any agreement containing any
provision which would be violated or breached by the performance by the
Company of its obligations hereunder or under any Purchase Document.
ARTICLE VII
EVENTS OF DEFAULT
SECTION VII.1. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" shall
mean any of the following events:
SECTION VII.1.1. NON-PAYMENT OF OBLIGATIONS. The Company shall default
in the payment or prepayment when due of any principal of any Note, or the
Company shall default in the payment when due of interest on any Note or any
other Obligation (and such default shall continue unremedied for a period of
10 days).
SECTION VII.1.2. DEFAULT ON OTHER INDEBTEDNESS. Any default shall
occur under the terms applicable to any Indebtedness outstanding in a
principal amount exceeding $500,000 of the Company or any Subsidiary which
represents any borrowing or financing or which arises under any other
material agreement, and such default shall:
(a) consist of the failure to make any payment of such Indebtedness
when due (subject to any applicable grace period) in accordance with
the terms thereof; or
(b) have resulted in any or all of such Indebtedness having become
due and payable in accordance with its terms prior to its Stated
Maturity, whether by declaration or otherwise.
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SECTION VII.1.3. BANKRUPTCY, INSOLVENCY, ETC. The Company or any
Subsidiary shall
(a) become insolvent or generally fail to pay, or admit in
writing its inability to pay, debts as they become due;
(b) apply for, consent to or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for the Company or
any Subsidiary or any property of any thereof or make a general
assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Company or any Subsidiary or
for a substantial part of the property of any thereof, and such trustee,
receiver, sequestrator or other custodian shall not be discharged
within 60 days;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under
any bankruptcy or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of the Company or any Subsidiary,
and, if such case or proceeding is not commenced by the Company or such
Subsidiary, such case or proceeding shall be consented to or acquiesced
in by the Company or such Subsidiary or shall result in the entry of an
order for relief or shall remain for 60 days undismissed; or
(e) take any corporate action authorizing, or in furtherance of,
any of the foregoing.
SECTION VII.1.4. BREACH OF WARRANTY. Any warranty of the Company
hereunder or in any other Purchase Document or any other writing furnished by
or on behalf of the Company to the Purchaser or any other Noteholder for the
purposes of or in connection with, and in each case as referred to in, this
Agreement or any such Purchase Document is or shall be incorrect when made in
any material respect.
SECTION VII.1.5. NON-PERFORMANCE OF CERTAIN UNDERTAKINGS. The Company
shall default in the due performance and observation of any agreement
contained in SECTION 6.2.3 (as it relates to the Company), 6.2.4, 6.2.5,
6.2.6, 6.2.7, 6.2.8, 6.2.9, 6.2.10, 6.2.11, 6.2.12 or 6.2.13.
SECTION VII.1.6. NON-PERFORMANCE OF OTHER UNDERTAKINGS. Any Obligor
shall default in the due performance and observance of any other agreement
contained herein or in
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any other Purchase Document, and such default shall continue unremedied for a
period of 30 days after notice thereof shall have been given to the Company
by the Purchaser or the Required Noteholders.
SECTION VII.1.7. JUDGMENTS. A final judgment not fully covered by
insurance which, with other such outstanding final judgments against the
Company and Subsidiaries, exceeds (to the extent of such uninsured portion)
an aggregate of $500,000, shall be rendered against the Company or any
Subsidiary and, within 30 days after entry thereof, such judgment shall not
have been discharged or execution thereof stayed pending appeal, or, within
30 days after the expiration of any such stay, such judgment shall not have
been discharged.
SECTION VII.1.8. OWNERSHIP OF SURVIVING ROCKSHOX. The Company shall for
any reason cease to own and hold, free of any Liens (except under the Pledge
Agreement and Senior Pledge Agreement), 100% of the issued and outstanding
Capital Stock of Surviving RockShox.
SECTION VII.2. ACTION IF BANKRUPTCY. If any Event of Default described
in CLAUSES (A) through (D) of SECTION 7.1.3 shall occur, the outstanding
principal amount of all outstanding Notes and all other Obligations shall
automatically be and become immediately due and payable, without notice or
demand.
SECTION VII.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of
Default (other than any Event of Default described in CLAUSES (A) through (D)
of SECTION 7.1.3) shall occur for any reason, whether voluntary or
involuntary, and be continuing, the Required Noteholders may, upon notice or
demand, declare all or any portion of the outstanding principal amount of the
Notes to be due and payable and any or all other Obligations to be due and
payable, whereupon the full unpaid amount of such Notes and any and all other
Obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand or presentment.
ARTICLE VIII
MISCELLANEOUS
SECTION VIII.1. WAIVERS, AMENDMENTS, ETC. The provisions of this
Agreement and of each Purchase Document may from time to time be amended,
waived or otherwise modified, if such amendment, waiver or modification is in
writing and consented to by the Company and the Required Noteholders;
PROVIDED, HOWEVER, that no such amendment, waiver or modification:
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(a) which would modify any requirement hereunder that any particular
action be taken by each Noteholder or by the Required Noteholders shall be
effective unless consented to by each Noteholder; or
(b) which would modify this Section or change the definition of
"Required Noteholders" or which would extend the due date for, or reduce
the amount of, any payment or prepayment of principal of or interest on
any Note (or reduce the rate of interest on any Note) shall be made
without the consent of each Noteholder.
No failure or delay on the part of the Purchaser or other Noteholder in
exercising any power or right under this Agreement or any other
Purchase Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or
right. No notice to or demand on the Company in any case shall entitle
it to any notice or demand in similar or other circumstances. No waiver
or approval by the Purchaser or any other Noteholder under this
Agreement or any other Purchase Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require
any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
SECTION VIII.2. NOTICES. All notices and other communications
provided to any party hereto under this Agreement or any other Purchase
Document shall be in writing or by telecopy and addressed or delivered
to it at its address set forth below its signature hereto or at such
other address as may be designated by such party in a notice to the
other parties. Any notice, if sent by mail or courier and properly
addressed and prepaid, shall be deemed given when received; any notice,
if transmitted by telecopy, shall be deemed given when transmitted.
SECTION VIII.3. COSTS AND EXPENSES. The Company agrees to pay all
expenses of the Purchaser for the negotiation, preparation, execution
and delivery of this Agreement and each other Purchase Document,
including schedules and exhibits, and any amendments, waivers,
consents, supplements or other modifications to this Agreement or any
other Purchase Document as may from time to time hereafter be required
(including the reasonable fees and expenses of counsel for the
Purchaser from time to time incurred in connection therewith), whether
or not the transactions contemplated hereby are consummated, and to pay
all expenses of the Purchaser (including reasonable fees and expenses
of counsel to the Purchaser) incurred in connection with the
preparation and review of the form of any Instrument relevant to this
Agreement or any other Purchase Document and the consideration of legal
questions relevant hereto and thereto or to any restructuring or
"work-out" of any Obligations. The Company also agrees to reimburse
each Noteholder upon demand for all
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reasonable out-of-pocket expenses (including attorneys' fees and legal
expenses) incurred by such Noteholder in enforcing the obligations of
the Company under this Agreement or any other Purchase Document.
SECTION VIII.4. INDEMNIFICATION. In consideration of the execution
and delivery of this Agreement by the Purchaser, the Company hereby
indemnifies, exonerates and holds the Purchaser and each other
Noteholder and each of their respective officers, directors, employees
and agents (the "INDEMNIFIED PARTIES") free and harmless from and
against any and all actions, causes of action, suits, losses, costs,
liabilities and damages and expenses actually incurred in connection
therewith (irrespective of whether such Indemnified Party is a party to
the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED
LIABILITIES"), incurred by the Indemnified Parties or any of them as a
result of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or
in part, directly or indirectly, with the proceeds of any Note,
(b) the entering into and performance of this Agreement and any
other Purchase Document by any of the Indemnified Parties (including any
action brought by or on behalf of the Company as the result of any
determination by the Purchaser pursuant to ARTICLE III to not purchase the
Subject Securities), or
(c) any investigation, litigation or proceeding related to the
Acquisition Agreement [or the Merger],
except for any such Indemnified Liabilities arising for the account of
a particular Indemnified Party by reason of the relevant Indemnified
Party's gross negligence or wilful misconduct, and if and to the
extent that the foregoing undertaking may be unenforceable for any
reason, the Company hereby agrees to make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities
which is permissible under applicable law.
SECTION VIII.5. SURVIVAL. The obligations of the Company under
SECTIONS 8.3 and 8.4 shall survive any termination of this Agreement.
The representations and warranties made by the Company in this
Agreement and in each other Purchase Document shall survive the
execution and delivery of this Agreement and each such other Purchase
Document.
SECTION VIII.6. SEVERABILITY. Any provision of this Agreement or
any other Purchase Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or such Purchase Document or
affecting the validity or enforceability of such provision in any other
jurisdiction.
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SECTION VIII.7. HEADINGS. The various headings of this Agreement
and of each other Purchase Document are inserted for convenience only
and shall not affect the meaning or interpretation of this Agreement
or such Purchase Document or any provisions hereof or thereof.
SECTION VIII.8. COUNTERPARTS. This Agreement may be executed by
the parties hereto in several counterparts, each of which shall be
executed by the Company and the Purchaser and be deemed to be an
original and all of which shall constitute together but one and the
same agreement.
SECTION VIII.9. GOVERNING LAW; ENTIRE AGREEMENT. This Agreement,
the Notes, the Pledge Agreement, the Deferred Limited Interest Guaranty
and each other Purchase Document shall each be deemed to be a contract
made under and governed by the internal laws of the State of New York.
This Agreement, the Notes, the other Purchase Documents and the
Stockholders' Agreement constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede
any prior agreements, written or oral, with respect thereto.
SECTION VIII.10. JURISDICTION. For purpose of any action or
proceeding involving this Agreement or any other Purchase Document,
the Company hereby expressly submits to the jurisdiction of all
Federal and State Courts located in the City of New York, State of New
York and consents that it may be served with any process or paper by
registered mail or by personal service within or without the State of
New York, provided a reasonable time for appearance is allowed.
SECTION VIII.11. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns; PROVIDED, HOWEVER, that:
(a) the Company may not assign or transfer its rights or obligations
hereunder without the prior written consent of all Noteholders; and
(b) the rights of sale, assignment, and transfer of the Notes are
subject to Section 4.7.
SECTION VIII.12. WAIVER OF JURY TRIAL. THE PURCHASER AND THE
COMPANY HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER PURCHASE
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DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PURCHASER OR THE COMPANY.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PURCHASER ENTERING INTO
THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
RSx HOLDINGS, INC.
By /s/ ADAM E. MAX
______________________________
Name: Adam E. Max
Title: President
Address: c/o The Jordan Company
9 West 57th Street
New York, New York 10019
Attention: Adam E. Max
MCIT PLC
By /s/ JAMES E. JORDAN
_________________________________
Name: James E. Jordan
Title: Director
Notices: c/o Jordan/Zalaznick
Advisers, Inc.
9 West 57th Street
New York, New York 10019
Attention: Mr. James E. Jordan
Payments to Republic National Bank
Existing Pool of New York
Nominee: (ABA No. 026-0048-28)
452 Fifth Avenue
26th Floor
New York, New York 10018
Account No. 458105201
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Payments to Republic National Bank
New Pool of New York
Nominee: (ABA No. 026-0048-28)
452 Fifth Avenue
26th Floor
New York, New York 10018
Account No. 318271680
(for interest and dividend
payments)
Account No. 318271672
(for payments of principal
and returns of capital)
Confirmation to: Mr. James E. Jordan
c/o Jordan/Zalaznick
Advisers, Inc.
Telephone No.: 212-572-0840
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EXHIBIT 10.4
SUBSCRIPTION AND STOCKHOLDERS AGREEMENT
THIS SUBSCRIPTION AND STOCKHOLDERS AGREEMENT (this "AGREEMENT"), dated
as of the 24th day of March, 1995, is made and entered into by and among RSx
HOLDINGS, INC., a Delaware corporation whose address is 9 West 57th Street,
Suite 4000, New York, New York 10019 (the "COMPANY"), STEVE SIMONS, DEBRA
SIMONS, PAUL TURNER and the other Persons whose names are set forth at the
end of this Agreement.
In order to capitalize the Company and to set forth certain rights and
restrictions relating to the ownership of its securities, the parties hereto
desire to enter into this Agreement.
In consideration of the agreements, representations, warranties and
indemnities hereinafter set forth, the parties hereto agree as follows:
Unless otherwise defined herein, capitalized terms used herein shall
have the meaning given such terms below:
1.1 "ACQUISITION" means RSx Acquisition, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company, and its successors.
1.2 "ACQUISITION AGREEMENT" means the Stock Purchase Agreement dated
March 24, 1995 (including all schedules and exhibits thereto) by and among
the Company, Acquisition and shareholders of Rockshox, Inc., a California
corporation.
1.3 "BONA FIDE OFFER" means a written offer from a Person (the
"OFFEROR") to purchase some or all of the shares of Common Stock owned by a
Stockholder. If the Offeror is a corporation, partnership, trust or other
entity, all Persons having more than a 10 percent direct or beneficial
ownership interest in such entity shall be identified in the offer.
Notwithstanding anything to the contrary contained in the Bona Fide Offer, in
connection with any proposed Transfer pursuant to a Bona Fide Offer, the
Stockholder shall require the Offeror (i) to consummate the proposed Transfer
no earlier than 60, nor later than 180, days following the date of the Bona
Fide Offer and (ii) to furnish reasonable evidence of the Offeror's financial
ability to consummate the terms of the proposed transaction.
1.4 "BY-LAWS" means the Company's By-Laws in the form of EXHIBIT
A attached hereto.
<PAGE>
1.5 "CERTIFICATE OF INCORPORATION" means the Company's Certificate
of Incorporation, as amended to date, in the form of Exhibit B attached
hereto.
1.6 "COMMISSION" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
1.7 "COMMON STOCK" means the Company's Common Stock, par value $0.01
per share, having the terms set forth in the Certificate of Incorporation.
1.8 "CREDIT AGREEMENT" means the Credit Agreement among Holdings,
Acquisition and The First National Bank of Chicago, as agent, dated as of
March 24, 1995, as amended from time to time.
1.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.10 "FINANCING AGREEMENTS" means each of the Credit Agreement, the
Purchase Agreement and any and all of the Company's and Acquisition's
agreements, instruments and documents executed in connection with the
borrowing of money, whether executed before, on or after the date of this
Agreement, as such agreements may be amended from time to time.
1.11 "HOLDER" means each of the Persons executing this Agreement
(except Steve Simons, Debra Simons and Paul Turner) and shall include any
Permitted Transferee(s) of a Holder.
1.12 "INSTITUTIONAL INVESTORS" means each of MCIT (Existing Pool)
Limited and MCIT (New Pool) Limited, each a public company incorporated in
England and a wholly owned subsidiary of MCIT, and shall include any
Permitted Transferee(s) of an Institutional Investor.
1.13 "JORDAN HOLDER" means all of the Holders except Quinn and the
Institutional Investors, and shall include any Permitted Transferee(s) of a
Jordan Holder.
1.14 "JUNIOR NOTES" means the non-negotiable subordinated promissory
notes of the Company in the form attached hereto as EXHIBIT C.
1.15 "LIEN" means any lien, mortgage, security interest, claim,
restriction, encumbrance, pledge, hypothecation or interest of any Person, of
any kind or nature.
1.16 "MANAGER" means each of Steve Simons and Paul Turner, and shall
include any Permitted Transferee(s) of such individuals.
1.17 "MCIT" means MCIT PLC.
1.18 "PERMITTED TRANSFEREE" means (i) in the case of any Manager, any
other Manager, (ii) in the case of any Holder (except Quinn), any other
Holder, (iii) in the case of Quinn, any other Holder, PROVIDED THAT, unless
the Institutional Investors and the Jordan Holders otherwise agree, the
shares of Common Stock held by Quinn must be Transferred to the Institutional
Investors and the Jordan Holders in the same proportion as the respective
number of shares of Common Stock held by
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the Institutional Investors and by the Jordan Holders bears to the total number
of shares of Common Stock held by the Institutional Investors and the Jordan
Holders, (iv) in the case of any individual Stockholder, any member of such
Stockholder's immediate family (as defined in the regulations promulgated
under Section 16 of the Exchange Act), including any child of a deceased or
living spouse of a Stockholder or the child or children of any such child,
(v) in the case of any individual Stockholder, any trust created for the
benefit of such Stockholder or any of his or her family members, (vi) in the
case of any individual Stockholder, any legal representative and the testate
or intestate distributee(s) to whom such Stockholder shall transfer any
Common Stock at any time or from time to time, (vii) in the case of any
Stockholder that is affiliated (as that term is defined by the rules and
regulations promulgated by the Commission) with The Jordan Company, any other
Person that is affiliated with The Jordan Company or any of its affiliates,
(viii) in the case of any Institutional Investor, any other Person that is
affiliated with MCIT and (ix) in the case of any Institutional Investor, any
Person to whom such Institutional Investor may grant a Lien by way of a
pledge of the shares of Common Stock held by the Institutional Investor in
connection with the borrowing of money from such Person.
1.19 "PERSON" means any individual, partnership, limited liability
company, corporation, association, joint stock company, trust, joint venture,
organization, and any governmental entity or any department, agency or
subdivision thereof.
1.20 "PREFERRED STOCK" means the Series A Preferred Stock and the
Series B Preferred Stock.
1.21 "PUBLIC OFFERING" means one, or the last in a series of, bona fide
public offerings by the Company of its Common Stock pursuant to a
registration statement or registration statements filed by the Company with
the Commission, where the aggregate gross proceeds to the Company and the
Institutional Investors from such public offering, or from such series of
public offerings, shall be not less than $15,000,000.
1.22 "PURCHASE AGREEMENT" means the Purchase Agreement between the
Company and MCIT, dated as of March 24, 1995, as amended from time to time.
1.23 "QUINN" means Thomas H. Quinn, one of the Holders, and shall
include any Permitted Transferee(s) of Quinn.
1.24 "REGISTRATION EXPENSES" has the meaning set forth in Section 8.5.
1.25 "REQUISITE PERCENTAGE" means (i) in the absence of a Superior
Payment Default or Superior Financial Covenant Default (as such terms are
defined in the Junior Notes), Stockholders holding at least 60 percent of the
issued and outstanding shares of Common Stock of the Company, or (ii) if
there has occurred and is continuing a Superior Payment Default or Superior
Financial Covenant Default, Holders holding at least 80 percent of the issued
and outstanding shares of Common Stock of the Company held by all Holders.
1.26 "RESTRICTED STOCK" means all of the Common Stock of the Company.
As to any particular Restricted Stock, such securities shall cease to be
Restricted Stock after issuance when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such
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registration statement, (b) they shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) or are saleable pursuant to
Rule 144(k) (or any successor provision) under the Securities Act, (c) they
shall have been otherwise transferred, new certificates for them not bearing
a legend restricting further transfer shall have been delivered by the
Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then
in force, or (d) they shall have ceased to be outstanding.
1.27 "SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
1.28 "SERIES A PREFERRED STOCK" means the Company's 5% Series A
Preferred Stock, par value $1.00 per share, having the terms set forth in the
Certificate of Incorporation.
1.29 "SERIES B PREFERRED STOCK" means the Company's 5% Series B
Preferred Stock, par value $1.00 per share, having the terms set forth in the
Certificate of Incorporation.
1.30 "SHARES" means, with respect to each Stockholder, the shares of
Stock owned or held by such Stockholder.
1.31 "STOCK" means the Common Stock and the Preferred Stock.
1.32 "STOCKHOLDER" means each of the parties to this Agreement and any
Permitted Transferee(s) of such parties.
1.33 "TRANSFER" means any sale, transfer, assignment, pledge,
hypothecation, gift, bequest, granting of a Lien, or other disposition or
event of any kind that would (or could), directly or indirectly, by operation
of law or otherwise, change in any manner the actual or beneficial ownership
of any shares of Stock. Each Transfer must comply with all of the terms of
this Agreement.
ARTICLE 2
STOCK SUBSCRIPTIONS
2.1 SUBSCRIPTION FOR STOCK. Each Stockholder identified on EXHIBIT
D attached hereto hereby subscribes for and agrees to purchase the number and
type of shares of Common Stock set forth opposite his, her or its name as set
forth on EXHIBIT D attached hereto, and herewith tenders $10.00 per share for
each share of Common Stock to be purchased hereunder against delivery of a
certificate or certificates registered in the name of such Stockholder,
respectively, for the shares of Common Stock of the Company hereby subscribed
for by such Stockholder.
2.2 ISSUANCES OF SHARES. The Company hereby accepts the
subscription of each Stockholder as identified on EXHIBIT D and agrees to
issue and deliver to each of them, against payment by such Stockholder of the
subscription price, a certificate or certificates registered in the name of
such Stockholder evidencing the shares of Stock subscribed for by such
Stockholder herein.
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ARTICLE 3
STOCKHOLDER ACKNOWLEDGMENTS
3.1 RISK. Each Stockholder acknowledges to the Company and the
other Stockholders that he, she or it understands and agrees as follows:
THE STOCK HAS NOT BEEN REGISTERED UNDER FEDERAL OR
STATE SECURITIES LAWS. THE STOCK IS VERY SPECULATIVE AND
RISKY. THERE IS NO PUBLIC OR OTHER MARKET FOR THE STOCK,
NOR IS ANY LIKELY TO DEVELOP. THE COMPANY HAS NO PREVIOUS
FINANCIAL HISTORY AND HAS BORROWED SUBSTANTIALLY ALL OF
THE FUNDS AVAILABLE TO IT TO COMMENCE ITS BUSINESS. EACH
STOCKHOLDER ACKNOWLEDGES THAT HE, SHE OR IT MAY AND CAN
AFFORD TO LOSE HIS, HER OR ITS ENTIRE INVESTMENT AND THAT
HE, SHE OR IT UNDERSTANDS THAT HE, SHE OR IT MAY HAVE TO
HOLD THIS INVESTMENT INDEFINITELY.
3.2 REVIEW OF DOCUMENTS. Each Stockholder acknowledges that he, she
or it has received and has had ample opportunity to review and understand the
current form of each of the following documents:
(a) the Certificate of Incorporation and all resolutions of
the Board of Directors of the Company;
(b) the By-laws;
(c) the Junior Notes;
(d) the Purchase Agreement; and
(e) the Credit Agreement.
3.3 INFORMATION. Each Stockholder acknowledges that he, she or it
has had the opportunity, prior to signing this Agreement and the purchase of
any Stock hereunder, to ask questions of the officers of the Company
concerning all aspects of the sale of the Stock and to obtain any additional
information, to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense, desired by the Stockholder.
3.4 OTHER. Each Stockholder acknowledges that (i) in addition to the
restrictions against Transfer contained in this Agreement, certain of the
Financing Agreements may contain provisions which will result in an event of
default under such instrument if any of the shares of Common Stock are
Transferred to a transferee that is not a Permitted Transferee and (ii) stock
appreciation rights to be granted to certain members of management (who will
not include either Manager) will dilute, on an economic basis only and not on
an equity basis, such Stockholder's right to receive distributions
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on the shares of Common Stock, in an amount equal to not more than 10 percent
of the amount that otherwise would be distributed to such Stockholder in
respect of such shares.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Stockholders to purchase shares of the
Company's capital stock and to enter into and perform their obligations under
this Agreement, the Company makes the representations and warranties set
forth in this ARTICLE 4.
4.1 ORGANIZATION, ETC. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
state of Delaware. Since its date of incorporation the Company has not
engaged in any activities of any nature, except as contemplated by this
Agreement, the Acquisition Agreement and the Financing Agreements. The
Company has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted.
4.2 CAPITAL STOCK.
(a) The authorized capital stock of the Company consists of
100,000 shares of Common Stock, all of which are currently issued
and outstanding, 5,132 shares of Series A Preferred Stock, 3,000
shares of which are issued and outstanding, and 4,000 shares of
Series B Preferred Stock, all of which are issued and outstanding.
All of the shares of outstanding Stock have been duly authorized
and are validly issued, fully paid and nonassessable.
(b) The delivery by the Company of the certificate(s) to
each Stockholder representing the shares of Stock to be issued to
such Stockholder transfers and conveys to such Stockholder good
and marketable title to such shares of Stock, free and clear of
all Liens, except for the restrictions against Transfer set forth
in this Agreement and in the legend set forth on the shares of
Stock, and any restrictions arising under federal and state
securities laws.
(c) The Company has not issued, nor is there outstanding,
any capital stock or securities convertible into or exchangeable
for any shares of its capital stock.
4.3 AUTHORITY RELATIVE TO AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and each agreement contemplated
hereby and the issuance of the shares of Stock have been duly authorized by
the Company, and the Company has all necessary corporate power and authority
to issue the shares of Stock and to execute, deliver and perform this
Agreement and each agreement contemplated hereby to which the Company will be
a party. This Agreement and each agreement contemplated hereby to which the
Company will be a party constitutes a legal and valid obligation of the
Company, enforceable against the Company in accordance with its respective
terms.
4.4 NO BREACH; CONSENTS. The execution, delivery and performance by
the Company of this Agreement and each agreement contemplated hereby, the
issuance of the shares of Stock, and
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the consummation of the transactions contemplated hereby and thereby do not
and will not (i) conflict with or result in any breach of any of the
provisions of, (ii) constitute a default under or (iii) result in a violation
of the provisions of the Certificate of Incorporation or By-Laws of the
Company, any indenture, mortgage, lease, loan agreement or other agreement or
instrument to which the Company or its properties are subject, or any law,
statute or regulation to which the Company or its properties are subject.
The execution, delivery and performance by the Company of this Agreement and
each agreement contemplated hereby, the issuance of the shares of Stock, and
the consummation of the transactions contemplated hereby and thereby do not
and will not result in the creation of any Lien upon the Stock or the assets
of the Company (other than the pledge by the Company of its stock in
Acquisition), or require any authorization, consent, approval, exemption or
other action by or notice (other than filings or notices, if applicable,
pursuant to applicable "blue sky" or state securities laws) to any court or
other governmental body.
ARTICLE 5
REPRESENTATIONS OF EACH STOCKHOLDER
As a material inducement to the Company to issue the Stock to each
Stockholder, each Stockholder severally, and not jointly, represents and
warrants to the Company for himself, herself or itself as follows:
5.1 ACCREDITED INVESTOR. The Stockholder is an "accredited investor"
as defined in Rule 501 and as promulgated under the Securities Act.
5.2 INVESTMENT EXPERIENCE; RISK FACTORS. The Stockholder has such
knowledge and experience in financial, investment and business matters that
he, she or it is capable of evaluating the merits, risks and advisability of
an investment in the Stock. The Stockholder acknowledges and understands
that (a) the Company is newly formed and has no operating history, (b) the
Company is unlikely to pay dividends in respect of the Stock, (c) payment of
dividends and distributions in respect of the Stock is restricted by
applicable law and by the Financing Agreements and may be restricted by
future agreements or instruments binding on the Company or its properties,
and (d) the Company will be significantly leveraged. The Stockholder has
carefully reviewed ARTICLE 7 and acknowledges that the shares of Common Stock
to be issued will be subject to the Transfer restrictions and provisions set
forth in that Article.
5.3 INFORMATION. The Company has made available to the Stockholder
its Certificate of Incorporation and By-Laws and all other documents and
information that such Stockholder has requested relating to an investment in
the Company. The Company has afforded such Stockholder the opportunity to
discuss an investment in the Stock and to ask questions of representatives of
the Company concerning the terms and conditions of the offering of the Stock,
and such representatives have provided answers to all such questions
concerning the offering of the Stock. Such Stockholder has examined or has
had the opportunity to examine before the date hereof all information that
he, she or it deems to be material to an understanding of the Company and
Acquisition, the proposed business of the Company and Acquisition, and the
offering of the Stock and has consulted with his or her financial advisors,
accountants and his, her or its attorneys as he, she or it deemed appropriate
with respect to an understanding of the Company and Acquisition, the proposed
business of the Company and Acquisition and the offering of the Stock.
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5.4 INVESTMENT. The Stockholder acknowledges that the Stock will be
acquired solely by and for the account of such Stockholder for investment
purposes only, and is not being purchased for subdivision, fractionalization,
resale or distribution. Such Stockholder has no contract, undertaking,
agreement or arrangement to Transfer any of the Stock which such Stockholder
has acquired hereunder. Such Stockholder has no present plans or intentions
to enter into any such contract, undertaking, agreement or arrangement. The
Stockholder acknowledges that the Stock has not been registered or qualified
for resale under applicable federal and state securities laws, and may not be
sold except pursuant to a registration or qualification thereunder or an
exemption therefrom. The Stockholder is capable of bearing the economic risk
of investing in the Stock, can afford a total loss of such investment, and
the financial condition of such Stockholder is such that he, she or it has no
need for liquidity with respect to his, her or its investment in the Stock
and no present or foreseeable need to dispose of any portion of the Stock to
satisfy any existing or contemplated undertaking or indebtedness. Such
Stockholder has adequate means of providing for his; her or its current needs
and possible contingencies and has a net worth equal to at least three times
his, her or its investment i n the Stock
5.5 LEGEND. Each certificate for shares of Stock will be imprinted
with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED
BY THIS INSTRUMENT IS SUBJECT TO TRANSFER RESTRICTIONS, OBLIGATIONS
AND OTHER CONDITIONS SPECIFIED IN THE SUBSCRIPTION AND STOCKHOLDERS
AGREEMENT, DATED MARCH 24, 1995, AMONG THE COMPANY, THE HOLDER
HEREOF AND THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH SUBSCRIPTION
AND STOCKHOLDERS AGREEMENT WILL BE FURNISHED BY THE COMPANY WITHOUT
CHARGE UPON WRITTEN REQUEST ADDRESSED TO THE COMPANY'S OFFICES AT 9
WEST 57TH STREET, SUITE 4000, NEW YORK, NEW YORK 10019, ATTENTION:
ADAM E. MAX.
Each Stockholder acknowledges that the effect of this legend, among
other things, is or may be to limit or destroy the value of the certificate
for purposes of sale or for use as loan collateral. Each Stockholder
consents that "stop transfer" instructions may be noted against the Stock.
5.6 INDEPENDENT DECISION. The decision of the Stockholder to acquire
the Stock hereunder has been made by such Stockholder independent of any
other Stockholder and independent of any statements, disclosures or judgments
as to the properties, business, prospects or condition (financial or
otherwise) of the Company which may have been made or given by any
Stockholder or other Person. The Stockholder agrees and acknowledges that no
other Stockholder or any Person has acted, is expected to act, or will act as
the agent or representative of such Stockholder in connection with making,
closing or monitoring of his, her or its investment hereunder. The foregoing
to the contrary notwithstanding, the Institutional Investors have and will
rely on the advice
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of Jordan Zalaznick Advisors, Inc. as contemplated by the Investment
Advisory Agreement, dated December 19, 1994.
5.7 BINDING AGREEMENT. This Agreement constitutes a legal and
binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms.
ARTICLE 6
OTHER AGREEMENTS AND COVENANTS
6.1 SURVIVAL. All representations and warranties contained herein
or otherwise made in writing by any party in connection herewith will survive
the execution and delivery of this Agreement and consummation of the
transactions contemplated hereby, regardless of any investigation made by any
party or on his, her or its behalf.
6.2 VOTING AGREEMENTS AND RIGHTS.
(a) Until such time as the Company shall consummate a Public
Offering and except as otherwise provided below, each Stockholder agrees
to vote all shares of Common Stock owned of record or beneficially by
such Stockholder, and to otherwise use his or its best efforts, to (a)
maintain a Board of Directors of both the Company and Acquisition
consisting of four members, two of whom shall be nominated by the
Managers (the "MANAGER DIRECTORS") and two of whom shall be nominated
by the Holders (the "HOLDER DIRECTORS"); (b) cause each of the Manager
Directors and the Holder Directors to be elected to the Board of
Directors of the Company; (c) not remove or permit the removal of
any Manager Director or any Holder Director from the Board of Directors
of the Company without the consent of those Managers who hold a majority
of the number of shares of Common Stock held by all Managers or
without the consent of those Holders who hold a majority of the number
of shares of Common Stock held by all Holders, as the case may be.
(b) The Stockholders agree that the Company shall have two
"Board Advisors" who shall initially consist of Quinn and Debra Simons.
The Board Advisors shall receive written notice of all Board of
Directors' meetings and shall have the right to attend same and
advise the Board of Directors concerning matters before the Board of
Directors. If Quinn should resign or not be able to serve as a Board
Advisor, the Holder Directors shall select a replacement for Quinn. If
Debra Simons should resign or not be able to serve as a Board Advisor,
the Manager Directors shall select a replacement for Debra Simons.
Board Advisors will have no vote, but will receive the same fees and
reasonable expenses for attendance at Board of Directors' meetings as
received by the Company's directors.The Stockholders agree that each of
the members of the Board of Directors, and each of the Board Advisors,
shall be paid an annual fee of $7,500, which fee shall not be increased
without the approval of Stockholders holding at least a majority of the
number of shares of Common Stock.
(c) The Stockholders agree not to, in either their personal
capacity or as a member of the Board of Directors of either Holdings or
Acquisition, amend or
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modify Section 45 of Holdings' or Acquisition's By-laws without the
unanimous written consent of all Stockholders.
ARTICLE 7
DISPOSITION RESTRICTIONS; CO-SALE
7.1 RESTRICTIONS ON SALE OF STOCK. The terms of this ARTICLE 7
shall terminate upon consummation of a Public Offering. Any shares included
in a public offering shall not be subject to the restrictions set forth in
this Article 7.
(a) Each Stockholder agrees that all shares of Common Stock
and all other securities of the Company convertible into, exchangeable
for or entitling the holder thereof to acquire shares of Common Stock
now or hereafter owned by him or it or in which the Stockholder has any
interest, legally or beneficially, shall be subject to the terms and
conditions of this ARTICLE 7. No Stockholder may Transfer any shares
of Common Stock unless (i) such Stockholder is in receipt of a Bona
Fide Offer and (ii) all the terms and conditions of this Agreement have
been satisfied.
(b) Notwithstanding anything contained in this Agreement
to the contrary, the shares of Common Stock held by a Stockholder may
be Transferred to any Permitted Transferee, but the restrictions herein
shall apply to any further Transfer by any such Permitted Transferee.
It shall be a condition precedent to any Transfer permitted under the
preceding sentence that the Permitted Transferee execute and deliver an
agreement acknowledging that all shares so Transferred have been
acquired for investment and not for distribution and are and shall
remain subject to this Agreement. All references in this Agreement to
shares of Common Stock held by a Stockholder shall include, without
duplication, shares of Common Stock, if any, held by his or its
Permitted Transferee. Whenever a Stockholder shall be obligated to sell
shares of Common Stock held by him or it under this Agreement, each
Permitted Transferee of such Stockholder shall be obligated to sell all
the shares of Common Stock which the Permitted Transferee holds, to the
same purchaser(s) and on the same terms and conditions.
7.2 RIGHT OF FIRST REFUSAL.
(a) Except for Transfers to a Permitted Transferee, if at any
time any Stockholder receives a Bona Fide Offer to sell Common Stock
(such Stockholder receiving the Bona Fide Offer is hereafter referred
as a "SELLING STOCKHOLDER"), then such Selling Stockholder shall
deliver written notice of the Bona Fide Offer (the "ROFR NOTICE"),
within 30 days of receipt of the Bona Fide Offer, to each of the other
Stockholders and to the Company setting forth the number of shares of
Common Stock proposed to be purchased in the Bona Fide Offer (the
"OFFERED SECURITIES") and the price and the other terms contained in
the Bona Fide Offer.
(b) Upon receipt of the ROFR Notice, the Company and the other
Stockholders then shall have the right to purchase at the price and on
the terms contained in the ROFR Notice all or, subject to SECTION
7.2(c), any portion of the
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Offered Securities in the following order of priority: (i) if
the Selling Stockholder is a Manager, the other Manager(s) shall have
the first right to purchase the Offered Securities, pro rata among
those Managers so electing on the basis of the respective number of
shares of Common Stock owned by such Manager (or in such other
proportion as the Managers may agree), then the Holders shall
have the second right to purchase the Offered Securities, pro rata
among those Holders so electing on the basis of the respective
number of shares of Common Stock owned by such Holder (or in such other
proportion as the Holders may agree), and thereafter, the Company shall
have the right to purchase the Offered Securities; and (ii) if the
Selling Stockholder is a Holder, the other Holders shall have the first
right to purchase the Offered Securities, pro rata among those Holders
so electing on the basis of the respective number of shares of Common
Stock owned by such Holder (or in such other proportion as the Holders
may agree), then the Managers shall have the second right to purchase
the Offered Securities, pro rata among those Managers so electing on
the basis of the respective number of shares of Common Stock owned by
such Manager (or in such other proportion as the Managers may agree),
and thereafter, the Company shall have the right to purchase the
Offered Securities. The rights of the Stockholders and the Company
pursuant to this SECTION 7.2(b) shall be exercisable by the delivery of
written notice to the Selling Stockholder (the "NOTICE OF EXERCISE")
within 30 calendar days from the date of delivery of the ROFR Notice.
The Notice of Exercise shall state the total number of shares of the
Offered Securities such Stockholder or the Company, as the case may be,
is willing to purchase without regard to whether or not the Company, or
other Stockholders purchase any shares of the Offered Securities. A
copy of such Notice of Exercise also shall be delivered by each
Stockholder to the Company. The rights of the Stockholders and the
Company pursuant to this SECTION 7.2(b) shall terminate if unexercised
30 calendar days after the date of delivery of the ROFR Notice.
(c) If all notices required to be given pursuant to paragraphs
(a) and (b) of this SECTION 7.2 have been duly given and the
Stockholders and the Company do not exercise their respective options
to purchase all of the Offered Securities at the price and on the terms
set forth in the Bona Fide Offer, and the Selling Stockholder does not
desire to sell less than all of the Offered Securities, then the
Selling Stockholder shall have the right, subject to compliance by the
Selling Stockholder with all the other provisions of this Agreement,
including without limitation, the terms of SECTION 7.3, to consummate
such transaction on the terms contemplated by the Bona Fide Offer.
7.3 Right of Co-Sale.
(a) Subject in each case to the rights of the Stockholders
and the Company setforth in Section 7.2 above, in the event any
Stockholder proposes to Transfer for value pursuant to a Bona Fide
Offer any of the Common Stock owned of record or beneficially by him or
it (the "TRANSFER STOCK") to any Person (other than a Permitted
Transferee) (a "STOCKHOLDER TRANSFEREE"), the Stockholder shall require
the Stockholder Transferee, as a condition precedent to the
consummation of the Transfer of the Transfer Stock to the Stockholder
Transferee, to irrevocably offer to
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acquire from each Stockholder, on the same terms as the proposed Transfer
of the Transfer Stock, that number of shares of Common Stock equal to the
product of (i) the total number of shares of Transfer Stock MULTIPLIED
BY (ii) a fraction, the numerator of which is the total number of
shares of Common Stock owned by such Stockholder and the denominator of
which is the number of shares of Common Stock owned by all Stockholders
(with respect to each Stockholder, such number of shares is hereinafter
referred to as "ALLOCATION STOCK").
(b) The Stockholder shall give written notice (the "CO-SALE
NOTICE") to each other Stockholder which shall describe the material
terms of the proposed Transfer, the number of shares of Transfer Stock
to be transferred, the total number of Shares held by such Stockholder,
the name and address of the Stockholder Transferee and the proposed
closing date of the Transfer. Each other Stockholder shall have thirty
(30) days after receipt of the Co-Sale Notice to accept such offer as
to all or a portion of the Allocation Stock and notify the Selling
Stockholder in writing of the number of shares of Allocation Stock, if
any, such other Stockholder wishes to Transfer to the Stockholder
Transferee. The Stockholder may not consummate the proposed Transfer
to the Stockholder Transferee, except on the terms set forth in the
Co-Sale Notice and unless (x) the sale of Allocation Stock pursuant to
the right of co-sale of each other Stockholder who timely accepts the
offer of the Stockholder Transferee is consummated simultaneously, or
(y) each other Stockholder waives the right of co-sale as to all or
part of the Allocation Stock, or (z) the irrevocable offer expires
without acceptance by any other Stockholder during the thirty (30) day
period.
7.4 OBLIGATION TO SELL STOCK. Notwithstanding any of the rights
granted elsewhere in this Agreement, in the event Stockholders holding the
Requisite Percentage of Common Stock of the Company (the "SECTION 7.4
HOLDERS") agree, in a bona fide arm's length transaction with an independent
Person who is not affiliated with or related to the SECTION 7.4 HOLDERS, to
Transfer for value all of the shares of Common Stock then held by them, then
upon the written demand of the SECTION 7.4 HOLDERS, which shall be given not
less than 30 calendar days prior to the date of such proposed Transfer, all
the other Stockholders shall Transfer all of the shares of Common Stock held
by each of them as is proposed to be Transferred by the SECTION 7.4 HOLDERS,
at the same price and on the same terms and conditions as those set forth in
the SECTION 7.4 HOLDERS' written demand, to the buyer or transferee
designated in written demand. At the date set forth in the written demand
from the SECTION 7.4 HOLDERS, the other Stockholders shall (i) execute such
documents as reasonably may be requested in the SECTION 7.4 HOLDERS' demand
notice and (ii) deliver certificate(s) for the shares of Common Stock to be
sold, duly endorsed for transfer in the form required, with signatures
guaranteed, to the SECTION 7.4 HOLDERS or the buyer or other transferee at
the Company's principal office or such other place as the Company or the
SECTION 7.4 HOLDERS shall select, and the SECTION 7.4 HOLDERS shall cause the
purchase price to be paid to the other Stockholders in the same form and
species as paid to the SECTION 7.4 HOLDERS. In the event that any
Stockholder fails to deliver the shares of Common Stock held by him or it,
said Stockholder shall for all purposes be deemed no longer to be a
stockholder of the Company, shall have no voting rights, shall not be
entitled to any dividends or other distributions with respect to shares of
Common Stock held by him or it, and shall have none of the rights or
privileges granted to stockholders of the Company under this or any other
agreement. If the SECTION 7.4 HOLDERS fail to make demand on the other
Stockholders to sell their
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shares of Common Stock, such other Stockholders shall have the rights set
forth under SECTIONS 7.2 AND 7.3.
7.5 FAILURE TO GIVE NOTICE WAIVER. For purposes of this ARTICLE 7,
any Stockholder who has failed to give notice of the election of a right or
option hereunder within the specified time period will be deemed to have
waived his or its rights on the day after the last day of such period. Each
Stockholder agrees and acknowledges that the Company may purchase or acquire
shares of Common Stock pursuant to this ARTICLE 7, and approves such
purchases and acquisitions, and waives any objection or claim relating
thereto, whether against the Company, its Board of Directors or otherwise.
ARTICLE 8
REGISTRATION RIGHTS
8.1 Public Offering. Each of the Stockholders agrees that if the
Company proposes to register any of its shares of Common Stock under the
Securities Act for sale to the public in any public offering, the
Institutional Investors shall have the right to include their shares of
Restricted Stock with the shares to be covered by the registration statement
proposed to be filed by the Company in connection with such public offering,
unless, and to the extent that, any managing underwriter retained by the
Company shall be of the opinion that such inclusion would adversely affect
the marketing of the shares of Common Stock to be sold by the Company. The
provisions of this SECTION 8.1 shall terminate immediately following
consummation of a Public Offering.
8.2 Demand Registrations.
(a) At any time and from time to time after both of the
following conditions are met: (a) the consummation of a Public
Offering and (b) either Steve Simons or Paul Turner is no longer
employed by the Company, any Manager or group of Managers holding at
least 10 percent of the shares of Restricted Stock then outstanding and
any Holder or group of Holders holding at least 10 percent of the
shares of Restricted Stock then outstanding may request in writing that
the Company effect the registration under the Securities Act of all or
part of the shares of Restricted Stock held by such Stockholder(s),
which request shall specify the number of shares of Restricted Stock to
be registered by each such Stockholder (such notice is hereinafter
referred to as a "Demand Request"). Upon receipt of such Demand
Request, the Company will promptly give written notice of such
requested registration to all other Stockholders holding shares of
Restricted Stock and such other Stockholders shall have the right,
within 30 calendar days after the giving of such written notice by the
Company, to include the Restricted Stock held by them in such
registration and thereupon the Company will use its best efforts to
effect the registration under the Securities Act of (i) the Restricted
Stock covered by the Demand Request; and (ii) all other Restricted
Stock which the Company has been requested to register by any other
Stockholder thereof by written request given to the Company;
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PROVIDED, HOWEVER, that the Company shall not be obligated to file a
registration statement relating to any Demand Request under this
SECTION 8.2(a), within the six month period immediately following; the
effective date of a registration previously effected by the Company
pursuant to this SECTION 8.2; and
PROVIDED, FURTHER, however, that the Company may postpone for not more
than 90 days, on one occasion only with respect to each Demand Request,
the filing or effectiveness of a registration statement under this
SECTION 8.2(a) if the Company and the Stockholder(s) initiating the
Demand Request agree (which agreement on the part of such Stockholders
shall not be unreasonably withheld) that such registration might
reasonably be expected to have an adverse effect on any proposal or
plan by the Company to engage in any acquisition of assets (other than
in the ordinary course of business) or any merger, consolidation,
tender offer or similar transaction; PROVIDED that in such event, the
Stockholder(s) initiating the Demand Request will be entitled to
withdraw the Demand Request, and if such request is withdrawn, such
Demand Request will not count as one of the permitted registrations
under this SECTION 8.2. In any event, the Company will pay all
Registration Expenses in connection with any registration initiated
under this SECTION 8.2.
(b) Notwithstanding the foregoing provisions of SECTION 8.2(a),
the Company shall not be obligated to effect more than an aggregate of
(i) three registrations pursuant to this SECTION 8.2 at the request of
any Manager(s) and (ii) three registrations pursuant to this SECTION
8.2 at the request of any Holder(s).
(c) If the Company proposes to effect a registration requested
pursuant to this SECTION 8.2 by the filing of a registration statement
on Form S-3 (or any similar short-form registration statement), the
Company will comply with any request by the managing underwriter to
effect such registration on another permitted form if such managing
underwriter advises the Company that, in its opinion, the use of
another form of registration statement is of material importance to the
success of such proposed public offering.
(d) A registration requested pursuant to SECTION 8.2(a) will
not be deemed to have been effected unless it has become effective
under the Securities Act; provided, that if after it has become
effective under the Securities Act, the public offering of Restricted
Stock pursuant to such registration is interfered with by any stop
order, injunction or other order or requirement of the Commission or
other governmental agency or court, such registration will be deemed
not to have been effected under SECTION 8.2(b).
(e) The Company will pay all Registration Expenses in connection
with each of the registrations of Restricted Stock effected by it under
the Securities Act pursuant to this SECTION 8.2.
(f) The Company shall have the right to select the investment
banker (or investment bankers) that shall manage the public offering
(collectively, the "managing underwriter") under this SECTION 8.2.
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(h) If in connection with any public offering pursuant to this
SECTION 8.2 the managing underwriter shall advise the Company that, in
its judgment, the number of shares of Restricted Stock proposed to be
included in such public offering should be limited due to market
conditions, then the Company will promptly so advise each Stockholder
holding shares of Restricted Stock that has requested registration, and
the Restricted Stock held by the Stockholders proposing to sell shares
in such public offering shall be exclude rata, based on the respective
number of shares of Restricted Stock as to which registration has been
requested by such Stockholders, until all of their Restricted Stock
shall have been excluded.
8.3 PIGGYBACK REGISTRATION. IF THE COMPANY, AT ANY TIME AFTER
CONSUMMATION OF A PUBLIC OFFERING, proposes to register any of its Common
Stock under the Securities Act for sale to the public (other than pursuant to
a registration statement on forms S-4 or S-8, or any successor forms), each
such time the Company will give written notice to each Stockholder of its
intention to do so. Upon the written request of a Stockholder received by
the Company within thirty (30) days after the giving of any such notice by
the Company, to register such number of shares of Restricted Stock owned of
record or beneficially by such Stockholder specified in such written request,
the Company will use its best efforts to cause the Restricted Stock as to
which registration shall have been so requested to be included in the shares
of Common Stock to be covered by the registration statement proposed to be
filed by the Company, all to the extent requisite to permit the Transfer by
each Stockholder (in accordance with his or its written request) of such
Restricted Stock once so registered. In the event that any registration
pursuant to this SECTION 8.3 shall be, in whole or in part, an underwritten
public offering of Common Stock, the number of shares of Restricted Stock
requested to be included in such an underwriting may be reduced if and to the
extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the shares of Common Stock
to be sold by the Company or any other Person therein. In the event such a
reduction is necessary, (1) the Stockholder(s) requesting to sell Restricted
Stock in the public offering shall bear the reduction on a pro rata basis,
based on the number of shares of Restricted Stock each Stockholder requested
to offer for sale in the underwritten public offering, or (2) a Stockholder
may elect to withdraw from such registration all shares of Restricted Stock
held by him or it as to which registration was requested. Notwithstanding
the foregoing provisions, the Company may withdraw any registration statement
referred to in this SECTION 8.3 without thereby incurring any liability to
any Stockholder.
8.4 REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of SECTION 8.1, 8.2 OR 8.3 hereof to use its best efforts
to effect the registration of any shares of Restricted Stock under the
Securities Act, the Company will promptly:
(a) prepare and file with the Commission a registration
statement (which shall be on any form of general applicability
satisfactory to the managing underwriter with respect to such
securities);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period of distribution and comply with the
provisions of the Securities Act with respect to the disposition of all
Restricted Stock covered by such registration statement in
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accordance with the intended method of disposition set forth in such
registration statement for such period;
(c) furnish to each selling Stockholder and to each underwriter
such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale
or other disposition of the Restricted Stock covered by such
registration statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as each selling Stockholder, or,
in the case of an underwritten public offering, the managing
underwriter reasonably shall request; PROVIDED, HOWEVER, that the
Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where
it is not so qualified or to consent to general service of process in
any such jurisdiction;
(e) use its best efforts to list the Restricted Stock that is
Common Stock covered by such registration statement with any securities
exchange or the NASDAQ Stock Market National Market on which the Common
Stock of the Company is then listed or quoted;
(f) notify each selling Stockholder at any time when a prospectus
relating to Restricted Stock is required to be delivered under the
Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and the Company will prepare a
supplement or amendment to such prospectus (at the expense of the party
making or omitting such material fact) so that, as thereafter delivered
to the purchasers of such Restricted Stock, such prospectus will not
contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading; provided
that the 180-day period described below will be tolled from the time a
prospectus contains such a statement or omission until a prospectus
correcting such statement or omission has been delivered to the
Stockholder and may be delivered to the purchasers of such Restricted
Stock in compliance with the Securities Act;
(g) notify each selling Stockholder immediately, and confirm the
notice in writing, (1) when the registration statement becomes
effective, (2) of the issuance by the Commission of any stop order or
of the initiation, or the written threat, of any proceedings for that
purpose, (3) of the receipt by the Company of any notification with
respect to the suspension of qualification of the Restricted Stock for
sale in any jurisdiction or of the initiation, or the written threat,
of any proceedings for that purpose, and (4) of the receipt of any
comments, or requests for additional information, from the Commission
or any state regulatory authority. If the Commission or any state
regulatory authority shall enter such a stop order or order suspending
qualification at any time, the Company will promptly use its best
efforts to obtain the lifting of such order; and
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(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders as soon as reasonably practicable, but not later than
fifteen (15) months after the effective date of the registration
statement, an earnings statement covering a period of at least twelve
(12) months beginning after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
For purposes hereof, the period of distribution of Restricted Stock
in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of
Restricted Stock in any other registration shall be deemed to extend
until the earlier of the sale of all Restricted Stock covered thereby
or 180 days after the effective date thereof.
In connection with each registration hereunder, each Stockholder
will furnish to the Company in writing such information with respect to
it as a stockholder as shall be necessary in order to assure compliance
with federal and applicable state securities laws.
In connection with each registration pursuant to SECTION 8.1, 8.2
OR 8.3 hereof covering an underwritten public offering, the Company and
each selling Stockholder agree to enter into a written agreement with
the managing underwriter in such form and containing such provisions as
are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and
investment stature.
8.5 EXPENSES. All reasonable expenses incurred by the Company in
complying with SECTION 8.1, 8.2 8.3 OR 8.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
fees and expenses (including counsel fees) incurred in connection with
complying with state securities or "blue sky" laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer
agents and registrars, costs of insurance, and fees and disbursements of one
counsel for the sellers of Restricted Stock, but excluding any Selling
Expenses (as defined below), are called "REGISTRATION EXPENSES." All
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are called "SELLING EXPENSES."
(a) The Company shall pay all Registration Expenses attributable
to the shares of Restricted Stock of the Stockholder included in the
registration in connection with each registration statement under
SECTION 8.1, 8.2, 8.3 OR 8.4 hereof.
(b) All Selling Expenses in connection with each registration
statement under SECTION 8.1, 8.2, 8.3 OR 8.4 hereof shall be borne by
the selling Stockholder in proportion to the number of shares of Common
Stock sold by each Stockholder.
8.6 INDEMNIFICATION AND CONTRIBUTION.
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(a) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to SECTION 8.1, 8.2, 8.3 OR 8.4
hereof, the Company will indemnify and hold harmless each Stockholder
(provided any such Stockholder is a seller of Restricted Stock
thereunder), each underwriter of such Restricted Stock thereunder, and
each other Person, if any, who controls such Stockholder, its directors
and its officers or underwriters within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or
several, to which such Stockholder, such underwriter or such Person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement
under which any shares of Restricted Stock were registered under the
Securities Act pursuant to SECTION 8.1, 8.2, 8.3 OR 8.4 hereof, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company (other than
a violation arising from any action or inaction required of the Company
by any applicable regulatory authority in connection with any
registration, qualification or compliance), and will reimburse each
such Stockholder, each such underwriter and each such Person for any
legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the Company will
not be liable in any such case if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
so made in conformity with information furnished by such Stockholder,
such underwriter or such Person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the shares of
Restricted Stock under the Securities Act pursuant to SECTION 8.1, 8.2,
8.3 OR 8.4 hereof, each Stockholder including shares of Restricted
Stock in such registration, severally but not jointly, will indemnify
and hold harmless the Company, each Person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement, each director of the
Company, each underwriter, and each Person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims,
damages or liabilities, joint or several, to which such Person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
under which any shares of Restricted Stock were registered under the
Securities Act pursuant to SECTION 8.1, 8.2, 8.3 OR 8.4 hereof, any
preliminary prospectus, or final prospectus contained therein, or any
amendment hereof or supplement thereto, or arise out of or are based
upon the 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 the Company and each such
officer, director, underwriter and controlling
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Person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that each such
Stockholder will be liable hereunder in any such case only to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity
with information pertaining to such Stockholder, as such, respectively,
furnished in writing to the Company by such Stockholder specifically
for use in such registration statement or prospectus. In no event will
any Stockholder be required to enter into any agreement or undertaking
in connection with any registration under this Agreement providing for
any indemnification or contribution obligation on the part of such
Stockholder greater than any other Stockholder's obligation under this
SECTION 8.6(b).
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but
the omission so to notify the indemnifying party shall not relieve it
from any liability which it may have to such indemnified party other
than under this ARTICLE 8 and shall only relieve it from any liability
which it may have to such indemnified party under this ARTICLE 8 if and
to the extent the indemnifying party is prejudiced by such omission.
In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with
counsel satisfactory to such indemnified party and, after notice from
the indemnifying party to such indemnified party of its election so to
assume and undertake the defense thereof, the indemnifying party shall
not be liable to such indemnified party under this ARTICLE 8 for any
legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation and of liaison with counsel so selected; PROVIDED,
HOWEVER, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those
available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have
the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either
(1) any holder of Restricted Stock exercising rights under this
Agreement, or any controlling person of any such holder, makes a claim
for indemnification pursuant to this ARTICLE 8 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration for time to appeal or the
denial of the last right of
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appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this ARTICLE 8 provides for
indemnification in such case, or (2) contribution under the Securities
Act may be required on the part of any such selling holder of
Restricted Stock or any such controlling Person in circumstances for
which indemnification is provided under this ARTICLE 8; then, and in
each such case, the Company and such holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that
such holder is responsible for the portion represented by the
percentage that the public offering proceeds of its Restricted Stock
offered by the registration statement bears to the public offering
proceeds of all securities offered by such registration statement, and
the Company shall be responsible for the remaining portion; PROVIDED,
HOWEVER, that, in any such case, (A) no such holder will be required to
contribute any amount in excess of the proceeds received from the sale
of Restricted Stock offered by it pursuant to such registration
statement; and (B.) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
8.7 CHANGES IN CAPITAL STRUCTURE. If, and as often as, there is any
change in the capital structure of the Company by way of a stock split, stock
dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the
registration rights granted in this ARTICLE 8 shall continue with respect to
the capital structure of the Company as so changed.
8.8 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of a Stockholder's Common Stock to the public without
registration, at all times after 90 days after any registration statement
covering a public offering of securities of the Company under the Securities
Act shall have became effective, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act; and
(c) furnish to each Stockholder of Restricted Stock forthwith
upon request a written statement by the Company as to its compliance
with the reporting requirements of Rule 144 and of the Securities Act
and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports as such Stockholder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such Stockholder to sell any Restricted Stock
without registration.
ARTICLE 9
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MISCELLANEOUS
9.1 RATIFICATION OF PRIOR ACTS OF BOARD OF DIRECTORS OF COMPANY.
Each of the Stockholders hereby adopts, ratifies and confirms all of the
actions heretofore taken by the Board of Directors of the Company in all
respects.
9.2 AMENDMENTS AND WAIVERS. No purported amendment of this
Agreement, or waiver, discharge or termination of any obligation under it,
shall be enforceable or admissible unless, and only to the extent, expressly
set forth in a writing signed by the party against whom or which enforcement
or admission is sought. The failure of any party hereto to enforce at any
time any provision of this Agreement shall not be construed to be a waiver of
such provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
9.3 NOTICES. Any and all notices, designations, consents, offers,
acceptances, or any other communications provided for in this Agreement
("Notice") shall be given in writing by personal delivery, by facsimile with
confirming original, by registered or certified mail (return receipt
requested) or by overnight mail or courier service maintaining a record of
receipt and delivery, which shall be addressed, in the case of the Company,
c/o The Jordan Company, 9 West 57th Street, Suite 4000, New York, New York
10019, Attention: Adam E. Max; and in the case of a Stockholder, to his, her
or its address included on the signature page hereto, or in either case, to
such other persons or addresses as shall be furnished in writing by any party
to the other parties hereto. A Notice shall be deemed to have been given as
of the date (i) when personally delivered, (ii) when actually received, if by
mail, (iii) when receipt of a Notice sent by an overnight delivery service is
confirmed by such overnight delivery service, or (iv) when receipt of the
telecopy is confirmed, as the case may be, unless the sending party has
actual knowledge that a Notice was not received by the intended recipient.
9.4 ASSIGNMENT. This Agreement and all of the provisions hereof will
be binding upon and inure to the benefit of the parties hereto and their
respective successors and Permitted Transferees, except that neither this
Agreement nor any of the rights, interests or obligations hereunder may be
assigned by a Stockholder (except to another Stockholder or Stockholders)
without the prior written consent of the Company. This SECTION 9.4 shall not
be deemed to supersede or modify, in any manner, the provisions of ARTICLE 7.
9.5 SEVERABILITY, ETC. This Agreement shall be governed by,
construed, applied and enforced in accordance with the laws of the state of
New York, except that no doctrine of choice of law shall be used to apply any
law other than that of the state of New York, and no defense, counterclaim or
right of set-off given or allowed by the laws of any other state or
jurisdiction, or arising out of the enactment, modification or repeal of any
law, regulation, ordinance or decree of any foreign jurisdiction, shall be
interposed in any action hereon. Each of the parties hereto acknowledges and
agrees that in the event of any breach of this Agreement, the non-breaching
party would be irreparably harmed and could not be made whole by monetary
damages. It is accordingly agreed that (i) in any action for specific
performance the parties hereto waive the defense that a remedy at law would
be adequate and (ii) in addition to any other remedy to which they may be
entitled at law or in equity, the parties hereto shall be entitled to compel
specific performance of this Agreement. Subject to the provisions of
SECTION 9.10, each party agrees that any action or
21
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proceeding to enforce the terms of this Agreement, or arising out of this
Agreement, may be commenced in the state courts of the state of New York in
New York City, or in the United States District Courts in New York City and
consents to such jurisdiction, agrees that venue will be proper in such
courts and waives any objections based upon forum non conveniens. Each party
waives personal service of process and agrees that a summons and complaint
commencing an action or proceeding shall be properly served and shall confer
personal jurisdiction if served by registered or certified mail to the party
at the address set forth in this Agreement, or as otherwise provided by the
laws of the state of New York or the United States. The choice of forum set
forth in this SECTION 9 5 shall not be deemed to preclude the enforcement of
any judgment obtained in any other forum or the taking of any action under
this Agreement to enforce same in any other appropriate jurisdiction.
9.6 NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
Person.
9.7 CAPTIONS. The captions used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement
and will not be deemed to limit, characterize or in any way affect any
provision of this Agreement, and all provisions of this Agreement will be
enforced and construed as if no caption had been used in this Agreement.
9.8 COMPLETE AGREEMENT. This document and the documents referred to
herein contain the complete agreement among the parties and supersedes any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way.
9.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together will constitute one and
the same instrument.
9.10 ARBITRATION. ANY DISPUTE BETWEEN OR AMONG THE PARTIES TO THIS
AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION,
EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING
OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION ANY CLAIM UNDER THE SECURITIES ACT, THE EXCHANGE ACT, ANY OTHER
STATE OR FEDERAL LAW RELATING TO SECURITIES OR FRAUD OR BOTH, OR FEDERAL OR
STATE COMMON LAW, SHALL BE SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT
TO, ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN NEW
YORK, NEW YORK, AND SHALL BE SUBJECT TO THE SUBSTANTIVE LAW OF THE STATE OF
NEW YORK. DECISIONS AS TO FINDINGS OF FACT PURSUANT TO SUCH ARBITRATION
SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. WITHIN THIRTY DAYS
FOLLOWING THE AWARD OF ANY ARBITRATOR HEREUNDER, ANY PARTY MAY APPLY TO A
COURT OF COMPETENT JURISDICTION FOR A RESOLUTION OF ANY QUESTIONS OF LAW
BEARING ON SUCH AWARD, AND NO SUCH AWARD SHALL BE BINDING AND ENFORCEABLE
UNLESS THE ARBITRATOR'S DETERMINATIONS AS TO SUCH QUESTIONS OF LAW HAVE BEEN
JUDICIALLY APPROVED OR UNTIL THE
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<PAGE>
PASSAGE OF SUCH THIRTY DAY PERIOD WITHOUT SUCH APPLICATION HAVING BEEN MADE.
ANY FINAL AWARD SHALL BE ENFORCEABLE AS A JUDGMENT OF A COURT OF RECORD.
9.11 WAIVER OF JURY TRIAL. EACH OF THE STOCKHOLDERS EXPRESSLY WAIVES
ANY RIGHT TO A TRIAL BY A JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHT, POWER OR REMEDY UNDER OR IN RESPECT OF THIS AGREEMENT OR
ANY AMENDMENT, SUPPLEMENT, AGREEMENT, INSTRUMENT OR DOCUMENT DELIVERED IN
CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, AND AGREES THAT ANY SUCH
ACTION SHALL BE RESOLVED IN ACCORDANCE WITH SECTION 9.10, OR IF, FOR ANY
REASON NOT RESOLVED IN ACCORDANCE WITH SECTION 9.10, BEFORE A COURT AND NOT A
JURY.
9.12 ATTORNEYS' FEES. If any legal action or other proceeding is
commenced to enforce or interpret any provision of, or otherwise relating to,
this Agreement, the losing party shall pay the prevailing party's reasonable
expenses incurred in the investigation of any claim leading to the
proceeding, preparation for and participation in the proceeding, any appeal
or other post judgment motion, and any action to enforce or collect the
judgment, including contempt, garnishment, levy, discovery and bankruptcy.
"Expenses" shall include, without limitation, court or other proceeding costs
and experts' and attorneys' fees and their expenses. The phrase "prevailing
party" shall mean the party who is determined in the proceeding to have
prevailed and who prevails by dismissal, default or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
RSx HOLDINGS, INC.
By: /s/ Adam E. Max
_________________________________
Title: Vice President
______________________________
Name: _______________________________
STOCKHOLDER SIGNATURES ON THE FOLLOWING PAGES
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<PAGE>
/s/ STEVE SIMONS
________________________________
Steven W. Simons
27461 Sherlock Road
Los Altos Hills, California 94022
24
<PAGE>
/s/ STEVE SIMONS
/s/ DEBRA SIMONS
________________________________
Debra W. Simons
Steven W. Simons
27461 Sherlock Road
Los Altos Hills, California 94022
25
<PAGE>
/s/ PAUL TURNER
________________________________
Paul Turner
2838 Third Street
Boulder, Colorado 80304
26
<PAGE>
MCIT PLC
By /s/ JAMES E. JORDAN
_____________________________
Name James E. Jordan
____________________________
Title Director
____________________________
Address c/o Jordan/Zalaznick
Advisors, Inc.
9 West 57th Street
Suite 4000 New York 10019
27
<PAGE>
/s/ THOMAS H. QUINN
________________________________
Thomas H. Quinn
28
<PAGE>
James E. Jordan, Jr. Profit
Sharing Plan & Trust
By /s/ JAMES E. JORDAN, TRUSTEE
_______________________________
James E. Jordan, trustee
c/o The William Penn Company
9 West 57th Street, Suite 4000
New York, New York 10019
29
<PAGE>
John M. Camp III Money Purchase
Pension Plan DTD 1/1/93
By /s/ JOHN M. CAMP III, TRUSTEE
________________________________
John M. Camp III, trustee
1054 Bellview Road
McLean, VA 22102
30
<PAGE>
/s/ ADAM E. MAX
________________________________
Adam E. Max
1349 Lexington Avenue, Apt. 6F
New York, NY 10128
31
<PAGE>
/s/ JONATHAN F. BOUCHER
________________________________
Jonathan F. Boucher
536 North Street
Harrison, NY 10528
32
<PAGE>
John W. Jordan II Revocable
Trust
By /s/ JOHN W. JORDAN II, TRUSTEE
________________________________
John W. Jordan II, trustee
1000 Lake Shore Plaza, Apt. 29B
Chicago, IL 60611
33
<PAGE>
LEUCADIA INVESTORS, INC.
By /s/ RUTH KLINDWORTH
_________________________________
Name Ruth Klindworth
_______________________________
Title Vice President and Secretary
______________________________
Address 315 Park Avenue South
New York. New York 10010
34
<PAGE>
/s/ DAVID W. ZALAZNICK
_____________________________________
David W. Zalaznick
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, New York 10019
35
<PAGE>
/s/ JOHN R. LOWDEN
_____________________________________
John R. Lowden
8 Deer Park Court
Greenwich, CT 06830
36
<PAGE>
/s/ JOHN M. CAMP III
_____________________________________
John M. Camp III
1054 Bellview Road
McLean, VA 22102
37
<PAGE>
/s/ A. RICHARD CAPUTO, JR.
_____________________________________
A. Richard Caputo, Jr.
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, New York 10019
38
<PAGE>
/s/ PAUL R. RODZEVIK
_____________________________________
Paul R. Rodzevik
3470 Heyward Street
Mohegan Lake, NY 10547
39
<PAGE>
EXHIBIT 10.6
RSx HOLDINGS, INC.
1996 STOCK PLAN
<PAGE>
RSx HOLDINGS, INC.
1996 STOCK PLAN
1. PURPOSES OF THE PLAN. The RSx Holdings, Inc. 1996 Stock Plan (the
"PLAN") is intended to implement the stock plan of RSx Holdings, Inc., a
Delaware corporation (the "COMPANY"). Certain capitalized terms used in the
Plan shall have the meanings ascribed to them in Section 2. The purposes of
the Plan are: (a) to attract and retain the best available people for
positions with the Company, (b) to provide additional incentive to certain
key employees of the Company and any Parents or Subsidiaries, and (c) to
promote the success of the Company's business. Options granted under the
Plan may be Incentive Stock Options or Nonstatutory Stock Options, as
determined by the Board and subject to the applicable provisions of Section
422 of the Internal Revenue Code of 1986. Stock Purchase Rights may also be
granted under the Plan. The Stock Rights are condensed into one Plan solely
for the purposes of administrative convenience and are not intended to
constitute tandem plans.
2. DEFINITIONS. The following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company, a Parent
or Subsidiary.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4.
(d) "COMMON STOCK" means the Common Stock of the Company.
(e) "DIRECTOR" means a member of the Board.
(f) "ELIGIBLE PERSON" means a person eligible to be granted Stock
Rights pursuant to Section 5.
(g) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary. The
payment of a Director's fee by the Company shall not be
sufficient to constitute employment by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as applied to a specific date, the
fair market value per Share on such date as determined in good
faith by the Board in the following manner: (1) if the Shares
are then listed on any national or regional stock
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<PAGE>
exchange, the Fair Market Value shall be the mean between the
high and low sales price on the date in question, or if there
are no reported sales on such date, on the last preceding date
on which sales were reported; (2) if the Shares are not so
listed, then the Fair Market Value shall be the mean between
the bid and ask prices quoted by a market maker or other
recognized specialist in the Shares at the close of the date
in question; (3) in the absence of either of the foregoing,
the Fair Market Value shall be determined by the Board in its
absolute discretion after giving consideration to the book
value, the earnings history and the prospects of the Company
in light of market conditions generally. The Board may rely
upon an appraisal by a reputable third party to determine Fair
Market Value. The Fair Market Value determined by this
paragraph shall be final, binding and conclusive on all
parties.
(j) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422
of the Code.
(k) "IPO" means the consummation of a firm commitment or best
efforts underwritten public offering of the Company's equity
securities registered with the Securities and Exchange
Commission.
(l) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(m) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(n) "OPTION" means a stock option granted pursuant to the Plan.
(o) "OPTION AGREEMENT" means an agreement evidencing an Option,
substantially in the form or forms as the Board (subject to
the terms and conditions of the Plan) may from time to time
approve.
(p) "OPTION PERIOD" means the period in which an Option may be
exercised, to be established by the Board, subject to Section 7.
(q) "OPTION PRICE" means the per share price of Shares to be
issued pursuant to an Option, as determined by the Board
subject to Section 8.
(r) "OPTION GRANT DATE" means the date on which an Option is
granted by the Board.
(s) "OPTIONED STOCK" means the Common Stock subject to a Stock
Right.
(t) "OPTIONEE" means an Eligible Person who receives a Stock Right.
(u) "PARENT" means a "parent corporation" of the Company whether
now or hereafter existing, as defined in Section 424(e) of the
Code.
2
<PAGE>
(v) "PLAN" means this RSx Holdings, Inc. 1996 Stock Plan.
(w) "RIGHT NOTICE" means written notice of the terms, conditions
and restrictions related to the offer of Stock Purchase
Rights, including the number of Shares that a person shall be
entitled to purchase, the price to be paid, and the time
within which such person must accept such offer, which shall
in no event exceed thirty (30) days from the date upon which
the Board makes the determination to grant Stock Purchase
Rights.
(x) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13.
(y) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock
pursuant to Section 12.
(z) "STOCK RIGHTS" means rights under a Stock Purchase Right or an
Option.
(aa) "SUBJECT SHARES" means the Shares acquired upon exercise of
any Stock Right by the Optionee, his assigns, heirs, legatees
or legal representatives, together with any shares of stock
issued by the Company as a dividend or other distribution on
such shares; or upon exchange or conversion of such Shares,
the securities issued upon exchange or conversion.
(bb) "SUBSIDIARY" means a "subsidiary corporation" of the Company
whether now or hereafter existing, as defined in Section
424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the second paragraph of this
Section 3 and to Section 13, the maximum aggregate number of Shares which may
be subject to Option and/or sold under the Plan is 11,100 Shares.
If a Stock Right expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject to the Stock
Right shall become available (pursuant to this Plan) for future grants of
Stock Rights under the Plan (unless the Plan has terminated). However,
Shares that have actually been issued under the Plan, upon exercise of a
Stock Right, shall not be returned to the Plan and shall not become available
for future distribution under the Plan, except that if Shares are repurchased
by the Company at their original purchase price, and the original purchaser
of such Shares did not receive any benefits of ownership of such Shares, such
Shares shall become available for future grant under the Plan. For purposes
of the preceding sentence, voting rights shall not be considered a benefit of
Share ownership.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board. The
Board may appoint a Committee consisting of not less than two members of the
Board to administer the Plan on behalf of the Board, subject to such terms
and conditions as the Board may prescribe. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board. From time to
time, the Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and appoint new members in
substitution, fill vacancies, however caused,
3
<PAGE>
and remove all members of the Committee, and thereafter, directly administer
the Plan. Any references in this Plan to the Board shall refer to the
Committee, if one is appointed, to the extent of the Committee's authority.
If at any time any class of equity securities of the Company is registered
pursuant to Section 12(b) or (g) of the Exchange Act, then thereafter, to the
extent possible, the Committee shall consist of two or more Directors, all of
whom shall, while serving on the Committee, be "disinterested
administrators," within the meaning of Rule 16b-3 promulgated under the
Exchange Act as at such time in effect or any other provision that may
replace such Rule and be in effect at such time.
(b) LIMITATIONS ON MEMBERS OF BOARD. Members of the Board who either
are eligible for Stock Rights or have been granted Stock Rights may vote on
any matters affecting the administration of the Plan or the grant of any
Stock Rights pursuant to the Plan, except that no such member shall act in
connection with a Stock Right granted to himself or herself, but any such
member may be counted in determining the existence of a quorum at any meeting
of the Board during which action is taken with respect to a Stock Right of
such member. If, at any time, awards made under the Plan shall be subject to
Section 162(m) of the Code, the Plan shall be administered by a Committee
comprised only of "outside directors" (within the meaning of Treas. Reg.
Section 1.162-27(e)(3)) or such other persons as may be permitted from time
to time under Section 162(m) of the Code and the regulations promulgated
thereunder.
(c) POWERS OF THE BOARD. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion, to make all determinations
necessary or advisable for the administration of the Plan including, without
limitation:
(i) to determine, upon review of relevant information, the
then Fair Market Value;
(ii) to determine the exercise price of the Options to be
granted, subject to the provisions of Section 8;
(iii) to determine the Employees and other Eligible Persons to
whom Stock Rights are granted under the Plan, and the time
or times at which Stock Rights shall be granted and the
number of Shares of Optioned Stock to be represented by
each Stock Right;
(iv) to determine whether Stock Rights granted under the Plan
shall be granted as an Incentive Stock Option or
Nonstatutory Stock Option or Stock Purchase Right;
(v) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(vi) to determine the terms and provisions of each Stock Right
granted under the Plan, which terms and conditions need
not be identical;
(vii) to accelerate the date or dates of exercise of any Option,
pursuant to this Plan;
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<PAGE>
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option has declined since the
date the Option was granted;
(ix) to construe and interpret the Plan, the Option Agreements
and any other agreement provided for under the Plan; and
(x) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of
a Stock Right previously granted by the Board or to take
such other actions as may be necessary or advisable with
respect to the Company's rights pursuant to an Option, an
Option Agreement or any other agreement approved under the
Plan subject to the provisions of the Plan and, in the
case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of
any relevant authorities, including the approval, if
required, of any stock exchange upon which the Common
Stock is listed.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all holders of
Stock Rights.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Directors. Incentive Stock Options may
be granted only to Employees. An Employee or Director who has
been granted a Stock Right may, if otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designation, to the extent
that Section 422(d) or any successor section of the Code is
applicable to the Option and the aggregate Fair Market Value of
the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any
calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds $100,000 or any other criteria designated by
the Code, such Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option, with respect to such
Shares, is granted.
(c) Options granted to persons subject to Section 16(b) of the
Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to the Plan.
6. EFFECTIVE DATE. The Effective Date of the Plan shall be the date of
its adoption by the Board of Directors; provided, however, that no Option
shall be exercisable prior to the approval of the Plan by the holders of a
majority of the Shares represented at a meeting of the stockholders at
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which the Plan is considered or by a majority of the outstanding Shares by
written consent. If such approval is not obtained within one year after the
Effective Date, then the Plan and all Stock Rights granted thereunder shall
automatically terminate on the first anniversary of the Effective Date. The
Plan shall terminate (unless earlier terminated pursuant to Section 13) ten
years from the earlier of (i) the date the Plan was adopted by the Baord or
(ii) approved by the Shareholders.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant or such shorter term as
may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) PRICE. The Option Price for the Shares to be issued pursuant to
an Option granted under the Plan shall be such price as is determined by the
Board in its sole discretion. Notwithstanding the foregoing, (i) with
respect to Incentive Stock Options granted: the Option Price shall in no
event be less than one hundred percent (100%) of the Fair Market Value on the
Option Grant Date, as determined by the Board; (ii) with respect to Options
which are not Incentive Stock Options granted the Option Price shall in no
event be less than eighty five percent (85%) of the Fair Market Value on the
Option Grant Date as determined by the Board; and (iii) in the case of an
Option granted to an Employee who, at the time the Option is granted, owns
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent, Subsidiary or
predecessor corporation (determined as required by the Code as applied to
Incentive Stock Options), the Option Price shall be at least one hundred ten
percent (110%) of the Fair Market Value as of the Option Grant Date, as
determined by the Board.
(b) FORM OF CONSIDERATION. The form of consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist of cash or the
surrender of Shares having a Fair Market Value with an aggregate value on the
date of surrender equal to the purchase price of the Shares as to which said
Option shall be exercised, a combination thereof, or such other consideration
and method of payment for the issuance of Shares as is permitted under
applicable law.
(c) SURRENDERED SHARES. If the consideration for the exercise of an
Option is the surrender of previously acquired and owned Shares, the Optionee
will be required to make representations and warranties satisfactory to the
Company regarding the Optionee's title to the Shares used to effect the
purchase including, without limitation, representations and warranties that
the Optionee has good and marketable title to such Shares free and clear of
any and all liens, encumbrances, charges, equities, claims, security
interests, options or restrictions and has full power to deliver such Shares
without obtaining the consent or approval of any person or governmental
authority other than those which have already given consent or approval in a
form satisfactory to the Company. All Shares to be tendered as consideration
for the exercise of an Option must be held by the Optionee for a period of at
least six (6) months prior to surrender. The value of the Shares used to
effect the purchase shall be the Fair Market Value, multiplied by the number
of Shares surrendered.
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9. EXERCISE OF OPTION.
(a) GENERAL TERMS. Unless an accelerated version of the following
vesting schedule is provided in the Option Agreement by the Board in its sole
discretion, each Option shall become exercisable for that number of Shares
equal to at least 20% of the Shares subject to the Option each year; such
that on or after the first anniversary of the grant of the Option, the Option
shall be exercisable for at least 20% of the Shares subject to the Option, on
or after the second anniversary of the grant of the Option, the Option shall
be exercisable for at least 40% of the Shares subject to the Option, and so
on; provided, however, that Options granted to the Company's officers or
directors may become fully exercisable, subject to reasonable conditions such
as continued employment, at any time or during any period as determined by
the Board, including periods that extend for more than five (5) years. In
all events, in order to exercise an Option, the Optionee shall execute an
agreement and other documents reasonably required by the Board and shall
deliver the required (or permitted) exercise consideration to the Company.
(b) PARTIAL EXERCISE. An Option may be exercised from time to time
during the term of the Option in accordance with the provisions of the Plan
as to all or any portion of the Shares then exercisable under an Option. No
Option may be exercised for a fraction of a Share.
(c) TIME OF EXERCISE. An Option shall be deemed to be exercised when
the Company has received at its principal business office: (i) written
notice of such exercise in accordance with the terms of the applicable Option
Agreement and given by the person entitled to exercise the Option; (ii) full
payment for the Shares with respect to which the Option is exercised; and
(iii) any other representations or agreements required by the Plan or the
Option Agreement.
(d) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. Until the Option is
properly exercised and the Company receives full payment for the Shares with
respect to which the Option is exercised, no right to receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Option is properly exercised and
payment in full is received.
(e) ISSUANCE OF SHARE CERTIFICATES. As soon as practicable after any
exercise of an Option and payment in full for the exercised Shares, the
Company shall, without transfer or issue tax to the Optionee, deliver to the
Optionee at the principal business office of the Company, or such other place
as shall be mutually acceptable, a certificate or certificates representing
the Shares as to which the Option has been exercised. The time of issuance
and delivery of the certificate(s) representing the Shares may be postponed
by the Company for such period as may be required for it, with reasonable
diligence, to comply with any applicable listing requirements of any national
or regional securities exchange and any law or regulation applicable to the
issuance and delivery of such Shares.
10. TERMINATION OF EMPLOYMENT; DEATH OR DISABILITY.
(a) GENERAL. Upon termination of the Optionee's Eligible Person
status, any Stock Right may be exercised to the extent it was vested and
exercisable on the date of termination of Eligible Person status, within the
earlier of thirty (30) days following: (i) the date of termination of
Eligible Person status; or (ii) the time such Stock Right expires by its
terms; provided, however, if an
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Optionee who was an Employee remains a Director after employment has been
terminated, any Incentive Stock Option shall automatically cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option on the day three months and one day following
such termination. To the extent that the Optionee was not entitled to
exercise the Stock Right at the date of termination or if the Optionee does
not exercise such Stock Right to the extent so entitled within the time
specified in the Plan, the Stock Right shall terminate.
(b) TERMINATION FOR DISABILITY. When the Optionee becomes neither an
Employee nor a Director as a result of his or her disability, the Optionee
may, but only within twelve (12) months from the date of such termination
(and in no event later than the expiration date of the term of such Stock
Right), exercise the Stock Right to the extent otherwise entitled to exercise
it at the date of such termination. If such disability is not a "disability"
as such term is defined in Section 22(e)(3) of the Code, in the case of an
Incentive Stock Option such Incentive Stock Option shall automatically cease
to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonstatutory Stock Option on the day three months and one day
following such termination. To the extent that the Optionee was not entitled
to exercise the Stock Right at the date of termination or if the Optionee
does not exercise such Stock Right to the extent so entitled within the time
specified in the Plan, the Stock Right shall terminate.
(c) TERMINATION FOR DEATH. In the event of the death of an Optionee,
the Stock Right may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Stock Right) by the Optionee's estate or by a person who
acquired the right to exercise the Stock Right by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Stock Right
on the date of death. If, after the Optionee's death, the Optionee's estate
or a person who acquires the right to exercise the Stock Right by bequest or
inheritance does not exercise the Stock Right within the time specified
herein, the Stock Right shall terminate.
(d) DEFINITION OF TERMINATION. For purposes of the Plan, an Employee
shall be deemed terminated when such Employee's employment is deemed to no
longer continue within the meaning of Code Section 422A and the rules and
regulations thereunder. A Director may be deemed terminated on the date when
such individual is no longer serving as a member of the Board.
(e) BUYOUT PROVISIONS. The Board may at any time offer to buy out
for a payment in cash or Shares, a Stock Right previously granted, based on
such terms and conditions as the Board shall establish and communicate to the
Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF STOCK RIGHTS. Stock Rights may not be sold,
pledged, assigned, hypothecated, transferred, gifted or disposed of in any
manner other than by will or by the laws of descent or distribution and may
be exercised, during the lifetime of the Optionee, only by the Optionee.
12. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Board determines that
it will offer Stock Purchase Rights under the Plan, it shall
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deliver a Right Notice to the offeree. The offer shall be accepted by
execution of a stock purchase agreement in the form determined by the Board.
(b) OTHER PROVISIONS. The stock purchase agreement shall contain
such terms, provisions and conditions not inconsistent with the Plan as may
be determined by the Board in its sole discretion; provided, however, the
purchase price shall be determined in the same manner as the Option Price
under Section 8 for Options which are not Incentive Stock Options. In
addition, the provisions of the stock purchase agreement need not be the same
with respect to each purchaser.
(c) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a
stockholder and shall be a stockholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment shall be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. If the outstanding Shares are
increased, decreased, changed into or exchanged for a different number or
kind of shares or securities of the Company through reorganization,
recapitalization, reclassification, stock dividend (but only on Common
Stock), stock split, reverse stock split or other similar transaction, or, if
any other increase or decrease occurs in the number of outstanding Shares
without the receipt of consideration by the Company, then an appropriate and
proportional adjustment shall be made in: (i) the number and kind of Shares
covered by each outstanding Stock Right; (ii) the number and kind of Shares
which have been authorized for issuance under the Plan but as to which no
Stock Rights have yet been granted (or which have been returned to the Plan);
and (iii) the exercise price per Share of stock covered by each such
outstanding Stock Right. The granting of stock options, stock purchase
rights, phantom stock or similar plans or bonuses to Employees or other
Eligible Persons (whether or not under this Plan) and the conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without the receipt of consideration" for the purposes of this
Section.
(b) EFFECT OF DISSOLUTION, MERGER, ETC. In the event of (i) a
reorganization, merger or consolidation of the Company with one or more
corporations, as a result of which the Company is not the surviving
corporation, (ii) a sale of all or substantially all of the property of the
Company to another corporation; (iii) a transaction (or a series of related
transactions) in which there is a change in the beneficial ownership,
directly or indirectly, of securities of the Company representing 50% or more
of the combined voting power or value of the Company's then outstanding
equity securities; or (iv) the dissolution or liquidation of the Company,
this Plan shall terminate, and any outstanding Options shall terminate,
unless provision be made in connection with such transaction for the
assumption of such Options, or the substitution for such Options of new
incentive awards covering the stock of a successor employer corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to number and
kind of shares and prices. The Board may also provide, in any Option
Agreement, that all or a portion of unvested Options accelerate upon a
transaction specified in clauses (i) or (iii), above, subject to such terms
and conditions as may be approved by the Board.
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(c) NOTICE. To the extent not inconsistent with any applicable law,
the Company shall use its best efforts to give at least 15 days advance
notice of any proposed transaction referenced in Section 13(b) to each
Optionee who has outstanding unexercised Stock Rights, which notice shall
describe the transaction in general terms, and notify the Optionee of any
action which the Company and the surviving corporation, if other than the
Company, have decided to take pursuant to Section 13(b) with respect to that
Optionee's Stock Rights.
(d) COMPLIANCE WITH INCENTIVE STOCK OPTION PROVISIONS.
Notwithstanding anything to the contrary, each adjustment made to an
Incentive Stock Option pursuant to this Section 13 shall comply with the
rules of Section 424(a) of the Code or any successor provision, and no
adjustment shall be made that would cause any Incentive Stock Option to
become a Nonstatutory Stock Option, unless otherwise required by this Plan.
14. TIME OF GRANTING STOCK RIGHTS. The date of grant of a Stock Right
shall, for all purposes, be the date on which the Board makes the
determination granting such Stock Right, or such other date as is determined
by the Board. Notice of the determination shall be given to each Employee or
Director to whom a Stock Right is so granted within a reasonable time after
the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time
amend, alter, suspend or discontinue the Plan, but, except as permitted under
Section 13(b), any such amendment or termination of the Plan shall not affect
Stock Rights already granted, and such Stock Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company. In addition,
to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of a Stock Right unless the exercise of such Stock
Right and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended (the "ACT"), the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance. As a condition to the exercise of a Stock Right, the Company may
require the person exercising such Stock Right to represent and warrant at
the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required by any of the provisions of law referenced in this Section 16.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder, shall relieve the Company
of any liability in respect of
10
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the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. AGREEMENTS. Stock Rights shall be evidenced by written agreements
in such form as the Board shall approve from time to time.
19. OBLIGATION TO SELL STOCK.
(a) OBLIGATION. In the event persons holding at least 60% of the
Common Stock of the Company which was outstanding as of January 1, 1996 (the
"SELLING HOLDERS") agree, in a bona fide arm's length transaction with an
independent person who is not affiliated with or related to the Selling
Holders, to make a transfer for value of any of the Shares then held by them,
then upon the written demand of the Selling Holders, which shall be given not
less than 15 calendar days prior to the date of such proposed transfer, the
Optionee shall transfer all of the Optionee's Shares, at the same price and
on the same terms and conditions as those set forth in the Selling Holders'
written demand, to the buyer or transferee designated in the written demand.
At the date set forth in the written demand from the Selling Holders, the
Optionee shall (i) execute such documents as reasonably may be requested in
the Selling Holders' demand notice and (ii) deliver certificate(s) for the
Shares to be sold, duly endorsed for transfer in the form required, with
signatures guaranteed, to the Selling Holders or the buyer or other
transferee at the Company's principal office or such other place as the
Company or Selling Holders shall select, and the Selling Holders shall cause
the purchase price to be paid to the Optionee in the same form and species as
paid to the Selling Holders. In the event that the Optionee fails to deliver
the Shares held by him or it, the Optionee shall for all purposes be deemed
no longer to be a stockholder of the Company, shall have no voting rights,
shall not be entitled to any dividends or other distributions with respect to
Shares held by him or it, and shall have none of the rights or privileges
granted to stockholders of the Company under this or any other agreement.
(b) TERMINATION OF OBLIGATIONS. The obligations described in this
Section 19 shall terminate and no longer be of effect upon an IPO.
20. MARKET STANDOFF. If requested by the Company or any representative
of the underwriters in connection with any registration of the offering of
any securities of the Company under the Act, the Optionee shall not sell or
otherwise transfer any Subject Shares during the 180-day period following the
effective date of a registration statement of the Company filed under the
Act; provided however, that such restriction shall only apply to the first
two registration statements of the Company to become effective under the Act
to include securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Act. The Company may impose
stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such 180-day period.
21. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and,
in the case of an individual who acquires Shares pursuant to the Plan, during
the period such individual owns such Shares, copies of annual financial
statements. The Company shall not be required to provide such statements to
key employees whose duties in
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connection with the Company assure their access to equivalent information.
The Optionee shall be required to keep such financial statements
confidential, and shall not use them for the Optionee's benefit (except in
relation to this Plan) or for the benefit of any other person.
22. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) ISSUE AND TRANSFER TAXES. The Company shall pay all original
issue and transfer taxes (but not income taxes, if any, unless the Board
determines otherwise) with respect to the grant of Stock Rights and the issue
and transfer of Shares pursuant to the exercise of such Stock Rights, and all
other fees and expenses necessarily incurred by the Company in connection
therewith, and will use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, shall be
applicable.
(b) WITHHOLDING. The grant of Stock Rights and the issuance of
Shares pursuant to the exercise of such Stock Rights are conditioned upon the
Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation payable to the Optionee any taxes
required to be withheld by federal, state or local law as a result of the
grant or exercise of such Option or the sale of the Shares issued upon
exercise of the Stock Rights.
23. LIABILITY OF COMPANY. The Company, its Parent or any Subsidiary
will not be liable to an Optionee granted an Incentive Stock Option or other
person if it is determined for any reason by the Internal Revenue Service or
any court having jurisdiction that any Incentive Stock Options granted
hereunder are not incentive stock options under the Code.
24. NOTICES. Any notice to be given to the Company pursuant to the
provisions of the Plan shall be delivered personally and addressed to the
Company in care of its Secretary at its principal office and any notice to be
given to an Optionee shall be delivered personally or addressed to such
Optionee at the address on the Company's records, or at such other address as
such Optionee (or any transferee) may designate in writing to the Company.
Any notice under this Agreement shall be deemed duly given when delivered
personally or when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited, postage and
registry or certification fee prepaid, in a post office, branch post office
or mailbox regularly maintained by the United States Postal Service. It
shall be the obligation of each Optionee and each transferee holding Shares
to provide the Company, in the manner provided above, with written notice of
such person's direct mailing address.
25. NO ENLARGEMENT OF EMPLOYEE RIGHTS. The establishment and
maintenance of the Plan is purely voluntary on the part of the Company, and
the continuance of the Plan shall not be deemed to constitute a contract
between the Company and any Optionee, or to be consideration for or a
condition of the employment of any Optionee. Nothing contained in the Plan
shall be deemed to give any Optionee the right to be retained in the employ
of the Company, its Parent, Subsidiary or a successor entity, or to interfere
with the right of the Company or any such corporations to discharge or retire
any Employee at any time. No Optionee shall have any right to or interest in
Stock Rights prior to the grant of such Stock Right to such Optionee, and
upon such grant he or she shall have only such rights and interests as are
expressly provided under the Plan, subject, however, to all applicable
provisions of the Company's Certificate of Incorporation, as the same may be
amended from time to time.
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26. LEGENDS ON CERTIFICATES.
(a) FEDERAL LAW. Unless an appropriate registration statement is
filed pursuant to the Act, as amended, with respect to Stock Rights and
Shares issuable under the Plan, each certificate representing such Stock
Rights and Shares shall be endorsed on its face with a legend substantially
as follows:
THIS RIGHT TO PURCHASE SECURITIES AND THE SECURITIES WHICH MAY BE
PURCHASED UPON EXERCISE OF THIS RIGHT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR
DISTRIBUTION OF THIS OPTION OR OF THE SECURITIES WHICH MAY BE
PURCHASED UPON EXERCISE OF THIS OPTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
(b) STATE LEGEND. If required by applicable state authorities, each
certificate representing the Stock Rights and Shares issuable under the Plan
shall be endorsed on its face with any legends required by such authorities.
(c) ADDITIONAL LEGENDS. Each certificate representing the Stock
Rights and Shares issuable under the Plan shall also contain legends as are
set forth in any agreement the execution of which is a condition to the
exercise of a Stock Right under the Plan. In addition, each agreement shall
be endorsed with a legend substantially as follows:
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS RIGHT MAY
BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF THE RSx
HOLDINGS, INC. 1996 STOCK PLAN, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
27. AVAILABILITY OF PLAN. A copy of the Plan shall be delivered to the
Secretary of the Company and shall be shown by the Secretary to any eligible
person making reasonable inquiry concerning it.
28. INVALID PROVISIONS. In the event that any provision of the Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained in the Plan as invalid or unenforceable, and all such
other provisions shall be given full force and effect to the same extent as
though the invalid or unenforceable provision was not contained in the Plan.
29. GOVERNING LAW. The Plan shall be governed and construed in
accordance with the laws of the State of California applicable to contracts
executed, and to be fully performed, in California between or among
California residents. Any action or proceeding arising under or pertaining
to the Plan shall be brought only in a state or federal court of competent
jurisdiction located in the County of Santa Clara in the State of California.
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IN WITNESS WHEREOF, pursuant to the due authorization and adoption of
the Plan by the Board on May 8, 1996, the Company has caused the Plan to be
duly executed by its duly authorized officers, effective as of May 8, 1996.
RSX HOLDINGS, INC.,
A DELAWARE CORPORATION
By: /s/ STEPHEN W. SIMONS
Its President
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of the 24th day
of March, 1995, is made by and between RSx HOLDINGS, INC., a Delaware
corporation (the "Company"), and STEVE SIMONS, an individual ("Executive").
W I T N E S S E T H:
WHEREAS, Executive has been actively involved in the business of
Rockshox, Inc., a California corporation ("Rockshox"), as an employee,
stockholder, officer and member of the Board of Directors of Rockshox; and
WHEREAS, the Company and RSx Acquisition, Inc., a Delaware corporation
("Acquisition"), collectively, have agreed to purchase all of the issued and
outstanding shares of capital stock of Rockshox pursuant to a Stock Purchase
Agreement, dated March 24, 1995 (the "Purchase Agreement"), by and among the
Company, Acquisition, Executive and other shareholders of Rockshox; and
WHEREAS, immediately following consummation of the transactions
contemplated by the Purchase Agreement, Acquisition will become a
wholly-owned subsidiary of the Company and Rockshox will be merged with and
into Acquisition; and
WHEREAS, the Company desires to retain the services of Executive and
Executive desires to be retained by the Company;
NOW, THEREFORE, in consideration of the premises, the covenants and the
agreements contained herein, the parties hereto agree as follows:
1. EMPLOYMENT. Subject to the termination provisions of Sections 6
and 7, the Company shall employ Executive as the President of the Company,
and shall cause Acquisition to elect Executive as the President of
Acquisition, for a period of one year from the date of execution of this
Agreement. Subject to the termination provisions of Sections 6 and 7, and
unless Executive notifies the Company in writing of Executive's election to
not renew this Agreement no later than 30 days prior to the end of any term
of this Agreement, this Agreement shall automatically renew itself for
additional one-year terms, not to exceed four one-year renewal terms in
total. Executive shall be responsible for the general management of the
affairs of the Company and Acquisition as more particularly set forth on
EXHIBIT A attached hereto and shall report to the Board of Directors of the
Company. Executive shall diligently, faithfully and competently perform to
the best of his ability, on a full-time basis, all duties of the Office of
President as described in this Section 1 and shall devote as much of his
productive time and abilities to the performance of such duties as is
required to accomplish such duties.
2. INITIAL PAYMENT. In consideration of Executive's agreements to be
employed and not to disclose certain information, and the other agreements
contained herein, Executive shall receive
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from the Company on March 29, 1995 a pre-tax payment of Two Million, Eight
Hundred Twenty Thousand Dollars ($2,820,000), to be paid by wire transfer to
an account designated by Executive.
3. ONGOING PAYMENTS. During the term of this Agreement, the Company
will pay Executive a salary at a rate of Two Hundred Fifty Thousand Dollars
($250,000) per annum, payable in substantially equal monthly or more frequent
installments. Executive's salary may be increased from time to time during
the term of this Agreement at the discretion of the Company's Board of
Directors.
4. INCENTIVE COMPENSATION.
a. For each of the Company's fiscal years commencing April 1, 1995
and ending March 31, 2000 (the "Incentive Period") during which Executive has
been an employee of the Company for the entire fiscal year, the Company shall
pay to Executive a cash bonus (a "Bonus"), no later than 30 days following
the delivery of audited financial statements for the fiscal year in question,
equal to 15 percent of the amount by which Operating Income (as defined on
EXHIBIT B) for such year exceeds $10,400,000, up to a maximum Bonus of
$1,500,000 for anyone fiscal year during the Incentive Period ("Yearly
Maximum") and a maximum total Bonus of $5,000,000 for the entire Incentive
Period (the "Maximum Bonus").
b. If during the Incentive Period Operating Income for any fiscal
year is less than $10,400,000, 15 percent of the amount by which Operating
Income is less than $10,400,000 (a "Deficit Bonus"), shall be deducted from
future Bonus payments to be paid to Executive, if any. Any Deficit Bonus
shall be applied against the next succeeding Bonus payment, but shall not
reduce the Bonus to less than zero. Any remaining unapplied Deficit Bonus
shall be applied against future Bonus payments, if any, in the same manner.
c. If during the Incentive Period Operating Income for any fiscal
year exceeds $20,400,000, 15 percent of the amount by which Operating Income
exceeds $20,400,000 (an "Excess Bonus") shall be applied to any future Bonus
payment paid to Executive, if any. Any Excess Bonus shall be applied to the
next succeeding Bonus payment, but only to the extent (x) the Excess Bonus
does not exceed the amount by which any future Bonus payment is less than the
Yearly Maximum for any fiscal year (after first taking into account any then
existing Deficit Bonus) and (y) the sum of all Bonus payments during the
Incentive Period does not exceed the Maximum Bonus. Any remaining unapplied
Excess Bonus shall be applied to future Bonus payments, if any, in the same
manner.
d. If at the end of the Incentive Period there remains any
unapplied and unpaid Excess Bonus (after first taking into account any then
existing Deficit Bonus) for the Incentive Period, then, notwithstanding the
Yearly Maximum for any year, the amount of such unapplied and unpaid Excess
Bonus shall be paid to Executive at the time a Bonus is or would be payable
to the Executive for the last year of the Incentive Period, but only to the
extent that such Excess Bonus, when added to the total of all Bonuses paid to
Executive for the Incentive Period, does not exceed the Maximum Bonus and
only if Executive is employed by the Company on the last day of the Incentive
Period.
e. Except in the case where Executive terminates this Agreement for
Good Reason (as defined in Section 7), or in the case of Executive's death or
Disability (as defined in Section 6), no
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Bonus shall be paid to Executive for any fiscal year if he is not employed by
the Company on the last day of such fiscal year.
5. BENEFITS. While Executive is employed as the President of the
Company or Acquisition, the Company will provide for Executive's
participation in benefit programs on the same basis as the executive officers
of Acquisition. The benefits currently offered to the executive officers of
Acquisition are listed on EXHIBIT C attached hereto. During the term of this
Agreement, including any renewal terms, the Company will, or will cause
Acquisition to, continue to provide benefits to Executive which, in the
aggregate, are no less favorable than those listed on EXHIBIT C.
6. TERMINATION FOR CAUSE.
a. The Company may terminate this Agreement, all of the Company's
obligations under this Agreement, and Executive's employment hereunder for
"cause," upon the delivery of written notice to Executive following the
occurrence of any one of the following on the part of Executive: (a)
conviction of any crime or criminal offense involving monies or other
property, or any felony; (b) Executive's breach of any of his fiduciary
duties of loyalty as an officer of the Company; (c) repeated and willful
failure to diligently, faithfully and competently perform any of the
directions of the Company's Board of Directors; (d) Executive's violation of
any non-competition agreement with the Company or with any affiliate of the
Company and (e) Executive's termination of this Agreement or his employment
hereunder for any reason other than Good Reason. In the event of termination
of this Agreement for "cause," no amounts shall be payable by the Company
thereafter, PROVIDED, HOWEVER, amounts earned under Section 3 which have not
been paid to Executive as of the date of such termination and the amount of
Bonus, if any, payable under Section 4 but not paid to Executive for any
fiscal year prior to the fiscal year in which termination for "cause" occurs
shall remain payable by the Company.
b. Notwithstanding anything contained in this Agreement to the
contrary, in the event of Executive's death or, at the election of Executive
or the Company, in the event of Disability, this Agreement shall terminate
upon the delivery of written notice to the Company, Executive or his estate,
as the case may be. In the event of termination of this Agreement pursuant
to this Section 6.b., the Company shall pay to Executive or his estate, as
the case may be, (i) amounts earned under Section 3 which have not been paid
to Executive as of the date of such termination, (ii) Executive's salary for
a one-year period following such event, (iii) the amount of Bonus, if any,
payable under Section 4 but not paid to Executive for any year prior to the
fiscal year in which such termination occurs and (iv) a pro rata share of the
Bonus that would otherwise be payable to Executive under Section 4 above for
the fiscal year of the Company in which Executive died or became Disabled,
pro rated as of the date on which death or Disability occurs. "Disability"
or "Disabled" shall mean the inability of Executive to substantially perform
his duties and responsibilities to the Company by reason of a physical or
mental disability or infirmity for a continuous period of six months.
7. TERMINATION FOR GOOD REASON.
a. Executive may terminate this Agreement for any event which
constitutes Good Reason. "Good Reason" shall be defined to be (x) a breach
by the Company of any of its obligations under Sections 2, 3, 4 or 5 of this
Agreement or (y) any 60-day continuous period in which the Executive's
primary responsibilities are, without Executive's concurrence and in the
absence of any
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breach of this Agreement by Executive, different from the responsibilities
set forth on Exhibit A; PROVIDED, HOWEVER, Executive shall have no right to
terminate this Agreement pursuant to clause (x) of this paragraph unless
Executive first delivers written notice of such breach to the Company and the
Company fails to cure such breach within 10 days of receipt of such notice
from Executive.
b. If Executive terminates this Agreement for Good Reason under
clause (x) of Section 7.a., Executive shall be entitled to payment of (i) his
salary up to the effective date of termination, (ii) his salary for 12 months
following the effective date of termination, (iii) the amount of Bonus, if
any, payable under Section 4 but not paid to Executive for any year prior to
the fiscal year in which such termination occurs and (iv) the amount of
Bonus, if any, that otherwise would have been payable to Executive (had
Executive not terminated this Agreement for Good Reason under clause (x) of
Section 7.a.) under Section 4 for the Company's fiscal year in which such
termination occurs.
c. If Executive terminates this Agreement for Good Reason under
clause (y) of Section 7.a., Executive shall be entitled to payment of (i) his
salary up to the effective date of termination, (ii) his salary for the
balance of the fiscal year in which such termination occurs, (iii) the amount
of Bonus, if any, payable under Section 4 but not paid to Executive for any
year prior to the fiscal year in which such termination occurs and (iv) the
Bonus (pro rated as of the effective date of termination for Good Reason
under clause (y) of Section 7.a.) that would otherwise have been payable to
Executive (had Executive not terminated this Agreement for Good Reason under
clause (y) of Section 7.a.) under Section 4 for the fiscal year of the
Company in which Executive terminates his employment for Good Reason;
PROVIDED, HOWEVER, Executive shall deliver written notice to the Company of
Executive's election to terminate this Agreement for Good Reason under clause
(y) of Section 7.a. stating the reason why Executive alleges he has the right
to terminate this Agreement for Good Reason under clause (y) of Section 7.a.
and the Company shall have 30 days following receipt of such written notice
to remedy the situation which Executive alleged is the basis for his right to
terminate for Good Reason under clause (y) of Section 7.a. If the Company
remedies such alleged basis for termination within 30 days of its receipt of
such written notice, this Agreement shall remain in full force and effect.
If the Company fails to remedy such alleged basis for termination within 30
days of its receipt of such written notice, this Agreement shall be deemed
terminated for Good Reason under clause (y) of Section 7.a., effective on the
30th day following the Company's receipt of such written notice.
8. AFFILIATE TRANSACTIONS. Except in connection with those matters
disclosed on EXHIBIT D, for as long as Executive is employed by the Company
or Acquisition, or Executive or any member of his family is the beneficial
owner of any stock of the Company, neither Executive, any member of his
family nor any affiliate (as such term is used in Section 501(b) of the Rules
under the Securities Act of 1933, as amended) of Executive shall engage,
directly or indirectly, in any business transaction with the Company or any
of its affiliates without the approval of the Board of Directors of the
Company (which approval shall include the approval of at least one
disinterested director), as reflected in the minutes of the Board of
Directors' meetings.
9. INVENTIONS. Executive agrees that all inventions conceived of or
developed by Executive during the term of his employment with the Company,
whether alone or jointly with others and whether during working hours or
otherwise, which relate to the business of the Company or Acquisition, or any
business or other company in which the Company or Acquisition now or
hereafter has an ownership interest, shall be the Company's exclusive
property. Executive shall (i)
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promptly disclose in writing to the Company each invention conceived or
developed by Executive during the term of his employment with the Company,
(ii) assign all rights to such inventions to the Company or Acquisition and
(iii) assist the Company or Acquisition in every way to obtain and protect
any patents on such inventions. This Section does not apply to any invention
which qualifies fully under the provisions of Section 2870 of the California
Labor Code, a copy of which is attached hereto as EXHIBIT E.
10. AUDIT RIGHTS. Executive and his duly authorized representatives
shall have the right, upon 10 days' prior written notice to the Company and
at reasonable hours and during normal business days, to audit the books and
records of the Company and Acquisition which relate to the calculation of the
Bonus, the cost of which shall be borne solely by Executive, except as set
forth below. In the event such audit discloses that the Bonus actually due
Executive exceeds the Bonus paid to Executive by an amount greater than five
percent of the Bonus paid to Executive, in addition to any other payments to
be made hereunder, the Company shall pay to Executive all reasonable costs of
the audit performed by Executive or his representatives. In the absence of
fraud, twelve months after payment of any Bonus to Executive, the books and
records of the Company and Acquisition with respect to such period covered by
the Bonus shall become final and closed and Executive shall not have any
right to conduct an audit for such period.
11. SPECIFIC PERFORMANCE. The parties hereto agree that their rights
under Section 9 of this Agreement are special and unique and that any
violation thereof would not be adequately compensated by money damages, and
each grants the other the right to specifically enforce (including injunctive
relief where appropriate) the terms of Section 9 of this Agreement.
12. NOTICES. Any notice, request, consent or communication
(collectively a "Notice") under this Agreement shall be effective only if it
is in writing and (i) personally delivered, (ii) sent by certified or
registered mail, return receipt requested, postage prepaid, (iii) sent by a
nationally recognized overnight delivery service for next day delivery, with
delivery confirmed, or (iv) telecopied, with receipt confirmed, addressed as
follows:
a. If to Executive:
Steve W. Simons
27461 Sherlock Road
Los Altos Hills, CA 94022
Telecopier (415) 948-0267
with a copy to:
Sandra A. Golze, Esq.
McCutchen, Doyle, Brown & Enersen
1331 North California Boulevard
P.O. Box V
Walnut Creek, CA 94596
Telephone: (510) 975-5352
Telecopier: (510) 937-5390
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b. If to the Company, to:
RSx Holdings, Inc.
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, New York 10019
Attention: Adam E. Max
Telephone: (212) 572-0820
Telecopier: (212) 750-5263
with a copy to:
Morris K. Withers, Esq.
Smith, Gill, Fisher & Butts, P.C.
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telephone # (816) 474-7400
Telecopier # (816) 391-7600
or such other persons or addresses as shall be furnished in writing by either
party to the other party. A Notice shall be deemed to have been given as of
the date when (i) personally delivered, (ii) three days after the date when
deposited with the United States mail properly addressed, (iii) when receipt
of a Notice sent by an overnight delivery service is confirmed by such
overnight delivery service, or (iv) when receipt of the telecopy is
confirmed, as the case may be, unless the sending party has actual knowledge
that a Notice was not received by the intended recipient.
13. ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by Executive.
14. GOVERNING LAW; WAIVER OF JURY TRIAL; VENUE. This Agreement shall
be governed by the law of the state of California as to all matters,
including, but not limited to, matters of validity, construction, effect and
performance, except that no doctrine of choice of law shall be used to apply
any law other than that of the state of California. IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREUNDER, EACH OF THE PARTIES HERETO WAIVES ALL
RIGHTS TO A TRIAL BY JURY. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES DISTRICT COURT SITTING IN THE STATE OF
CALIFORNIA AND OF ANY CALIFORNIA STATE COURT FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR IN THE FUTURE HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
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15. ATTORNEYS' FEES. If any legal action or other proceeding is
commenced to enforce or interpret any provision of, or otherwise relating to,
this Agreement, the losing party shall pay the prevailing party's reasonable
expenses incurred in the investigation of any claim leading to the
proceeding, preparation for any participation in the proceeding, any appeal
or other post judgment motion, and any action to enforce or collect the
judgment, including contempt, garnishment, levy, discovery and bankruptcy.
"Expenses" shall include, without limitation, court or other proceeding costs
and experts' and attorneys' fees and their expenses. The phrase "prevailing
party" shall mean the party who is determined in the proceeding to have
prevailed and who prevails by dismissal, default or otherwise.
16. SEVERABILITY. The Company and Executive believe the covenants
contained in this Agreement are reasonable and fair in all respects, and are
necessary to protect the interests of the Company and Executive. However, in
case any one or more of the provisions or parts of a provision contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a
provision of this Agreement or any other jurisdiction, but this Agreement
shall be reformed and construed in any such jurisdiction as if such invalid,
illegal or unenforceable provision or part of a provision had never been
contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction.
17. NEUTRAL INTERPRETATION. This Agreement constitutes the product of
the negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against either
party based upon the source of the draftsmanship hereof.
18. MISCELLANEOUS. 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. The section headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. This
Agreement embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein and may not be
modified orally, but only by a writing subscribed by the party charged
therewith. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred
to herein. This Agreement supersedes all prior agreements and understandings
(whether oral or written) between the parties with respect to such subject
matter.
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IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
COMPANY:
RSx HOLDINGS, INC.
By: /s/ ADAM E. MAX
-----------------------------------
Title: President and Secretary
---------------------------------
EXECUTIVE:
/s/ STEVE SIMONS
----------------------------------------
Steven W. Simons
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of the 24th day of
March, 1995, is made by and between RSx HOLDINGS, INC., a Delaware corporation
(the "Company"), and PAUL TURNER, an individual ("Executive").
W I T N E S S E T H:
WHEREAS, Executive has been actively involved in the business of Rockshox,
Inc., a California corporation ("Rockshox"), as an employee, stockholder,
officer and member of the Board of Directors of Rockshox; and
WHEREAS, the Company and RSx Acquisition, Inc., a Delaware corporation
("Acquisition"), collectively, have agreed to purchase all of the issued and
outstanding shares of capital stock of Rockshox pursuant to a Stock Purchase
Agreement, dated March 24, 1995 (the "Purchase Agreement"), by and among the
Company, Acquisition, Executive and other shareholders of Rockshox; and
WHEREAS, immediately following consummation of the transactions
contemplated by the Purchase Agreement, Acquisition will become a wholly-owned
subsidiary of the Company and Rockshox will be merged with and into Acquisition;
and
WHEREAS, the Company desires to retain the services of Executive and
Executive desires to be retained by the Company;
NOW, THEREFORE, in consideration of the premises, the covenants and the
agreements contained herein, the parties hereto agree as follows:
1. EMPLOYMENT. Subject to the termination provisions of Sections 6
and 7, the Company shall employ Executive as the Vice President of the
Company, and shall cause Acquisition to elect Executive as the Vice President
and Director of Research & Development of Acquisition, for a period of one
year from the date of execution of this Agreement. Subject to the
termination provisions of Sections 6 and 7, and unless Executive notifies the
Company in writing of Executive's election to not renew this Agreement no
later than 30 days prior to the end of any term of this Agreement, this
Agreement shall automatically renew itself for additional one-year terms, not
to exceed four one-year renewal terms in total. As the Vice President of the
Company, Executive shall, in the refusal or inability to act or the absence
or disability of the President of the Company, perform the duties and
exercise the powers of the President of the Company, and shall perform such
other
<PAGE>
duties as the board of directors of the Company shall from time to time
prescribe. As the Vice President and Director of Research & Development of
Acquisition, Executive shall be responsible for the research and development
of new products and the research and improvement of existing products of
Acquisition and shall report to the President of Acquisition, as more
particularly set forth on EXHIBIT A attached hereto. Executive shall
diligently, faithfully and competently perform to the best of his ability, on
a full-time basis, all duties of the office of Vice President of the Company
and the Vice President and Director of Research & Development of Acquisition,
as described in this Section 1, and shall devote as much of his productive
time and abilities to the performance of such duties as is required to
accomplish such duties. Executive shall relocate to the San Jose, California
metropolitan area to perform his obligations hereunder.
2. INITIAL PAYMENT. In consideration of Executive's agreements to be
employed and not to disclose certain information and the other agreements
contained herein, Executive shall receive from the Company on March 29, 1995
a pre-tax payment of One Million, Eight Hundred Eighty Thousand Dollars
($1,880,000), to be paid by wire transfer to an account designated by
Executive.
3. ONGOING PAYMENTS. During the term of this Agreement, the Company
will pay Executive a salary at a rate of Two Hundred Fifty Thousand Dollars
($250,000) per annum, payable in substantially equal monthly or more frequent
installments. Executive's salary may be increased from time to time during
the term of this Agreement at the discretion of the Company's Board of
Directors.
4. INCENTIVE COMPENSATION.
a. For each of the Company's fiscal years commencing April 1,
1995 and ending March 31, 2000 (the "Incentive Period") during which
Executive has been an employee of the Company for the entire fiscal year, the
Company shall pay to Executive a cash bonus (a "Bonus"), no later than 30
days following the delivery of audited financial statements for the fiscal
year in question, equal to 15 percent of the amount by which Acquisition's
Operating Income (as defined on EXHIBIT B) for such year exceeds $10,400,000,
up to a maximum Bonus of $1,500,000 for any one fiscal year during the
Incentive Period ("Yearly Maximum") and a maximum total Bonus of $5,000,000
for the entire Incentive Period (the "Maximum Bonus").
b. If during the Incentive Period Acquisition's Operating Income
for any fiscal year is less than $10,400,000, 15 percent of the amount by
which Acquisition's Operating Income is less than $10,400,000 (a "Deficit
Bonus"), shall be deducted from future Bonus payments to be paid to
Executive, if any. Any Deficit Bonus shall be applied against the next
succeeding Bonus payment, but shall not reduce the Bonus to less than zero.
Any remaining unapplied Deficit Bonus shall be applied against future Bonus
payments, if any, in the same manner.
c. If during the Incentive Period Acquisition's Operating Income
for any fiscal year exceeds $20,400,000, 15 percent of the amount by which
Acquisition's Operating Income exceeds $20,400,000 (an "Excess Bonus") shall
be applied to any future Bonus payment paid to Executive, if any. Any Excess
Bonus shall be applied to the next succeeding Bonus payment, but only to the
extent (x) the Excess Bonus does not exceed the amount by which any future
Bonus payment is less than the Yearly Maximum for any fiscal year (after
first taking into account any then existing Deficit Bonus) and (y) the sum of
all Bonus payments during the Incentive Period does not exceed the
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Maximum Bonus. Any remaining unapplied Excess Bonus shall be applied to
future Bonus payments, if any, in the same manner.
d. If at the end of the Incentive Period there remains any
unapplied and unpaid Excess Bonus (after first taking into account any then
existing Deficit Bonus) for the Incentive Period, then, notwithstanding the
Yearly Maximum for any year, the amount of such unapplied and unpaid Excess
Bonus shall be paid to Executive at the time a Bonus is or would be payable
to the Executive for the last year of the Incentive Period, but only to the
extent that such Excess Bonus, when added to the total of all Bonuses paid to
Executive for the Incentive Period, does not exceed the Maximum Bonus and
only if Executive is employed by the Company on the last day of the Incentive
Period.
e. Except in the case where Executive terminates this Agreement
for Good Reason (as defined in Section 7), or in the case of Executive's
death or Disability (as defined in Section 6), no Bonus shall be paid to
Executive for any fiscal year if he is not employed by the Company on the
last day of such fiscal year.
5. BENEFITS. While Executive is employed as the Vice President of the
Company and the Vice President and Director of Research & Development of
Acquisition, the Company will provide for Executive's participation in
benefit programs on the same basis as the executive officers of Acquisition.
The benefits currently offered to the executive officers of Acquisition are
listed on EXHIBIT C attached hereto. During the term of this Agreement,
including any renewal terms, the Company will, or will cause Acquisition to,
continue to provide benefits to Executive which, in the aggregate, are no
less favorable than those listed on EXHIBIT C.
6. TERMINATION FOR CAUSE.
a. The Company may terminate this Agreement, all of the Company's
obligations under this Agreement, and Executive's employment hereunder for
"cause," upon the delivery of written notice to Executive following the
occurrence of any one of the following on the part of Executive: (a)
conviction of any crime or criminal offense involving monies or other
property, or any felony; (b) Executive's breach of any of his fiduciary
duties of loyalty as an officer of the Company; (c) repeated and willful
failure to diligently, faithfully and competently perform any of the
directions of the Company's Board of Directors; (d) Executive's violation of
any non-competition agreement with the Company or with any affiliate of the
Company; and (e) Executive's termination of this Agreement or his employment
hereunder for any reason other than for Good Reason. In the event of
termination of this Agreement for "cause," no amounts shall be payable by the
Company thereafter; PROVIDED, HOWEVER, amounts earned under Section 3 which
have not been paid to Executive as of the date of such termination and the
amount of Bonus, if any, payable under Section 4 but not paid to Executive
for any fiscal year prior to the fiscal year in which termination for "cause"
occurs shall remain payable by the Company.
b. Notwithstanding anything contained in this Agreement to the
contrary, in the event of Executive's death or, at the election of Executive
or the Company, in the event of Disability, this Agreement shall terminate
upon the delivery of written notice to the Company, Executive or his estate,
as the case may be. In the event of termination of this Agreement pursuant
to this Section 6.b., the Company shall pay to Executive or his estate, as
the case may be, (i) amounts
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earned under Section 3 which have not been paid to Executive as of the date
of such termination, (ii) Executive's salary for a one year period following
such event, (iii) the amount of Bonus, if any, payable under Section 4 but
not paid to Executive for any year prior to the fiscal year in which such
termination occurs and (iv) a pro rata share of the Bonus that would
otherwise be payable to Executive under Section 4 above for the fiscal year
of the Company in which Executive died or became Disabled, pro rated as of
the date on which death or Disability occurs. "Disability" or "Disabled"
shall mean the inability of Executive to substantially perform his duties and
responsibilities to the Company by reason of a physical or mental disability
or infirmity for a continuous period of six months.
7. TERMINATION FOR GOOD REASON.
a. Executive may terminate this Agreement for any event which
constitutes Good Reason. "Good Reason" shall be defined to be (x) a breach
by the Company of any of its obligations under Sections 2, 3, 4 or 5 of this
Agreement or (y) any 60 day continuous period in which the Executive's
primary responsibilities are, without Executive's concurrence and in the
absence of any breach of this Agreement by Executive, different from the
responsibilities set forth on EXHIBIT A; PROVIDED, HOWEVER, Executive shall
have no right to terminate this Agreement pursuant to clause (x) of this
paragraph unless Executive first delivers written notice of such breach to
the Company and the Company fails to cure such breach within 10 days of
receipt of such notice from Executive.
b. If Executive terminates this Agreement for Good Reason under
clause (x) of Section 7.a., Executive shall be entitled to payment of (i) his
salary up to the effective date of termination, (ii) his salary for 12 months
following the effective date of termination, (iii) the amount of Bonus, if
any, payable under Section 4 but not paid to Executive for any year prior to
the fiscal year in which such termination occurs and (iv) the amount of
Bonus, if any, that otherwise would have been payable to Executive (had
Executive not terminated this Agreement for Good Reason under clause (x) of
Section 7.a.) for the Company's fiscal year in which such termination occurs.
c. If Executive terminates this Agreement for Good Reason under
clause (y) of Section 7.a., Executive shall be entitled to payment of (i) his
salary up to the effective date of termination, (ii) his salary for the
balance of the fiscal year in which such termination occurs, (iii) the amount
of Bonus, if any, payable under Section 4 but not paid to Executive for any
year prior to the fiscal year in which such termination occurs and (iv) the
Bonus (pro rated as of the effective date of termination for Good Reason
under clause (y) of Section 7.a.) that would otherwise have been payable to
Executive (had Executive not terminated this Agreement for Good Reason under
clause (y) of Section 7.a.) under Section 4 for the fiscal year of the
Company in which Executive terminates his employment for Good Reason;
PROVIDED, HOWEVER, Executive shall deliver written notice to the Company of
Executive's election to terminate this Agreement for Good Reason under clause
(y) of Section 7.a. stating the reason why Executive alleges he has the right
to terminate this Agreement for Good Reason under clause (y) of Section 7.a.
and the Company shall have 30 days following receipt of such written notice
to remedy the situation which Executive alleged is the basis for his right to
terminate for Good Reason under clause (y) of Section 7.a. If the Company
remedies such alleged basis for termination within 30 days of its receipt of
such written notice, this Agreement shall remain in full force and effect.
If the Company fails to remedy such alleged basis for termination within 30
days of its receipt of such written notice, this Agreement shall be deemed
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terminated for Good Reason under clause (y) of Section 7.a., effective on the
30th day following the Company's receipt of such written notice.
8. AFFILIATE TRANSACTIONS. For as long as Executive is employed by
the Company or Acquisition, or Executive or any member of his family is the
beneficial owner of any stock of the Company, neither Executive, any member
of his family nor any affiliate (as such term is used in Section 501(b) of
the Securities Act of 1933, as amended) of Executive shall engage, directly
or indirectly, in any business transaction with the Company or any of its
affiliates without the approval of the Board of Directors of the Company
(which approval shall include the approval of at least one disinterested
director), as reflected in the minutes of the Board of Directors' meetings.
9. INVENTIONS. Executive agrees that all inventions conceived of or
developed by Executive during the term of his employment with the Company,
whether alone or jointly with others and whether during working hours or
otherwise, which relate to the business of the Company or Acquisition, or any
business or other company in which the Company or Acquisition now or
hereafter has an ownership interest, shall be the Company's exclusive
property. Executive shall (i) promptly disclose in writing to the Company
each invention conceived or developed by Executive during the term of his
employment with the Company, (ii) assign all rights to such inventions to the
Company or Acquisition and (iii) assist the Company or Acquisition in every
way to obtain and protect any patents on such inventions. This Section does
not apply to any invention which qualifies fully under the provisions of
Section 2870 of the California Labor Code, a copy of which is attached hereto
as EXHIBIT D.
10. AUDIT RIGHTS. Executive and his duly authorized representatives
shall have the right, upon 10 days prior written notice to the Company and at
reasonable hours and during normal business days, to audit the books and
records of the Company and Acquisition which relate to the calculation of the
Bonus, the cost of which shall be borne solely by Executive, except as set
forth below. In the event such audit discloses that the Bonus actually due
Executive exceeds the Bonus paid to Executive by an amount greater than five
percent of the Bonus paid to Executive, in addition to any other payments to
be made hereunder, the Company shall pay to Executive all reasonable costs of
the audit performed by Executive or his representatives. In the absence of
fraud, twelve months after payment of any Bonus to Executive, the books and
records of the Company and Acquisition with respect to such period covered by
the Bonus shall become final and closed and Executive shall not have any
right to conduct an audit for such period.
11. SPECIFIC PERFORMANCE. The parties hereto agree that their rights
under Section 9 of this Agreement are special and unique and that any
violation thereof would not be adequately compensated by money damages, and
each grants the other the right to specifically enforce (including injunctive
relief where appropriate) the terms of Section 9 of this Agreement.
12. NOTICES. Any notice, request, consent or communication
(collectively a "Notice") under this Agreement shall be effective only if it
is in writing and (i) personally delivered, (ii) sent by certified or
registered mail, return receipt requested, postage prepaid, (iii) sent by a
nationally recognized overnight delivery service for next day delivery, with
delivery confirmed, or (iv) telecopied, with receipt confirmed, addressed as
follows:
a. If to Executive:
5
<PAGE>
Paul Turner
2838 Third Street
Boulder, Colorado 80304
Telephone: (303) 443-7556
with a copy to: Steve Cohen, Esq.
Holme, Roberts & Owen LLC
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203
Telephone: (303) 861-7000
Telecopier: (303) 866-0200
with a copy to: Sandra A. Golze, Esq.
McCutchen, Doyle, Brown & Enersen
1331 North California Boulevard
P.O. Box V
Walnut Creek, California 94596
Telephone: (510) 975-5352
Telecopier: (510) 937-5390
b. If to the Company to:
RSx Holdings, Inc.
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, New York 10019
Attention: Adam E. Max
Telephone: (212) 572-0820
Telecopier: (212) 750-5263
with a copy to: Morris K. Withers, Esq.
Smith, Gill, Fisher & Butts, P.C.
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telephone: (816) 474-7400
Telecopier: (816) 391-7600
or such other persons or addresses as shall be furnished in writing by either
party to the other party. A Notice shall be deemed to have been given as of
the date when (i) personally delivered, (ii) three days after the date when
deposited with the United States mail properly addressed, (iii) when receipt
of a Notice sent by an overnight delivery service is confirmed by such
overnight delivery service, or (iv) when receipt of the telecopy is
confirmed, as the case may be, unless the sending party has actual knowledge
that a Notice was not received by the intended recipient.
13. ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns,
6
<PAGE>
but neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by Executive.
14. GOVERNING LAW WAIVER OF JURY TRIAL; VENUE. This Agreement shall be
governed by the law of the state of California as to all matters, including,
but not limited to, matters of validity, construction, effect and
performance, except that no doctrine of choice of law shall be used to apply
any law other than that of the state of California. IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREUNDER, EACH OF THE PARTIES HERETO WAIVES ALL
RIGHTS TO A TRIAL BY JURY. THE COMPANY HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES DISTRICT COURT SITTING IN THE STATE OF
CALIFORNIA AND OF ANY CALIFORNIA STATE COURT FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR IN THE FUTURE HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
15. ATTORNEYS' FEES. If any legal action or other proceeding is
commenced to enforce or interpret any provision of, or otherwise relating to,
this Agreement, the losing party shall pay the prevailing party's reasonable
expenses incurred in the investigation of any claim leading to the
proceeding, preparation for and participation in the proceeding, any appeal
or other post judgment motion, and any action to enforce or collect the
judgment, including contempt, garnishment, levy, discovery and bankruptcy.
"Expenses" shall include, without limitation, court or other proceeding costs
and experts' and attorneys' fees and their expenses. The phrase "prevailing
party" shall mean the party who is determined in the proceeding to have
prevailed and who prevails by dismissal, default or otherwise.
16. SEVERABILITY. The Company and Executive believe the covenants
contained in this Agreement are reasonable and fair in all respects, and are
necessary to protect the interests of the Company and Executive. However, in
case any one or more of the provisions or parts of a provision contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a
provision of this Agreement or any other jurisdiction, but this Agreement
shall be reformed and construed in any such jurisdiction as if such invalid,
illegal or unenforceable provision or part of a provision had never been
contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction.
17. NEUTRAL INTERPRETATION. This Agreement constitutes the product of
the negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against either
party based upon the source of the draftsmanship hereof.
18. MISCELLANEOUS. 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. The section headings
contained in this Agreement are for reference purposes only and
7
<PAGE>
shall not affect in any way the meaning or interpretation of this Agreement.
This Agreement embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein and may not be
modified orally, but only by a writing subscribed by the party charged
therewith. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred
to herein. This Agreement supersedes all prior agreements and understandings
(whether oral or written) between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
COMPANY:
RSx HOLDINGS, INC.
By: /s/ ADAM E. MAX
-------------------------------------
Title: President and Secretary
----------------------------------
EXECUTIVE:
/s/ PAUL TURNER
----------------------------------------
Paul Turner
8
<PAGE>
EXHIBIT 10.11
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is made this 24th day
of March, 1995, by and between RSx HOLDINGS, INC., a Delaware corporation
("Holdings"), and STEVE W. SIMONS, an individual ("Shareholder").
W I T N E S S E T H:
WHEREAS, Shareholder has been actively involved in the business of
Rockshox, Inc., a California corporation (the "Company"), as an employee,
substantial shareholder, officer and member of the Board of Directors of the
Company; and
WHEREAS, Holdings and RSx Acquisition, Inc., a Delaware Corporation
("Acquisition"), have agreed to purchase all of the issued and outstanding
shares of capital stock of the Company (the "Shares") pursuant to that
certain Stock Purchase Agreement dated March 24, 1995, by and among the
parties hereto, Acquisition and other shareholders of the Company (the
"Purchase Agreement"); and
WHEREAS, the continued involvement by Shareholder in a business in
competition with the Company would diminish the value of the Shares to be
purchased by Holdings and Acquisition; and
WHEREAS, as an inducement to Holdings and Acquisition to consummate
the purchase of the Shares, Shareholder has agreed not to compete with
Holdings, Acquisition and the Company, and to refrain from making
disclosures, to the extent set forth below;
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein, the parties hereto agree as follows:
1. RESTRICTIVE COVENANTS.
a. Shareholder agrees that for a period of three (3) years
commencing on the date of this Agreement, Shareholder shall not directly or
indirectly, either individually or as a principal, partner, agent, employee,
employer, consultant, shareholder, joint venturer, investor, or as a director
or officer of any corporation or association, or in any other manner or
capacity whatsoever, engage in, assist or have any active interest in a
business located anywhere in (1) Santa Clara County, California, (2) Boulder
County, Colorado, or (3) the continguous United States that (i) designs,
manufactures, sells or distributes bicycle suspension systems or any other
product line of the Company or that otherwise competes with or is similar in
concept, design, format or otherwise to the business conducted by Holdings,
Acquisition or the Company on the date hereof or at any time during the term
of Shareholder's employment by Holdings, Acquisition or the Company, or
(ii) sells to, supplies, provides goods or services to, purchases from or does
business in any manner with Holdings, Acquisition or the Company.
Notwithstanding the above, this paragraph shall not be construed to prohibit
Shareholder from
<PAGE>
owning less than five percent (5%) of the securities of a corporation which
is publicly traded on a securities exchange or the over-the-counter market.
b. Shareholder agrees that for a period of three (3) years from
and after the date Shareholder ceases to be employed by Holdings, Acquisition
or the Company, Shareholder shall not directly or indirectly, either
individually or as a principal, partner, agent, employee, employer,
consultant, shareholder, joint venturer, investor, or as a director or
officer of any corporation or association, or in any other manner or capacity
whatsoever (i) divert or attempt to divert from Holdings, Acquisition or the
Company any business with any customer or account with which Shareholder had
any contact or association, which was under the supervision of Shareholder,
or the identity of which was learned by Shareholder as a result of
Shareholder's employment with Holdings, Acquisition or the Company, (ii)
solicit any salesperson, distributor, supplier, vendor, manufacturer,
representative, agent, jobber or other person transacting business with
Holdings, Acquisition or the Company or the Company to terminate his or its
relationship or association with Holdings, Acquisition or the Company, or to
represent, distribute or sell services or products in competition with the
services or products of Holdings, Acquisition or the Company, or (iii)
solicit any employee of Holdings, Acquisition or the Company to leave the
employ of Holdings, Acquisition or the Company.
2. NON-DISCLOSURE. Shareholder shall not at any time or in any
manner, directly or indirectly, use of disclose to any party other than
Holdings, Acquisition or the Company any trade secrets or other Confidential
Information (as defined below) learned or obtained by him while a
shareholder, officer or director of Holdings, Acquisition or the Company. As
used herein, the term "Confidential Information" means information disclosed
to or known by Shareholder as a consequence of his position with Holdings,
Acquisition or the Company and not generally known in the industry in which
Holdings, Acquisition or the Company is engaged and that relates to the
Company's, Acquisitions' or Holdings' products, processes, services,
inventions (whether patentable or not), formulas, techniques or know-how,
including, but not limited to, information relating to distribution systems
and methods, research development, manufacturing, purchasing, accounting,
engineering, marketing, merchandising and selling.
3. SPECIFIC PERFORMANCE. The parties hereto agree that their rights
hereunder are special and unique and that any violation thereof would not be
adequately compensated by money damages, and each grants the other the right
to specifically enforce (including injunctive relief where appropriate) the
terms of this Agreement.
4. NOTICES. Any notice, request, consent or communication
(collectively, a "Notice") under this Agreement shall be effective only if it
is in writing and (i) personally delivered, (ii) sent by certified or
registered mail, return receipt requested, postage prepaid, (iii) sent by a
nationally recognized overnight delivery service, with delivery confirmed, or
(iv) telecopied, with receipt confirmed, addressed as follows:
2
<PAGE>
a. If to Shareholder, to:
Steve W. Simons
27461 Sherlock Road
Los Altos Hills, California 94022
Telecopier (415) 948-0267
with a copy to:
Sandra A. Golze, Esq.
McCutchen, Doyle, Brown & Enersen
1331 North California Boulevard
P.O. Box V
Walnut Creek California 94596
Telecopier (510) 937-5390
b. If to Holdings, to:
RSx Holdings, Inc.
9 West 57th Street, Suite 4000
New York, New York 10019
Attention: Adam E. Max
Telecopier (212) 755-5263
with a copy to:
Morris K. Withers, Esq.
Smith, Gill, Fisher & Butts, P.C.
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telecopier (816) 391-7600
or such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of
the date when (i) personally delivered, (ii) five (5) days after the date
when deposited with the United States mail properly addressed, (iii) when
receipt of a Notice sent by an overnight delivery service is confirmed by
such overnight delivery service, or (iv) when receipt of the telecopy is
confirmed, as the case may be, unless the sending party has actual knowledge
that a Notice was not received by the intended recipient.
5. ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by Shareholder.
3
<PAGE>
6. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed by the law of the State of California as to all matters, including,
but not limited to, matters of validity, construction, effect and
performance, except that no doctrine of choice of law shall be used to apply
any law other than that of California. IN THE EVENT OF ANY LITIGATION WITH
RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREUNDER, ALL OF THE PARTIES HERETO WAIVE ALL RIGHTS TO A TRIAL
BY JURY.
7. ATTORNEYS' FEES. If any legal action or other proceeding is
commended to enforce or interpret any provision of, or otherwise relating to,
this Agreement, the losing party shall pay the prevailing party's reasonable
expenses incurred in the investigation of any claim leading to the
proceeding, preparation for and participation in the proceeding, any appeal
or other post-judgment motion, and any action to enforce or collect the
judgment, including contempt, garnishment, levy, discovery and bankruptcy.
"Expenses" shall include, without limitation, court or other proceeding costs
and experts' and attorneys' fees and their expenses. The phrase "prevailing
party" shall mean the party who is determined in the proceeding to have
prevailed and who prevails by dismissal, default or otherwise.
8. SEVERABILITY. Holdings and Shareholder believe that the
covenants against competition contained in this Agreement are reasonable and
fair in all respects, and are necessary to protect the interests of Holdings.
However, in case any one or more of the provisions or parts of a provision
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or part
of a provision of this Agreement or any other jurisdiction, but this
Agreement shall be reformed and construed in any such jurisdiction as if such
invalid, illegal or unenforceable provision or part of a provision had never
been contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction. Without limiting the foregoing, the parties intend that the
covenants and agreements contained in Section 1(a), clauses (1)-(3) shall be
deemed to be a series of separate covenants and agreements, one for each of
the jurisdictions so designated. If, in any judicial proceeding, a court
shall refuse to enforce all the separate covenants and agreements deemed to
be included in Section 1(a), clauses (1)-(3), it is the intention of the
parties hereto that the covenants and agreements which, if eliminated, would
permit the remaining separate covenants and agreements to be enforced in such
proceeding shall, for the purpose of such proceeding, be deemed eliminated
from the provisions of Section 1(a). Without limiting the foregoing, if in
any judicial proceeding a court shall find that the time period set forth in
Section 1 is invalid, illegal or unenforceable because it is too long in
duration, it is the intention of the parties hereto that such time period
shall be reformed and amended by such court to a time period having the
maximum duration permitted by such court.
9. NEUTRAL INTERPRETATION. This Agreement constitutes the product
of the negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any
party based upon the source of the draftsmanship hereof.
4
<PAGE>
10. ACKNOWLEDGMENT. The Shareholder acknowledges that his breach of
Section 1 or 2 of this Agreement shall provide a basis for Holdings to: (i)
terminate the Employment Agreement between Shareholder and Holdings, dated
the date hereof, and (ii) set-off any damages of Holdings resulting from such
breach against any amounts payable by Holdings to Shareholder (or any trust
for the benefit of Shareholder) under (a) the Non-Negotiable Junior
Subordinated Note executed by Holdings and issued to Shareholder (or any
trust for the benefit of Shareholder), dated the date hereof, or (b) the
Series B Preferred Stock of Holdings issued to Shareholder (or any trust for
the benefit of Shareholder) on the date hereof, provided however, any set-off
by Holdings must be done in accordance with the terms of the Purchase
Agreement.
11. MISCELLANEOUS. 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. The section headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. This
Agreement embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein and may not be
modified orally, but only by a writing subscribed by the party charged
therewith. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred
to herein. This Agreement supersedes all prior agreements and understandings
(whether oral or written) between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties hereto have made and entered into
this Agreement the date first hereinabove set forth.
HOLDINGS:
RSx HOLDINGS, INC.
By: /s/ ADAM E. MAX
--------------------------------------
Title: President and Secretary
-----------------------------------
SHAREHOLDER:
/s/ STEVE W. SIMONS
-----------------------------------------
Steve W. Simons
5
<PAGE>
EXHIBIT 10.12
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is made this 24th
day of March, 1995, by and between RSx HOLDINGS, INC., a Delaware corporation
("Holdings"), and DEBRA W. SIMONS, an individual ("Shareholder").
W I T N E S S E T H:
WHEREAS, Shareholder has been actively involved in the business of
Rockshox, Inc., a California corporation (the "Company"), as an employee,
substantial shareholder, officer and member of the Board of Directors of the
Company; and
WHEREAS, Holdings and RSx Acquisition, Inc., a Delaware Corporation
("Acquisition"), have agreed to purchase all of the issued and outstanding
shares of capital stock of the Company (the "Shares") pursuant to that
certain Stock Purchase Agreement dated March 24, 1995, by and among the
parties hereto, Acquisition and other shareholders of the Company (the
"Purchase Agreement"); and
WHEREAS, the continued involvement by Shareholder in a business in
competition with the Company would diminish the value of the Shares to be
purchased by Holdings and Acquisition; and
WHEREAS, as an inducement to Holdings and Acquisition to consummate
the purchase of the Shares, Shareholder has agreed not to compete with
Holdings, Acquisition and the Company, and to refrain from making
disclosures, to the extent set forth below;
NOW, THEREFORE, in consideration of the premises and the covenants
and agreements contained herein, the parties hereto agree as follows:
1. RESTRICTIVE COVENANTS.
a. Shareholder agrees that for a period of three (3) years
commencing on the date of this Agreement, Shareholder shall not directly or
indirectly, either individually or as a principal, partner, agent, employee,
employer, consultant, shareholder, joint venturer, investor, or as a director
or officer of any corporation or association, or in any other manner or
capacity whatsoever, engage in, assist or have any active interest in a
business located anywhere in (1) Santa Clara County, California, (2) Boulder
County, Colorado, or (3) the continguous United States that (i) designs,
manufactures, sells or distributes bicycle suspension systems or any other
product line of the Company or that otherwise competes with or is similar in
concept, design, format or otherwise to the business conducted by Holdings,
Acquisition or the Company on the date hereof or at any time during the term
of Shareholder's employment by Holdings, Acquisition or the Company, or
(ii) sells to, supplies, provides goods or services to, purchases from or does
business in any manner with Holdings, Acquisition or the Company.
Notwithstanding the above, this paragraph shall not be construed to prohibit
Shareholder from
<PAGE>
owning less than five percent (5%) of the securities of a corporation which
is publicly traded on a securities exchange or the over-the-counter market.
b. Shareholder agrees that for a period of three (3) years from
and after the date Shareholder ceases to be employed by Holdings, Acquisition
or the Company, Shareholder shall not directly or indirectly, either
individually or as a principal, partner, agent, employee, employer,
consultant, shareholder, joint venturer, investor, or as a director or
officer of any corporation or association, or in any other manner or capacity
(i) divert or attempt to divert from Holdings, Acquisition or the Company any
business with any customer or account with which Shareholder had any contact
or association, which was under the supervision of Shareholder, or the
identity of which was learned by Shareholder as a result of Shareholder's
employment with Holdings, Acquisition or the Company, (ii) solicit any
salesperson, distributor, supplier, vendor, manufacturer, representative,
agent, jobber or other person transacting business with Holdings, Acquisition
or the Company or the Company to terminate his or its relationship or
association with Holdings, Acquisition or the Company, or to represent,
distribute or sell services or products in competition with the services or
products of Holdings, Acquisition or the Company, or (iii) solicit any
employee of Holdings, Acquisition or the Company to leave the employ of
Holdings, Acquisition or the Company.
2. NON-DISCLOSURE. Shareholder shall not at any time or in any
manner, directly or indirectly, use of disclose to any party other than
Holdings, Acquisition or the Company any trade secrets or other Confidential
Information (as defined below) learned or obtained by him while a
shareholder, officer or director of Holdings, Acquisition or the Company. As
used herein, the term "Confidential Information" means information disclosed
to or known by Shareholder as a consequence of his position with Holdings,
Acquisition or the Company and not generally known in the industry in which
Holdings, Acquisition or the Company is engaged and that relates to the
Company's, Acquisitions' or Holdings' products, processes, services,
inventions (whether patentable or not), formulas, techniques or know-how,
including, but not limited to, information relating to distribution systems
and methods, research development, manufacturing, purchasing, accounting,
engineering, marketing, merchandising and selling.
3. SPECIFIC PERFORMANCE. The parties hereto agree that their rights
hereunder are special and unique and that any violation thereof would not be
adequately compensated by money damages, and each grants the other the right
to specifically enforce (including injunctive relief where appropriate) the
terms of this Agreement.
4. NOTICES. Any notice, request, consent or communication
(collectively, a "Notice") under this Agreement shall be effective only if it
is in writing and (i) personally delivered, (ii) sent by certified or
registered mail, return receipt requested, postage prepaid, (iii) sent by a
nationally recognized overnight delivery service, with delivery confirmed, or
(iv) telecopied, with receipt confirmed, addressed as follows:
2
<PAGE>
a. If to Shareholder, to:
Debra W. Simons
27461 Sherlock Road
Los Altos Hills, California 94022
Telecopier (415) 948-0267
with a copy to:
Sandra A. Golze, Esq.
McCutchen, Doyle, Brown & Enersen
1331 North California Boulevard
P.O. Box V
Walnut Creek California 94596
Telecopier (510) 937-5390
b. If to Holdings, to:
RSx Holdings, Inc.
9 West 57th Street, Suite 4000
New York, New York 10019
Attention: Adam E. Max
Telecopier (212) 755-5286
with a copy to:
Morris K. Withers, Esq.
Smith, Gill, Fisher & Butts, P.C.
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telecopier (816) 391-7600
or such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of
the date when (i) personally delivered, (ii) five (5) days after the date
when deposited with the United States mail properly addressed, (iii) when
receipt of a Notice sent by an overnight delivery service is confirmed by
such overnight delivery service, or (iv) when receipt of the telecopy is
confirmed, as the case may be, unless the sending party has actual knowledge
that a Notice was not received by the intended recipient.
5. ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by Shareholder.
3
<PAGE>
6. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed by the law of the State of California as to all matters, including,
but not limited to, matters of validity, construction, effect and
performance, except that no doctrine of choice of law shall be used to apply
any law other than that of California. IN THE EVENT OF ANY LITIGATION WITH
RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREUNDER, ALL OF THE PARTIES HERETO WAIVE ALL RIGHTS TO A TRIAL
BY JURY.
7. ATTORNEYS' FEES. If any legal action or other proceeding is
commended to enforce or interpret any provision of, or otherwise relating to,
this Agreement, the losing party shall pay the prevailing party's reasonable
expenses incurred in the investigation of any claim leading to the
proceeding, preparation for and participation in the proceeding, any appeal
or other post-judgment motion, and any action to enforce or collect the
judgment, including contempt, garnishment, levy, discovery and bankruptcy.
"Expenses" shall include, without limitation, court or other proceeding costs
and experts' and attorneys' fees and their expenses. The phrase "prevailing
party" shall mean the party who is determined in the proceeding to have
prevailed and who prevails by dismissal, default or otherwise.
8. SEVERABILITY. Holdings and Shareholder believe that the
covenants against competition contained in this Agreement are reasonable and
fair in all respects, and are necessary to protect the interests of Holdings.
However, in case any one or more of the provisions or parts of a provision
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or part
of a provision of this Agreement or any other jurisdiction, but this
Agreement shall be reformed and construed in any such jurisdiction as if such
invalid, illegal or unenforceable provision or part of a provision had never
been contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction. Without limiting the foregoing, the parties intend that the
covenants and agreements contained in Section 1(a), clauses (1)-(3) shall be
deemed to be a series of separate covenants and agreements, one for each of
the jurisdictions so designated. If, in any judicial proceeding, a court
shall refuse to enforce all the separate covenants and agreements deemed to
be included in Section 1(a), clauses (1)-(3), it is the intention of the
parties hereto that the covenants and agreements which, if eliminated, would
permit the remaining separate covenants and agreements to be enforced in such
proceeding shall, for the purpose of such proceeding, be deemed eliminated
from the provisions of Section 1(a). Without limiting the foregoing, if in
any judicial proceeding a court shall find that the time period set forth in
Section 1 is invalid, illegal or unenforceable because it is too long in
duration, it is the intention of the parties hereto that such time period
shall be reformed and amended by such court to a time period having the
maximum duration permitted by such court.
9. NEUTRAL INTERPRETATION. This Agreement constitutes the product
of the negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any
party based upon the source of the draftsmanship hereof.
4
<PAGE>
10. ACKNOWLEDGMENT. The Shareholder acknowledges that his breach of
Section 1 or 2 of this Agreement shall provide a basis for Holdings to: (i)
terminate the Employment Agreement between Shareholder and Holdings, dated
the date hereof, and (ii) set-off any damages of Holdings resulting from such
breach against any amounts payable by Holdings to Shareholder (or any trust
for the benefit of Shareholder) under (a) the Non-Negotiable Junior
Subordinated Note executed by Holdings and issued to Shareholder (or any
trust for the benefit of Shareholder), dated the date hereof, or (b) the
Series B Preferred Stock of Holdings issued to Shareholder (or any trust for
the benefit of Shareholder) on the date hereof, provided however, any set-off
by Holdings must be done in accordance with the terms of the Purchase
Agreement.
11. MISCELLANEOUS. 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. The section headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. This
Agreement embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein and may not be
modified orally, but only by a writing subscribed by the party charged
therewith. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred
to herein. This Agreement supersedes all prior agreements and understandings
(whether oral or written) between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
HOLDINGS:
RSx HOLDINGS, INC.
By: /s/ ADAM E. MAX
--------------------------------------
Title: President and Secretary
-----------------------------------
SHAREHOLDER:
/s/ DEBRA W. SIMONS
-----------------------------------------
Debra W. Simons
5
<PAGE>
EXHIBIT 10.13
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is made this 24th day
of March, 1995, by and between RSx HOLDINGS, INC., a Delaware corporation
("Holdings"), and PAUL TURNER, an individual ("Shareholder").
W I T N E S S E T H:
WHEREAS, Shareholder has been actively involved in the business of
Rockshox, Inc., a California corporation (the "Company"), as an employee,
substantial shareholder, officer and member of the Board of Directors of the
Company; and
WHEREAS, Holdings and RSx Acquisition, Inc., a Delaware Corporation
("Acquisition"), have agreed to purchase all of the issued and outstanding
shares of capital stock of the Company (the "Shares") pursuant to that
certain Stock Purchase Agreement dated March 24, 1995, by and among the
parties hereto, Acquisition and other shareholders of the Company (the
"Purchase Agreement"); and
WHEREAS, the continued involvement by Shareholder in a business in
competition with the Company would diminish the value of the Shares to be
purchased by Holdings and Acquisition; and
WHEREAS, as an inducement to Holdings and Acquisition to consummate
the purchase of the Shares, Shareholder has agreed not to compete with
Holdings, Acquisition and the Company, and to refrain from making
disclosures, to the extent set forth below;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, the parties hereto agree as follows:
1. RESTRICTIVE COVENANTS.
a. Shareholder agrees that for a period of three (3) years
commencing on the date of this Agreement, Shareholder shall not directly or
indirectly, either individually or as a principal, partner, agent, employee,
employer, consultant, shareholder, joint venturer, investor, or as a director
or officer of any corporation or association, or in any other manner or
capacity whatsoever, engage in, assist or have any active interest in a
business located anywhere in (1) Santa Clara County, California, (2) Boulder
County, Colorado, or (3) the continguous United States that (i) designs,
manufactures, sells or distributes bicycle suspension systems or any other
product line of the Company or that otherwise competes with or is similar in
concept, design, format or otherwise to the business conducted by Holdings,
Acquisition or the Company on the date hereof or at any time during the term
of Shareholder's employment by Holdings, Acquisition or the Company, or
(ii) sells to, supplies, provides goods or services to, purchases from or does
business in any manner with Holdings, Acquisition or the Company.
Notwithstanding the above, this paragraph shall not be construed to prohibit
Shareholder from
<PAGE>
owning less than five percent (5%) of the securities of a corporation which
is publicly traded on a securities exchange or the over-the-counter market.
b. Shareholder agrees that for a period of three (3) years from and
after the date Shareholder ceases to be employed by Holdings, Acquisition or
the Company, Shareholder shall not directly or indirectly, either
individually or as a principal, partner, agent, employee, employer,
consultant, shareholder, joint venturer, investor, or as a director or
officer of any corporation or association, or in any other manner or capacity
whatsoever (i) divert or attempt to divert from Holdings, Acquisition or the
Company any business with any customer or account with which Shareholder had
any contact or association, which was under the supervision of Shareholder,
or the identity of which was learned by Shareholder as a result of
Shareholder's employment with Holdings, Acquisition or the Company, (ii)
solicit any salesperson, distributor, supplier, vendor, manufacturer,
representative, agent, jobber or other person transacting business with
Holdings, Acquisition or the Company or the Company to terminate his or its
relationship or association with Holdings, Acquisition or the Company, or to
represent, distribute or sell services or products in competition with the
services or products of Holdings, Acquisition or the Company, or (iii)
solicit any employee of Holdings, Acquisition or the Company to leave the
employ of Holdings, Acquisition or the Company.
2. NON-DISCLOSURE. Shareholder shall not at any time or in any
manner, directly or indirectly, use of disclose to any party other than
Holdings, Acquisition or the Company any trade secrets or other Confidential
Information (as defined below) learned or obtained by him while a
shareholder, officer or director of Holdings, Acquisition or the Company. As
used herein, the term "Confidential Information" means information disclosed
to or known by Shareholder as a consequence of his position with Holdings,
Acquisition or the Company and not generally known in the industry in which
Holdings, Acquisition or the Company is engaged and that relates to the
Company's, Acquisitions' or Holdings' products, processes, services,
inventions (whether patentable or not), formulas, techniques or know-how,
including, but not limited to, information relating to distribution systems
and methods, research development, manufacturing, purchasing, accounting,
engineering, marketing, merchandising and selling.
3. SPECIFIC PERFORMANCE. The parties hereto agree that their rights
hereunder are special and unique and that any violation thereof would not be
adequately compensated by money damages, and each grants the other the right
to specifically enforce (including injunctive relief where appropriate) the
terms of this Agreement.
4. NOTICES. Any notice, request, consent or communication
(collectively, a "Notice") under this Agreement shall be effective only if it
is in writing and (i) personally delivered, (ii) sent by certified or
registered mail, return receipt requested, postage prepaid, (iii) sent by a
nationally recognized overnight delivery service, with delivery confirmed, or
(iv) telecopied, with receipt confirmed, addressed as follows:
2
<PAGE>
a. If to Shareholder, to:
Paul Turner
2838 Third Street
Boulder, Colorado 80304
with a copy to:
Steve Cohen, Esq.
Holme, Roberts & Owens
1700 Lincoln Street
Denver. Colorado 80203
Telecopier (303) 866-0200
b. If to Holdings, to:
RSx Holdings, Inc.
9 West 57th Street, Suite 4000
New York, New York 10019
Attention: Adam E. Max
Telecopier (212) 755-5286
with a copy to:
Morris K. Withers, Esq.
Smith, Gill, Fisher & Butts, P.C.
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Telecopier (816) 391-7600
or such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of
the date when (i) personally delivered, (ii) five (5) days after the date
when deposited with the United States mail properly addressed, (iii) when
receipt of a Notice sent by an overnight delivery service is confirmed by
such overnight delivery service, or (iv) when receipt of the telecopy is
confirmed, as the case may be, unless the sending party has actual knowledge
that a Notice was not received by the intended recipient.
5. ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by Shareholder.
6. GOVERNING LAW; WAIVER OF JURY TRIAL. This Agreement shall be
governed by the law of the State of California as to all matters, including,
but not limited to, matters of validity, construction, effect and
performance, except that no doctrine of choice of law shall be used to
3
<PAGE>
apply any law other than that of California. IN THE EVENT OF ANY LITIGATION
WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREUNDER, ALL OF THE PARTIES HERETO WAIVE ALL RIGHTS TO A TRIAL
BY JURY.
7. ATTORNEYS' FEES. If any legal action or other proceeding is
commended to enforce or interpret any provision of, or otherwise relating to,
this Agreement, the losing party shall pay the prevailing party's reasonable
expenses incurred in the investigation of any claim leading to the
proceeding, preparation for and participation in the proceeding, any appeal
or other post-judgment motion, and any action to enforce or collect the
judgment, including contempt, garnishment, levy, discovery and bankruptcy.
"Expenses" shall include, without limitation, court or other proceeding costs
and experts' and attorneys' fees and their expenses. The phrase "prevailing
party" shall mean the party who is determined in the proceeding to have
prevailed and who prevails by dismissal, default or otherwise.
8. SEVERABILITY. Holdings and Shareholder believe that the covenants
against competition contained in this Agreement are reasonable and fair in
all respects, and are necessary to protect the interests of Holdings.
However, in case any one or more of the provisions or parts of a provision
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or part
of a provision of this Agreement or any other jurisdiction, but this
Agreement shall be reformed and construed in any such jurisdiction as if such
invalid, illegal or unenforceable provision or part of a provision had never
been contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction. Without limiting the foregoing, the parties intend that the
covenants and agreements contained in Section 1(a), clauses (1)-(3) shall be
deemed to be a series of separate covenants and agreements, one for each of
the jurisdictions so designated. If, in any judicial proceeding, a court
shall refuse to enforce all the separate covenants and agreements deemed to
be included in Section 1(a), clauses (1)-(3), it is the intention of the
parties hereto that the covenants and agreements which, if eliminated, would
permit the remaining separate covenants and agreements to be enforced in such
proceeding shall, for the purpose of such proceeding, be deemed eliminated
from the provisions of Section 1(a). Without limiting the foregoing, if in
any judicial proceeding a court shall find that the time period set forth in
Section 1 is invalid, illegal or unenforceable because it is too long in
duration, it is the intention of the parties hereto that such time period
shall be reformed and amended by such court to a time period having the
maximum duration permitted by such court.
9. NEUTRAL INTERPRETATION. This Agreement constitutes the product of
the negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any
party based upon the source of the draftsmanship hereof.
10. ACKNOWLEDGMENT. The Shareholder acknowledges that his breach of
Section 1 or 2 of this Agreement shall provide a basis for Holdings to: (i)
terminate the Employment Agreement between Shareholder and Holdings, dated
the date hereof, and (ii) set-off any damages of Holdings resulting from such
breach against any amounts payable by Holdings to
4
<PAGE>
Shareholder (or any trust for the benefit of Shareholder) under (a) the
Non-Negotiable Junior Subordinated Note executed by Holdings and issued to
Shareholder (or any trust for the benefit of Shareholder), dated the date
hereof, or (b) the Series B Preferred Stock of Holdings issued to Shareholder
(or any trust for the benefit of Shareholder) on the date hereof, provided
however, any set-off by Holdings must be done in accordance with the terms of
the Purchase Agreement.
11. MISCELLANEOUS. 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. The section headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. This
Agreement embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein and may not be
modified orally, but only by a writing subscribed by the party charged
therewith. There are no restrictions, promises, representations,
warranties, covenants or undertakings, other than those expressly set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings (whether oral or written) between the parties with respect to
such subject matter.
IN WITNESS WHEREOF, the parties hereto have made and entered into
this Agreement the date first hereinabove set forth.
HOLDINGS:
RSx HOLDINGS, INC.
By: /s/ ADAM E. MAX
--------------------------------------
Title: President and Secretary
-----------------------------------
SHAREHOLDER:
/s/ PAUL TURNER
-----------------------------------------
Paul Turner
5
<PAGE>
EXHIBIT 10.14
SIMONS & SUSSLIN, INC.
CONSULTANT AGREEMENT
This Consultant Agreement is made as of January 1, 1994 by and between
Simons & Susslin, Inc., a California corporation (the "Company"), and Stephen
Simons ("Consultant").
RECITALS
1. Consultant is a co-founder of the Company and is familiar with its
operations and, especially, its customers;
2. The Company desires to maintain the services of Consultant as a
consultant to the Company to assist it in the operation of its business
generally and, in particular, to assist in the Company's sales and marketing
activities; and
3. Consultant is willing to act in such capacity on the terms and
subject to the conditions set forth below.
IN WITNESS WHEREOF, the Company and Consultant agree as follows:
1. ENGAGEMENT. The Company hereby agrees to engage the services of
the Consultant and the Consultant hereby accepts such engagement by the
Company to perform consulting services for the Company on the terms contained
herein.
2. DUTIES. Consultant shall make himself available to consult with
the officers and directors of the Company at reasonable times concerning the
Company's business and its sales and marketing activities and to perform such
other duties as shall be mutually agreeable to Consultant and the Company.
3. COMPENSATION. In consideration of the consulting services to be
rendered by Consultant to the Company hereunder, the Company agrees to pay
Consultant consulting fees based on the Net Sales of the Company during the
term of this Agreement, as set forth below:
<PAGE>
(a) Consultant's sole compensation under the terms of this Agreement
shall be a consulting fee equal to three percent (3%) of the Company's
Net Sales during the term of this Agreement.
(b) Consulting fees under this Agreement shall be payable quarterly
based upon the Company's Net Sales in each calendar quarter commencing
with the calendar quarter ending March 31, 1994. Within forty-five (45)
days after the end of each calendar quarter, the Company shall pay to
Consultant all consulting fees accrued hereunder with respect to the
Company's Net Sales during such calendar quarter. Such payment of
consulting fees shall be accompanied by a written statement setting
forth the calculation of the amount of Net Sales for such quarter and
the consulting fee payment in accordance with the terms of this
Section 3.
(c) The Company will maintain at its principal place of business
books of account respecting its Net Sales and the amounts owed Consultant
hereunder. Not more than one (1) time in a given calendar year, such
records will be available during reasonable business hours, for
inspection and examination by an independent certified public accountant
designated by Consultant (not on a contingent fee basis) and reasonably
acceptable to the Company, who shall review such records solely for the
purpose of determining the Company's compliance with this Section 3 and
issuing a report with respect thereto. Such accountant shall prepare a
written report with regard to such compliance and deliver it to both the
Company and Consultant. In the event that the auditor shall determine
that the consulting fees due Consultant shall exceed the actual
consulting fees paid by the Company by more than five percent (5%), then
the Company
2
<PAGE>
shall reimburse Consultant for the reasonable costs of such
audit. In all other instances, Consultant shall bear the costs of the
audit.
(d) For purposes of this Section 3, the Company's "Net Sales" shall
mean the net amount billed by the Company to its customers with respect
to the sales of products manufactured by the Company on such customer's
behalf. Net Sales shall include engineering charges to the Company's
customers, charges for tooling manufactured by the Company and charges
for tooling manufactured by third parties and resold by the Company to
its customers at a profit, but shall exclude charges for tooling
manufactured by a third party and resold by the Company to its customers
at cost. No consulting fee shall be paid with respect to charges for
handling, freight, sales taxes, C.O.D. charges, insurance, import
duties, trade discounts, repairs, and the like, and no consulting fee
shall be payable with respect to amounts billed to customers of the
Company which subsequently prove to be uncollectible. The Company shall
have the right to set such cash discounts, to make such allowances and
adjustments, to accept such returns from its customers, and to write off
as bad debts such overdue customer accounts as it deems advisable. In
each such case, the Company shall charge back to Consultant's account
any amounts previously paid or credited to it with respect to such cash
discounts, allowances, adjustments, returns or bad debts.
(e) The consulting fees to be paid to Consultant hereunder shall
continue to be payable by the Company to the Consultant or his
designated beneficiary notwithstanding the death or disability of
Consultant.
3
<PAGE>
4. TERM AND CONDITIONS OF SALES.
(a) The Company shall provide Consultant with copies of its
current price lists, its delivery schedules, and its standard terms and
conditions of sale, as established from time to time. Consultant shall
quote to customers only those authorized prices, delivery schedules, and
terms and conditions. The Company may alter at will the prices,
delivery schedules, and terms and conditions, provided only that it
gives prior written notice to Consultant of any changes.
(b) All orders obtained by Consultant shall be subject to
acceptance by the Company, and any quotations by Consultant shall
contain a statement to that effect. Consultant shall have no authority
to make any acceptance or delivery commitments to customers. The
Company specifically reserves the right to reject any order or any part
thereof for any reason.
(c) The Company shall have the sole right of credit approval or
credit refusal for customers in all cases.
(d) Any warranty for products or services provided by the Company
shall run directly from the Company to the customer. Representative
shall have no authority to accept any returned products or to grant any
of the Company's customers any discount or credit.
5. TERM AND TERMINATION.
(a) Except in the case of early termination of this Agreement as
provided in subparagraphs (c) and (d) below or in the case of extension
of this Agreement as provided in subparagraph (b) below, this Agreement
shall be for a term of eight (8) years commencing on the date hereof and
ending on December 31, 2002.
4
<PAGE>
(b) In the event that on the scheduled expiration date of this
Agreement as set forth in subsection (a) above the total of all
consulting fees made by the Company to Consultant hereunder shall be
less than $1,000,000, then the term of this Agreement shall
automatically be extended by an additional two year period and this
Agreement shall thereafter expire on December 31, 2004, unless sooner
terminated according to the provisions of subparagraphs (c) or (d) below.
(c) In the event that the total of all consulting fees actually made
by the Company to Consultant under this Agreement shall at any time during
the terms of this Agreement equal $1,700,000, then this Agreement shall
automatically terminate and the Company and Consultant shall be released
from all further obligations to each other hereunder.
(d) Employee may terminate this Agreement and his agreement to
provide consulting services hereunder at any time upon thirty (30) days
written notice.
6. ASSIGNABILITY; SUCCESSORS. Neither party hereunder shall have the
right to assign this Agreement or any rights or obligations hereunder without
the consent of the other party. The Company will not without the prior
written consent of Consultant (i) sell all or substantially all of its
assets, (ii) merge with or into any other corporation or (iii) effect or
permit to be effected any other transaction or series of transactions which
results in or will result in the transfer of over 50% of the outstanding
capital stock of the Company or enter into any agreement to effect any of the
above. This Agreement shall be binding on the parties hereto and their
respective successors or assigns.
7. SECRECY. Consultant will not, at any time either during or after
his consulting by the Company (except as authorized by the Company for its
benefit), divulge or disclose, directly
5
<PAGE>
or indirectly, to any person, firm, association or corporation other than
bona fide employees of the Company or use of his own benefit, gain or
otherwise (a) any confidential information, knowledge, or data concerning the
business and affairs of the Company, whether acquired by Consultant either
before or after the date of this Agreement, or (b) any inventions,
discoveries, improvements, products, processes, technology, trade secrets,
customer lists, know-how, designs, formulas, or any other confidential
materials, data or information or instructions, technical or otherwise, owned
by the Company, whether acquired before or after the effective date of this
Agreement which, if disclosed, would adversely affect the business of the
Company or accord to a competitor of the Company a material competitive
advantage. This paragraph does not restrict Consultant from disseminating or
using any information which is published or available to the general public,
except where such publication or general availability is as a result of
Consultant's acts.
If Consultant violates any of the covenants or agreements contained in
this paragraph 6, Consultant agrees and acknowledges that such violation or
threatened violation will cause irreparable injury to the Company and that
the remedy at law for any such violation or threatened violation will be
inadequate and that the Company will be entitled to injunctive relief without
the necessity of proving actual damages.
8. EFFECT OF WAIVER. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any other provision or any subsequent breach of the same provision thereof.
6
<PAGE>
9. MISCELLANEOUS.
(a) Section headings are employed in this Agreement for reference
purposes only and shall not affect the interpretation or meaning of this
Agreement.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
(c) If any dispute or difference shall arise between the parties
concerning the construction of this Agreement or the rights or
obligations of either party, the parties shall strive to settle the same
amicably. If they are unable to do so, then either party may, at its
discretion, submit the dispute or difference for determination by
arbitration pursuant to the rules of the American Arbitration
Association (the "AAA"). The arbitration shall be before a single
arbitrator as mutually agreed upon by the parties or, if they should
fail to agree, as shall be appointed under the rules and procedures of
the AAA. The place of arbitration shall be Palo Alto, California. On
all other matters and procedures concerned with arbitration the
provisions of the AAA shall apply. The award of arbitration shall be
final and may be entered into any court having jurisdiction. The cost
of the arbitration proceeding, attorney's fees and expenses of the
parties shall be allocated as directed by the arbitrators.
(d) In the event of litigation involving this Agreement, the
prevailing party shall be entitled to payment of all reasonable expenses
and attorney's fees incurred.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SIMONS & SUSSLIN, INC.,
a California corporation
By: /s/ MICHAEL SUSSLIN
---------------------------------
Michael Susslin, President
CONSULTANT:
/s/ STEPHEN W. SIMONS
---------------------------------
Stephen Simons
8
<PAGE>
EXHIBIT 10.15
FORM OF
LEASE
This Lease, dated for reference purposes only as of May 1, 1994 is
entered into by and between CHARCOT CENTER JOINT VENTURE, a California
general partnership ("Landlord"), and ROCKSHOX, INC., a California
corporation ("Tenant"). In consideration of the rents and covenants stated
below, Landlord leases to Tenant and Tenant lease from Landlord the Premises
described below upon the following terms and conditions:
1.1 FUNDAMENTAL LEASE PROVISIONS:
A. Demised Premises: Landlord leases to Tenant the premises located at
and commonly known as 401 Charcot Avenue, San Jose, California 95131 (the
"Premises").
B. Term: The term of the Lease is sixty-two (62) months, beginning
July 1, 1994 (the "Commencement Date") and ending August 31, 1999 (the
"Expiration Date").
C. Minimum Monthly Rent:
(i) Initial Minimum Monthly Rent: The minimum monthly rent payable
for each of the first fourteen (14) months of the Lease term shall be Twenty
Seven Thousand Eight Hundred Five and 00/100 Dollars ($27,805.00). The
minimum monthly rent shall be increased pursuant to the provisions of either
subparagraph C(ii) or subparagraph C(iii) below.
(ii) Fixed Minimum Monthly Rent Increases: The initial minimum
monthly rent shall be increased to the amount(s) stated below and shall be
payable for each of the months during the periods stated below:
MINIMUM MONTHLY RENT PERIOD
$28,917.20 Months 15 through 26 (09/01/95 - 08/31/96)
$30,029.40 Months 27 through 38 (09/01/96 - 08/31/97)
$31,141.60 Months 39 through 50 (09/01/97 - 08/31/98)
$32,253.80 Months 51 through 62 (09/01/98 - 08/31/99)
(iii) Adjustments to Minimum Monthly Rent Based on CPI Increases:
(Omitted).
D. Additional Rent: Tenant shall also pay to Landlord the costs of all
taxes and insurance as additional rent for the use and occupancy of the
Premises as provided in Paragraph 4.2.
E. Prepaid Rent: Tenant shall pay Landlord Twenty Seven Thousand Eight
Hundred Five and 00/100 Dollars ($27,805.00) at the same time Tenant executes
and delivers this Lease to
<PAGE>
Landlord as prepaid rent which shall be applied by Landlord to the payment of
rent as it becomes due under this Lease.
F. Security Deposit: Tenant shall deposit Thirty Two Thousand Two
Hundred Fifty Three and 00/100 Dollars ($32,253.80) at the same time Tenant
executes and delivers this Lease to Landlord as security (the "security
deposit") subject to the provisions of Paragraph 7.1.
G. Use: Tenant shall use and occupy the Premises only for the
following specifically stated purpose: Light manufacturing and assembly of
bicycle parts and associated research and development, design work, and
general office purposes.
H. Address for Notices: Landlord's address for notice is CHARCOT
CENTER JOINT VENTURE, c/o Transamerica Real Estate Management Co., 600
Montgomery Street, 4th Floor, San Francisco, CA 94111. Tenant's address for
notice is ROCKSHOX, INC., 401 Charcot Avenue, San Jose, CA 95131.
I. Tenant's Public Liability Insurance: Tenant shall obtain and
maintain at all times during the term hereof a combination of comprehensive
public liability insurance and excess liability insurance providing a
coverage in total of at least Three Million Dollars ($3,000,000) per
occurrence.
J. N/A
K. Broker: The following person(s) have performed services for Tenant
or Landlord in connection with this Lease and no other persons shall have any
claim for any compensation in connection herewith: J.R. Parrish, Inc. -
Colliers International; Transamerica Real Estate Management Co., California
Real Estate Brokers License #_____________________.
2.1 THE PREMISES: The Premises described in Paragraph 1.1, subparagraph A
consists of a free-standing building and the surrounding parking area.
Improvements and sidewalks located within the property outlined and shown or
otherwise described on the attached EXHIBIT A.
3.1 TERM:
A. Delivery of Possession Delayed: If Landlord is unable to deliver
possession of the Premises to Tenant on the Commencement Date specified in
Paragraph 1.1, subparagraph B, Landlord shall not be liable for any damages
resulting from such delayed possession and this Lease shall not become void
or voidable because of such event except as provided below. If delivery of
possession of the Premises is delayed beyond the Commencement Date stated
above, the term of the Lease will begin on the date landlord tenders
possession of the Premises to Tenant and the Expiration Date specified in
Paragraph 1.1, subparagraph B shall be extended to the last day of the
calendar month being the number of full calendar months subsequent to the
delayed commencement date equal to the number of months specified in
Paragraph 1.1, subparagraph B. Any such delayed Commencement Date shall be
stated in writing which must be signed by both parties and which written
statement shall constitute an amendment to this Lease. If Landlord is unable
to tender possession of the Premises to Tenant within four (4) months after
the Commencement Date stated above, then Tenant shall have the right to
terminate this Lease without liability to Landlord. Such right must be
exercised upon at least fifteen (15) days prior written notice to Landlord
and the Lease
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shall be deemed terminated effective on the 15th day following delivery of
such notice unless Landlord tenders possession of the Premises to Tenant
during such interim period in which case the notice shall be deemed null and
void. The four-month period stated above shall be extended by the number of
days of delay caused by or attributable to Tenant or resulting from a cause
force majeure of the type specified in Paragraph 27.1, subparagraph D of this
Lease.
B. See Article 28.1 of Addendum.
4.1 RENT: Tenant shall pay as rent for the use and occupancy of the
Premises the sums stated below and stated in Paragraph 1.1, subparagraph C
and subparagraph D at the times and in the manner specified below.
A. Rent Defined: The term "rent" shall mean any sum required to be
paid by Tenant to Landlord under this Lease including, without limitation,
the specified minimum monthly rent, adjustments to rent, fixed rent
increases, impounds or reimbursements to Landlord relating to taxes,
insurance and/or common area maintenance costs, if any, attorneys' fees,
interest on any past due amounts, late fees (regardless of how such sums are
designated) and any sums due to Landlord pursuant to Paragraph 16.1,
subparagraph D hereof.
B. Time for Payment: Unless the time for payment is otherwise
specified, all sums required to be paid by Tenant under this Lease shall be
paid to Landlord, free of all claims, demands and set-offs of any kind
whatsoever, in advance on the first day of each calendar month at the address
specified in Paragraph 1.1, subparagraph H of this Lease. The requirement to
pay rent at such times shall NOT be conditioned upon the tender of a
statement to Tenant for any fixed or adjusted amounts previously specified by
Landlord.
C. Proration of Rental Amounts for Partial Months: If the Commencement
Date of the term of the Lease occurs on a day other than the first day of the
month, then the minimum monthly rent and/or any impounds or other regular
monthly payments for the first partial month of the Lease term shall be
prorated on the basis of a thirty-day month. If the term of the Lease ends
on a date other than he last day of the month, then the rent for such month
shall be prorated on the basis of a thirty-day month.
D. CPI Defined: (Omitted).
4.2 PAYMENT OF TAXES AND INSURANCE COSTS AS ADDITIONAL RENT: Tenant shall
pay the costs of taxes and insurance to Landlord as additional rent for the
use and occupancy of the Premises at the times, to the extent and in the
manner specified below:
A. Tenant to Pay All Taxes and Insurance Costs: Tenant shall reimburse
Landlord all taxes and insurance costs for the Premises in the manner and at
the times stated below. The terms "taxes" and "insurance costs" are defined
in Paragraph 4.2, subparagraph B below. Landlord shall obtain the insurance
coverages of the types stated in Paragraph 4.2, subparagraph B below.
B. Taxes and Insurance Costs Defined:
(i) Taxes: "Taxes" shall mean any form of tax, assessment,
excise, license fee, business tax, rental tax, improvement bond, levy, lien,
charge or penalty (whether general, special, ordinary or
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extraordinary, foreseen or unforeseen) imposed or assessed by any authority
having the direct or indirect power to tax (including any city, county, state
or federal government, or any school, agricultural, lighting, drainage,
sewage, irrigation or other improvement or other special district) against or
in respect of or which may be or become a lien or charge upon (a) any legal
or equitable interest of Landlord in the Premises or in the real property of
which the Premises is a part, or (b) Landlord's right to or receipt of rent
or other income from the Premises or by Landlord's business of leasing the
Premises. "Taxes" shall also mean any tax imposed in substitution, partially
or totally, of or for any tax previously included in the definition of taxes
stated in the first sentence of this subparagraph B(i). "Taxes" shall also
mean any tax imposed for any service or right which was not chareged to
property owners prior to July 1, 1978 or, if previously charged , for any
increase for such service occurring since July 1, 1978. Taxes shall also
mean any tax imposed or added to real property taxes as a result of
reassessment upon a transfer or lease of all or part of Landlord's interest
in the Premises or the real property of which the Premises is a part.
Landlord and Tenant intend that all taxes of any kind or character relating
to or concerning the Premises or any part thereof, including, without
limitation, a reassessment of the value thereof, shall be included within the
term "taxes." "Taxes" shall not include Landlord's personal income,
franchise, inheritance or estate taxes.
(ii) Insurance Costs: Landlord shall obtain and/or maintain all of the
insurance coverage of the types described as Landlord's Property Insurance,
Landlord's Rent Insurance and Landlord's Liability Insurance. "Insurance
costs" shall mean all costs incurred by Landlord for policies of insurance,
brokerage fees, loss control costs and self-insured losses covering the
following:
(a) the real property of which the Premises is a part, in an
amount not less than 100% of the replacement value of the building and other
improvements located within such real property, as such replacement value may
increase from time to time, providing protection against any peril generally
included within the designation "all risk" (which may include earthquake and
flood insurance among other things) and coverage for vandalism and malicious
mischief (all of the types of coverage listed in this subparagraph B(ii)(a)
being referred to in this Lease as "Landlord's Property Insurance");
(b) the rents payable under this Lease (such coverage being
referred to in this Lease as "Landlord's Rent Insurance); and
(c) any general liability coverage, premises liability coverage or
other type of insurance relating to claims arising under negligence,
intentional tort, or strict liability theories brought by any party in
connection with the Premises or any condition or use thereof (all of the
types of coverages listed in this subparagraph B(ii)(c) being referred to in
this Lease as Landlord's Liability Insurance).
C. Rental Business Tax: Tenant shall reimburse Landlord for any tax or
charge imposed upon Landlord by the State of California or any political
subdivision of the State, commonly known as "rental business tax," "head
tax," "occupancy tax" or "gross receipts tax," all of which are collectively
referred to as the "Rental Business Tax" in this Lease, provided that Tenant
shall only pay the amount of such business tax that would be payable by the
Landlord if the Premises was the only property of the Landlord. For purposes
of this Lease only, the calculation of any such business
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tax shall include only those payments from Tenant under this Lease upon which
the taxing statute or ordinance then in effect assesses such business tax.
D. Time for Payment. On the first day of each calendar month during
the Lease term, Tenant shall pay, to the extent stated in Paragraph 4.2,
subparagraph A. an amount equal to 1/12th of the estimated taxes and
Insurance costs and Rental Business Tax for the Premises for the current tax
year and policy year, as the case may be. The monthly estimated taxes and
Insurance costs and Rental Business Tax shall not be less than 1/12th of the
actual taxes and Insurance and Rental Business Tax for the Premises for the
preceding tax year in the case of taxes or the preceding policy year in the
case of Insurance. Annually and following Landlord's receipt of the
applicable tax bill, Landlord shall notify Tenant if any additional amount is
owing and Tenant shall pay Landlord such additional amount within fifteen
(15) days thereafter. If Tenant's monthly tax payments exceed the actual
taxes for the period covered by the actual tax bill, such excess shall be
credited against the next monthly Installment of rent and add additional rent
and charges due. If Tenant's monthly payments in reimbursement for insurance
costs as defined above are less than or exceed the insurance costs determined
in the manner stated above for any policy year, then after the actual costs for
such policy year become known Landlord shall notify Tenant of such fact in
writing and Tenant shall pay any deficency to Landlord on the later date of
fifteen (15) days following delivery of such notice or the first day of the
next calendar month or Landlord shall credit any excess paid by Tenant
againgst the next monthly installment of rent or charges due, as the case may
be. If the Lease expires or terminates prior to the date that the actual
taxes, Rental Business Tax and insurance costs determined in the manner
stated above are determined, Landlord shall as soon as is practicable after
such items are determined notify Tenant in writing of any adjustment and any
additional amount by Tenant or refunded by Landlord shall be paid within
fifteen (15) days after receipt of such notice.
5.1 UTILITIES AND SERVICES: Tenant shall make all arrangements for and pay
for all utilities and services furnished to or used by it at the Premises,
including, without limitation, gas, electricity, water, telephone service,
sewage service, pest control, cleaning, trash collection and for all
connection charges, initial deposits or other fees therefor. Landlord shall
not be liable in damages or otherwise for any failure or interruption of any
utility services and Tenant shall not be entitled to terminate this Lease or
abate any portion of the rent due under the Lease as a result of such failure
or interruption, unless such failure or interruption is the result of
landlord's negligence or intentional misconduct, in which case Tenant shall
be entitled to a pro-rata abatement of rent only.
6.1 REPAIR AND MAINTENANCE: See Article 29.1 of the Addendum.
6.2 CONDITION OF THE PREMISES:
A. At Commencement Date or on Early Possession: Tenant acknowledges
that neither Landlord nor its agents have made any promise to alter, remodel
or improve the Premises or the building or any other improvement thereon,
except as expressly provided in a written rider, addendum or amendment to
this Lease. Tenant acknowledges neither Landlord nor its agents have made
any representation or warranty with respect to the condition of the Premises
or the building or any other improvement thereon. Tenant's taking possession
of the Premises shall conclusively establish that the Premises and the
building and other improvements located thereon were, at such time, taken by
Tenant "as is", subject to a punchlist of items of which Tenant disapproves,
such
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punchlist to be submitted to Landlord on or before the date that is ninety
(90) days following the date Tenant takes possession, and Tenant hereby
waives any claims which may hereafter arise against Landlord resulting from
the condition of the Premises or any improvement thereon.
B. Removal of Personal Property and Trade Fixtures at Expiration or
Termination: Any personal property of Tenant may be sold, encumbered,
replaced or removed from the premises at any time by Tenant provided,
however, that upon expiration or earlier termination of this Lease, Tenant
agrees to remove any such property from the Premises if so directed by
Landlord, and provided further that Tenant shall repair any and all damage to
the Premises or building resulting from the removal of any of Tenant's
property after expiration or termination of the Lease.
C. At Expiration or on Termination of the Lease: Upon the expiration
or other termination of this Lease, Tenant shall surrender the Premises to
landlord broom clean in a good state of repair and in the same configuration
and at least as good condition as when received, subject to the provisions of
paragraphs 6.1, 6.2 and 10.1 of this Lease, and Tenant shall remove all its
property as directed by Landlord. Any and all alterations, improvements,
changes or repairs to the Premises and all electrical, plumbing, sewage, and
other mechanical systems on or in the Premises or the building and other
improvements forming a part thereof, exclusive of Tenant's trade fixtures,
shall be surrendered with the Premises upon termination of this Lease in good
and working order, reasonable wear and tear excepted. Any property left on
or in the Premises upon expiration or other termination of this Lease may, at
Landlord's option, either be deemed abandoned and, at Landlord's option, be
disposed of or be placed in storage in a public warehouse in the name of, for
the account of and at the sole expense and risk of Tenant, but Tenant shall
remain liable to Landlord for any and all damages to the Premises caused by
removal of Tenant's property and for any or all costs and expenses paid or
incurred by Landlord in connection with the foregoing. Tenant hereby agrees
to release, indemnify, hold harmless, protect and defend Landlord from any
and all loss, cost, damage and expense, including attorneys' fees arising
out of any damage to or loss of any property left by Tenant upon the Premises
upon the expiration or other termination of this Lease and with respect to
any and all claims and liability relating to such property.
7.1 SECURITY DEPOSIT: Landlord shall hold the security deposit described in
Paragraph 1.1, subparagraph F as security for Tenant's performance of its
respective obligations, covenants and conditions under this Lease. If Tenant
defaults in the performance of its obligations, covenants and conditions
under the Lease, Landlord may use the security deposit, or any portion of it,
to cure the default or to compensate Landlord for all damage sustained by
Landlord resulting from Tenant's default. If any portion of the security
deposit is so used, Tenant shall deposit cash with Landlord in an amount
sufficient to restore the security deposit to the full amount stated above,
as previously adjusted, within five (5) days after Landlord has demanded such
replenishment. If Tenant is not in default at the expiration or termination
of this Lease, Landlord shall return the security deposit to Tenant within
thirty (30) days after expiration or termination of this Lease subject to the
conditions that Tenant has surrendered possession or right ot occupy the
Premises and Tenant has performed all of its obligations under this Lease.
Landlord will commingle the security deposit with Landlord's general and
other funds and shall not be required to pay interest on the security
deposit. No trust relationship is created herein between Landlord and Tenant
with respect to the security deposit. The use of the security deposit by
Landlord in the manner stated above shall not limit or restrict Landlord from
exercising any other rights or remedies provided to Landlord under this Lease
or under law or equity
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if Tenant defaults. If Landlord sells or otherwise transfers the Premises or
any interest in this Lease, Landlord may assign the security deposit to the
purchaser or other transferee thereof and Landlord shall no longer be liable
to Tenant and Tenant shall look solely to such purchaser or other transferee
for the return of the security deposit. Tenant shall not assign or encumber
its contingent rights to the return of the security deposit.
8.1 USE: Tenant shall not use or permit the Premises to be used or any
other purpose than that stated in Paragraph 1.1, subparagraph G without the
prior written consent of the Landlord. Tenant expressly acknowledges that
Landlord or its agents have not made any representations as to the
suitability of the Premises to the stated use, and any related zoning or
other laws, ordinances, regulations and directives or any applicable
covenants, conditions and restrictions affecting the Premises which may limit
or restrict the stated use. Tenant shall not commit, or permit to be
committed, any waste upon the Premises, or any nuisance or other act in
violation of public policy. Further, Tenant shall not commit, or suffer to
be committed, anything which would subject the Landlord to responsibility or
liability for injury or damage to any person or property or which would
invalidate or increase the cost of any insurance coverage described in this
Lease. Tenant shall comply with all rules, regulations, orders and
requirements of Landlord's then current insurance carrier(s) with respect to
the use of the Premises and necessary for maintaining reasonable insurance
coverage of the types specified in this Lease. Tenant shall not use or allow
the Premises to be used for any improper, immoral, unlawful or objectionable
purpose.
A. See Article 36.1 of the Addendum.
B. Dust and Fume Control: No wood shaping or spraying material
processes will be performed on any part of the Premises except in an
environment controlled by appropriately designed and installed air-handling
equipment which shall be maintained and operated at all times during the
Lease term as required t prevent hazardous accumulations of wood and chemical
pollutants in the atmosphere within the Premises, and all equipment
installations required to comply with this subparagraph B shall be commenced,
performed and completed promptly after the commencement date. Tenant
warrants to Landlord that such installation shall be made in correctly
designed facilities and in a workmanlike manner.
C. See Article 37.1 of the Addendum.
9.1 LAW COMPLIANCE: Tenant shall comply with all applicable covenants,
conditions and restrictions now or hereafter affecting the Premises, with all
laws, ordinances, regulations, directives and requirements of all government
authorities having jurisdiction over the Premises (including, without
limitation, those relating to health, safety, noise, environmental
protection, waste disposal, water and air quality, and the use, storage and
disposal of Hazardous Materials) and with the certificate of occupancy for
the Premises and shall not permit anything to be done on the Premises in
violation thereof. Upon written demand, Tenant shall discontinue any use of
the Premises in violation of any covenants, conditions and restrictions, or
of any law, ordinance, regulation or governmental directive or of the
certificate of occupancy.
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10.1 ALTERATIONS AND REPAIRS:
A. Landlord's Consent Required: Conditions of Consent: Tenant shall
not make or cause to be made any exterior, interior, structural, electrical,
ventilation, air conditioning or other type of alterations, improvements,
additions, changes or repairs (which repairs cost in excess of $25,000 or are
the responsibility of Landlord pursuant to Paragraph A of Article 29.1 below)
in or to the Premises, without Landlord's prior written consent. Landlord
may arbitrarily withhold consent to any alteration or improvement which
affects, or is visible from, the exterior of the Premises or any building
located within the Premises or any building of which the Premises forms a
part or which affects the structural components of the Premises or any
building located within the Premises or any building of which the Premises
forms a part. As to all other types of alterations, improves, additions,
changes or repairs to the Premises, Landlord's consent shall not be
unreasonably withheld. However, as a condition to granting consent, Landlord
may impose reasonable requirements including, without limitation,
requirements as to the manner and time for the performance of any such work
and the type and amount of insurance and bonds Tenant must acquire and
maintain in connection therewith. At the completion of such work, Tenant
shall deliver to Landlord the "as-built" plans and specifications and a
certificate from Tenant's architect or engineer stating that the work has
been completed in full compliance with such plans and specifications, such
certificate to be in the form and substance reasonably satisfactory to
Landlord. In addition, at Landlord's option, Landlord shall have the right:
to approve the contractors or mechanics performing the work; to approve all
plans and specifications relating to the work; to review the work of Tenant's
architects, engineers, contractors or mechanics and to control any
construction or other activities being undertaken in connection with the
Premises, with Landlord to be reimbursed for any costs incurred in connection
with such review and/or control; and to order reasonable changes in the work
in instances in which materials or workmanship is defective or not in
accordance with plans or specifications previously approved by Landlord.
Tenant shall provide and pay for all alterations, improvements, additions,
changes or repairs to the Premises at Tenant's sole expense, except as
expressly provided in a rider, addendum or amendment to this Lease. Except
for trade fixtures regularly used in Tenant's business, all improvements,
alterations, additions, changes or repairs to the Premises shall become the
property of the Landlord at the time such items are installed and attached to
the Premises and shall be surrendered with the Premises in good and working
order or condition upon termination of this Lease. However, Landlord may, by
written notice to Tenant given concurrently with Landlord's approval of
Tenant's plans, require Tenant to remove any or all improvements,
alterations, additions, or fixtures installed or made by Tenant on or to the
Premises and to repair any damages to the Premises caused by such removal.
B. Tenant's Duty to Repair: All damage or injury to the Premises
caused by the act or negligence of Tenant or its employees, agents,
customers, servants or invitees shall be promptly repaired by Tenant at
Tenant's expense and to the satisfaction of Landlord in accordance with this
Paragraph 10.1; provided, however, Landlord may, at its option, make or cause
to be made any such repairs and may charge Tenant for the any costs and
expenses paid or incurred, by Landlord in connection therewith. Except as
specifically provided in Paragraph 15.1 below, there shall be no reduction in
rent payable by Tenant and no liability on the part of the Landlord by reason
of inconvenience, annoyance or injury to business arising from the making of
any repairs, alterations or improvements to any portion of the Premises or
fixtures and equipment related thereto, and no liability on the part of
Landlord for failure to make repairs, alterations or improvements to the
Premises.
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C. Law Compliance and Improvement Work: All work in connection with
any alterations, improvements, changes, additions or repairs in the Premises
made for the benefit of Tenant shall be performed in full compliance with all
laws, ordinances, regulations, rules and requirements of all governmental
entities having jurisdiction and in full compliance with all rules, orders,
directions, regulations and requirements of Landlord's then current insurance
carrier(s). If there is now or if there be installed in the Premises a
sprinkler system, and if Landlord's then current insurance carrier(s) or any
governmental authority having jurisdiction requires or recommends that any
changes, modifications or alterations to the sprinkler system, or requires or
recommends additional sprinkler heads or other equipment be made or supplied
by reason of Tenant's business or the improvements it has added or the
location of partitions, trade fixtures or other contents of the Premises, or
if any such changes, modifications, alterations, additions or other equipment
become necessary to prevent imposition of a penalty or charge against the
full allowance for a sprinkler system in the fire insurance rate as fixed by
Landlord's then current insurance carrier(s), Tenant shall, at its own cost,
promptly make and supply all such changes, modifications, alterations,
additional sprinkler heads or other equipment.
D. Notices of Nonresponsibility, Mechanics' Liens and Bonds: Before
work is commenced as provided in this Paragraph 10.1, Tenant shall give
Landlord at least fifteen (15) days written notice to afford Landlord an
opportunity to post appropriate notices of nonresponsibility. Tenant shall
secure at Tenant's own cost, a completion and lien indemnity bond,
satisfactory to Landlord, for said work. Any mechanics' liens for work
claimed to have been performed for, or materials claimed to have been
furnished to, Tenant shall be discharged by Tenant, by bond or otherwise
within ten (10) days after the filing of such lien, at Tenant's sole expense.
In the event that Tenant does not, within ten (10) days following the
recording of all notice of any such lien, cause such lien to be released of
record, by payment or posting of a proper bond, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as it shall
deem proper, including payment of the claim giving rise to such lien. All
sums paid by Landlord and all expenses incurred by it in connection
therewith, including attorneys' fees and court costs, shall be payable to
Landlord by Tenant on demand with interest at the Maximum rate allowed by law
or, if no such maximum rate is prescribed by law, then at the Default Rate
(as defined in Paragraph 19.1, subparagraph C(ii)(h)) from the date such
expenses are incurred by landlord to the date payment is received by Landlord
from Tenant. Tenant agrees to indemnify, hold harmless and defend Landlord
from any loss, cost, damage or expense, including attorneys' fees, arising
out of any such lien claim or out of any other claim relating to work done or
materials supplied to the Premises at Tenant's request or on Tenant's behalf.
11.1 SIGNS: No signs shall be installed on or about the Premises without
Landlord's prior written approval. The installation and maintenance of any
and all signs by or on behalf of Tenant shall be in full compliance with all
applicable laws, ordinances, regulations, rules and orders of any
governmental authority having jurisdiction, and Tenant shall obtain all
necessary licenses and permits in connection therewith. Tenant shall install
and promptly repair, maintain and service all such signs in accordance with
proper techniques and procedures, and shall indemnify, hold harmless and
defend Landlord from all loss, cost, damage or expense, including attorneys'
fees arising out of any claim relating to the installation, existence,
operation, maintenance, repair, removal or condition of any such sign. On or
before the termination of this Lease, Tenant shall, at its sole expense,
remove all such signs in a manner satisfactory to Landlord and shall
immediately repair, at Tenant's
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sole expense, any injury or damage caused by removal. All costs and expense
relating to all such signs shall be borne solely by Tenant.
12.1 INDEMNIFICATION: Tenant agrees to indemnify, hold harmless, defend and
protect Landlord and its shareholders, partners, directors, officers, agents
and employees from any loss, cost, damage, liability or expense (including,
without limitation, attorneys' fees and legal costs) arising out of or
related to any claim, suit or judgment brought by or in favor of any
person(s) for damage, loss or expense (including, without limitation, bodily
injury, including death, or property damage) which is occasioned by or in any
way attributable to or arising out of the use or occupancy of the Premises or
the acts or omissions of Tenant or its employees, agents, customers, servants
or invitees or the breach or default by Tenant of any of its obligations
under this Lease, including, without limitation, the provisions set forth in
Paragraph 8.1 and Paragraph 9.1 above. However, Tenant shall not be
responsible for damage, loss or expense to the extent caused by the
negligence or willful misconduct of Landlord or its agents or employees.
Tenant's obligations under this Paragraph 12.1 shall expressly survive the
termination of this Lease. Landlord shall not be liable for, and is released
by Tenant with respect to, any damage, loss or expense occurring on or about
the Premises during the Lease except to the extent caused by the negligence
or willful misconduct of Landlord or its agents or employees. The limits of
any insurance required to be maintained by Landlord or Tenant as provided in
Paragraph 13.1 of this Lease, shall not be deemed to limit Tenant's
obligations under this Paragraph 12.1 or under any other provision of this
Lease. Neither Landlord nor its agents or employees shall be liable for any
damage to property resulting from fire, earthquake or earth movement,
explosion, falling glass or other materials, steam, gas, electricity, water
or rain which may leak from any part of the building or other improvements
forming a part of the Premises or of which the Premises is a part, for from
the pipes, appliances or plumbing works therein, or from the roof, street or
subsurface thereof or from any other place or resulting from dampness or any
other cause whatsoever except to the extent caused by or due to the
negligence or willful misconduct of Landlord, its agents or employees.
Landlord or its agents shall not be liable for interference with light or
other incorporeal hereditaments. Landlord shall not be liable for any latent
defect in the Premises or the building or other improvements forming a part
thereof or of which the Premises is a part. Tenant shall give prompt notice
to Landlord in case of fire or accidents in the Premises or the building or
of defects therein or in the fixture or equipment related thereto.
13.1 INSURANCE REQUIRED TO BE OBTAINED BY TENANT:
A. Public Liability Insurance: At all times during the Lease term,
Tenant shall maintain in full force comprehensive public liability insurance
as may be generally available from insurance companies of the type described
below with limits of not less than those required in Paragraph 1.1,
subparagraph I and such policy(ies) shall name Landlord and Landlord's
managing agent as additional insureds. The term of such insurance policy may
by for such period as shall be designated by Tenant; provided, however, that
within thirty (30) days prior to the expiration of such policy, Tenant shall
procure another policy of said insurance so that, throughout the entire Lease
term Landlord and Landlord's managing agent shall always be additional
insureds under policies with insurance coverages of the type specified. The
policy limits shall never be decreased, but shall be reasonably increased in
accordance with increases, if any, necessary to maintain policy limits from
time to time customary and usual for premises of the similar type, size and
use as the Premises in the city and county where the Premises is located.
Increases in the policy limits shall not be required more frequently than
once a year.
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B. Insurance on Tenant's Personal Property, Improvements and
Alterations: Tenant at is cost shall maintain on all its personal property
in, or on about the Premises, a policy of standard fire and extended coverage
insurance, with vandalism and malicious mischief endorsements in the amount
of the full replacement cost thereof. Landlord shall in no way be liable for
damage to Tenant's personal property, alterations and improvements.
C. Plate Glass Insurance: Tenant at its cost shall maintain full
coverage plate glass insurance on the Premises, or in the alternative, shall
self-insure for damage to plate glass.
D. General Requirements: All the insurance required of Tenant under
this Lease shall (i) be issued by insurance companies authorized to issue the
relevant insurance and to do business in California with at least an "A",
class X rating or other similar rating reasonably acceptable to Landlord, as
rated in the most recent edition of Best's Rating Guide, (ii) be issued as a
primary policy but may include umbrella policies, (iii) contain an
endorsement requiring thirty (30) days written notice from the insurance
company to Landlord, Tenant and Landlord's lender, if any, before
cancellation or change in the coverage, scope, or amount of any policy and
(iv) shall name Landlord and Landlord's managing agent (and, at Landlord's
option, the holder of any mortgage or deed of trust affecting the Premises)
as additional insureds. Each policy or a certificate thereof shall be
deposited with the Landlord on or before the commencement of the term, and on
renewal of the policy not less than twenty (20) days before the expiration of
the term of the policy.
14.1 WAIVER OF SUBROGATION: Landlord and Tenant mutually waive any and all
rights or recovery against each other and each of their respective officers,
employees, agents and representatives for loss of or damage to the other or
its property or the property of others under its control arising from any
cause insured against but only to the extent of such insurance, exclusive of
any deductible amount and any amount in excess of policy limits, under any
policy of insurance carried by such waiving party. Tenant shall obtain and
furnish evidence to Landlord of the waiver by Tenant's insurance carriers of
any right of subrogation against Landlord.
15.1 DAMAGE OR DESTRUCTION:
A. Landlord's Duty to Restore When the Premises is Destroyed: If,
during the term, the building or other improvements located on the Premises
or the building and other improvements in which the Premises is located are
totally or partially destroyed from any cause covered by Landlord's Property
Insurance describe in Paragraph 4.2, subparagraph B(ii)(a), rendering the
Premises totally or partially inaccessible or unusable, Landlord shall
restore the building or other improvements located on the Premises or the
building and other improvements in which the Premises is located to
substantially the same condition as they were in immediately before the
destruction, if the restoration can be made under the existing laws and can
be completed within 180 days after the date of destruction. Such destruction
shall not terminate this Lease. If the restoration cannot be made within said
180 days, then within 10 days after the parties determine that the
restoration cannot be made within said period, either party can elect to
terminate this Lease immediately by giving written notice to the other. If,
during the term, the building or other improvements located on the Premises
or the building and other improvements in which the Premises is located are
totally or partially destroyed from a risk not covered by Landlord's Property
Insurance described in Paragraph 4.2, subparagraph B(ii)(a) rendering the
Premises totally or partially inaccessible or unusable. Landlord shall have
the sole, exclusive and conclusive option and right to restore the building
or other
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improvements located on the Premises or the building and other improvements
in which the Premises is located to substantially the same condition as they
were in immediately before destruction. If the restoration can be made under
the existing laws and can be completed within 180 days after the date of
destruction. Such destruction shall not terminate this Lease. If the
existing laws do not permit the restoration, either party can terminate the
Lease immediately by giving written notice to the other party. If the
restoration can be made within 180 days after the date of destruction,
Landlord must elect either to terminate this Lease or to restore the building
or other improvements located on the Premises or the building and other
improvements in which the Premises is located by giving notice to Tenant
within 10 days after determining the restoration can be completed within said
180 days after the date of destruction. However, if Landlord elects to so
terminate this Lease, Tenant may elect to pay for the cost of such
restoration and override the Landlord's election to terminate by providing
Landlord notice of Tenant's election to pay for such restoration accompanied
by payment of the estimated costs of such restoration within 10 days after
Tenant's receipt of the Landlord's notice to terminate. Tenant's right to
pay for such restoration and override Landlord's election to terminate the
Lease can be exercised only if restoration can be completed within said 180
day period and such 180 period remains within the term of this Lease. If
Landlord elects to terminate this Lease and Tenant does not elect to pay for
the costs of restoration, this Lease shall terminate on the 10th day after
Landlord notifies Tenant of its intention to so terminate. See Article 30.1
of the Addendum.
B. Extent of Landlord's Obligation to Restore: If Landlord is required
to or elects to restore the Premises as provided in this Paragraph 15.1,
Landlord shall not be required to restore alteration and improvements made by
Tenant, Tenant's trade fixtures and Tenant's personal property, such excluded
items being the sole responsibility of Tenant to restore.
C. Abatement or Reduction of Rent: In the case of destruction, and
such descruction is not caused by the negligence of Tenant, its employees,
agents, customers, servants or invitees, there shall be an abatement or
reduction of minimum monthly rent only between the date of destruction and
the date of substantial completion of restoration, based on the extent to
which the destruction interferes with Tenant's use of the Premises.
D. Loss During the Last Part of the Term: If destruction of the type
specified in this Paragraph 15.1 occurs during the last year of the term,
Landlord can terminate this Lease by giving written notice to Tenant no later
than 15 days after the date of destruction. However, if Tenant has been
granted an option to extend the term of the Lease by rider, amendment or
addendum to this Lease, and the time within which the option can be exercised
has not expired, and Tenant exercises the option to extend the term as
provided in said rider, amendment or addendum, then Landlord shall restore
the Premises subject to the provisions stated in this Paragraph 15.1.
E. Waivers: Tenant hereby waives all rights under the provisions of
Sections 1932, 1933, 1941 and 1942 of the Civil Code of the State of
California, and any like or similar statute now or hereinafter enacted or
promulgated, and all rights under any law in existence during the term of
this Lease authorizing a tenant to make repairs at the expense of a landlord
or to terminate a lease upon the complete or partial destruction of the
premises; provided, however, that such waivers are not intended to limit or
impair any express rights or privileges which may have been gratned to Tenant
in this Lease.
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16.1 ASSIGNMENT AND SUBLETTING:
A. Restrictions and Conditions: Tenant shall not, either
voluntarily or by operation of law, directly or indirectly, sell, assign,
transfer or hypothecate this Lease, or sublet the Premises, or any part
thereof, or permit the Premises, or any part thereof to be occupied by anyone
other than Tenant or Tenant's employees without the prior written consent of
Landlord in each instance. A transfer of stock control in Tenant, if Tenant
is a corporation, or the transfer of any partnership interest in Tenant, if
Tenant is a partnership shall be deemed an act of assignment hereunder.
Subject to the provisions of subparagraph B, C and D of this Paragraph 16.1,
Landlord's consent to assignment or subletting (subject to the procedures set
forth in subparagraph A of this Paragraph 16.1) shall not be unreasonably
withheld, provided the proposed assignee or subtenant (i) is satisfactory to
Landlord as to credit, character and professional standing, (ii) will meet
any other tenant requirements then generally imposed by Landlord with respect
to any new tenant for the Premises, (iii) will use the Premises for purposes
which are reasonably acceptable to Landlord and which will not conflict with
any use or zoning restriction and not increase the burdens on the facilities
and equipment servicing the Premises, and (iv) will not use any part of the
Premises for the generation, storage, use or disposal of any Hazardous
Material. Landlord may, however, withhold such consent if, in Landlord's
reasonable judgment, the occupancy of the proposed assignee or subtenant will
tend to impair the character or dignity of the building or impose any
additional burden upon Landlord in the operation of the building. Any sale,
assignment, mortgage, transfer or subletting of this Lease which is not in
compliance with the provisions of this Paragraph 16.1 shall be void and
shall, at the option of Landlord, terminate this Lease. The consent by
Landlord to an assignment or subletting shall not be construed as relieving
Tenant from obtaining the express prior written consent of Landlord to any
further assignment or subletting or as releasing Tenant from any liability or
obligation hereunder, whether or not the accrued.
B. Notice of Documentation: As condition precedent to any assignment
of the whole of Tenant's interest in this Lease or the subletting by Tenant
of the whole or any part of the Premises, (i)at least thirty (30) days prior
to any proposed assignment or subletting Tenant shall submit to Landlord a
statement containing (a) the name and address of the proposed assignee or
subtenant; (b) a current financial statement of the proposed assignee or
subtenant containing therein bank and other credit references; (c) the
specific type of use proposed for the Premises; and (d) all of the principal
terms and conditions of the proposed assignment or subletting including,
without limitation, the proposed commencement and expiration dates of the
term thereof and the amount of rent to be payable by the assignee or
subtenant and a floor plan delineating the proposed, assigned or sublet area;
and (ii) Tenant shall deliver to Landlord an original assignment or sublease
executed by Tenant and the proposed assignee or subtenant on a form approved
by Landlord which shall expressly provide (a) for the assumption by such
proposed assignee or subtenant of all Tenant's obligations under the terms of
this Lease as to that portion of the Premises being assigned or sublet and as
to that period of time such assignment or sublease is to be in effect; (b)
that Tenant shall indemnify and hold Landlord harmless from any and all
claims, obligations and liabilities (including reasonable attorneys' fees)
arising from such assignee's or subtenant's occupancy and use of the
Premises, or any portion thereof, whether such claim, obligation or liability
arising from such assignee's or subtenant's conduct, activity, work or any
other matter in, or about the Premises and/or the building; (c) that Tenant
shall further indemnify and hold Landlord harmless from any costs,
obligations or liabilities (including reasonable attorneys' fees) arising
from any act or negligence of such assignee or subtenant, or any employee,
agent, customer, servant or invitee of such assignee or subtenant and
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from any claim, action or proceeding brought thereon; (d) that in no event
shall Tenant, by reason of Landlord's approval of the assignment or sublease,
be deemed relieved from any obligation or liability under the Lease,
including, without limitation, the obligation to obtain Landlord's consent to
any further assignment or subletting; and (e) that such proposed assignment
or subletting shall not be deemed effective for any purpose unless and until
Landlord's written consent thereto is obtained. Tenant shall reimburse
Landlord for all costs incurred by Landlord in connection with its review and
consideration of any proposed assignment, transfer, mortgage, pledge,
encumbrance or hypothecation of the Lease or subletting of the Premises, or
any part thereof (including, without limitation, reasonable attorneys' fees
not to exceed $750.00).
C. Right of Recapture: In lieu of giving or withholding its consent
to any proposed subletting or assignment, Landlord shall have the following
right to recapture the Premises and shall thereafter be free to lease the
area subject to the proposed assignment or sublease directly to the proposed
assignee or sublessee or any other person without such act being construed to
(1) unreasonably interfere with Tenant's contractual relations, (2)
constitute unfiar competition or (3) otherwise create any claim or cause of
action in favor of Tenant. In lieu of consenting or not consenting, Landlord
may within thirty (30) days after Landlord has received all of the
documentation described in subparagraph B of this Article 16.1, at its
option, (i) in the case of the proposed assignment or subletting of Tenant's
entire leasehold interest, terminate Tenant's lease in its entirety, or (ii)
terminate Tenant's lease as to that portion of the Premises which Tenant has
proposed to sublet. In the event Landlord elects to terminate this Lease
pursuant to clause (ii) above, Tenant's obligations as to rent shall be
reduced in the same proportion that the rentable area of the portion of the
Premises taken by the proposed assignee or subtenant bears to the total
rentable area of the Premises. The reservation of Landlord's right of
recapture is a critically important economic right in favor of Landlord which
has been expressly negotiated between the parties and which requires the
release of liability on the part of Tenant for any obligations with respect
to the area subject to the proposed sublease or assignment. The foregoing
notwithstanding, in the event that Landlord notifies Tenant of its election
to terminate this Lease as to all or a portion of the Premises pursuant to
this paragraph, Tenant may within five (5) days of such notification withdraw
its request for Landlord's consent to the proposed assignment or sublease in
question.
D. Landlord's Right to Profit: In the event of any assignment or
sublease approved by Landlord of all or any portion of the Premises, where
the rent reserved in the assignment or sublease exceeds the rent or pro rata
portion of the rent, as the case may be, for such space reserved in this
Lease, Tenant shall pay to Landlord monthly, as additional rent, at the same
time as the monthly installments of rent required hereunder, seventy five
percent (75%) of the excess of the rent reserved in the assignment or
sublease, over the rent reserved in the Lease, applicable to the assigned or
subleased space. Landlord's right to any such profit payable by the approved
assignee or sublessee is a critically important economic right in favor of
Landlord which has been expressly negotiated between the parties in
contemplation of and in consideration for the specific minimum monthly rent
negotiated between the parties and specified in this Lease. Such minimum
monthly rent has been set with the specific intent that Landlord alone is
entitled to what is commonly known as the appreciation in the equity value of
the Lease and that the minimum monthly rent would have been established at a
higher rate had the parties negotiated for any sharing in such appreciated
equity value, if any.
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17.1 CONDEMNATION: If the whole of the Premises or so much thereof as to
render the balance of the Premises unusable by Tenant, shall be taken or
condemned by any authority under power of eminent domain or any similar power
for any public or quasi-public use or purpose, or shall be transferred by
agreement in connection with such public or quasi-public use or purpose with
or without a condemnation action or proceeding being instituted, this Lease
shall terminate as of the date of such taking or condemnation. No award for
any partial or entire taking shall be apportioned, and Tenant hereby assigns
to Landlord any award which may be made in connection with such taking or
condemnation, together with any and all rights of Tenant now or hereafter
arising with respect to all or part of such award or any proceedings relating
thereto; provided, however, that Landlord shall have no interest in any award
separately made to Tenant for the interruption of or damage to Tenant's
business, or its trade fixtures, equipment or movable furniture so long as
such award does not diminish the award made to Landlord. In the event that
any such taking or condemnation is temporary or is partial and does not
render the balance of the Premises unusable by Tenant, this Lease shall not
terminate, but the rent and other charges payable to Landlord by Tenant shall
be equitably abated for the remainder of the Lease term. As used in the
preceding sentence, a condemnation or taking shall be deemed temporary if it
is for a period of six (6) months or less. Each party waives the provisions
of California Code of Civil Procedure Section 1265.130 allowing either party
to petition the Superior Court to terminate this Lease.
18.1 TAXES ON PERSONAL PROPERTY: Tenant shall pay all taxes assessed
against or levied upon fixtures, furnishings, equipment and all personal
property owned or possessed by Tenant and located on the Premises prior to
delinquency. When reasonably possible, Tenant shall cause such fixtures,
furnishings, equipment and other personal property to be assessed and billed
to Tenant separately from the real property of which the Premises forms a
part. If any or all such fixtures, furnishings, equipment and other personal
property shall be assessed and taxed with the real property, Tenant shall pay
to Landlord its share of such taxes within fifteen (15) days prior to
delinquency. Tax bills for such taxes shall be provided by Landlord to
Tenant not later than thirty (30) days prior to the delinquency date
therefor. Any amounts due hereunder by Tenant shall be deemed additional
rent payable to Landlord.
19.1 DEFAULTS AND REMEDIES:
A. Events of Default: The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant.
(i) Failure to pay rent as such term is defined in Paragraph 4.1,
subparagraph A when due.
(ii) Abandonment and vacation of the Premises. Failure to occupy
and operate Tenant's business at the Premises for fifteen (15) consecutive
days shall be deemed an abandonment and vacation of the Premises.
(iii) Failure to perform any other provision of this Lease if the
failure to perform is not cured within ten (10) days after written notice has
been given to Tenant. If the default cannot reasonably be cured within ten
(10) days, Tenant shall not be in default of the Lease if Tenant commences to
cure the default within the ten-day period and diligently and in good faith
continues to cure the default to completion. The ten-day notice described in
this subparagraph (iii) for default
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other than the payment of rent is in lieu of, and not in addition to, any
notice required under California law.
(iv) The making by Tenant of any general assignment for the
benefit of creditors, the filing by or against Tenant of a petition under any
federal or state bankruptcy or insolvency laws (unless, in the case of a
petition filed against Tenant, the same is dismissed with sixty (60) days
after filing); the appointment of a trustee or receiver to take possession of
substantially all of Tenant's interest in this Lease or the Premises, when
possession is not restored to Tenant within sixty (60) days; or the
attachment, execution or other seizure of substantially all of Tenant's
assets located at the Premises or Tenant's interest in this Lease or the
Premises, if such seizure is not discharged within sixty (60) days.
B. Notices: Notices given under this Paragraph 19.1 shall specify the
alleged default and shall demand that Tenant perform the provisions of this
Lease or pay the rent that is in arrears, as the case may be, within the
applicable time period, or quit the Premises. No such notice shall be deemed
a forfeiture or a termination of this Lease unless Landlord so elects in the
notice.
C. Landlord's Remedies: Landlord shall have the following remedies if
Tenant commits a default. These remedies are not exclusive; they are
cumulative and in addition to any remedies now or later allowed by law or
equity.
(i) Landlord's Election to Continue the Lease In Full Force and
Effect: Landlord can continue this Lease in full force and effect, and the
Lease will continue in effect as long as Landlord does not terminate Tenant's
right to possession, and Landlord shall have the right to collect rent when
due. During the period Tenant is in default, Landlord can enter the Premises
and relet it, or any part of it, to third parties for Tenant's account.
Tenant shall be liable immediately to Landlord for all costs Landlord incurs
in reletting the Premises, including, without limitation, brokers'
commissions, expenses of remodeling the Premises required by the reletting,
and like costs. Reletting can be for a period shorter or longer than the
remaining term of this Lease. Tenant shall pay to Landlord the rent due
under this Lease on the dates the rent is due, less the rent Landlord
receives from any reletting. No act by Landlord allowed by this Paragraph
19.1, subparagraph C(i) shall terminate this Lease unless Landlord notifies
Tenant in writing that Landlord elects to terminate this Lease. After
Tenant's default and for as long as Landlord does not terminate Tenant's
right to possession of the Premises, Tenant shall have the right to assign or
sublet its interest in the Lease, subject to the provisions of Paragraph
16.1, and Tenant shall not be released from liability. If Landlord elects to
relet the Premises as provided in this Paragraph 19.1, subparagraph C(i),
rent that Landlord receives from reletting shall be applied in the following
order of priority: (a) to any indebtedness from tenant to Landlord other than
rent due from Tenant; (b) to all costs, including those for maintenance,
incurred by Landlord in reletting; and (c) to rent due and unpaid under this
Lease. After deducting the payments referred to in this Paragraph 19.1,
subparagraph C(i), any sum remaining from the rent Landlord receives from
reletting shall be held by Landlord and applied in payment of future rent as
rent becomes due under this Lease. In no event shall Tenant be entitled to
any excess rent received by Landlord. If on the date rent is due under this
Lease, the rent received from the reletting is less than the rent due on that
date, Tenant shall pay to Landlord, in addition to the remaining rent due,
all costs Landlord incurred in reletting that remain after applying the rent
received from the reletting as provided in this Paragraph 19.1,
subparagraph C(i).
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(ii) Landlord's Election to Terminate Tenant's Right of
Possession: Landlord can terminate Tenant's right to possession of the
Premises at any time. No act by Landlord other than giving express written
notice of Landlord's election to terminate the Lease to Tenant shall
terminate this Lease. Acts of maintenance, efforts to relet the Premise, or
the appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's
right to possession. On termination, Landlord has the right to recover from
Tenant:
(a) The worth at the time of the award of the unpaid rent
that had been earned at the time of termination of this lease;
(b) The worth at the time of the award of the amount by which
the unpaid rent that would have been earned after the date of termination of
this Lease until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided;
(c) The worth at the time of the award of the amount by which
the unpaid rent for the balance of the term after the time of award exceeds
the amount of the loss of rent that Tenant proves could have been reasonably
avoided;
(d) All legal expenses, including attorneys' fees, experts'
fees, witness fees, court costs and other costs incurred in preparation of
any litigation or consultations with counsel, incurred by Landlord in
effecting re-entry or repossession of the Premises and in prosecuting any
related action against Tenant;
(e) All costs incurred by Landlord in restoring the Premises
to good order and condition;
(f) All costs incurred by Landlord in altering or preparing
the Premises for reletting;
(g) All commission incurred by Landlord in reletting the
Premises; and
(h) Any other amount, and court costs, necessary to
compensate Landlord for all detriment proximately caused by Tenant's default.
"The worth at the time of the award" as used in (a) and (b) of this Paragraph
19.1, subparagraph C(ii) is to be computed by allowing interest at the
reference rate then being charged by the Bank of America N.T. & S.A. plus
four percent (4%) per annum ("Default Rate"). "The worth at the time of the
award" as used in sub-subparagraph (c) of this Paragraph 19.1, subparagraph
C(ii), is to be computed by discounting the amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of the award, plus 1%.
(iii) Appointment of Receiver: (Omitted).
(iv) Landlord's Right to Cure Tenant's Default: Landlord, at any
time after Tenant commits a default, can cure the default at Tenant's cost.
If Landlord at any time, by reason of Tenant's default, pays any sum or does
any act that requires the payment of any sum, the sum paid by the Landlord
shall be due immediately from Tenant to Landlord at the time the sum is paid,
and if paid at a later date shall bear interest at the maximum rate an
individual is permitted by law to
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charge from the date the sum is paid by Landlord until Landlord is reimbursed
by Tenant. The sum, together with interest on it, shall be additional rent.
(v) Interest on Unpaid Rent: Rent not paid when due shall bear
interest from the date due until paid at the Default Rate.
(vi) Late Charge: Tenant acknowledges that late payment by Tenant
to Landlord of rent will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord by the
terms of any encumbrance and note secured by an encumbrance covering the
Premises. Therefore, if any installment of rent due from tenant is not
received by Landlord within ten (10) days of when due, Tenant shall pay to
Landlord an additional sum of 10% of the overdue rent as a late charge. The
parties agree that his late charge represents a fair and reasonable estimate
of the costs that Landlord will incur by reason of late payment of Tenant.
Acceptance of any late charge shall not constitute a waiver of Tenant's
default with respect to the overdue amount, or prevent Landlord from
exercising any of the other rights and remedies available to Landlord.
(vii) Non-Waiver: No covenant, term or condition or the breach
thereof shall be deemed waived, except by written consent of the party
against whom the waiver is claimed, and any waiver or the breach of any
covenant, term or condition shall not be deemed to be a waiver of any
preceding or succeeding breach of the same or any other covenant, term or
condition of this Lease. Acceptance by Landlord of any performance by Tenant
after the time the same shall have become due shall not constitute a waiver
by Landlord of the breach or default of any covenant, term or condition of
the Lease unless otherwise expressly agreed to by Landlord in writing. No
payment by Tenant or receipt by Landlord of a lesser amount than the minimum
monthly rent or any other amount payable by Tenant and defined as "rent" in
Paragraph 4.1, subparagraph A, shall be deemed to be other than on account of
the earliest outstanding installment of any such stipulated amount due. No
endorsement or statement on any check or any letter accompanying any check or
payment shall be deemed an accord and satisfaction and Landlord may accept
such check or payment without prejudice to Landlord's rights to recover the
balance of any outstanding amounts then due and payable or past due and in
arrears under this Lease and without prejudice to any other remedy provided
in this Lease. Nothing in this Paragraph 19.1 shall be deemed to affect
Landlord's rights to indemnification and other rights provided under
Paragraph 12.1 arising out of any act, omission, event or occurrence which
took place prior to the termination of the Lease whether a claim relating to
such acts, omissions, events or occurrences is made before or after the date
of termination of this Lease. The delivery of keys to any employee of
Landlord or its agents or employees shall not operate as a termination of
this Lease or a surrender of the Premises.
(viii) Right of Redemption: Tenant hereby expressly waives any
and all rights of redemption granted by or under any present or future law in
the event of Tenant's eviction or dispossession pursuant to any default under
this Lease or in the event of Landlord's obtaining possession of the Premises
by reason of Tenant's violation of any of the covenants, conditions or
agreements contained herein.
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20.1 SUBORDINATION/MORTGAGEE PROTECTION:
A. Subordination: This Lease is subject and subordinate to all ground
or underlying leases, mortgages and deeds of trust which now affect the
Premises or which affect any ground or underlying leases and all renewals,
extensions, modifications or amendments thereof. This Lease may, at
Landlord's option, be made subordinate to any future ground or underlying
leases, mortgages or trust deed which may affect the Premises or which may
affect the ground or underlying leases provided, however, that the mortgagee
or trust deed beneficiary or the lessor in any such ground or underlying
lease shall agree to recognize this Lease in the event of foreclosure of
Landlord's interest, provided Tenant is not in default. Tenant further
agrees to execute and deliver such instruments as may be necessary or proper
to effect the foregoing and, if Tenant fails to do so within ten (10) days
after written demand therefor, such failure shall be a material breach of
this Lease. Notwithstanding anything herein to the contrary, upon request of
Landlord, Tenant agrees to execute any appropriate instrument making this
Lease and the leasehold estate created herein superior to the lien of any
underlying or ground lease, mortgage or deed of trust.
B. Attornment: If any ground or underlying lease is terminated or any
mortgage or deed of trust is foreclosed, this Lease shall not terminate or be
terminated by Tenant unless Tenant was specifically named in any termination
or a foreclosure judgment or final order. If any such ground or underlying
lease is terminated or if any such mortgage or deed of trust is foreclosed,
Tenant agrees that Tenant will enter into a new lease covering the Premises
for the remainder of the Lease term on the same terms, conditions and rent as
stated in this Lease with, and at the election of the holder of any superior
lease or, if there is no superior lease in existence, with and at the
election of the holder of the fee title to the real property of which the
Premises forms a part so long as such holder of any superior lease or holder
of fee title also enters such new lease; or at the request of the aforesaid
parties in the order stated to attorn to them and to execute and deliver at
any time and from time to time upon such request any instrument which may be
necessary to appropriate to evidence such attornment, Landlord hereby makes
no warranties or representations that any attornment which Tenant herein
agrees to make will be accepted and recognized by any of the parties to whom
such attornment is made.
C. Mortgagee Protection: If Landlord is in default under this Lease,
Tenant will accept cure of any default by any holder of any underlying or
ground lease or mortgage or deed of trust (the "Holder") whose name and
address shall have been furnished to Tenant in writing. Tenant may not
terminate this Lease for Landlord's default unless Tenant has given notice
thereof to each such Holder and the default is not cured within thirty (30)
days thereafter or such greater time as may be reasonably necessary to cure
such default. A default which cannot reasonably be cured within said 30-day
period shall be deemed cured within said period if work necessary to cure the
default is commenced within such time and proceeds diligently thereafter
until the default is cured. If any Holder should require, as a condition of
any underlying or ground lease, mortgage, or deed of trust, a modification of
the provisions of this Lease, Tenant shall approve and execute any such
modification promptly after such request, provided no such modification shall
relate to the rent payable hereunder, or the length of the term hereof or
otherwise materially alter the rights or obligations of Tenant hereunder.
21.1 QUIET ENJOYMENT: Landlord covenants that if Tenant shall not be in
default in the performance of all of the terms, covenants, conditions,
provisions and agreements required of Tenant
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under this Lease, Landlord or anyone claiming by or through Landlord will not
disturb Tenant's quiet enjoyment of the Premises, subject, however, to the
terms of this Lease and of the ground and underlying leases, mortgages and
deeds of trust which may exist from time to time.
22.1 ESTOPPEL CERTIFICATES: Tenant agrees that, at any time and from time
to time upon not less than ten (10) days prior notice by Landlord, Tenant
will execute, acknowledge and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the minimum
monthly rent, additional rent and other charges have been paid in advance, if
any, and stating whether or not to the best knowledge of the signer of such
certificate, Landlord is in default in the performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying each
such default of which the signer may have knowledge, it being intended that
any such statement delivered pursuant to this Paragraph 22.1 may be relied
upon by any prospective purchaser or mortgagee of the Premises or any other
person designated by Landlord. Tenant's failure to deliver said statement in
the time required shall be conclusive upon Tenant that: (i) the Lease is in
full force and effect, without modification except as may be represented by
Landlord; (ii) there are no uncured defaults in Landlord's performance and
Tenant has no right of offset, counterclaim or deduction against Rent under
the Lease; and (iii) no more than one month's rent has been paid in advance.
23.1 LANDLORD'S RESERVED RIGHTS:
A. Entry by Landlord: Landlord may enter the Premises at all
reasonable times and upon reasonable notice to: Inspect the same; exhibit
the same to prospective purchasers, lenders or tenants; determine whether
Tenant is complying with all of its obligations under this Lease; to post
customary "For Sale," "For Lease" and similar types of signs; post notices of
nonresponsibility; and to make repairs or improvements in or to the Premises
or the building as Landlord deems necessary or proper, provided, however,
that Landlord shall exercise any such rights so as to cause as little
interference to Tenant as is reasonably possible. Tenant hereby waives any
claim for damages for any injury or inconvenience to, or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises
or any other loss occasioned by such entry. Landlord may have and retain a
key with which to unlock all of the doors in, on or about the Premises
(excluding Tenant's vaults, sales and similar areas designated by Tenant in
writing in advance), and Landlord shall have the right to use any and all
means by which Landlord may deem proper to open such doors to obtain entry to
the Premises, and any entry to the Premises obtained by Landlord by any such
means, or otherwise, shall not under any circumstances been deemed or
construed to be a forcible or unlawful entry into or a detainer by the
Premises or an eviction, actual or constructive, of Tenant from any part of
the Premises. In exercising the foregoing rights of access, Landlord shall
use reasonable efforts to adhere to any reasonable confidentiality policies
and procedures adopted by Tenant.
B. Easements: Landlord shall have the right to grant public utility
easements and other rights on, over and under the Premises without any
abatement in rent, provided that such rights do not unreasonably interfere
with Tenant's business operations on the Premises.
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24.1 LIMITATION OF LIABILITY, TRANSFER OF LANDLORD'S INTEREST:
A. Limitation of landlord's Liability: Tenant agrees to look only to
the equity of Landlord in the Premises and not to Landlord personally with
respect to any obligations or payments due or which may become due from
Landlord hereunder, and no other property or assets of Landlord or any
partner, joint venturer, officer, director, shareholder, agent, or employee
of Landlord, disclosed or undisclosed, shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's claims under or
with respect to this Lease, and no partner, officer, director, shareholder,
agent or employee of Landlord shall be personally liable in any manner or to
any extent under or in connection with this Lease. If at any time the holder
of Landlord's interests hereunder is a partnership or joint venture, a
deficit in the capital account of any partner or joint venturer shall not be
considered an asset of such partnership or joint venture.
B. Sale by Landlord: In the event of a sale or conveyance of the
Landlord's interest in the Premises, and so long as the successor in interest
of Landlord expressly assumes all of Landlord's obligations under this Lease,
Landlord shall thereafter be released from any further liability for any of
the terms, convenants or conditions (express or implied) herein contained in
favor of Tenant; and Tenant agrees thereafter to look solely to the successor
in interest of Landlord for the performance of any of Landlord's obligations
hereunder. This Lease and Tenant's rights hereunder shall not be affected by
any such sale or conveyance, and Tenant agrees to attorn to the successor in
interest of such transferor.
25.1 HOLDOVER TENANCY: If Tenant holds over after expiration of the Lease
term, such tenancy shall be from month-to-month only at Landlord's sole,
exclusive and conclusive election, and not a renewal hereof or an extension
of any further term, and in such case rent shall be payable at the time
specified in Paragraph 4.1 and in an amount to be determined by Landlord, but
not less than 150% of all sums due and payable under this Lease for the last
month of the Lease term, and such monthly rent may be increased upon thirty
(30) days prior written notice to Tenant. However, if Landlord has
previously notified Tenant at least three (3) days prior to the expiration of
the term of this Lease that Landlord shall not permit Tenant to hold over,
then if Tenant holds over Tenant shall be considered a trespasser and
Landlord may immediately file suit for unlawful detainer without further
notice to Tenant. If Landlord permits such holdover, then the month-to-month
tenancy shall be subject to every other term, covenant, condition and
agreement contained herein. Further, if the Premises is not surrendered at
the end of the Lease term, or any renewal or extension thereof, Tenant shall
be responsible to Landlord for all damage which Landlord shall suffer by
reason thereof, and Tenant shall indemnify, hold harmless and defend Landlord
from all claims made by a successor tenant resulting from Landlord's delay in
delivering possession of the Premises to such successor tenant.
26.1 NOTICES: All notices which Landlord or Tenant may be required, or may
desire, to serve on the other may be served personally, or by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Landlord at Landlord's address for notices described in Paragraph 1.1,
subparagraph H or to Tenant at Tenant's address described in Paragraph 1.1,
subparagraph H or from and after the commencement date, to the Tenant at the
Premises whether or not Tenant has departed from, abandoned or vacated the
Premises, or addressed to such other address or addresses as either Landlord
or Tenant may from time to time designate to the other in writing.
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27.1 GENERAL PROVISIONS:
A. Entire Agreement: This Lease and the attached Addendum, if any,
consisting of Articles 28.1 through 38.1, inclusive, contain all of the
agreements and understandings relating to the leasing of the Premises and the
obligations of Landlord and Tenant in connection with such leasing. Landlord
has not made, and Tenant is not relying upon, any warranties, or
representations, promises or statements made by Landlord or any agent of
Landlord, except as expressly set forth herein. This Lease supersedes any
and all prior agreements and understandings between Landlord and Tenant and
alone expresses the agreement of the parties.
B. Amendments: This Lease shall not be amended, changed or modified in
any way unless in writing executed by Landlord and Tenant. Landlord shall
not have waived or released any of its rights hereunder unless in writing and
executed by Landlord.
C. Successors: Except as expressly provided herein, the Lease and the
obligations of Landlord and Tenant shall bind and benefit the successors and
assigns of each of the parties.
D. Force Majeure: Neither Landlord nor Tenant shall incur any
liability to the other, nor shall either Landlord or Tenant be responsible to
the other for any failure to perform any of their respective obligations
hereunder (except for Tenant's obligation to pay rent (as defined in Article
4.1)). If such failure is caused by reason of strike, other labor trouble,
governmental rule, regulations, ordinance, statute or interpretation, or by
fire, earthquake, civil commotion, or any and all other causes beyond the
reasonable control of Landlord. The amount of time for Landlord to perform
any of Landlord's obligations shall be extended for the amount of time
Landlord is delayed in performing such obligation by reason of such force
majeure occurrence.
E. Survival of Obligations: Any obligations of Tenant accruing prior
to the expiration of this Lease shall survive termination of the Lease, and
Tenant shall promptly perform all such obligations whether or not the Lease
term has expired.
F. Governing Law: This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
G. Severability: In the event any provision of this Lease is found to
be unenforceable, the remainder of this Lease shall not be affected, and any
provision found to be invalid shall be enforced to the extent permitted by
law. The parties agree that in the event two different interpretations may
be given to any provision hereunder, one of which will render the provision
unenforceable, and one of which will render the provision enforceable, the
interpretation rendering the provision enforceable shall be adopted.
H. Captions: All captions, headings, titles and numerical references
are for convenience only and shall have no effect on the interpretation of
this Lease.
I. Construction: Tenant acknowledges that it has read and reviewed
this Lease and that it has had the opportunity to confer with counsel in the
negotiation of this Lease. Accordingly, this Lease shall be construed neither
for nor against Landlord or Tenant, but shall be given a reasonable
interpretation in accordance with the meaning of its terms and the intent of
the parties.
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J. Independent Covenants: Each covenant, agreement, obligation or
other provision of this Lease to be performed by Tenant are separate and
independent covenants of Tenant, and not dependent on any other provision of
the Lease.
K. Number and Gender: All terms and words used in this Lease,
regardless of the number or gender in which they are used, shall be deemed to
include the appropriate number and gender, as the context may require.
L. Time is of the Essence: Time is of the essence of this Lease and
the performance of all obligations hereunder.
M. Joint and Several Liability: If Tenant comprises more than one
person or entity, or if this Lease is guaranteed by any party, all such
persons shall be jointly and severally liable for payment of rents and the
performance of Tenant's obligations hereunder. As to a Tenant which consists
of husband and wife, the obligations shall extend individually to their sole
and separate property as well as community property.
N. Attorneys' Fees: If Tenant or Landlord shall bring any action for
any relief against the other, declaratory or otherwise, arising out of this
Lease, including, without limitation, any suit by Landlord for the recovery
of rent or possession of the Premises, the losing party shall pay the
successful party the court costs and reasonable attorneys' fees incurred
therefor and such expenses shall be paid whether or not such action is
prosecuted to judgment. Should Landlord, without fault on Landlord's part,
be made a party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the
Premises by license of Tenant (for the purposes of this Paragraph the
"Licensee"), or for the foreclosure of any lien for labor or material
furnished to or for Tenant or any Licensee or otherwise arising out of or
resulting from any act or transactions of Tenant or of any Licensee, and
Tenant agrees and covenants to save and hold Landlord harmless from any
judgment rendered against Landlord or the Premises or any part of either
thereof, and to protect, defend and indemnify Landlord as to any and all
costs and expenses, including attorneys' fees and court costs incurred by
Landlord in or in connection with such litigation. See Article 31.1 of the
Addendum.
O. Surrender of Lease: The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not work a merger, and
shall, at the option of the Landlord, terminate all or any existing subleases
or subtenancies, or may, at the option of Landlord, operate as an assignment
to it of any or all such subleases or subtenancies.
P. Tenant's Authority: If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants
that he or she is duly authorized to execute and deliver this Lease on behalf
of said corporation in accordance with a duly adopted resolution of the Board
of Directors of said corporation or in accordance with the By-Laws of said
corporation, and that this Lease is binding upon said corporation in
accordance with its terms; and at the time of execution of this Lease, Tenant
shall, at Landlord's option, deliver to Landlord a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease. If Tenant is a partnership and less
than all partners of the partnership execute this Lease, each individual
executing this Lease on behalf of said partnership represents and warrants
that he or she is
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duly authorized to execute and deliver this Lease on behalf of said
partnership in accordance with the partnership agreement of said partnership.
Q. Brokerage: Tenant covenants and represents that it has negotiated
this Lease directly with the Landlord and has not acted by implication to
authorize, nor has authorized, any real estate broker, finder or salesman to
act for it in these negotiations other than the Broker (as defined in
Paragraph 1.1, subparagraph K). Tenant agrees to hold Landlord harmless from
and to defend and indemnify Landlord against any and all claims, cost,
liability and/or expense (including attorneys' fees and court costs) incurred
by Landlord in connection any claim by any real estate broker or salesman or
finder (other than the Broker) for a commission or finder's fee as a result
of Tenant's entering into this Lease. The provisions contained herein shall
survive the termination of this Lease.
R. No Third Party Beneficiaries: Unless otherwise expressly specified
herein, no term, covenant, condition or provision of this Lease shall be
construed to be for the benefit of any other third party or entity.
S. Exhibits: The exhibits described in Paragraphs 1.1 and 2.1 are
incorporated in the Lease by reference and made a part hereof as if fully set
forth herein.
T. Offer to Lease: The submission of this Lease to Tenant or its
broker or other agent, does not consistute an offer to Tenant to lease the
Premises. The instruement shall have no force and effect until it is
executed and delivered by Tenant to Landlord and executed by Landlord.
IN WITNESS WHEREOF, The parties hereto have executed this Lease as of the
date stated below.
LANDLORD TENANT
CHARCOT CENTER JOINT VENTURE, ROCKSHOX, INC.,
a California general partnership a California corporation
By: TRANSAMERICA REAL ESTATE
MANAGEMENT CO.,
Agent
By: /s/ By:
----------------------------- -------------------------------
Its: Its:
---------------------------- -----------------------------
Date: Date:
--------------------------- -----------------------------
By: /s/
-----------------------------
Its:
---------------------------
Date:
---------------------------
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ADDENDUM TO LEASE
Addendum to that certain Lease (the "Lease") dated for reference
purposes only as of May 1, 1994 by and between CHARCOT CENTER JOINT VENTURE,
a California general partnership ("Landlord"), and ROCKSHOX, INC., a
California corporation ("Tenant"), for premises commonly known as 401 Charcot
Avenue, San Jose, California (the "Premises").
28.1 EARLY POSSESSION: Paragraph B of Article 3.1 is hereby deleted in its
entirety and replaced by the following: In the event the Premises are ready
for occupancy prior to the Commencement Date, Tenant shall have the right to
take possession of the Premises on such date as Landlord and Tenant shall
agree, and the Commencement Date (and the obligation of Tenant to pay Rent)
shall be advance on a day-by-day basis for each day occupancy has been
advanced, the Expiration Date shall also be advanced by the same number of
days, and Landlord and Tenant shall confirm the Commencement Date and the
Expiration Date by a written amendment to the Lease.
29.1 REPAIR AND MAINTENANCE: Article 6.1 is hereby deleted in its entirety
and replaced by the following:
A. Landlord's Duty to Maintain the Premises: Landlord shall have no
responsibility to maintain the Premises, except that Landlord shall: (i)
throughout the term of the Lease, repair as necessary the structural parts of
the building and other improvements that are a part of the Premises, which
structural parts include the foundations, exterior walls, subflooring and
roof (the "Structural Elements")' (ii) throughout the term of the Lease,
repair as necessary all electrical systems from the point of entry from the
public right-of-way to the first switch gear panel, plumbing systems below
the foundation, fire sprinkler systems, sewage systems below the foundation,
and the heating, ventilation and air conditioning ("HVAC") systems (all of
the foregoing systems collectively referred to as the "Building Systems")'
and (iii) during the first ninety (90) days of the term of the Lease, make
any repair necessary to the Premises which repair is not a duty or
responsibility of Tenant included in items (x), (y) and (z) of Paragraph B
below.
B. Tenant's Duty to Maintain the Premises: Throughout term of the
Lease, Tenant shall be responsible for the maintenance of the Premises
excepting those duties allocated to Landlord pursuant to Paragraph A above.
Tenant shall keep the Premises, including all improvements constructed by
Tenant therein, in good, clean and sanitary order, condition and repair,
including, without limitation, (i) the Tenant Improvements (as defined in the
Work Letter and Construction Agreement attached hereto as EXHIBIT B); (ii)
window frames, gutters and downspouts on the building and other improvements
that are a part of the Premises; (iv) all glass, doors, and skylights; and
(v) maintenance and resurfacing of the parking lot on the Premises as
necessary and maintenance of all landscaping as necessary. Tenant shall as
necessary, or when required by governmental authority, make modifications or
replacements for any of the items
<PAGE>
specified in the preceding sentence. Tenant also shall be responsible for
(x) repairing any damage or deterioration to the Structural Elements, the
Building Systems, or any other portion or component of the Premises which
damage or deterioration is caused by the negligence or willful misconduct of
Tenant and its agents, employees, or invitees, (y) entering into and paying
he cost of any ongoing maintenance contracts necessary for the preservation
and proper operation of the Building Systems (including, without limitation,
a maintenance contract for the HVAC), and (z) the day-to-day maintenance of
the Building Systems in the ordinary course of business including, without
limitation, regular preventative maintenance and repairs necessitated by
Tenant's use of the Premises.
C. Tenant's Waiver of Rights to Repair: Tenant waives the right to
make repairs at Landlord's expense under the provisions of any laws
permitting repairs by a tenant at the expense of the landlord (including
Sections 1941 and 1942 of the Civil Code of the State of California) because
Landlord and Tenant have made specific provisions in this Lease for such
repairs and have defined respective obligations relating thereto.
D. Landlord's Option to Make Neglected Repairs or to Maintain the
Premises: IF Tenant refuses or neglects to make repairs to and/or maintain
the Premises or any part thereof as required by this Article 29.1 in a manner
reasonably satisfactory to Landlord, Landlord shall have the right, but shall
not be obligated, to enter upon the Premises or any part thereof and cause
such repairs or maintenance to be made on behalf of and for the account of
Tenant. In such event, such work shall be paid for by Tenant as additional
rent promptly upon demand, together with interest thereon at the Default Rate
(as defined in Paragraph C of Article 19.1).
30.1 MINOR UNINSURED DAMAGE OR DESTRUCTION: The following is added at the
end of Paragraph A of Article 15.1: The foregoing notwithstanding, if, during
the term, the building or other improvements located on the Premises are
totally or partially destroyed from a risk not covered by Landlord's Property
Insurance rendering the Premises totally or partially inaccessible or
unusable, and the cost of repairing such destruction is $25,000.00 or less
and can be completed under existing laws within 180 days after the date of
destruction, such destruction shall not terminate the Lease however Landlord
shall restore the building or other improvements located on the Premises to
substantially the same condition as they were immediately before destruction.
31.1 LITIGATION EXPENSES: The following is added at the end of Paragraph N
of Article 27.1: The phrase "reasonable attorneys' fees" includes, without
limitation, paralegals' fees and expenses, attorneys' consultants' fees and
expenses, expert witnesses' fees and expenses, and all other expenses
incurred by the prevailing party's attorneys in the course of their
representation of the prevailing party in anticipation of and/or during the
course of any litigation, whether or not otherwise recoverable as "attorneys'
fees" or as "costs" under California law; and the same may be sought and
awarded in accordance with California procedural law pertaining to an award
of contractual attorneys' fees.
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32.1 TENANT IMPROVEMENTS: Landlord agrees to construct improvements at the
Premises in accordance with the terms and conditions of the Work Letter and
Construction Agreement attached to this Lease as EXHIBIT B. Landlord also
agrees, at its expense, on or before the Commencement Date: (i) to restripe
the parking lot at the Premises and (ii) to restore the roof of the building
at the Premises to a good, watertight condition.
33.1 RENTAL ABATEMENT: During the Rental Abatement Period, which shall be
from July 1, 1994 through August 31, 1994, so long as no Event of Default
shall have occurred, Tenant shall not be required to pay Minimum Monthly Rent
as specified in subparagraph C(i) of Article 1.1; provided, however, Tenant
shall be required to pay all other Rent (as defined in Paragraph A of Article
4.1) due under this Lease during the Rental Abatement Period.
34.1 RECAPTURE OF CONCESSIONS: Landlord and Tenant agree that, in order to
induce Tenant to enter into the Lease, Landlord has provided certain rental
and other concessions to Tenant, which include without limitation the
following, as may be further described in other provisions of this Lease: (i)
the abatement of Minimum Monthly Rent during the Rental Abatement Period and
(ii) the provision by Landlord of Landlord's Allowance (as defined in the
Work Letter and Construction Agreement attached to the Lease as EXHIBIT B)
(subparagraphs (i) and (ii) hereinafter referred to collectively as the
"Concessions"). Landlord and Tenant further agree that a substantial and
material portion of the consideration to Landlord for making the Concessions
is the full and faithful performance by Tenant of each and every term and
condition of this Lease, including, without limitation, the occupancy of the
Premises and the payment of all Rent when due throughout the entirety of the
Lease Term and any extension or renewal thereof. Should Tenant fail to
fulfill any of the terms and conditions of this Lease, Landlord will not have
received the full intended consideration for this Lease. Therefore, if
Tenant fails to pay all or any portion of the Rent when due or otherwise
defaults in the full and faithful performance of any other term or condition
of this Lease at any time, and Landlord elects to exercise its right of
termination as a result of such default, then Tenant shall pay, upon demand
by Landlord, in addition to any other remedies of Landlord for Tenant's
default, as reimbursement to Landlord of the Concessions, the sum of the
following: (x) the amount of Minimum Monthly Rent allocable to the Rental
Abatement Period which has expired; and (y) the total amount of Landlord's
expenditures or contribution for Landlord's Allowance, multiplied by a
fraction, the numerator of which shall be the number of months remaining in
the Lease term after the date of the Event of Default and the denominator of
which shall be the entire term of this Lease. All such amounts shall be
paid, together with interest thereon at the Default Rate from the date of the
Event of Default until such amounts are paid to Landlord.
35.1 OPTION TO EXTEND:
A. Subject to the conditions of this Article 35.1, Tenant shall have
the option to extend the term of this Lease (an "Option") for one (1) term of
five (5) years (the "Option Term") on the all terms and conditions of
Landlord's then standard form lease, except Minimum Monthly Rent which shall
be as provided in subparagraph (c) below. Tenant must exercise the Option by
delivering to Landlord written notice of such exercise no earlier than one
(1) year but
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no later than nine (9) months prior to the Expiration Date. Once Tenant has
timely and properly exercised the Option hereunder, Tenant may not
subsequently withdraw its exercise.
B. The Option granted hereby is subject to the condition that both on
the date of Tenant's exercise of such Option and on the commencement date of
the Option Term, (i) no Event of Default has occurred, and (ii) Tenant is in
possession of the entire Premises. It is expressly understood and agreed
that the Option granted hereby is nonassignable and may not be exercised by
anyone, or in favor of anyone, other than the initial Tenant specified in the
introductory paragraph on page 1 of this Lease.
C. The Minimum Monthly Rent during the Option Term shall be equal to
ninety five percent (95%) of the then fair market rent for comparable space
in the Northern San Jose area in comparable buildings as of the commencement
of the Option Term, as Landlord and Tenant shall agree. If Landlord and
Tenant cannot agree as to such fair market rent within four (4) months of the
end of the term of the Lease, then Landlord and Tenant shall each, within ten
(10) days of the beginning of such four (4) month period, select a licensed
real estate broker (the "Rent Brokers") with a minimum of five (5) years of
commercial leasing experience in Santa Clara County to determine such fair
market rent for the Premises. If the Rent Brokers are unable to agree as to
the fair market rent within thirty (30) days after the date of the
appointment of the last of such Rent Brokers, then the Rent Brokers shall,
within five (5) days of the end of the thirty-day period, mutually select a
third licensed real estate broker (the "Arbitrator") who has the same
qualification as the Rent Brokers. Each Rent Broker shall submit to the
Arbitrator his or her determination of the fair market rent for the Premises,
including reasonable documentation supporting such determination, and the
Arbitrator shall within thirty (30) days of his or her appointment decide
which Rent Broker has most accurately determined the fair market rent, which
decision shall be final and binding on both Landlord and Tenant. Landlord
and Tenant shall each pay their own Rent Broker's fees and costs, and shall
each pay one-half (1/2) of the Arbitrator's fees and costs.
36.1 EXTERIOR STORAGE: Paragraph A of Article 8.1 is hereby deleted in its
entirety and replaced by the following:
Tenant may utilize any paved, fenced exterior areas on the Premises for
storage of property reasonably suited for exterior storage, on the following
terms and conditions: (i) such storage is in compliance with all applicable
laws, ordinances, rules and regulations, (ii) such storage is permitted by
any conditions, covenants and restrictions affecting the Premises, (iii) such
storage does not, in Landlord's reasonable opinion, materially degrade the
aesthetic appearance of the Property from the public right-of-way or from
adjacent private property, and (iv) Tenant prepares and Landlord approves in
writing, prior to Tenant's commencement of such storage, a reasonably
detailed set of procedures for such storage (including without limitation an
identification of the types of property to be stored and procedures for
maintaining a clean and orderly appearance in any area used for such
storage), Landlord's approval not to be unreasonably withheld or delayed.
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37.1 HAZARDOUS MATERIALS:
A. GENERAL PROHIBITION; INDEMNIFICATION. Neither Tenant nor Tenant's
agents shall cause or permit any Hazardous Materials to be brought upon,
stored, used, generated, released into the environment or disposed of on, in,
under or about the Premises, without prior written consent of Landlord, which
consent shall not be unreasonably withheld; provided, however, Landlord, in
its reasonable discretion, may consent to Tenant's generation, storage or use
of Hazardous Materials on or in the Premises, provided Tenant demonstrates to
Landlord that such Hazardous Materials are necessary to or required as part
of Tenant's business and will be generated, used, kept, stored and/or
disposed of in a manner that complies with all laws regulating any such
Hazardous Materials and with good business practices. Upon the expiration or
sooner termination of this Lease, Tenant covenants to remove from the
Premises, at its sole cost and expense, any and all Hazardous Materials
brought upon, stored, used, generated or released into the environment by
Tenant or Tenant's agents. To the fullest extent permitted by law, Tenant
hereby agrees to indemnify, defend, protect and hold harmless Landlord and
Landlord's agents, and their respective successors and assigns, from any and
all claims, judgments, damages, penalties, fines, costs, liabilities and
losses (including, without limitation, loss or restriction on use of rentable
space or of any amenity of the Premises and sums paid in settlement of claims
reasonably approved by Tenant, and, reasonable attorneys' consultant and
expert fees) which arise during or after the Term directly or indirectly from
the presence of Hazardous Materials on, in or about the Premises which is
caused or permitted by Tenant or Tenant's agents. The foregoing
indemnification by Tenant of Landlord and Landlord's representatives
includes, without limitation, any and all costs incurred in connection with
any investigation of site conditions or any clean up remedial, removal or
restoration work required by any federal, state or local governmental agency
or political subdivision because of the presence of such Hazardous Material
in, on or about the Premises or the soil or groundwater on or under the
Premises or any portion thereof during or after the Term which is caused or
permitted by Tenant or Tenant's agents. Tenant shall promptly notify
Landlord of any release of Hazardous Materials in the Premises which Tenant
or Tenant's agents becomes aware of during the Term of this Lease, whether
caused by Tenant, Tenant's agents or any other persons or entities.
As used in this Lease, the term "Hazardous Materials" shall mean and
include any hazardous or toxic materials, substances or wastes including (a)
those materials identified in Sections 66680 through 66685 and Sections 66693
through 66740 of Title 22 of the California Administrative Code, Division 4,
Chapter 30, as amended from time to time, (b) those materials defined in
Section 25501(k) of the California Health and Safety Code, (c) any materials,
substances or wastes which are toxic, ignitable, corrosive or reactive and
which are regulated by any local governmental authority, any agency of the
State of California or any agency of the United States Government, (d)
asbestos, (e) petroleum and petroleum based products, (f) urea formaldehyde
foam insulation, (g) polychlorinated byphenyls ("PCBs"), and (h) freon and
other chlorofluorocarbons.
B. REPORTING REQUIREMENTS. Tenant shall promptly notify Landlord of,
and shall promptly provide Landlord with true, correct, complete and legible
copies of, all of the following environmental items relating to the Premises
which may be filed or prepared by or on behalf of,
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or delivered to or served upon, Tenant or Tenant's agents: all orders,
reports, notices, listings and correspondence of or concerning the release,
investigation of, compliance, clean up, remedial and corrective actions, and
abatement of Hazardous Materials which could have a material adverse effect
on the Premises or the soil and groundwater thereunder, including, but not
limited to, reports and notices required by or given pursuant to any
applicable laws, and all complaints, pleadings and other legal documents
filed against Tenant related to Tenant's or Tenant's agents' use, handling,
storage or disposal of Hazardous Materials. In the event of a release of any
Hazardous Materials in, on or about the Premises, Tenant shall promptly
provide Landlord with copies of all reports and correspondence with or from
all governmental agencies or other authorities having jurisdiction relating
to such release.
C. HAZARDOUS MATERIALS QUESTIONNAIRE. Prior to the execution of this
Lease, Tenant shall complete, execute and deliver to Landlord a Hazardous
Materials Questionnaire (the "Hazardous Materials Questionnaire") in the form
attached hereto as EXHIBIT C, and Tenant shall certify to Landlord all
information contained in the Hazardous Materials Questionnaire as true and
correct to the best of Tenant's knowledge and belief. The completed Hazardous
Materials Questionnaire shall be deemed incorporated into this Lease for all
purposes, and Landlord shall be entitled to rely fully on the information
contained therein. Tenant shall disclose to Landlord in writing the names and
amounts of all Hazardous Materials, or any combination thereof, which were
stored, generated or used or disposed of on, in, under or about the Premises
or which Tenant or Tenant's agents intend to store, generate, use or dispose
of on, under or about the Premises other than as disclosed in the Hazardous
Materials Questionnaire. At Landlord's option, Tenant's disclosure
obligations hereunder shall include a requirement that Tenant from time to
time update, execute and deliver to Landlord the Hazardous Materials
Questionnaire, as the same may be modified by Landlord from time to time.
D. RIGHT OF INSPECTION. Landlord and Landlord's agents shall, at all
reasonable times and upon reasonable notice, have the right, but not the
obligation, to inspect, investigate, sample and/or monitor the Premises,
including any soil, water, groundwater or other sampling, and any other
testing, digging, drilling or analyses, at any time to determine whether
Tenant is complying with the terms of this Article 37.1, and in connection
therewith, Tenant shall provide Landlord with full access to all relevant
facilities and personnel designated by Tenant (subject to the entry
provisions of the Lease). If Tenant is not in compliance with any of the
provisions of this Article 37.1, Landlord and Landlord's agents and employees
shall have the right, but not the obligation, without limitation upon any of
Landlord's other rights and remedies under this Lease, to immediately enter
upon the Premises and to discharge Tenant's obligations under this Article
37.1 at Tenant's expense, notwithstanding any other provision of this Lease.
Landlord and Landlord's agents and employees shall endeavor to minimize
interference with Tenant's business but shall not be liable for any such
interference. All sums reasonably disbursed, deposited or incurred by
Landlord in connection therewith, including, but not limited to, all costs,
expenses and actual attorneys' fees, shall be due and payable by Tenant to
Landlord, as an item of additional rent, on demand by Landlord, together with
interest thereon at the maximum rate allowed by law from the date of such
demand until paid by Tenant.
6
<PAGE>
E. RIGHT TO PARTICIPATE. Landlord, at Tenant's sole cost and expense,
shall have the right, but not the obligation, to join and participate in any
legal proceedings or actions initiated in connection with any claims or
causes of action arising out of the storage, generation, use, transportation
or disposal by Tenant or Tenant's agents, of Hazardous Materials in, on,
under, from or about the Premises. If the presence of any Hazardous
Materials in, on or under the Premises caused or permitted by Tenant or
Tenant's agents results in (i) injury to any person, or (ii) injury to or any
contamination of the Premises, Tenant, at its sole cost and expense, shall
promptly take all actions reasonably necessary to return the Premises to the
condition existing prior to the introduction of such Hazardous Materials
thereon. Notwithstanding the foregoing, Tenant shall not, without Landlord's
prior written consent (which consent shall not be unreasonably withheld),
take any remedial action in response to the presence of any Hazardous
Materials in, on, under or about the Premises or enter into any settlement
agreement, consent decree or other compromise with any governmental agency
with respect to any Hazardous Materials claims; provided, however, Landlord's
prior written consent shall not be necessary in the event that the presence
of Hazardous Materials in, on, under or about the Premises (i) poses an
immediate threat to the health, safety or welfare of any individual, or (ii)
is of such a nature that an immediate remedial response is necessary and it
is not possible to obtain Landlord's consent before taking such action.
F. SURRENDER. Promptly upon the expiration or sooner termination of
this Lease, Tenant shall represent to Landlord in writing that to Tenant's
knowledge no Hazardous Materials exist in, on, under or about the Premises as
a result of Tenant's activities during the Term other than as specifically
identified to Landlord by Tenant in writing. At any time within three (3)
months of the expiration of the Term, or upon the occurrence of a default,
Landlord may, upon reasonable cause to believe that Hazardous Materials exist
in, on, under or about the Premises as a result of Tenant's activities or
that Tenant otherwise has failed or will fail to comply with the terms of
this Article 37.1, by notice to Tenant, commence and complete an
environmental evaluation of the Premises. If the environmental evaluation
discloses the existence of Hazardous Materials in, on, under or about the
Premises which are a result of Tenant's activities, Tenant shall reimburse
Landlord for the cost of the environmental evaluation, and shall take all
other actions necessary to ensure immediate compliance with this Article 37.1.
G. SURVIVAL. The provisions of this Article 37.1, including, without
limitation, the indemnification provisions set forth herein, shall survive
any termination of this Lease.
38.1 EXHIBITS. The following exhibits are attached hereto and are made a
part of this Lease:
Exhibit A - Description of Premises
Exhibit B - Work Letter and Construction Agreement
Exhibit C - Hazardous Materials Questionnaire
7
<PAGE>
EXHIBIT 10.16
FORM OF
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is dated for reference
purposes only as of August 15, 1994, by and between CHARCOT CENTER JOINT
VENTURE, a California general partnership ("Landlord"), and ROCKSHOX, INC., a
California corporation ("Tenant")
RECITALS
A. Landlord and Tenant entered into that certain Lease (the "Lease")
dated for reference purposes only as of May 1, 1994, with respect to premises
located at and commonly known as 401 Charcot Avenue, San Jose, California
(the "Premises"); and
B. Landlord and Tenant now desire to amend the Lease, on the terms and
conditions set forth in this Amendment, to provide for: (i) an revised
Expiration Date and Rental associated with such extended date, (ii) a
confirmation as to Tenant's responsibility for certain permits relating to
Tenant's intended use of the Premises, and (iii) a revised Work Letter and
Construction Agreement.
NOW, THEREFORE, the parties, for good and valuable consideration, the
receipt of which is hereby acknowledged, agree as follows:
AGREEMENT
1. RECITALS. The foregoing recitals are true and correct and
incorporated herein by this reference.
2. DEFINED TERMS. All capitalized terms not specifically defined
herein shall have the meanings set forth in the Lease.
3. EFFECTIVE DATE. The effective date of this Amendment shall be
August 15, 1994 (the "Effective Date:),
4. EXTENDED TERM. Paragraph 1.1 B. of the Lease is hereby deleted and
replaced in its entirety with the following:
"B. Term: The term of the Lease is seventy-four (74) months,
beginning September 1, 1994 (the "Commencement Date:) and ending
October 31, 2000 (the "Expiration Date").
5. MINIMUM MONTHLY RENT. Paragraph 1.1 C.(ii) of the Lease is hereby
deleted and replaced in its entirety with the following:
<PAGE>
"(ii) Fixed Minimum Monthly Rent Increases: The initial minimum
monthly rent shall be increased to the amounts stated below and shall be
payable for each of the months during the period stated below:
MINIMUM
MONTHLY RENT PERIOD
$28,917.20 Months 15 through 26 (11/01/95 -10/31/96)
$30,029.40 Months 27 through 38 (11/01/96 -10/31/97)
$31,141.60 Months 39 through 50 (11/01/97 -10/31/98)
$32,253.80 Months 51 through 74 (11/01/98 -10/31/00)"
6. CERTAIN USE RELATED PERMITS. Landlord and Tenant hereby agree that
Tenant shall be responsible for obtaining all governmental approvals and
permits necessary for or related to Tenant's intended use of the Premises,
including, without limitation, permits and approvals related to hazardous
materials storage and management, fire high pile storage, and storage racks,
and no delay in Tenant's obtaining such approval shall affect Tenant's
obligations under the Lease as amended hereby, including without limitation
the obligation to pay rent upon delivery of possession in accordance with the
terms and conditions of the Lease as amended hereby.
7. REVISED WORK LETTER AND CONSTRUCTION AGREEMENT. The Work Letter and
Construction Agreement (Allowance) attached as Exhibit B to the Lease is
hereby deemed to be of no further force and effect, is deleted in its
entirety, and is replaced by the Work Letter and Construction Agreement
(Turnkey) attached to this Amendment as SCHEDULE 1 (including the revised
Construction Drawings drawn by CDS Construction dated ______________
referenced therein) (the "Revised Work Letter"). Tenant agrees that on or
before September 1, 1994 it shall pay to Landlord cash in the amount of Three
Thousand and 00/100 Dollars ($3,000.00) in consideration of Landlord's
agreement to enter into the Revised Work Letter. (Mark, this amount is the
$3,000 left over from the scope reduction.)
8. REDUCTION IN SCOPE OF WORK. Tenant specifically agrees that
notwithstanding anything in this Amendment or the Revised Work Letter to the
contrary, the Tenant Improvements shall not include, and Landlord shall have
no responsibility for installing or paying for, the work described in the
item listed as Code 1672 in the section entitled "Alarm and Detection" in the
Bid Sheet Summary prepared by CDS Construction dated June 15, 1994.
9. OTHER LEASE TERMS. Except as modified hereby, all terms and
conditions of the Lease shall remain unchanged and in full force and effect
during the term of the Lease.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective
as of the date first above written.
LANDLORD: TENANT:
CHARCOT CENTER JOINT VENTURE, ROCKSHOX, INC.,
a California general partnership a California corporation
BY: TRANSAMERICA REAL By:
ESTATE MANAGEMENT CO., -----------------------------
Agent Its:
-------------------------
By:
----------------------------
Its:
------------------------
By:
----------------------------
Its:
------------------------
3
<PAGE>
Exhibit 10.17
____________________
LEASE
____________________
BY & BETWEEN
WHITECLIFFE I APARTMENTS, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
"LANDLORD"
&
ROCKSHOX, INC.,
A DELAWARE CORPORATION
"TENANT"
OCTOBER 1, 1995
<PAGE>
TABLE OF CONTENTS
PARAGRAPH PAGE
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1 PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3 TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4 POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5 RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
6 ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . 2
7 SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8 USES PROHIBITED . . . . . . . . . . . . . . . . . . . . . . . . 3
9 COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . . 3
10 ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
11 REPAIR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
12 ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
14 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . 6
15 INDEMNIFICATION OF LANDLORD . . . . . . . . . . . . . . . . . . 7
16 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
17 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
18 PERSONAL PROPERTY AND OTHER TAXES . . . . . . . . . . . . . . . 8
19 RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . 8
20 HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . 8
21 SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . 8
22 ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . 9
23 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 9
24 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
25 DAMAGE BY FIRE, ETC.. . . . . . . . . . . . . . . . . . . . . . 10
26 EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . 11
27 PLATS AND RIDERS. . . . . . . . . . . . . . . . . . . . . . . . 11
28 SALE BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . . . 11
29 ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 11
30 RIGHT OF LANDLORD TO PERFORM. . . . . . . . . . . . . . . . . . 11
31 ATTORNEY FEES . . . . . . . . . . . . . . . . . . . . . . . . . 12
32 SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . 12
33 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
34 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
35 NOTICE OF SURRENDER . . . . . . . . . . . . . . . . . . . . . . 12
i
<PAGE>
TABLE OF CONTENTS
PARAGRAPH PAGE
36 DEFINED TERMS AND MARGINAL HEADINGS . . . . . . . . . . . . . . 12
37 TIME AND APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . 12
38 SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
39 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . 13
40 LATE CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . 13
41 TENANT IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . 13
42 HAZARDOUS AND TOXIC MATERIALS . . . . . . . . . . . . . . . . . 13
43 TENANT'S TERMINATION RIGHT. . . . . . . . . . . . . . . . . . . 16
44 PROHIBITION AGAINST RECORDING . . . . . . . . . . . . . . . . . 16
45 DELIVERY FOR EXAMINATION. . . . . . . . . . . . . . . . . . . . 16
46 APPLICATION OF PAYMENTS . . . . . . . . . . . . . . . . . . . . 16
47 TENANT WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . 16
48 LIABILITY OF LANDLORD . . . . . . . . . . . . . . . . . . . . . 16
49 TENANT COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 16
50 BROKER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
51 SIGNAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
52 PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
53 ADDITIONAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 17
ii
<PAGE>
REFERENCE PAGE
PROPERTY: 2711-2719 NORTH FIRST STREET, SAN JOSE, CA 95134
LANDLORD: WHITECLIFFE I APARTMENTS, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
LANDLORD'S ADDRESS: 777 CALIFORNIA AVENUE, PALO ALTO, CA 94303
TENANT: ROCKSHOX, INC.,
A DELAWARE CORPORATION
TENANT'S ADDRESS: 2713 NORTH FIRST STREET, SAN JOSE, CA 95134
LEASE REFERENCE DATE: OCTOBER 15, 1995
PREMISES: 2713 NORTH FIRST STREET, SAN JOSE, CA 95134
PREMISES RENTABLE
SQUARE FOOTAGE: +/-26,166 RENTABLE SQUARE FEET
COMMENCEMENT DATE: THE LATER OF (1) THE DATE THE CURRENT TENANT
FOR THE PREMISES, PURUS, INC., VACATES SAME,
OR (2) NOVEMBER 1, 1995
TERMINATION DATE: SIXTY (60) MONTHS AFTER COMMENCEMENT DATE
TERM OF LEASE: SIXTY (60) MONTHS
MONTHLY INSTALLMENT
OF BASE RENT: MONTHS BASE RENT PER MONTH
------ -------------------
1-60 $19,624.50
TENANT'S PROPORTIONATE
SHARE: 35.07%
SECURITY DEPOSIT: $19,624.50
REAL ESTATE BROKERS
DUE COMMISSION: THE COMMERCIAL PROPERTY SERVICES COMPANY ("CPS")
AND CB COMMERCIAL REAL ESTATE GROUP, INC. ("CB")
<PAGE>
The Reference Page information is incorporated to and made a part of the
Lease. In the event of any conflict between any Reference Page information
and the Lease, the Lease shall control.
LANDLORD TENANT:
- -------- -------
WHITECLIFFE I APARTMENTS, LTD., ROCKSHOX, INC.,
A CALIFORNIA LIMITED PARTNERSHIP A DELAWARE CORPORATION
BY: HANOVER PROPERTY COMPANY, BY: /s/ STEPHEN W. SIMONS
A CALIFORNIA CORPORATION, ITS: President
F/K/A ESSEX PROPERTY CORPORATION,
A CALIFORNIA CORPORATION,
ITS GENERAL PARTNER
BY: ESSEX MANAGEMENT CORPORATION,
A CALIFORNIA CORPORATION,
ITS AGENT
BY: /s/ George N. Kelly
--------------------------
ITS: Vice President
<PAGE>
LEASE FORM
PARTIES This Lease is made as of this 1st day of October, 1995, by and
between Whitecliffe I Apartments, Ltd., a California limited
partnership ("Landlord"), and Rockshox, Inc., a Delaware
corporation ("Tenant").
WITNESSETH
PREMISES 1. Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord those certain premises more particularly
described in Exhibit "A" attached hereto and made a part
hereof (the "Premises"). The Premises are situated in that
certain building located at 2713 North First Street, San Jose,
California (the "Building"), which building is located at
2711-2719 North First Street, San Jose, California (the
"Property"). Said letting and hiring is upon and subject to
the terms, covenants and conditions herein set forth and
Tenant covenants as a material part of the consideration for
this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed and
that this Lease is made upon the condition of such
performance.
USE 2. The Premises shall be used solely for the sale and
manufacture of shock absorbers for mountain bikes and for all
other legal related uses approved in writing by Landlord and
for no other purpose of any kind or nature whatsoever.
TERM 3. The term of this Lease shall be for sixty (60) months
commencing on the later of (i) the date that the current
tenant of the Premises, Purus, Inc., vacates same, or (ii) the
1st day of December, 1995 (the "Commencement Date"), and
ending on the date which is five (5) years thereafter (the
"Termination Date"). The term of this Lease shall be known as
the "Lease Term".
POSSESSION 4. If Landlord, for any reason whatsoever, cannot deliver
possession of the said Premises to Tenant on December 1, 1995,
this Lease shall not be void or voidable, nor shall Landlord
be liable to Tenant for any loss or damage resulting
therefrom, but the term shall be extended for an equal period
of time so that the Lease Term is sixty (60) months. If
possession of the Premises is not delivered to Tenant on or
prior to December 25, 1995, this Lease will terminate provided
that the delay in delivery of possession was not caused by
Tenant and Landlord shall have no liability to Tenant
therefor. Should Landlord tender possession of the Premises
to Tenant prior to the date specified for the commencement of
the Lease Term, and Tenant accepts such prior tender, such
prior occupancy shall be subject to all terms, covenants, and
conditions of this Lease, including the payment of rent,
provided that the Termination Date of this Lease shall be
November 30, 1000. Landlord and Tenant agree to execute an
agreement regarding the actual Commencement Date and
Termination Date of this Lease, such agreement being in the
form of Exhibit "E" attached hereto.
RENT 5. On or before the first day of each calendar month during
the Lease Term, Tenant shall pay to Landlord, as minimum
monthly rent for the Premises, the sums provided for on the
Reference Page (the "Base Rent"). The Base Rent for any
partial month shall be prorated at the rate of 1/30 of the
Base Rent per day. Tenant acknowledges and agrees that the
amount of Base Rent payable under this Lease is not based upon
the amount of Tenant's square footage but is based upon
Tenant's use and occupancy of the Premises as same has been
accepted by Tenant. Said rent shall be paid by Tenant to
Landlord in advance, without deduction or offset, in lawful
money of the United States of America at 777 California
Avenue, Palo Alto, CA 94304, or to such other person or at
such other place as Landlord any from time to time designate
in writing. Tenant acknowledges and agrees that any and all
amounts payable to Landlord or any third party under this
Lease shall be deemed to be "rent" for the purposes of this
Lease. Notwithstanding any of the other provisions contained
in this Lease, Landlord agrees that Tenant shall not be
required to pay for Base Rent or any of the sums referred to
in Paragraph 6 below for the first fourteen (14) days of the
Lease Term.
<PAGE>
ADDITIONAL
RENT 6. (a) TENANT'S PROPORTIONATE SHARE - In addition to the
monthly Base Rent provided for in Paragraph 5 hereof, Tenant
shall pay to Landlord as additional rent an amount equal to
thirty five and sevenths percent (35.07%) of the sums set
forth in the following subparagraphs ("Tenant's Proportionate
Share"). Tenant's Proportionate Share of the Landlord's
expenses has been calculated by dividing the number of
rentable square feet in the Premises by the number of rentable
square feet in the Property. Tenant hereby acknowledges and
agrees that it has measured the Premises or has waived its
right to do so and that Tenant hereby approves and accepts
Landlord's calculation of Tenant's Proportionate Share and
hereby waives any right to object thereto.
(b) REAL PROPERTY TAXES AND ASSESSMENTS - Tenant shall pay to
Landlord an amount equal to Tenant's Proportionate Share of
real property taxes and assessments or other fees or charges
of whatsoever kind or character imposed by any governmental
agency which may be levied on the Property, or any portion
thereof. For the purposes of this subparagraph 6(b), real
property taxes shall include, without limitation, taxes of
every kind and nature levied and assessed in lieu of or in
substitution for existing or additional real property taxes on
the Property as well as any other form of tax (other than
inheritance or estate taxes), assessment, license fee, fee,
levy, or charge, or interest or penalty thereon, imposed by
any authority having the direct or indirect power to tax
including, without limitation, any city, county, state, or
federal government, or any school, agricultural, lighting,
drainage, or other improvement district, against any legal or
equitable interest of Landlord in the Property, or against
Landlord's rent or other income from the Property, or against
Landlord's business of leasing the Property. Landlord shall
give Tenant at least fifteen (15) days prior written notice of
the amount so due. Upon Landlord's receipt of the tax or
assessment payment from Tenant, Landlord shall pay the tax or
assessment, license fee, fee, interest or levy or charge
payment to the taxing authority. If Tenant fails to pay the
tax or assessment, license fee, fee, interest or levy or
charge payment on or before the delinquency date to Landlord,
Tenant shall pay to Landlord any penalty incurred by such late
payment and, if Landlord pays same prior to Tenant's payment
of same to Landlord, such overdue amount shall bear interest
at the lesser of (i) eighteen percent (18%) per annum, or (ii)
the highest interest rate permitted by law. In addition,
Tenant shall pay one hundred percent (100%) of any taxes or
assessment of whatsoever kind and nature (including, without
limitation, all personal property taxes) arising out of or
caused by improvements or installations made by Tenant or by
Landlord at Tenant's request to the Premises at any time
during the Lease Term.
(c) OPERATING EXPENSES - Tenant shall pay to Landlord, at the times
hereinafter set forth, an amount equal to its Proportionate
Share of all direct and indirect expenses paid or incurred by
Landlord on account of the operation or maintenance of the
Property during the Lease Term, which shall include the
following by way of illustration but not limitation: the cost
of contesting by appropriate proceeding the amount or validity
of any of the aforementioned taxes or fees; water and sewer
charges; any and all insurance premiums and deductibles (net
of any rebates, refunds or dividends); license, permit and
inspection fees; costs of Utilities (as defined in Paragraph
17 below) (excluding charges for any Utilities furnished to
the Premises which are separately metered and payable by
Tenant); labor; supplies; materials, equipment and tools;
management fees (not to exceed four percent (4%) of the amount
of gross income for the Property); and the property
maintenance expenses described in subparagraphs 11(d) and (e)
below ("Operating Expenses"). All Operating Expenses which
are in the nature of capital expenditures, as determined in
accordance with generally accepted accounting principles,
shall be amortized over their useful life, such useful life to
be determined by the manufacturer's specifications/warranty,
or, if none is available, as reasonably determined by
Landlord. Operating Expenses shall not include depreciation
on the Building or equipment therein, debt service, or real
estate broker's commissions. Operating Expenses shall be
reduced by the amount of any refunds received by Landlord of
any taxes and assessments described in subparagraph 6(b)
above. Statements of the amount of Operating Expenses payable
by Tenant for the then upcoming Lease Year shall be estimated
in good faith by Landlord and shall be given to Tenant
annually on such date as Landlord shall from time to time
determine. Tenant shall pay one twelfth (1/12) of the amount
of Operating Expenses so estimated as being due and payable
for the
2
<PAGE>
then current Lease Year on a monthly basis together
with Tenant's monthly payment of Base Rent. If during any
such Lease Year Landlord shall revise its estimate of Tenant's
Proportionate Share of said Operating Expenses for said Lease
Year, Landlord shall advise Tenant and Tenant shall pay all
additional charges based on such revised estimate for the
portion of the Lease Year already elapsed within ten (10) days
of being so advised and shall commence paying the additional
charges based on such revised estimate for the remainder of
such Lease Year. Within ninety (90) days from the end of each
Lease Year Landlord shall deliver a statement to Tenant of the
actual Operating Expenses for such Lease Year and there shall
be an adjustment made to account for the difference between
the actual and estimated Operating Expenses for such previous
Lease Year. If Tenant has overpaid, Landlord shall credit
Tenant the amount of the overpayment within thirty (30) days
after the end of such Lease Year for the following Lease Year,
except with respect to an overpayment for the final Lease Year
as to which Landlord shall promptly refund such overpayment to
Tenant. If Tenant has underpaid the amount of additional rent
owing, Tenant shall pay the amount of such underpayment to
Landlord within thirty (30) days of Tenant's receipt of notice
requesting payment of same. For the purposes of this Lease,
the term "Lease Year" means the twelve (12) consecutive month
period commencing as of the Commencement Date of this Lease
and ending on the last day of the month which is twelve (12)
months thereafter, and each twelve (12) consecutive month
period thereafter.
SECURITY 7. Simultaneously with the execution of this Lease, Tenant
shall deposit with Landlord the sum of $39,249, of which sum
$19,624.50 shall be applied against the payment of the first
month's Base Rent, and the balance thereof, in the amount of
$19,624.50 shall be held by Landlord as security for the
faithful performance by Tenant of all the terms, covenants and
conditions of this Lease. Provided that at the end of the
Lease Term Tenant shall have delivered up the Premises to
Landlord, broom clean, and in the same condition as at the
Commencement Date, reasonable wear excepted, said sums held as
security shall be returned to Tenant. No interest shall be
payable thereon and Landlord shall not be required to keep
said sum in a separate account. At no time will the security
deposit be considered in lieu of a rental payment. No
security or guarantee which may now or hereafter be furnished
Landlord for the payment of the rent herein reserved or for
performance by Tenant of the other terms, covenants or
conditions of this Lease shall in any way be a bar or defense
to any action in unlawful detainer, or for the recovery of the
Premises, Building or Property or to any action which Landlord
may at any time commence for a breach of any of the terms,
covenants or conditions of this Lease.
USES
PROHIBITED 8. Tenant shall not do or permit anything to be done in or
about the Premises, Building or Property nor bring or keep
anything therein which will in any way increase the rate of or
affect any fire or other insurance upon the Premises, Building
or Property or any of its contents or cause a cancellation of
any insurance policy covering said Premises, Building or
Property or contents. Tenant shall not do or permit anything
to be done in or about the Premises, Building or Property
which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Premises, Building or
Property or injure or annoy them, or use or allow the
Premises, Building or Property to be used for any residential,
immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the
Premises, Building or Property. No cooking devices or other
odor causing devices, loudspeakers or other similar device,
system or apparatus which can be heard or experienced outside
the Premises shall, without the prior written approval of
Landlord, be used in or at the Premises, Building or Property.
Tenant shall not commit or suffer to be committed any waste
in or upon the Premises, Building or Property.
COMPLIANCE
WITH LAW 9. Tenant shall not use or permit anything to be done in the
Premises nor shall Tenant use any part of the Property which
will in any way conflict with any law, statute, ordinance or
governmental order, directive, rule, regulation or requirement
now in force, including, without limitation, the Americans
With Disabilities Act of 1990 or which may hereafter be
enacted or promulgated (collectively, "Laws"). Tenant, at its
sole cost and expense, shall promptly comply with all Laws and
with the requirements of any board of fire underwriters or
other similar body now or hereafter constituted relating to or
affecting the condition, use or occupancy of the Premises.
The judgment of any court of competent jurisdiction or the
admission of Tenant in an action against Tenant, whether
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Landlord be a party thereto or not, that Tenant has violated
any law, shall be conclusive of the fact as between Landlord
and Tenant.
ALTERATIONS 10. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises
or any part thereof without the written consent of Landlord,
which consent may not be unreasonably withheld as to any
non-structural alterations, additions or improvements, and
which consent may be withheld in Landlord's sole and absolute
discretion as to any structural alterations, additions or
improvements. Any alterations, additions or improvements to
or of said Premises, including, without limitation, any
partitions, movable or otherwise, and all carpeting, shall at
once become a part of the realty and belong to Landlord. If
Landlord consents to the making of any alterations, additions
or improvements to the Premises by Tenant, the same shall be
made by Tenant at Tenant's sole cost and expense and any
contractor or person selected by Tenant to make the same must
first be approved of in writing by Landlord. Subject to the
provisions of the following sentence, upon the expiration or
sooner termination of the Lease term, Tenant, upon demand by
Landlord, at Tenant's sole cost and expense, forthwith and
with all due diligence shall remove any alterations, additions
or improvements made by or for Tenant designated by Landlord
to be removed, and Tenant, forthwith and with all due
diligence, at its sole cost and expense, shall repair any
damage to the Premises caused by such removal. Landlord
agrees that it shall approve or disapprove, in writing, any
proposed alterations, additions or improvements to or of the
Premises within ten (10) days of its receipt of written
request therefor together with all relevant documentation
regarding same, including, without limitation, plans and
specifications and any other information reasonably requested
by Landlord and shall, if Landlord approves same, also notify
Tenant in writing whether it will (i) require that Tenant
remove same at the expiration or earlier termination of the
Lease term, or (ii) require that same remain at the expiration
or earlier termination of the Lease term. Landlord's failure
to so notify Tenant in writing as to either of such items
within such ten (10) day period shall be deemed to mean (i)
that the proposes alterations, additions or improvements are
disapproved, and/or (ii) that Landlord is requiring that same
be removed at the expiration or earlier termination of the
Lease Term.
REPAIR 11. (a) By entry hereunder upon the commencement of the term
hereof, Tenant accepts the Premises as being in good condition
and repair. In the event Landlord fails to perform its
obligations, if any, under this Paragraph 11 within the time
allotted under Paragraph 24(b), Tenant may make any such
required repairs, the reasonable cost of which shall be at the
expense of Landlord payable within ten (10) days after written
demand. The rights of Tenant to make repairs to the Premises
at the expense of Landlord as set forth in the immediately
preceding sentence shall be in lieu of any and all other such
rights provided by law, statute or ordinance now or hereafter
in effect, all of which are hereby waived by Tenant,
including, without limitation, all such rights as may be
provided for in California Civil Code Section 1932(1), 1941 or
1942 or any successor or similar law, statute or ordinance now
or hereafter in effect. Upon the expiration or sooner
termination of the Lease Term, Tenant shall surrender the
Premises to Landlord in the same condition as when received,
ordinary wear and tear excepted. It is specifically
understood and agreed that Landlord has no obligation and has
made no promises to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof, that the Premises
are accepted in their current "as is" "where is" condition,
and that no representations or warranties of any kind or
nature whatsoever respecting the condition of the Premises,
Building or Property have been made by Landlord to Tenant,
except as may be expressly set forth in this Paragraph 11.
(b) Tenant shall, at its own cost and expense, enter into a
regularly scheduled preventive maintenance/service contract
with a maintenance contractor approved by Landlord, which
approval shall not be unreasonably withheld (and a copy
thereof shall be furnished to Landlord), for servicing all
heating and air conditioning systems and equipment within the
Premises. The service contract must include all services
suggested by the equipment manufacturer in the
operation/maintenance manual and must become effective within
thirty (30) days of the date Tenant takes possession of the
Premises. If the failure of the HVAC requires replacement of
the unit(s) the cost of such replacement shall be shared by
Landlord and Tenant proportional to the useful life of the
equipment as reasonably
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determined by Landlord as compared to the term of the Lease
remaining after the date of installation of the replacement
equipment. Example: If the equipment has a useful life of ten
(10) years and Tenant's Lease has three (3) years remaining,
Tenant shall be responsible for thirty percent (30%) of all
costs associated with the purchase and installation of the
replacement equipment. Notwithstanding the above or any of the
other provisions of this Lease, Landlord shall be responsible
for all costs of repairs, maintenance and replacement to or of
the existing HVAC, electrical, mechanical and plumbing systems
affecting the Premises for ninety (90) days after commencement
of the Lease Term unless any damage to same is caused by
Tenant, or any of its subtenants or assigns or any of their
respective employees, agents, contractors, licensees or
invitees, in which event Tenant shall be responsible for all
such costs.
(c) Tenant shall be responsible for the cost of repairing
any damage to the Property which is caused in whole or in part
by either (i) the negligence or misconduct of Tenant, or any
of its subtenants or assigns, or any of their respective
employees, agents, contractors, licensees or invitees, or (ii)
Tenant's or any of its subtenants or assigns default under
this Lease. The cost of any such repairs shall be due within
fifteen (15) days after the date of receipt of demand therefor
and shall bear interest from said date of demand until paid at
the lesser of (i) eighteen percent (18%) per annum, or (ii)
the maximum interest rate permitted by law.
(d) Landlord agrees to perform the paving and landscape
maintenance for Property, including but not limited to, the
mowing of the grass, care of shrubs, general landscaping; the
maintenance of common parking areas, driveways, alleys,
sprinkler systems, common sewage line plumbing, and gutters
and downspouts; pest and rodent extermination; exterior
painting; and the repair and maintenance of any other
improvements of which the Premises or the Building are a part
not otherwise required to be performed by Tenant pursuant to
this Paragraph 11, and Tenant shall be liable for Tenant's
Proportionate Share of such expenses. Such expenses shall be
considered Operating Expenses and shall be payable to Landlord
as provided in subparagraph 6(c) of the Lease.
(e) Unless same is caused by Tenant, or any of its
subtenants or assigns, or any of their respective employees,
representatives, agents, contractors or invitees, in which
event Tenant shall be responsible for all such costs, other
than the structural portions of the Building, which shall be
repaired or replaced as Landlord may determine pursuant to
Paragraph 11(f), Tenant shall be responsible for Tenant's
Proportionate Share of the cost to repair or replace any other
portions of the Building, including, without limitation, the
cost to repair and maintain the roof, or any portion thereof.
Notwithstanding the foregoing, if all or a substantial portion
of the roof requires replacement, the following will attribute
responsibility for the replacement cost. The company which
installs the roof will be required to provide a statement
regarding the useful life of the replacement roof. The cost
will then be shared by Landlord and Tenant proportionate to
the term of the Lease remaining after the date of installation
of the replacement roof. Example: If the roof has a useful
life of ten (10) years and this Lease has three (3) years
remaining, Tenant will be responsible for its Proportionate
Share of thirty percent (30%) of all costs associated with the
purchase and installation of the replacement roof.
Notwithstanding the above, Landlord will be responsible for
all costs of repairs, maintenance and replacement for ninety
(90) days after the commencement of the Lease Term unless any
damage to same is caused by Tenant, or any of its subtenants
or assigns, or any of their respective employees, agents,
contractors, licensees or invitees, in which event Tenant
shall be responsible for all such costs.
(f) Unless same is caused by Tenant, or any of its
subtenants or assigns, or any of their respective employees,
representatives, agent, contractors or invitees, in which
event Tenant shall be responsible for all such costs, Landlord
shall at its expense maintain in good repair, reasonable wear
excepted, only the structural soundness of the Building
foundations and the exterior walls of the Building. Tenant
shall immediately give Landlord written notice of any such
defect or need for repairs after which Landlord shall have a
reasonable opportunity to repair the same or cure such defect.
Landlord's liability with respect to any defects, repairs or
maintenance for which Landlord is responsible under any of the
provisions of the Lease shall be limited to the cost of such
repairs or
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maintenance or the curing of such defect. The term
"walls" as used herein shall not include windows, glass or
plate glass, doors, special store fronts or office entries.
(g) Tenant shall arrange for, and be responsible for the cost
of, the regular removal of trash and debris with regard to
Tenant and the Premises.
ABANDON-
MENT 12. If Tenant shall abandon, vacate or surrender the Premises
or be dispossessed by process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises
shall be deemed to be abandoned, at the option of Landlord;
provided, however, Tenant shall not be deemed to have so
abandoned, vacated or surrendered the Premises as long as it
is current in all payments of rent under this Lease and it is
otherwise performing all of its other obligations under this
Lease.
LIENS 13. Tenant shall keep the Premises, Building and Property
free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. Tenant
shall in the event of filing of any of such lien, post any
bond required to release the Premises Building and/or Property
therefrom within ten (10) days of written request.
ASSIGNMENT
AND
SUBLETTING 14. (a) Tenant shall not assign this Lease or sublet or
suffer any other person to occupy or use the Premises, or any
part thereof, or any right or privilege appurtenant thereto
without the prior written consent of Landlord, which consent
shall not be unreasonably withheld. Landlord shall approve or
disapprove any written request as to same in writing within
ten (10) days of Landlord's receipt of such request together
with all relevant information regarding the proposed
transaction, including, without limitation, the name of the
proposed transferee, complete financial statements of the
proposed transferee, a copy of the proposed transfer documents
and any other information reasonably requested by Landlord.
Landlord's failure to notify Tenant within such ten (10) day
period shall be deemed to be a disapproval of the proposed
transaction. Landlord's consent to one assignment, subleasing
or occupancy shall not be deemed to be consent to any
subsequent assignment, subleasing or occupancy, and any
assignment, sublease or occupancy which does not require
consent shall not be deemed to negate or in any manner limit
the requirement that consent be obtained for any subsequent
assignment, subleasing or occupancy which requires such
consent. Tenant shall promptly reimburse Landlord for
reasonable legal fees and other expenses incurred by Landlord
in connection with any request by Tenant for consent to any
assignment or subletting (not to exceed $1,500). Tenant shall
not mortgage, pledge, hypothecate or encumber this Lease or
any interest therein.
(b) If Tenant is a corporation, the following shall be
deemed a voluntary assignment of Tenant's interest in this
Lease: (i) any dissolution, merger, consolidation, or other
reorganization of or affecting Tenant, whether or not Tenant
is the surviving corporation; and (ii) the sale or transfer,
whether in one or a series of transactions, of stock
possessing more than 50% of the total combined voting power of
all classes of Tenant's capital stock issued, outstanding and
entitled to vote for the election of directors. If Tenant is
a partnership, any withdrawal or substitution (whether
voluntary, involuntary or by operation of law, and whether
occurring at one time or over a period of time) of any partner
owning 25% or more (cumulatively) of any interest in the
capital or profits of the partnership, or the dissolution of
the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease.
(c) If for any assignment or sublease Tenant receives rent
or other consideration, either initially or over the term of
the assignment or sublease, in excess of the Base Rent payable
hereunder, or in the case of the sublease of a portion of the
Premises, in excess of such Base Rent fairly allocable to such
portion, after appropriate adjustments to assure that all
other payments called for hereunder are appropriately taken
into account, Tenant shall pay to Landlord, as additional rent
hereunder, fifty (50%) percent of the excess of each such
payment of Base Rent and/or other consideration received by
Tenant, net of brokerage commissions paid to non-affiliated
third party brokers, promptly after its receipt.
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INDEMNIFI-
CATION OF
LANDLORD 15. Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury or damage to
any person or property in or about the Premises, Building or
Property by or from any causes whatsoever and, without
limiting the generality of the foregoing, whether caused by
water leakage of any character from the roof, walls, basement
or other portion of the Premises or the Building or any part
thereof. Tenant shall indemnify, protect, defend and hold
Landlord and its partners, and their respective agents,
employees, representatives, officers, directors and
shareholders harmless from and against any and all claims,
liabilities and/or expenses, including, without limitation,
attorneys' fees and costs and court costs for any injury or
damage to any person or property whatsoever: (1) occurring
in, on or about the Premises, Building or Property, or any
part thereof, or (2) occurring in, on or about any facilities
(including without prejudice to the generality of the term
"facilities," elevators, stairways, passageways or hallways),
the use of which Tenant may have in common with other tenants
of the Building or Property, when such injury or damage either
(i) shall be caused in part or in whole by the act, neglect,
default or omission of Tenant, or any of its subtenants or
assigns, or any of their respective agents, employees,
contractors, representatives or invitees, or (ii) in any
manner, whether directly or indirectly, arises out of or is
incurred in connection with the use, maintenance, occupation
or operation of the Premises, or any other portion of the
Property, by Tenant, or any of its subtenants or assigns, or
any of their respective agents, employees, contractors,
representatives or invitees. The provisions of this Paragraph
15 shall survive the expiration or termination of this Lease.
INSURANCE 16. Tenant agrees to keep in force during the term hereof, at
Tenant's expense, (i) commercial general liability insurance
in standard form written on an occurrence basis insurinig
Tenant's activities with respect to the Premises and/or
Building against loss, damage or liability for personal
injury, bodily injury or death of any person or loss or damage
to property occurring in, upon or about the Premises, such
policy of insurance to have a combined single limit for both
bodily injury and property damage in an amount of not less
than Two Million Dollars ($2,000,000) per person per
occurrence and shall include products liability, completed
operation liability and personal and advertising injury
liability, (ii) Worker's Compensation insurance as required by
applicable Law, and (iii) automobile liability insurance with
a combined single limit of One Million Dollars ($1,000,000)
per person per occurrence. All such insurance shall be
written by an insurance company with an AM Best's Rating of A7
or better in the form customary to the locality. In addition,
during the term of this Lease, Tenant shall keep the personal
property of Tenant situated on the Premises, including,
without limitation, inventory, furniture and equipment, and
fixtures installed by Tenant, insured against fire and other
risks covered by a standard fire insurance policy in an amount
equal to full replacement value with an endorsement for
extended coverage. All policies referred to herein shall name
Landlord as an additional insured using ISO Form CG201010 93,
or an insurance company equivalent reasonably satisfactory to
Landlord, shall insure Landlord's contingent liability as
respects acts or omissions of Tenant, shall be issued by an
insurance company licensed to do business in the state where
the Premises are located, and shall provide that said
insurance shall not be cancelled or amended unless thirty (30)
days prior written notice to Landlord is first given. Said
policies or a certificate thereof shall be delivered to
Landlord by Tenant prior to the commencement of the Lease Term
(with a policy to follow within sixty (60) days of the date
thereof) and each renewal of such insurance. Tenant hereby
waives all rights of subrogation against Landlord to which any
insurance carrier may at any time become entitled under any
policy of insurance carried by Tenant.
UTILITIES 17. Tenant shall pay for all water, gas, heat, light, power,
telephone service, trash removal and other utilities and
services supplied to the Premises, together with any and all
taxes thereon (collectively, "Utilities"). Tenant shall be
responsible for causing such utilities and services to be
supplied to the Premises. If any such services are not
separately metered to Tenant, Tenant shall pay a reasonable
proportion, to be determined by Landlord, of all charges
jointly metered with other premises and Landlord may, in its
sole discretion and at Tenant's sole cost and expense, cause
such a meter to be installed in the Premises so as to measure
the amount of such services consumed by Tenant. Landlord
shall not be liable for, and Tenant shall not be entitled to,
any abatement or reduction of
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rent by reason of any failure in the furnishing of utilities
to the Premises for any reason whatsoever, nor shall Landlord
be liable under any circumstances for loss of business or
injury to property, however occurring, through or in
connection with or incidental to any such failure regarding
the furnishing of any such utilities to the Premises. Tenant
will not, without the written consent of Landlord, use any
apparatus or device in the Premises which will in any way
materially increase the amount of electricity, cooling
capacity or water usually furnished or supplied for use of the
Premises for Tenant's permitted uses thereof or connect with
electric current, except through existing electrical outlets
in t he Premises, or water pipes, any apparatus or device for
the purpose of using electric current or water.
PERSONAL
PROPERTY
AND OTHER
TAXES 18. Tenant shall pay, before delinquency, any and all taxes
levied or assessed and which become payable during the term
hereof upon Tenant's equipment, furniture, fixtures and other
personal property located in the Premises, including carpeting
installed by Tenant even though said carpeting has become a
part of the leased Premises; and any and all taxes or
increases therein levied or assessed on Landlord or Tenant by
virtue of alterations, additions or improvements to the
Premises made by Tenant or Landlord at Tenant's request. If
Tenant fails to pay any such tax or assessments on or before
the delinquency date, Tenant shall be responsible for any
interest or penalty incurred by such late payment. In the
event said taxes are charged to or paid or payable by
Landlord, Tenant, within thirty (30) days of demand therefor,
shall reimburse Landlord for all of such taxes paid by
Landlord.
RULES AND
REGULATIONS 19. Tenant shall faithfully observe and comply with the rules
and regulations annexed to this Lease and all modifications of
and additions thereto applicable to all tenants of the
Building from time to time put into effect by Landlord of
which Tenant shall have notice. Landlord shall not be
responsible to Tenant for the nonperformance by any other
tenant or occupant of the Building of any of said rules and
regulations.
HOLDING
OVER 20. If Tenant holds possession of the Premises after the
Lease Term, Tenant shall, (at the sole option of Landlord to
be exercised by Landlord's giving written notice to Tenant and
not otherwise) become a Tenant from month to month upon the
terms and conditions herein specified, so far as applicable,
at a monthly rental of equal to one hundred and fifty percent
(150%) of the average monthly rental owed in the final year of
the Lease Term, as same may have been previously extended,
payable in advance, in lawful money, and shall continue to be
such until thirty (30) days after Tenant shall have given to
Landlord or Landlord shall have given to Tenant a written
notice of intent to terminate such monthly tenancy. Unless
Landlord shall exercise the option hereby given it, Tenant
shall be a tenant at sufferance only, whether or not Landlord
shall accept any rent from Tenant while Tenant is holding
over.
SUBORDINA-
TION 21. This Lease shall be subject and subordinate at all times
to all ground or underlying leases which may now exist or
hereafter be executed affecting the Building and/or the land
upon which the Building is situated. In addition, this Lease
shall be subject and subordinate to the lien of any mortgages
or deeds of trust in any amount or amounts whatsoever now or
hereafter placed on or against said Building and/or land or on
or against the Landlord's interest or estate therein or on or
against any ground or underlying lease without the necessity
of having further instruments on the part of Tenant to
effectuate such subordination. Notwithstanding the foregoing,
Tenant covenants and agrees to execute and deliver, upon
demand, such further instruments evidencing such subordination
of this Lease to such ground or underlying leases and to the
lien of any such mortgages or deeds of trust as may be
required by Landlord. Tenant hereby irrevocably appoints
Landlord the attorney in fact of Tenant to execute and deliver
any such instrument or instruments for or in the name of
Tenant. In the event of termination of any ground or
underlying lease, or in the event of foreclosure or exercise
of any power of sale under any mortgage or deed of trust
superior to this Lease or to which this Lease is subject or
subordinate, upon Tenant's attornment to the Landlord under
such ground or underlying lease or to the purchaser at any
foreclosure sale or sale pursuant to the exercise of any power
of sale under any mortgage or deed of trust, this Lease shall
not terminate and Tenant shall automatically be and become the
tenant of said Landlord under such ground or underlying lease
or to said purchaser, whichever shall make demand therefor.
Tenant agrees to
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execute any Subordination, Non-Disturbance and Attornment
Agreement reasonably requested by Landlord or any lender or
ground lessor which currently or in the future holds a
mortgage or deed of trust or ground lease which encumbers any
property of which the Premises are a part, and Tenant agrees
that it will execute and deliver same back to Landlord within
ten (10) days of its receipt thereof.
ENTRY BY
LANDLORD 22. Landlord reserves and shall at any and all reasonable
times, upon not less than twenty-four (24) hours prior notice
to Tenant (except in the case of an emergency in which event
no such notice shall be required), have the right to enter the
Premises to inspect the same, to supply janitor service and
any other service to be provided by Landlord to Tenant
hereunder, to submit the Premises to prospective purchasers or
tenants, to post notices of non-responsibility, and to alter,
improve or repair the Premises and any portion of the Building
without abatement of rent and may for that purpose erect
scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, always
providing the entrance to the Premises shall not be blocked
thereby and further providing that the business of Tenant
shall not be interfered with unreasonably. Tenant hereby
waives any claim for damages for any injury or inconvenience
to or interference with Tenant's business, any loss of
occupancy of quiet enjoyment of the Premises, and other loss
occasioned by such entry. For each of the aforesaid purposes,
Landlord shall at all times have and retain a key with which
to unlock all of the doors, in, upon and about the Premises
excluding Tenant's vaults and safes, and Landlord shall have
the right to use any and all means which Landlord may deem
proper to open said doors in an emergency in order to obtain
entry to the Premises, and any entry to the Premises obtained
by Landlord by any of said means, or otherwise, shall not
under any circumstances be construed or deemed to be a
forcible or unlawful entry into or a detainer of the premises
or an eviction of Tenant from the Premises or any portion
thereof.
EVENTS OF
DEFAULT 23. The occurrence of any one or more of the following events
("Events of Default") shall constitute an Event of Default by
Tenant: (a) if Tenant shall fail to pay any rent due
hereunder within five (5) days from the date that same has
become due and payable; or (b) if Tenant shall fail to perform
or observe any other term hereof or of the rules and
regulations described in Paragraph 19 to be performed or
observed by Tenant, and such failure shall continue for more
than twenty (20) days after written notice thereof from
Landlord; provided, however, if such Event of Default is of a
nature that it shall take more than twenty (20) days to cure
same even if Tenant promptly undertakes such cure and proceeds
at all times thereafter with due diligence to cure same,
Tenant shall have a reasonable period of time not to exceed
ninety (90) days from the occurrence of such Event of Default
to cure same provided Tenant undertakes such cure within such
twenty (20) day time period and proceeds at all times
thereafter with due diligence to cure same; or (c) if Tenant
shall make a general assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as
they become due or shall file a petition in bankruptcy, or
shall be adjudicated as bankrupt or insolvent, or shall file a
petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under
any present or future stature, law or regulation, or shall
file an answer admitting or shall fail timely to contest the
material allegations of a petition filed against it in any
such proceeding, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of
Tenant or any material part of its property; or (d) if within
ninety (90) days after the commencement of any proceeding
against Tenant seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation,
such proceeding shall not have been dismissed, or if, within
ninety (90) days after the appointment without the consent or
acquiescence of Tenant, or any trustee, receiver or liquidator
of Tenant or of any material part of its properties, such
appointment shall not have been vacated; or (e) if this Lease
or any estate of Tenant hereunder shall be levied upon under
any attachment or execution and such attachment or execution
is not vacated within ten (10) days.
DEFAULT 24. (a) In the event of the occurrence of an Event of
Default, Landlord, besides any other rights and remedies of
Landlord at law or equity, shall have the right either to
terminate Tenant's right to possession of the Premises and
thereby terminate this Lease or to have this Lease continue in
full force and effect with Tenant at all times having the
right to possession of the Premises. Should
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Landlord elect to terminate Tenant's right to possession of
the Premises and terminate this Lease, the Landlord shall have
the immediate right of entry and may remove all persons and
property from the Premises. Such property so removed may be
stored in a public warehouse or elsewhere at the cost and for
the account of Tenant. Upon such termination Landlord, in
addition to any other rights and remedies (including rights
and remedies under Subparagraphs (1), (2) and (4) of
Subdivision (a) of Section 1951.2 of the California Civil Code
or any amendment thereto), shall be entitled to recover from
Tenant the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided. The amount referred to in
subparagraphs (1) and (2) of subdivision (a) of Section 1951.2
of the California Civil Code shall be computed by allowing
interest at the maximum rate allowed by law. The worth at the
time of the award of the amount referred to in subparagraph
(3) of subdivision (a) of Section 1951.2 of the California
Civil Code shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at
the time of the award plus 1%. Any proof by Tenant of the
amount of rental loss that could be reasonably avoided shall
be made in the following manner: Landlord and Tenant shall
each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and
in the same geographic vicinity and such two real estate
brokers shall select a third licensed real estate broker and
the three licensed real estate brokers so selected shall
determine the amount of rental loss that could be reasonably
avoided for the balance of the term of this Lease after the
time of award. The decision of the majority of said licensed
real estate brokers shall be final and binding upon the
parties hereto. Should Landlord, following any breach or
default of this Lease by Tenant, elect to keep this Lease in
full force and effect, with Tenant retaining the right to
possession of the Premises (notwithstanding the fact the
Tenant may have abandoned the leased Premises), then Landlord,
besides the rights and remedies specified in Section 1951.4 of
the California Civil Code and all other rights and remedies
Landlord may have at law or equity, shall have the right to
enforce all of Landlord's rights and remedies under this
Lease, including but not limited to the right to recover the
installments of rent as they become due under this Lease.
Notwithstanding any such election to have this Lease remain in
full force and effect, Landlord may at any time thereafter
elect to terminate Tenant's right to possession of said
Premises and thereby terminate this Lease for any previous
breach or default which remains uncured, or for any subsequent
breach or default.
(b) Landlord shall not be in default unless Landlord fails to
perform obligations required within a reasonable time, but in
no event later than thirty (30) days after written notice by
Tenant to Landlord and to the holder of any mortgage or deed
of trust encumbering any portion of the Premises whose name
and address shall have theretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform
such obligations; provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days
are required for performance then Landlord shall not be in
default if Landlord commences performance within such 30-day
period and thereafter diligently pursues the same to
completion within a reasonable time thereafter.
DAMAGE BY
FIRE, ETC. 25. If the Premises are or the Building is damaged by fire or
other casualty which is fully covered by insurance, Landlord
shall forthwith repair the same, provided such repairs can be
made within sixty (60) working days from the date of such
damage under the laws and regulations of the state, federal,
county and municipal authorities having jurisdiction thereof,
and this Lease shall remain in full force and effect during
the making of such repairs, except that Tenant shall be
entitled to a proportionate reduction of Base Rent while such
repairs are being made provided that none of the damage was
attributable to Tenant's, or its subtenants or assigns, or any
of their respective agents, representatives, contractors,
employees or invitees, negligent or willful act (each an act
of "Tenant's Negligence"), such proportionate reduction to be
based upon the full extent to which the making of such repairs
shall interfere with the business carried on by Tenant in the
Premises. If such repairs are not fully covered by insurance
or cannot be made within sixty (60) working days from the date
of such damage, Landlord shall have the option either (1) to
repair or restore such damage, this Lease continuing in full
force and effect, but the Base Rent to be proportionately
reduced as hereinabove in this paragraph provided no such
damage was attributable to Tenant's Negligence, or (2) to give
notice to Tenant at any time within thirty (30) working days
after the date of such damage
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terminating this Lease as of a date to be specified in such
notice, which date shall be not less than thirty (30) nor more
than sixty (60) working days after the giving of such notice.
In the event of the giving of such notice of termination by
Landlord, this Lease and all interest of Tenant in the
Premises shall terminate on the date so specified in such
notice, and the rent, reduced by a proportionate reduction in
Base Rent as determined in the same manner as hereinabove
provided in this paragraph provided no such damage was
attributable to Tenant's Negligence, shall be paid up to date
of such termination. Landlord shall not be liable for or be
required to repair any injury or damage by fire or other cause
to the property of Tenant, or to make repairs or replacements
of any panelings, decorations, railings, floor coverings or
any equipment or improvements installed on the Premises by
Tenant. Tenant hereby waives any and all rights it may have
to terminate this Lease pursuant to California Civil Code
Sections 1932 or 1933(4), or any other successor or similar
law, statute or ordinance now or hereafter in effect, due to
either (i) the failure by the Landlord to, within a reasonable
period of time after request, fulfill its obligations, if any,
as to placing and securing the Tenant in the quiet possession
of the Premises, or putting the Premises into good condition
or repairing, or (ii) the perishing of the Premises, or a
portion thereof, from any cause other than the want of
ordinary care by the Tenant.
EMINENT
DOMAIN 26. If all or any part of the Premises shall be taken or
appropriated by any public or quasi-public authority under the
power of eminent domain, and such taking will substantially
impair Tenant's use of the Premises for more than one hundred
eighty (180) days, either party hereto shall have the right,
as its option, to terminate this Lease. If all or any part of
the Building of which the Premises are a part shall be taken
or appropriated by any public or quasi-public authority under
any power of eminent domain, Landlord may terminate this
Lease. In either of such events, Landlord shall be entitled
to and Tenant upon demand of Landlord shall assign to Landlord
any rights of Tenant to any and all income, rent, award, or
any interest therein whatsoever which may be paid or made in
connection with such public or quasi-public use or purpose,
and Tenant shall have no claim against Landlord or the
condemnor for the value of any unexpired term of this Lease.
If a part of the Premises shall be so taken or appropriated
and neither party hereto shall elect to terminate this Lease,
the rent thereafter to be paid shall be equitably reduced.
RIDERS 27. Riders, if any, affixed to this Lease are a part hereof.
SALE BY
LANDLORD 28. In the event of a sale or conveyance by Landlord of the
Building, the same shall operate to release Landlord from any
future liability upon any of the covenants or conditions,
express or implied, herein contained in favor of Tenant, and
in such event Tenant agrees to look solely to the
responsibility of the successor in interest of Landlord in and
to this Lease. If any security be given by Tenant to secure
the faithful performance of all or any of the covenants of
this Lease on the part of the Tenant, Landlord may transfer
and/or deliver the security, to the successor in interest of
Landlord, and thereupon Landlord shall be discharged from any
further liability in reference thereto. Except as set forth
in this Paragraph 28, this Lease shall not be affected by any
such sale or conveyance.
ESTOPPEL
CERTIFICATES 29. At any time and from time to time, upon not more than
ten (10) days prior requested by Landlord, Tenant shall
execute, acknowledge and deliver to Landlord a statement
certifying the date of commencement of this Lease, stating
that this Lease is unmodified and in full force and effect
(or if there have been modifications, that this Lease is in
full force and effect as modified and the date and nature of
such modifications) and the dates to which the rent has been
paid, and setting forth such other matters as may reasonably
be requested by Landlord. Landlord and Tenant intend that
any such statement delivered pursuant to this paragraph may
be relief upon by any mortgagee or the beneficiary of any
Deed of Trust or by any purchaser or prospective purchaser of
the Building.
RIGHT OF
LANDLORD
TO PERFORM 30. All covenants and agreements to be kept or performed by
Tenant under any of terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense and without any
abatement of rent. If Tenant shall fail to pay any sum of
money, other than rent, required to be paid by it hereunder
or shall fail to perform any other act on its part to be
performed hereunder, and such
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failure shall continue for ten (10) days after notice thereof
by Landlord, Landlord may, but shall not be obligated to, and
without waiving any default of Tenant or releasing Tenant
from any obligations of Tenant hereunder, make any such
payment or perform any such other act on Tenant's part to be
made or performed as in this Lease provided. All sums so
paid by the Landlord and all necessary incidental costs,
together with interest thereon at the lesser of (i) eighteen
percent (18%) per annum, or (ii) the maximum interest rate
permitted by law from the date of such payment by Landlord
until reimbursed to Landlord, shall be paid to Landlord
forthwith on demand, and Landlord shall have (in addition to
any other right or remedy of Landlord) the same rights and
remedies in the event of nonpayment thereof by Tenant as in
the case of default by Tenant in payment of rent.
ATTORNEY
FEES 31. If either Landlord or Tenant shall obtain legal counsel
or bring an action against the other by reason of the breach
of any covenant or warranty hereof, or otherwise arising out
of this Lease, the unsuccessful party shall pay to the
prevailing party reasonable attorney's fees, which shall be
payable whether or not any action is prosecuted to judgment.
The term "prevailing party" shall include, without
limitation, a party who obtains legal counsel or brings an
action against the other by reason of the other's breach or
default and obtains substantially the relief sought, whether
by compromise, settlement or judgement.
SURRENDER
OF PREMISES 32. The voluntary or other surrender of this Lease by Tenant
or mutual cancellation thereof shall not work a merger and,
at the option of Landlord, shall terminate all or any
existing subleases or subtenancies, or at the option of
Landlord, may operate as an assignment to Landlord of any or
all such subleases or subtenancies.
WAIVER 33. The waiver by Landlord or Tenant of performance of
any term, covenant or condition herein contained shall not be
deemed to be a waiver of such term, covenant or condition or
any subsequent breach of the same or any other term, covenant
or condition herein contained. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver
of any preceding breach by Tenant of any term, covenant or
condition of this Lease, other than the failure of Tenant to
pay the particular rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance
of such rent.
NOTICES 34. All notices and demands which may or are required
to be given by either party to the other hereunder shall be
in writing. All notices and demands by Landlord to Tenant
shall be delivered personally or sent by United States
certified or registered mail, postage prepaid, addressed to
Tenant at the Premises, or to such other place as Tenant may
from time to time by like notice designate. All notices and
demands by Tenant to Landlord shall be sent by United States
certified or registered mail, postage prepaid, addressed to
Landlord at 777 California Avenue, Palo Alto, CA 94304 or to
such other place as Landlord may from time to time by like
notice designate.
NOTICE OF
SURRENDER 35. At least one hundred eighty (180) days before the last
day of the Lease Term hereof, Tenant shall give to Landlord a
written notice of intention to surrender the Premises on that
date, but nothing contained herein or any failure to give
such notice shall be construed as an extension of the term
hereof or as consent of Landlord to any holding over by
Tenant.
DEFINED
TERMS AND
MARGINAL
HEADINGS 36. The words "Landlord" and "Tenant," as used herein shall
include the plural as well as the singular. Words used in
masculine gender include the feminine and neuter. If there
be more than one Tenant, the obligations hereunder imposed
upon Tenant shall be joint and several. The marginal
headings and titles to the paragraphs of the Lease are not a
part of this Lease and shall have no effect upon the
construction or interpretation of any part of hereof.
TIME AND
APPLICABLE
LAW 37. Time is of the essence of this Lease and each and all of
its provisions. This Lease shall in all respects be governed
by the laws of the state in which the Premises are located.
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SUCCESSORS 38. Subject to the provisions of Paragraph 14 hereof, the
covenants and conditions herein contained shall be binding
upon and inure to the benefits of the heirs, successors,
executors, administrators and assigns of the parties hereto.
ENTIRE
AGREEMENT 39. This Lease constitutes the entire agreement between
Landlord and Tenant and not promises or representations,
express or implied, either written or oral, not herein set
forth shall be binding upon or inure to the benefit of
Landlord or Tenant. This Lease shall not be modified by any
oral agreement, either express or implied, and all
modifications hereof shall be in writing and signed by both
Landlord and Tenant.
LATE
CHARGES 40. In the event Tenant shall fail to pay any rents or other
sums due hereunder on or before the date which is five (5)
days after Landlord notifies Tenant in writing that such rent
or other sum is due and owing, then and in that event the
amount so due and unpaid shall bear a late charge equal to
five percent (5%) of the amount due together with interest
accruing from the date due at the lesser of (i) eighteen
percent (18%) per annum, or (ii) the maximum interest rate
permitted by law, which late charge and interest shall be
payable forthwith upon demand. Tenant acknowledges and
agrees that any default on any payment, or portion thereof,
due hereunder will result in losses and additional expenses
to Landlord in servicing indebtedness, and in losses due to
Landlord's loss of the use of funds not timely received.
Tenant further acknowledges and agrees that in the event of
any such default, Landlord would be entitled to damages for
the detriment proximately caused thereby, but that it would
be extremely difficult and impracticable to ascertain the
extent of or to compute such damages. Tenant acknowledges
and agrees that the late charge and interest calculated at
the rate set forth above and agreed to hereunder represents
the reasonable estimate of those damages which would be
incurred by Landlord, and a fair return to Landlord for the
loss of the use of the funds not timely received from the
Tenant on account of a default by Tenant as herein specified,
as established by Tenant and Landlord through good faith
consideration of the facts and circumstances surrounding the
transactions contemplated under this Lease as of the date
hereof, but that such late charge and interest are in
addition to, and not in lieu of, any other right or remedy
available to Landlord under this Lease or at law.
Notwithstanding any of the other provisions set forth in this
paragraph 41, Landlord agrees to pay the costs to have one
male and one female bathroom located in the Premises comply
with the requirements of the Americans with Disabilities Act
of 1990; provided, however, in no event shall Landlord be
responsible for any such costs necessitated by any new
improvements to be made to the Premises by Tenant.
TENANT
IMPROVE-
MENTS 41. Landlord shall deliver the Premises in its current "as
is" "where is" condition, including, without limitation "as
is" "where is" as to latent and patent defects, if any,
without any representations or warranties by the Landlord of
any kind or nature whatsoever. Notwithstanding any of the
other provisions set forth in this Paragraph 41, Landlord
agrees to pay the cost, if any, to have one male and one
female bathroom located in the Premises comply with the
requirements of the Americans With Disabilities Act of 1990;
provided, however, in no event shall Landlord be responsible
for any additional costs necessitated by any new improvements
to be made to the Premises by Tenant.
HAZARDOUS
AND TOXIC
MATERIALS 42. Except for the Permitted Uses (as described in
subparagraph (j) below), Tenant shall not cause or permit any
Toxic Materials (as hereinafter defined ) to be brought upon
kept or used in or about the Premises, the Building or any
portion of the Property by Tenant, or its agents, employees,
contractors or invitees, without the prior written consent of
Landlord, and any mortgagee of Landlord, which consent
Landlord shall unreasonably withhold so long as Tenant
demonstrates that such Toxic Materials, and the quantities
thereof, are necessary or useful to Tenant's business and
will be used, kept, stored and disposed of in a manner that
fully complies with all Laws.
(a) COMPLIANCE WITH LAWS. In addition to all other
obligations of Tenant under this Lease, Tenant shall comply
at its sole cost and expense with any and all Laws relating
to the receiving, handling, use, storage, accumulation,
transportation, generation, spillage, migration, discharge,
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release and disposal of any flammable, combustible,
explosive, infectious, corrosive, caustic, irritant, strong
sensitizing, carcinogenic or radioactive materials, hazardous
wastes, hazardous substances, toxic substances or related
materials used by Tenant which are now or in the future
regulated under any Law. Such materials and substances are
hereinafter collectively referred to as "Toxic Materials."
Tenant shall become aware of the content of such Laws and all
other Laws regulating Toxic Materials enforced by, but not
limited to, the Santa Clara County Health Department,
California Regional Water Quality Control Board, California
Department of Health Services, United States Environmental
Protection Agency and all city, county, state and federal
offices enforcing regulations concerning Toxic Materials
occupational safety or health. It shall be the sole
obligation of Tenant to obtain any and all permits and
approvals required pursuant to the Laws.
(b) INDEMNITY. Tenant shall be solely responsible for and
shall indemnify, protect, defend and hold harmless Landlord
and its partners and their respective agents, employees,
representatives, directors, officers and shareholders
(collectively hereinafter referred to as the "Indemnitees")
from and against any and all claims, costs, penalties, fines,
losses (including, without limitation, (1) diminution in
value of the Premises, the Building or the Property, (2)
damages for the loss or restriction on use of rentable or
usable space or of any amenity of the Premises, the Building
or the Property, (3) all costs incurred in connection with
any investigation of site conditions, cleanup, remediation,
removal or restoration work required by any governmental
entity or any mortgagee of Landlord, and (4) sums paid in
settlements of claims, attorney's fees, court costs,
consultant fees and expert fees, liabilities, damages,
injuries, causes of injuries, causes of action, judgments,
and expenses which arise during or after the term of this
Lease as a result of the receiving, handling, use, storage,
accumulation, transportation, generation, spillage,
migration, discharge, release or disposal of Toxic Materials
in, upon, about or under the Premises, the Building or the
Property, or any adjoining property or properties, by Tenant
or any of its subtenants or assigns, or any of their
respective agents, employees, representatives, contractors,
licensees or invitees. This indemnification by Tenant under
this Paragraph 42(b) shall survive the termination or
expiration of this Lease.
(c) NOTICES AND CONSENT. Tenant shall immediately provide
Landlord with telephonic notice, which shall later be
confirmed by written notice, of any and all accumulation,
spillage, discharge, release, migration or disposal of Toxic
Materials onto or within the Premises, the Building or the
Property and any injuries or damages resulting directly or
indirectly therefrom. Tenant shall deliver to Landlord each
and every notice or order received from governmental agencies
concerning Toxic Materials and the possession, uses and/or
disposal thereof promptly upon receipt of each such notice or
order.
(d) STORAGE AND USE OF TOXIC MATERIALS. Subject to the
Permitted Uses, Tenant shall store in appropriate leak-proof
containers, or in any other manner approved or prescribed by
Laws, any and all Toxic Materials permitted within the
Premises pursuant to this Lease, which if discharged or
emitted into the atmosphere, upon the ground or into or on
any body of water does or may (1) pollute or contaminate the
same, or (2) adversely affect the (a) health, safety or
welfare of persons, whether on the Premises or elsewhere, or
(b) the condition, use or enjoyment of the Premises, the
Building or the Property, or any real or personal property
whether on the Premises, within the Building or the Property
or anywhere else, or (c) the Premises or any of the
improvements hereto or thereon or the Building or the
Property.
(e) DISPOSAL OF TOXIC MATERIALS. Notwithstanding anything
to the contrary contained in this Paragraph 42, Tenant shall
not dispose of any Toxic Materials, including the Permitted
Uses, regardless of the quantity or concentration, within the
drains and plumbing facilities within the Premises, the
Building or the Property or other property of Landlord unless
such disposal is expressly and clearly permitted by all Laws
without permit or license, or if Tenant has validly obtained
all permits or licenses required by any Laws for such
disposal and will perform such disposal in the manner
required by all Laws. All Toxic Materials, including the
Permitted Uses, which are not permitted to be disposed into
the plumbing facilities or for which Tenant has not obtained
any
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required permit or license, shall be in approved
containers and removed from the Premises only by licensed
carriers. If Tenant becomes aware of or suspects the
presence of any hazardous substance existing within or coming
onto the Premises, the Building or any portion of the
Property, Tenant shall immediately give written notice of
such condition to Landlord as required by California Health
and Safety Code 25359.7 and any other applicable Laws.
(f) SAFETY. Tenant shall maintain Material Safety and Data
Sheets for all Toxic Materials brought onto the Premises, the
Building or the Property. Such information shall be kept
current at all times and shall be kept in a place accessible
to Landlord at any time for inspection and in the event of
any emergency.
(g) FEES, TAXES AND FINES. Tenant shall pay, prior to
delinquent, any and all fees, taxes (including, without
limitation, excise taxes) to Toxic Materials, and shall not
allow such obligations to become a lien or charge against the
Premises, the Building, the Property or upon any other
property of Landlord.
(h) DELIVERY OF DOCUMENTATION. Tenant shall deliver to
Landlord true and correct copies of all permits related to
the handling, storage, disposal or discharge of Toxic
Materials used on or about the Premises by Tenant, its
agents, employees, contractors, licensees or invitees
promptly upon receipt. Within ten (10) days after the
request of Landlord, Tenant shall provide Landlord with
copies of all other reports, plans and correspondences
related to the use or existence of Toxic Materials in or
about the Premises received from any governmental agency.
(i) EXPIRATION OF TERM OF LEASE. On or before the
expiration of this Lease, Tenant shall take any and all
action required to be taken under the Laws in order to
surrender the Premises, including such portions of the
Building and the Property which are subject to this Lease, to
Landlord in a condition which would be completely free of any
and all Toxic Materials used by Tenant and attributable to
such use.
(j) LIST OF CHEMICALS. Tenant represents and warrants that
as of the date of this lease, the only chemicals and gases,
other than normal office supplies, which are used in
connection with Tenant's business are set forth in Exhibit
"D" attached hereto (the "Permitted Uses"). In addition, the
maximum quantities of these substances to be stored or used
on the Premises shall not exceed the specific quantities
listed in Exhibit "D". Tenant further represents and
warrants that its business consists primarily of the uses set
forth on the Reference Page of this Lease, and that the
chemicals listed in Exhibit "D" are used solely to accomplish
such use. Tenant anticipates that other products similar to
those listed in Exhibit "D" may be used in the future in
similar quantities, and Landlord agrees to permit such uses
provided Tenant complies with the provisions of this
Paragraph 42 in the use, handling, storage and disposal
thereof. In the event the scope or nature of Tenant's
business materially changes after the date of this Lease,
Landlord shall have the right to require Tenant to secure
Landlord's permission to bring upon, use or store any Toxic
Materials on the Premises, Building or the Property, and
Tenant agrees to notify Landlord in writing prior to any such
change.
(k) INSPECTION. Landlord or its agents may inspect the
Premises as and when desirable, in its sole discretion, to
determine whether Tenant is strictly complying with the
provisions of this Paragraph 42, for such chemicals to be
stored or used on or about the Premises; provided that such
inspections shall not disrupt Tenant's business operations.
(l) NON-LIABILITY OF TENANT. Landlord agrees that Tenant
shall have no responsibility for (i) the receiving, handling,
use, storage, accumulation, transportation, generation,
spillage, migration, discharge, release or disposal of Toxic
Materials in, upon, about or under the Premises, Building or
Property by Landlord or any of its agents, employees or
contractors in violation of any applicable Law, or (ii)
unless same is caused by Tenant, or any of its subtenants or
assigns, or any of their respective agents, employees,
contractors, licensees or invitees, the migration of any
Toxic Materials from properties other than the Property to
the Property.
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TENANT'S
TERMINATION
RIGHT 43. Tenant, at its sole option, shall have the right to
terminate this Lease at any time on or after the expiration
of the thirtieth (30th) month of the lease Term by providing
Landlord not less than six (6) months prior written notice of
same, provided that Tenant, simultaneously with its delivery
of such notice to Landlord, delivers to Landlord, in
consideration of Tenant terminating the Lease and as a fee
therefor, the sum of One Hundred Ten Thousand Eight Hundred
Seventy Eight Dollars and Forty Three Cents ($110,878.43) by
certified check or wire transfer of funds as consideration
for its early termination of this Lease; provided, however,
if Tenant exercises its rights hereunder to terminate this
Lease subsequent to the expiration of such thirtieth (30th)
month of the Lease Term, such termination fee shall be
reduced by the sum of One Thousand Seventy Nine Dollars and
Thirty Five Cents ($1,079.35) for each full calendar month
that this Lease remains in effect subsequent to the
expiration of such thirtieth (30th) month of the Lease Term.
PROHIBITION
AGAINST
RECORDING 44. Neither this Lease, nor any memorandum, affidavit or
other writing with respect thereto shall be recorded by
Tenant or by anyone acting through, under or on behalf of
Tenant, and the recording thereof in violation of this
provision shall make this Lease null and void at Landlord's
election.
DELIVERY
FOR
EXAMINATION 45. Submission of this instrument for examination or
signature by Tenant shall not bind Landlord in any manner,
and no lease or obligations of Landlord shall arise until
this instrument is executed and delivered by both Landlord
and Tenant.
APPLICATION
OF
PAYMENTS 46. Landord shall have the right to apply payments received
from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of
Tenant hereunder, in such order and amounts as Landlord, in
its sole discretion, may elect.
TENANT
WAIVERS 47. Tenant waives (for itself and all persons claiming
Tenant) the provisions of (i) Section 1265.130 of the
California Code of Civil Procedure, or any successor or
similar law allowing either party to petition the Superior
Court, or any other court, to terminate this Lease in the
event of a partial taking of the Premises by condemnation,
(ii) any right of redemption or reinstatement of Tenant under
any present or future case law or statutory provision
(including Sections 473 and 1179 of the California Code of
Civil Procedure and Section 3275 of the California Civil Code
or any successor or similar law) in the event Tenant is
dispossessed from the Premises for any reason, (iii) Section
1950.7 of the California Civil Code or any successor or
similar law, and all other provisions of law which in any way
limit Landlord's right to claim from a security deposit, it
being understood that Landlord may claim those sums
reasonably necessary to compensate Landlord for any loss or
damage, foreseeable or unforeseeable, caused by the act or
omission of Tenant, or any officer, employee, agent or
invitee of Tenant, and (iv) the right to trial by jury in the
event of any litigation to which Tenant and Landlord are
parties in respect of any matter arising under this Lease,
whether or not such other persons are also parties thereto.
This waiver applies to future statutes enacted in amendment
or modification of, or in substitution for, the statutes
specified herein.
LIABILITY
OF
LANDLORD 48. Tenant agrees that Landlord shall not be personally
liable for any obligations under this Lease but that Tenant
shall look solely to Landlord's interest in the Building for
satisfaction of any liability related thereto.
TENANT
COVENANTS 49. Tenant represents and warrants to Landlord that it has
obtained all approvals required in order for it to execute
this Lease and each person executing this Lease represents
and warrants to Landlord that they are fully authorized by
Tenant to execute same.
BROKER 50. Landlord and Tenant each represent and warrant to each
other that no broker or finder is entitled to any commission
or finder's fee due to each of their respective acts or
dealings in connection with this Lease except for any
commission or finder's fee that may be due to CPS whose fee
shall be paid by Landlord pursuant to separate agreement with
CPS. CPS shall be responsible for payment of any commission
or fee to CB. Landlord and Tenant each agree to indemnify,
defend, protect and hold the other harmless from and against
any and all loss, cost, damage or expense, including, without
16
<PAGE>
limitation, attorney's fees and costs and court costs arising
out of or incurred in connection with any claim made by any
broker or finder for commissions or finder's fees based upon
any acts or dealings of the indemnifying party.
SIGNAGE 51. Tenant shall not install any signs upon Premises or the
exterior of the Building without Landlord's prior written
consent, which consent shall not be unreasonably withheld
provided same conforms to existing building standard signage.
If Landlord shall consent to any sign, upon termination of
the Lease Term, Tenant shall remove said sign and restore the
Premises and/or the Building in accordance with the
provisions of Paragraph 10 or, at Landlord's option, said
sign shall become part of the realty and belong to Landlord
without compensation to Tenant and title shall pass to
Landlord under this Lease.
PARKING 52. Tenant shall have the right to the non-exclusive use of
ninety one (91) parking spaces located within the parking lot
for the Property. Landlord reserves the right to grant
exclusive use of portions of the parking lot for the property
to tenants and any other properties with whom Landlord may
contract.
ADDITIONAL
PROVISIONS 53. The exhibits and/or addenda listed below are
incorporated by reference in this Lease:
REFERENCE PAGE
--------------
Exhibit A Description of Premises
Exhibit B Rules & Regulations
Exhibit C Floor Plan
Exhibit D Permitted Uses Regarding Toxic Materials
Exhibit E Confirmation of Commencement Date
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and
year first above written.
LANDLORD TENANT:
WHITECLIFFE I APARTMENTS, LTD., ROCKSHOX, INC.,
A CALIFORNIA LIMITED PARTNERSHIP A DELAWARE CORPORATION
BY: HANOVER PROPERTY COMPANY, BY: /s/ STEPHEN W. SIMONS
A CALIFORNIA CORPORATION, --------------------------
F/K/A ESSEX PROPERTY CORPORATION, DATE: October 23, 1995
A CALIFORNIA CORPORATION,
ITS GENERAL PARTNER
BY: ESSEX MANAGEMENT CORPORATION,
A CALIFORNIA CORPORATION,
ITS AGENT
BY: /s/ George N. Kelly
--------------------------
DATE: Vice President
SEE YOUR ATTORNEY
This Lease should be given to your attorney for review and approval before
you sign it concerning the legal effect, legal sufficiency or tax
consequences of this Lease. These are questions for your attorney.
17
<PAGE>
EXHIBIT 21
Subsidiaries of
RockShox, Inc.
Subsidiary Country of Incorporation
---------- ------------------------
RockShox Foreign Sales Corporation Barbados
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated May 21, 1996, except for Note 14, as to which the date is June
24, 1996, on our audits of the financial statements and the financial statement
schedule of RSx Holdings, Inc. and Subsidiaries. We also consent to the
reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
San Jose, California
July 11, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM S-1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
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<SECURITIES> 0
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7,357
0
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<TOTAL-LIABILITY-AND-EQUITY> 26,932
<SALES> 83,509
<TOTAL-REVENUES> 83,509
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